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-fomc-corpus,1977,"Gentlemen, this meeting will now come to order, please. There are several items that I thought would be best taken up in executive session. And one of them is the agreement concluded by the central bankers in Basel concerning the establishment of a facility for handling official sterling balances. The agreement has been distributed to the members of the Committee. I hope you've all had an opportunity to review it. I'll call on Governor Wallich to summarize the essentials of this agreement in a few sentences. And then we will discuss it, and at the end of our discussion, I hope that someone will be good enough to move ratification of the agreement. Mr. Wallich, please.",135
-fomc-corpus,1977,"The purpose of the agreement--which exists in principle, and its main components remain to be finalized in a few details--is to reduce official sterling balances. These have been a disturbing element due to their volatility. The agreement provides that the BIS [Bank for International Settlements] will finance the Bank of England to the extent that these balances are reduced, except by bond funding and to the extent that the British reserves simultaneously go down. The details are to be worked out. If the BIS cannot fully carry through that financing, it has a fallback with respect to the participating central banks. Now, the Bank of England is committed to use its best efforts to reduce official sterling balances to working balances. First, by a funding operation offering some of the major holders of official balances 5- to 10- year bonds, 75 percent of which, at a maximum, would be in dollars, the rest in nondollar and nonsterling currencies. Second, whatever is left of the total balances after this operation, [the goal would be] to bring that down to the level of working balances. The detail of that is not described, but it could consist of various administrative measures. Broadly speaking, we're talking about something like PS2 billion sterling, or $3.4 billion [equivalent]; maybe half a billion pounds of that could be funded. Maybe something like PS1 billion might remain as working balances, and the other half billion would have to worked off over time. This is to be done in cooperation with and under the supervision of the Managing Director of the IMF [International Monetary Fund]. The Managing Director of the IMF will confer with the U.K. jointly with the governors of the participating central banks to observe the progress made. Should it turn out that progress is not satisfactory during the two years during which the stand-by agreement is in effect, or if the U.K. should become ineligible to draw under the IMF's stand-by during these two years, then the facility can be suspended. In that case, also, the amounts already drawn will be required to be repaid within 120 days unless the agreement is reconstituted. These are the principle parts of the agreement. Do you want me to go into the Treasury side of this?",452
-fomc-corpus,1977,"No, not at this point. We want to deal solely with the agreement drawn up at Basel by the central banks. Thank you, Mr. Wallich. Mr. Holmes, you worked hard on this--would you like to add any comment?",50
-fomc-corpus,1977,"I won't go into any details, but at the Basel meeting preceding the most recent one, a group of experts was set up that met in Paris on December 20 and 22, then again in Basel last Sunday. We started out with why there is disagreement, and ended up in the meeting last Saturday to agree on what we couldn't agree on and to give that to the governors to decide on. And we ended up with a very short document, rather than the usual lengthy report of experts, which I hope was useful to the governors. More importantly, though, with the bilateral discussions between the United States and the U.K., which were very intense--we met twice in London and once here and at great length to really work out to see if we couldn't narrow our own range of disagreement. And a lot of it was--it was a hard road, a tough road, but it was all done in a cordial sense. And that's all I need to say Mr. Chairman. Except that I would like to point out, I'm not sure Governor Wallich emphasized that the [IMF] Managing Director will be acting in a personal role in this, with the approval of the Managing Board and informing them of what he does. But with no role of the Managing Board of the IMF in making decisions.",261
-fomc-corpus,1977,"Thank you, Mr. Holmes. The only additional comment that I would make is that the present expectation--and it's an eminently reasonable expectation--is that the BIS will be able to meet any funds that the British may wish to acquire because of a rundown in the sterling balances. All the BIS has to do is enter the market and bid for deposits and make those funds available to the Bank of England. And therefore, the chances are that we at no point over the next two years will have to put up one penny. But, of course, it's a contingent liability, and we must be entirely clear on that. But the present expectation is that the BIS will be able to meet whatever credit needs Britain may have under this agreement, and the BIS will not find it necessary to call on us or on the other central banks that are parties to this undertaking. All right, are there any questions?",180
-fomc-corpus,1977,"Mr. Chairman, a clarification--our loan would be to the BIS rather than to the Bank of England, in case we're called upon?",28
-fomc-corpus,1977,"In case we're called upon, well, Henry would you answer that?",14
-fomc-corpus,1977,"That is correct. However, the BIS is obligated to repay only to the extent that it is being repaid by the Bank of England, except for its own small 4 percent share.",38
-fomc-corpus,1977,It doesn't [unintelligible].,8
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Which means, in effect, we'd be lending to the Bank of England.",15
-fomc-corpus,1977,"We would lend at our discount rate? Or our bill rate, or what? What would be the interest rate?",23
-fomc-corpus,1977,"Well, the first question is how the BIS establishes its rate with respect to the Bank of England. Then we would normally lend at the Treasury bill rate for swaps. If, for some reason, that's inappropriate because it would give the BIS, for instance, too large a margin, I'm sure we could adjust that.",63
-fomc-corpus,1977,It would come under our regular swap agreement with the BIS.,12
-fomc-corpus,1977,Which is ordinarily at the bill rate?,8
-fomc-corpus,1977,At the bill rate.,5
-fomc-corpus,1977,But there will be a uniform rate from the BIS to the British.,14
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"The rate may vary over time, depending on three-month--",12
-fomc-corpus,1977,I was thinking about the countries.,7
-fomc-corpus,1977,"Well, the other countries don't enter into the picture until the BIS has to draw on other countries. And as I said, that is really not at all likely to occur. The BIS will enter the market and will borrow funds, or attract deposits at a certain rate of interest. And the BIS will charge the Bank of England the rate of interest that it has to pay plus a certain commission, which may be 1/4 of 1 percent, maybe a little higher.",96
-fomc-corpus,1977,I see.,3
-fomc-corpus,1977,"Any other questions? Well, if there is no other question, would someone be good enough to move ratification of this agreement.",26
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,"Motion has been made. Any objection. I hear none, and let us pass now to an internal agreement, that is, a separate agreement that we at the Federal Reserve have with the U.S. Treasury. And that agreement is written out in a letter from Secretary Simon to me, dated January 14, 1977, along with my reply to the Secretary as of the same date. And this agreement is very simple, really. It's unequivocal. If the BIS draws on us, we could extend credit for up to a period of one year. And if the loan has to be extended, then the Treasury will take us out and assume that loan at the end of one year. Henry would you want to add to that description?",149
-fomc-corpus,1977,"Well, I don't think there's much to add. What we are doing is protecting ourselves as a central bank to make sure that this remains a short-term operation. We have a clear take-out.",39
-fomc-corpus,1977,"In this regard, you may recall the provision that we had for a take-out under an agreement with the Treasury--back in 1968, was it? Well, there was an obligation assumed by the Treasury in that year. And that undertaking by the Treasury has been subject to interpretation and misinterpretation; there were elements of ambiguity. [This] is an unconditional arrangement. Mr. Volcker.",81
-fomc-corpus,1977,"There is one aspect of this that I just feel I ought to comment on because as a matter of form it concerns me. In form, we have a take-out here after a year, but since the risk-sharing arrangement in the third indented paragraph here extends beyond a year, in substance we're left with the risks of the credit and, therefore, in substance to credit beyond a year.",78
-fomc-corpus,1977,For half of this.,5
-fomc-corpus,1977,"For half of it, that's right. For half of it.",13
-fomc-corpus,1977,"Well, I think that's true, but let's be clear about the risk. The risk is the Bank of England declares itself bankrupt, and I think that risk is a minimal risk.",36
-fomc-corpus,1977,"No, I think the risk is minimal--I would think the risk existed whether or not they were bankrupt. The loan may not stand for more than a year at the exchange rate--no, there's no exchange rate risk here.",46
-fomc-corpus,1977,No exchange rate risk whatever.,6
-fomc-corpus,1977,"No, that's right. That's right. No, I agree, the risk is very remote.",19
-fomc-corpus,1977,There would be a loss on this loan only if the Bank of England goes bankrupt.,17
-fomc-corpus,1977,That is correct.,4
-fomc-corpus,1977,Or repudiates its debt.,6
-fomc-corpus,1977,Correct.,2
-fomc-corpus,1977,"Or repudiates its debt without going bankrupt. After all, that's been done by Communist countries.",19
-fomc-corpus,1977,"I think this contingency is extremely remote. I have no doubt at all in my mind about that. But in form, the obligation really is for more than a year. I don't think we can kid it. I mean, I would have wished that the Treasury would have just taken over the thing at the end of the year in view of this very minimal risk, and it would have been much cleaner and reserved our one year as being much more--",90
-fomc-corpus,1977,"The Treasury wanted this paragraph since the agreement otherwise was entirely unconditional. And since I regarded the risk as minimal--and if the Bank of England repudiates its debt, then I think we'll be living in a very different world from any that you or I have known--I saw no reason to quarrel with the Treasury, since I had other quarrels on more important matters that were already resolved satisfactorily.",81
-fomc-corpus,1977,"Well, the risk is certainly minimal, and I don't want to suggest anything else, but as a precedent for the future and in form, I'm just a little unhappy about that particular aspect of it. I will desist, but I just wanted to record some unhappiness over that aspect of it.",59
-fomc-corpus,1977,"Well, I'm very glad that you've become--that you've thrown off your old Treasury garments completely, since you no longer even remember that no matter how this last paragraph is written, if there is a loss, well that's going to come out of the U.S. Treasury.",54
-fomc-corpus,1977,"That is correct, too. Put on my old clothes, and I would have been in the Treasury arguing that we should have taken all this risk after a year. I think it's entirely appropriate that they would have done so.",45
-fomc-corpus,1977,Are there any questions about this side agreement with the U.S. Treasury.,15
-fomc-corpus,1977,"I move ratification, Mr. Chairman.",9
-fomc-corpus,1977,"A motion has been made to ratify the agreement with the Treasury. Are there any questions or expressions of dissent? I hear none. And now I want to turn to the third item, which is a proposal for a warehousing agreement. And this is described in a letter from the Secretary of the Treasury, dated January 14, and a proposed reply under my signature dated January 17, which is today. And what the Treasury is suggesting is a warehousing arrangement for the Exchange Stabilization Fund of $1-1/2 billion, half of which would be available for a period of up to six months and the other half for a period of up to one year. Now I don't know if members of the Committee have received a document prepared by Mr. Morton of our staff, which gives the history of our warehousing of foreign currencies in the U.S. Treasury. It was first authorized by this Committee in November 1963, and in September 1968, the warehousing authorization was fixed at $1 billion for, I believe, a period of up to one year. The present requested or recommended authorization is larger, up to $1-1/2 billion. However, the period on the average is shorter, half of it for a period of six months, and half for a period of 12 months. Now, in discussion of this suggestion with Governor Lilly at the luncheon table, Governor Lilly raised the question about the period of agreement. And then, in the course of the discussion, it became clear that this Committee reviews its foreign currency directive, among others, annually in March, I believe. Therefore, any year in March, if there is some question about this warehousing arrangement, its extension into the future, any modification of it--that would be the time [for this Committee] to take it up, and that could then be negotiated with the Treasury in accordance with the wishes of the Committee. Would you like to add anything by way of explanation, Governor Wallich?",403
-fomc-corpus,1977,"I'm sorry, Mr. Chairman, I've been focusing on a problem which just came up and I didn't follow the discussion.",24
-fomc-corpus,1977,"Mr. Holmes, I hope you have followed the discussion. Would you like to add--",18
-fomc-corpus,1977,"Mr. Chairman, I hope the record will have your comments written in.",15
-fomc-corpus,1977,--would you wish to comment on it?,9
-fomc-corpus,1977,"No, it's quite obvious, Mr. Chairman, if we warehouse foreign exchange for the Treasury, that has a reserve impact. But we have no problems in offsetting that through domestic operations, and obviously this would be small compared to the normal swing in the Treasury balance. I think from the domestic side there is no problem, and we had no problem in warehousing before, so I have no problem all the way through.",85
-fomc-corpus,1977,"May I add something, Mr. Chairman? I think one has to be aware that this is not only an operation that has been performed before and, therefore, is not innovative. [But also,] it is not the kind of operation where the central bank makes a loan to the government, which typically gives concern. It is an operation performed under the foreign currency authorization, a purchase of currency, and in that respect, I think, does not carry the kind of connotation that a loan to the Treasury would.",104
-fomc-corpus,1977,"Well, as the first sentence in Mr. Morton's memorandum indicates, System warehousing of foreign currency involves simultaneous spot purchases and forward sales of foreign currency by the System with the U.S. Treasury.",40
-fomc-corpus,1977,These at identical rates? Spot purchases and forward sales at identical rates?,14
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,Always at identical rates.,5
-fomc-corpus,1977,"You involve the foreign currency in this case, though.",11
-fomc-corpus,1977,What?,2
-fomc-corpus,1977,We [unintelligible] involve the foreign currency in this case.,15
-fomc-corpus,1977,Why not?,3
-fomc-corpus,1977,It belongs to the BIS.,6
-fomc-corpus,1977,"No, no it doesn't.",6
-fomc-corpus,1977,Forget entirely the--,4
-fomc-corpus,1977,This is not linked to that [unintelligible].,12
-fomc-corpus,1977,This is not linked as such with the Basel agreement. The Treasury may find that the Exchange Stabilization Fund [ESF] is short of money for a great period.,34
-fomc-corpus,1977,"For other purposes, for any purpose?",8
-fomc-corpus,1977,"It may arise out of the new Basel agreement or any other purpose. And then the Treasury will turn to the Federal Reserve as its banker for short-term financing. I say ""would""--may turn to us.",42
-fomc-corpus,1977,It's almost a repurchase agreement.,7
-fomc-corpus,1977,"Yes,",2
-fomc-corpus,1977,It's what it is.,5
-fomc-corpus,1977,It's using a different instrument.,6
-fomc-corpus,1977,It has the same effect.,6
-fomc-corpus,1977,Enlarges the assets by 50%.,9
-fomc-corpus,1977,"It's not even tied to the sterling as such, although that may be the main asset at a given time in the ESF, but if the ESF has other currencies--any currencies [on which] there is an authorization to purchase can be made the object of the transaction.",56
-fomc-corpus,1977,"This would require, however, the Committee's authorization for purchase of this specific currency? In other words, it has to be a swap currency?",29
-fomc-corpus,1977,"Well, it has to be a swap currency for which a swap is authorized. Now, within the limits of the swap authorization, that is a do-able operation.",33
-fomc-corpus,1977,"It would not be possible for the Portuguese whatever, then?",12
-fomc-corpus,1977,"No, not without a new authorization.",8
-fomc-corpus,1977,It has to be a swap currency?,8
-fomc-corpus,1977,Of course.,3
-fomc-corpus,1977,The peso as such?,5
-fomc-corpus,1977,"To come under the law, it has to be a swap transaction, according to our lawyers. And as Mr. Broida points out to me in the projected letter that I would send to the Treasury, that projected letter says, ""the Federal Reserve will be prepared, if requested by the Treasury, to warehouse eligible foreign--""",67
-fomc-corpus,1977,Eligible.,2
-fomc-corpus,1977,Any questions about this warehousing arrangement?,8
-fomc-corpus,1977,How is this made known to the public? Is this released?,13
-fomc-corpus,1977,"This has been considered. We reviewed the 1968 undertaking, and that was disclosed fully to the public. That would be our intention now, subject only to some conversations with the Treasury. If the Treasury has cogent reasons for not disclosing it, we would have to take them into account. Now, I believe, Governor Wallich, you have discussed this question with Mr. Yeo of the Treasury.",83
-fomc-corpus,1977,"I had a preliminary conversation with Sam Cross. Mr. Yeo is travelling. The view is that as a general principle, they would like to publish. However, they would first like to see the final text, and second they'd like to touch base with the appropriate members of the Congress before that is done.",62
-fomc-corpus,1977,"Well, I think that's clearly appropriate because the members of the Congress like to know about these things before they read about it in the newspapers. And that presents no difficulty from our viewpoint because--Mr. Broida, am I right in thinking--it has 30 days?",56
-fomc-corpus,1977,"We have 30 days to publish the explanation in the policy record. We could at any time earlier put the text of the letters on file downstairs, but it need not be done before 30 days.",41
-fomc-corpus,1977,We could do that if the Treasury's made its clearing with the congressional--?,16
-fomc-corpus,1977,We could do that immediately.,6
-fomc-corpus,1977,Any other question about this arrangements?,7
-fomc-corpus,1977,"Well, my only question is something which we've talked before, and that's the enlargement of the ESF divorced from the Basel agreement. But given the restudy of this, or specific re-analysis in March, then I'll subside.",46
-fomc-corpus,1977,"Well, I think we ought to be careful about one thing. I spoke about the March date, but if we enter into an agreement today, I think that this agreement ought to be good until March 1978. I don't think we could very well go back to the Treasury--not this March.",61
-fomc-corpus,1977,"No, I meant March of next year.",9
-fomc-corpus,1977,That will be in a written record?,8
-fomc-corpus,1977,"It should be written-in that, in the normal course of events, as we consider our various directives, we'll take this up, among others. That should be reported to files.",36
-fomc-corpus,1977,Would you like a motion?,6
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,"A motion has been made that this agreement be entered into. Is there an objection? I hear none, and therefore, I'm going to sign it now and dispatch it to the Treasury since they're very nervous over there. I hope they've got somebody in the mail room.",53
-fomc-corpus,1977,I wonder where it goes--,6
-fomc-corpus,1977,"Opinion has been expressed by expert members of this Board that this isn't a loan. I just want to say that I'm going to withhold any such determination. It is in effect a loan. Until I talk to, if necessary, to experts whether this is a loan or a purchase of foreign currencies that the Treasury--",63
-fomc-corpus,1977,"I use ""repurchase agreement,"" you don't criticize that.",12
-fomc-corpus,1977,For 15 years we've been trying to--,9
-fomc-corpus,1977,The only way I've ever understood the whole swap network is in the language of loans.,17
-fomc-corpus,1977,"Mr. Chairman, I wonder if I could ask, in wrapping up on this subject, any overall evaluation you might have of the combination of the IMF and BIS facility to the U.K. in terms of the prospects of getting them out of their trouble. What the outlook is and how they got these two major new facilities?",65
-fomc-corpus,1977,My apologies to you. My attention was diverted; it seems Mr. Wallich set a precedent. Would you be good enough to repeat your question?,30
-fomc-corpus,1977,I was simply asking if you would care to give us your evaluation of the prospects for the U.K. now that they have both the IMF and the BIS facility?,33
-fomc-corpus,1977,"Well now, look, they have the IMF loan [at] 3.9 [percent]; they have a commitment from us and the Treasury amounting in the aggregate to $500 [million], they can draw on that. They have a supplementary commitment for $300 million by the Bundesbank. They now have this standby sterling balance facility of $3 billion. What does all this mean? Well, it means that their ability to borrow is enormous. How the markets will respond, I don't know. Now, there's been no great upsurge in the value of the pound sterling in the foreign exchange market. However, the sterling has strengthened, and the British have taken in recent weeks some $800 million. What are the prospects for Britain? If the figures that I have seen concerning revenues to be derived as a result of North Sea oil, [then] the balance of payments position of Britain starting next year should improve dramatically. Does that mean that the pound sterling will strengthen? It doesn't mean that at all because if Britain continues to inflate at a rate which exceeds the inflation rate of the rest of the world, the pound sterling will continue to depreciate in the foreign exchange markets. Now, the British along with most of the rest of mankind see borrowing more as a solution to their problem. That is a solution that our politicians and our economists and even our businesspeople these days turn to when we consider our own domestic affairs, and the same is true around the world. In my judgment, Britain will not be able to restore its economy until its budget is brought under control, until the present confiscatory taxation is drastically modified, and until all the nonsense about nationalizing industry comes to an end. These changes, I don't believe, will take place in Britain, and therefore, I can't be very sanguine about the prospects of the British pound, which is very sad, and I hope I'm wrong.",382
-fomc-corpus,1977,Thank you.,3
-fomc-corpus,1977,"Well, if there are no further questions about these foreign items, we have to return to consideration of the Government in the Sunshine [bill]. A question has arisen whether the FOMC is or is not covered by the Government in the Sunshine legislation. As of today, I'm not prepared to make any recommendation to the Committee because certain conversations that are under way with members of the Congress interested in this legislation are as yet uncompleted. And I will not be able to make a recommendation until I've gone further in consulting with members of the Congress who are following the Government in the Sunshine Act closely. Now, Mr. O'Connell will set forth the pros and cons as he now sees them. I hope the members of the Committee will listen very closely, and I shall want to get into the act at a certain stage, but I am not ready to make any recommendation because these conversations with congressmen, which bear critically on a decision, as I said, have not yet been conclusive. Mr. O'Connell, would you be good enough to proceed?",212
-fomc-corpus,1977,"Yes, Mr. Chairman. The issues to which I think attention should initially be addressed, Mr. Chairman, relate to the definition of ""agency"" as it's set forth in the statute [and] the question, Does the law apply to the Federal Open Market Committee? In essence, the requirement of the law is that every agency as defined in title 5 of the United States Code, the Administrative Procedure Act, must, after a stated date--March 12 of the next year--conduct, with certain stated exemptions, all of its meetings in open session. The exemptions, I think, are to be considered only after a body has determined whether it meets the statutory definition of agency. Now, as the Committee knows, Mr. Chairman, [the FOMC] has for purposes of other statutes assumed historically the status of an agency. Thus, under the Administrative Procedure Act, the Federal Open Market Committee is an agency, and we have thus taken that position. Under the Freedom of Information Act, the FOMC is an agency. So the question would arise, Would it not thus be the same under the [Government in the] Sunshine Act? Well, if I may, the term ""agency"" means any agency, as defined in the statute that I've identified, headed by a collegial body composed of two or more individual members, a majority of whom are appointed to such position by the President with the advice and consent of the Senate, and any subdivision thereof authorized to act on behalf of the agency. On the basis of a thorough study of this statute--of the legislative history, including the committee actions [and] committee reports from both the House and the Senate and [from] the conference committee that reported out this bill before its enactment into law, we have given a definitional judgment that the statute does not apply to the FOMC for the very simple reason that the definition of agency requires that the collegial members to whom reference is made be appointed to such position [by the President]. Now as the Committee is aware, this Committee is composed of the Board members and five Presidents of Reserve Banks. The members of the Board are appointed to the Board by the President with confirmation of the Senate. They are ex officio members of the FOMC. By that I mean they are members by statutory grant, not by direct appointment of the President. They are appointed to the Board and then statute makes members of the Board members of the FOMC. The issue of ex officio status was directly addressed by the sponsors of this bill, particularly Ms. Abzug, who was asked this question with respect to the National Security Council, the [Joint] Chiefs of Staff, and one or two other agencies. And after going through the same definition I've now discussed, she reached the decision, and stated as reported in the legislative history, that such members were not the collegial--appointed to such position--members called for in the statute, and thus such a group would not be an agency within the meaning of the statute. The question arises, Well, what about the phrase ""or subdivision of an agency, authorized to act on behalf of the agency?"" I think, immediately and clearly, the Federal Open Market Committee is not a subdivision or subsidiary of the Board. Obviously, the Committee is composed of its membership with its statutory functions directly in the language of section 12(a) of the statute. It is not a derivative of the [Board] by statute, although its membership is partly composed of members of the Board. That issue was discussed in the legislative history, and Ms. Abzug, again, who was the sponsor of the bill, made clear that the fact she referred to what is a happenstance of law, that membership is identically composed, does not fit the meaning of this term. And that therefore, such happenstance does not constitute a mandate of coverage by the statute. Mr. Chairman, the alternative, of course, is to assume this Committee had the question put to it [unintelligible] assume the status of a covered agency. I would raise [unintelligible] question as, not only to the desirability of such assumption, but of the ability of an administrative agency, as this Committee is for other purposes, and of the statute to assume coverage of a statute. One of the reasons I say this is that there are provisions in this bill that affect venue, jurisdiction, the right of courts of review, the methodology of review, the impact of timing on the agency to respond to suit, and even the right to bring suit on the part of a party. I don't know of the authority in a federal agency who has [unintelligible] question under an interpretation of the law to say as a matter of decisional act, let's apply the law to us with all of its benefits and with all of its adverse consequence. For instance, normally, if this agency were sued without stint of [the] Sunshine [Act]--just a suit brought, for instance, for declaratory judgment--I think a court of law might properly ask, how much time would the agency have to respond? The answer would be 60 days. It's an agency of the federal government, and under title 28 of the code, it has 60 days to respond. How many days did you take here? We took 28 because of this law. Therefore, you, by pulling the law over your shoulders, you've deprived your agency of roughly 32 days' time to answer. Who is your counsel? Well, the Department of Justice is our counsel. Did the Department concur that they were deprived of 32 days' time? No, they objected and said that we had 60 days. But since we assumed the status of an agency covered by this act, we were deprived of those 30 days. I raise this as an example of a jurisdictional ""pullover."" I question the right of an agency, be it this Committee or any other government agency, to deprive courts of other jurisdiction it might have, including appeal and other derivative procedural rights that are either granted or forbidden by the statute. I bring this to your attention only in the decisional basis. It is my belief that there is good, strong, statutory language reference, as well as the legislative history, to support the position that this agency, as an agency, is not covered by Sunshine. I've given you an example of the trouble I would have with a voluntary assumption of that status. There are a number of practical reasons, that I won't at this time take the Committee's time to discuss, that I think argue strongly not to legally take the position that the statute covers this agency. Now I say the latter for the simple reason that, I must advise, there is legislative history that, [it] can be argued, supports the legal position that this Committee is covered by [the] Sunshine [Act]. When I say that, I mean there are exchanges on the floor of the House and on the floor of the Senate in the nature of colloquy. They are not contained in committee reports officially reported on the statute. They are colloquy exchanges in which one member of the House asks a series of questions, for instance of the sponsor of the bill, and in asking the question [will make] reference specifically [to] the FOMC. And Ms. Abzug, in replying, used the term ""the FOMC,"" saying the FOMC would have no trouble, it could close all of those meetings. I am sure that these exemptions would cover the FOMC. So I bring to your attention my judgment that these discussions mark an assumed coverage of the FOMC status. [The colloquy exchanges] then answered other questions that [were] relevant to the inquiry then being made. In fairness, that's the reference I have to the fact that the legislative history does bear some suggestion of coverage, if you start with the assumed position that I have identified. On balance, I believe that the better position is that it is not covered and that there are good, salutary, functional reasons for following that position. And Mr. Chairman, these roughly are my comments on the background, and I'll go any length further that you wish.",1672
-fomc-corpus,1977,"Thank you very much. I have unavoidably become involved in the study of this problem in extensive conversations concerning it. And I don't have a single reason to question anything Mr. O'Connell has stated. But I do think we have a congressional problem, one that I'm trying to test. I'm not using the word resolve, because I don't think the question is of a sort that can be resolved--but it can be tested, and it can serve as a guide to a rational decision by us. What is the congressional problem? Well, it so happens that there are some members of the Congress, and particularly staff members, who are following the Sunshine legislation--what is being done under it--very closely, and who are concerned about any decision that we may make concerning the FOMC. Now if the conclusion were reached, by this or that influential congressman concerned with this legislation, that we're engaged in the circumvention of law, or that we're following the law strictly but that the law contains a loophole, then this or that interested congressman might propose an amendment to the Sunshine Act. And if that amendment is on the floor, an amendment designed simply to encompass the FOMC in the course of debate--as things happen in the Congress, we stand a chance of losing the two exemptions that we won last year and which make it really possible, at least as I see it, for the Federal Reserve System to function. And therefore, I have begun a series of conversations with key members of the Congress. I saw Congressman Fascell, who is the author of this legislation, or if not quite that, the chief intellectual exponent of it, in the House of Representatives. He's friendly, and he has no desire as such to present an amendment. But I now have to see Senator Chiles, Senator Ribicoff, Congressman Brooks, and, on the Republican side of the House of Representatives, Mr. Horton. I don't anticipate any difficulty, except perhaps with Senator Chiles. Senator Chiles, I hope I'm being fair to him, was the author of this legislation on the Senate side. He felt very unhappy about the amendments that we achieved in the Congress last year. He felt very strongly about the legislation as it was passed by the Senate originally. He might be described, perhaps unfairly, as being the theologian on this issue. If I succeed in persuading him that without coming formally under the Sunshine legislation we are not only adhering in full to the principles of the legislation, but going beyond it--I'll explain that in a moment--if I succeed in that mission, which I've set for myself with Senator Chiles, then I think Tom's recommendation is clearly the right one. If I fail, I'm not sure of a conclusion, but that is where my problems begin in making a recommendation to this Committee, and I'm not at [that] point. Now, in this Committee we are living strictly, I think, within the spirit of the Sunshine legislation. The exemption under the Sunshine law, I think, would make it possible for us to close every meeting. The law as written requires that a verbatim transcript of every meeting be kept or that carefully prepared minutes be written out. Well, certainly our secretarial staff is discharging the latter function--preparation of minutes--in exemplary fashion. Not only that, but the law does not require publication of the minutes, and we do publish the minutes. Not only do we publish them, but we publish them as promptly as is technically feasible. That is, within a period of something like 30 days. Therefore, we not only are living within the spirit of the Sunshine law but going beyond it. Now if a little speech like that will warm Senator Chiles's heart, and it's a factual statement, then I believe that we need not fear an amendment to the Sunshine law being proposed in the Congress. And we can adopt Mr. O'Connell's recommendation very comfortably. But as I stated, if Senator Chiles feels that here is a loophole in the legislation that must be closed, that he is going to propose an amendment--that raises a difficult political problem for us, a problem I've already stated. Namely, once an amendment comes to the floor, other amendments might be added; we might lose one or the other or both of the exemptions that we won last year after a most arduous battle in which all of you participated. And who knows, other burdensome amendments might be added. There is an element of hazard there. That's all I can say on the subject as of today.",921
-fomc-corpus,1977,Mr. Chairman.,4
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"If the Congress were to support the position that you've just outlined, isn't it still possible that suit can be filed by some people who aren't happy with that and take it to the courts? Or is that not a--",43
-fomc-corpus,1977,"May I address that, Mr. Chairman? It's a very good and realistic possibility that, at the time the Board of Governors issues its proposed regulations under Sunshine, which will be forthcoming within a very short period now to meet the March 1 deadline, that publication of those regulations and the absence of similar regulations on the part of this Committee could well draw an inquiry, then a demand, then a lawsuit, either to compel the issuance of regulations, as if this Committee were covered, or a suit to declare that the Committee is covered. Yes. And at a point in time the Chairman may perhaps wish to discuss a possible publication by this Committee of a document paralleling a regulation that would offset such a desire on the part of someone who would otherwise bring suit. Yes.",154
-fomc-corpus,1977,The suit might still be brought.,7
-fomc-corpus,1977,"It could. Certainly, Mr. Chairman. Yes?",11
-fomc-corpus,1977,When does the statute require that the regulation be published by an agency?,14
-fomc-corpus,1977,"There has to be a publication within a framework of 30 days for comment, then a review of the comments and a simultaneous oversight review by the Administrative Conference of the United States under the terms of the statute. [Conforming], then, to a 30-day statutory comment period, a 10- to 15-day period for the staff to review those comments, review by the Administrative Conference--you're into a two-month period. That means, then, if the regulations must be in effect by March 12, [then] at or about mid-January to the 20th of January is about the terminal date for getting them into the public arena.",133
-fomc-corpus,1977,"Which means that, if the decision of the Committee should be to come under the legislation, that we might be a little late in doing so, and this possibility was discussed with Congressman Fascell, who saw no difficulty.",44
-fomc-corpus,1977,"If we did publish a regulation and presumed that we were subject, the regulation would be of a very modest nature, is that correct Tom?",28
-fomc-corpus,1977,"At present, that is correct. The draft that I've drawn to date is much more modest then you might otherwise assume.",24
-fomc-corpus,1977,That's because of the exemptions? Is that what makes it modest? The two exemptions?,17
-fomc-corpus,1977,"No, no, the exemption is written into the Sunshine law. The basic exemption, that is, exemptions under which you can close meetings.",28
-fomc-corpus,1977,"Perhaps I didn't understand Governor Gardner's question. What do you mean ""modest""?",17
-fomc-corpus,1977,"Well, if we were by some mischance to be subject to the Sunshine, our regulation concerning open and closed meetings would almost be entirely closed meeting.",30
-fomc-corpus,1977,"I would like to think that it would be entirely, rather than almost entirely, even if we decide that we come under this act.",27
-fomc-corpus,1977,"But what would be the difference between being under Sunshine? You make the assumption you're under it vis a vis the way we're operating now. Forgetting all of those [unintelligible], what would be the basic difference?",45
-fomc-corpus,1977,"They are the legal questions, or possibly legal difficulties, that Tom will refer to, but I think we better go with that [assumption].",29
-fomc-corpus,1977,But those I don't--the ones that he listed in his opening remarks--,15
-fomc-corpus,1977,"Let Tom address them now, and then we'll return to your question.",14
-fomc-corpus,1977,"Addressing the question as I understand it, Governor, What would be the difference between being covered totally and technically under the law, and not being covered but adopting a position as though we were covered? Is that correct? The difference between these two positions?",51
-fomc-corpus,1977,That isn't my question.,5
-fomc-corpus,1977,"All right, sir.",5
-fomc-corpus,1977,"My question is, is there some fundamental operating difference--like the release of the minutes. Assuming that we could close the meetings, either being under the law or not under it, which I gather, is the fundamental difference, then in the one case we can wait 30 days and in the other case we couldn't?",64
-fomc-corpus,1977,"Addressing specifically the issue of the minutes, if we are covered by the statute, the makeup of the minutes in some respects wouldn't be as full as they presently are in our Record of Policy Actions. In other [respects], the law requires, for instance, that you identify every document that is before the Committee by name and title. Not so with respect to the minutes we now use. Once identified and in the record of the minutes, they are subject, of course, to FOI [Freedom of Information Act] demand for production of those documents. That's one distinction, or difficulty. Secondly, we believe that more-timely issuance of our Record of Policy Actions--30 days--might be accomplished than [for] the minutes under the statute. Under the statute, we probably could withhold publication of those minutes for much longer than 30 days--four months, five months--because of their still-sensitive nature. So, as it is presently, the minutes are so written as to not make specific disclosure of the name of the document, and we have no problem issuing in 30 days. There are other procedural impositions of the statute, Governor, that would facilitate lawsuits demanding certain documentation and opening of previously closed minutes that we would not [be] subject to were we not covered by the statute. There is item after item that I could take you through, were we covered, that make more difficult, more burdensome, [our] operation under the statute than if we were not under the statute but, in our own way, almost fully comply with the spirit of that statute. Does that respond to your question?",328
-fomc-corpus,1977,"If we decide that we are not an agency covered by the statute, but do decide to publish as a public gesture the Committee rules of procedure, we are then not constrained as to time by the Administrative Procedures Act or the Sunshine Act, and therefore, we could publish our own voluntary and gratuitous disclosure any time prior to the effective date without having any time constraints otherwise. Is that correct?",78
-fomc-corpus,1977,"As I understand your inquiry, we can have up until the eve of March 12 to issue whatever form of statement we intended to issue with respect to our proposed practices, that's correct. Thus, we could await the Board [of Governors] action in publishing a finally adopted set of regulations in final form, which might, say, come out the week before March 12, to issue our FOMC statement at the same time.",87
-fomc-corpus,1977,"Gentlemen, let me just interrupt. I don't know why I was favored with this cup of coffee, but I was so favored, and therefore, if any of the rest of you would like coffee, you will not be so favored, but the coffee is right there. And let's take perhaps a short break, coffee break, if you so wish. Gentlemen, the coffee break is at an end. We'll defer the question of the appeal until we've taken up on the Sunshine legislation, and then return to that. Well, I'm sorry, first, [about having] to bring Sunshine legislation back to the Committee; and second, [about] not being prepared to make a recommendation. I think we need to know more before we act. But any advice that you may have, any thoughts that you may have, would be very helpful at this time.",173
-fomc-corpus,1977,"Could I ask a question, Mr. Chairman? Would you feel you are able to describe what the [Federal Reserve] Board is going to do with respect to the regulation on its own? The Sunshine Act--you're not prepared to do that yet?",50
-fomc-corpus,1977,"No, that's a very good question, and I've issued instructions to the staff, and the instruction has been--draw up a set of rules and procedures. And work with it hard--the procedures should be such that Sunshine will be neither audible nor visible at the Board table. Or it'll be audible and visible only to the absolute minimum. Now and then, members of the staff have reported their progress, and I've expressed dissatisfaction in [unintelligible] way because they were drawing up rules of a kind that I thought would involve the Board in too much discussion, too many rules. And the rule of being inaudible and invisible was not being [observed] scrupulously or meticulously enough. Apart from these warnings that I've made repeatedly when I've heard about these rules, I don't know where they are now. Whether I, for one, am satisfied with them or not, I don't know. However, Tom O'Connell has worked on these rules, and perhaps you can indicate where they stand. This may or may not give me an opportunity to say that they are insufficiently inaudible.",223
-fomc-corpus,1977,"Under the circumstances, I should say we started with this and we're now about this [business]. That's about all I can say, Mr. Chairman. More directly, the Board has legal--",38
-fomc-corpus,1977,"But we have to live within the law. But, you know, there are ways of turning this into a grand ceremony or [instead] dealing with it in a way that satisfies the law [while] not obstructing Board business, in taking Board time, on minutiae of procedures.",58
-fomc-corpus,1977,"I trust that the document that is finally before the Board, subject to some continuing amendments to make more simple and less obtrusive the provisions of that regulation, will soon be considered by the Board. The regulations, I think I can say, President Eastburn, pretty well follow the exact mandated statute. What we've done is to put into regulatory form the substantive and procedural requirements of the statute as they apply particularly to the Board and its mode of meeting operation, providing for open meetings, closed meetings, and the parallel requirements of the preparation of transcripts of minutes, depending on the type of meeting that's closed; and otherwise providing for the procedural identified step of the advance requirement for notice of the meeting, the votes, and so forth. I hope that they closely adhere to the statute and that they don't go beyond that, thus following the mandate the Chairman has given in the adoption of them.",177
-fomc-corpus,1977,You might indicate what kinds of meetings will be open to the public.,14
-fomc-corpus,1977,"At this time the regulations clearly contemplate that matters dealing with consumer affairs, by their nature, will be open to the public. Otherwise, the Board's regulations announce its intent to close such meetings as are allowed in the other 9, really 10, total 10 exemptions of the statute. It is contemplated that, on the whole, more meetings of the Board will be closed than will be open, although there are specific matters that, subject to approval or adoption by the Board, will be open to the public, the OSCA [Federal Reserve Board's Office of Saver and Community Affairs]-type meetings, being an example of them.",128
-fomc-corpus,1977,"I think the Bank Presidents would be especially interested in the question of whether matters that come before Mr. Coldwell's committee [the Federal Reserve Board's Committee on Federal Reserve Bank Activities, or BAC] involving Federal Reserve Banks in general [and] Reserve Bank budgets in particular would be handled in open or in closed session--could you address this range of thinking?",72
-fomc-corpus,1977,"I could, Mr. Chairman--taking the specifics, for instance, of a personnel action, within a Reserve Bank, that is normally presented to [the] Board [of Governors] for confirmation or approval. It is hoped that, by definition of the exemption for personnel matters, which is found in the statute, such discussions by the Board could be closed. The issue of a Reserve Bank budget: There is no straight exemption for an agency's budget, or for a Reserve Bank budget, as would be the case here--[no provision] for closing such a meeting. However, depending on the nature of the item in the budget being discussed, for instance, if it involved or contemplated the acquisition of a building site, and so forth--items such as that, we believe, could [be covered] under one of the exemptions, such as section 9(b), [because] premature disclosure could place the agency at an operating disadvantage. We will look for such closure possibilities.",197
-fomc-corpus,1977,"Let me indicate this, too. If Federal Reserve Bank budgets were to be handled in an open meeting, then our public image, if nothing else, would require that we devote a good full day to consideration of those budgets. Otherwise, we're simply rubber stamping what a committee had done, and we're not doing our job.",64
-fomc-corpus,1977,"It is mostly likely that the [Bank Activities] Committee meeting would be open, too, under those circumstances.",22
-fomc-corpus,1977,"Now, I hope you would do more research on that question, because the Board does not have that much time. It's largely the [Bank Activities] Committee's job. The Board traditionally has not spent a day on the budget. Now maybe we should, but we don't have too much time. You know that this is a very hard-working Board.",70
-fomc-corpus,1977,"Well, Mr. Chairman, I believe that Governor Jackson's point was that if that particular budget examination were done by a committee of the Board, that if the Board were required to have an open session, so would the committee. I believe that was the point he was making.",56
-fomc-corpus,1977,"Well, then, maybe the [Bank Activities] Committee ought to be a smaller committee?",18
-fomc-corpus,1977,"It's possible. If it were, for instance, a one-man committee associated with staff of the agency, rather than three members of the Board, I believe that it escapes the definitional impact of the statute and would not be subject to the Sunshine Act.",51
-fomc-corpus,1977,"Suppose that we have a recommendation such as we had from the New York Bank, the Kansas City Bank, concerning new computers--now, would that have to come before the Board in open session?",40
-fomc-corpus,1977,"Mr. Chairman, the matter presently to the best of my understanding is delegated to the Bank Activities Committee for initial determination and a recommendation to this Board.",30
-fomc-corpus,1977,The final determination if it's within our limits?,9
-fomc-corpus,1977,"Final determination by the subcommittee within a certain dollar limit. If it came within that dollar limit, the decision could be made on delegated authority by the committee, [and] the committee would first have to ask, ""Must this be open to the public?"" It's the matter of the purchase of equipment. If there were nothing in that consideration, Mr. Chairman, the disclosure of which at that time would jeopardize the ability of the committee to direct and achieve a purchase within a given dollar amount, and it wouldn't adversely affect the competitive thrust of such proposal, it would have to be open to the public.",122
-fomc-corpus,1977,What about the question of the general level of salary increases or a guideline for salary increases within our Federal Reserve Banks?,23
-fomc-corpus,1977,"Two possible exemptions from open meeting, Mr. Chairman. Very briefly, one under exemption 2, relating solely to the internal personnel rules and practices of an agency. We would have to urge that a discussion of that matter, insofar as it relates to the Banks, would come within this exemption because we're a unified system, and that, this being a Bank personnel matter, [it] is also an agency personnel matter, namely of the [Federal Reserve] Board. If that were to fail, I would next turn to section 9(b) that says, you may keep a meeting closed if, in the case of an agency, disclosure would be likely to significantly frustrate implementation of a proposed agency action. If, by open discussion of this issue of salaries, namely, the level at which we are going to establish them, we [brought] into play competitive forces [acting on] what we perceive to be the market level, [and] that made it necessary for us to raise those salaries or otherwise adversely affected our action, [then] it's possible we could close the meeting; otherwise, it would have to be open.",229
-fomc-corpus,1977,"The best answer to this, Mr. Chairman, is to have one open [meeting], and then nobody would show up after that.",27
-fomc-corpus,1977,"Well, we haven't discussed regulatory matters, and a good deal of [the Federal Reserve] Board's time is spent on regulatory decisions. Tom, I believe that, because of the nature of such decisions, we could close those meetings.",47
-fomc-corpus,1977,Except in consumer areas.,5
-fomc-corpus,1977,"I'm talking about a bank holding company application, some matter involving individual institutions.",15
-fomc-corpus,1977,"I have no reason to believe, Governor Gardner, that in almost every case, such items could be [unintelligible] closed meetings. There is a requirement in the statute that goes beyond the conduct of the meeting itself, namely, either [a] transcript is prepared or, [if] the meeting is closed pursuant to one of four specific exemptions, you have minutes instead of a transcript. Any meeting that is closed pursuant to sections 7, 8, 9(a), or 10, you may have minutes. If those minutes or the transcript are later found to contain nonsensitive items, that is, conversations, references, or inclusions that were not subject to closure, that portion of the transcript or the minutes must be made promptly available to the public. Now that contains caution for the [Federal Reserve] Board and for the FOMC, should they come under the statute. The result would be, you could close the meeting, but immediately you must review the transcript to determine whether portions must be made available to the public.",211
-fomc-corpus,1977,"Tom, you didn't mention transcript when you were talking in terms of the possible implications [for] the Committee--is that because the exemptions make the minutes possible?",32
-fomc-corpus,1977,That's correct.,3
-fomc-corpus,1977,In both cases?,4
-fomc-corpus,1977,The nature of our closing exemptions would make minutes the name of the game.,15
-fomc-corpus,1977,But again you'd have the question of sensitive and nonsensitive parts in the minutes.,16
-fomc-corpus,1977,"Yes, you would.",5
-fomc-corpus,1977,"You have another question, which I probably can answer myself, but maybe I'd better get some guidance. If you have a consent calendar item, that is just as much a decision as a regular calendar item?",41
-fomc-corpus,1977,"Under the present format of the Board's operation, Governor, that is correct. It's possible, and this would be up to the Board and the Chairman, it's possible that consent calendar items can be [exempt] because [of] their nature, largely a circularization function as much as what was formerly known as a consent calendar. That [function] could thus remove those from any form of Board agenda.",82
-fomc-corpus,1977,So you don't have a Board meeting?,8
-fomc-corpus,1977,"That's correct. If they were the only items, and the Board adopted that method of circulating to the Board members for reading and for initial approval, the discussions in Congress indicated that this is perfectly appropriate.",40
-fomc-corpus,1977,Also dangerous.,3
-fomc-corpus,1977,"Mr. Coldwell, have you given any attention to these rules that the staff is working on?",20
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,Have you been involved?,5
-fomc-corpus,1977,"Yes. Governor Gardner, Mr. Allison, and I spent a couple of hours on this subject just prior to this meeting.",25
-fomc-corpus,1977,I hope you will find ways of dealing with Federal Reserve Bank problems so that as few of them as possible need to be handled in open session.,29
-fomc-corpus,1977,I think we have.,5
-fomc-corpus,1977,You think you've already done that.,7
-fomc-corpus,1977,"Well, we're headed in that direction. I'll let the Vice Chairman [of the Federal Reserve Board] speak on that subject.",25
-fomc-corpus,1977,"We have a plan. The problem, Mr. Chairman, as you know, is that if a committee, regardless of its size, is delegated to act for the Board, then it becomes subject to Sunshine by that delegation. So we are working on alternative ways. Now, a number of the Board committees--in fact, the majority--do not have delegated authority, and they can meet without violating any law in closed session because they're only advisers or what have you.",94
-fomc-corpus,1977,"You see, this question about Federal Reserve budgets disturbed me because these budgets are worked out very extensively by our staff. They're worked on very extensively by Mr. Coldwell's committee. I work on it to some degree with Mr. Coldwell outside the Board Room. The amount of time that has been spent by the Board as a whole on Federal Reserve Bank budgets hasn't been large because of all of these preparatory steps. All right, now you have an open meeting, and there may be some newspaper fellows there, and Mr. Gardner's Common Cause, and--what's this?--Ralph Nader's crowd, and what not. Here, let us say, we take up a budget coming to $600 million plus, and we do that within an hour, and, well, we'd look very bad. Therefore, if that were the case I would consider it my duty to just stretch it out over a day. Well, that's terrible. Then we'd look good or reasonably good in Mr. Nader's eyes, but we'd destroy or reduce our effectiveness. Now, there must be an answer to that. Well, we have enough ingenuity in this room, I think, to find the answer, but I don't think we have found it yet.",252
-fomc-corpus,1977,"In the process, too, Mr. Chairman, you end up publishing the budgets of the individual Federal Reserve Banks, which has never been done.",29
-fomc-corpus,1977,Well--,2
-fomc-corpus,1977,To the extent that those budgets can constitute documents before this Board.,13
-fomc-corpus,1977,"Well, if it's an open session?",8
-fomc-corpus,1977,Then they are exposed.,5
-fomc-corpus,1977,"We consider the budgets--well, of course, they're before us. Well, gentlemen, Sunshine brings us blessings, it also brings us problems, and the problems do not all lie with the legislation. We've got several weeks, but this may still prove to be a very heavy burden on us. I hope that the staff will continue to be resourceful and that Messrs. Gardner and Coldwell and the rest of us will continue working on the problem, and I will try to dig in myself. Well, let's come back to the FOMC problem as far as Sunshine is concerned. Any thoughts the members may have that we ought to bear in mind? Now, we may have a telephone conference on this issue because of the calendrical constraint--that is March 12, is it?",159
-fomc-corpus,1977,Yes sir.,3
-fomc-corpus,1977,"Well, we may be unable to reach that deadline, but we don't want to be too late--[Secretary's Note: The raw transcript for the January 17 session ends at this point. It seems that the meeting recessed here, but there may have been additional discussion.] January 18, 1977",62
-fomc-corpus,1977,"Gentlemen, our meeting will get under way now, please. We need to act on the minutes of the December meeting. Is there a motion to approve? Motion has been made and seconded. Any questions? Let's move on, then, to the report by Mr. Holmes on market operations.",61
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Holmes. Any questions?",10
-fomc-corpus,1977,"The Germans are still in surplus. [Otmar] Emminger [of the Bundesbank] said that they are willing to accept a deficit, as was stated in the press. And my question is, does the German intervention suggest that they are merely trying to iron out minor market fluctuations, or are they positively resisting a upward trend in the D-mark?",72
-fomc-corpus,1977,"I can't answer that question with great certainty. I think two things were involved. They were disturbed when they were seeing the mark appreciate by nearly 1 percent a day. This, I think, was an effort to calm down the markets, and they recognize, too, that there have been several large orders coming out of individual banks, probably representing diversification--$100 million orders--and they took parts or all of those orders out of this market. In addition, I do think they felt that the dollar market rate was becoming inappropriate in some sense. I think there is an element of that in their thinking. How far that is an element, I'm really not prepared to say. They were concerned, of course, when they were having such huge inflows into Germany of the liquidity consequences of that, and so they were delighted to be eventually able to get the mark turned around and not face further inflows.",182
-fomc-corpus,1977,Anything else?,3
-fomc-corpus,1977,"We're increasing how often we intervene in marks. Do you think we need larger working balances, or is the swap an adequate substitute--",26
-fomc-corpus,1977,"I would be delighted to build up our working balances. You know, many months ago the Committee suggested that $150 million might be a proper level. We built up close to $100 million in all foreign currency balances at one time, and then the market turned against us and we had to spend them to keep our market in New York orderly. I would hope, if market conditions permit, that we can build up more-respectable balances. If we ever get anywhere near $150 [million], I certainly will come back to the Committee for further guidance on where we should go from there.",119
-fomc-corpus,1977,"Any more? If not, a motion to confirm the transactions carried out by the Desk--the motion has been made and seconded. Any objections? There are none. Mr. Holmes, do you have any recommendation with respect to the operations of the Desk?",52
-fomc-corpus,1977,"Mr. Chairman, there is just one recommendation. Two drawings made last November by the Bank of Mexico, in the amount of $75 million each, come up for renewal on February 10 and February 17. The new Administration [in Mexico] has provided a boost to confidence. The peso has firmed a bit in the market, and the Bank of Mexico has been able to recoup reserves. We expect the drawings to be paid in February unless something goes wrong. On the chance that that can always happen, I would like to recommend to the Committee that the Committee agree to a first renewal if that is requested, although the likelihood is that the swap will be paid off.",137
-fomc-corpus,1977,Do we have any advice from the Bank of Mexico on the subject?,14
-fomc-corpus,1977,"Yes, I believe we have, Mr. Chairman.",11
-fomc-corpus,1977,I talked to the Deputy Governor last Friday.,9
-fomc-corpus,1977,"All right, a recommendation by Mr. Holmes is before the Committee.",14
-fomc-corpus,1977,Is this to be in any way tied to the Treasury action on our part?,16
-fomc-corpus,1977,"Well, they have a similar swap with the Treasury that they will be paying down pari passu, I assume, [with] the two.",29
-fomc-corpus,1977,"Any objection to the recommendation? I hear none. Thank you very much, Mr. Holmes. We will turn now to Mr. Gramley for his report on the economic outlook.",36
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you very much, Mr. Gramley. Your reports are always good technically, professionally, but today's report was not only excellent professionally but it also brought a little cheer to some of our hearts. We are ready now for Committee discussion. Who would like to be first? Mr. Lilly, please.",61
-fomc-corpus,1977,"Well, as you know, since last summer I have been the bear of the outfit. I have been quite concerned [about] the course the economy was taking, partly as a result of the actions of the Committee this last fall and other factors. I've now become very bullish, and I feel that we are about to see a marked improvement in the capital expenditure area. I suspect that those requests for investment approval are just now moving through the industrial hierarchy, and in about 60 days you'll see a substantial improvement. I'm now concerned that the economy may heat up a little faster than we would like it to.",122
-fomc-corpus,1977,"Thank you, Mr. Lilly. Mr. Black, please.",13
-fomc-corpus,1977,"Lyle, do you have any inkling as to what other parts of GNP may show? How about real final purchases--do you have a feeling on that?",34
-fomc-corpus,1977,"Yes, I have the figures. I just got them a few minutes after I came down this morning. Real final sales are precisely the figures that we had projected--76.8, up 4.8 percent.",44
-fomc-corpus,1977,4.8 percent. Is that the highest for any quarter of this past year?,17
-fomc-corpus,1977,"Yes, it is, to the best of my recollection.",13
-fomc-corpus,1977,"That is a pretty significant margin, really--4.3 was the highest in the third quarter.",20
-fomc-corpus,1977,"All right, thank you, Mr. Black. Mr. Baughman, please.",18
-fomc-corpus,1977,"I would ask Lyle, would he care to express a view as to whether a larger increase in wage rates would likely be restrictive or expansionary as far as economic activity is concerned--regarding total employment and production? As to larger than what, well, larger than otherwise. Or if there was some way of reducing the increase in hourly wage rates that apparently will be coming along--as to whether that will be an expansionary or contractionary economic input?",92
-fomc-corpus,1977,"I believe that in the short run, a larger increase in wage rates would tend to have a larger stimulative effect on consumption than an adverse effect on business fixed investment. But I think the longer-run implications would more likely be adverse. If you have in mind a time period of two years--a horizon that long--then I am inclined to think a larger increase in wage rates would [have] an adverse implication for economic activity.",87
-fomc-corpus,1977,I assume that you have noted that the oil companies have apparently negotiated contracts with a 9 percent increase for the first year and apparently--,27
-fomc-corpus,1977,"For the second year also; this is a two-year package. As I understand, it is roughly 9 percent in each of the two years and no cost of living adjustment.",36
-fomc-corpus,1977,"--and apparently this will be kind of a pattern for that industry. Whether it will extend into other industries, I wouldn't know.",26
-fomc-corpus,1977,"All right, thank you, Mr. Baughman. Mr. Winn, please.",18
-fomc-corpus,1977,"I'm sympathetic to Governor Lilly's view in terms of the turnaround, but just one word of caution on that score. To what extent are future capital expenditures related, as they have been in the past, to local and state government activities? We've put the financial position of these firms in better shape so that they can move ahead. But to what extent is heavy equipment and construction and all of this related to the big role that local and state government has played--roads, sewers, hospitals, schools, and the rest of it? I don't see that coming back.",113
-fomc-corpus,1977,"We have a projection of a fairly moderate increase in real state and local expenditures for 1977. I think most forecasters anticipate that the state and local sector will not be showing much strength. Well, I think Governor Lilly is talking about business fixed capital, and that is independent in the way we look at the statistics. But that is segregated in the national income. There is an offsetting consideration to be taken into account. I think Governor Lilly's point is one that needs to be kept in mind--that is the implication of the remarks that I made at the end of my prepared statement. But again, I would remind you, Governor Lilly, that that's the sort of thing that we anticipated last year, and it did not happen. I would remind you also that the [Department of] Commerce December survey of plant and equipment outlays for the year, which doesn't have a long history--we've had the record now for about six years--generally speaking does not tend to underestimate capital outlays. Now it could happen this year. That is the sort of thing we need to keep in mind and keep watching for over the next few months.",233
-fomc-corpus,1977,"Well, I don't want to get into a long argument about the future, because it is too unpredictable, but I do think, when you have a very strong retail sales stream here that we didn't have before--it goes back to Thanksgiving--that's my basis for my feeling on capital expenditures.",58
-fomc-corpus,1977,"You know, on that point, I wish I had the document before me, but perhaps Mr. Mayo can help me. I was reading last night a report of the Chicago businessmen--that is an excellent group, Bob. One of the men commented that the rather flat trend in retail sales that we had between March or April and September was due in part to faulty seasonal adjustment. Remember that, Bob?",81
-fomc-corpus,1977,"Yes, I can find that. Well, ""this firm"" refers to one of the economists for one of the retail firms--""this firm"" is in an excellent position to know. ""This firms believes that the Department of Commerce sales data that show a flat trend in summer and early fall reflect an erratic seasonal adjustment and that sales did not really level off. Also, it is believed that government data understates sales of specialty stores, in apparel, appliance, furniture fields."" Lyle, do you have any view on that?",108
-fomc-corpus,1977,"I don't have any feeling for that. Generally, though, my feeling would be that retailers were disappointed in the pace of sales during the late spring and the summer months.",34
-fomc-corpus,1977,"You know, some retailers [are] like the rest of us--we have our own feelings and attitudes, we look at some statistics, which may be faulty, and the statistics have an effect on our views and our judgments.",46
-fomc-corpus,1977,That could be.,4
-fomc-corpus,1977,"They weren't looking at seasonally adjusted figures, they were looking at the year-over-year, as I recall, which narrowed very appreciably, and made them gloomy.",33
-fomc-corpus,1977,"Well, this is true of the retailer. I would like to think that their economists do both. I know, in one of the very large retail sales chains--",33
-fomc-corpus,1977,I know of one retail economist who looks at seasonally adjusted--,13
-fomc-corpus,1977,Federated.,3
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"That's the one I was thinking of. This may merely mean that we know so little about what economists in other retailing firms do. Lyle, would you be good enough to get ahold of this economist--he'll be easy to locate--and find out what he thinks he knows? He may have some valuable insights in statistical practices.",69
-fomc-corpus,1977,How did that information compare with inventory accumulation in nondurables at retail?,15
-fomc-corpus,1977,"Well, I think it is a question of whether or not the rate of accumulation was too high in the minds of retailers. And since their sales were not performing as they had thought--since they were gloomy about them--they took actions to try to get rid of those excess inventories. And the pattern fits in that respect, but it still could be true that retailers had unrealistic expectations.",77
-fomc-corpus,1977,"Well, the pattern fits qualitatively, not necessarily quantitatively.",13
-fomc-corpus,1977,"Yes, by all means.",6
-fomc-corpus,1977,"All right, thank you very much. Mr. Eastburn, please.",15
-fomc-corpus,1977,"Mr. Chairman, my forecast agreed, for the most part, with the projection of the Board staff. One possible difference has to do with inventory. Once a month we survey manufacturers in our area, asking them their intentions [unintelligible]. And although they're not doing much right now with respect to either reducing or adding to inventories, our survey indicates a considerable accumulation for the months ahead, and I just wondered whether your increase in inventory is enough. In your projections, do you think the risk on inventories is on the downside?",107
-fomc-corpus,1977,"I think there's some possibility of a downside risk in the first quarter. We had a little better inventory clean-up than we had anticipated, and as I look at both our figures and those of the Commerce Department today, their figures are not a lot different than ours. I really think that the revised GNP figures for the fourth quarter are likely to show a yet lower rate of inventory accumulation. And so I think that would imply some pickup in the rate of inventory accumulation, perhaps early in the year. But we have the rate going up to $19 billion--1 percent of GNP--by the fourth quarter, and that seems to me to be in the right ball park if our estimates of final sales are right.",144
-fomc-corpus,1977,"Yes, but my figures would be for the shorter run.",12
-fomc-corpus,1977,"Yes, I think that's a point well taken.",10
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Partee, please.",15
-fomc-corpus,1977,"Well, Mr. Chairman, I agree with the first part of Governor Lilly's statement, but I don't think I really agree with the second part.",30
-fomc-corpus,1977,What is the second part?,6
-fomc-corpus,1977,"The second part is that he is concerned with the possibility of overheating in the course of this year. And I would certainly agree that the best-guess projections appear to have changed markedly for the better in the last several months, not only the retail sales. Now, Dave, those retail sales could be a little bit chunky; that is, we might find ourselves kind of down, now, for a period of time, but it did have the very desirable effect of reducing observed inventory levels and changing attitudes, and I think it is a real shot in the arm. And I think housing looks to me as if it has sustained strength--you mentioned that too. And I agree that this all ought to have an effect on capital spending as the year goes on, and it ought to be stronger than we were previously worrying it might be. However, the staff projection for the four quarters of 1977 averages a little less than 6 percent--I guess 5.9, 5.8, something like that.",205
-fomc-corpus,1977,"For what period, again?",6
-fomc-corpus,1977,"For the next four quarters. And so, even if that were, say, a point higher than what's projected, it would not be an extraordinary number. It could be a point higher if we get a little more capital spending, a little more inventory than suggested. But even with that, it seems to me that, as you reach the end of 1977, you wouldn't be talking about really high utilization rates, you wouldn't be talking about, well, an unemployment rate that would be down even to anyone's objectives. So I don't think there is that much difficulty if there should be some moderate overrun from staff projections in the actual results of the economy in the course of the year. There is another point, though, that I would like to bring to the Committee's attention. Some few of us have continued to watch the full employment surplus and deficit numbers, and I want to point out that the concept of potential GNP has been revised to reduce, I think, to a more realistic objective the rates of growth that can be expected in the real economy based on productivity and labor force growth. And also [it has been revised] to adjust for structural changes in the labor force so that the unemployment rate associated with full employment is no longer 4 [percent] on the nose but, as a matter of fact, for the year 1976, is 4.96 because of structural changes--almost 5 percent. And that, also, is a desirable change. But the result is that, even with the proposed fiscal program--which I would think is more apt to be altered in the direction of being more liberal than less liberal as it goes through Congress and as the new Administration considers it--with that program, there is, on these new figures, a rather high full employment deficit for 1977, calendar '77. Our staff estimate is [for a] $26.3 billion full employment deficit in that year. And related to potential GNP, on the new measure of GNP growth, this is the highest proportion of potential GNP in more than a decade with the exception of only one year, 1967. In 1967, the full employment deficit, on these new figures relative to potential GNP, was a bit higher than is now projected for '77. Well, it's a very considerable increase from calendar '76 to calendar '77, from a $12 billion full employment deficit to a $26 billion full employment deficit. That gives me pause and concern about financial market conditions as the year goes on because, although I never believed much in the idea of crowding-out on the basis of just the actual deficit figures, I noted long ago that if you look at the full employment deficit figures and you see a sharp shift toward deficit which is associated with tighter conditions and higher interest rates, it is going to be a problem as the year goes on. It also does contain the possibility, this kind of a full employment deficit--which I'm pretty sure will be the highest in the postwar period, although the figures were taken back only to 1964-- may have psychological effects on inflationary expectations in the economy.",636
-fomc-corpus,1977,Full employment deficit will not have any psychological impact.,10
-fomc-corpus,1977,"But it has a real effect, Mr. Chairman, that's what I guess I want to imply to you.",22
-fomc-corpus,1977,"A psychological effect will come from the actual or prospective deficit, over time.",15
-fomc-corpus,1977,"Well, that would be $70 billion or so, and that's a very large number, too. But it also could have some effects that we can't fully anticipate. So I think, although I am not concerned about overheating things for the year immediately ahead, that the trend in these fiscal numbers does give me real pause. And I think it also may cause very considerable pressures for the central bank if in fact it brings some crowding-out, if it brings some tightening in the market--which is likely, I think--and higher interest rates. The usual kinds of difficulties we have when interest rates are rising and housing people can speak out about that kind of effect. Since it hadn't been mentioned by Lyle, I just wanted to bring it to the attention of the Committee.",155
-fomc-corpus,1977,"May I make one comment, Mr. Chairman. A fact which I think the Committee should keep in mind in thinking about Governor Partee's comments--and that is, this $26 billion includes a $10 billion rebate-type payment. If it would be your judgment that rebate-type payments don't have much effect on economic activity, then you ought to mentally subtract that as you think about the size of the full employment deficit. That part would be gone the next year. On those grounds alone, the full employment deficit would revert to $16 billion in '78.",112
-fomc-corpus,1977,I wouldn't subtract $10 billion. I've never felt that a refund didn't have any effect on the economy.,21
-fomc-corpus,1977,"No, I don't either.",6
-fomc-corpus,1977,"It does have a rather high spillover into the saving flows, but I wouldn't say it's a zero effect on the economy. And the other thing, the point that I would make, Lyle, is that this is just the opening gambit by the Administration. The Congress has not yet dealt with this, and the spending programs that are people's pets have not yet been brought to the floor. The chances are that this number will be exceeded--not falling short--in actual practice as the year goes on.",102
-fomc-corpus,1977,"I would agree with Mr. Partee. I would also point out that what happened in the market for long-term interest rates last week, partly as a response to the new fiscal package announced by the incoming Administration, is a warning of what may be ahead. While I'm speaking, let me add one fact. At 2:00 or 2:30 there will be an announcement on housing starts, and I don't feel free to disclose the figure, but I can say it's quite an optimistic report. Thank you, Mr. Partee. Mr. Wallich now, please.",117
-fomc-corpus,1977,"Well, I share what Mr. Partee says about the full employment deficit. In addition to the financial consequences, it also shows the greater limitations in the way of capital expenditures that we face once the economy is operating at a high level again and the problem, therefore, of getting an adequate amount of capital spending. Well, the other point I wanted to make is the stimulus that is being proposed to be put into the economy, not in fiscal '78 but in the following year. The program is divided in those two parts. The second part is more iffy than the first, but they seem to be of about equal size--$15 billion apiece. And I'm asking whether we're not repeating the mistakes that have been made in the past--of overstimulating late in an expansion. In putting in a two-year program, are we in danger of getting into the fourth year of expansion and overheating, and if so, what is the proper stance for monetary policy? So, my question really goes to what is the likely effect of this second part, the second year of the fiscal program, to the extent that one can now assess it?",230
-fomc-corpus,1977,"Governor Wallich, I think that's a genuine concern. I think, in answering that question, one should start by noting that, while we're in a fairly advanced stage of the recovery, we still have an ample amount of underemployed resources, both on the labor side and on the industrial capacity side. I would note also that in terms of the--",71
-fomc-corpus,1977,Is that true of skilled labor--,7
-fomc-corpus,1977,"Well, it's less true of skilled labor, Mr. Chairman, but if you look at the unemployment rates for adult men, I've always tended to use the rule of thumb that, when the adult male unemployment rate gets down to about 3 percent or somewhere around there, we've got tight labor markets. It's now above 5, 5 to 5-1/2. I think there are particular skills which are in short supply--there always are except in massive depressions--but, generally speaking, we have an adequate supply of labor and of capacity to move up significantly further. Governor Partee has noted that the real potential GNP level has been moved down by almost 4 percentage points. Well, what that does is to move down the gap between actual GNP and potential GNP from 11 percentage points to 7.3 percentage points. There's still an awfully long ways to go yet, an awfully long ways to go. We have run some simulations, and I put them out without assigning a great deal of credibility to what the model can produce in this respect. What we did was to take the judgmental staff projection and then extend it through 1978 by keeping the same monetary policy and then making the fiscal package for 1978 as close as we could to the spirit of the new Administration's recommendation, in the sense that we add some more for expenditures and we don't repeat the rebate. And what happens when you do this is that you get a growth rate of real GNP which stays fairly high--it stays in the 5 to 5-1/2 to 6 percent range, somewhere around there, but it does not lead to any buildup of inflationary pressures. Actually, the rate of increases in the fixed-weight index goes up somewhat less for 1978 than it does for 1977. It does give--",377
-fomc-corpus,1977,How good has the model been in predicting inflation?,10
-fomc-corpus,1977,Recently it's done quite well. But not over the longer term.,13
-fomc-corpus,1977,"How good was it in 1972, 1973, the first half of 1974?",21
-fomc-corpus,1977,During those periods we had most unusual influences affecting the price--,12
-fomc-corpus,1977,"No, that wasn't my question.",7
-fomc-corpus,1977,"It missed by an order of 2, I think.",12
-fomc-corpus,1977,Pardon me?,4
-fomc-corpus,1977,"It missed by an order of 2, I think.",12
-fomc-corpus,1977,"Well, it's a very large factor, but I don't think one can evaluate a comment of that kind without recognizing that we went into 1972 with price controls. And the model was not running on its own. We were making adjustments to the model to try to take that into account.",58
-fomc-corpus,1977,How good was it in 1970?,9
-fomc-corpus,1977,"I'd have to go back and look. The model's price performance has been one of its weaker elements. As I said in the beginning, I don't know how much credibility to assign to these comments that I'm making about the model's results.",48
-fomc-corpus,1977,"Of course, if you continue to make adjustments because the model has been weakened at the moment, it will finally get to the point where it overestimates the rate of the price inflation because of adjustments that are made [judgmentally]. But I don't know that we've reached that point.",58
-fomc-corpus,1977,"Are you satisfied, Mr. Wallich? Okay, Mr. Kimbrel now, please.",20
-fomc-corpus,1977,"Mr. Chairman, I don't know about the numbers, but I think the discussion with our own directors and the consensus [among] businessmen comes out pretty close to that expressed by Governor Lilly, and it's not optimistic. I think also that they have a concern that the cost may be indirectly associated with unusual weather conditions [and will] provide an opportunity to pass through energy costs and labor costs. They're enormously concerned about the prices and the potential for inflation. I think, though, that the expectation of our people is that prices are sure to escalate, but that the mood is going to continue [being] very good. Now, I wonder if the staff has given some thought to the possibility that some capital spending has been delayed, waiting for the determination of possible tax advantages this year, and it may be we have some [spending] coming on stream that was waiting for the possibility of taking tax advantages.",181
-fomc-corpus,1977,"We have thought about that question, President Kimbrel, and our view would be that, based on what businesses have seen in the past when tax incentives have been put in place--and I mean by that the tendency for new bills to be retroactive to the first time big business was beginning to think about this, perhaps the first time they were suggested seriously. So this would not likely be a significant factor in holding up capital spending. We think that the hold-up in capital spending has been more an aggravation of the uncertainties with which businesses were looking at the economic and financial climate during 1976--an additional uncertainty generated by the pause [and] generated also perhaps to some degree by concerns about where the new Administration might be going.",149
-fomc-corpus,1977,"When was the Department of Commerce survey taken, the results of which were recently announced?",17
-fomc-corpus,1977,"November and early December. And that could be still, you see, quite a bit out of date in terms of where thinking has gone since then.",30
-fomc-corpus,1977,"All right, thank you. Mr. Coldwell now, please.",14
-fomc-corpus,1977,"Mr. Chairman, I've been listening. I think I agree with much of what I hear. To me, the tone of things has improved considerably; perhaps we've lost some of the threat of inventory change. I have a feeling that this year ahead isn't going to be quite as smooth as this staff forecast shows. I guess you could say that about any year, but I have a feeling that this one's going to be a highly erratic year. We may get some heavy fiscal stimulus that runs up one quarter or a couple of months and then runs back down the stream. I can see possibilities of the same sort of arguments and data that we faced in early '75 on the money supply and aggregates data and maybe on some interest rates, too. I can see some very sharp run-ups in consumer spending right after a rebate, if that's the way the Congress goes. I can see as a possibility that there may be another--if there is such a thing--midcourse pause somewhere down the line, too. So I guess I'm a little more cautious about taking all this and converting it into a very bullish year ahead--but on the other hand, not much in the way of a bearish year, either. I think it's going to be a highly erratic one.",254
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Morris now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I'd like to follow up on Governor Partee's comment on the crowding out issue in '77. The staff has an estimate of corporate external financing in '77. How does that compare to '76?",46
-fomc-corpus,1977,"President Morris, we have not projected any greater net external need for funds on the part of corporations in '77 than in '76; they're virtually the same. And thus we have room for corporations to increase their [holdings of] government securities in somewhat the same fashion as they purchased them in '76. In fact, we've actually projected somewhat higher acquisition of government securities by corporations in '77 than '76. We don't have a lot of the traditional features that you see in the government securities market from crowding out. That is, we don't project at this moment any increase in consumer purchases of government securities. We have the government securities that are added being purchased by foreign and official institutions and by businesses and pension funds. We don't see any particular need for sizable consumer purchases over the year, which are the traditional source of interest rate pressures when looked at from the flow of funds, but we do see that picking up in the second half of the year. So if you were going to locate a problem area from these figures--and it's hard to locate--it would come about in the second half of the year through the beginning of pressure of selling securities outside the banking system.",236
-fomc-corpus,1977,But to have a major problem you would have to have a substantial upgrading in the corporate investment numbers.,20
-fomc-corpus,1977,Or diminishment in their profits. A reduced profit flow.,12
-fomc-corpus,1977,"You know, Mr. Partee commented on psychological reaction to one or another kind of deficit. I think that once the business community becomes aware of what is an emerging fact, namely, that the deficit this fiscal year will be substantially larger than during the preceding record-breaking year--once the business community becomes aware of the emerging fact that large fiscal deficits are ahead for several years, this may well have a profound effect on inflationary expectations. Mr. Mayo, please.",93
-fomc-corpus,1977,"Just a question to Lyle. Several months ago we heard quite a bit of discussion on the corporate side that tax liabilities were being piled up in '76, payments were low in '76 based on '75 profits, and the place where this would begin to pinch was in the spring of 1977. I haven't heard a word about that for a month or so now, and I noted nothing in the discussion today, either written or oral, on the subject. Does that mean, Lyle, that this was blown out of all proportion and really isn't significant?",114
-fomc-corpus,1977,I think maybe Mr. Axilrod is better prepared to answer that. We've been thinking about that in terms of financial market projections.,27
-fomc-corpus,1977,"President Mayo, I think it has been blown out of proportion. Whether it isn't at all significant--I think it has some minor significance. We did put our estimate of the magnitude into the first part of the Greenbook, in the outlook, buried in the footnote--it's put in a complicated way there, but what it amounts to is you might get about $3 billion or $4 billion more in payments coming in because of this development than you would otherwise have had. So these business corporations are going to have to find $3 billion or $4 billion more to pay over to the Treasury. That could [generate] some very temporary money market pressures in the short-term market. But I don't think it would have any lasting significance at all, and to the extent that Treasury receipts turned out to be a little higher than were expected in the longer-run, it washes out. So I don't see it as anything except a possible spot pressure around mid-March or mid-April.",198
-fomc-corpus,1977,"That's when it is, mid-March to mid-April?",13
-fomc-corpus,1977,"Well, in March and June they make up their payments for 1976, so that make-up of the payments in '76 occurs in mid-March and mid-June; and in April, it's the first of their 1977 liability [payments]. So, if the experience of '76 causes them to increase their '77 estimates, you get an effect in the beginning of that statement period.",81
-fomc-corpus,1977,"But it comes at approximately the same time that the Treasury would have to finance the refund, also.",20
-fomc-corpus,1977,"Well, the refunds of the '76 taxes to individuals--",12
-fomc-corpus,1977,"No, I mean the rebate.",7
-fomc-corpus,1977,"Oh, we expect the rebates will be in May. So, in coming through this whole period--",20
-fomc-corpus,1977,"Thank you, Steve, I heard a figure in excess of $10 billion, which seemed awful high at the time. This reassures me.",29
-fomc-corpus,1977,"Well, we expect total payments will exceed their accruals by about $8 billion. That may be in that order of magnitude, but that figure is itself about $3 billion more than in '76.",42
-fomc-corpus,1977,"This is really not a synthesis [unintelligible]. I thought the pause was a pause; many of us did. I was very interested in the external factors--OPEC. December came and went, and we didn't get a 15 percent rise or a 10 percent rise; we got something else. I think I understand the reluctance of businesses to spend for long-term capital improvement and expansion. I think as long as that fund of private stimulus remains a possibility, it's a point of strength in the fact you [unintelligible]. I'm just thinking out loud. We've had a pretty good year in many ways. Inflation has come down. But there is one thing that deeply concerns me. That is 7.9 percent unemployment. I worry about [unintelligible] getting a little more comfortable with some of the statements coming from the Administration, but that doesn't necessarily mean that the Congress will not take off on many spending measures. Unemployment is a very difficult thing because we have had a pause and evidence that the pause is past. We are looking forward to improvements, but still, it's 7.9 percent unemployment, which has become such a campaign issue, such a psychological effect, that whatever conservatism may be inherent in the Administration's plans, I don't think it can weather for long a grudging slow reduction in this number. It's too visible a number. I was disappointed with the amount, Lyle, [by which] it came down in the last report. And I am curious about the more rapid decline in unemployment that occurred early last year. That occurred in the first quarter or the second quarter, and unless that happens, those of you who have expressed concern about the size of the deficits and the like are going to be wise men--if unemployment were now 5 percent or 5-1/2 percent, we would all be smiling to see a good year ahead and perhaps one [in which] we could continue to make progress against inflation. Do you have any comments about what you expect unemployment to do in the next--",418
-fomc-corpus,1977,"I would want to talk mainly about what I think might be in store for the unemployment rate in the immediate future. Last year, during the spring season, the unemployment rate was going down rapidly, in part because GNP was going rapidly in the first quarter, but also in part because the seasonals were probably out of whack. The reported unemployment rate was really going down faster than the actual unemployment rate--if we knew what that really was. I think some of that seasonal maladjustment is showing up in the fourth quarter of 1976 figures. I think the actual, true seasonally unadjusted unemployment rate is probably a tenth or two lower than what we have recorded in November.",140
-fomc-corpus,1977,When are we getting new seasonals?,8
-fomc-corpus,1977,They normally come in February.,6
-fomc-corpus,1977,"I've already heard about a slight adjustment--that is, the 7.9 will be 7.8 for December on the basis of new seasonals. Do you know about that?",38
-fomc-corpus,1977,"I have not heard that yet. But that would not surprise me. That's the direction we would have expected. Now I think also that when you see a pickup in activity as we have seen in the last couple of months, you have to anticipate that it's not going to affect the unemployment rate in a substantial way for a few months. Initially what tends to happen is that businesses work their existing employees a little harder to get more productivity, then hours begin to lengthen a little bit, and then the new hirings begin. So I would anticipate that if this pickup has some durability, as I think it will have, we will see some better unemployment statistics in the fourth quarter.",136
-fomc-corpus,1977,"Lyle, yours is good classical analysis. But it leaves out of account a new factor that has been disturbing our judgments and our forecast, and that is what may happen with the labor force.",39
-fomc-corpus,1977,"The labor force is a very erratically moving series, and it could be growing substantially next year. We have allowed in our projections for a sizable increase, an increase of around 2 million, in the labor force. That's less than what we have had over this past year. But it's far above what we used to think of as the longer-term trend. But you're quite right that an erratic movement in the labor force during the first quarter, a large increase, could hold the unemployment rate up.",101
-fomc-corpus,1977,"I would only question the word ""erratic."" It might be a systematic factor in changing habits and new pressures arising from inflation, as the factors impinge on families, women joining the labor force--well, because people like to live better, and they certainly don't want to see their standard of living coming down. And one of the illusions generated by statistical reporting is that wages go up for everyone. They go [up] on the average, [but] tens of millions do not experience a wage increase in any six-month period, a year. Farmers' incomes may decline--they have declined during the past year; incomes of proprietors and so on. This may well be a systematic factor--partly [one of] changing cultural trends and partly the pressures on families arising from inflation, all of which causes an increase in labor force participation by women and, to some degree, by teenagers. Thank you very much, Mr. Gardner, Mr. Gramley. Mr. Balles now, please.",202
-fomc-corpus,1977,"I'd like to ask Lyle a question about the velocity estimates that seem to be implicit in the Greenbook forecast this time. With the 5-1/2 percent M1 growth assumption, it appears that the velocity of M1 will be at the highest rate of growth in the third year of recovery of any of the post-Korean [War] cycles--namely 5.8 percent versus the previous average in the post-Korean [War] cycles of 3.4 percent--and about the same thing could be said for the velocity of M2. What I am interested in is, on what basis did your staff, Lyle, say this velocity growth is going to be this substantial at this [stage] of the recovery, when the normal pattern has been a decline in the rate of growth in velocity of both M1 and M2 during the third year of recovery.",180
-fomc-corpus,1977,"Mr. Axilrod, I think, is the person that would have the answers for that.",20
-fomc-corpus,1977,"That's a good move, Lyle.",8
-fomc-corpus,1977,I thought so too.,5
-fomc-corpus,1977,"One thing I would do, President Balles--we were well aware of the high velocity, of course--is reduce, to take a percentage point [off velocity] as reflecting the ongoing shift from M1 to other deposits or other money market instruments as people seek to economize--[a] trend that has been occurring over the past few years. We would have estimated last year somewhere over 1-1/2 percentage points as a rough rule of thumb. I would take at the beginning of this year something like 1 percent--it may prove to be more or may prove to be less. So that reduces the problem you're discussing to some extent. Secondly, as you do point out, you had 3.4 percent in those particular periods. Trend since '61 has been on the order of 3 percentage points. The standard deviation around that trend has been about 1-3/4 percentage points; the absolute deviation around 2 percentage points. So you've got a certain random factor that's at work. And, finally, we do realize that it's a fairly large increase in velocity that's called for, and we would expect for that reason--as time goes on in the next year--for interest rates to rise as people try to get cash by selling assets and borrowing. So we wouldn't really expect at this point a sort of free increase in velocity of that magnitude but would expect the economization to reflect in part the interest rate pressures that might occur as the year goes on.",300
-fomc-corpus,1977,Is it also a rather high real GNP increase for the third year of recovery?,17
-fomc-corpus,1977,"Yes it is, but it is certainly not unprecedented.",11
-fomc-corpus,1977,That tends to add to this pressure on velocity?,10
-fomc-corpus,1977,"It's not unlike, as I remember the numbers, what happened in 1963, although I believe the pickup there, after the pause of '61, was even a little more rapid than what we have had.",43
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Black, please.",14
-fomc-corpus,1977,"Mr. Chairman, I wonder if I might ask you a question? A while ago you indicated that you did not think businessmen yet realized the extent of the federal deficit or the inflationary implication of that. Do you anticipate that this will have a significant impact on either the timing or the amount of business capital spending?",63
-fomc-corpus,1977,I would not anticipate much response in that direction. I would anticipate protective measures by businessman: raising prices to the extent that they can--more than they would want to--,34
-fomc-corpus,1977,Any inventory buildup?,4
-fomc-corpus,1977,"Not really, because businessmen very rarely speculate on inventories, and the mood has not been in that direction. The only recent year when we've had significant inventory speculations was, I think, 1974 [and] to some degree 1973. Normally, speculation on inventory--I don't think [it] is a part of business practice.",69
-fomc-corpus,1977,In the longer run or shorter run?,8
-fomc-corpus,1977,Shorter run. I'm thinking of 1977.,11
-fomc-corpus,1977,"Most businessmen, if they think there's going to be a substantial increase in the next two quarters, will cover themselves. But you might call that a speculation or you might also call that hedging.",39
-fomc-corpus,1977,"That's true in materials and intermediate goods, not in finished goods. So you get a substantial disparity based on the stage in process.",26
-fomc-corpus,1977,"And I would expect that the inflationary expectations I spoke of are being reflected in prices, making their own forecast, to some degree, come true. And I would expect it in interest rates. The effects on capital spending, if any would come later, might come toward the end of '77, and my feeling is that it will come in '78. Mr. Jackson, please.",78
-fomc-corpus,1977,"I have a slightly different judgment on this question, Mr. Chairman. I would think that once the perception of these [large-]size deficits takes place, we are likely to see a continuation of what we have already seen--a desire on the part of businesses to get their long-term financing accomplished rather promptly, particularly refinancing, like the utilities are doing.",72
-fomc-corpus,1977,That would depend on rate movements.,7
-fomc-corpus,1977,"Right. Second, I would guess that you see maybe a very, very short-term acceleration in capital spending as people try to get projects completed that are in process of construction, and an attempt to get under firm contract things that are committed but are not nailed down as to price. But over the long-term, I would think that into '78 it would indicate a reduction in capital spending because of--",80
-fomc-corpus,1977,You and I are on the same track.,9
-fomc-corpus,1977,"Yes, I would have a slightly different judgment about the consequences for the economy for '77 to those expressed. I think my own judgment about the actually measured economic progress wouldn't be too different. My own judgment would be that the public perception of that progress would not be as strong as the actual measurement of it. I think [that members of] the public are poor economists is what I am trying to say, and therefore I think the consequences for unemployment, things of this sort, would produce a public attitude that would not reflect the progress that would actually be measured and be made. However, I don't know whether to be awed or amused by the accuracy of the measurement you have been able to make on full employment, when you are able to measure unemployment levels at full employment down to the fourth decimal place. I wish we shared your capacities in much more important fields, because I think that's an amazing performance.",182
-fomc-corpus,1977,"Well, basically, this is based on a measure of capacity of the economy. The unemployment rate just happens to fall out. But it doesn't depend on a direct measure of unemployment.",36
-fomc-corpus,1977,4.96 percent is an amazing figure.,9
-fomc-corpus,1977,"And I think many people would say that 4.9 is lower than can be reached, actually for labor force reasons rather than for capital capacity reasons.",31
-fomc-corpus,1977,"Well, I don't think Mr. Partee intended to suggest that the second decimal had any significance; he might even question the first.",27
-fomc-corpus,1977,"I certainly wanted only to report to the Committee the figures. I think it is a good thing to allow for structural change in talking about what the economy would hope to accomplish, and in that sense I think this is a real move forward compared with the way we used to measure potential GNP and [with] a 4 percent unemployment rate as an invariant target.",73
-fomc-corpus,1977,"When we talk about structural change, I think that's true of the labor force, too, as we talk about the public perception of economic progress. When you see about 40 percent of the women as participants in the work force, I think our perception of an acceptable unemployment level for those participants in the work force is going to change.",67
-fomc-corpus,1977,"As a matter of potential output, I wrote a paper in 1935 in which I attempted to demonstrate by impeccable logic that potential output cannot be measured. I have lived during periods when this has become a habit. Well, I don't think I've changed my mind. Mr. Partee you were going to make a point?",65
-fomc-corpus,1977,"Well, I was just going to ask, following up on Governor Gardner's comments and also Governor Lilly. One of the problems is in this question of the political perception--and also your comment--[regarding] the rate of improvement in the economy. A little technical difficulty in the staff's projection, Lyle, is that the lowest quarterly increase is [for] the first quarter in the projections for the year--5 percent. And I was wondering if you had a view as to what the possibilities might be that in fact we could exceed that growth rate in the first quarter--that is, start out in the year pretty well? I note that you don't have much inventory accumulation in the first quarter, and I note also that you hold housing starts the same in the first quarter as in the fourth. Could those two areas perhaps turn out to be stronger?",173
-fomc-corpus,1977,"Yes, they both could. We have expected some decline in housing starts, largely on technical grounds, in December. I haven't seen the figures yet, but judging by the Chairman's earlier comment, it doesn't sound as though we made a very accurate decision in that regard. But I commented earlier, in response to President Eastburn's question, that I do think our inventory number for the first quarter may be too low. We put this together and froze it before we got the November figures on inventories, and they were really quite a surprising development. If it turns out that December inventories are also negative in real terms, as I think the November figures indicate was the case for that month, well, then, the prospects for a real pickup in industrial production and employment and inventory accumulation in the first quarter are quite substantial.",163
-fomc-corpus,1977,"Well, at this point I would join, to an attenuated degree, Mr. Coldwell's comment on erratic movement. We may well get an erratic movement of inventory change in the next year. Sharp buildup, slowdown.",47
-fomc-corpus,1977,The point that I was trying to make with Lyle is that output could go up faster here. It would show up in a little more inventory accumulation.,31
-fomc-corpus,1977,That would be my guess.,6
-fomc-corpus,1977,"I think it's a very real possibility, yes.",10
-fomc-corpus,1977,"For the year as whole, that's another matter.",10
-fomc-corpus,1977,"Would the weather, natural gas situation impact on this prospect?",12
-fomc-corpus,1977,"It might, yes. We are going to be contacting the Reserve Banks right after this meeting this weekend to ask them to help us ascertain what the weather may mean for production. But I heard on the radio this morning that there are at least four states that are quite worried: Ohio, Minnesota, Michigan, and Pennsylvania. And we have no experience in terms of trying to estimate how we are to adjust estimates for industrial production, and I don't think it would be wise for us to try. But that's certainly going to be a negative factor.",108
-fomc-corpus,1977,It strikes me as a possibility--the inventory accumulation could be delayed even though it might be not be canceled at this time.,25
-fomc-corpus,1977,"Well, if you apply standard seasonals, you may find that activity shows a decline when the seasonals which you ought to be applying are of a different character, because we are having an unusual winter--an unusual January. And that will certainly have to be watched very carefully. I would use a standard seasonal, and then I would try to use a seasonal adjustment for weather factors. Now a good deal of research was done on that years ago, and I haven't kept up with it. Whether we know how to do it now or not, I don't know, but I'm sure we can do it roughly, you know, as a guide to the interpretation of the statistics. Well, we've had a good discussion of the economy. Yes, Mr. Mayo.",152
-fomc-corpus,1977,"Just one other observation on the employment side, Mr. Chairman. I don't want this to be interpreted as expressing any lack of concern for the point that Steve mentioned, which I share, but I made the point before that I wondered what would happen if we just took civilian employment and related it to population in the United States--preferring on some occasions to take a gross measure because of all the difficulty we have in fine tuning all of these adjusted measures. I found it rather significant. We didn't do [the exercise for] every year, but we took years that we thought would be significant back to 1929, and I am glad to report that civilian employment in this country as a percentage of population is at its highest point in history. Now that means conversely that that proportion of the population that is not employed is at its lowest point. Don't pursue this too far, but I think it is a rather interesting observation. We measure all sorts of things in international statistics on a per capita basis. This is a per capita basis in terms of civilian employment. Not a new record by a large [amount], but it's 40.7 percent as against 39 percent in '29--slightly over 40 percent but not as high as '74. Civilian employment divided by total population--it's a very simple statistic on an annual basis.",271
-fomc-corpus,1977,Does your figure adjust for military and government workers?,10
-fomc-corpus,1977,"This is just civilian, but it includes government civilians.",11
-fomc-corpus,1977,"What is the percentage ratio, Lyle, of total employment to the total population of age 16 and over?",23
-fomc-corpus,1977,It's been going up. I don't have a figure in my head as to the precise ratio.,19
-fomc-corpus,1977,"I mean, is it at a record level?",10
-fomc-corpus,1977,"It is, it is.",6
-fomc-corpus,1977,"I thought so--at a record level. That, perhaps, is a more significant figure, Bob.",21
-fomc-corpus,1977,"Yes, it's less gross.",6
-fomc-corpus,1977,"Less gross, less subject to some questioning or criticism one might make because the base there is the potential working population.",23
-fomc-corpus,1977,"Of course, there are differences again, over time, as to what proportion of those slightly under 16 or slightly over 16 are working or aren't. This is merely a terribly simple-minded approach that anybody can look at. And, by the way, the Wall Street Journal yesterday had a column that approached this same point. It's not something to use in devastating the worriers about unemployment, but in terms of mouths to feed, in terms of standard of living, total population I think is quite--after all, we are all supposed to be equal in this regard, one way or another. It has some merit.",124
-fomc-corpus,1977,"Very good. Any other questions? Yes, Mr. Winn.",13
-fomc-corpus,1977,"Just to comment on the situation in Ohio and western Pennsylvania and the problem with information, we have checked--",21
-fomc-corpus,1977,Would you also comment on natural gas?,8
-fomc-corpus,1977,"--yes, we had contacted the utility companies to get some feel [for] this, and we knew that one company had real problems with gas supply. The others assured us that it didn't make any difference what the weather was, they were going to be able to handle any kind of need, and at the moment they are all shut down. And a month ago, they told us--and this was good information, you know, the top of the companies--that they had no problem, and at the moment, plants across the state are closed. It's a real serious problem there.",118
-fomc-corpus,1977,That's been predicted for Ohio for a long time.,10
-fomc-corpus,1977,"Well, that's because of one company that sold gas they didn't have, but many of the companies have got out and drilled their own wells, and we have had all kinds of scurrying for just this sort of emergency. But we're shut, there's no question. Perhaps this is good in the long run--that we will now, as a nation, face up realistically to some of our energy problems, because [we] are [in a] very weak [position]. We had brown-outs across the state on the electric side, and the gas companies are just providing a holding operation. Not operating.",121
-fomc-corpus,1977,"We have had natural gas shut off to a number of large users, but they have been able to convert to other fuels, and there has been no big unemployment as a result of this, or plant closings.",43
-fomc-corpus,1977,"Mr. Chairman, may I just follow up on John Balles's complications. Our people feel very strongly that the projections of growth in the Greenbook are impossible to achieve at the rate of money growth which is assumed in those projections. We feel that our model, although it probably has been frozen in recent weeks--I'm glad that John comes from a warmer climate than we--projects about 1 percentage point less in the rate of real growth in the year ahead than the staff here projects, and I think maybe it's just important to reiterate the possibility of differences of opinion on this subject.",118
-fomc-corpus,1977,"I think that's entirely valid, but I would have liked your comments better if you had not based it on the model. The St. Louis model does not get high marks for its predictive power. In fact, it gets very low marks in the economics profession. Am I right on that?",58
-fomc-corpus,1977,"You are correct, yes.",6
-fomc-corpus,1977,Fuel injection has been changed recently.,7
-fomc-corpus,1977,"Well, gentlemen, any other comments on the economy? Well, let's take a brief coffee break now.",21
-fomc-corpus,1977,"Gentlemen, we want to turn now to the discussion of our longer-term targets, and we will first turn to the monetary aggregates. I think members of the Committee know that the House Banking Committee will be holding a hearing on February 3 under the House Concurrent Resolution. I will be testifying on that subject on that day. And therefore, this Committee must today decide once again on our monetary objectives for the year ahead, that is, for the interval running from the fourth quarter of 1976 to the fourth quarter of 1977. Now, in setting these monetary targets for the year ahead, we need to consider apparent conditions of the economy. We've done that. We need to consider economic prospects for the year ahead and their dependence on the monetary policy that we lay down, and we've done that. We know less about monetary policy, on our overall judgment, than about economic prospects. And finally, we need to consider the degree to which, if any, our monetary policy should contribute to unwinding the inflation from which our economy has been suffering since the mid-1960s. Of these several considerations, the last, I believe, is peculiarly important for us at the Federal Reserve. I say this because no other branch of government, certainly not the executive, certainly not the Congress, has anything approaching an articulate policy for bringing down the rate of inflation. Now, if we at the Federal Reserve should fail to persevere in bringing down our monetary growth rates, which are far too high from the viewpoint of ever returning to price stability, there would be no chance whatever for reestablishing a foundation for economic stability in the future. Recognizing this basic principle, this Committee during the past 21 months has moved very gradually, but rather consistently, toward lower monetary growth rates. Our moves may have been much too gradual, but they at least have been in a salutary direction. In approaching the problem of setting monetary growth rates for the year ahead, I start with the basic thought that, if at all feasible, we should once again make a small move in the direction of monetary growth rates that are tolerably consistent with eventual restoration of a stable price level. Now, in my own mind, this basic thought is clouded by other considerations, namely, unemployment is still unduly high. We have a new Administration; the new Administration has proposed a fiscal plan for reducing unemployment, and any lowering of monetary growth rates at this time would, I'm quite sure, be very widely interpreted--and not only in the political arena--as an attempt on the part of the Federal Reserve to frustrate the efforts of a newly elected President and newly elected Congress to get our economy, to use a popular phrase, ""moving once again."" I've tried--it obviously isn't easy--to bring these two sets of thoughts into some sort of harmony. And accordingly, my recommendations to the Committee are as follows. First, that we leave the projected growth range for M1 as is--4-1/2 to 6-1/2 percent--for the coming year. Second, that we modify the growth ranges for M2 and M3--specifically, that the growth range of M2 be set at 7 to 10 percent instead of 7-1/2 to 10 percent, and the growth range of M3 be set at 8-1/2 to 11-1/2 percent instead of 9 to 11-1/2. The proposal to leave M1 unchanged has at least this advantage: You would avoid any charge that the Federal Reserve is indifferent to unemployment or, and this is more serious, it would avoid the charge that we are seeking to frustrate the efforts of the new Administration. The proposal to lower the lower limits of M2 and M3 by 1/2 percentage point has, I think, the following advantages. First, it recognizes the recent tendency of various banks and thrift institutions around the country to reduce the interest rates paid to savers, and this tendency may well result in a lower growth rate of M2 and M3 in the immediately succeeding months. Later on in the year, higher market rates of interest may well slow down the inflow of funds to thrift institutions. And finally, the slight lowering of the lower limit of M2 and M3 would once again provide some evidence that the Federal Reserve is sticking to its repeatedly stated objective of gradually bringing down the monetary growth rates in the interest of restoring--not immediately, but over a period years--general price stability. Now, I realize that the lowering of the lower limit of M2 and M3 might evoke some criticism. But on this point I would say the following. First, no matter what we do, there will be some criticism, and this is an inevitable accompaniment of central bank action. Secondly, I would say that, as we all know, far less attention is paid by the general public, by the Congress, even by economists, to M2 or M3 than to M1. M1 is still the magnitude that is widely followed and respected. And I would say, finally, that even after lowering the lower limit of M2 and M3, the midpoint of the range for M2 and the midpoint of the range for M3 would still be precisely what it was six months ago. Therefore, no lowering from where it was six months ago, and this would be duly noted in our statement to the Congress. These are my best thoughts on a very difficult subject. Let us now have a general discussion and try to determine where we should come out. Who would like to speak first? Mr. Eastburn and then Mr. Black.",1147
-fomc-corpus,1977,"Mr. Chairman, I'd like to spend a little bit more time on the question of the degree to which monetary policy should work with fiscal policy in this coming quarter. I think this is a very difficult task.",42
-fomc-corpus,1977,Coming quarter or coming year?,6
-fomc-corpus,1977,"Well, in setting a long-term target, of course, we're setting a year's target, but since we do this quarterly, I think we do have another shot at it in a few months, and I think it would be in the near-term when the fiscal package would be going into effect. I find it helpful to go back and look at what happened in 1975, when we had a similar situation--had the tax rebate in the spring and, as you say, the Fed has been criticized since then for frustrating the fiscal action.",109
-fomc-corpus,1977,"It has been both criticized and applauded, with more of the latter than the former.",18
-fomc-corpus,1977,"Well, it has given rise to some speculation that the Fed will try to avoid that kind of criticism by doing something different. Anyhow, I found it helpful to go back and look at '75, and I'd like to review that briefly. What happened was that the funds rate moved up somewhat to help keep the aggregates under control in the spring of that year. The aggregates, as you may remember, considerably exceeded the targets for a time: M1, for example, grew at an annual rate of 11 percent in one month, and 18 percent in another month--two successive months. The Committee did not change the long-term targets to accommodate those overshoots. And so, in effect, the Committee permitted some increase in rates, it permitted some overshoots in the aggregates temporarily, and it held the long-term target. I think this is a good model to follow because it does have the advantage of supporting the fiscal action, of being careful to hold any increase in interest rates to moderate amounts--to only those amounts it would be necessary to prevent the aggregates from getting completely out of hand. It would permit the Committee to explain that its main concern is with the longer-term growth of the aggregates, and I would prefer, I think, to see us hold to the long-term target in that kind of a model.",268
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Black, please.",14
-fomc-corpus,1977,"Mr. Chairman, I've struggled with this dilemma that you described so well, and I reached pretty much the same sort of conclusion that you have, that despite the political problems that do arise from adjusting these rates down, that we ought to make a small move. I was a little surprised, really, that you knocked down the lower limits of M2 and M3. My feeling would be that those are probably all right. We need that much expansion, probably, and my preference would be to knock 1/2 [percentage point] off the upper ends of those two. But otherwise, I come out about where you do.",127
-fomc-corpus,1977,"Well, there's a lot to be said for that. I struggled with that issue, and I'm not at all sure that I came out correctly. The effect on the midpoint is the same.",38
-fomc-corpus,1977,I think that's important.,5
-fomc-corpus,1977,"And in that sense, the two are interchangeable. By leaving the upper value where it is, we would be less likely--that was my reason--to attract, or to encourage, or to excite criticism. Now, the troublesome figure is the high point, you see, the high value. And it's that high value that is outside the range of historical experience, and that would be a more direct way of approaching the point. I didn't, for the reasons that I've stated. The midpoint, which is the effective value, is identical; and by lowering the lower limit, we're less likely to incite criticism. I don't consider that a decisive argument, and I've great respect for your suggestion.",139
-fomc-corpus,1977,"My feeling was sort of that they're saying, ""My gosh, they're willing to tolerate only 7 percent growth in M2 with an inflation rate such as we've got, that's just not adequate."" But your reasoning may be better on that. I don't have a great deal of trouble with one or the other. Some move, I think, should be made.",72
-fomc-corpus,1977,"May I ask a question? In the past construction of the long-term rates, did you assign a weighting to the three Ms for the longer-terms?",31
-fomc-corpus,1977,"No, but in our shorter-term targets we've been operating under the general rule for some months now of giving approximately equal weight to M1 and M2. And since there is some relationship between the short-term and the long-term, even though it's a somewhat tenuous relationship, there is some carry-over--but only to a very mild degree, you see--of this Committee's short-term weighting. Mr. Kimbrel, please.",88
-fomc-corpus,1977,"Mr. Chairman, I particularly appreciate your willingness early to give some evaluation of your reading of the possibility of thwarting fiscal policy by any action of ours. Candidly, I would feel somewhat reluctant to raise the M1 ranges, but I continue to be, as expressed earlier, very much attentive to inflationary possibilities--they continue to be unsatisfactory--and expectations, from my vantage point, are even more disturbing. Nevertheless, I think we need to demonstrate our concern for that expectation, and I am impressed with the prospect for maintaining a gradual lowering of the long-term target. So with that I think I would be very happy with exactly the prescription you have suggested.",135
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Jackson, please.",15
-fomc-corpus,1977,"Mr. Chairman, I think the one thing we need to recognize in the discussion we're having, particularly in the M2 and M3 measures, is that the retention of approximately the same targets [assumes] a substantial reduction in the rate of growth in time and savings deposits, both in commercial banks and in thrift institutions, because the actual rate of growth in M2 for '76 was 11.3 [percent], which is out of our present range, and M3 was 13.1 [percent], which is even more substantially beyond. And I think we need to recognize that even retention of our present targets over time will constitute a substantial change from the present environment in which those types of saving activities are taking place. Now, of course, the next question is, to what extent is a substantial change appropriate for the economic and inflationary prospects that we have before us? I personally feel that these aberrations, as I've said before, are to a large measure the product of this silly price-fixing mechanism called Regulation Q, and that the underlying fundamentals of the monetary policy that attaches to these are clouded by the shifts from one type of liquidity to another type. And we've seen some indications of that. I feel that, given the perspective of '75 that we had, and given the impact on economic activity that will take place--and there will be some real impact taking place as liquidity shifts from these types of savings forms to other types of savings forms if our long-term objectives are reached--that this will produce a salutary effect on inflationary prospects, but it will also produce some effect on real economic activity. So therefore, I share the fundamental objectives that you outlined. And I think this perhaps will be much more real in [the effort to control] inflation and inflationary expectations than perhaps we recognize from the action taken today. And so I would support the proposals that you're making, but I think the impact will be much more dramatic if they are carried out. After all, these are current objectives [unintelligible]. But I think the result, perhaps, is more dramatic than has been outlined in your statement because I think they would be very real, and probably even dramatic, in some of their economic ramifications.",451
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Balles now, please.",15
-fomc-corpus,1977,"Mr. Chairman, in some of your earlier testimony, it seems to me, you've done an outstanding job educating Congress as to the change in financial technology that's going on, and why M1, therefore, doesn't mean as much as it used to. And in fact, if adjusted for earlier conditions, [it is] perhaps as much as a couple of percentage points below where it otherwise would have been if these changes in financial technology had not come about. That's one point I'd like to get laid on the table as a background for my own personal views as to what ranges we ought to adopt. And the second key consideration in my thinking was one that Governor Jackson has just alluded to, and that is, for some time now, we have had inconsistent ranges, I'm afraid, for M1 versus M2 and M3. The big overshoot we've seen in M2 and M3, we all know about, and I'm concerned that that will continue to go on; and that really, to be consistent with our M1 growth range, we have needed--for some time now--a higher range of growth for both M2 and M3. The third consideration in my thinking is that, for some time, my staff has been calling my attention, and increasingly so in the very recent past, to the fact that, as they looked at the historical record, M2 has now emerged as a superior measure of monetary influence on the economy since about mid-'74, if you go back and make all the tests--from, say, 1960 to '74. The forecast of GNP through the third quarter of last year, using both M1 and M2--the M2 forecast is now showing a lower error than M1. In short, I hope that, if you feel you can help educate both the Congress and the public about that fact, [then] we perhaps ourselves [will pay] even more attention to M2 than we have. Perhaps weighing it even more heavily than the 50 percent that we've been giving it. Before I came in and heard your persuasive remarks--and I'm impressed by all of the caveats that you've mentioned, about reaction to the Administration's new fiscal package to stimulate employment and a fear that we may be frustrating their objectives--I prepared a different set of numbers that I think might get around the problems which you mentioned. And that would be first of all to reduce the M1 growth range to 4 to 6 percent, based on another of your good statements about how financial technology is changing. And if you agree with the analysis that I've just gone through, to stress even more the importance that we now attach to M2--to make those growth ranges consistent--to up the growth range of M2 to 8 to 10 percent, and the M3, 9 to 12. So if we did all those things, we would be, on the one hand, seeming to reduce the M1 range--not seeming to, we would be--by half a point in both the upper and lower boundaries. But assuming a satisfactory explanation, at which you are very adept, of why we're doing this--in view of the change in financial technology and the growing importance of time and savings deposits--we would be on the record as increasing by half a point the lower range of M2--that is going from the present [range of] 7-1/2 to 10, [up] to 8 to 10. And with regard to M3, increasing by half a point the upper range, going from the present [range of] 9 to 11-1/2, up to 9 to 12. I'm equally concerned about the danger of inflation that's been discussed at length around here this morning. And I'm quite concerned that if we in this year ahead were to experience the same sort of large overshoot on M2 and M3 that we had in 1976, we might well be setting the stage for significant inflationary pressures by 1978. Well, for that rather complex set of reasons, I would therefore suggest a possible alternative for the three ranges that I just mentioned.",843
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Partee, please.",15
-fomc-corpus,1977,"Well, Mr. Chairman, I believe I would support the ranges you proposed, recognizing in each case that they're pretty tight. With regard to M1, I'm a little surprised to hear President Balles suggest a reduction in the range, when earlier he commented that the implied velocity increase was extraordinarily large [on the order] of the 5-1/2 percent--that is where we were--in the projection. And I want to comment on that because I think that's true. I believe that a 4-1/2 to 6-1/2 M1 range [is appropriate], given what I think are fairly optimistic views on inflation by the staff and a real growth rate which--it's all right, but just--is at the lower end of a range that people would seek, I think, in the abstract, for 1977. It's a tight objective, 4-1/2 to 6-1/2. I'm not at all sure that there won't be people who will say that, ""Well, in view of the fiscal program and the needs of the economy, the Committee should have increased its M1 ranges."" But I think I wouldn't want to increase them, certainly not at this point, anyhow. I just would be afraid to make a further reduction, John, because of the implied velocity rise, even allowing for Steve's 1 percentage point for shifting definition. You still have a large velocity rise--if I understood you right, you said 5.8 percent for the year, and if you take that point off, that would make it 4.8, and that's still above the usual experience. Also, although I agree with what the Chairman said about the poor predictive results of the St. Louis model, I think the St. Louis model must have said about the same thing, given President Roos's statement that we can't make that real growth [projection] with the money supply range we have. Therefore, I am a little uncomfortable with 4-1/2 to 6-1/2--I think that the needs of the economy might be for more rather than less--but I would support the 4-1/2 to 6-1/2. Now M2 and M3--I think we need to recognize that what we're doing essentially is projecting interest rates. Given the M1 growth rate and the performance of the economy, M2 and M3 will be largely a function of interest rates. Governor Jackson is quite right that the upper ends of the present ranges for M2 and M3 imply a considerable increase in interest rates. Because throughout 1976, we produced numbers a good deal higher for M2 and M3; and in the fourth quarter of 1976, we've produced much higher figures for M2 and M3 given the interest rates we had at that time. I'm inclined to think there will be some increase in interest rates, but I can't support President Black's suggestion that we reduce the upper end of that range, since I think it's already a tight squeeze. It implies that we anticipate a considerable increase in interest rates as the year goes on to get down within the present ceiling on M2 and M3. I would, however, be prepared to support a lower limit of the range, and the reason I would is that we've been so miserable in our interest rate projections that, in fact, there could be a lot more interest rate rise than we expect as the year goes on, which would tend to produce low-end numbers for M2 and M3. And I doubt that, on those grounds alone, the Committee would want to loosen up on policy. That is, [if we get], let's say, a very high federal deficit or a shift--as I said before--in the full employment deficit number to a much higher number, you [will get] considerable upward pressure on rates, and those savings inflows [will start] to recede significantly. I doubt that we would want, on those grounds alone, to pump a lot more money into the economy. In fact, I think we'd probably be inclined to go the other way. And therefore, I think it's consistent to have a lower low end, Bob, on M2 and M3, rather than to reduce the high end, even though historically you're quite right that those numbers are a little bit on the high side.",888
-fomc-corpus,1977,They're very much high.,5
-fomc-corpus,1977,"Well, but with a 5 percent inflation rate, and the desire for real growth [to move] from 6 to 7, it requires quite a sizable number I believe.",37
-fomc-corpus,1977,"The average rate of growth of M3 for the period 1966 to 1975 was 8.8 [percent]. The average for the period 1971 to 1975 was 10.8. The average for 1976 was 12.4. The corresponding figures for M2 are 8.3, 9.5, and 10.9.",79
-fomc-corpus,1977,"And you're suggesting an upper limit of 11-1/2 on the range for M3, and of 10 for M2, which is less than last year's result in both cases.",39
-fomc-corpus,1977,That's correct. Last year's result was very much out of the ball park.,15
-fomc-corpus,1977,"My point, simply, Mr. Chairman, is that I think the Committee must be aware of the fact that--because we're talking about relationships among the family of aggregates--it's basically projecting interest rates. It may be that, sometime in the year, Regulation Q could give, which would hold the number up. But I hate to predict that, because of the difficulty in negotiating those changes. So, altogether, I find myself prepared to accept the numbers you have suggested. But I do want to note that I think that in each case, the range is tight relative to what we expect the economy to do.",122
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Baughman now, please.",17
-fomc-corpus,1977,"Mr. Chairman, I've wondered how we're going to handle this situation in the environment that we apparently will be in, and I hadn't been as resourceful as you have been in terms of how it might be handled, because I had tended to think in terms of some change in the top instead of the bottom of the ranges. I'm prepared to support your proposal. It seems to me it's probably about as optimal a suggestion as could be, of the proposals that could be put together, given the prospective environment that we're going to be in. I would go with you.",113
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Morris, please.",15
-fomc-corpus,1977,"Mr. Chairman, I guess I'm in a minority position in this, but it seems to me that there are advantages in the present situation of staying with the present ranges. I think you're quite right that we must have a policy of gradually moving down the ranges. But I don't think we ought to get an [unintelligible] policy--to have a feeling that we've got to make a change every three months. It seems to me, given the state of the economy, that on pure economic grounds, a case could be made for staying with the present ranges until the leading indicators of capital spending start showing some strength, which they don't at the moment. And my second reason is that, it seems to me, this is not a change. The change you're proposing is not a change in substance. This seems to me to be a questionable judgment. I would prefer [waiting] until the next meeting of the Committee, [which] would be in May. It seems to me that would be a better time to make changes. I think we would be better off to stay with the present set in this particular context.",225
-fomc-corpus,1977,"I would only make one comment. There's never a good time. I've learned that from very long and hard experience. Secondly, the next time we turn to this subject will be in April, and the Congress may just have passed the fiscal bills recommended by the President, or be on the point of passing. That isn't going to be an easy time for us, either, in terms of what Mr. Baughman euphemistically described as the environment.",91
-fomc-corpus,1977,"Well, I think you're quite right, Mr. Chairman, but I think that if we were making a change in substance here, and [if] I thought we had the economic case to make it, I think it would be quite different. But to make a change that I don't think is substantive in this climate--I don't think that it makes a lot of sense.",75
-fomc-corpus,1977,"On the fact that there was an overshoot in M2 and M3, I would like to explore this a little. If we were to continue with the same ranges for M2 and M3, we would be doing nothing to correct for that overshoot. In other words, we would be allowing base drift to proceed. Now this is a convenient way of dealing with a past event, but it does not reflect the intentions that we had three months ago when we set this target. If, on the other hand, we bring down the range for M2 and M3, we would be making a correction of this overshoot, and I think that should carry some weight. Now, as to whether to reduce the upper or the lower end and whether these reductions should involve a change in the midpoint with respect to six months ago, is a more complex matter. There is some logic in bringing down the upper end, precisely because of the overshoot element. On the other hand, we've learned, I think, from the experience of past hearings, that Congress is more sensitive to the upper than the lower ends. Now let me comment for a moment on M2 and M3. I don't feel like giving much weight to M2 and M3 in the short run. In the long run, M2 has turned out to have been remarkably stable--over the last 15 years. I can only think at the present time that this is the result of two conflicting trends. The M1 component has all the instability that M1 has, and the time and savings deposit component has instabilities which we are familiar with, namely the intermediation process that occurs because market interest rates are low. So, stability here is, I think, [a] balance [of] conflicting forces, either of which could change, and for that reason M2 in the short-run does not impress me as a very valuable guide. I think the logic of the situation is that M2 will tend to move more slowly as interest rates go up, and in that sense, my concerns about base drift will be allayed. Also, the inconsistency that has been observed on the M1, M2, [and] M3 targets--the trends are just not in line with the way our ranges are set up. That, too, I think is likely to come more into line [if], over the years, interest rates go up. One last concern--the targets ought to be flexible. We want to be able to change our minds. The only consistent action we have taken is to lower them over time. This, too, is an element where flexibility or inflexibility can play a role. I agree with you, Mr. Chairman--there is never a good time. I suspect that now is perhaps a better time than three months from now to do it. I would like to caution us that we may run out of half percents, which [unintelligible] to reduce over time as we go, if we operate on the fringes as we have to, if we do that on a quarterly basis. So--",630
-fomc-corpus,1977,"Proceeding as we have, Henry, I've made some calculations--it will take us ten years. Ten years if we're lucky, if we don't have any recession, and if we just persist in doing pretty much what we've been doing.",47
-fomc-corpus,1977,"Well, I feel apprehensive about quarterly changes. This one, it seems to me, has a good deal of logic, and I support the reductions in the lower ends of the M2 and M3. So I do not arrive at a different conclusion. But there are some considerations here, I think, that at some time might need to be examined more in depth.",75
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Winn, please.",14
-fomc-corpus,1977,"I'm a little bit of the devil's advocate today. I'd like to refresh our memory as to where we set our target three months ago, when we were faced with a pause. We were concerned about the outlook, and we were not nearly as positive as we are at the moment; yet we took a stand for cutting back at that time in view of our concern about inflation and so forth. It seems to me that we've got a much more positive economic environment at the moment but more legitimate concerns about the inflation problem, and therefore I think we have to make some sort of a gesture, although I get uneasy as to just exactly where that should be. But I think we have to persist at this time. And I would follow Dave's advice to be a little more tolerant of an overshoot or a miss here in this first period as a way of both maintaining a posture of concern and target and at the same time adjusting to the realities of the situation.",192
-fomc-corpus,1977,That's a question of short-term targets.,8
-fomc-corpus,1977,That's correct.,3
-fomc-corpus,1977,It is a question as to what we mean by targets.,12
-fomc-corpus,1977,"Thank you, Mr. Winn. Mr. Coldwell now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I've been debating this matter in my mind for several days, weeks, months as to where to opt for standstill or some modest lowering of targets, and I agree with you that, if we are going to lower targets, M2, M3 [offer] the better logic than M1. The arguments that I devised in my mind went something like this for a standstill: We do have adequate range [from] where we stand today to probably come within that. We certainly exceeded the M2, M3 this past year; I believe we came within the targets for M1. I don't believe it is absolutely necessary for us to move every time, and perhaps when we see something very strong in the way of a move, it might be worthwhile to knock a full percentage point off instead of a half percentage point, and maybe cut your years to 5 instead of 10. But the lower growth rates, I think, can be reached within our current stance. Certainly if we're looking at a 5 percent inflation, we're going to have to accommodate some of that in our aggregates. But I look at the primary function of these annual rates, [and] as I see them, [there are] basically two. First, the public perception of what we're doing and the congressional oversight position. And second, some very broad Committee guidance--I would emphasize very broad--because I don't hear many Committee members, perhaps excluding President Balles, who keep reminding us that our short-run [targets] ought to be somewhat consistent with our long-run targets. And consequently, while we get some very broad guidance out of [the annual rates], our performance really hasn't been tied very well to the long-range targets. I think the possibilities over the coming year are interesting--almost a possibility of a reversal of 1976--in that we might get greater M1 growth and lower M2, M3 growth, especially if we really believe that this economy is going to move up strongly and interest rates advance with it. To lower the targets comes down to a point, really, of the degree of harassment you want to take at your hearing, because I think you will get harassed by a Congress that says, ""Well, you are trying to frustrate us, and you're not going to provide the funds necessary to make our fiscal policy work."" Now that doesn't bother me, because I'm not on the stand now. It may bother you considerably before your hearing's over. But assuming you can get away with this without too much harassment, and I believe you can because of the particular points you picked, I'm perfectly willing to [reduce] the [lower end of the] range [for M2] to 7 and [for M3 to] 8-1/2. I would like to point out to the Committee that we do have a different spread in these three aggregates. M1 at 4-1/2 to 6-1/2 is a 2-point spread, and I have heard some around this table [who say] that it ought to be a single-point number and others who want a 3- or 4-point spread, including those who said it doesn't matter a bit whether you're talking 4 or 8, it means the same figure.",666
-fomc-corpus,1977,That comment touches one of my nerves. I have made that comment repeatedly with regard to our two-month targets. I've never made it with regard to the long run.,33
-fomc-corpus,1977,"No, I recognize you have not made it for the long run. Nevertheless, M2 and M3 are presently on a 3-point spread. Now, I haven't got any strong feelings about this because I am not much of a short-run believer in these things. But [for] the long run, I have some belief in these figures, and I would like to see if maybe we could talk some day about a little narrower spread on the long range in the upper end instead of the maintenance of the 3[-point spread]. And, unfortunately, what you're suggesting enlarges the spread instead of narrowing it. We did narrow it before; we enlarged it last time by raising the upper end, and now we're going to lower the lower end, which enlarges the spread again. Well, this long diatribe will come to a halt. I am willing to accept the M2, M3 change. I would have been willing to accept a standstill because I don't think it is absolutely necessary for us to move every time.",209
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Mayo now, please.",15
-fomc-corpus,1977,"I am quite willing to accept your prescription, Mr. Chairman. I started out going Frank Morris's way--no change. Then I began to worry that, just about the time that we come up for this three months from now--and I feel much surer [now] in my own mind--I wouldn't want to see us make a change [then]. And if we're going to pursue our longer objectives, I would rather see us do it now. Congress is either going to be in the process of passing a tax cut or will have just passed one when you go up three months from now. And I think the eagle eye will be placed on us 10 times--well, it will be 10 times as difficult to explain a change in our targets at that point than now, everything else being equal, which of course it never is. But on the basis of what limited foresight we have at the moment, I would prefer to see us make some recognition of our desire to reduce the ranges over a period of time. I subscribe to cutting the lower [end of the] range on M2 and M3 because I think that, if you look at the maximums and minimums of all three of these ranges, these are the least sensitive ones in terms of what you might call our justification for going above or below, in a minor way, from the minimum of the M2 and M3 ranges. M2 and M3 ranges are in part a product of Regulation Q and the disintermediation process, and, unlike Phil Coldwell, I see no objection to eventually widening the spread a little bit on both M2 and M3 rather than narrowing [it].",340
-fomc-corpus,1977,"All right, thank you, Mr. Mayo. Mr. Gardner now.",15
-fomc-corpus,1977,"I think we've had a kind of good discussion about the prospects of the economy and we have at least a seeming consensus of what is ahead. I once spoke about the fact that it is not necessary to change at every meeting of this Committee. But when I see a road ahead that I generally perceive [as desirable], then I want to get about our business. Now, we've had an overshoot in M2, M3. Henry, I take exception to your view that they've been remarkably stable over the years. Actually, I think you could build into the numbers evidence of a continuous expansion of growth and size.",123
-fomc-corpus,1977,"There is a lot of work done on this which shows that, over 15 years, M2 has been very stable.",25
-fomc-corpus,1977,Relative to GNP.,5
-fomc-corpus,1977,"Starting around 1961. If you carry it back just a few years, it all collapses.",21
-fomc-corpus,1977,"Well, I have another view of M2, and M3 particularly, and that is that it isn't only [Regulation] Q; it's the technological change in the way transactions are handled, which you are all familiar with--telephone transfer, NOW accounts, and what have you. And I want to get about the business of this overshoot. We have had half again as much overshoot as we have range in M1, and almost in M2, and almost in M3. So I think it's wise for us to lower the bottom, reducing the midpoint by 25 basis points. Because, really, as Governor Jackson says, what we've got to do is to forget about putting these two aggregates somewhat closer to our targets. Quite a bit over on both of them. They aren't going to change and become less of a key in the economy. The two--the velocity of money and the liquidity quotient of the economy--they are going to become more liquid, they are going to become more volatile. At least they're going to move more rapidly. M1 loses status in my mind. M2 and M3 are inevitably going to be more interconnected with the current state of transactions balances in the economy. So I'm perfectly happy widening the range a little bit, lowering the lower limit. I think that what we will be concerned with in the short range is our interest in the overshoots that we have had in the last year. And I even think this is consistent, or at least it takes cognizance of Dave Eastburn's admonition. If there is a rebate or what have you, I wouldn't lower the top of the range. I'd lower the bottom of the range.",340
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Guffey now, please.",16
-fomc-corpus,1977,"Yes, Mr. Chairman, in preparing for this meeting and sharing the desire to continue to move downward, I think we came to the judgment that whatever we might do should be principally cosmetic. And we came out, much as you did, to lowering the lower [end of the] range of M2 a half percentage point. We had thought some [about] the M3 as well. Listening to this conversation, I wonder as to the wisdom of lowering M3, and particularly drawing the fire that may come from it [because] M3 figures [are] made up of savings and loan and other types of deposits, which may imply that we are indeed going to do something to housing very early in 1977 or through 1977. We need not draw that fire. So I'd stick with just going down on the M2 side.",171
-fomc-corpus,1977,"All right, just one point: Leaving the upper limit of M3 unchanged should, I think, protect us against that criticism, assuming that criticism is going to be rational, which it sometimes is, and often is not.",45
-fomc-corpus,1977,"Mr. Chairman, I wonder, did the staff do any estimates to see what that M3 would do to housing? Did you project it?",29
-fomc-corpus,1977,"I don't believe [so], Governor Partee. We didn't project for the lower limit.",18
-fomc-corpus,1977,"No, but for the upper limit--M3, well anything.",14
-fomc-corpus,1977,"No, we did not project. Because [M3] includes time and savings deposits at banks, which are going down, I don't believe lowering it a quarter of a point would be offset by additional lending by the Home Loan Banks. So I don't think you're going to get any significant impacts on housing from that minor change.",65
-fomc-corpus,1977,"You know, they've been flooded with money. If they have a problem, they can easily solve it through 1978.",25
-fomc-corpus,1977,"The question that I had in my mind and, I think, that Governor Jackson had in his mind is whether coming down from where we've been recently--not with the upper end of the ranges but where we have been--won't create quite a wrench in housing. And that is a matter of flow of funds projections.",64
-fomc-corpus,1977,"Of course, that's basic to the projection of GNP that we've already presented to you. And that working-down is built into that projection.",28
-fomc-corpus,1977,"So, do you have a rising level of starts with an M3 within the ranges that we're talking about?",22
-fomc-corpus,1977,"Yes, that's right.",5
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Volcker, may we hear from you now.",21
-fomc-corpus,1977,"Just on this latter point, I would think part of the rationale--although I haven't worked the figures through very carefully--is that an awful lot of M3, in effect--certainly in the savings banks--is now going into the corporate bond market rather than in the mortgages. There's quite a lot of slack to be taken up if there was a real mortgage demand. But more generally, you can't help but sit here and be struck by the degree of consensus around the table, which means that there is very little to add. The differences are very narrow. Certainly, in approaching this problem, I've been impressed by some points that have been made repeatedly, that these targets are so high relative to our ultimate objectives, and we've got to work them down. They're also high relative to historical experience, including '72 and '73, when the Federal Reserve had a lot of criticism for stimulating inflation. And both those factors are fundamental to my approach. It's a little tricky to work it in with the present economic outlook and the question of whether we're consistent with the fiscal strategy of the Administration. As I view the outlook, I feel relatively comfortable, but I still do think there is a major problem in the investment area, which probably won't materialize in 1977 in terms of capacity restraints, but well could in 1978. And I don't see us making very much progress in that direction. And the possibility of greater congestion in financial markets, which was referred to this morning, on the surface at least, doesn't help. Take that all together and, in a kind of theoretical way, you could say what the doctor orders here is a tight-fiscal-policy, easy-monetary-policy kind of approach. But there is an overwhelming argument against that. We ain't got the tight-fiscal-policy approach. That's quite evident. So you have to work within that framework. And I think expectational factors here are very important in terms of that potential congestion in the market as related to the prospects for inflation. So I think it's very important that we do maintain a posture of not releasing the bands on inflation, and that may--through the expectational route--help avoid late, excessive congestion in financial markets and avoid inflational tendencies that we're all worried about. So I can rationalize, for my satisfaction at least, reversing the presumption of tight fiscal policy and easy monetary policy through that expectational route. My feeling coming here was that I'd be perfectly happy to see some gesture, not very substantive, toward reducing the targets. But I was certainly prepared to support no change, in recognition of the enormously difficult problem of explanation at this particular juncture. If we were going to make a change for more or less technical reasons, I was a little more on the Balles side in thinking that maybe at least the lower limit of M1 ought to be reduced--this consistency point that other people have referred to. But I think you can also argue that M2 and M3 have been moving at an exceptionally high rate with a change in the environment of the financial markets. And particularly without raising the upper limit, as you have suggested. This can be rationalized over a period of time. So I'm quite happy to go along with your suggestion, recognizing that you volunteered to take on the burden of explaining, which I think is crucial here, and I think you have the equipment, as you demonstrated here this morning and in the past, to do that. So on that basis, I'd rather follow the instinct to get at some small gesture, at least, toward reducing the aggregates in the manner you suggested.",722
-fomc-corpus,1977,"Thank you, Mr. Volcker. Would anyone else like to be heard? Yes, Mr. Van Nice, please, and welcome to our meeting, Mr. Van Nice.",36
-fomc-corpus,1977,"Thank you very much. Since I haven't been here for 2-1/2 years, I would like to give you a fresh viewpoint, but I am rather disappointed to say that I find, as Mr. Volcker does, that there seems to be a reasonable consensus here this morning, and I share that consensus. I think the Minneapolis view of the economic outlook is remarkably similar to that projected by the Board's staff--that alternative B, which essentially is what you're recommending with the two modifications you mentioned, is consistent with the projected economic outlook. And that the short-term money market objective, or federal funds objective, is consistent also with no change, which I think is, for the reasons you have stated, the sort of prescription to me that we need at this time. So I would certainly support your recommendations.",165
-fomc-corpus,1977,"Thank you, Mr. Van Nice. Would anyone else like to speak? If not, I do think that we have a rough consensus as to numbers. There is a consensus in another respect, and this goes--I have only one quarrel with your comment, Paul--at one point, you refer to being quite happy. I don't think anybody is quite happy with this exercise; there is a consensus also of not being enthusiastic. It's very hard to be enthusiastic, and I share that light enthusiasm. But in view of the rough consensus that has emerged, I would like to put to a vote now the following targets for the 12-month period from the fourth quarter of '76 to the fourth quarter of '77: 4-1/2 to 6-1/2 percent for M1, 7 to 10 percent for M2, 8-1/2 to 11-1/2 [percent] for M3. As for the credit proxy, I suggest that we follow the practice that we have in recent meetings and leave that to our staff. Any number determined by our staff as being rational will be accepted by the Committee. Now, so we'd be voting on M1, M2, and M3 as I stated. Are there any questions before we begin the voting? Would you be good enough to call the roll?",275
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes President Balles Yes President Black Yes Governor Coldwell Yes Governor Gardner Yes Governor Jackson Yes President Kimbrel Yes Governor Lilly Yes Governor Partee Yes,38
-fomc-corpus,1977,"Yes, Mr. Winn.",6
-fomc-corpus,1977,"Could I raise a question? Steve, I got troubled on your Appendix 3 in the Bluebook in terms of your federal funds rate projection. Now, is the failure of that behavior [mean] that higher rates at the moment would indicate a less rapid rise in the future due to the fact that that should be projected out over a couple more years?",71
-fomc-corpus,1977,Higher rates?,3
-fomc-corpus,1977,"Well, of the federal funds rate?",8
-fomc-corpus,1977,It would indicate lesser growth in what over the future?,11
-fomc-corpus,1977,"The federal funds rate in the future. See, you've got the high rates currently--raise the rates currently--to get even higher rates at the end of the year.",34
-fomc-corpus,1977,"Oh, well, alternative A pertains to a longer-run growth path for M1 that is higher than the one adopted by the Committee. Alternative C pertains to a longer-run growth path that's lower than the one adopted by the Committee. So alternative A simply permits a more rapid money growth and thus a lower funds rate; and alternative C has a more restraining money growth rate and thus a higher funds rate. I'm not sure I'm answering your question.",89
-fomc-corpus,1977,Okay.,2
-fomc-corpus,1977,We should look at B as being the projection.,10
-fomc-corpus,1977,B is the projection that would be consistent with what the Committee has adopted today for the long run.,20
-fomc-corpus,1977,Any other questions?,4
-fomc-corpus,1977,"Just one brief question of what impressions or facts the staff may have about the prevalence of a reduction in the passbook rate, or savings certificates rates, around the country.",34
-fomc-corpus,1977,"I don't believe we have anything more specific than we presented last time, and it's just scattered reports. You don't have anything beyond that, President Volcker.",31
-fomc-corpus,1977,"Mr. Black, please.",6
-fomc-corpus,1977,"Steve, you may have answered this--I know you have skirted it very closely--but I was a little surprised when I remembered that, back in 1975, when we had that sharp jump in M1 and M2 in May and June, when we had the tax rebate--since we have larger refunds coming this year, we are going to have a rebate too. I would have thought your second quarter estimates of M1 and M2 would have been higher than they really were. Is there something that I'm missing there?",108
-fomc-corpus,1977,"In 1975, the first quarter rate of growth was very small, of course, 0.6 percent, and the second quarter, on average, was 7.4. And we have assumed this year, in our tentative working out of a pattern in the second quarter, that the rebates will move out of demand deposits perhaps faster than they did last time. As you recall, last time, May was very high, and June was even higher. We are assuming a faster movement of the rebates out of demand deposits into other investment instruments or spending this time than [we did] last time, on the assumption that people learn. Now whether that will in fact develop, I can't be sure. Also, we are not really certain as to the size of the rebate--it could vary between $7 billion and $11 billion; we assumed 10, not too far different from last time.",182
-fomc-corpus,1977,"You do have pretty large refunds, don't you?",10
-fomc-corpus,1977,"Well, again, the refunds come, and it depends on the pattern, because what goes in in March goes out in April, and it has a negative effect on the April growth rate. So you might get a high March growth rate and a low April growth rate, [and] a high May growth rate as the rebates come in; if they go out, move into deposits, you get a low June growth rate. And that's roughly the kind of pattern we have assumed. God knows whether it'll be fact or not.",105
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Eastburn.",12
-fomc-corpus,1977,"Steve there has been some talk in the market about the uncertainties of seasonals, particularly at this time of the year. Do you have any feelings to whether they are more uncertain now than--",38
-fomc-corpus,1977,"We hope to have new seasonals by the next Committee meeting. We have held them up, waiting for the June benchmark; we do them both simultaneously. I am absolutely certain, from following past experience, that the weekly seasonals are going to be revised substantially. The large weekly variations that we have seen will be much dampened. I have no feeling at this moment about the monthly seasonals. I have no reason [to think] that they will be changed in any significant way at this point.",101
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Wallich, please.",15
-fomc-corpus,1977,"Steve, we've chosen for the long-term ranges something close to alternative B. If we were now to choose something like alternative C for the two-month ranges, then, of course, the interest rates path of Appendix 3 will not apply. But there will be something like the usual pattern, which shows that C means a higher funds rate earlier on but a lower funds rate relative to the other alternative later on.",82
-fomc-corpus,1977,"Yes. If you choose the interest rate pattern implicit in alternative C, that is, a higher federal funds rate over the next few weeks, which is about 1/2 point, then our ending point on the funds rate would not be 6-1/2 percent, as it is under alternative B; it would be somewhat lower, on the thought that the Committee has put the restraint in earlier, and thus you wouldn't need it as much as time goes on.",95
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Partee, please.",15
-fomc-corpus,1977,"Well, going back to President Black's question, what we can look forward to with some confidence is a bulge, maybe as early as March, with the refunds of 1976 tax payments, certainly in May and June depending on the timing of the rebate. And so it puts us in sort of an odd situation; the January and February numbers are not extraordinary in any way, but we all look forward with anticipation to these bulges, and we can't do much about it.",97
-fomc-corpus,1977,"Yes, but I might add that it seems as certain as death and taxes in May and June. The refunds that we are projecting--and we could be off again on that projection of the amount of refund--but if it does turn out to be $3 billion higher, it's likely it will bulge in March.",64
-fomc-corpus,1977,"Thank you, Mr. Axilrod. We have to make a decision as to the procedure. It's 5 minutes to 1:00. And we could continue this meeting and perhaps reach a resolution as to our short-range targets quickly, or we could break for lunch and come back at 2:00. What is the pleasure of the Committee?",72
-fomc-corpus,1977,I think we ought to break.,7
-fomc-corpus,1977,The suggestion has been made that we break for lunch; I hear no protest. [Lunch break],20
-fomc-corpus,1977,"Now we are ready for item 4. Let me give you the housing figure. Here is the way they have been running, to give you a frame of reference: August--1,537,000; September--1,840,000; October--1,814,000; November--1,716,000; December--1,940,000.",74
-fomc-corpus,1977,Single or multifamily?,5
-fomc-corpus,1977,"Increase in both. Let me give you the multifamily: August--366; September--560; remember there was a sudden increase associated with special activity by HUD; October--477; November--479; December--617. On the other hand, building permits figures show somewhat different results: July 1,215; August 1,296; September 1,504; November 1,590; December 1,513. So there is a small decline in permits, a large increase in housing starts with a trend in both-- a favorable one, a rather strong one. Gentlemen, we now have to turn to the decision on the domestic policy directive for the coming months. What I find particularly difficult is the specification for the federal funds rate this coming month. Now, in alternative B, I find myself really wrestling [with a choice between] the federal funds rate specified under alternative B, and a still-smaller range that is 4-1/2 to 5 percent. Now, you know, these ranges have to be realistic. I thought for a time of a range of 4-1/4 to 5-1/4, and I asked myself a question: What would happen to the world we live in if the federal funds rate were to rise from 4-5/8 to 5-1/4? I would say that, for the coming month, it would be an unacceptable increase. So I brought it down to 5, and then I asked myself a question: What about the rate going down to 4-1/4? Well that's possible; 4-1/2 is perhaps better. I could live with one or the other. I think I would like 4-1/2 to 5 a little better. As for the growth rates, those under alternative B look all right to me; perhaps it might be shaded by a 1/2 point.",393
-fomc-corpus,1977,"That would put them at about alternative C, if you shade them.",14
-fomc-corpus,1977,"That's right. Well, that's the way I see matters for the month ahead. Who'd like to speak on the subject. Let's see if we can't go round the table and do it with reasonable speed. It's now 2:30, and there is a lot that all of us still have to accomplish before this day is over. Mr. Coldwell.",72
-fomc-corpus,1977,"Mr. Chairman, I found myself in the same box you did because the only thing I really have much problem with is the federal funds rate range. I don't have any problem with the alternative B objectives. The federal funds rate range, though, I came out differently than you did. Although not differently in the center point. I just think if we are going to have an opportunity to make this work, we have got to have that range wider, and I picked the 4-1/4 to 5-1/4 range, which puts me exactly at the same center point of 4-3/4 that you have [put] down. Directive-wise, I take a status quo position.",143
-fomc-corpus,1977,"All right, thank you, Mr. Coldwell. Mr. Volcker, please.",18
-fomc-corpus,1977,"My feeling about the interest rate range is exactly as you expressed it. I'd be hesitant to see it move from 4-5/8, but [a] 4-3/4 percent midpoint is okay. And I think in practice it should be narrower; however, as far as how we put the thing formally, I can't see what would happen to this market if it went above 5, or I think it would be very misleading if it went below 4-1/2. Let me just make one point on ranges for the aggregates. Governor Coldwell raised the point this morning that we didn't relate them enough to the long-term targets--or, [remove] the word ""enough""; we don't relate them [at all], usually. I think we should; that should be our usual point of departure, and I just want to make that point and associate myself with Mr. Balles--he's another one who's made it. Typically, these short ranges ought to straddle the long-range targets. There may be particular instances when we want to deviate, but we ought to be clear why we are [doing so]. And we shouldn't take as our point of departure these short-term projections, which are very erratic, anyway. Our basic point of departure ought to be the long-term range and then deviate if we have a good reason.",277
-fomc-corpus,1977,"All right, thank you. Mr. Partee, please.",13
-fomc-corpus,1977,"Oh, excuse me, let me just add [where] this leads me, I guess.",19
-fomc-corpus,1977,"Yes, I was going to ask that.",9
-fomc-corpus,1977,"I was going to live with alternative B--I suppose I would be a little happier, particularly if M2, in the light of our decision this morning, was reduced by 1/2. I think there are some reasons to make it a little higher at the moment, in the long term.",61
-fomc-corpus,1977,All right.,3
-fomc-corpus,1977,"Well, I don't exactly agree with President Volcker's ""straddling"" the long-term range. I think a lot of times you got a month, and the two-month average that we know is coming in pretty high or pretty low. And so it becomes just impossible, unless you just disregard it, to have something in that midpoint. This doesn't happen to be one of those times, although I guess generally [unintelligible], and tremendously so. I would rather have the lower ranges, too, for these two months, because I am concerned about the bulge. And if we could, I would like to save up a little room to accommodate the bulge when it occurs. Now I don't mean by that to make it a very low number, but 3 to 7 on M1, and 7 to 11 on M2 seem to me to be reasonably high numbers. And if could save a half point there, why, we are going to need it, I'm quite sure, if there is a [tax] rebate and if it's of the size people have been talking about. And we should, I think, start now to plan our strategies so that we don't seem to [take an action] that people would imagine as a contradiction to the fiscal policy action--the kind of response we got in the spring of '75. So I would go for the short-range specs of alternative C. As far as the funds rate is concerned, I can't really disagree with the Chairman--4-1/4 seems low and 5-1/4 seems high. But we are getting awfully myopic on this question of interest rates, and if the aggregates were quite strong, I could imagine us wanting to do this, perhaps as high as 5-1/4; if they were quite weak, I could then imagine us deciding maybe we ought to pull back a little bit--perhaps as low as 4-1/4. So, although I don't have a great deal of happiness about the bottom quarter or the top quarter of that range, I would prefer the 1 point range--4-1/4 to 5-1/4. And I don't really think we have any good basis for continuing on a money market directive type of approach, as we had in the past month, since we are through that period of extreme uncertainty. So I think if you're going to have an aggregates directive, you need a point range. So I would vote 4-1/4 to 5-1/4, but use the 4-1/4 and 5-1/4 points sparingly.",537
-fomc-corpus,1977,No--,2
-fomc-corpus,1977,"That is, well, you'd have to have a high number on both or a low--",18
-fomc-corpus,1977,"No, no, wait, wait--we have been through all of that. For a time, we would fix on a range and then we would say, oh no, let the effective range be smaller. That got us into difficulties. The range that we decide on, we've found through experience, is the range that ought to be available to the Desk to use in full. Now, circumstances may arise between meetings when the Chairman may seek the advice of the Committee on going beyond the range or not going up to the limits of the specified range. But if we decide on 4-1/4 to 5-1/4 today, that should be our decision and that should mean that the Desk is free, assuming there are no further instructions to the Desk, to use that full range, depending on the behavior of the monetary aggregates.",170
-fomc-corpus,1977,If we got to the extremities on the aggregates. But we would have zones of indifference--,20
-fomc-corpus,1977,"Oh yes, oh yes.",6
-fomc-corpus,1977,"All right, then I'll retract: 4-1/4 to 5-1/4 straight--that will be my vote.",28
-fomc-corpus,1977,It'll take three weeks for the Manager to understand where he is anyway.,15
-fomc-corpus,1977,"Did you say ""to the extremities"" or ""through the extremities""?",16
-fomc-corpus,1977,"I said ""to the extremities.""",8
-fomc-corpus,1977,"Well, ""to"" or ""through""--",9
-fomc-corpus,1977,"If you were at the extremes on M1 and M2. One other point, Mr. Chairman. I sort of feel, as I think President Volcker inferred, that we're probably at the bottom, and rates are going to be moving up. We've been wrong about that before, and we could be wrong about it again, and I don't think we ought to make the judgment final. And therefore, if we did get extreme weakness, maybe we ought to let them drift down a bit.",99
-fomc-corpus,1977,"We'll move on now. Mr. Kimbrel now, please.",14
-fomc-corpus,1977,"Mr. Chairman, I believe Governor Partee has phrased my honest feeling about this. If had my druthers, I [would] really prefer to see the funds rate with a somewhat larger spread. I recognize the problem that we face and am prepared to accept this narrower 4-1/2 to 5, but that doesn't mean I am overwhelmingly happy about it. In M2, I would like to hope that we could not exceed the long-run targets, or maybe that's too much to expect at this moment, but I would like to see us shave at least a half point, to 7-1/2 to 11 if we could; but within that, the alternative B seems to be the most acceptable.",149
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Who'd like to speak now. Mr. Mayo, then Mr. Black.",25
-fomc-corpus,1977,"Well, Mr. Chairman, I [do not have] a very decided preference, but I do have a preference for Chuck's prescription on a 4-1/4 to 5-1/4. I think a 1 point spread--I find it a little more comfortable than a 1/2 point. I think we are zeroing in a little too closely on the federal funds constraints if we make it only a 1/2 point spread. On the M1 and M2, the differences between alternatives A, B, and C are minuscule, and I find that we've sort of become dedicated to a 4 point spread here. I see nothing wrong in this instance to have a 3 to 8 on M1 and a 7 to 12 on M2. Not with the purpose of embracing all three assumptions, which sounds sort of Machiavellian, but rather just to indicate that, again, we are not going to have trigger points that are really unreal here. And I think the spread both ways would give us a better feeling with regard to the way we are using the federal funds. As far as the money market versus the aggregates directive, I have a slight preference for money market, but it's very slight.",256
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Black, please.",13
-fomc-corpus,1977,"Mr. Chairman, our projections for January, like those of the Board staff, suggest that M1, anyway, will come in a good deal stronger than we thought a month ago. But I think we've got particularly difficult problems this time of year, and we have been studying this pattern that develops around the Christmas season--beginning in November and ending in February. And it makes a whale of a lot of difference where the weeks fall; you have what appear to be pretty random factors that make a great deal of difference as to whether the rate of growth shows up in February or January. And we don't believe that either the monthly or weekly seasonal factors take very good account of this, and so in essence we really feel that you have got to take a look at the two months in tandem before you draw any very valid conclusions at this time of the year. In essence, anywhere between 4 and 7 percent to us would not necessarily mean that you are getting off your long-run trend--that [it] was accelerating, in other words. So, what I am saying is, not that ""4 is 8,"" exactly, but ""4 is 7"" anyway you look at it now. So I think that I would value your suggestion on this. I never thought that I would want to go for a money market directive two months in a row, but because of the particular uncertainty about the aggregates this time of the year, I believe that's the wisest course for the time being.",301
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Balles, please.",14
-fomc-corpus,1977,"Well, a number of those who have already spoken have, in effect, given my speech. In view of the sustained overshoots we had in M2--given my own strange sort of view that M2 is probably a better predictor of what's going to happen now than M1--I think it's time to lean against that overshoot a bit, and hence I would like to see the federal funds rate edge up a little. And also because I am convinced that we should have a full-point spread in the federal funds range, I would join those who are commending a 4-1/4 to 5-1/4 federal funds range. But for the reasons that Governor Partee has already alluded to and my own concern about not getting clear outside of our long-term ranges in the short run, I would favor the alternative C specifications on M1 and M2.",179
-fomc-corpus,1977,"Thank you, Mr. Balles. Who would like to speak now, please. Mr. Wallich.",22
-fomc-corpus,1977,"I think the matter that should dominate our thinking is the prospective bulge, and that's been very troublesome in the past. I therefore feel that Governor Partee has a very good point in suggesting we accumulate a little reserve. That leads me to alternative B, shaded downward by 1/2 point on each end. Once the bulge is within immediate distance, I would also go to a money market directive. This time, I would stay with an aggregates directive. And with that in mind, I do lean toward a wider funds rate specification and would like to go with 4-1/4 to 5-1/4, bearing in mind that we should begin to guard against the bulge at this time.",145
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Lilly, please.",14
-fomc-corpus,1977,"I have no problem with alternative B as far as M1 and M2 are concerned. If I'm right about the economy having bottomed out, starting out it may well be that we will need a 5-1/4 rate. If I'm wrong, it may well be that we need a 4-1/4 rate. So I would vote 4-1/4 to 5-1/4.",86
-fomc-corpus,1977,"Thank you, Mr. Lilly. Who would like to speak next, please. Governor Jackson now.",20
-fomc-corpus,1977,"I would be inclined to support the 3 to 7 M1 and 7 to 11 M2 ranges. It strikes me that, within the current environment of the money market, I would be more inclined to the 4-1/4 to 5 federal funds rate [range]. While I share the concern about the prospective bulge, I don't share the opinion that near-term prospects of changes in the federal funds rate of the magnitude we are likely to undertake are going to produce a darn bit of difference.",105
-fomc-corpus,1977,"Thank you, Mr. Jackson. Who's ready to speak now. Mr. Eastburn.",19
-fomc-corpus,1977,"If I understand what is referred to by ""the bulge,"" then I guess I have some difficulties with it because it seems to me that, if it comes from a rebate, it's just a temporary cessation in the flow of funds [to which] we shouldn't pay all that much attention. So far as rates are concerned, it seems to me that rates are going to be moving up, and we should permit them to do so moderately. So I would have no objection to 4-1/4 to 5-1/4 percent. But I would stick with alternative B [for the] aggregates.",123
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Gardner, please.",14
-fomc-corpus,1977,"I think we should shave the 1/2 point off of the aggregates. I think the range in the federal funds rate is important in view of the sensitivity in this current situation. I don't want to see the zone of indifference widened without some recognition. The size of the range is the inverse ratio of the amount of time Steve Axilrod [is] out of his office, and he is down at the same end of the corridor that I'm in. And I would just as soon have a narrow range, which means consultation. I wouldn't like to see a 4-1/4 federal funds rate or 5-1/4 federal funds rate without some reflection. I would accept your recommendation of 4-1/2 to 5, expecting that, should the situation require it, we'll have some consultation.",167
-fomc-corpus,1977,"Thank you, Mr. Gardner. Who would like to speak now.",14
-fomc-corpus,1977,Mr. Chairman.,4
-fomc-corpus,1977,"Yes, Mr. Baughman.",8
-fomc-corpus,1977,"I would find your recommendation acceptable, but with a preference for the 4-1/4 to 5-1/4 federal funds rate. And I guess I didn't hear you mention a preference on the directive, but my preference would be for the aggregates directive. I was a little confused with Governor Partee's saving up theory, but the ensuing discussion I guess has kind of clarified that really what this means is that you'd be a little more inclined to let rates go up now than if you didn't see that coming. Is that the context that you--",112
-fomc-corpus,1977,And not have to adjust it so much when we have it at hand.,15
-fomc-corpus,1977,That's about the only context in which I could hang it together.,13
-fomc-corpus,1977,"All right, thank you Mr. Baughman. Mr. Winn, may we hear from you.",21
-fomc-corpus,1977,"Yes. I think the alternative C ranges for the Ms, and probably 4-1/4 to 5 on the rate spread. I'm not sure that's logically consistent.",35
-fomc-corpus,1977,You say you're not sure.,6
-fomc-corpus,1977,That it's logically consistent. I'm not sure of that.,11
-fomc-corpus,1977,It's as logical as anything around this table.,9
-fomc-corpus,1977,That's a new consideration!,5
-fomc-corpus,1977,"Yes, Mr. Guffey.",8
-fomc-corpus,1977,"If I understand Mr. Winn correctly, I think I would adopt the same thing, that is, alternative C ranges on the aggregates with the fed funds 4-1/2 or 4-1/4 to 5--what is expressed as the range for B. It isn't clear to me, however, what would happen if we adopt a 4-1/2 to 5 range for the federal funds. Does that mean that we move fairly quickly to the 4-3/4 midpoint? That's an important question.",109
-fomc-corpus,1977,"That would be the judgment the Committee would have to reach. Normally, we move gradually; there have been times when the Committee wanted to move rather rapidly. Anyone else want to speak? Mr. Morris, yes, please.",45
-fomc-corpus,1977,"Mr. Chairman, I think that the differences we're talking about are quite narrow, but I think I would prefer to keep the present midpoint and use a 4-1/4 to 5 range.",41
-fomc-corpus,1977,"All right, thank you, Mr. Morris. Anyone else? If not, there is a narrow preference for the ranges of 3 to 7 and 7 to 11 for M1 and M2 respectively. There's more diversity with regard to the federal funds rate, but the divergences are quite small. I think a reasonable balancing of the opinions expressed would be a range of 4-1/4 to 5. I would suggest that to the Committee. Or, I think if the Committee finds that suggestion agreeable, then I would suggest that we still consider the question of whether the midpoint be treated in symmetrical fashion or not. Symmetrically the midpoint would be 4-5/8, although the Committee might prefer a midpoint of 4-3/4, and that would accommodate the thinking of the plurality who wanted a range of 4-1/4 to 5-1/4. Let me make this suggestion to the Committee, and then we will discuss this: that we vote on a range of 3 to 7 for M1, 7 to 11 for M2, and 4-1/4 to 5 for the federal funds rate but that the midpoint be treated asymmetrically--that is at 4-3/4 rather than 4-5/8. Does that shock anyone?",275
-fomc-corpus,1977,Could I have Mr. Axilrod's judgment on the reaction in the marketplace toward a perceived slight firming in the federal funds rate given the recent emotional reaction to prospects of interest rates.,38
-fomc-corpus,1977,"I think you may also want to get Mr. Sternlight's judgment, but mine 250 miles further south would be that--",26
-fomc-corpus,1977,That might be the reason I asked you--he's too close to it.,16
-fomc-corpus,1977,"--would be that there would be a further reaction. I would be hard-pressed to quantify it, but if I had to guess, I would put 10 to 15 basis points on the bill rate, maybe 10 to 20 basis points more on intermediate Treasury issues, and further rises from the corporate bond rate. I might add that I think the intensity of the reaction will partly depend on whether such a rise or such an indication of a rise occurs well before the Treasury financing is announced--which will be January 26--or occurs in the midst of the Treasury refunding without any, in a sense, prior indication or prior suspicion on the part of the market that it is likely to occur.",143
-fomc-corpus,1977,Which would be the bigger reaction?,7
-fomc-corpus,1977,The latter.,3
-fomc-corpus,1977,"All right, let's turn to Mr. Sternlight, and then we have Mr. Holmes.",19
-fomc-corpus,1977,"Well, I think I agree that there would be a reaction, proceeding to a 4-3/4 [rate].",25
-fomc-corpus,1977,Aren't you just about there now?,9
-fomc-corpus,1977,"It's very close, Mr. Chairman. We are only talking about 1/8, but it's something that--",23
-fomc-corpus,1977,"Well, wait a minute now. Haven't you been closer than that recently? Weren't you closer than that yesterday?",25
-fomc-corpus,1977,"Well, we're still aiming at 4-5/8.",13
-fomc-corpus,1977,"I didn't ask you what you were aiming at, I asked you where you were.",17
-fomc-corpus,1977,"Well, yesterday's effective rate was 4.80, but I think the market still perceives us as aiming for 4-5/8. I think there's a difference--they've seen us resisting--",43
-fomc-corpus,1977,"Yesterday you were [at] 4.80, and if you move within a range of 4-5/8 to 4-3/4, the market might be relieved, instead of exploding with 10 to 12 basis points. You know, I'm not a market man, but I do follow figures. I don't know--",70
-fomc-corpus,1977,"Would you agree on the size of the adjustment, Peter--10 to 20 basis points?",19
-fomc-corpus,1977,"It depends on how the market saw us implementing it; I think that might be reasonable. I think, if we moved aggressively to achieve 4-3/4, that it could be more of a reaction than that. Or if we were just sort of able to slide into it because, as the Chairman said, we were already there yesterday and funds just kind of stayed there and we didn't do anything about it, then it could be less of a reaction. But I'm concerned about trying to implement something quite gradually because of this upcoming refunding. If there is to be a change, it might be well to have that atmosphere cleared just a little bit before the Treasury has to come in, or at least before its issues are bid on.",149
-fomc-corpus,1977,All right. Mr. Holmes.,7
-fomc-corpus,1977,"I think I would stress Mr. Sternlight's last point, that it's how you get there that's really important. If we had to push aggressively in the market to push the funds rate up, I think the market would react one way. If it rather drifted into it and then we tended to keep it there, I think the market would have less [of a ] problem. This is a very subtle difference, Mr. Chairman, but I think it is an important one.",97
-fomc-corpus,1977,"Well, I don't think there is any sentiment within the Committee that you do anything aggressive. You know what we have been talking about are such minute differences, and therefore, aggressive behavior is hardly being contemplated by the Committee.",44
-fomc-corpus,1977,"I don't mean aggressive in a real term but I mean in a market-perceived term, and in that case you don't have to be very aggressive to seem aggressive. This is a very subtle difference.",40
-fomc-corpus,1977,"Now, I can't speak for the Committee, but let me still try, and the Committee will tell me if I'm off track. Suppose that the instruction to you were not to be aggressive in any of the senses of the word that you have distinguished in our behalf.",53
-fomc-corpus,1977,"We would understand that, Mr. Chairman.",9
-fomc-corpus,1977,"Well, would you, in that case, cause trouble?",12
-fomc-corpus,1977,"No, I think we would have to watch what happened. If we got to 4-3/4 and found it was causing trouble, my inclination would be to back away, to come below--quickly.",44
-fomc-corpus,1977,You would plan on moving to 4-3/4 with deliberate speed is the course you--,20
-fomc-corpus,1977,"Deliberate speed, but recognizing there is a Treasury financing coming up. If we are already closely there, we don't have all that much time.",30
-fomc-corpus,1977,And they were at 4.80 yesterday.,10
-fomc-corpus,1977,I don't know where we are. We were at 4-3/4 earlier today.,19
-fomc-corpus,1977,That effectively would be sort of stopping the downward drift and imperceptibly tightening up.,17
-fomc-corpus,1977,One would hope that we would be that skillful.,11
-fomc-corpus,1977,"Gentlemen, let me try--I have to try something else. I have heard no dissent from my suggestion on the M1 and M2. Suppose we have a 4-1/4 to 5 percent federal funds rate and that the midpoint not be regarded as 4-5/8 and it not be regarded as 4-3/4 but that it be regarded as the range between 4-5/8 and 4-3/4.",97
-fomc-corpus,1977,"That's a good 16th, Mr. Chairman.",11
-fomc-corpus,1977,"I suggested that last time, and you said I was being too tough on the Desk.",18
-fomc-corpus,1977,"Yes, but I'm having more trouble today.",9
-fomc-corpus,1977,"I think that's highly desirable, also, in the interest of softening up the precision of these things a little.",23
-fomc-corpus,1977,"Yes, I think that's a good technique.",9
-fomc-corpus,1977,"Mr. Chairman, I don't want to put too much sand into this cogwheel, [but] I must admit you're narrowing the degree of available range within which the Desk moves from a--",38
-fomc-corpus,1977,"No, no, this is a definition of the midpoint.",12
-fomc-corpus,1977,"Well, I understand that--",6
-fomc-corpus,1977,Not a definition of the federal funds rate range.,10
-fomc-corpus,1977,"Well, but you've got some range now.",9
-fomc-corpus,1977,I've broadened the definition of the midpoint.,9
-fomc-corpus,1977,"Well, against the 4-1/4 to 5-1/4 you have narrowed it.",22
-fomc-corpus,1977,Then it's the whole range.,6
-fomc-corpus,1977,"The midpoint is no longer a point; the midpoint has itself become a subrange. If my motion is unsatisfactory, we will entertain any other and put it to a vote.",36
-fomc-corpus,1977,Try 4-5/8?,8
-fomc-corpus,1977,"That is to say, conventional procedure--4-1/4 to 5 conventional procedures. All right is there a--",25
-fomc-corpus,1977,Are we giving preferences?,5
-fomc-corpus,1977,What's that?,3
-fomc-corpus,1977,"Preferences? 4-5/8 as the midpoint, or 4-5/8 to 4-3/4 as the midpoint.",30
-fomc-corpus,1977,"4-1/4 to 5 is the range. All right, but the midpoint could be 4-5/8, or an asymmetrically determined midpoint of 4-3/4. Those members of the Committee who prefer 4-5/8, would they kindly raise their hands.",63
-fomc-corpus,1977,"Four, Mr. Chairman.",6
-fomc-corpus,1977,Those who prefer 4-3/4.,10
-fomc-corpus,1977,Five.,2
-fomc-corpus,1977,"Well, we can't--we weren't voting. The wise men haven't voted, I think. Gentlemen, I will put this to a vote now, quite arbitrarily: 3 to 7 for M1, 7 to 11 for M2, 4-1/4 to 5 percent for the federal funds rate range, and the midpoint to be interpreted by the Desk in the light of our very illuminating discussion and the monetary aggregates directive.",92
-fomc-corpus,1977,"May I ask you a question, Mr. Chairman, about that midpoint--how the Desk is to determine that. I'm not sure what that means.",30
-fomc-corpus,1977,"Well, Mr. Holmes, you're on the spot.",11
-fomc-corpus,1977,"Well, I'll [try to] interpret it, Mr. Chairman: If we could go a bit above 4-5/8 without causing any damage to the interest rates, or only a very little, that would be the preference of the Committee. Now, is that right? That would be my interpretation--I'm not sure it's right.",69
-fomc-corpus,1977,Any quarrels with Mr. Holmes?,8
-fomc-corpus,1977,"When you say a very little damage, you mean some small rise?",14
-fomc-corpus,1977,5 to 8 basis points on the bill rate--we're getting awfully precise on that.,20
-fomc-corpus,1977,I just wanted you to define damage.,8
-fomc-corpus,1977,"I think that the [proposal would be for a] range of 4-1/4 to 5, with the Desk to interpret the discussion that has taken place in this room, the Desk being managed by men of high intelligence and great integrity. I don't think we ought to go beyond that--give them just the illusion of a little flexibility and a little authority. We are ready for the vote. Would you be good enough to call the roll.",92
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes President Balles No President Black Yes Governor Coldwell Yes Governor Gardner Yes Governor Jackson Yes President Kimbrel Yes Governor Lilly Yes Governor Partee Yes Governor Wallich Yes President Winn Yes Eleven to one.,49
-fomc-corpus,1977,"Well, I think we've done all that we can.",11
-fomc-corpus,1977,"Good morning gentlemen. I was just about to apologize for being late, and I am sorry, but I had a breakfast meeting and I couldn't get away on time. But a colleague of ours suggested that this might be a 10-minute meeting, and in view of his wise pronouncement, I am not going to apologize. But I am sorry to be late. As you all know, we have planned a luncheon to honor one of our colleagues, Lyle Gramley, who has left the Federal Reserve but has not left this city. We will begin this meeting in executive session with a report by Mr. O'Connell, who will recommend to the Committee that the FOMC agree that the meetings of the FOMC are not covered by the [Government in the] Sunshine Act. Now, just a word of introduction. This is the finding by Mr. O'Connell, and he has done very extensive research on the subject. His conclusion is firm. I have been keenly aware of the fact that this conclusion, if adopted by the Committee, could cause us some difficulty on Capitol Hill because some members of the Congress interested in the Sunshine law apparently have been under the impression that the FOMC is covered. And I've been a little concerned about the finding by our counsel on the ground that some members of the Congress interested in this subject might propose an amendment to the Sunshine law under which we might lose the two amendments we want. We fought hard to win and we finally did win at the last session of the Congress. And therefore I have discussed this subject with considerable care with Senator Ribicoff, Senator Percy, Senator Chiles, Congressman Brooks, and Congressman Fascell, and I have also talked this over at length with John Gardner of Common Cause. And as you may know, John Gardner and his group played a very important role in getting this legislation enacted. I wanted to make sure that this finding by our counsel is not interpreted, first, as a circumvention of law, and second, that there will be or may not be a move in the Congress to amend the Sunshine Act. These conversations with the members of the Congress have gone well, and they understand the position that Mr. O'Connell has reached, which I am recommending that the Committee adopt. We don't have any actual assurance that there will not be congressional action, but as of today I have no reason to expect it. That's all by way of introduction, and the floor is yours, Tom.",499
-fomc-corpus,1977,"Mr. Chairman, the members of the Committee have, I believe, received [in] advance [of] the meeting [the] memorandum of law setting forth, as the Chairman has indicated, the conclusion that I have reached on researching this issue. And accompanying that memorandum was a proposed statement of policy that I have recommended, and with the concurrence of the Chairman, the language has been adopted for the Committee's study [unintelligible] the position that I recommend. May I take just a few brief moments and restate, in summary form, what I believe is a sustainable position with reference to the outcome of the study? The issue, of course, is whether the legislative history of the statute can reasonably be read to exclude the FOMC from its coverage. As you have read in the memorandum page position guide, certainly by definition of the term ""agency,"" which is contained in the statute, there are three basic tests that an agency must meet as to whether it's covered. One is whether it's an agency as [defined] in that statute. The Committee is such an agency. Second, whether that agency membership is composed of [unintelligible] Committee meets that requirement test. And the third is whether two or more of the members of such collegial bodies have been appointed to such position by the President of the United States with the advice and consent of the Senate. If that final test is met, the agency is covered. And of course it is on that last, third criterion that I have taken the position that the FOMC is not covered. [Unintelligible] the [Federal Reserve] Board members, of course, are appointed to the Board by the President with the advice and consent of the Senate, but they are ex officio members of the Committee--by statute, members of the Board are designated as members of the FOMC. And, of course, at any given time, the five [Reserve Bank] Presidents serving [as voting members of the FOMC] are not appointed by the President with the advice and consent of the Senate. So the [FOMC] does not meet the so-called agency test within the meaning of the statute. Nor, in my judgment, is the FOMC in any sense to be considered to be the subdivision of the agency [that is, the Federal Reserve Board], which is also a component part of that definition. On examination, there is no function performed by this Committee that can be said to be the result of, or the direct follow-up of, the delegation of authority under the Board committee. Its principle functions are defined by statute and by some regulations issued pursuant to that statute. The Committee is a functioning agency for other purposes and within the meaning [of] the law. The Committee knows it is an agency within the meaning of the Administrative Procedure Act--which is [unintelligible] USC. The Committee is an agency and has taken that position with respect to the Freedom of Information Act. But for purposes of the Sunshine Act, I am perfectly well satisfied that the start [unintelligible] the composition of the Committee as explained by statute, viewed in the light of the definition of agency within the Sunshine Act, reasonably postures the Committee [as] not being covered by that act. I cite in my memorandum, Mr. Chairman and members of the Committee, statutory reference to the historical points, as this bill was going through the Congress, that support this position, one such being the extract, contained in the memorandum, of an exchange by Ms. Abzug, sponsor [of the] bill in the House. When asked by a member of the Congress as to the actability of the term ""agency,"" she very clearly stated that the test of agency status is the definition itself. And she gave an example of an ex officio status of an agency that would not be covered by the act for the simple reason that the members were not appointed to such position by the President. Although she admitted that they were appointed to another position by the President, it was the body of which the question raised the statute's actability that was the test that's forming that same rationale that we shall have. I must admit, there is contrary legislative history in the form of the debates on the floor of the House. But I point out that, on careful study, I adjudge those quoted portions of the debates to have assumed the status of coverage for the FOMC and then to have discussed other collateral issues such as who is a member--assuming that the agency is covered--such as the right to close a meeting and withhold a transcript. In that exchange it was assumed that the FOMC was mentioned in these two or three phases. The sentence carried was something like: the FOMC, it can close its meetings. So it was a stated assumption without itemized evaluation of the language and statutes. Overall, I adjudge the legislative history to [be] balanced in favor of the position that is contained in the memorandum and as reflected in the statement policy--the recommendation for adoption of that statement. I submit that it has been very carefully prepared to adhere as closely as possible to the language of the statute without exaggerated statement of the Committee's position. That, upon examination of its own operating procedures, the Committee has determined that its present procedures, if continued to be followed--even though it demurs from the position of legal technical coverage by statutes--in fact [demonstrates] compliance [with] the spirit of the Sunshine Act. And more particularly, the Committee under its present practice releases its Record of Policy Actions roughly a month following each of the respective meetings, and as now written [because of] the Committee's action of several months ago, [the Record] is a very full text when compared with coverage [required] by the Sunshine Act. Under the technical terms of that act, the Committee could hold major portions, if not all, of certain transcripts for months, even a year, or whatever period that the Committee determined [was required] under the particular exemption. As now written, there is basically nothing that is withheld per se [from] the Record of Policy Actions, which is released about a month after the meeting. So in that sense, and as the Chairman has advised each of the members of Congress with whom [he spoke], we feel that there is full deliverance in the spirit of the Sunshine Act, and that we can go forward in that spirit, and that we are not in any sense cutting short the rights of the public with respect to the Sunshine Act. Mr. Chairman, I think those are the points I wanted to cover.",1344
-fomc-corpus,1977,"Mr. Chairman, does the emphasis that we're placing on this argument on whether or not members of the FOMC are appointed by the President, confirmed by the Senate, does that strengthen Mr. Reuss's position on the appointment of Reserve Bank Presidents, and will that stimulate further efforts on his part, based on this Government in the Sunshine issue, to try to force through Congress the bill that he was unable to get out of the Committee last year? Is that--",94
-fomc-corpus,1977,"Let me make an introductory comment and then turn the legal question over to Mr. O'Connell. All that we intend to release to the public is the statement of policy described as attachment B rather than the lengthy legal opinion that has been developed by Tom O'Connell. I think the legal opinion is a document to this Committee, and there is no intention to release that. Tom would you be good enough to--",83
-fomc-corpus,1977,"Mr. Roos, as you well know, it's difficult to respond to what will trigger Mr. Reuss into further action. The Reuss suit is now on appeal, and I should advise the Committee that, at this time, the burden is on Mr. Reuss's counsel to file his brief in support of his appeal. As of last night he had not filed the brief, so I don't know particularly the points he would make. It is possible, if he knew of this content, he could [use] the thesis of this position against us. I have thought this out. I have discussed it with my colleagues. None of us, including myself, is [of] the view that it [unintelligible] would weaken [our position in] the Reuss suit. I am not aware, really, of any rationale. It is possible he could attempt to interpret the Sunshine Act--",183
-fomc-corpus,1977,"Yes, Mr. Black.",6
-fomc-corpus,1977,"Tom, is it possible we might do that all the time, not issuing our statement of position but the other actions which we worked on under the Government in the Sunshine Act?",35
-fomc-corpus,1977,"I am sorry, Bob, I didn't hear the last part--excuse me.",17
-fomc-corpus,1977,"I was just saying is it possible that it would be better if we did not adopt the first part of the recommendation, issuing a statement that we don't think we [are] covered, [unintelligible] merely acting as if we were.",50
-fomc-corpus,1977,"I have an opinion on that President Black. To the contrary, I believe that our position is far better secured by the issuance of a statement of policy of the nature I have recommended--similar to the action by the [Federal Reserve] Board several years ago, when we issued a statement of policy with respect to the System's position on labor management. In this case I have had calls from a number of public interest groups, I have had calls from the Hill, from the editors of the two newspapers, stating an assumption that the recently published Board regulations under Sunshine as they were released here some two weeks ago were seeming to cover the FOMC. ""Do they cover it?"" And my response has been that the matter of coverage of the Sunshine Act has yet to be determined by the Committee, and shortly we would announce the position. I am concerned that if we don't publish a statement of policy in which we forthrightly set out the Committee's position and explain at the same time equal exposure as if covered, we will either have law suits compelling the publication of regulations or constant demand when they hit at us--""where are [the] regulations?"" This will at least serve that purpose, so the public will know there will not be regulations covering the FOMC.",255
-fomc-corpus,1977,"There is an additional comment. We've been advised by two of the men whom I mentioned--very influential, greatly involved in this legislation--to put out such a statement of policy.",36
-fomc-corpus,1977,"Tom, isn't it true that we cannot pretend that we are covered by the Sunshine Act because a part of what you have to do is public [announcement of] regulations [regarding our operations under the Sunshine Act], if in fact you are covered by the Sunshine Act? We have already gone past the [deadline] date on that.",67
-fomc-corpus,1977,"Well, Governor, your point is well taken. Sitting now at the [15th] of the month, if we were to issue today a proposed regulation covering the Committee [under the Sunshine Act] and allowed 30 days [for comment], as required by law, we are then at March 14, two days subsequent to the release date. Better late than never would be the attitude we [would] have to exhibit. If the Committee adopts the statement of policy, [and] we are sued, and a court were to require us then to [be covered] under Sunshine, and then we issued [our] regulations [regarding our operations under the Sunshine Act], we'd be even that much more late, so the matter of a few days I think probably wouldn't be at all decisive. I should say, Mr. Chairman, and Governor Gardner's question [unintelligible], I believe I mentioned in a previous Committee meeting that I have great difficulty in lightly recommending that this Committee adopt the position of coverage when there is a clear appearance of noncoverage. [My difficulty is] that I don't know the administrative capability, under law, of an agency taking [upon] itself the [decision regarding its] coverage [under] a statute where it implies--and as a matter of fact, expressly involves--cutting the time in which the agency has to answer a suit under the law. [The Act] gives jurisdiction [to] many courts of law that otherwise would not have jurisdiction over this Committee [regarding] an ordinary lawsuit. It renders certain of the rights of this Committee negative by law, and I don't believe that the Committee has the right as a matter of law to adopt these positions, thus covering up [unintelligible]. So it would take an act of Congress or a declaration by a court of law, in my judgment, to cover us under this law.",381
-fomc-corpus,1977,"There are two supplementary observations that I would make. One is that the point that Tom has just made was made--Tom accompanied me to the meetings--with the legislators, and Tom developed this legal point in great detail, and the members of the Congress with whom we met were very much impressed by it. That is point number one. Point number two, if the mood should develop within the Congress to amend the Sunshine law on the grounds that here is a loophole, and the loophole ought to be closed--if a serious move along these lines developed, then I might very well come before the Committee and suggest that we take the step of declaring ourselves as coming under the law in spite of the legal difficulties that Tom has mentioned. And that is simply something that may develop. As of today, I don't think that will develop in the Congress, but it may.",174
-fomc-corpus,1977,"Mr. Chairman, may I add to a point that I wanted to make? As a result of one of the visits the Chairman made to the Hill, a member of the Senator's staff, at the Senator's suggestion, referred the sole issue of law to the congressional library's law division, and without reference from us but from the Senator's office. And a memorandum of law was delivered from the congressional law library stating that its study of the statutes as applied to the FOMC led to the very firmly stated conclusion that the FOMC was not covered by the Sunshine Act for the very reason that we had argued. And we had not contacted [them], and [it was] an independent legal memorandum, stated in one paragraph.",148
-fomc-corpus,1977,"Mr. Chairman, you mentioned today in a memo about the National Security Council, are there other agencies which come under this--",25
-fomc-corpus,1977,"May I respond to that? President Eastburn, [subject to] judicial [determination] or a declaration one way or the other, the Joint Chiefs of Staff [have a statutory] position on the National Security Council, the Loan Guarantee Board probably would be an example, the [unintelligible] President's advisors, apparently do not come under [the Sunshine law] for the same reason that they are ex officio members of the bodies that I mentioned. It is estimated that there may be as many as 10 agencies that are similarly situated.",112
-fomc-corpus,1977,"Any other questions? Well, if not, the recommendation by our counsel is before the Committee, and I think we need to vote on it formally. Is there a motion to approve? The motion has been made and seconded. Is there any objection?",51
-fomc-corpus,1977,"I would like to comment. I think it has been very thoughtfully researched, and I think all of us recognize that. And I guess, even with that, in reading [the memorandum], I was not overly impressed with taking that move. But I think your visits with the other people have convinced me that maybe this is well and wise.",68
-fomc-corpus,1977,"Well, I have not been either, and I kept on pressing Tom O'Connell on the point: Well, why not say that we are covered, since actually we are observing, we can live under, the Sunshine [law]? We've gone beyond the Sunshine law because the Sunshine law would be satisfied if we merely kept detailed minutes. We not only keep detailed minutes, we make them public. We make them public fairly promptly. I kept pushing Tom on that, and I reviewed this question in some detail, that is, through Tom largely and with members of the Congress. And Tom's legal reasons, I must say, carry more weight with members of the Congress than they did with me, probably because they are lawyers and I am not. I think the position recommended is probably the best position we can take at this time. Any dissent from Mr. O'Connell's recommendation? All right, the Committee will be recorded as being unanimous on the point. While we are on these legal questions, let's get through with item 3 on the agenda, the Committee's information rules--some technical points you want to call the Committee's attention to?",230
-fomc-corpus,1977,"Yes, Mr. Chairman, I do. And very briefly, Mr. Chairman, the memorandum deals with the provision in the Committee's regulations with respect to the availability of information which at present [is] exempt from release under the Freedom of Information Act--memoranda and materials to the Committee that are authorized by statutes to be withheld from the public. At the present time, we have no specific statutory exemption that is apt, nor have we had challenge nor direct [unintelligible] applicability of the provision. But in 1975 the Supreme Court of the United States had reason to address the issue of the applicability and coverage of the so-called third statute exemption in the suit involving the FAA administrator against Robertson. In that case, a challenge was made to the breadth of discretionary coverage of the statutory provisions. The Supreme Court determined that any time a statute gives an agency discretion to withhold certain information, even though the standards for withholding are extremely broad and discretion in the administrator is broad, that exemption applies. This concerned a number of public action groups that addressed the issues to Congress. And [at] the time the Sunshine Act [was] before the Congress for consideration, these groups got language before the Congress that would closely limit and narrow the interpretation of exemption 3 of Sunshine as pronounced by the Supreme Court. As a result, and as contained in the memorandum that is before the Committee, by law, as in the law of the Sunshine Act, that exemption is now far more closely and tightly limited in its use. With the three circumstances set forth in the memorandum, namely, that you have to have a specific statute authorizing specifically withholding in a nondiscretionary manner--or if discretion is granted by the Congress, with the standards, the benchmarks, the factors that [show] the agency follows that exemption and the guidelines [unintelligible] so that a member of the public can look at that exemption and the guidelines and know precisely what the agency may withhold. It locks our discretion, that's the name of the game. This statute, the Sunshine Act, has amended the [Freedom of Information Act], making mandatory the adoption of those standards by each agency. For that reason I presented it in an amended form to the Committee for adoption. I don't know and can't anticipate when the Committee will have to apply it. Hopefully it won't be soon. But on adoption, Mr. Chairman, the Committee will now act and report [unintelligible].",495
-fomc-corpus,1977,Are there any questions? Does this require us to [unintelligible] the Committee's actions?,21
-fomc-corpus,1977,I move that we adopt the proposal.,8
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"Any questions? All right, we will consider Mr. O'Connell's interpretation and recommendation [to be] adopted. [End of executive session] We now need to act on the minutes of the January meeting. Is there a motion to approve? A motion has been made and probably very most inaudibly seconded. I hear no objections, and therefore we move on to the report by Mr. Holmes on foreign currency operations during the past month.",91
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Holmes. Are there any questions?",12
-fomc-corpus,1977,"Are you able to buy your Swiss franc repayment in francs out of the market primarily, or are you drawing it from the Swiss?",26
-fomc-corpus,1977,"We are buying directly from the Swiss primarily. We have had occasion to buy Swiss francs from some of our correspondents who have been sellers. So we buy them directly at market rate. We have never really gone into the market. Really, it hasn't quite been that good. We hope to, over time.",62
-fomc-corpus,1977,Does the market know this?,6
-fomc-corpus,1977,"We see no impact of any of this on the market. I think the market has assumed, and rightly so, that we are buying mainly directly from the Swiss National Bank.",35
-fomc-corpus,1977,All press releases we have had have indicated that it would be done directly [with the Swiss authorities] to avoid any market impact.,26
-fomc-corpus,1977,"Well, we haven't made a commitment to that effect, have we?",14
-fomc-corpus,1977,"No. It is one of three options. And to some degree we are buying German marks and French francs in the market, which we then supply to the Swiss when they need them. And the other options.",42
-fomc-corpus,1977,"Any other questions? All right, a motion to confirm the transactions of the foreign desk is now in order. Motion is made and seconded. Any dissents? Very well, do you have any recommendations, Mr. Holmes?",46
-fomc-corpus,1977,"Mr. Chairman, for once we have no swaps maturing in the period ahead, and so I have no recommendations to make to the Committee.",29
-fomc-corpus,1977,"Well, no one will object to that. We will now ask for consideration of the economic outlook. Mr. Zeisel, will you be good enough to report to the Committee.",36
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Zeisel, for your report, and we'd now like to hear from members of the Committee. I think it would be particularly helpful to have any views on the economic outlook that diverge from the staff opinion expressed by Mr. Zeisel",52
-fomc-corpus,1977,"In trying to prognosticate what lies ahead, I guess I generally tend to think in terms of probabilities, Jerry, and I come out thinking that what the staff has done this time has a pretty high probability of happening. I am right with you this time, more closely than I have ever been. What I am wondering about is another scenario, as to how likely you think [it is that] this might happen. In a period now when inflation expectations seem to be strengthening and you have had some shortages and fuel problems and so on, what probability would you attach to the possibility that we might have an inventory cycle built up here, unreasonable levels that might cause trouble later on.",137
-fomc-corpus,1977,"We've taken the optimistic tack, assuming that the caution that businessmen have evinced in their treatment of inventories over the last several quarters will continue, and they will not be panicked into a rapid increase in inventory investment during the second and third quarters when we get these temporary surges. After all, they were burned in 1975, but I must say that they could well be burned again, in the sense that we might very well have a rapid increase in inventory investment and then face the situation in which final sales do not support that rate of inventory accumulation, and we move into an inventory adjustment toward the end of the year. In terms of the probabilities, I hate putting numbers on things, but maybe I'll say one in three.",148
-fomc-corpus,1977,What was that?,4
-fomc-corpus,1977,"One in three, possibly.",6
-fomc-corpus,1977,I guess that's even higher than I would have put it. That is real interesting.,17
-fomc-corpus,1977,What is a normative figure on inventory accumulation now? Do you sort of assume close to 1 percent of GNP would be a normal figure?,29
-fomc-corpus,1977,"Well, the postwar average, as you know, was about 0.9 [percent], and our assumption more recently has been somewhat under that. And we have averaged somewhat under that for this period. We rise to above that rate toward the end of the projection period.",56
-fomc-corpus,1977,For next year. The whole of this year is well below that.,14
-fomc-corpus,1977,"I would add only this comment. I would expect that, before this year is over, we'll run through an inventory cycle, induced in part by weather developments, induced in part by the Administration's fiscal package with its emphasis on the so-called rebate. And therefore I believe that all of us should pay far closer attention to final sales as the year unfolds rather than to a couple of GNP figures. Mr. Baughman, please.",88
-fomc-corpus,1977,"Mr. Chairman, a number of somewhat disconnected comments. First off, it seems to me that a reading of the Redbook this time [was] rather interesting. Notwithstanding the great number of very unusual and generally adverse developments around the country, [in] almost every district there is a very strong flavor of optimism in the report and also a very strong flavor of adaptability and adjustability of the local economy to unusual developments. It seems to me that [is] there to an unusual degree this time. With respect to the inventory question which Mr. Black has raised: At our recent directors meeting,--where we had two retailers represented, one nationwide and one regional--this question was discussed, and they were of the view that retailers will not make the mistake this time that they feel they made a year ago, in which they had to, as they feel, sell excessive inventories at substantial price reductions. The question was raised as to whether they might make the opposite mistake this time, and they seem not to be concerned about that.",206
-fomc-corpus,1977,That's what I always hear from bankers--they won't make mistakes in the future.,16
-fomc-corpus,1977,Are you speaking of commercial bankers or central bankers?,10
-fomc-corpus,1977,"Well, I was thinking of commercial bankers. I have no difficulty with your generalization.",18
-fomc-corpus,1977,"We're in a very strong economic environment in the Southwest, which of course traces largely to the oil and gas business and, I suppose, in part to weather. There were reports from all members of our board of directors, who have had a wide range of contacts during the past month, that they can recall no time when they have had so many inquiries about industrial sites in that part of the country. And they are anticipating that the trend to move to that part of the country is going to substantially accelerate. And it's a rather substantial trend at the present time. You know, it's possible that this is simply weather talk, in view of the fact of the recency of the weather phenomenon. But there is a feeling that there is a good deal of substance to it. Notwithstanding the fact that it's a prosperous area, it is a capital deficit area, and we had reports that there is a continuing improvement in the availability, and continuing improvement in the sense of more favorable terms, on funds to flow into the area. This is more obvious, of course, in the construction and real estate development area. It is reported from some individuals in the area who deal largely with small companies that the same thing is reflected in that they can now place stock privately in small companies in a much more effective way than they have been able to do in the past year or two. With respect to the outlook for the prime rate on business loans, we had a variety of views expressed, but the one banker who has been closest to the mark during the past two years very interestingly expressed the view that the next move is more likely to be down than up. That is all I have.",335
-fomc-corpus,1977,Did he say why?,5
-fomc-corpus,1977,"Because the loan demand is not that strong, and the availability of funds is continuing to improve.",19
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Kimbrel now, please.",18
-fomc-corpus,1977,"Mr. Zeisel, you refer to minimum likelihood of the labor force negotiations this year, I wonder if your projections have accorded any dimensions to the possibility [of an] increase [in] the minimum wage.",43
-fomc-corpus,1977,"Yes, we have incorporated the minimum wage increase that occurred January 1st into our projection of the--",21
-fomc-corpus,1977,I really had in mind any further increase though.,10
-fomc-corpus,1977,"No, that is all we have incorporated. Anything else that may occur, of course, would add to the pressure. This increase in the minimum wage, to $2.30, affected--our guess is--about 2 million people, to some extent in residential construction and to some extent in trade and services. It is hard to know how much of an effect it has. It certainly has a tendency to push everybody up slightly. That is, we have an estimate in the first quarter of the impact of that on our wage costs.",109
-fomc-corpus,1977,I am surprised by your reference to construction.,9
-fomc-corpus,1977,"Apparently there are, in some parts of the country, relatively low wage construction people. I don't think that's the major group.",25
-fomc-corpus,1977,Where wages of some construction workers are or have been below the present minimum of $2.30?,20
-fomc-corpus,1977,So I have been told.,6
-fomc-corpus,1977,That is interesting. I didn't realize that.,9
-fomc-corpus,1977,A lot of non-unions.,7
-fomc-corpus,1977,"Even so, it isn't--any facts that you may be able to present on that, I for one would like very much to see [them]. That surprises me. Any other questions, Mr. Kimbrel? Thank you. Mr. Winn now, please.",54
-fomc-corpus,1977,"Mr. Zeisel, in trying to assess the impact of the proposed universal welfare payments, to what extent have you adjusted the prospects in terms of the '75 experience, where the '75 payments came in a period following some declines in consumer credit outstanding? This will come [when] consumer credit outstanding has been increasing and perhaps deteriorating in quality. In other words we may not get the same impact this time as we did in '75 because of the difference in credit circumstances.",96
-fomc-corpus,1977,"You are perfectly right. There were a number of factors operating in '75 that are not exactly similar to that here, and we may very well get a somewhat larger total effect from the rebate. However, I must say, we've used '75 as a base for making our estimates of the impact of 1977 rebates, with a few judgmental adjustments for those special factors.",76
-fomc-corpus,1977,"You thought, Willis, that more will be used to begin to repay debts?",16
-fomc-corpus,1977,"Yes, and utility bills. You don't have any penalty now, interest rate or anything else, on utility bills, so they can accumulate without being cut off. No interest payments, and some of those are climbing. The credit situation is not so good, so you may not get the multiplier effect that you got before.",64
-fomc-corpus,1977,We didn't get much of a multiplier effect last time.,11
-fomc-corpus,1977,"No, but look at what happened to consumer credit as a result of '75; it really spurted, and then combined with these payments--",30
-fomc-corpus,1977,"Well, car sales went up. That's why you've got consumer credit.",14
-fomc-corpus,1977,That's right. And that may not happen.,9
-fomc-corpus,1977,"All right. Mr. Morris, please.",9
-fomc-corpus,1977,"Mr. Chairman, I think there is a need for the Committee to make policy in a longer-term time frame than we've been accustomed to. I thought I would ask if the staff has a concept of what the optimum growth path ought to be for the economy over the next few years, and if so, how does the projection for '77 relate to that time path.",74
-fomc-corpus,1977,"Well the projection for '77 that we have is approximately a 6 percent rate of real GNP growth; that is the average of the four quarters, which would accomplish a moderate reduction in the unemployment rate--we anticipate getting down to 7 percent, or that general magnitude, by the fourth quarter. I think one has to make judgments about the implications of the rapidity of making that kind of progress for considerations like inflation. I think the approach that would involve a moderate rate of improvement over a period of several years is the more sensible one, and I think this rate of growth of approximately 6 percent, possibly a little bit larger than that, is consistent with something close to an optimum, given the continued sensitivity in the economy to inflationary anticipations. I think that's a critical dimension here. One can set various goals, after all, and can push the economy to reach those goals at greater or lesser speed. But to the extent that our judgment is that the rate of increase that we have projected appears consistent with no increased inflationary pressures, this suggests that we may be on the right track.",222
-fomc-corpus,1977,"Mr. Zeisel, am I right in thinking that the staff, in considering the longer-run trend of the economy, is now thinking of a rate of growth, over the long term, of 3-1/2 percent for real GNP for a year, in contrast to the figure that has become standard in the literature--4 percent?",70
-fomc-corpus,1977,That's correct.,3
-fomc-corpus,1977,Recognizing the flattening out of the trend of productivity--,12
-fomc-corpus,1977,"Productivity has weakened. and that has reduced the trend, correct.",14
-fomc-corpus,1977,"--so, without being able to specify the details, a 6 percent rate of growth this year, let us say, merging into a 3-1/2 percent figure over the longer run, assuming a reasonable development of the economy. Is that the correct statement?",55
-fomc-corpus,1977,That is right.,4
-fomc-corpus,1977,It would take a number of years at 6 percent--,12
-fomc-corpus,1977,"--to accomplish that--well, that is to say, 6 percent growth or something higher than 3-1/2 percent.",28
-fomc-corpus,1977,"Literally looked at, the unemployment rate drops to 7.1 in its projection over the year; with 6 percent growth, [unemployment drops] from 7.9 to 7.1. That is an 8/10 [percentage point] reduction. So it would take another couple of years to get down.",68
-fomc-corpus,1977,"I think a kind of interesting development in the New England academic scene--we have Otto Eckstein, for example, coming out now with the concept that we really had not better plan for a rate of growth on the average over the next four or five years in excess of 5 percent--5 percent is really the outside limit, and the Phillips curve will rise very sharply with a growth rate in excess of that.",83
-fomc-corpus,1977,It's an undesirable growth rate?,6
-fomc-corpus,1977,"It's undesirable, right.",5
-fomc-corpus,1977,Even temporarily? On the way to recovery or to some full employment goal?,15
-fomc-corpus,1977,"I think that's the implication. I think so. But he also argues that this path, which would get us to about 5-1/2 percent unemployment in 1980--that, at that time, we are likely to [have] approximately the same degree of strain on capacity [for] basic materials that we encountered in 1973. Now, I don't know how, I'm curious to know if you would share this particular view?",90
-fomc-corpus,1977,"Let me just sharpen this question a bit, if I may. I have seen calculations which suggest, I think on an economic outlook very similar to the one you have projected--about the same rate of growth--but by the second half of 1978, also given projections of this sort for plant and equipment, we will be back at the 1973 operating rates on the average, maybe as early as the midpoint of next year. Is that what your calculations--",94
-fomc-corpus,1977,"Well, as I recall it, our calculations for capacity use in manufacturing bring us to about 85 or 86 [percent] by the middle of next year. And that is beginning to move--",40
-fomc-corpus,1977,It was about 87-1/2.,10
-fomc-corpus,1977,"It was about 88, I think, so that would probably bring it to 88 or beyond by the end of next year.",27
-fomc-corpus,1977,"About, by the end of next year. I think one can view this in several ways. One, of course, is to argue that one ought to have some sort of steady-state pattern throughout the period toward an objective. One can operate reasonably with a slightly more rapid rate of increase in the early period, moderating down as you approach fuller use of capacity and begin to get close to the danger zone. The argument in favor of this would be, of course, to reduce social costs in the early stages, where you still have extremely high rates of unemployment.",113
-fomc-corpus,1977,Any further questions along these lines?,7
-fomc-corpus,1977,"Mr. Chairman, I will just say that all of this assumes that we will have had a relatively strong sustained rate of growth for three full years after the trough. And that may or may not occur. Well, I begin to question the validity of that strong a rate of growth for that long a period.",62
-fomc-corpus,1977,"The dichotomy we have here is that maybe we have not much excess capacity on the physical side and we've got lots on the employment side. In a way, it's getting worse, but that depends on what the labor force is going to be doing, too. I don't know what kind of projection you have on the labor force.",66
-fomc-corpus,1977,Our projections on the labor force are [for a] less rapid pace than we had last year. We're figuring on about a 2 million rate of growth in numbers for 1977 versus about 3 million in 1976. That is larger than the average and larger than the growth in population [and it] assumed continued increase in participation of women largely--,73
-fomc-corpus,1977,"It would depend on how it is distributed, too. If you remember '73, it was rather a surprise that we had that much inflationary pressure with that level of capacity utilization. It was, of course, reported lower than it is now. It's been revised. But nevertheless, it seemed as if there were lots of pressure points. And if you had a more general distribution of demand so that we might not have a repetition of that--it would depend on the precise character of the forecast.",100
-fomc-corpus,1977,"I agree it depends on the precise character of the forecasting of the distribution, but do you have any reason to think ex ante that it's going to be better distributed this time?",35
-fomc-corpus,1977,"Well, I wouldn't expect any 20 percent devaluation. And I think that had a major effect on that rate of inflation in 1973.",30
-fomc-corpus,1977,"Well, I see things somewhat as Mr. Volcker does. I note all sorts of arguments as to why capacity pressures are not likely and why the experience in '73 and '66, when it went to 89, is not relevant. But nevertheless, I think we have the fact that we've greatly changed our data and that these do show that we have a good deal less capacity. We know now it takes a lot more time to bring capacity on stream. Somebody here the other day said that, on some project, it took five years before you could put a spade in the ground. And under those conditions, I'm not very hopeful that these capacity margins that we still have are adequate.",140
-fomc-corpus,1977,"I would agree with that. The overall figure, I think, has always been historically deceptive because of variations among industries in rate of utilization and variations among firms within individual industries. And an overall figure of even 85 percent is consistent with developments as they have been historically, and I see no reason a priori to assume anything very different this time. An overall figure of 85 percent has been consistent with bottlenecks scattered through the system--individual firms and industries. Mr. Eastburn now, please.",101
-fomc-corpus,1977,"Mr. Chairman, on prices, a comment and a question. Our projections, Jerry, would have a little bit more price effect as a result of the cold weather that we have been having. You might want to comment on that. And second, I have seen some scenarios--we have a chart here, for example, from DRI, which projects the deflator through this year by quarter, which has a rising trend in the price component. I happen to be more in agreement with what you have here. But what kind of odds do you attach to a rise in the deflator in the latest increase?",123
-fomc-corpus,1977,"Well, let me break it down into three broad components--food, energy, and other. As far as food is concerned, we have situations for the immediate future deteriorating to the extent that the cold weather has had some effect on prices of fruits and vegetables. But, as I indicated, we expect that to be a fairly short-term phenomenon. Other than that, the last month or two has suggested that meat prices were going to be lower--weaker than we had earlier thought--so that without the freeze we probably would have edged off [our] estimate of food price increases in the first quarter. As far as the remainder of the year is concerned, it is really very difficult to say. The drought in the West--I'm no agricultural expert, but [our expert] tells me that, at the moment, his evaluation is that the people are being a little pessimistic about the implications of the drought in the West for supplies. Grains are apparently in considerable supply. And later there may be some effect on California-produced fruits and vegetables. But they would not be a very important factor overall. So that basically, our feeling is that, unless we have continued bad luck in terms of weather, food prices would not be a factor pushing prices up markedly in the period of 1977. As far as energy prices are concerned, we have made assumptions in regard to OPEC prices which involve a 5 percent increase, edging up to 7-1/2 percent. If that got worse, we would obviously have some problems. There are some additional costs associated with increases in gas which we have incorporated in our projections. We've made some assumptions in regard to the implications of the use of intrastate natural gas in the interstate system. It's a very small factor overall. That's obviously a factor pushing prices up, but not extremely rapidly, given our assumptions. So we come back to the element of unit labor costs from other sectors as being a major determinant of prices. And there, productivity plays a large part, as do wage increases. The outlook for wage increases this year, it seems to us, is no worse than last year. Possibly slightly higher increases, but very little. We don't have any really large negotiations which involve a big catch-up to compensate for increases in the cost of living. Probably the most dramatic negotiations that we will have [involve] steelworkers, and that is going on right now. They are covered by a cost-of-living clause, which has kept their real wages above what [they were] when they negotiated the contract, so the pressures are not too intense. It's a big settlement, it's a big year--there are some 4-1/2 to 4-3/4 million people being covered by contracts, but they're very widely dispersed, and virtually all of the big ones do have cost-of-living protection. So we are not going to get that kind of surge. And we are anticipating that wage compensation increases will remain under 8 percent--in the 7-1/2 percent to 7-3/4 percent range. As far as productivity is concerned--based upon past experience, a rate of growth in real output in the 6 percent range is consistent with above-average increases in productivity. And we would think this probably will be the case now, since business generally suffered probably its worst productivity performance--certainly in the post-World War II years--during the recession, and I would think there would still be continued pressure to try to recover some of that. And, while [our forecast is] not terribly expansive on productivity-- our average is a little above 3 percent for the year as a whole--[but] if we're right on that, this gives us a unit labor cost increase of about 4-1/2 percent. That roughly would be consistent, we feel, with price increases slightly above that. And this gives us a pattern of price increases for the year which are somewhere in the 5 to 5-1/4 percent range.",815
-fomc-corpus,1977,"I hope you're right, Mr. Zeisel. Mr. Wallich.",15
-fomc-corpus,1977,"Well, I listened to a discussion of business economists the other day in which even more micro and nonmonetary approaches to prices all led to an impression of downward price pressures, which seemed very gratifying. But my own look at these numbers always is a little bit above what yours is: Wage increases--I think we would have to be a little optimistic to get 7-1/2 to 8. Productivity, 3 percent--well we might be able to do that. So that allowing for some losses from things like drought, oil, other adverse factors, we might be underestimating our rate of price increase. That is what I fear. And the question I want to attach to this is, we have now mapped out what is a relatively slow rate of recovery-- growth about 50 percent above long-term trends. As I remember, in the past people would talk about 100 percent above the trend quarterly growth rate sometimes--8 percent with a trend assumed to be 4 [percent]. We ought to be getting downward pressures on prices simply from excess capacity and unemployment. And countries like Germany and Switzerland are getting this and have been quite successful. Why is it that this doesn't seem to be clearly happening in the U.S.?",250
-fomc-corpus,1977,"I wish I could answer that question. I really don't know. I think one has to speculate about it. Certainly the past half year has been instructive in a sense. In a period when we had not only excess capacity but also a rather sluggish economy, [and] one looks at industrial prices abstractly from special consideration such as energy, one sees that the rate of increase, if anything, accelerates. This is not what one would have anticipated based on the kind of model that we are used to analyzing. So I think [we] have to start thinking about business attitudes and business perceptions of what their costs may be, what inflationary implications may be, what government programs may involve in terms of price regulation of one sort or another. I think these are in a sense new dimensions that have to be taken into consideration.",167
-fomc-corpus,1977,"You know, they're also old dimensions. One is, raw materials prices have been advancing; they started rising at the very beginning of 1975 once again. And historically, wholesale prices have moved upward starting at the very beginning of an economic recovery--a few months before, at the time, [and] one or two or three months later. And this historical pattern by now is being superimposed by a long-run inflationary trend of our economy. And therefore I hope our staff is right in this projection as to prices, but my own [projection] is less optimistic. Mr. Balles now, please.",125
-fomc-corpus,1977,"Since Mr. Zeisel mentioned the drought in the West, I thought I might pass on a few calculations that I had my own staff make in terms of what impact they see this year. There will no doubt be disaster for a number of California farmers, but we have tried to figure out what this will result in, in terms of costs. In view of the almost record low levels we're seeing as we move into a second year of drought, in [moisture content] in the ground, of levels of water in the reservoirs, and snow pack in the mountains, they are guesstimating a possible 25 percent reduction in the output of fruits and vegetables in California farms this year. The staff figures that fruits and vegetables make up about 3.1 percent of the cost of living index; and that 25 percent reduction, unless offset by increased production somewhere else in the country--the net bottom line result is about a 0.3 percent boost in the cost of living index for the year as a whole. Does that jive with the agricultural expert that you talked to, Jerry?",222
-fomc-corpus,1977,That's very much in line with our assumption. We figured a rise in fruit and vegetable [prices] of about 25 to 27 percent. We built that into a higher level for prices for the year.,42
-fomc-corpus,1977,"John, what [effect does] the development of much more modern farm techniques in all of Mexico begin to have on that projection and on our relationship with that country?",33
-fomc-corpus,1977,"I don't know the answer to that question, Phil.",11
-fomc-corpus,1977,Recent newspaper reports would indicate that the substantial improvement in modern farming techniques [in Mexico] could have some moderating effect on that influence of California.,29
-fomc-corpus,1977,I hope that's right.,5
-fomc-corpus,1977,"Maybe they just recently had a drought, too; I don't know.",14
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Partee, please.",15
-fomc-corpus,1977,"Well, Mr. Chairman, I just thought that I might say, since I think we need so many views on this, the economic outlook seems to me to be quite good and strengthened over the last month or two. We did have Henry refer, I think, to this group of business economists we had in last week, and they were also, it seemed to me, quite optimistic, talking really about a very good outlook for their products and their industries in the period to come. So I agree with the staff forecast that there is developing strength in the economy. But I do think that we have to recognize that, at this instant, we haven't been able to assess yet the full effects of the weather. I understand this. Now there is, as I think Jerry said, somewhat of a strike effect there, that you cut output, cut inventory, cut income for a very temporary period--but, in this case, over a very wide number of employees. And you would expect that, when the weather changes, output will come back and the inventories will be reaccumulated and the incomes will be restored, and so there wouldn't be much overall effect. There also is an income transfer point here, which has been mentioned, that may not be overcome; that is to say, that you shift income from consumers to sellers of fuel. And you could presume, I suppose, that the sellers of fuel have a lower propensity to spend than the ordinary consumers have, and we might get some depressing effect. So I guess I wanted to indicate that, although the prospect is that we would get a very good snapback and maybe a very strong second quarter, it is not yet quite in the bag because we have not quite yet assimilated the total effect that this weather development [will have]. And I think we need to be a little cautious until we can see what the shape of our coming out of this weather will be.",386
-fomc-corpus,1977,"I agree in substance with what our staff has indicated and [with] Mr. Partee's pronouncement on the general outlook of the economy. I think the outlook is good, but I think I should report to the Committee that my own conversations with businessmen and business economists recently [have] suggested to me that there is a somewhat uneasy mood within the business community, as I sense it. There is an uneasiness about the possibility of price controls. There is uneasiness about the Administration's fiscal policy and where it may be going. There is uneasiness about the energy outlook. There is uneasiness about inflation, and that is interfering with judgments about capital expansion. And there is uneasiness also about foreign developments. And this mood of uneasiness, if I read it correctly, is a little stronger than it was a month or two ago. Mr. Coldwell, please.",182
-fomc-corpus,1977,"Mr. Chairman, you and Governor Partee in effect have stolen exactly what I'd planned to say, except that I've got a little bit different scenario to it, and I think Chuck is right that we're headed upward. I have a sneaking suspicion that we may find ourselves in a kind of a peaking situation in the latter part of the year--maybe a downturn of no major proportion, but a kind of interruption in this nice smooth path the staff has laid out for us here. And I suspect that we can have exactly what you are talking about, in terms of the uneasiness in businessmen accumulating into a less-than-forward look [to] their operations, and certainly capital spending, and perhaps some other areas, too--an uneasiness translated into perhaps excessive caution. So while I think we may average out to where the staff is looking for it, I wonder if this pattern isn't going to be perhaps markedly different than that shown.",189
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Winn now, please.",15
-fomc-corpus,1977,"Mr. Chairman, in their uneasiness, did they express any concern over the stock market behavior?",21
-fomc-corpus,1977,"Yes. And partly as an expression of their uneasiness, and partly as a cause of it. Any other question or comment?",27
-fomc-corpus,1977,"Mr. Chairman, could I ask Governor Coldwell if he could elaborate just a little on what he thinks it is? I think margin, in terms of the usual cyclical aspects, in which there is a little pressure on capacity, a little pressure on inventory.",53
-fomc-corpus,1977,"No, I'm thinking in terms of a fairly low first quarter, with a growing boom in the second and third tapering off largely because of the impacts of business caution, reflected by the comments of the Chairman. We might have a consumer boom from the first to the third quarter quarters, [but] not supported by a capital spending boom.",68
-fomc-corpus,1977,You think that inventory explains what's causing it?,9
-fomc-corpus,1977,"Yes, the inventories are playing a considerable part.",10
-fomc-corpus,1977,"Mr. Balles, please.",7
-fomc-corpus,1977,"I'd like to ask Mr. Zeisel one more question in connection with the $50 dollar rebate program or, as the Chairman has more appropriately called it, a gift, by the government to its citizens. Do you have any estimates as to how much you expect that sum to be spent as opposed to saved?",62
-fomc-corpus,1977,Roughly--,4
-fomc-corpus,1977,What are you going to do with yours?,9
-fomc-corpus,1977,"I'm going to spend it. Seriously, I'm not sure yet. I'll wait until I see it. We may not get it.",26
-fomc-corpus,1977,"I think it's a little hard--as far as I'm concerned, I don't know what I will do, period.",23
-fomc-corpus,1977,"Historically, this kind of--quote--windfall, which is what I think it's generally called, has involved something in the neighborhood of 25 percent spent in the current period, and then drifting up to 40 or 50 percent total of it spent, possibly, and the remainder saved. And we built in about this kind of pattern; however., I think you've got an additional element that's come into play here, and that is the extra gas bills which are going to be coming in now. It's conceivable that people, to the extent that they are aware of these rebates, will be figuring they are going to use that rebate to pay their gas bills. So that adds another dimension of the word ""uncertainty"" on how's it going to operate.",154
-fomc-corpus,1977,"Yes, but assume they would pay their gas bill anyway.",12
-fomc-corpus,1977,"Well, they have to pay their gas bill anyway.",11
-fomc-corpus,1977,You've got about a $40 billion increase in savings in the second quarter.,15
-fomc-corpus,1977,"Well, the payments out of these rebates, which are at $46 billion annual rate, come very late in the second quarter--May and into June--so that most of the--",37
-fomc-corpus,1977,You add it.,4
-fomc-corpus,1977,There's a lagged spending response to them.,9
-fomc-corpus,1977,Any other questions or comments on the economic outlook?,10
-fomc-corpus,1977,"May I make an observation, Mr. Chairman?",10
-fomc-corpus,1977,"Please do, Mr. Gardner.",7
-fomc-corpus,1977,"Listening to this concern about uncertainty, I have to reflect back to the beginning of last year. The midpoint of last year. What were the points of uncertainty? What prevented business from moving forward with capital goods planning or expansion? Well, the pause was on our minds almost all of the year. The pause as to whether unemployment began to rise after dropping. The election was certainly on our minds. OPEC's protestation that they would increase prices were with us for many months last year. In fact, there were a great many reasons or significant reasons for business uncertainty in 1976. None of these are quite the same concerns today that they were last year. The election is behind us. We have seen the first stimulative program proposals. There's no question about the pause being a downturn any longer, and that's proven to be an unnecessary worry in some respects. Unemployment, even in a crazy mechanical way, dropped by a macro number for [a] month; but nevertheless, the Saudis seem to be holding out with a two-price system to [the] advantage [of] our economy. I remember a lot of concern about the fact that if we didn't have a big December, we would have great difficulty in retail sales, but we did have a big December. I [am] persuaded, gentlemen, that businessmen are very inventive in thinking about things to worry about. Now they are worried about the weather and the energy shortage or what have you. But when I try to balance these against last year, I don't think they are terribly impressive. All I'm trying to suggest is that I look someday to the time when the perception generally in business will be that they ought to go ahead with some of their capital expansion.",346
-fomc-corpus,1977,God help us then.,5
-fomc-corpus,1977,Pardon?,3
-fomc-corpus,1977,God help us then.,5
-fomc-corpus,1977,"Now wait a minute. We haven't had any significant capital investments. We've had a recovery without that leading the way. And this has always appealed to me as a fact of future strength. At some point, we may indeed get some additional thrust from the longer-delayed capital expansion developments. I'm a little bit from Missouri when it comes to businessmen and their worries.",72
-fomc-corpus,1977,"If I may interject, I do see things somewhat that way, but late in the cycle, everybody will realize that [they don't] have enough capacity, that they should have invested earlier, there [will] come a great rush in this--bottlenecks in capital goods industries. And that's exactly how I negatively interpret the belief that, at some time, we all should go ahead.",80
-fomc-corpus,1977,"I want to ask one question, Mr. Chairman. Jerry, steel capacity worldwide, aluminum capacity worldwide--I don't know anything about pulp and paper capacity--do we have the same set of conditions today that we had in '73 on capacity? We are worried about our 85 percent rate or our movement toward an 85 percent rate [of capacity utilization]. I seem to remember an enormous burst in construction of steel plants throughout the world very readily available. Some very basic industrial commodities readily available from input. Can you comment on that?",107
-fomc-corpus,1977,"Well, I can comment a bit. I would ask Mr. Reynolds to supplement my comment, since I am not as familiar with the worldwide situation, obviously, as he is. My impression is that we are not in a situation where the pressures in capacity worldwide [are] what they were then. And, in fact, the other day there was a comment from the conference of business economists group that there seemed to be a considerable amount of available capacity in these basic metal producing sectors worldwide. And so I think, to that extent, that we are not facing the same kind of pressure points that we did face back in '73. John, do you?",132
-fomc-corpus,1977,"Yes, I think there is very little pressure on capacity abroad. That's been the reason that investment spending there has lagged, too. Steel is certainly in ample supply. Most chemicals, I think, are in ample supply. Figures that Wharton School gathers on industrial capacity, while perhaps not very good, show capacity pressures much less than they were in '73.",73
-fomc-corpus,1977,"Yes, Mr. Mayo, please.",8
-fomc-corpus,1977,"Just one observation following up on what Steve was saying. I think there is another phenomenon that's added to uncertainty that we tend to forget in-between time. We have almost a semiannual regularity of the August doldrums and February depression, in terms of attitudes, and I think this has been accentuated this year, and as they say, this too shall pass. The stock market decline has not helped it, either.",85
-fomc-corpus,1977,"Well, I have to hasten to get in on the statement about businessmen's worries. I think that what you describe has become a kind of a way of life. And they're used to this; at this point, I think they're just going ahead. My own view is the economy is going at a very fine rate, as Chuck says. I am concerned that perhaps too much liquidity [is] in the economy. And this bothers me more than anything else at this point. I'm not too worried about the capacity problem. I think there is an international [unintelligible] that we [unintelligible]--furthermore, I think that all of you are paying too much attention to manufacturing, which is only 19 million employed even though there is a multiplier. [Unintelligible] the great job [unintelligible] has got to come in other areas.",181
-fomc-corpus,1977,"Any other question or comment? Well, if not, let us move quickly to Mr. Sternlight's report on operations at the domestic Desk.",29
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,"Thank you, Mr. Sternlight. Any questions or comments? Yes, Mr. Wallich.",20
-fomc-corpus,1977,"There seem to have been significant shifts in interest rate relationships, with the principal rise in rates [being] in the medium-term Treasuries. What does that imply for the market's expectations of future rate movements? [Is it] an indication of sharper rate increases in the area immediately below that in maturity?",62
-fomc-corpus,1977,"I think there has been some expectation of rising rates as this year goes along. Just taking the period of the past month, this trend that you point out is not so very pronounced, but I think it would be pronounced if we go back to the beginning of the year. There has been a steepening of the upward sloping yield curves. And I think it was essentially a fading of the expectation of any further easing and some expectation developing that, as this year goes along, there would tend to be some higher rates developing.",106
-fomc-corpus,1977,"I think Mr. Wallich's question does raise a question for the Treasury as to debt management policy in the months ahead, and this is something that our financial staff should pay very careful attention to.",40
-fomc-corpus,1977,"Mr. Chairman, I was going to add, if I might, supplementing Mr. Sternlight's comment--I think that if it also had to do, not simply with expectations--expectations change--but that was the area where there was a very large supply of securities. The Treasury had been hitting that area rather consistently, and you saw a sharp reaction in that rate area in part because people who were just trading in the securities tended to unload them--and so it was something [more] than just a change in attitude in that area more particularly than in other areas because of the very large supply that was floating.",126
-fomc-corpus,1977,"Mr. Chairman, may I comment. Once a month, in the preparation for these meetings, one of the things that we do is to take the yield curve and try to make projections of the rates on the basis of what the market seems to be expecting and reflected in the yield period. In recent months the market projections have not been as high an increase for the funds rate as the Bluebook would [make it] seem. But the latest one that we have done indicates that the market was expecting increases in short-term rates which were quite similar to those that the Bluebook projects. Which indicates to me that, if and when it's necessary for rates to go up, that the market apparently is expecting that. It would not be surprised.",148
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Any other questions or comments? Yes, Mr. Black.",20
-fomc-corpus,1977,"Steve's observation occasioned me to wonder about something. Steve, what maturities do you feel really compete most effectively with thrift institution obligations? I'm wondering about disintermediation here.",37
-fomc-corpus,1977,"Well, with thrift institutions, I would say that you really have to go through the whole maturity spectrum up to around four years. That is, the savings accounts are sensitive to the bills, and that may be more particularly true for commercial banks now with business and state and local governments.",57
-fomc-corpus,1977,"I think Mr. Black was directing his question to the assets, is that correct?",17
-fomc-corpus,1977,Yes sir.,3
-fomc-corpus,1977,"Oh, I'm sorry, I thought you were asking about the liability side.",15
-fomc-corpus,1977,Maybe I misunderstand the Chairman on it. I was really wondering--,13
-fomc-corpus,1977,"About mortgage interest rates, is that what you had in mind?",13
-fomc-corpus,1977,"No sir. I was thinking about disintermediation on the liability side of the thrift institutions and what this might mean, you know, for debt management with this bulge--",36
-fomc-corpus,1977,"I would say on that, that it's up to the four-year Treasuries and maybe a little bit longer, that is when those issues have very attractive coupons. And, of course, those yields are low now, or relatively low. Then you tend to get funds that would otherwise be going perhaps into four-year certificates going into Treasury issues. And also, [with] very high bill rates, funds that would otherwise go into savings shares [going] into the bills, and sometimes from very short-term certificates into bills.",105
-fomc-corpus,1977,"Any other question or comments? Very well, we'll break for coffee now and we will be back in about 15 minutes.",25
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,Have you noticed any change in the source of CDs for banks in domestic versus foreign?,17
-fomc-corpus,1977,"No, I have not. But I have not investigated that.",13
-fomc-corpus,1977,--material shift in the sources of them?,9
-fomc-corpus,1977,"I'd have to investigate that more carefully to give you an answer, but I have not--none has come to my attention.",25
-fomc-corpus,1977,Would you think it material if there was?,9
-fomc-corpus,1977,Not from the point of view of our domestic finance. It might be material from the point of view of the balance of payments and pressures on exchange rates.,31
-fomc-corpus,1977,I've had some impression of banks drawing more from foreign sources.,12
-fomc-corpus,1977,That's the impression I'm getting. That's the reason I was asking the question. But I frankly don't know whether it's material or immaterial.,27
-fomc-corpus,1977,You mean the CDs--not Eurodollars? Issuing domestic CDs to foreigners?,17
-fomc-corpus,1977,It's not apt to be in the form of CDs; it would be in the form of Eurodollars.,22
-fomc-corpus,1977,Excuse me. I used the wrong expression. I'm talking about purchased funds as a whole.,19
-fomc-corpus,1977,"I'm not so sure. At least in the south Florida area, the CD related to foreign is significant. And so much so that some of the larger banks have put a $150,000 limit on what they will accept from foreign sources.",48
-fomc-corpus,1977,"Mr. Wallich, please.",7
-fomc-corpus,1977,"I wanted to ask a question about appendix table 3, which shows implied velocity growth rates. Now the growth rates that would eventuate under the various alternatives are pretty high--particularly when you look toward the third and fourth quarter, they are remarkably high for V2, because typically that doesn't fluctuate that much. Now, I think Steve has given a partial answer to the implied concern here, by pointing to the high degree of liquidity and the ability of the economy to take care of a growing demand for credit out of its existing resources. But I'm still puzzled by something like on alternative A and B, almost an 8 percent rise in velocity requirements. How does that come about? Do you expect a very low rate of money growth at that time after the initial blip in the earlier part of the year?",162
-fomc-corpus,1977,"That's right. We are expecting a very rapid growth rate in money in the second quarter. And I think the--actually that 5.3 percent velocity for that quarter is in some sense artificially low--it's around 6--you have to average through the second and third quarter, which still leaves you a high M1 around 6. And we're expecting a drop-off in the third quarter, so that, [unintelligible] because of the rebate money in effect being used over a longer period. But in addition, Governor Wallich, we are expecting interest rates to rise, and that accounts for a good part of the rise in velocity in addition--",134
-fomc-corpus,1977,"In the absence of rising interest rates, allowing for the special factors that are operative now on the demand for M1, did you say how large that trend growth rate would be?",36
-fomc-corpus,1977,"Well, Governor Wallich, in the course of working out the material for this Bluebook, we did not work out an alternative which had no interest rate increase involved. So I really cannot give you an answer which would be anything other than my hunch. And I don't know whether you want that at this point.",64
-fomc-corpus,1977,"Yes, I do.",5
-fomc-corpus,1977,I can tell you the New York hunch. That's a little over 7 percent.,18
-fomc-corpus,1977,"I was going to put my hunch at around 7, and that would be a lower number, I believe, than would be literally read out of some of the models.",36
-fomc-corpus,1977,What's the number you're referring to?,7
-fomc-corpus,1977,7.,2
-fomc-corpus,1977,The increase in money supply without an increase in interest rates over this Committee's one-year horizon.,19
-fomc-corpus,1977,What M1 would be without an increase in interest rates.,12
-fomc-corpus,1977,"Well, that would be a growth velocity of about 4 percent, if M1 grew at 7 percent.",23
-fomc-corpus,1977,"That's correct, and that would mean that we're allowing for some further shift from demand deposits to other transaction balances and for the fact that some of this liquidity might be given up willingly rather than require high interest rates in the atmosphere ahead.",46
-fomc-corpus,1977,"Mr. Chairman, may I follow up? I was also struck by this table, Steve. What kind of historical precedent is there for this kind of a velocity rate at this stage of the cycle?",40
-fomc-corpus,1977,"I believe this is a high velocity rate, but again, as I point out, we're expecting higher interest rates. I don't believe there would be a precedent at this stage of the cycle without rising interest rates. I don't know whether you would even have found that. I don't have those figures at hand.",61
-fomc-corpus,1977,"There is a precedent. In the third year of the expansion beginning in '69, M1 velocity was 6.2. But, of course, that was accompanied by a sharp rise in interest rates. So there is a precedent, but not without major changes in short-term money rates accompanying it.",61
-fomc-corpus,1977,"You know, I think we have to be very cautious in approaching this question on the basis of historical perspective. I think it's fair to ask how did velocity behave in the past in the third year of a business cycle expansion. And that is the question that is being discussed and answered around the table. But I think that one ought to take into account the fact that we had a lull in the economy, a pause, a reacceleration--and from a certain point of view, a new expansion, you see, is getting under way, and one can therefore, from that point of view, regard it as being more nearly comparable to the first year of expansion. I think the truth is somewhere in between. And one has to look at it from both points of view in order to get a fair reading of what history can tell us.",169
-fomc-corpus,1977,"This would be higher, though, even for the first year.",13
-fomc-corpus,1977,"No, this would be an average of 6 percent for the year, which is not high for the first year of business cycle expansion on the average. Now, next, one has to take into account the changes in financial technology. I'll tell you how I read this table. I didn't go back to any historical records at all, I didn't have the time, and I start with a 3 percent secular rate of growth. I make an allowance for a high rate of growth during a normal business cycle expansion. That gives me, say, another 1 percent, so I'm up to 4. I make some allowance for this being a reacceleration, that gets me up to 4-1/2 or 5. I make some allowance for changes in financial technology and I get to 6, and therefore, I'm not too unhappy with this figure.",175
-fomc-corpus,1977,"President Eastburn, it was in an effort to help explain this new table that I did want to point out that the movement in liquidity has been very unusual in this cycle as compared with previous cycles. And that is, people have improved their positions during a period when they ordinarily deteriorate. That doesn't mean that you are surely going to get more velocity without much interest rate pressure, but it is at least an indicator in that direction.",87
-fomc-corpus,1977,"Is it not true, as Governor Wallich, I think, already suggested, that V2 may be a little more unusual than the V1 here in terms of a historical perspective? V2 hasn't got the 3 percent secular--",47
-fomc-corpus,1977,"More unusual if you go back to 1960 and stop there. If you go further back, it's a different picture.",25
-fomc-corpus,1977,"Well, I think one can sort of decompose what's happening to V2 to the extent that it contains M1 or if there is an increase in velocity. Now, if there's disintermediation, one would of course expect an increase in velocity during that period because M2 would be rising at a less than trend rate.",66
-fomc-corpus,1977,"If we're wrong, President Volcker, about the extent of interest rate pressures, then V2 would look more reasonable. If interest rate pressures are less, the V2 number is going to be considerably less, while the M1 velocity would be about the same.",53
-fomc-corpus,1977,"But even then, at this stage of the cycle, that is not an unusual level of velocity for M2. Because in the third year of the cycle beginning in 1960, M2 velocity was 6.2.",46
-fomc-corpus,1977,That was the beginning [of] disintermediation.,12
-fomc-corpus,1977,It's higher than what you've projected.,7
-fomc-corpus,1977,"Well, that's very sensitive to disintermediation.",11
-fomc-corpus,1977,"Have we done any studies on V3 which would tend to eliminate the changes in financial technology? It wouldn't totally do so, but it would reduce it.",31
-fomc-corpus,1977,V2 does to a great extent.,8
-fomc-corpus,1977,Until you get to V3 you don't have the total effect as well covered as you would.,19
-fomc-corpus,1977,I don't have that data here.,7
-fomc-corpus,1977,I have not done any.,6
-fomc-corpus,1977,It just strikes me that it might tend to give you some indication [of what] effect changes in technology would have on this.,26
-fomc-corpus,1977,"[Unintelligible] a lot of technology in V2, that is, to the extent some of the shifts from demand deposits to savings accounts in banks [unintelligible].",38
-fomc-corpus,1977,But it's not all going to banks [unintelligible].,13
-fomc-corpus,1977,Some of it's going to thrifts.,8
-fomc-corpus,1977,"Mr. Kimbrel, please.",8
-fomc-corpus,1977,"Mr. Chairman, [unintelligible]. Do you have any information that refunds are likely to be, in timing or amounts, significantly different from the usual this year?",35
-fomc-corpus,1977,"We think that the refunds will be a little bit higher than they were last year ,when they came in strong toward the end of February and March and had a definite effect on M1. But the stronger [rebates] were evident also in '74; we think our seasonals are beginning to pick it up. But we don't expect the refunds to be enough stronger in this year to have any significant effect on M1. It could provide some uptick in March, but we haven't built in anything very special for it.",106
-fomc-corpus,1977,"Yes, Mr. Volcker, please.",9
-fomc-corpus,1977,"Well, I just want to follow up on this question. Apparently our analyst thought that the refunds would have a significant impact in March, anyway. But beyond that, the rebates, which won't come for a couple of months subsequent to that, you obviously must have made some calculations here that affect these numbers. I suppose I would be interested in knowing not only what impact that has but what degree of confidence you attach to estimates you can make about the rebate phenomenon at this point.",95
-fomc-corpus,1977,"Well, we did put the March growth rate somewhat higher than the February growth rate partly on this thought of the refunds, but it's not a significant enough difference for me to put any real weight on it. On the rebates, we have in process, and we'll have completed within two or three weeks, a very detailed study of the experience in 1975. Pending that, we have made some tentative estimates, which in my view are somewhat arbitrary at this moment, of the effects on demand deposits and time and savings deposits. And we have added some 9 percentage points or so to May growth rates and something like 5 percentage points or so to June growth rates and then taken these out later in the summer, in July.",146
-fomc-corpus,1977,9 percentage points?,4
-fomc-corpus,1977,"I believe that it's 8 to 9. It's in that order of magnitude. Again I would like to stress that these may not be the numbers that we will be using when the rebates come upon us or when we get a better fix on them, because we have not completed this very detailed study we have under way of the 1975 experience. These numbers are very sensitive to assumptions you make about whether people have learned from the 1975 experience; whether they're going to spend [the rebate funds] faster than they did at that time; whether they are going to move them out of demand deposits faster or slower. And you can get radically different numbers for various months depending on whether you assume they come out two weeks, three weeks, four weeks, or five weeks [later]. The monthly numbers are enormously sensitive. And our pattern at the moment has something like a 14-1/2 percent rate of growth in M1 in May, a 10 percent in June, a minus 5 in July, and if you just change an assumption about a week or two, we can get a much lower number for June and a higher number for May. But at the moment these are the numbers we're working with for M1.",249
-fomc-corpus,1977,I'm surprised that your average increase in the second quarter was only 8 percent under alternative B.,19
-fomc-corpus,1977,"Well, that's how it works out with this 5 percent for April, 14-1/2 for May, and a 10 percent for June. The average rate of increase for the first quarter is somewhere around 5-1/2 percent.",52
-fomc-corpus,1977,"I have no idea what confidence to attach to any of these things, but apparently the New York people have a much lower estimate of this rebate impact that you're just citing now. I thought they had a little confidence in what they were doing, but if I can do it over again and see whether we--",61
-fomc-corpus,1977,"Well, I had hoped, President Volcker, that the subject would not come up because I did not feel that the work that we had done was adequate for a very confident estimate. And that's why I'm stressing that these are very first approximations and that we are working on a very detailed paper to try to get whatever you can out of the '75 experience. But as I say, these estimates will be very sensitive whether you decide that a person is going to hold [the rebate] for a week and then spend it or hold it for two weeks and spend half. It's just highly sensitive.",120
-fomc-corpus,1977,"There's only one way to do this. Since you don't know what people will do, and since '75 experience may or may not be repeated--history has a way of springing surprises on all of us--I would submit to this Committee a series of estimates based on varying assumptions. And my advice to the Committee at that time will be to allow for a very significant margin of error in any of these estimates as [we give] our directions to the Desk at that time.",96
-fomc-corpus,1977,"We also don't know, Mr. Chairman--and this may cause differences in the assumptions--the exact timing of the payout. We have, I think, here assumed that it begins in late April or early May. Again, you get a different [result depending on whether] payouts [are] being [held or] drawn down in May. It's a highly difficult area. And we will Mr. Chairman, when we get into the months--",89
-fomc-corpus,1977,"We don't want that. The point I'm trying to stress is, don't give us a single estimate.",20
-fomc-corpus,1977,"No, that's what I was going to say.",10
-fomc-corpus,1977,--give us a series of estimates.,8
-fomc-corpus,1977,"When we're presenting the months where they will be highly relevant to policy, we will provide a range of estimates for the Committee.",25
-fomc-corpus,1977,"All right any other questions? Let's turn to our discussion of monetary policy, and at the end of that discussion we will consider Governor Partee's memorandum. I find myself in a tranquil mood today. Alternative B--considering the state of the economy, the state of markets--that seems entirely satisfactory to me. I commented earlier on elements of uneasiness within the business community that I believe I have detected during the past month or two. The sources of the uneasiness, one can guess about; there's very little we can do about that, I believe, but there's one contribution we can make and that is to recognize the nervousness that has existed in financial markets. And I see no reason for departing from the federal funds rate objective that we've pursued with very little change here in the past few months. And that is my suggestion to the Committee. And now let's hear from members of the Committee. Who would like to speak first? Mr. Volcker, please.",196
-fomc-corpus,1977,"My initial approach to this would be, I think, similar to what you just stated. That, on the basis of what I see now, by which I mean I would include the projections we have of the aggregates during this period, I don't see any basis for making any change in our stance. Let me consider what would happen, or what should happen, if things in the next month turn out, particularly in the aggregates, not to follow the pattern that is now projected. And I speak in this connection against the feeling of some confidence in the outlook that has been expressed earlier by a number of people. And that the fiscal program may be a little larger rather than a little smaller if the Congress does change it, although I don't think that's terribly significant. I am concerned in the longer range about the possible capacity problems that were discussed earlier. I tend to share the staff's optimism about prices, but I think it's a very shaky projection, and I think it's very important that prices--we don't have a feeling in terms of confidence in the business community that prices are moving up again at a stronger rate of speed. So all this makes me a little sensitive to the aggregates speeding up well beyond the projection, should that happen. And I'm particularly sensitive against the difficult background--as we get into the rebate period, not wanting, rightly, I think, to act strongly then--in view of the uncertainties of those estimates inevitably. So while I see no reason for a change right now on the basis of any information we have, I could see the case more easily for shading upwards just a bit on the federal funds rate than shading down should the estimates come in higher than we now expect on the aggregates. Now how you transfer that into the precise specifications, I'm not sure. I have no trouble with the B specifications on the aggregates, although maybe I prefer that A specification on M1. But the difference is only 1/2 percent, it's not enough to argue about. I wonder on the federal funds rate. I suppose I can express my view in terms of substance more accurately if the federal funds rate was 4-1/2 to 5-1/4, let's say, or even 4-1/2 to 5, with a midpoint asymmetrical toward the lower end of that range. Something like 4-3/4, or even 4-5/8 to 4-3/4, so we have less room on the downside than on the upside.",503
-fomc-corpus,1977,That's where we are now; 4-5/8 to [4-3/4].,20
-fomc-corpus,1977,"That's where we are now. I don't really want to change now, but I'd like to give myself a little leeway for changing a bit if in fact the aggregates came in high, and I mean quite high--a couple of percent, anyway.",50
-fomc-corpus,1977,"You know, under our rules, if that should happen, then the Desk would communicate with the Chairman promptly, and he in turn would get in touch with the Committee and take actions that are appropriate.",40
-fomc-corpus,1977,"I think that would be acceptable. All I want to express is, I feel a little asymmetrical about the situation. I'd be a little readier to move up just a bit if things came out that way. I hope they're not going to come out that way. They're moving in the other direction.",61
-fomc-corpus,1977,"Paul, you could move to 5 within this specification.",12
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,"Because if you were toward the top on the aggregates, why, you could move up. If the aggregates were very strong, you could go beyond 5 through the device of [a Committee consultation].",40
-fomc-corpus,1977,"I don't really want to move above 5, don't misunderstand me. I'm not sure I want to move to 5. I just feel a bit asymmetrical about the desirability of moving if the estimates came in on the high side, and that's the only thought I wanted to express here really.",60
-fomc-corpus,1977,"All right, thank you, Mr. Volcker. Mr. Black now, please.",18
-fomc-corpus,1977,"Mr. Chairman, I'm a tad more hawkish today than you are, but not a great deal. I'm not particularly concerned about M1, and I recognize these uncertainties involving the rebates and refunds and the likelihood that whatever does take place may be reversed. I think we have to be very cautious in reacting to the behavior of M1, and to compound my confusion, the projections we've been doing in Richmond suggest that in February, M1 may actually decline a little bit, but [may have] a pretty good spurt in March. But that's, of course, a guess. But anyway, regardless of what happens, three sets of projections for the first quarter would be in the neighborhood of 5 to 5-1/2 percent, or something like that. And I think that's perfectly appropriate. The thing that really concerns me is something that's bothered me for some time, and that's this rapid rise in M2, and I would hate to see this continue for very many more months. I think that's something we definitely have to be concerned about. So I'm inclined to make a little move toward less ease right now, although I recognize the uncertainties of the weather. I think that's going to be temporary, as I indicated a little earlier. But I certainly don't think we should do any more than a very gradual move at this time, keeping in mind that the financial markets are very uncertain and that they could react very sharply to even a slight tightening move. And when we get to the numerical specifications, I would take the language of B and the Ml specifications of B, which would be 3 to 7 per cent. But on M2, I would like to see that range reduced to 6 to 10 per cent so that we could trigger some reaction on the funds rate if we move up to 10 per cent. And I would favor going back to our 1 percentage point spread by adopting 4-1/4 to 5-1/4 on the federal funds rate. But I wouldn't make any move toward a 4-3/4 midpoint unless in fact we do see the aggregates accelerating from the sluggish pace that we've been experiencing recently.",437
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Coldwell now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I'm in a basically hold position, which I guess is what you're saying. I think the interest rate structure is generally satisfactory for growth over this near-term period, and monetary aggregates seem to be growing at a reasonably satisfactory pace, given the liquidity in the economy. I wouldn't resist much of an increase if we came down to the rebate, but that's a down-the-road decision. I might want to change my mind later on. Right now, I would resist too much of an increase in the fundamental growth here. I do have a feeling that we may end up with some international pressures which might impact upon our decisions in the near-term future, in the next few months. I think the Committee's posture right now ought to be one of a rather cautious stability. And, it seems, that is an appropriate position for the uncertainties of the economy ahead, until we see exactly what kind of a fiscal policy and impact these various things have had over the past few months. So I would stay with B with a federal funds rate of 4-1/4 to 5.",219
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Kimbrel now, please.",17
-fomc-corpus,1977,"Mr. Chairman, I think we share the same concern for the delicate uneasiness and all of the reasons you suggest, but I did detect that you referred to the weather-induced distortions that we are experiencing. And I think they, too, are contributing to that uneasiness. I think this caution that's been generated has probably pushed [backward] some of the capital investment commitments for two or three months. I don't think we need to anticipate any of this in our action. I personally would like to see more definitive developments both in the fiscal area and in the business community before we move. I guess I have a natural inclination to rather anticipate some movement in the federal funds rate, and would be naturally inclined to spread that from a 4-1/4 to 5-1/4, but I guess my restraint is more in the area of trying to maintain some stability at this particular moment. I think that would serve us better for this immediate period. So I would opt for alternative B exactly as is written, and the specification.",212
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Partee now, please.",17
-fomc-corpus,1977,"Well, Mr. Chairman, I find myself I guess mostly in agreement with President Volcker. I think the danger right now is that we could have higher-than-expected growth rates in the aggregates, and I think if we do, we ought to move against them fairly promptly because of our feeling that the second quarter is going to have a bulge. I might point out to the Committee that it may appear that it's made headway in gaining a little room for the bulge because, as reported by Peter, the M1 was at or below the midpoint of the range all through the intermeeting period. But if you look real hard at this Bluebook, you will find that January is going to be revised up in the 4.6--or something like that--growth rate, to 5.8 because of the change in seasonal factors. And mainly what we've done is we've added to the January growth rate and taken away from the March growth rate in that seasonal factor adjustment, so that, in fact, we haven't made any progress in providing room for the second quarter bulge. Therefore, I guess, Paul, I would be opposed to raising that M1 range to 3-1/2 to 7-1/2. I wouldn't want to give any ground, and I think 3 to 7 as in alternative B is the best way to go. And I suppose I might have a small preference for a 4-1/4 to 5-1/4 range [for the federal funds rate], but I don't feel strongly about it if it's understood that if [we] move up toward the high end on these growth rates, we will be moving toward 5, and if we move significantly over those growth rates, why, we'll reconsider the instruction to the Manager. So I would go along with B as written.",375
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Mayo now, please.",15
-fomc-corpus,1977,"I really have no trouble with alternative B, Mr. Chairman. I think you could make a case for keeping the federal funds range just where it is now--4-1/4 to 5--on the grounds that we don't know about the weather and so forth and so on. But I think I would be rather shocked if we took advantage of going even to 4-1/2, much less to 4-1/4. So there seems to be no great [problem] here other than the usual one of not being able to see clearly. I have no problem with the M1 and the M2 growth rates as they're spelled out here. I think that wrestling with that problem is at least one more month down the line. And I don't feel that we ought to consciously try to curb the M1 expansion too much in anticipation of the rebates. I think we're in a more appropriate posture to play that as we see it when they come about.",196
-fomc-corpus,1977,"Thank you Mr. Mayo. Mr. Jackson now, please.",13
-fomc-corpus,1977,"I don't see the need to make a big, long speech, Mr. Chairman. I think you ought to just stay at alternative B.",28
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Lilly.",11
-fomc-corpus,1977,"Well, I'm not going to make a big, long speech, either. I'm only going to echo what Chuck said, except that I want to make one point. I think it's going to be easier now to move to 5-1/4 than it will be a month from now, two months from now. It might be prudent now to go to 4-1/4 to 5-1/4, [with] the midpoint of 5/8 going to 3/4. Otherwise, I'm in perfect agreement with B.",112
-fomc-corpus,1977,"Thank you, Mr. Lilly. Mr. Wallich.",12
-fomc-corpus,1977,"Well, I think our concerns once more are more with inflation than with growth now that the pause seems clearly over the dam. We also see some substantive blips ahead in the aggregates due to rebates, refunds, rebounds. As I look at those velocity estimates and the associated interest rate increases, I'm [sufficiently] troubled by the pressures that may be ahead that I'd like to lay in a little reserve against all of these things. So I would lean toward alternative B, with a slight shading toward C to widen the funds rate 1/4 point on the upside, 4-1/4 to 5-1/4, and leave M1 as is. In M2, I'd go with Mr. Black, 6 to 10.; I think that's an interesting innovation.",160
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Eastburn now, please.",16
-fomc-corpus,1977,"I would align myself with those who would stay with alternative B and the specifications noted under that. I would like to have a wider federal funds range, but given the way the Committee's operating, I'm satisfied with what we have, and I do think that there's ample room to move if the aggregates were to come in large. And I feel better about that based on the comments I made earlier, that the market, I think, would not be surprised if this were to happen.",96
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Who would like to speak next please? Yes, Mr. Van Nice.",23
-fomc-corpus,1977,I think I'd align myself with Governor Wallich. I would adopt alternative B--which would happen to give us an average growth rate in M1 for this quarter exactly along the lines of our long range targets--with a slight leaning toward alternative C for the same reasons that he's mentioned. And perhaps a raising of the federal funds rate by 1/4 on the top end of the range.,79
-fomc-corpus,1977,"Thank you, Mr. Van Nice. Mr. Guffey now.",15
-fomc-corpus,1977,"I think I would also prefer B [and] adopting the suggestion to widen the fed funds rate range to 4-1/4 to 5-1/4. I think I would also like to see us, by the Committee meeting next month, to be at a midpoint of that range, 4-3/4. It's a very slight change, to be sure; we're averaging 4.66 now. I'd like to see us end up at 4-3/4 next meeting.",103
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Balles now.",15
-fomc-corpus,1977,"I think I would agree with what Governor Wallich has expressed. I am concerned with the constant outlook for the economy that I have, and keeping in mind the sharp upward base drift we had in M2 last year, which was over $11 billion and especially strong in the fourth quarter. [And] a concern Governor Lilly has earlier expressed, which I share, which is the amount of liquidity in the economy. And in view of all of these things, I would come out about half way between B and C, I guess, and I think Governor Wallich has expressed the specifications pretty well. I would favor a federal funds rate of about 4-1/2 to 5-1/4 and would like, as Mr. Black has indicated, to pull the M2 range down a little bit to, say, 6 to 10. But my fear is that if we don't begin to lean against the bulge that's in prospect, and in view of the very large overshoot in M2, I'm quite concerned about the implications for inflation as we move into next year.",220
-fomc-corpus,1977,"Thank you, Mr. Balles. And who would want to speak now? Mr. Gardner, please.",22
-fomc-corpus,1977,"I have the conviction that we should stay with B as stated here. In addition to all else that's been said, I want to make this comment. I don't think that we can pragmatically lay in some supplies for the future in this instance. The reason I say that is the stimulus program is not yet passed into law. If market rates begin to do things that those who [seek] stronger stimuli take exception to, we could be possibly a partial instigator. I'm entirely clear that we should stay where we are at the moment, although I recognize that the job before us in the coming months is terribly important. I suggest if we start that job prematurely, we may compound [the difficulty of] our own mission. So I would stay right where we are at the moment.",156
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Winn now, please.",14
-fomc-corpus,1977,"I'd identify myself with those in support of B. I think I would take the insurance step of widening the range, not that I advocate using it, but it's being on record that it's there.",39
-fomc-corpus,1977,"Thank you, Mr. Winn. Yes, Mr. Morris.",13
-fomc-corpus,1977,"Mr. Chairman, I support your position with alternative B. I think that the time to lean against the bulge will be in the third quarter, when we find out how much the bulge was. I think in terms of timing, [it is] more appropriate to do it then than to start to do it now. I agree with Governor Gardner that to take even the minor step toward that now is premature.",84
-fomc-corpus,1977,"Thank you, Mr. Morris. Mr. Baughman.",13
-fomc-corpus,1977,"I would think that alternative B would probably serve our needs for the next month, with a monetary directive as the aggregates directive and understanding that, if we go to the top of the aggregates, we would go to the top of the funds range as well.",51
-fomc-corpus,1977,"Mr. Roos, you have the opportunity to pronounce the benediction.",16
-fomc-corpus,1977,"Well, I become a voting member possibly next month, so I'll keep my powder dry, Mr. Chairman. B is fine, though.",28
-fomc-corpus,1977,"Thank you. You know, without going through the expressed opinion meticulously, but having listened very carefully to the views expressed around this table, I would like to make the following proposal: that we vote on a monetary aggregates directive; that we specify a range of 3 to 7 for Ml; a range of 6-1/2 to 10-1/2 for M2; and a range of 4-1/4 to 5 per cent for the federal funds rate. Is there any unhappiness around the table if I put this set of suggestions to a vote?",119
-fomc-corpus,1977,The center point in the funds rate 4-5/8--,14
-fomc-corpus,1977,"Where it is now, yes. It's off-centered toward the higher end. Well, I don't hear any shriek of horror, and therefore would you be good enough to call the roll.",38
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes President Balles Yes President Black Yes Governor Coldwell Yes Governor Gardner Yes Governor Jackson Yes President Kimbrel Yes Governor Lilly Yes Governor Partee Yes Governor Wallich Yes President Winn Yes It is unanimous.,49
-fomc-corpus,1977,"All right, let's turn to item 7 on the agenda, the memorandum from Governor Partee reporting on the thinking of [his sub]committee as to the precise form of our domestic policy directive. This was put before the Committee, oh, two months ago, and a question was raised at that time by Governor Jackson, and I thought that that question ought to be explored by our general counsel before we proceeded to vote on it. Our general counsel has not found any difficulty. Since that time, there have been some very minor changes made by Governor Partee and members of this Committee. And as far as I could see, the recommendation is one that I, for one, can support. Mr. Partee, would you like to comment on this?",152
-fomc-corpus,1977,"Well, Mr. Chairman, the subcommittee has not made an effort in this proposal to do anything substantive. All we wanted to accomplish in the way, you might say, of a clean-up of the records of the Committee was to put directly into the directive the directive [specifications]. And to discontinue the specification sheet, which is sort of a side agreement that we've had for some years, and its position was never absolutely clear in anyone's mind whether it be a legal document or an instruction to the Manager. So that the purpose here--and I want to emphasize that [it] is not to make any changes in the previous procedures or in the Committee's way of speaking. The longer range, which represents the thrust of the Committee's thinking over the longer run and [is] voted upon with the qualification that those long-term ranges could be respecified at any time. And [in] the short-term range we try to capture precisely what we'd recommend the Manager to do, that is, a monetary aggregates or money market directive, [giving] attention to the aggregates or to the money market. In either case, the directive is affected by where we're falling in the projections relative to the range of expectation. And again, we qualify the short-term specification, as in practice that has been done, by pointing out that if the specifications are inconsistent [with the money market range], the Manager informs the Chairman, and the Chairman may call for a change in the specifications. So I don't think there's anything here that represents any kind of departure. The sample directive from Mr. Broida that we have attached to this memo, February 7, could be used today, for example, by putting into the blanks in the monetary aggregates formulation the numbers that we've just agreed to. And I think it would be an exact representation of what the instructions to the Manager have been. And of course, it goes without saying that if the Committee were prepared to adopt these numerical specifications, the so-called specification sheet would then be discontinued, and this would be the record. I might note that there were differences, sometimes, about individual words that appear in this directive language, and you may have noted that Governor Wallich would like, in the case of the long-term range, to insert the word ""target."" The subcommittee decided against that because that would be a change in practice from what had previously occurred, but Governor Wallich may wish to speak to that issue. I can't recall that we had at the end any other differences, among our subcommittee of four, that call for a [comment] by the members of the [sub]committee, but if they would like to say something, I certainly don't mind. Governor Wallich, did you want to say something about the use of the word ""target""?",562
-fomc-corpus,1977,"There is no basic disagreement at all on my part with the subcommittee. I do feel that stressing aggregates is a defense for us, even though the Chairman has pointed out many times that Congress really thinks in terms of interest rates and that hiding behind good-looking aggregates will not help us if interest rates go up. I think there is some defense. Moreover, there is substance here. In an inflation, interest rates, both are less meaningful--we don't know what the real rate really is--and they are less controllable. Our span of control over, certainly, long-term rates may be minimal, maybe zero. So I would like to do what one can to stress that we are focusing on the aggregates, and hence I'd like to add the word ""target"" to ranges, so that it's clear it's a target. And I'd like to substitute for the rather timid ""appear to be consistent with,"" which is good for the Federal Reserve prose but really doesn't, I think, influence anybody else. Say ""reflect,"" which is still very much Federal Reserve--a very modest, cautious term--and yet I think a little stronger in focusing on what I think we mean--namely, that we try to set an aggregate and try to exert our influence on the economy through it.",256
-fomc-corpus,1977,Would the other members of the Committee wish to say anything? Frank?,14
-fomc-corpus,1977,"No, I have nothing to add.",8
-fomc-corpus,1977,John?,2
-fomc-corpus,1977,"I must say that I'm sort of attracted by Henry's reasons for using the word ""target,"" and I would be prepared to go with that. I caught up with this fairly recently. It's an interesting alternative to consider.",44
-fomc-corpus,1977,"Well, as I say, Mr. Chairman, it seems to me that that recommendation, which may have merit on its own, violates the spirit of the exercise here, which was to simply transfer what we now have into a different and more useful form. So I think it could be considered by you and by the Committee if it wishes, but it is not a necessary part of the transference [of] procedures that we have in mind.",89
-fomc-corpus,1977,How would you feel if it didn't violate the spirit?,11
-fomc-corpus,1977,"Well, you know, I must admit that I'm inclined to back away a little from the use of the word ""target"" in the case of the monetary aggregates because I've always felt that, as I think the Chairman has stated to the Committee, our target is the performance of the economy. That is, our objective and the target we have in mind is a meaningfully good improvement in the performance of the economy. And therefore, the monetary aggregates are only an instrument toward achieving that. Now, it's a little difficult, frankly, not to use the word ""target"" as shorthand when you refer to these long-term ranges--because they are targets on the assumption that those will produce economic results that we want. They're very shiftable targets, and I think this might be misunderstood when [one calls] them targets. So I don't think I can go along--at least I feel uncomfortable about accepting Governor Wallich's suggestion at this point.",188
-fomc-corpus,1977,"May I make this suggestion: that we consider first of all the main thrust of the memorandum by Mr. Partee and then discuss further to the extent that we may wish to do so the verbal changes that Governor Wallich has suggested? Is there any difficulty with the main recommendation , that is, spelling out these ranges of ours in the policy record? Any difficulty with the main recommendation?",77
-fomc-corpus,1977,"You say any difficulty. I have a slight difficulty in that I think it has a kind of spurious precision to it. And maybe it neglects some of the nuances in our conversation. But I don't have any strong feeling if this is the way the Committee wants to go. I think even in this case it's pretty hard just to drop in these figures we've just talked about and reflect all the conversation adequately around the table. By not putting them actually in the directive, you leave that a little fuzzy. I think that's a merit, but I don't feel so strongly about it.",116
-fomc-corpus,1977,"But actually, all of these numbers now--",9
-fomc-corpus,1977,--now appear anyway.,5
-fomc-corpus,1977,--now appear in the monthly policy record.,9
-fomc-corpus,1977,"They're just a little more formalized this way, and I don't see that advantage, but I have no--",22
-fomc-corpus,1977,"Paul, you just voted on it. [",9
-fomc-corpus,1977,] That's correct.,4
-fomc-corpus,1977,"But I would echo Paul's reservation. This does provide a bit more emphasis, placing them within the directive.",21
-fomc-corpus,1977,"Well, what is the thinking of other members of the Committee?",13
-fomc-corpus,1977,"Mr. Chairman, the release of the policy record is in a new phase--of 30 days. I would have some concern if I thought that release might be accelerated. I think we all would.",41
-fomc-corpus,1977,"But in that event, you could contemplate that we might only release to the public the almost meaningless directive that we've published in the past. I don't see how, if we were advised by a court that we had to release it earlier, that the court would permit us to simply release such an innocuous statement.",62
-fomc-corpus,1977,"Well, Mr. Morris, at this particular point you've stepped outside of your own realm of expertise. You had better listen to our counsel as to what--",31
-fomc-corpus,1977,We had a memo from the counsel on this.,10
-fomc-corpus,1977,--as to what a court would or would not permit us. Mr. O'Connell.,19
-fomc-corpus,1977,"Mr. Chairman, I stated earlier the possibility that the Court of Appeals may render a judgment to confirm an interpretation of law requiring immediate release of a directive policy action. Assuming the directive were included in that record, we are taking the position that the most immediate time frame within which that Record of Policy Actions can be formulated, finalized, adopted by the members of the Committee, and then be ready for final action would be the period of time we are now operating in, namely, roughly a 30-day period, no matter what were the immediacy the Court should render. So it's within that time frame that I express the view that I see no adverse impact, even should the Court of Appeals render the judgment of which I speak.",147
-fomc-corpus,1977,"All right, thank you, Mr. O'Connell. Mr. Jackson.",16
-fomc-corpus,1977,"I think we ought to incorporate it in the record just like it's proposed. We just had a long discussion this morning about our living within the spirit of the Sunshine Act, and I think this is just evidence of that intent.",45
-fomc-corpus,1977,"Well, you see, these specifications are now reported in the policy record, and what we're really talking about is the inclusion of these specifications in the directive to the New York Reserve Bank as well. Which means, as far as the monthly policy record is concerned, these numbers would be reported twice instead of just once, as is the case now. But if you take the instruction to the New York Desk--and I think this was the main point that the [sub]committee worked on--it's a fuller statement and more honest statement as to what the New York Desk is instructed to carry out. Is that correct?",123
-fomc-corpus,1977,That's exactly it.,4
-fomc-corpus,1977,"I raise a question, Mr. Chairman. If we were to, at a later date, decide there were to be a reserves intermediate target or something, would you also advocate that that be a part of this?",43
-fomc-corpus,1977,"If it were a short-run target, absolutely. It would appear down here in the operative instruction. Art, I'd forgotten what we had in the longer-run statement. Do we now use reserves? We had proposed that, at one point, to carry out the intent of the previous subcommittee report. That is, it's a longer-run thing if you look at it; reserves and--",77
-fomc-corpus,1977,"Oh, yes, Governor Partee, I'm sorry, it does say to foster bank reserve and other financial conditions.",23
-fomc-corpus,1977,"Yes, but we don't specify the numbers.",9
-fomc-corpus,1977,We don't specify the amount.,6
-fomc-corpus,1977,"Because we don't have a specified target, you see.",11
-fomc-corpus,1977,"That's why I said, if later on you did, you would include that in your directive.",19
-fomc-corpus,1977,"I'm not sure--depending on what we did, it might appear in the long-run paragraph rather than a short-run paragraph.",25
-fomc-corpus,1977,"Well, you have both. It would appear in one place or the other.",16
-fomc-corpus,1977,"No, I think we could amend it, you know, and anyway amend their operation. We would amend the instructions. And as a matter of fact, it seems to me that the instruction--because it is specific and is what we've told the Manager to do--is more amenable to a modification of [this] kind, than is the case now in our current [specifications].",78
-fomc-corpus,1977,Mr. Lilly.,4
-fomc-corpus,1977,"Just a question of how this would be carried out. As I understand, if this were adopted in the Committee's directive and instructed in this form, on page 3 we would show the weekly average federal funds rate of about 4-5/8--",52
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,4-5/8 to 4-3/4.,13
-fomc-corpus,1977,That is exactly what we would release.,8
-fomc-corpus,1977,"It would not show the range for the funds rate, Mr. Chairman?",15
-fomc-corpus,1977,"4-1/4 to 5, which gives you the little range within the big range.",20
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,In this particular instance.,5
-fomc-corpus,1977,That's not presently reported in this.,7
-fomc-corpus,1977,Yes it is. I just checked that. It was reported in the last policy record.,18
-fomc-corpus,1977,My guess is that this is just the second time we've done that.,14
-fomc-corpus,1977,Would it say 4-5/8 or 4-5/8 to 4-3/4?,24
-fomc-corpus,1977,It's at 4-5/8 to 4-3/4.,16
-fomc-corpus,1977,I think that's what it would have to say.,10
-fomc-corpus,1977,"Well, at least I've been very precise that we shouldn't. This was released February 10.",19
-fomc-corpus,1977,"Well, this is part of a January meeting, which will be released on Friday.",17
-fomc-corpus,1977,"Oh, I'm sorry. Yes, but this has been approved by the Committee.",16
-fomc-corpus,1977,"We need to reemphasize what Chuck said, that the big advantage of this is that it does away with the specification sheet, which I think always made us vulnerable--as far as our public posture is concerned--in having some kind of a secret document.",53
-fomc-corpus,1977,"Well, I honestly don't see that, because the policy record contains the numerical specifications now, and that particular sheet is a piece of a working paper for the Committee. I don't think we're vulnerable. The advantage I see is that when you segregate and look solely at the instructions to the New York Desk at the present time, those instructions are incomplete. And the substance of the Partee [sub]committee recommendation is that the instruction to the New York Desk as we publish them be made complete. And that requires specification of the numbers. These numbers are reported now in the policy record, released after approximately one month.",123
-fomc-corpus,1977,"Is there any possibility, Mr. Chairman, that this may trap you in your testimony with Congress.",20
-fomc-corpus,1977,"I don't see--I considered that very carefully, and at a certain time I was a little opposed and seeing some possible difficulty. And my next objection was that it was simply repetition--why do we have to say the same thing twice? But I finally--my present position is that there is a slight advantage in saying it twice, in [the] sense that [our] instruction to the New York Desk, looked at separately, is more complete.",91
-fomc-corpus,1977,"Mr. Chairman, I have one final concern, and that is, twice, I think, it appears that you [are] given the discretion in this statement of calling the Committee together. Now if it appears ""the Manager will notify the Chairman and will then decide,"" this could--I may need counsel's assistance on this--but this could conceivably create a position where you might be criticized for not calling the Committee together. You might--",90
-fomc-corpus,1977,"To the extent that that is a difficulty, we lived with that difficulty for some time thus far without trouble or embarrassment, you see, because that is contained in the policy record now, and has been for some time.",44
-fomc-corpus,1977,I think the rules of the Committee permit calling a meeting by a certain number of members anyway.,19
-fomc-corpus,1977,"I think that this doesn't technically mean you can't call a Committee meeting anytime you want to. This just says the Manager would notify you if [the directive] is significantly inconsistent, and there may be other reasons for calling the meeting.",46
-fomc-corpus,1977,"It's an instruction to the Manager, not to the Chairman.",12
-fomc-corpus,1977,"It imposes a duty on the Manager, though.",11
-fomc-corpus,1977,"Any further discussion desired? Let's have just a show of hands. Members of the Committee in favor of the Partee [sub]committee recommendation, would they kindly raise their hands. Those opposed. The majority is clearly in favor. We don't need a formal vote on this.",55
-fomc-corpus,1977,"Mr. Chairman, can we interpret the prior vote to cover this directive with the numbers inserted?",19
-fomc-corpus,1977,I think we should. We still have an opportunity--one that we've delayed time and again--to act on the report of our [sub]committee which has considered [public] agency [securities].,41
-fomc-corpus,1977,"Mr. Chairman, excuse me, there is a point--",12
-fomc-corpus,1977,"Sorry, I overlooked that. Now, as for the changes in language which Mr. Wallich has recommended, I share the sentiments expressed by Governor Partee. I have resisted the word ""target."" I never use it because it can lead to misinterpretation. And your main point, Mr. Wallich, namely the need to accent the attention that we give to the monetary aggregates, I don't think that you would advance that any by using the word ""target."" You take the testimony that we have given before the Banking Committees. We've accented the monetary ranges, our objectives with regard to the growth of various monetary aggregates. That has been the main thrust of that testimony. And I don't really think that it would be advanced any by having the word ""target"" as a modifier of range. But what is the sentiment of the Committee? Those in favor of having the word ""target,"" kindly raise their hands. Well, there is no strong sentiment at the present time, but with your usual eloquence, Henry, in time you may possibly persuade the members of the Committee. Let's turn to the report of our subcommittee on [public] agency [securities]. Mr. Volcker served as the chairman of that group. Mr. Volcker, would you be good enough to report.",260
-fomc-corpus,1977,"You may recall, Mr. Chairman, this group was appointed specifically in response to a question about whether we should be purchasing what might be called some special agency issues. More specifically, WMATA, the Washington Metropolitan Area Transit Authority, and whether that was an appropriate kind of security for us to be buying. Our charge was more general, just to examine lists in general of what we should be buying. I'm not sure that the Committee, faced only with the WMATA issue, would have reached the unanimous [result in the] report very easily. But we came up with the unanimous report quite simply based upon a broader consideration of what kind of agency [securities] it was appropriate to be buying, in the sense that we found we had been buying [securities of] some agencies, of which WMATA was certainly one. They were not currently issuing any securities in the markets and didn't have any real prospect of [doing so], and there were relatively few outstanding. And we considered various alternatives as to how the instructions or directive might be changed to exclude some of these issues. And what stood out, I think quite naturally, was, under present conditions--unlike those that existed when the directive was originally formulated--with the Federal Financing Bank [now] in existence, and in fact [with] the Federal Financing Bank picking up a lot of these older agency issues--we could simply change the directive to exclude securities that were eligible for Federal Financing Bank purchase. The practical consequence of this would be to concentrate on purchases in the federally sponsored agencies. These are the agencies that are not now eligible for the Federal Financing Bank because they have private ownership--FNMA [Fannie Mae], Home Loan Banks, and the Farm Credit [System], primarily. This is where the action has been; these are the agencies that were specifically mentioned by the Congress [as being ineligible for the Federal Financing Bank] when the [Federal Financing Bank] legislation was formulated, and so we unanimously concluded that the simple, straightforward thing to do would be to confine our purchases to agencies not included in the purchase authority of the Federal Financing Bank. In fact, in practice this means very little at the moment because those [eligible] agencies are selling their issues to the Federal Financing Bank, and we are not purchasing any significant amount of them currently in any event. So it regularizes to some degree the de facto situation that exists. It has the further merit, as the subcommittee saw it, of providing rather visible support for the intention of the Federal Financing Bank to purchase these more singular-type issues, and we felt, I think consistent with the thinking of the Committee as a whole, that the Federal Financing Bank concept should be supported, and the Federal Reserve generally had supported the development of the Federal Financing Bank. So this is a step, in a sense, consistent with that earlier view [and] recognizes the de facto situation that the Federal Financing Bank is buying these other issues, and [it avoids] any necessity on our part of selecting among agency issues. The one exception to the general statement that [only] agency issues other than the [government]- sponsored-[agency] issues are being purchased by the Federal Financing Bank is GNMA pass-through securities. This Committee, as a matter of practice, has not purchased those issues anyway. This would, in a sense, formalize its decision not to purchase those issues because they are eligible for Federal Financing Bank purchase. That's the only one [of the government-sponsored agency securities] that I am aware of that is eligible for purchase by the Federal Financing Bank, of any significance certainly. It would not involve any change of policy on the part of the Committee because we are not purchasing them anyway. So I think I can report a unanimous recommendation that we meet the issue with which we were presented by [means of] this simple change of adding a few words to the instruction--that we will limit our purchase to issues not eligible for the Federal Financing Bank. It will involve very little change in practice, but a change in the way we describe practice. We are aware that new agencies may arise in the future, and if [they do], then we conceivably would want to make a different decision then. But we felt we had to face that decision in the future anyway, and this doesn't prevent us from [doing so]. One other point I might mention. We did not interpret our mandate as looking more broadly at the practices of buying agency issues, including the size of the issue that might be eligible for purchase, the ones that would remain eligible, the percentage of those issues that might be purchased. Some question was raised in our discussion about that. The [System Open Market] Account Manager has been looking at the issue and is preparing to make some recommendations. If the Committee so desires, those recommendations could be filtered through the subcommittee if you want to keep it in existence for that purpose. I don't think we have any strong feeling one way or the other, other than some feeling that the thing ought to be looked at. And the Account Manager ought to look at it anyway. And our basic recommendation is the Federal Financing Bank.",1033
-fomc-corpus,1977,"I have one concern about this rule. I would love to see the Metro Washington issue now in our portfolio, I'd like to see us get rid of that, and for a very obvious reason. [The presence of] this [asset in our portfolio] is dug up by individual Congressmen, and they come forward with the argument: ""Now you have supported and rendered financial assistance to the City of Washington. You bought their securities. Why don't you buy the securities of New York City, and why are you discriminating against New York?"" How much do you hold, Alan?",116
-fomc-corpus,1977,"$117 billion, according to table 1.",10
-fomc-corpus,1977,"I should just add, Mr. Chairman, which I did not say--that the subcommittee contemplated that we would not sell those issues that would in the future not be eligible for new purchase except as part of any general sales program which was undertaken in any event. Since they have been at the very least extremely rare, I think in practice we are not contemplating that particular issue, or any other particular issue, that it would be sold out of the portfolio.",92
-fomc-corpus,1977,"But we did agree that where opportunities arise when we were going into sales, we ought to view that as our prime--",24
-fomc-corpus,1977,Certainly.,2
-fomc-corpus,1977,"Mr. Chairman, would it be acceptable to the Committee if we discussed with the Federal Financing Bank whether they would like to take over? This may be very difficult.",33
-fomc-corpus,1977,Sell these to the Federal Financing Bank?,8
-fomc-corpus,1977,"Yes, this would be an unusual sort of transaction.",11
-fomc-corpus,1977,Why not do the unusual thing--get them to buy it?,13
-fomc-corpus,1977,And maybe take the financing back.,7
-fomc-corpus,1977,Give it to them. Sell it to them at a market price.,14
-fomc-corpus,1977,"On the substance of your concern, Mr. Chairman, I don't think the [sub]committee was of one view that there is a concern [but] I would have the concern that it's hard for this Committee to distinguish among issues that are fully guaranteed by the federal government. That, in effect, the decision about support of a local instrumentality is made by the Congress in providing the 100 percent guarantee in the first place, and it's a little hard for us to second-guess that one if we are buying guaranteed agency issues. And that's of course why we slid into this other approach, where that kind of consideration is absent from our recommendation.",130
-fomc-corpus,1977,"There's a big difference. Unfortunately, the people who comment on this don't recognize this--it stirs up concerns.",23
-fomc-corpus,1977,I must say my main interest in the work of your subcommittee was in getting rid of the D.C. issues.,24
-fomc-corpus,1977,We thought we were accomplishing that purpose and have accomplished the purpose in terms of new purchases. We haven't accomplished it in terms of--,26
-fomc-corpus,1977,"That will have very little influence, I think, on congressional opinion, but maybe municipal finances from this point on will be handled so wisely, so prudently around the country that this problem will not arise.",41
-fomc-corpus,1977,"Mr. Chairman I have only one question about the report. Let me just check this with Paul. It's a nice way of getting rid of these bits and pieces. My recollection was that the financing bank was originally sold to the agencies as an optional source of financing. That is, it was wasn't mandatory. For a while, the Treasury wanted to make it mandatory that the agencies would do the financing with the financing bank. The way it was left, as I recall, it was optional; they could do it if they wanted to or not do it. So it does suggest as a possibility, you might have some fully guaranteed agency in the future that doesn't use the financing bank. It goes out on the market itself, and then we may not be providing--we could not be considering this, as I understand it, as we would consider another agency, because of this narrowing, this particular determination we have made. Now, is that appropriate?",190
-fomc-corpus,1977,"I think conceptually you are correct. If my memory is right, virtually all these agencies--not by the terms of the Federal Financing Bank legislation, but by the terms of their own substantive legislation--can't go into the market without some other device where the Secretary of the Treasury can force them into the Federal Financing Bank. That may not be 100 percent true, but I remember big discussions we had with the Post Office--that the terms of the Federal Financing Bank legislation don't require it, but there's a fancy provision in the Post Office legislation which gives the Secretary of the Treasury the whip hand so that he can force it, and he currently is forcing it. But I think the conceptual implication is correct. And I can speak for only one member of the subcommittee--[I] would have thought that that was desirable, to support the Treasury's effort to get them all in the Federal Financing Bank.",181
-fomc-corpus,1977,"I think this is [desirable], too, Chuck. We encourage them to come into the Federal Financing Bank. They decide in their own judgment that they want to issue something separately--why, then, they ought to stand on their own.",49
-fomc-corpus,1977,"Could they get as attractive a rate by doing it on their own, you think?",17
-fomc-corpus,1977,"No, but some of them have wanted to anyway. Historically, they wanted to be independent of any other government financing source.",25
-fomc-corpus,1977,Most of these require the Secretary of the Treasury's approval?,12
-fomc-corpus,1977,"Most do, but I can't swear that every one of these eligible agencies do. In the case of GNMA pass-throughs, I don't know what the situation is, but that's one that the Treasury didn't want to get into the financing bank. Whether they have the power to force them out, I don't know.",63
-fomc-corpus,1977,"Well, I think you are right. I agree with the thrust that we gave the financing bank a lot of special support in listing it and putting it into our own assets, and so forth.",39
-fomc-corpus,1977,"As the memorandum made clear, if I didn't make it clear, we can, under the terms of this, buy the Federal Financing Bank issues themselves. They are currently financing through the Treasury. But if they ever finance themselves, they would be eligible for purchase by, and presumably would be purchased by, the [Federal Reserve] System.",67
-fomc-corpus,1977,"Well, then, are we ready to thank Mr. Volcker and his [sub]committee? Is there anyone among us who is unwilling to thank Mr. Volcker?",35
-fomc-corpus,1977,You want us to look at this other--,9
-fomc-corpus,1977,"Let's think about further instructions to the [sub]committee. I'd like to have that before me, and we will think about that later. For the present, I think this is a good report, and is there any feeling on the part of the Committee that the recommendation not be carried out? Well, I'm instructed by the Committee to thank you for--",71
-fomc-corpus,1977,"Mr. Chairman, does this mean that the Committee has adopted the new guidelines that are--",18
-fomc-corpus,1977,Should we move to adopt then? I so move.,11
-fomc-corpus,1977,Second.,2
-fomc-corpus,1977,Any questions? Gentlemen we are three minutes late.,11
-fomc-corpus,1977,"Gentlemen, we are ready to start our meeting. As you probably recall, we hold an organization meeting in March of every year, and there is a slate of officers which somehow has emerged, and I'll ask Mr. Broida to read the names of individuals on that slate. And after the names have been read, we will be ready for a revolution if one member of this Committee is in the mood to start it. Mr. Broida.",93
-fomc-corpus,1977,"Chairman, Arthur F. Burns; Vice Chairman, Paul A. Volcker; Secretary, Arthur Broida; Deputy Secretary, Murray Altmann; Assistant Secretary, Normand R.V. Bernard; General Counsel, Thomas J. O'Connell; Deputy General Counsel, Edward G. Guy; Assistant General Counsel, Baldwin B. Tuttle; Economist, Steven H. Axilrod; Associate Economists from the Board Staff: John E. Reynolds, Joseph S. Zeisel, James L. Kichline, Edwin M. Truman, Edward C. Ettin; Associate Economists from the Reserve Banks: Robert Eisenmenger (suggested by Mr. Morris), Richard G. Davis (suggested by Mr. Volcker), Carl Scheld (suggested by Mr. Mayo), Anatol Balbach (suggested by Mr. Roos), and Thomas Davis (suggested by Mr. Guffey).",186
-fomc-corpus,1977,"Now you have heard the names of the officers as read by Mr. Broida. These are suggestions for the Committee, and any other suggestions or set of suggestions will be entertained by the Chair at this moment. And Mr. Lilly is going to start the revolution.",54
-fomc-corpus,1977,I would move that the nominations be closed and that the Secretary be instructed to cast a unanimous ballot for the nominees contained on the slate.,27
-fomc-corpus,1977,Second the motion.,4
-fomc-corpus,1977,"The motion has been made and it has been seconded. And now ready for discussion. Any other nominations, any dissents? All in favor will kindly say aye. ALL. Aye.",39
-fomc-corpus,1977,"Any opposed? Next, we need to designate one of our Federal Reserve Banks to handle the System Open Market Account. And there is another opportunity to start a revolution. Now, the suggestion has been that the New York Bank might continue to perform this function. Is there a motion to that effect?",59
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,"Motion has been made and inaudibly seconded. Any dissent? Very well, now that we know who will handle the System Open Market Account, or which [Reserve] Bank will handle it, we have to decide on the individuals who will perform the necessary functions. And we need to select a Manager of the System Open Market Account, a function presently performed by Mr. Holmes. We need to select a Deputy Manager for Domestic Operations, and the present incumbent is Mr. Sternlight. And we finally need to appoint a Deputy Manager for Foreign Operations, and this function is handled by Mr. Pardee. And revolution so far has not taken place; here is your final opportunity to start a revolution. Any suggestion for a change in the officialdom?",151
-fomc-corpus,1977,[Unintelligible].,6
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"Motion has been made very audibly that Messrs. Holmes, Sternlight, and Pardee be reappointed.",23
-fomc-corpus,1977,Do we have an indication that they would accept the appointment?,12
-fomc-corpus,1977,"We have no such indication known, but we can proceed and make our decision, and then the individuals involved can make theirs. And if there is any dissent? I hear none. And now we need to act on the minutes on the February meeting. Is there a motion to approve?",57
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,"Motion has been made and probably seconded. And not hearing any objections, we will turn to Mr. Holmes's report on the foreign currency outlook.",30
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,Thank you. I am a little puzzled by the attitude of the Swiss National Bank. Why did they intervene? Why didn't they let the Swiss franc decline? They have been worried for some time.,39
-fomc-corpus,1977,"I think it was the extent that it was declining on that particular day, Mr. Chairman. It moved by about 3/4 percent, as I recall.",33
-fomc-corpus,1977,What's wrong with that?,5
-fomc-corpus,1977,"Basically, I think the Swiss are completely happy to see the Swiss franc depreciate. But they do believe in orderly markets and wanted their presence felt.",30
-fomc-corpus,1977,I'm still puzzled.,4
-fomc-corpus,1977,"There's a bigger drop of the Swiss franc relative to the mark. Considerably bigger than relative to the dollar. And it's their biggest trading partner. And I think they're a bit ambivalent. They worry a bit about inflation. I don't think they--I don't get the impression they're terribly unhappy, but they are not entirely happy, either, with it declining too far relative to the mark.",78
-fomc-corpus,1977,"Well, I have been wondering about that.",9
-fomc-corpus,1977,There is an ambivalence there.,7
-fomc-corpus,1977,"Alan, you interpret the Swiss franc decline as a relaxation of tensions, which seems plausible. At the same time, we've got the rising gold price, usually stated to mean the opposite--do you see some way of reconciling this?",48
-fomc-corpus,1977,"Yes, I would think the rising gold price can be explained by two causes. One, the continued demand from the Mideast and the Far East, which is not really affecting any concern about European currencies. And second, with a rise in industrial production around the world, I think industrial demand for gold has picked up rather substantially. So the market has been able to handle substantial supplies from both Russia and South Africa, and sales by other countries, without problems.",93
-fomc-corpus,1977,"It looks as though there were a solid, nonspeculative [demand] under that price.",20
-fomc-corpus,1977,"I think it's partly that, yes.",8
-fomc-corpus,1977,"Is there any concern, Alan, about the viability of South Africa as a gold producer because of their racial problems?",23
-fomc-corpus,1977,"Well, from time to time that comes up. But I don't think that has really been a factor in gold prices.",24
-fomc-corpus,1977,"It was reported in the last Basle meeting, though, that there has been more investment interest from the United States to be seen in the European gold market--investor interest, whatever that means. But both from the spot and the futures market.",50
-fomc-corpus,1977,Does it reflect also a concern over the cost of production of gold?,14
-fomc-corpus,1977,Not that I know of.,6
-fomc-corpus,1977,"I have heard this--that there is a possibility a few of the mines are running into problems, thinner veins, and so forth.",27
-fomc-corpus,1977,"But the market really has handled the IMF sales--which they were very frightened about when the IMF started--remarkably well. In fact, the price seems to go up just before each auction.",39
-fomc-corpus,1977,"Any other questions about Mr. Holmes's report? If not, is there a motion to approve transactions of the Desk?",24
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"I take it the motion has been made, seconded; I hear no dissent. Do you have any recommendations, Mr. Holmes?",27
-fomc-corpus,1977,"Mr. Chairman, as I said, it has been a very dull period, and I have no recommendations at this time. We do have the Swiss franc swap maturing on April 29, but we will pay it off before we get there.",50
-fomc-corpus,1977,"All right, we'll turn now to the domestic economy. Mr. Zeisel.",16
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you very much, Mr. Zeisel. We will hear now from members of the Committee. Mr. Black, please.",26
-fomc-corpus,1977,"Jerry, I found rather interesting your comments on the outlook for federal expenditures, particularly so far as regards the shortfalls we've had, and was interested to know that you expect this to continue. Could you elaborate a little, to the extent that you know, why this has taken place? I have read everything I can find on it, but I don't feel like I have a very good handle.",79
-fomc-corpus,1977,"Well, nobody really does. The amount of the shortfall at this point seems to be, including a rough estimate for February, in the $9 [billion] to $10 billion range. It seems to be distributed fairly widely among expenditures categories, including unemployment insurance, Veterans Administration payments, defense, and several other categories. [As to] the ""why,"" well, there are just conjectures. It was felt last year that it was sort of a characteristic pattern of government agencies anticipating, or putting in, a budget item which would fully cover what they anticipate their spending to be and then coming in somewhat lower--because it looks better to come in somewhat lower, in effect. I might say that the pattern of anticipating higher spending than actually occurs has been characteristic of, oh, possibly the last two decades, and over the last--",169
-fomc-corpus,1977,Are you sure of that?,6
-fomc-corpus,1977,"Yes, our people tell us that the average spending has gone below the anticipation, as of October in this case, by about 1 percent on average for about two decades and about 2 percent for the last half-dozen years.",47
-fomc-corpus,1977,I'd like to see the full evidence.,8
-fomc-corpus,1977,"Probably ranges widely, some years below and some years above. Because I can certainly remember a period in the middle '60s--they ran consistently above estimates.",32
-fomc-corpus,1977,"Yes, there were times when it ran above. But as I recall the figures, there were years and years, many more years, in which spending ran below, than above--over the last decade, roughly. I might make an additional comment. A number of these items are not likely to affect activity. They are financial in nature--at least they're not likely to have an immediate effect on activity, such as payments to the Defense Department by foreign recipients of military hardware, which is an offset to spending, and there are other such offsets to spending that don't really have a significant current effect. The [overestimate] of unemployment compensation payments, for example, would not be a negative factor in any sense, because that means that they have estimated that unemployment would be higher than it really turned out to be, and if unemployment is lower, presumably people are working, which is a good thing. The ""why,"" though, remains still obscure in terms of the volume of the shortfall at this point. We expect much of it to be made up in the second quarter. But not all.",219
-fomc-corpus,1977,Did you say it was $9 [billion] to $10 billion? Was that for January and February?,23
-fomc-corpus,1977,That was for February.,5
-fomc-corpus,1977,I thought it was running around 7.,9
-fomc-corpus,1977,"I may be wrong, I think the figure was 7 in January and an estimate of 9 in February. But that's roughly--",27
-fomc-corpus,1977,This is cumulative for the year?,7
-fomc-corpus,1977,That's a cumulative figure.,5
-fomc-corpus,1977,"Mr. Chairman, I heard a theory yesterday that the new budget procedure may have something to do with this. That under the present system it is more difficult to get supplementary budgets through the Congress. And therefore the agency heads tend to put a little more into the budget than they might otherwise have done. Whether there's any validity to that, I don't know.",71
-fomc-corpus,1977,"Well, there's also been the theory, Mr. Chairman, as you know, that with the advent of greater inflation in the last few years, agencies have padded their estimates more, just as a protective device. And that all of this hasn't been wrung out by the executive budget process.",58
-fomc-corpus,1977,"Well, you know, none of this as far as I know has been planned even remotely, but it does put the Administration in an ideal political position. As far as the expansionists are concerned, the Administration could point to its fiscal package, and here is a policy for stimulating our economy by manipulating the budget. As far as the conservatives are concerned, who believe that the spending is much too high and the budget deficit is much too large--then one could point to the shortfall. Here the planned expenditure is not being realized, and all kinds of economies one way or another are accumulating. I'd hate to argue the Administration's position in the Congress, in view of the shortfall at the present time, but people I've talked to just don't know why [it's] happening. Now last year, Mr. Ford was blamed on the ground that he was seeking to curb expenditures. Well, Mr. Ford isn't around to be blamed any longer. And now the finger of blame is pointing to a multiplicity of agencies, which one way or another are not doing their job--their job being to spend and keep on spending.",225
-fomc-corpus,1977,"Well, they are paying attention to it, though, Mr. Chairman; there is an effort being made to find out why the shortfall. And I certainly get the impression there's every intention to try to remedy the situation. So I think the thrust of what Jerry said--that some of the shortfall may well be made up in the months to come, and we may well get more strength in government spending--is [on] a reasonable basis.",91
-fomc-corpus,1977,I think it is.,5
-fomc-corpus,1977,"Some of the shortfall would be made up by legislative increase in the expenditures for the second quarter, which in a sense are already built-in by $3 [billion] or $3-1/2 billion.",44
-fomc-corpus,1977,"Yes, Mr. Balles, please.",9
-fomc-corpus,1977,"I'd like to come back to Jerry's remarks on productivity and unit labor costs and ask him a question. As I look at the pattern for last year, it's somewhat disturbing if it were to be continued into this year, in the sense that, quarter-by-quarter last year, the rate of increase of real final sales changed pace as the year went along. Compensation per man-hour didn't really accelerate; it was growing at a lower rate during the last three quarters than the first quarter. The quarter-by-quarter rate of gain of output per man-hour went downhill; in fact, in the final quarter it actually was negative. And the net of that was that unit labor cost kept gaining in terms of rate of increase, quarter-by-quarter; in the fourth quarter, it took quite a sharp jump. If that were to continue, it'd have pretty adverse implications for 1977. I was wondering, taking this mix of things--[output] per man-hour, compensation against unit labor cost--what you see in the tea leaves for 1977.",209
-fomc-corpus,1977,"Well, the productivity performance, if I may focus on that immediately, is very directly related to the weakness in real activity through much of the year. And typically, except in certain cyclical situations, one doesn't get good gains in productivity associated with sluggish gains in real output. And we're anticipating for 1977 a faster rate of growth in real GNP, in the 6 percent range, and for private output it's about 6-1/2 percent. And we feel that this is consistent with a faster rate of productivity gain in 1977 than 1976, by about 1/2 percentage point. The productivity average for 1976 was 2.8 for the four quarters, and we are projecting about 3-1/3. In terms of the wage side I've expressed myself on this earlier. It's being optimistic, but it seems that there's really no strong basis for assuming a rapid acceleration in wage increases this year. I think that there will be some increase over the rate of gain that we had last year. But in general it seems to us that you're not going to get the kinds of big catch-ups that occurred over the last two years, since a much larger proportion of the labor force is protected by the cost-of-living clauses--have their wages protected thereby--and you're not going to get big, first-year increases. And we see compensation per hour rising on average a little above 8 percent, as opposed to about 7-3/4 percent. And so this is a standoff, in a sense. We have the compensation rising slightly faster, the productivity rising slightly faster, and our unit labor cost outlook, therefore, is about the same as last year. Which is about a 4-3/4 percent rate of increase.",360
-fomc-corpus,1977,That's for the year as a whole.,8
-fomc-corpus,1977,That's for four quarters versus four quarters in 1972.,12
-fomc-corpus,1977,"Oh, I see.",5
-fomc-corpus,1977,"Yes, Mr. Roos.",7
-fomc-corpus,1977,"May I borrow Mr. Zeisel? Do you feel comfortable you've projected a growth through the four quarters for this year in GNP of about 6-1/4 percent? And I assume that's predicated on M1 and M2 growth roughly in the middle of the ranges that are presently set. Our evidence indicates that it would be difficult to reach that goal. We show projections of maybe 4-1/2 percent GNP growth using our present midranges, or conversely, having to maybe increase growth in M1 and M2 to maybe 7 and 11-1/2 percent to achieve that target--which is, of course, the stated target of the Administration--unless there is exceptionally high growth in velocity. Do you feel comfortable with that 6-1/4 percent projection?",164
-fomc-corpus,1977,"Well, I will comment briefly and then turn the floor over to Mr. Axilrod for his reactions to that. As you know, our projections are basically judgmental in nature, and the translation, therefore, is not a rigorous mathematical translation. However, we do have an econometric model we use for simulations for this purpose, and there does not seem to be anything in the econometric forecast which would be significantly out of line with the projections that we have prepared judgmentally, that we feel are consistent with the M1 growth. The--",110
-fomc-corpus,1977,"It assumes the rate of growth in velocity, which is sort of historically high, isn't it?",19
-fomc-corpus,1977,"Well, Mr. Axilrod, I think--",11
-fomc-corpus,1977,"Yes, we would have to have a rather substantial growth in velocity over the next year. As you know, in this recovery, we have had periods of very substantial rates of growth of velocity of M1, particularly because of the change in financial technology. We expect some of these changes in financial technology to be continuing, but also in addition, as in the Bluebook, we do expect interest rates to rise. In the past we've had these increases in velocity in this recovery without rises in interest rates. Now this time we believe that there will be actually some rise in interest rates accompanying a rise in velocity. We've checked it out against econometric models we have at hand. And our interest rate forecast and our velocity forecast are consistent with the models, after you allow for the mis-estimates that the models have been consistently making for the past two years. And allowing for those mis-estimates--that is, correcting the model by hand for the same mistake it made last year--you would end up roughly with the velocity and interest rate forecasts that are implicit in our projections. Now that may be cold comfort, as I have as little faith in the pure accuracy of models as maybe you do, but at least it double checks it.",247
-fomc-corpus,1977,"All right. Mr. Baughman, may we hear from you now.",16
-fomc-corpus,1977,"Mr. Chairman, I have heard some rumblings in recent weeks as people apparently are beginning to discover that, with the change in tax laws, they cannot use certain benefits under drilling and exploratory work as offsets against other income to the extent that they could previously. This is generally described as, in effect, a 15 percent increase in income tax. The data on drilling activities, however, indicate a continued and rising level of activity. Unfortunately the production figures don't indicate the turnaround in the trend there, however. One other thing that's been reported recently is a McGraw-Hill report on plans for investment in new manufacturing capacity extending over the next three years, and those figures show a rather spectacular prospect for Texas, with a total which exceeds the sum of the next five states in line--that is, with Texas having the largest amount and exceeding the sum of the next five.",175
-fomc-corpus,1977,In total manufacturing.,4
-fomc-corpus,1977,"For new manufacturing capacity. I would assume there is no reason for expecting those to be realized, but they do indicate what present thinking and intentions are. And then it occurred to me that, just to avoid the impression that Texas is a one-industry or one activity-center state, I possibly should report that their 18th annual rattlesnake hunt was carried off successfully last weekend in the Sweetwater area, and this weekend in a community called Luckenbach, with a population of three, that they will celebrate the annual return of the mud daubers. You ask, Mr. Chairman, ""What's a mud dauber?"" A mud dauber is described as a Texas-size, wasp-like insect that makes it's nest out of mud and does an awful lot of buzzing. But you don't have those in New England.",166
-fomc-corpus,1977,"Well, it's clear that Texas is doing well. [Does] any member of our group differ at all basically from Mr. Zeisel's exposition?",30
-fomc-corpus,1977,"I guess we do in San Francisco, Mr. Chairman. In tracking down the somewhat less optimistic forecast that we have on real GNP--for example, the Board staff has 5 percent year-over-year, we have 4.3; Board staff has 6.2 percent gain fourth quarter-over-fourth quarter and we have only 5.5--it appears that our staff is apparently assuming less stimulus from the Carter fiscal package then you are here, Jerry. If I remember the numbers right, and I hope that I do, my staff is guessing that only about 1/3 of the $50 rebate would flow immediately through to consumer spending, and I gather that your estimates are somewhat higher than that. Is that correct?",149
-fomc-corpus,1977,"No, they're not [higher]. Our estimates are actually a bit lower. The immediate spending of the rebates--we estimate that it's about 20 to 25 percent, cumulating to a total of only about 1/3 by the end of the year.",53
-fomc-corpus,1977,"Well, currently the two staffs diverge, and my own thinking is very close to the thinking of our staff, but as far as the fiscal package is concerned, I don't think it is going to make any difference one way or another as far as the real economy goes. But whatever positive influence comes from a little larger spending will be offset by higher interest rates and inflation fears. So there are differences between our staffs, and I am not sure to what degree they are attributable to differences in estimates of what the fiscal package is going to do. And my reason for making this statement is that I think it's a little dangerous to assume that the fiscal package will necessarily prove beneficial to any degree. In any case, there is a contrary view, and I have just voiced it. Any other opinions? Yes, Mr. Volcker.",166
-fomc-corpus,1977,"I might just note, Mr. Chairman, that our projections, prepared at the New York Bank, track the Board's projections so closely that I suspect collusion. Except, fortunately, the pattern changes a bit through the year as whole. They come up to the same tenth of a point on both the real growth and the prices, and there's something the matter there, there must be something--",79
-fomc-corpus,1977,Cut the telephone lines between them.,7
-fomc-corpus,1977,"The pattern is somewhat different in that we show a slightly more rapid growth in the second quarter and the third quarter, and then it tapers off in late '77 into '78. The point I want to make is that the analysis suggests somewhat more pressure on interest rates, I think, than is suggested by the remarks that were just made and the discussion in the Greenbook. Now these [projections] have been notoriously bad in the past year, and I am very conscious of that, but I do think this is the problem we may be facing during the year with more-optimistic economic projections. And my sense of it is that the Board staff's analysis leans on the side of moderation here. It may underestimate the kind of dilemma we have between holding our aggregate figures and interest rates as the year unfolds. I hope that's not the case, but I have a little feeling that we do face that risk in perhaps more pointed fashion than our analysis suggests.",194
-fomc-corpus,1977,"Thank you, Mr. Volcker. Mr. Lilly now, please.",15
-fomc-corpus,1977,"Well, I have a little concern, Jerry, with your projection regarding chemicals and the primary metals and other industrial materials. I think the last couple of weeks there has been a substantial pushing up of prices in this area, and I am wondering if we are giving sufficient attention to it, because this could be the precursor of rather substantial increases in prices all the way through the manufacturing sector.",77
-fomc-corpus,1977,"We have been very concerned with the increase in commodities prices, Governor Lilly. There has been a range of increases among nonferrous metals; lumber, which has edged off a bit. A number of food and related items--all rather special situations, such as the coffee price run-up. But as far as the metals [are concerned], for example, we've been concerned. It seems to have been an unreasonable sort of increase, except to the extent that the prices on a number of these commodities had dropped rather sharply earlier, and this would appear to be an attempt on the part of these manufacturers to recover profit margins. If that's the case, and we feel that it probably is, it may not be a harbinger of continued increases, particularly since demands are really not that intense worldwide.",159
-fomc-corpus,1977,"Well, I am concerned that it may be the beginning of a trend rather than an episode of it.",21
-fomc-corpus,1977,"It certainly has bad psychological implications, and we will be monitoring this very carefully.",16
-fomc-corpus,1977,"Well, next. Mr. Eastburn, please.",11
-fomc-corpus,1977,"I want to give some support to Governor Lilly's comment on chemicals. One of our directors is in the chemical business, and he was extremely bullish the last time we had a go-around in our--",40
-fomc-corpus,1977,Because prices would be rising?,6
-fomc-corpus,1977,"Well, the volume of business he said was very strong, and then he expressed some concern about the price situation.",23
-fomc-corpus,1977,"I have a note before me from a member of our staff which reads ""many chemical prices are scheduled to be raised in the second quarter."" What the basis for that report is, I don't know.",40
-fomc-corpus,1977,I think increase in demand.,6
-fomc-corpus,1977,They've had annual increases.,6
-fomc-corpus,1977,They've had a good bit of cost pressure and relatively little price relief from it.,17
-fomc-corpus,1977,"One difference between our projections and the Board's, particularly with respect to the unemployment rates--the Greenbook has this about a half percentage point lower than ours by the end of the year. Now this is partly because you have greater strength in the economy than we do, which is attributable largely to the capital goods sector. And also this is my question having to do with the anticipated growth in the labor force, which is slower in your case than it is in ours. It has been very strong, of course, and I just wondered if you have some basis for slowing down the labor force growth.",120
-fomc-corpus,1977,"The labor force growth that we have projected is still fairly substantial. It's 2 million, roughly, and involves a steady increase in the participation rate. It is not as rapid as the increase that we had in 1976, and we feel the major factor there is that the pressures from price increases and declines in real family income are not as intense as they were. They had pushed a lot of women, a lot of secondary workers, into the labor market at that point. As so we feel that [given] an easing of this particular pressure [because of] rising real incomes, we will move back toward a more reasonable rate of growth in the labor force.",134
-fomc-corpus,1977,"And what follows, I suppose, is that, if you are underestimating price increases, this could have an upsetting effect on your labor force projections.",31
-fomc-corpus,1977,"It could, yes.",5
-fomc-corpus,1977,"Well, I thank you, Mr. Eastburn. Mr. Partee, please.",18
-fomc-corpus,1977,"Well I, of course, don't have a projection of the economy, Mr. Chairman.",18
-fomc-corpus,1977,You say you do not?,6
-fomc-corpus,1977,"Oh no, just hunches, and I want to share both Governor Lilly's and President Volcker's concerns. As far as the physical side is concerned, it seems to me the outlook is very good. In fact, I could make a case that it could be stronger than the staff projection in the immediate quarters ahead. Not in the second [quarter] so much--you've had 8 percent already there, but in the third and perhaps the fourth, based on a real recovery in investment expenditures, which I think is probably in process now, and also a larger amount of inventory accumulation, than you have in the projection. So I think the real activity outlook is quite strong. But as to prices, I must say that I find myself doubtful that the rate of inflation is going to subside, as in the projection, to 5-1/4 percent, partly because I think food prices may go up more rapidly than you are still allowing. And also partly because of Governor Lilly's concern about industrial materials and the kinds of tensions that may occur there. You have already, in the last four weeks, raised the nominal GNP projection by 1/2 point--a quarter percent real and a quarter percent price. You've got 8--even a little more real than that--and if you have more price than that, it really begins to put pressure on the financial system. And I think interest rates could rise significantly more than is now being projected, and that, of course, will have its GNP impact not so much this year but in 1978, which I think does make a case for a different profile. Looking out further ahead than you have, Jerry, in your comments, along the lines that President Volcker was mentioning, I don't really know what we can do about this, because the interest rate effect will come if, in fact, we have this kind of inflationary development and inflationary expectation. And I suppose in the short run almost everybody would be happy to see stronger real growth in the economy. But I, like President Volcker, see some difficulty in financial markets as we get to the end of the year, and difficulty in markets which are greatly affected by credit costs as we go into 1978--such as housing.",460
-fomc-corpus,1977,"I would like to amplify Governor Partee's comments on prices. In the past four months, the price of cocoa has risen 40 percent, the price of coffee 82 percent, the price of orange juice 66 percent, soybeans 27 percent. An average for metals prices is up 17 percent, hides and rubber prices average up 17-1/2 percent, lumber and plywood prices up 11 to 12 percent, fuel oil and gasoline up 8-1/2 percent. The increases have been rather large and spreading.",111
-fomc-corpus,1977,"Mr. Chairman in those lumber figures, I think maybe even that's conservative according to some of the builders, because they are almost quoting a $1,000 addition to the price of lumber in the average home in our area at the moment. So just the lumber alone is becoming a substantial deterrent in cost--particularly in houses.",66
-fomc-corpus,1977,"Mr. Chairman, if I may just chime in on this again, briefly. I reported that our price projections were the same as the Board's, but I also want to report on qualitative evidence. The kind of noise we are getting from the business community--certainly somewhat to my surprise, I guess, and maybe it shouldn't have been--is louder and shriller about price increases than I can recall at any time during this expansion. It's partly reflecting this commodity business, but not just that. [There is a] kind of a feeling [that] the better market is coming and the opportunity [is coming] to raise profit margins once again. Now they have been talking about this, of course, before, but I am somewhat taken aback with the strength with which I have heard these sounds in the past month or 45 days.",171
-fomc-corpus,1977,To what degree are businessmen concerned or somewhat nervous about the prospect of governmental controls over prices? Do you hear much about that?,25
-fomc-corpus,1977,I've heard less of that just recently.,8
-fomc-corpus,1977,"I think it's faded, Mr. Chairman.",9
-fomc-corpus,1977,"I'm not sure we can say that, Mr. Chairman, because every time the Administration says that [they] are not interested, it surfaces again. So if they'd just quit saying ""we are concerned,"" I think it will settle back down. But ""the louder thou persisteth""--it seems to be coming through to the businessmen.",67
-fomc-corpus,1977,"Mr. Winn, we are ready to hear from you now, please.",15
-fomc-corpus,1977,"Two or three points, Mr. Chairman. First, in terms of prices, particularly in the building materials area, I just call your attention [to the fact] that home modernization repairs are estimated to exceed new building costs this year.",47
-fomc-corpus,1977,You mean total outlay on buildings?,8
-fomc-corpus,1977,That absorbs building materials and workers. That's really getting to be a very sensational--,16
-fomc-corpus,1977,Are you talking about the residential?,7
-fomc-corpus,1977,"Yes. The second point I'd make is that the psychological impact of the second quarter sales are likely to be quite bullish in view of last year's second quarter sales. But people don't always recognize that the downturn occurred in the second quarter last year, and then they get these sensational figures this year to get a real buildup.",63
-fomc-corpus,1977,Year-over-year?,4
-fomc-corpus,1977,"That's correct. Now, [number] three--the interesting price phenomenon has been the oil-based chemicals, [which] have been weak in price, and this has been a puzzle and may come back quite strong in view of oil costs, for basic stock. In a quite a different vein, Mr. Chairman, I have been spending some time talking to low-income people, and the underlying rage in that area is troublesome. I don't think it's purely the outbreak both here in Washington and in Cleveland recently, but these people are faced with, oh, a 40 percent increase in their rent, and their energy cost now exceeds their rental cost. Now, food costs are really [taking a toll], in terms of this group. In addition to that, we have a phenomenon of a cutback in governmental services to these people as a result of budget restraint. [There is] a great deal of underlying unrest in terms of desegregation school efforts in a whole host of communities. And I don't know whether we're going to have to go to energy stamps or some effort of this kind, but I am recognizing in history that revolutions occur only when conditions are improving. The feeling of being left out is stronger than I have seen in a long period of time. This troubles me. It in no way depreciates the idea of the strength of the economy, but there is a group being left out, and they are bitter, and this worries me.",292
-fomc-corpus,1977,"Well, I have been getting a good deal of mail from apparently lower-income people who are only semiliterate but who know that the substantial increase in congressional salaries has recently occurred, and they are quite bitter about that. More bitter mail like that than I have seen in quite a long time.",59
-fomc-corpus,1977,"Are any of these letters commending us for our actions, Mr. Chairman?",16
-fomc-corpus,1977,"Oh, there have been many, oh yes, though some blame the Federal Reserve Board for not stopping the increase in congressional salaries. Governor Wallich, please.",32
-fomc-corpus,1977,"I wonder whether we'd be helped in looking at the price situation by distinguishing between the macro and micro elements. I think our discussion has been in good part on micro aspects--particular prices, particular sectors. And while, in the past, I have always heard industry people predominately talk about the absence of [macro-type] pressures, the conversation here has been predominately focusing on where there are pressures. I find myself somewhat confused. What I am going to ask you is, [what weight do these] two elements carry in your forecast? We have capacity, which I think is less large than most people think at the present time, [but] nevertheless, it is substantial. There are wage increases, and they do not seem to be accelerating significantly. There is monetary and fiscal policy. Monetary policy, I think, one can hardly say is excessively stimulatory. Fiscal policy has a question mark. On the whole, I would look at the macro variables as being more nearly on the side of a slow rate of increase in prices. The micro I have a difficulty in telling. What is the weight that you would attach to these things, Jerry?",231
-fomc-corpus,1977,"Well, like you, my contact with businessmen has not suggested any great concern during 1977, at least. The possibility of impinging upon capacity--[there has been] some talk that that may occur in 1978, if things continue at a vigorous pace in selected industries. So that has not been a major concern here. In terms of macro policy--I assume fiscal policy--I assume you mean those components of policy that are generating or helping to generate a given rate of growth from the economy--is that the point you have in mind, Governor? With the first point, the rate of increase in real GNP growth that we have projected is somewhat greater than the increase in capacity that appears to be on stream, which is somewhere between 4 and 5 percent. So we will be moving back toward the capacity line, but we would be moving at a rather moderate pace. In our projections, it isn't until mid-'78 that we begin to get to a point with capacity utilization for either materials or manufacturing that we may begin to see any significant bottlenecks, even in selected areas. And in macro terms we would still be well below the potential rate of growth. That's not a substantial factor. I think the concerns that we have relate to the shorter run, that is, in '77--a worry about inflation and its psychological impact and an aggravation of inflationary anticipation. There are implications both for inflation itself and for attitudes of business and consumers. For '78, we see these situations beginning to possibly concern specific areas.",312
-fomc-corpus,1977,Are there a lot of wage contracts in '78?,11
-fomc-corpus,1977,"This is a big year, so '78 should be a small year. This year is bigger than last year. It's about 4-3/4 million, and last year it was a little over 4, and then it's a three-year cycle--pretty much standard.",56
-fomc-corpus,1977,"Well, I do want to say a word about the macro side. For the past twelve months, M2 has risen by 10-1/2 percent and M3 by 12-1/2 percent. These figures hardly suggest a policy of strong monetary restraint. On the fiscal side, we are continuing to run large deficits, and the prospect is that these deficits will increase. And that undoubtedly is not only [a] situation [of] so much more money being put into the pockets of people than is being withdrawn from the pockets of people, but [it] is having [a] large psychological effect on our people across the land. Yes, Mr. Partee.",138
-fomc-corpus,1977,"Could I just say to Governor Wallich, it is a question of confidence in the economy aside from governmental policy. And I do feel that one thing that hasn't been mentioned that ought to be mentioned is that I think the confidence in the economy is increasing rather rapidly, and in particular, confidence in the new Administration is at this point quite high. The surveys show it--a very high proportion of the public approves of the way the President is doing his job at this point. And I really do think that's a new factor that needs to be mentioned, and that in itself could lead to a stronger business rise if it's not upset. And in coming months, then one would just argue on the basis of past relationships in macro/micro stimulation.",148
-fomc-corpus,1977,"Mr. Morris, please.",6
-fomc-corpus,1977,"Mr. Chairman, I would like to follow up on Governor Partee's question and ask, in terms of your flow of funds work, what is the implication of this projection for the flow of funds, particularly the external corporate demand for monies? What does that tell us about the likely behavior of interest rates?",62
-fomc-corpus,1977,"President Morris we continue to have no greater external demand for funds by corporations projected for 1977 than we have for 1976. In 1976, corporations were net borrowers, that is, in net assets less liabilities, they were net borrowers of around $25 billion in financial markets. This compared, say, with $70 billion in '74, and we were projecting for '77 a very similar number--in fact, almost exactly the same--and with very little uptrend in the course of the year. And, of course, we have large profit flow and an increase in plant and equipment spending, but not of boom proportions. So from that point of view, you don't have a factor which is adding to credit market pressures as compared with the previous year. That has been one of the factors that has kept--me, at least--thinking that interest rate pressures, viewed from credit demand and supplies--not just from velocity but from the markets themselves--are not extremely intense. Now, we have projected a rather substantial rise in interest rates, I might add, a bill rate going around 4-1/2 to 7 by early '78--in a period when price pressures aren't intensifying. That's a rather substantial rise in interest rates for such a period.",259
-fomc-corpus,1977,"Steve, to what extent are your flow of funds projections integrated with your overall economic projections?",18
-fomc-corpus,1977,"Well, we hope they're fully integrated--they're integrated with the Bluebook, and they're integrated with the housing starts and plant and equipment numbers that come from the economic projection.",35
-fomc-corpus,1977,"Well, does that mean that your flow of funds projections are revised every month?",16
-fomc-corpus,1977,"Yes, they are.",5
-fomc-corpus,1977,I don't see them.,5
-fomc-corpus,1977,"No, you don't, but I'd be glad to have them forwarded to you.",16
-fomc-corpus,1977,"Well, yes, I certainly want to see them. I was under the impression that you do that once a year and then you stop.",28
-fomc-corpus,1977,"No, we get a printout monthly.",9
-fomc-corpus,1977,"Well, I think we ought to have a summary table in the Greenbook now that we're doing them monthly. I think that's a fairly recent development.",30
-fomc-corpus,1977,"Well, we could--I think a summary table.",11
-fomc-corpus,1977,Let me start with them.,6
-fomc-corpus,1977,I've been getting them monthly for some time. You know the exact--,14
-fomc-corpus,1977,'75.,3
-fomc-corpus,1977,The manufacture of them--,5
-fomc-corpus,1977,[Unintelligible] our excellent staff has a way of hoarding treasures.,17
-fomc-corpus,1977,"If I may, Mr. Chairman, that very point bears on President Morris's question, because my thought was that there could be more inventory accumulation than is in the projection. There could be more plant and equipment, and there could be more inflation. All that would add to the nominal GNP, and it would also add to the corporate, business financing need of the year as it went on, so that the consistency of the flow of funds with the current GNP projection has to be looked at both ways. But also can be stronger.",109
-fomc-corpus,1977,An evaluation of the flow of funds doesn't find the normal kind of pressure points in credit markets that you often associate with it. That's one of the problems.,31
-fomc-corpus,1977,"And these flow of funds projections have been revised, but about the same time when the GNP, etcetera, projections were revised?",27
-fomc-corpus,1977,"Yes. I might add that we will be glad to work on a summary table and use them. I'm not sure--we won't have it in time for the Greenbook because of our schedule; we will either have to have it appended to the Bluebook or [provide] it separately on Monday, but we can forward it.",66
-fomc-corpus,1977,"Mr. Chairman, it seems to me that the analysis of velocity numbers for the third year of expansion would suggest extremely heavy pressures in the credit markets. Because the flow of funds numbers are giving us a contrary indication, it would be quite unique to have a third-year expansion with very little change in corporate demand and the big jump in velocity coming together.",70
-fomc-corpus,1977,"You can say, using National Bureau [of Economic Research] chronology, that we will soon be entering the third year of a business cycle expansion. But you can also say that a new expansion started in the month of October. Now, I think business cycle analysis has to be flexible, and while the National Bureau scheme has great virtue--I couldn't say anything else--in our own thinking about developments in the economy, we have to use that along with other judgments or other ways of looking at the economy.",101
-fomc-corpus,1977,I think also the fact that the recession was much more severe than most in the past is another dimension.,21
-fomc-corpus,1977,"I would add, Mr. Chairman, that we do have an indicator in the second half of 1977 that is often associated with credit market pressures, and by that time we do expect the banking system to be financing more of business than it did last year. That is, the trend, the last two months of '76 and early '77 of increased business loan demand, we expect [it] to remain fairly substantial throughout the year, with mortgage needs, consumer needs. We would expect the banking system would not be as substantial a financer of the government--as we get into the latter part of this year--as it had been, and we would project that the household sector would have to buy a very substantial amount of government securities by the second half of this year. And more, for example, than they were buying on average in '74; considerably more than in '75 and '76. So from that aspect, in the last half of this coming year, we do get a traditional source of upward rate pressures, that is, the necessity to price Treasuries so you could sell them to the household [sector] favorably priced relative to [Regulation] Q ceilings, things like that.",244
-fomc-corpus,1977,"If I may follow up on Frank Morris's point, I think these two things--the projected rise in velocity, which is really remarkable, and the contrary indication of business plant financing needs--do belong together. But maybe they belong together in a different way. Namely, that at a time when there is no great pressure for business financing, there is then the possibility of getting much more work and turnover out of the given money supply because the money supply isn't being increased by business financing. So that we might get high rates of increase of velocity without the kind of interest rate pressure that's--",118
-fomc-corpus,1977,Offsetting balances?,4
-fomc-corpus,1977,"At least this is a hypothesis. I am troubled and puzzled by this very high increase in velocity, including a high increase in V2, which supposedly does not move around that much.",37
-fomc-corpus,1977,"I think, Governor Wallich, [what] is being left out is that we are--we may be wrong, we have been wrong for two straight years--but we are projecting a rather substantial rise in interest rates. Now, it may turn out to be higher, but we are projecting a rise from about 4-1/2 percent for the bill rate to 7 percent. That gets you up into the area of disintermediation, and that disintermediation is what causes the income velocity of M2 to rise. So in some sense we have a rather consistent set of projections, not inconsistent with past historical experience, once you feed-in the rise in interest rates and make allowance for some continuing shifts in financial technology. It may be more intense, or it may be that we are wrong again and it will be less intense; we really don't know. But I think this is a fairly good sort of mean projection of the future.",193
-fomc-corpus,1977,"All right. Mr. Guffey, please.",11
-fomc-corpus,1977,"Yes, question, Mr. Chairman, to Jerry. As to the assumptions that the staff is building into your projections both on price and GNP with respect to the drought in the western part of the United States, and if that moderates for the better or gets substantially worse, will it make a substantial difference in your projections?",66
-fomc-corpus,1977,"Yes, we have built in an increase in the second half of '77 and early '78, which reflects the news that's come in--unfortunate nature of the weather in the West and Midwest. I think we are still on the relatively optimistic side of the range of forecasts. It's conceivable that if the news continues bad, if the weather really is as bad as it appears to be at this point, and that continues to be the case, we could easily get another 1 to 1-1/2 percentage point rise in food prices in late '77 and early '78.",118
-fomc-corpus,1977,Would it materially affect your GNP forecast? Is food that big of a component?,17
-fomc-corpus,1977,"Well, it certainly will affect the GNP forecast in the sense that this will be a tax on consumers for higher prices for food, and this has a negative effect in general--aside from the distinct possibility that it may erode consumer attitudes about the outlook for the economy and may be evident in a much more significant way in purchases of other things.",70
-fomc-corpus,1977,"With respect to your latter point, I think that is a very real consideration in our part of the world, in the sense that there is real pessimism yet with respect to the economy in the western--Tenth District, at least.",48
-fomc-corpus,1977,"Mr. Chairman, is that [pessimism] there because of low farm prices? Or high farm prices?",24
-fomc-corpus,1977,"It's a combination of high farm cost and low prices for the product. Coupled with the fact that they have been through a very difficult winter, and the outlook isn't very bright even yet. I should quickly add that a good rain or two would change that very quickly, and particularly when the sap begins to rise in the spring, those attitudes can change.",71
-fomc-corpus,1977,Did you get a rainstorm the other day?,10
-fomc-corpus,1977,Mr. Roos.,5
-fomc-corpus,1977,"In connection with this, just last week the head of one of our very large industries with significant activity in the western part of the nation said that, as important as the continued drought in that part of the country might be as an effect on food prices, they feel that there's a terribly serious possibility of a drought affecting the generation of electrical energy, with the very real possibility of plants having to actually curtail operations due to an inadequate supply of energy as a result of the low water in the dams. Now this is just an aside, but he was very strong in this.",115
-fomc-corpus,1977,"Thank you, Mr. Roos. Mr. Mayo, please.",14
-fomc-corpus,1977,"Mr. Chairman, I have never felt any confidence in the velocity projections. I asked my staff, though, to go back and chart the actuals of annual rates of change from one quarter to the same quarter a year later to see what it looked like, and I find the projections a little more comfortable with that background in mind. Not only have there been, oh, I think it comes to about 26 quarters out of the last 30 years that we have had more than a 5 percent velocity change; but more important than that, I note in charting this that there is definitely a primary and secondary peak in every business cycle all the way along the line, with the possible exception of '70-'73, where it isn't as apparent. The secondary peak typically is not quite as high as the primary peak, but there is a definite recurrence of an expansion in velocity later in the cycle.",182
-fomc-corpus,1977,As interest rates go up.,6
-fomc-corpus,1977,"Yes. This is M1, though.",9
-fomc-corpus,1977,"Well, I haven't said a word about velocity. But I believe members of the Committee know my basic thinking. Interest rates play a role. But the predominant factor in changes in velocity is not the rate of interest but the state of confidence. And if those of us who believe that confidence is improving turn out to be right, it's a pretty good prospect that velocity will rise, will be at a quite high level. Mr. Partee.",88
-fomc-corpus,1977,"Well, I also have a comment about velocity. I'm glad that Bob came back to it, because it doesn't seem so far out of line--I think a lot of comments about velocity that I am hearing relate to M1 velocity, and they don't take into account what we believe to be the substitution process. That has been accelerating and may be reaching a level of a stampede. And so I think that we are in some danger here of reasoning on the basis of past relationships, even making some allowance for them, that still don't hold. It's still not relevant because of the rapid change in the meaning of narrow money supply to GNP. Now I have to admit that I can't remember much about M2 velocity; perhaps we ought to have more historical information on that, but I just can't keep it in mind. But I do think that I recall the times when M2 and M3 ran up less rapidly because of what Steve said of disintermediation--rising market interest rates relative to institutional rates--and in which there must have been increases in M2 and M3 velocity. Paul has got the charts; [do they] show it?",233
-fomc-corpus,1977,"Governor Partee, the increase in velocity that we have is high relative to past experience. In the third year of the 1970 expansion, M2 velocity rose at about a 2 percent annual rate, and in the third year of the '54 expansion at about a 3 percent annual rate, and what we have is about a 3 percent annual rate of rise.",76
-fomc-corpus,1977,"The M2 on President Volcker's chart projection looks a little stronger on the rise in velocity, and M3 doesn't look out of line.",29
-fomc-corpus,1977,Velocity of M3--velocity is declining.,9
-fomc-corpus,1977,"Yes, and it seems to me quite possible. I might also say that I also have a great difficulty with M2 velocity when you remember what's in M2, that is, when you remember what commercial bank time deposits have been added in order to make M2. It includes state and local government deposits, it includes large CDs and nonnegotiable large CDs everywhere; it includes negotiable CDs in the nonweekly reporting banks; and now it includes consumer certificates having maturities of four to six years, [which] don't seem to me to have an awful lot of moneyness about them. So I am always nervous about this more than M2 velocity, and also because of those definitional problems.",143
-fomc-corpus,1977,"Any other comment on the overall economic situation and prospects? I think it would be helpful to have a show of hands on the part of members of the Committee on your judgments about the economic prospect. If you feel that our staff projection is more or less in the ballpark, as far as the real economy is concerned, will the members of the Committee be good enough to raise their hands?",78
-fomc-corpus,1977,Eleven.,3
-fomc-corpus,1977,"Thank you very much. I asked for that show of hands for a very definite reason. We now have a monthly detailed report of Committee deliberations, which is made public. And our staff has to [write it] on the basis of what is said at this table, and not enough has been said about the general economic outlook. And to aid our staff on that very critical point, I asked for a show of hands.",86
-fomc-corpus,1977,"Mr. Chairman, I did not raise my hand on that because I think the pattern is going to be different.",23
-fomc-corpus,1977,"Well, you've made that comment before, and I supported you, but I was thinking really of the--",21
-fomc-corpus,1977,Thinking of the--,4
-fomc-corpus,1977,"--pattern, not the average for the year rather than the pattern. All right now, would anyone else like to speak? If not, this is as good a time as any to break for coffee.",41
-fomc-corpus,1977,[Statement--see Appendix].,6
-fomc-corpus,1977,Mr. Black? Please.,6
-fomc-corpus,1977,"Peter, has market sophistication reached the point--now that they [have] deemphasized the recent figures on money supply and [have] moved on to monthly figures--that they also, similarly, [have] deemphasized any bulge in the April money supply, remembering that this happened last April and was then reversed the next couple of months? Will they take this in stride, or are they going to be terribly surprised?",87
-fomc-corpus,1977,"I don't know that they really have. Some of the recent week-to-week reactions have been a little milder, but there is still a good deal of sensitivity to the weekly numbers and interest in seeing how the Desk might respond. There is, of course, a consciousness that the growth was slower in February, so that if there were to be a pickup [in growth rates] in March and April, the market would perhaps not jump to a conclusion. Unless they got some sign from the Fed, they would not come to a conclusion that this was going to be followed by some stiffer posture at the Desk.",123
-fomc-corpus,1977,"On that point, Mr. Chairman--I was going to mention this later--but I report the impression of my staff, rather than an impression I get directly, that the market has looked into this bulge problem, [and] their estimates of the bulge from the rebates is substantially larger than our own, meaning the New York Bank's. I suspect also the Board's. If that is true, perhaps it raises some interesting psychological problems of that time--if they think our estimate of the bulge is the same as their estimates of the bulge [but] their estimate is substantially larger.",121
-fomc-corpus,1977,"Paul, to compound the confusion, our estimate is larger than yours, too.",16
-fomc-corpus,1977,"Well, I mean much larger.",7
-fomc-corpus,1977,"Well, I think our staff estimate will satisfy everyone because it will not present a single point estimate, it will present several estimates. I was just talking to Mr. Axilrod, and I think he had in mind presenting three sets of estimates; each set of estimates will cover several months, and I suggested that he might not stop at three [but] go beyond that. So that the range of uncertainty will be fully reflected and all that will be before the Board in due course.",98
-fomc-corpus,1977,"Mr. Chairman, may I ask a question? Peter, has there been any reaction in the market to the change in our policy on purchases of agencies?",31
-fomc-corpus,1977,"Very little, as I commented. Very few people in the market raised the question about it, and it was done in rather a low-key way, and we've been unable to detect any change in the quotations for the eligible versus ineligible issues, either as to the level of prices and yields or the spreads on those quotations.",65
-fomc-corpus,1977,"Now, that is very good, as I understand. It really means that we've been so wise in not becoming the dominant factor of market increase. If we had been, you'd see some market reaction.",40
-fomc-corpus,1977,"Well, I think activity had been pretty light in those issues.",13
-fomc-corpus,1977,Are the dealers showing you any agency issues for purchase?,11
-fomc-corpus,1977,We haven't had occasion in the last few months to go in and buy agency issues when we do get quite a sizable range of offerings.,27
-fomc-corpus,1977,"What you're saying, then, is that only when you go out and ask for the agency offerings do you get some offerings.",25
-fomc-corpus,1977,"Right. There've been too few occasions when we have anything to do, away from our go-rounds. Those with Treasury coupon issues will occasionally have some foreign-customer orders, so that it's worth the dealer's while to show us occasional Treasury coupon offers, but it would be rare with an agency.",61
-fomc-corpus,1977,I hear no other question or comment. Now the time has come for a motion to confirm transactions of the Desk. Is there such a motion?,29
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Motion has been made and seconded. I hear no dissent.,13
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,May I ask a technical question? Wouldn't that show up if this was being financed in the funds market? Wouldn't that show up in other liabilities?,31
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Well, then, have you had a verification of it?",12
-fomc-corpus,1977,"Well, we get reports on, the daily report of deposits of federal funds and other borrowings. RPs--there are varying definitions, District by District, so it's not exactly comparable. And what I was reporting on--our aggregation of that for all member banks, with some added allowance for the nonmember banks--and this figure, for example, such borrowing net of lending [unintelligible] showed an increase, on this fragmentary basis, of $3.6 billion in February, whereas in February of the three previous years, it had declined, on average, $400 million. So that's the factual basis for it, but, I would hasten to add, it is fragmentary, and I was offering an explanation which should be taken in the nature of a hypothesis.",160
-fomc-corpus,1977,We can't distinguish between the federal funds and RPs.,11
-fomc-corpus,1977,"No, we don't, but I don't think that Governor Partee--",14
-fomc-corpus,1977,Federal funds in concept would be borrowed from another bank and thus would not change total bank credit.,19
-fomc-corpus,1977,"No, no. I was giving you net. I was netting out, and this would be the loans to the nonbanks. This would be from all nonbanks. An S&L, for example would be a lender here. A corporation would be a lender under an RP. An S&L could be under federal funds.",68
-fomc-corpus,1977,"All right, any other questions? Mr. Wallich, please.",14
-fomc-corpus,1977,"Can one try to anticipate the behavior of businesses as they look toward the rebates and the bulge? Is it reasonable to think that it will be different from the behavior of banks, in that the businesses must anticipate a spurt in sales, therefore an increase in liquidity? This ought to cause them to be less liquid in advance, knowing that these funds are likely to come to them.",77
-fomc-corpus,1977,"Well, if they were going to do anything in anticipation of sales, I would assume they would build up inventory somewhat and possibly borrow from banks in order to do so, which would be, in a sense, reducing their liquidity somewhat. I have no evidence of an unusually substantial inventory buildup in anticipation of such sales. But maybe Mr. Zeisel--",70
-fomc-corpus,1977,"There was, as I mentioned earlier, actually a rundown of inventories late in the year. The only thing we have for January to date is manufacturing and wholesale trade inventories. There was some rise in materials, particularly, and raw materials, and goods in process. It's felt that a significant amount of that was a backup because of the inability fully to ship during the cold weather. So we don't really see any intended buildup in inventories very clearly as yet.",90
-fomc-corpus,1977,"I wouldn't disagree with your analysis that it might call for an increase in inventory. But the more immediate look ahead suggests simply that more cash is going to come in, and they may meet that from existing inventory as well as from a previous buildup. So that the main impact of looking ahead to the bulge would seem to me would be in the demand for M1 and other liquid assets.",78
-fomc-corpus,1977,--would fall just prior to the refund. I don't think we saw anything like that in 1975.,22
-fomc-corpus,1977,"You may have said this, but it didn't sink in. You said the second quarter does not contemplate the effect of the rebate. Is that correct?",30
-fomc-corpus,1977,"No, what I said was that we expect a substantial effect in the second quarter but that the March-April figures currently before the Committee do not include any effect of the rebates directly because we don't expect the payments to begin until May.",47
-fomc-corpus,1977,"And yet, you do expect a significant effect in the full second quarter?",15
-fomc-corpus,1977,"Yes, at the moment, on the order of 2 percentage points on average, but that's quarter-over-quarter, roughly. I would expect substantial effects in May and June--very large, in fact.",41
-fomc-corpus,1977,"I guess my timing is a little bit different. I thought you might get those mailed out in late May, and you might start getting an impact in mid-June, which would mean that your deferred impact would be into the third quarter.",48
-fomc-corpus,1977,"On that mailing period you would get less effect in the second quarter, assuming our rough assumption at the moment, [which] is that the first mailing will be around the end of the first week in May. Now, again, that will depend on when the legislation is passed, whether the Treasury can gear up to mailing out the checks, which we will know more definitely, of course, in the next four weeks.",84
-fomc-corpus,1977,"I'm looking at your pattern here, on whatever table this is on p. 5 of the Bluebook, showing the M1 pattern for the alternative B. In effect, you've got stability for three quarters and a 3-1/2 percent jump in one quarter.",55
-fomc-corpus,1977,"Yes, that quarter, the second quarter, does include about roughly plus 2 for the rebates, and the third quarter roughly a minus 2.",30
-fomc-corpus,1977,"Coming back to the discussion concerning inventory, I thought we had a prospect of relatively slow inventory growth in the first and second quarters, which does not seem to me to imply major expansion for inventory purposes in bank credit.",43
-fomc-corpus,1977,Slow growth in inventories in the second quarter?,9
-fomc-corpus,1977,"First, and second.",5
-fomc-corpus,1977,"Yes, I understand the first, not the second.",11
-fomc-corpus,1977,"Well, at least in the early part of the second. Maybe that's my problem. I'm looking really through mid-May.",24
-fomc-corpus,1977,"Our assumption has been that there would be a moderate rate of growth in inventory investment--actually, a rate of inventory investment that's quite modest during this period. If I may refer to the discussions I've had with business people, particularly at the retail trade level, I have asked them about their anticipations in regard to the impact of the rebates. And they tend to be rather cautious. One of them said, for example, that he was afraid that the individual stores will start over-responding.",99
-fomc-corpus,1977,You're reporting the thinking of an economist.,8
-fomc-corpus,1977,"I am reporting the thinking of an economist at one of the chains. I suppose I should distinguish between businessmen and economists--you're right, Mr. Chairman. But the company policy in this particular chain and in the case of several others was to be rather conservative in building inventories during this period.",58
-fomc-corpus,1977,"Of course, you could have offsets, too. That is, the retailers could build it up, and it could come out of the manufacturers in the first instance.",33
-fomc-corpus,1977,"Yes. A different stage of inventory operations here, but who's doing the financing through bank credit, I guess is the question. If you're building your M1 growth exclusively on the rebate, that would be one thing, but I gather you are not.",50
-fomc-corpus,1977,Lord no.,3
-fomc-corpus,1977,"On the strength of the economy, bank credit demands, and so forth; partly on the inventory expansion.",21
-fomc-corpus,1977,"Right, right. Now, we would expect a rather substantial second quarter based on the strength of the economy, which, of course, in itself also reflects partly the rebates. But, in addition, it's the particular effect on the rebates and people just holding cash for, on average, a little bit longer than they normally hold it.",67
-fomc-corpus,1977,"Any other questions or comments? If not, we are ready for the discussion on monetary policy. Gentlemen, I am inclined to think that we don't have a very difficult job today. Having said that, I will say no more, for a while anyway. Who would like to speak first, at somewhat greater length but not excessively?",67
-fomc-corpus,1977,"I don't know whether it's difficult or not, but I want to be radical and suggest that we be particularly sensitive to our long-range intentions on the aggregates today, and that should make it easy. I say that against the feeling that the business outlook is quite satisfactory, but the risks may be greater of maybe getting a little too much too soon and aggravating this price and interest rate sensitivity. I continue to feel, or hope, anyway, that the kind of macroanalysis on prices that the economists have presented is valid, but there are a whole lot of psychological and confidence problems at work here, and they are important, and they are important in the financial markets, too. [Those problems include] the fear of deficits and, I think, some underlying concern that maybe the Federal Reserve may turn out to be too easy in the end, when the crunch comes, in terms of a different trend in interest rates. Maybe in some of this thinking of uncertainty about the price situation and about the interest rate situation, a feeling that between the deficits and maybe some pressure toward too expansionary a monetary policy, [it] would be counterproductive in terms of interest rates [ending] up higher rather than lower if we don't handle it right. And this rebate problem is going to confuse things in the spring and may make it difficult during that period to repair any move that we make now or [any] failure to make a move now. Having said all that, I don't see any case for making any aggressive move at all in the money market indicators right at the moment. But what I'd like to see is a situation set up so that if the aggregates do begin moving on the high side--and, indeed, I'd accept the symmetrical side of that, if they continue low--we be prepared to move reasonably quickly in a modest way. And I guess I don't like the matrix that's set up for us, which depends very much on a specific projection of the money aggregates for the two-month period. And a typical way of doing this--it puts a lot of weight on whether there is a deviation from the current projection--the short-term projection--rather than how we are doing in terms of the longer-run projections. If I look at it in terms of the longer- run projections, you come out more like the C alternative in the Bluebook. Even there, M1 is too high. It doesn't straddle, symmetrically anyway, the longer-term target, and I would like to see it straddle that target a little more. The M2 projection does straddle it very symmetrically--a half a point on either side--and I'm sure it would make me happier if the M1 short-term range was reduced to something like 4 to 8 percent, maybe even 3-1/2 to 7-1/2 percent, which would be symmetrical around the longer-term range. I would do that without contemplating any particular change in the federal funds rate at this point. But then, if we began moving in the upper part of those ranges, we would begin moving the federal funds rate a bit. Just where I'd put the limits on the federal funds rate--I don't feel strongly about the particular numbers. I might be inclined to a 4-1/4 percent to 5-1/4 percent range [with] 4-3/4 as a midpoint or 4-5/8 to 4-3/4, a slightly asymmetrical midpoint. I would be equally happy--maybe slightly happier--with a 4-1/2 to 5-1/4 percent range but leave the midpoint, in effect, asymmetrical--leave it where it is, or maybe 4-3/4 percent. But what I am looking for here is not a move at the moment in terms of the money market but a readiness to move quite gently if the aggregates began coming in toward the upper end or beyond the upper end of our longer-term ranges. Because if we didn't make that move if that happened, we might be piling up a little difficulty in the future, when we certainly expect the aggregates to be rising more rapidly for some months thereafter, during a period when obviously we'll make our own estimates of what the rebate influence was. But it might be difficult to act very much even if it exceeded our estimate of what the rebate affect was, as current estimates do assume. So basically I would specifically substitute for that M1 range under C something more like the long-term range. I'd be satisfied with a fed funds range more like what we have, or just slightly tipped up on the upper side without any change in the actual rate, at the moment, until we saw the evidence in the aggregates.",954
-fomc-corpus,1977,"Thank you, Mr. Volcker. I would pretty much endorse what Mr. Volcker has stated. And it might possibly focus our discussion a little better if I suggested some numerical specifications for the Committee to shoot at one way or another. I would suggest that we adopt a range of 4-1/2 to 8-1/2 for M1, 7 to 11 for M2, and stay where we are for the federal funds rate range and also [for] the slightly fuzzy midpoint between 4-5/8 and 4-3/4. Mr. Coldwell, may we hear from you next.",130
-fomc-corpus,1977,"Mr. Chairman, I am going to have to start talking before Mr. Volcker. He stole what I wanted to say. I had a slightly different perspective, but it tracks what he had in mind. I really had in mind bringing that M1 down to the 4 range and lifting the top of the M1 to 9, but giving some movement in there, as Mr. Volcker has indicated, as we approach either the top or the bottom--and I assume it's going to be the top--that we start moving slightly. On the federal funds range, I had planned to suggest to the Committee a 4-1/2 to 5-1/4, with the same fuzzy 4-5/8 to 4-3/4 percent center point until we see some movement. I am bothered also, as he indicated, about this basing it on a projection. I have a nagging suspicion that these things are not going to work out with all of this beautiful symmetry that the staff has worked out for us, and I suspect we might be surprised on either too high or too low a level. And consequently I would hope that we would have a little more upward side to this, but, in effect, validate these projections before we make a move.",261
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Black, please.",14
-fomc-corpus,1977,"Mr. Chairman, I have a feeling that in the second quarter we are going to see a pretty substantial bulge in the aggregates. We've touched on many of these points, and our own work suggests we'll have even a greater rise in April associated with the buildup in balances by individuals around the April tax dates. Then, with the rebates and, later on, special Social Security payments, we think it's going to be a pretty good bulge throughout all of the second quarter. Now I think we have to be rather cautious in reacting to such tax-related bulges in aggregates, since as the staff points out these are likely to be reversed later on. The problem here, to me, is to distinguish between the part that results from these special factors and the part stemming from an underlying increase in demand for money. I don't know any way to do this, so I think we ought to remain particularly alert to increases in the volume of commercial paper and business loans at banks. My own feeling is that we are going to get a larger demand on the part of the public for money than was true in 1975 and 1976, when we had similar bulges. But of course you can't tell at this point. Overall, I think the aggregates are behaving better now than I can remember their behaving at any time since I have been sitting around the table. Since these are uncertainties for the present, I'd be inclined to hold pretty much to our current stance. So, along with alternative B as a general prescription for the March-April period--but since I think, for tax-related reasons, M1 growth in April could be much stronger than the Bluebook suggests--I would be inclined to raise that M1 range to 6 to 10 percent and leave the M2 at 7 to 11. And I agree with the assessment of all of you that we ought to have this fuzzy midpoint of the range, 4-5/8 to 4-3/4. At this stage, since I think what strength we see in the aggregates may be largely a tax-related phenomenon, I would be reluctant to see the funds rate moving more than 5 to 10 basis points above that 4-3/4 in any week, even if the aggregates are coming in a little bit above these limits that we've set. But I agree with Paul's long-run assessment of the problem. It's just that I think you are going to have some rather misleading signals in this period. We've been fooled a couple of times in recent years and it could happen again.",515
-fomc-corpus,1977,That was 6 to 10 for March and April--those two months. You want a 6 to 10 range for March-April--before the refund is paid out?,37
-fomc-corpus,1977,"All right, thank you, Mr. Black. Mr. Eastburn, please.",17
-fomc-corpus,1977,"Thank you, Mr. Chairman. I've been impressed with the earlier discussion of the degree of uncertainty that I think exists for the next few months. I think if we had perfect knowledge, we'd try to anticipate some things--we'd try to anticipate the price increases which a number of us feel are likely but we're not sure about, and we'd do some anticipation of the rebate and its effect. Probably do some anticipation of the interest rate increase, so that it doesn't come too sharply. But in view of the uncertainty about all three of these, I think it is the best thing to do to stay approximately where we are. I don't think we should be permitting interest rates to go up substantially until the money supply seems to be behaving quite differently than it is. So I generally like very much, Mr. Chairman, your specifications for the aggregates. And I also would hold to the specification for the funds rate. I would like to suggest, however, one possible modification on the funds rate. I think we have the makings, [in] this fuzzy range of 4-5/8 to 4-7/8, of the possibility of getting more movement in the funds rate from week to week than we have been getting. And one possible way to do this is to widen that inside spread very slightly and make that something like 4-5/8 to 4-3/4. With Paul, I think I agree that this already happened.",293
-fomc-corpus,1977,"Your first number you meant 4-5/8 to 4-3/4, and the second you meant 4-5/8 to 4-7/8?",38
-fomc-corpus,1977,"I think one thing this might do, with Paul's suggestion, would be to put us in a position of being prepared to introduce greater flexibility on the upside if that appears necessary.",35
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Kimbrel now, please.",17
-fomc-corpus,1977,"Mr. Chairman, I thought I'd acknowledge the [unintelligible] weather conditions induced and the uncertainties, but I guess I am quickly moved to the feeling that Governor Partee discussed somewhat earlier. I think the economy actually is going to be much stronger in the third and fourth quarters than we have [assumed]. Inventory-induced stronger real growth [and] capital investments--I think that's going to react in prices, create difficulties in financial markets, relate to interest rates. And I'd hope that maybe even now we'd begin to not offset or necessarily anticipate but to be aware of and guard against some of that and against excessive growth in the aggregates. With that I would be quite happy with the numbers you have assigned to the aggregates. In the federal funds area, I'm perfectly agreeable still with the 4-1/2 to 5-1/4 numbers. But more than I've heard expressed otherwise, I'd want to lean a little bit more in the area of 4-3/4 to 4-7/8. And if we are indeed going to be moving in the area of 7 percent by the end of the year or early next year, I think that we might as well begin to gradually do that without a precipitous move.",252
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Mayo, we will hear from you.",19
-fomc-corpus,1977,"Well, again, my remarks were made by Paul Volcker, to whom I give my thanks. I have the same reasoning that he has, apparently. Maybe it's because I'm holding in my hand the Federal Reserve Bank of New York pencil, which I apparently stole when I was there two weeks ago, and it must have some effect. But, anyway, in the precision, I'm slightly different, I guess. I wouldn't care to move below 4 to 8 for M1. I think I would want to move down from the 5 to 9 because I'm also concerned about getting closer, not precisely, but getting closer to a bracketing of our long-term range. Particularly since the last two meetings, we've skidded along fairly close to the very low end of that range. And I don't want to give the appearance here of as significant a change in our short-term target as going 3 to 7, 5 to 9 would indicate. This may be imagery, but I think it is still of some significance. I would prefer a 4-1/4 to 5-1/4, Mr. Chairman, for the range, just raising the upper end of the fed funds range a little. But I don't think I would tamper with the 4-5/8 to 4-3/4 as the inner range at this point. That is all.",284
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Guffey.",13
-fomc-corpus,1977,"Mr. Mayo has said what I would like to say, in the sense that the range that has been stated [for M1], 4-1/2 to 8-1/2, is satisfactory and probably more consistent with our staff projections of what may happen in the remainder of March on into April. But more importantly, with respect to the federal funds rate, we would opt for 4-1/4 to 5-1/4, increasing the upper side of that [a] quarter, making the midpoint 4-3/4, with the hope that we would stay in the fuzzy range through most of the period and, again at this time next month, that we would end up at 4-3/4. And essentially taking a very little bite [out] of what perhaps we may have to do in the May and June area, perhaps into July and the period ahead.",186
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Baughman now, please.",18
-fomc-corpus,1977,"Mr. Chairman, I am in agreement with what you have suggested. I have to admit I had jotted down 4 to 8 for a range on M1, as compared to 4-1/2 to 8-1/2, but obviously that's a very small difference. I see no need to change the range on the federal funds at this time. I am sympathetic, however, to Mr. Eastburn's suggestion that it might be appropriate to widen the inside of the range somewhat. Generally speaking, it seems to me it's a period for standing pat. With respect to the form of the directive, I'd be inclined to favor the aggregates directive rather than money market conditions.",140
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Partee next, please.",17
-fomc-corpus,1977,"Well, Mr. Chairman, I'm in a quandary, really, which I guess results in my being agreeable to your suggestion. I do think strongly that our problem in the months to come is going to be overly large monetary aggregates growth and that we're going to have deal increasingly with rising interest rates as a prevalent thing to cope with. But on the other hand, up to now, we would have to say the aggregates have fallen short, or at least that they've been on the low side. In particular, in January and February, for example, M1 was 3.1 percent, Paul ,well below the lower end of the long-run range. And on M2, although I never thought that we were going to any place close to the bottom, it's only 7.9 for the two months, which is getting down in the lower half of the range. And, of course, February was more pronounced in both of those, in terms of a shortfall, than the January-February average. And so it just seems to me we don't have the financial indicators that would permit us in good conscience to take a step toward somewhat tighter conditions at this moment. Likewise, I'm nervous about M1. Not understanding why February was so low, but just being given an explanation by Steve Axilrod, it occurs to me that there may have been some kind of a temporary inducement to go into RPs or federal funds, in lieu of cash balances, that might be reversed in this period immediately to come. So that, as [has] happened to us so often, a low month could be followed by a high month. There's a considerably erratic growth record in M1, and I think we may stand a risk of getting a rather high growth rate. I don't think I could accept going as high as Bob Black suggests for these two months--6 to 10 on M1--but I could accept either 5 to 9, which is the alternative B specification, or 4-1/2 to 8-1/2. I think the most important point is that we should not go above the 5 percent funds rate without having a conscious redetermination that that's what we want to do. But I think the most important thing is to leave that funds rate range at 4-1/4 to 5, with the same fuzzy midpoint that we've had before. So I could accept either 5 to 9 or 4-1/2 to 8-1/2 for M1; M2 looks okay. But the most important thing is to leave the funds rate in that range until we have a solid demonstration that we ought to go above.",545
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Wallich now, please.",16
-fomc-corpus,1977,"Well, it seems to me that we have a decision more of strategy than of economics here. The economics of the situation, for what my view on it is worth--we have shocks ahead. They come mostly from the monetary side, but to some extent inventory accumulation also from the real side. That counsels, broadly speaking, sticking with interest rates and letting the aggregates run. But that argument, it seems to me, is dominated by broader considerations. In the medium run, we're going to have the prospect of rising interest rates. The earlier we face up to that, I think, the less that increase will have to be and the better off we are. We're quite well positioned to meet this. The aggregates have been slow, and we've accumulated some reserves, as it were, there. I think we ought to go on accumulating as long as we can until the bulge hits us. And that leads me to suggest, first, pulling down the aggregates a little from alternative B, as you proposed, Mr. Chairman--4-1/2 to 8-1/2 for M1; 7 to 11 looks all right for M2; funds rate, I would widen a little on the up side, 4-1/4 to 5-1/4, and I would, over the period, suggest drifting up to 4-3/4 if nothing unexpected happens. And despite all this emphasis on the funds rate, I would stick with an aggregates directive, because in the days ahead I think it would be important to draw public attention, even with a lag, to the aggregates rather than to interest rates.",332
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Jackson now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I just think that the underlying economic situation is stronger than the staff expects, and that the prospects for continued expansion are probably better than they estimate, although how materially is hard to anticipate, as much as it's hard to anticipate anything. It's my guess that we will see some increases in the public's demands despite our generally liquid position. For that reason, I'm inclined for strategy reasons to go ahead and remind the country that the central bank will be responsive to that need. And while we have remained relatively static, almost mechanical, for the last couple of months, I think we ought to not lure the market or the country into thinking that we would continue to do so. And therefore, for strategy reasons as much as any other, I would be prepared to use a 4 to 8 [for M1] and a 6 to 10 [for M2], and a federal funds rate of 4-1/2 to 5-1/4, moving to the midpoint with deliberate speed even now, anticipating that it would have a generally salutary effect, even though it might be very small. Unfortunately, I think the problem of our meeting today is that we're arguing over millimeters out of our universe, and it's somewhat foolish on our part, but at the same time, the market has gotten so sensitive to millimeters, I guess even those little tiny steps do have some psychological impact, and I think it's worth taking them.",294
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Winn is after you.",14
-fomc-corpus,1977,"Mr. Chairman, have we got too short of a horizon in our view today? How do we face the blip in terms of the tax [rebate] on M1? And coinciding with an underlying thrust, we may not get the decline after we get the blip because the economic situation may counter the normal sort of a decline in M1 that we're thinking about? On the other hand, to just be ignoring the blip--if it goes up, we lose the rate, and we have to lower them, and it's a bad signal. And so what I'm concerned about is [whether] we're not shutting ourselves off in our thinking in terms of just the April deadline here, in terms of our forecast. On the other hand, raising the question, I don't have a very good answer as to what we ought to do on the longer horizon. But I'm just thinking in terms of the strategic sort of a move as to where you go on this sort of a thing. It seems to me we've got an awful short horizon here in terms of policy. Now, do we ignore the blip, and then we make the adjustment? And if you do that, and you take the rate spread we've got, in the last half of the year, an awful big rate rise to accomplish in a very short period of time.",269
-fomc-corpus,1977,"Well, as far as the bump in the money supply is concerned, I think we will have to make our estimates. They could be wrong, and we should accommodate the bump that we estimate. Then if it turns out that the rate of growth greatly exceeds our estimate, we will have to recognize that and counter it, but if it's within the range of our estimate, we ought to leave it alone. And we can always make mistakes. Now take our figure for M1 for the month of February, we started out with an estimate of--how much, Steve?",114
-fomc-corpus,1977,6-1/2.,6
-fomc-corpus,1977,"All right, 6-1/2--we're down to 8/10 of 1 percent. Well, we made a mistake in 1975. I think we should be a little more careful this time than we were in 1975 and not take our staff projections quite as literally as we tended to at that time. But apart from that, if the figures come in very much above our estimate, we'll have to deal with it and recognize it. I don't see what else we can do. I do think that, in view of the uncertainties--and I think Mr. Eastburn expressed that very well--we ought to be very cautious about any anticipatory movement that we make. And we're capable of responding--and responding quite promptly--without anticipating these very short-run adjustments. Well, there's one other point that I have not mentioned before, but I think it's something on the side of strategy that is of importance to my mind. We've had a period of virtual stability in the federal funds rate for some three months. We didn't plan it that way. And we were ready to move one way or another depending on how the aggregates came in. But in view of the behavior of the aggregates, the Desk did not move at all appreciably. Now I think this three-month experience has proved most instructive, and it has helped me enormously in dealing with members of the Congress and others. Now there's only one interest rate over which we have a high degree of influence, and that is the federal funds rate. That rate for some three months has been virtually constant. In the meantime, our other interest rates, short-term rates, market rates, and, more particularly, longer-term interest rates, have moved up, and moved up very appreciably. Well, now, the Federal Reserve has not played any role, except in so far as the market may have expected us to continue moving down, as we were for a time, and we stopped doing so. And the response of market rates has been greatest in the particular maturities where the Treasury has concentrated its borrowing, and that has spread out over the medium-term and long-term market. And the very fact that the one interest rate that we virtually control has stood still for three months, while other market interest rates have shown very considerable movement, has served a very important educational purpose in my dealing with members of Congress who think that we control interest rates. The New York Times thinks that; many people think that; but we don't. So this is a consideration in my own mind--there ought to be a clear reason for moving, and if there isn't, since what we're talking about are minute changes, really, I'd be inclined to stay with pretty much where we are on the federal funds rate. And we still have a range to move down or move up [in], depending on the behavior of the aggregates. We'll, I've talked too long. Mr. Balles, please.",592
-fomc-corpus,1977,"Mr. Chairman, I think a good deal of public reaction and psychology in the market place will probably depend on your follow-on remarks and how we will handle this bulge in the Ms because of the rebates. You had some very interesting things to say about that in recent testimony, about how we had learned some lessons and probably could improve on our performance. And I think a great deal of reaction in markets will depend, perhaps, on how you are going to testify on this the next time around, whether this will be May and--",107
-fomc-corpus,1977,"The next time around will be next week. And the Senate Budget Committee wants to go into these very questions, very closely. And the testimony I think will deal with that--that is, the prepared statement, quite apart from the oral questioning, which is going to be intensive in this area. And it may be a good thing.",67
-fomc-corpus,1977,"I think that would clear the air quite a bit, and particularly if it came through that, for the year as a whole, unless we see some significantly different change in the business outlook than we do now, we would probably end up within the ranges that we heretofore specified, the 12-month ranges. If that point got across loud and clear; and if the country pretty well understood that this bulge--if it occurs, say, in the magnitude that Steve's talked about in the second quarter--would be offset in the third quarter, and [if it was understood that] for the year as a whole we didn't expect to accelerate the rate of monetary growth, I think that would be a healthy dampening influence on inflationary expectations. That, in my mind, is the key to how the market's going to react to our moves. In getting down to the immediate situation, I would be prepared to accept your specifications, with the further proviso that we might--if the acceleration begins in the Ms during the March-April period, as Steve thinks it will--begin to lean against it a little bit by moving up fairly quickly to that 4-3/4 upper end of this fuzzy midpoint range. If we don't move a little bit now, we'll have to move much faster later on in a rather precipitous upward movement, and that has bothered a number of people around the table, and it would bother me, too.",293
-fomc-corpus,1977,"Thank you, Mr. Balles. As far as public psychology is concerned, I just want to add one more observation. There was a feeling, rather widespread within the Congress, at least, that we deliberately set out to frustrate the will of the Congress in connection with the tax rebates in 1975. And I think that this is a question that I will have to address very specifically before that committee. Mr. Morris now, please.",90
-fomc-corpus,1977,"Well, Mr. Chairman, I would accept your specifications, and I also agree with you that our actions in the coming months ought to be in response to the facts as they come in and not in anticipation that the projections will be realized. I think, in general, this Committee has functioned better when it moved on the basis of the facts coming in than when it moved on the basis of projections. I think of 1968 and 1972, two years where we got in trouble because we acted not on the basis of facts coming in but on the basis of projections which proved to be incorrect. So I think as a general strategy matter, the course you recommended is one that I would accept.",142
-fomc-corpus,1977,"Thank you, Mr. Morris. Mr. Lilly now, please.",14
-fomc-corpus,1977,"Well, I'm somewhat more bullish than the staff. However, I agree with your ranges for M1 and M2. I would like to repeat what I said last month; if I can see the outer limits [for the federal funds rate] from 4-1/4 to 5-1/4, it's just that it is easier to get that 5-1/4 in there now than it will be a month from now. I like the 4-5/8 to 4-3/4 midpoint.",109
-fomc-corpus,1977,"Thank you, Mr. Lilly. And we haven't heard from several members of our family. Who would like to speak next? Yes, Mr. Van Nice, please.",34
-fomc-corpus,1977,"I think I share Mr. Balles' concern as to what our long-range targets are going to be. I could comment more wisely on our short-range targets if I knew what's going to happen perhaps next month, when you review the long-range target. We had a shortfall in the aggregates in the first quarter of the year, particularly in M1, and if we're going to make up that shortfall, perhaps the second quarter is the best time to do it. We might be in a better position to make it up this time than later on in the year. And that would seem to argue, really, for alternative A. Instead of worrying about the shortfall in the first quarter of the year--I don't happen to be worried about that, and I think the Committee in its wisdom possibly may even lower the long-range targets next month, when I probably won't be here. And so I guess I would go along with either alternative B or alternative C.",194
-fomc-corpus,1977,"Thank you, Mr. Van Nice. And we'll hear from Mr. Gardner next.",17
-fomc-corpus,1977,"Well, gentlemen, I'm pleased with many of the perceptions that have been expressed, and I particularly want to identify with Mr. Morris's view that we do better when we don't deal with our expectations but we deal with what our current knowledge is. And I have nothing, really, to add to the discussion, because I synthesize it into some accord on the 4-1/2 to 8-1/2 range for M1, and 7 to 11 on M2. I want to point out that M2 has been living a reasonably happy life for many months. M2 has grown consistently, I think, based on a pattern of rates and structure that will begin to change. We've seen some falloff now in the competitive nature of savings, and I expect to see more of it. While I've never understood M1, I think if we can exclude M1 from M2, I think I can understand the residue called M2. We're going to have probably some slower growth in M2 for a variety of reasons in the competitive world. On the other hand--well not on the other hand, but as we get down to a federal funds range, I'm perfectly happy with the inner range. I think it's desirable and wise. And I see no harm in adding 1/4 to the upper limit of that range, because, I don't know, Frank, whether it's my expectations or absolute assurance that there is going to be a rise in the federal funds rate sometime this year. And I see no harm in expanding that a little bit for the comfort that we may gain philosophically from, in a sense, believing we are preparing modestly for the future, and that preparation would probably be inadequate. So I wouldn't find anything wrong with keeping the inner range and adding 1/4, and many people have spoken to that possibility about our outer limits of the federal funds rate.",384
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Roos, would you like to speak now?",19
-fomc-corpus,1977,"Well, I have nothing of value to add other than to say that I'm fully agreeable with 4-1/2 to 8-1/2 for M1; 7 to 11 on M2; and perhaps the upper limit of the fed funds rate placed at 5-1/4.",63
-fomc-corpus,1977,"Thank you, Mr. Roos. Well, then, I think that on the basis of the opinions that have been conveyed by members of the [Committee], I'm quite ready to make a recommendation to the Committee for a vote, which I think will express the consensus pretty closely. Such differences as exist among us are very minor. And very few members of the Committee have expressed a view on the language of the directive, but I would assume we are not going to depart at all appreciably from our decision last month that the monetary aggregates directive should be retained. And therefore, I suggest that we vote on the following: monetary aggregates directive; an M1 rate of growth of 4-1/2 to 8-1/2; an M2 range of 7 to 11 percent; a federal funds range of 4-1/4 to 5-1/4 percent, but with a midpoint of 4-5/8 to 4-3/4, where we happen to be at the present time. Now if there is no dissent or no comment, and I hear none, I'll ask the Secretary to call the roll.",234
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Unanimous.,49
-fomc-corpus,1977,"All right. Then we have a few matters of business that we need to take up, and let us turn to item 9 on the agenda, which deals with the authority of the Desk to lend securities from our account. Mr. Sternlight, would you good enough to comment on--",58
-fomc-corpus,1977,"I'll comment very briefly as indicated in the March 4 memorandum, Mr. Chairman. The [System Open Market] Account Manager continues to find the lending program reasonably necessary to the effective functioning of the government securities market and, hence, to our open market operations. The dollar volume of lending was up in the past year but much less than in proportion to total trading activity in the market. Without system lending in securities, we believe the fail situation could have been much worse in the past year, and the market would not have functioned as well. The System's charge for lending, which exceeds the charge set by other lenders, far more than covers our costs. For the [Federal Reserve Bank of] New York, earnings from lending securities last year were nearly $2 million. Our expenses attributable to lending are estimated at something less than 10 percent of that figure. That's all I have.",178
-fomc-corpus,1977,Any comment? Any dissent from the recommendation?,9
-fomc-corpus,1977,Is it true that you need to find this reasonably necessary to the functioning on the market account? Can you do that in good conscience with the volume of governments that are outstanding now?,36
-fomc-corpus,1977,"Given that we have a charge that's double what other lenders are charging and that people are coming to us, we believe that the fail situation would be materially worse if our lending program was not there. So I think we can reach that conclusion.",48
-fomc-corpus,1977,"All right, any other comment? Any objection to permitting the Desk to function as it has been functioning in this area? I hear none. Let's turn to item 11 on the agenda, the Authorization for [Domestic Open Market] Operations. No changes are being proposed by the staff. Do members of the Committee wish to propose any change? Apparently not. Let us proceed then to item 12, and there we need to review, once again, certain authorizations. First, the Authorization for Foreign Currency Operations; next, the Foreign Currency Directive; and next, the Procedural Instructions. And I hope that is clear. And finally, a special authorization which I hope is superlatively clear. Now, the first question, do members of the Committee seek clarification of these categories to just what is involved? I hear no such requests. No changes proposed by the staff. Do members of the Committee wish to propose a change or raise any questions? The members of the Committee are singularly acquiescent on these matters, which must mean that we're doing things just right. And we have finally an item that I was hoping we would never get to, but the hour permits it. But if we can't solve this problem in the next ten minutes, I suggest that we postpone further deliberations on it. And that's the report of the Subcommittee on Bankers' Acceptances. That report has been made available. And Governor Gardner is prepared to advise us.",292
-fomc-corpus,1977,"Mr. Chairman, the [sub]committee--a well-balanced group--met and discussed the issues which are fully set forth in the memorandum. I hope everyone has had a chance to read it. If you have, you know it's the [sub]committee's conclusion that the Desk continue to use repurchase agreements in bankers' acceptances, which is a useful and important tool. Point number two, that the Desk will allow its direct holdings of acceptances--which are now at about $175 million and have been much reduced from the peak in the past, when we were up near 3/4 billion dollars--to run off and no longer engage in direct purchases of bankers' acceptances from the accepting bank. If someone wishes to discuss the issues, they're on pages 4 and 5, the arguments for and against. I want to assure you there was a full and complete discussion [within] the [sub]committee. There remain--we can go back to that in a moment--but there remain two or three other items. If the Committee does approve the recommendation before it, there is a question about how we treat the present authorization to the Desk. The [sub]committee felt in the majority that they would leave the authorization in place for direct purchases up to $100 million--not practice or use that authority routinely, but have it available for exceptional developments. One member of the [sub]committee, President Eastburn, felt we should remove entirely that authorization and retain only the language that pertains to the repurchase process, which is contemplated by the [sub]committee's original recommendation. The majority of the [sub]committee then is recommending that we continue to use repurchase agreements on bankers' acceptances; that we allow our outright portfolio to run off, which it is presently in the process of doing; that we leave the authorization in place for emergencies or exceptional developments; and finally, that there should be some form of public release, if the Desk is no longer the direct buyer of acceptances. Lastly, there was some discussion about the quality of acceptances. The Desk has generally followed the practice of treating what the market considers prime to be prime and to deal only in prime acceptances. Of course, by the workings of our own intimate knowledge of the banking system, we may often have some different perceptions about what is a prime name, based on examinations and supervisory information. It was the general feeling of the [sub]committee that we should follow in good conscience the normal workings of the prime mechanism in the market place, not deal in what the market classifies as nonprime, and very rarely, if ever, use our special knowledge of an individual bank's condition to question the use of its acceptance or the purchase or repurchase agreement for its acceptance. And that's a general statement of the issues, Mr. Chairman, and the [sub]committee's recommendation to the FOMC.",588
-fomc-corpus,1977,"Well, thank you very much for your report and for the work that you've done in connection with it. Does the Committee want to discuss? There are several recommendations, Mr. Kimbrel you have a--",42
-fomc-corpus,1977,"Just a question, Mr. Chairman. Timing really must have come into the discussion--with these exceptional cases or delicate banking structure--that you resolved to your own satisfaction.",34
-fomc-corpus,1977,"I think we did, Monroe, basically by the majority view that we no longer would purchase directly because, when we use the repurchase agreement, we have an additional point in strength. And therefore, the issue to which I think you're alluding would probably be of minimal importance.",56
-fomc-corpus,1977,"Mr. Mayo, please, and then Mr. Coldwell.",13
-fomc-corpus,1977,"I note at the bottom of page 1 of the report of the subcommittee that one member of the subcommittee, namely Governor Gardner, favored continuation of outright System operations within recent limits and so forth. I find myself somewhat sympathetic to that point of view--although there are no reasons as such given in the footnote--for a reason that doesn't appear really in the memorandum anywhere. We have in Chicago a development, which is still in its infancy, to encourage the development of a bankers' acceptances market in Chicago which would be, in some phases at least, independent of the market in New York; maybe independent isn't the right word, but it would be able to stand on its own feet. Our banks feel that there are certain advantages in this in terms of physical transfer of bankers' acceptances, which, of course, are trade-related, and we have a great deal of international trade going out of Chicago, and it's growing. The main reason that I can remember that we encouraged the continuation of the bankers' acceptances operation at the Fed earlier was to in effect nurture a market which hadn't developed as well as perhaps we thought it might develop. Maybe that is true in New York. It hasn't developed as well as I think it should in Chicago, and there may be other centers, such as, for instance, San Francisco, where this sort of development might be on the horizon. Adoption of the subcommittee's report, I realize, does not close the door on the possibility that there might be some way in which the Federal Reserve Banks, in areas where a bankers' acceptances market is developing in the future, could participate in that. But I am inclined to think that it would be easier to do it under the adoption of Steve's favored plan here, rather than the plan as recommended by the full subcommittee.",368
-fomc-corpus,1977,"Well, I can only say, Bob, that the [sub]committee did not address the implications of an incipient growth of regional new markets of acceptances. Perhaps we were over-awed by the size of New York, and the fact is, we didn't think of your particular point as we deliberated.",63
-fomc-corpus,1977,"Mr. Coldwell, please.",7
-fomc-corpus,1977,"Mr. Chairman, I found myself perfectly compatible with the majority's recommendations on this matter. I think it does leave--with the intention of the authority that's in the directive--the possibility of reopening. I would not be too sympathetic with the idea of using the Open Market Desk as a means of fostering regional markets. I think we could get into some problems there, but with that caveat, I'm perfectly happy with the results of the subcommittee.",90
-fomc-corpus,1977,"I have no difficulty with the report of the [sub]committee, but I do have a question on one point, and that is, let me read paragraph [unintelligible] on page 8 of the [sub]committee's report. ""The FOMC also may want to consider the term prime as applied to acceptances described in the Authorization for Domestic Open Market Operations. In the view of the account management, with which we would concur, the Desk should be guided by prudent investment principles and credit standards."" So far, so good; I have no question. But then I do have a question about what follows: ""but should not feel obliged to automatically refuse to execute a repurchase agreement against the bank's acceptance because it received some information which may raise a question about the financial stature of the accepting bank."" And then it goes on, ""the word prime should be used to describe acceptances of banks which are known to have confidence in the field of acceptance financing and acceptances which have established a reputation for freely trading in the market."" I think that there's a touch of ambiguity here. I may be visualizing a difficulty that doesn't exist. I think the Desk ought to accept the judgment of the market.",247
-fomc-corpus,1977,That's what this says.,5
-fomc-corpus,1977,"Well, it's not the way I interpreted Mr. Gardner's--Mr. Gardner left an opening for the Desk to use its judgment.",27
-fomc-corpus,1977,"Well, I'd hope not to give the implication that there isn't--the opening that I believe should exist, Mr. Chairman, is the fact that we were buying Franklin National's bankers' acceptances too close to the day that Franklin National became a problem. Now, I shouldn't be talking about what the Desk was doing at a period of time when I wasn't here. Nevertheless, the purpose of the paragraph was to mean that we may classify in our own examination process some major banks who have perfect confidence in the acceptance market and general marketability--we may find some problems in those banks as we look over their day-to-day operations. The Desk should be guided, in our view, by the market's perception. Of course, there could be a case where a major bank or an accepting bank is beyond repair. And in such case, I think the Desk would have some difficulty. And that's the only opening I meant--",184
-fomc-corpus,1977,But at that point the Desk--here is my warning--the Desk should not act on its authority.,21
-fomc-corpus,1977,I agree.,3
-fomc-corpus,1977,"If there is a question that the Desk has about a particular bank, then before it takes any action which deviates from market judgment, it should consult promptly with the Committee. Unless that is done--unless there is such consultation, the possibility of real trouble--",52
-fomc-corpus,1977,"That's one of the major issues. You see, if you're buying outright and you have knowledge, why then you are in a conflict-of-interest sort of situation.",32
-fomc-corpus,1977,I know. I think that's good.,8
-fomc-corpus,1977,"If you're dealing in RPs, it's a financing mechanism. It seems to me you can very readily just take the market's judgment for the collateral you accept for the RPs. That's one of the reasons I supported the majority view of the [sub]committee rather than Governor Gardner's view.",59
-fomc-corpus,1977,"Any other question or comment? Yes, Mr. Volcker.",13
-fomc-corpus,1977,"Just very briefly, Mr. Chairman. I don't feel strongly about this issue. I get a little nostalgic about this long tradition of the acceptance market that the System explicitly nurtured, and it's in the law. On the other hand, there's an element of artificiality at this point when we operate the way we do, and here's this credit problem. But I do think it's wise to keep in the authorization and at least bow out in easy steps and continue to do the repurchase agreements thing.",99
-fomc-corpus,1977,"Well, I sense an attitude of acceptance of the subcommittee's report. Am I interpreting the Committee's thinking correctly? Well, we can take a formal vote. Any dissent? There is none. Then the Committee's unanimous. And we haven't done badly. It's only 5 minutes after one.",60
-fomc-corpus,1977,"Good morning, gentlemen, we will get our meeting under way. President Balles is home and unable to attend--he's ill, but mildly. And his first vice president, a similar situation, so that San Francisco, one part of our country, is eliminated for this meeting, I am sorry to say. However, we are very glad to welcome you, Mr. Willes, to this meeting. You've been a member of our family for a long time, and we are very glad to have you seated and have you participate in our meeting. The fact is that we all wish you well in your new position. Now, Tom O'Connell is going to report to us on two of the lawsuits that we are involved in.",148
-fomc-corpus,1977,"Thank you, Mr. Chairman. This constitutes a statement of current status of these suits, the first of which, the Committee will recall, is Merrill v. FOMC. That suit against the Committee was brought in May 1975 by a public interest group, and the Federal District Court issued an order involving two mandates: One, with respect to the Committee's Record of Policy Actions, that it be released to the public under the Freedom of Information Act promptly upon its adoption by the Committee. And second, that with respect to the demanded Memoranda of Discussion of the January and February 1975 meetings, that such be searched for reasonably segregable facts and that they be turned over to the plaintiff. As of the last meeting, the plaintiff's and the Committee's counsel had signed a stipulation that would have dismissed from the District Court its jurisdiction [with regard] to [the] issue of the Memoranda of Discussion--the plaintiff evidencing their satisfaction with that. The court has to approve that; the court has not yet done so. We've sought some [unintelligible] status determination; we have received no information, we don't know what the court is doing with that. It could sign, and that portion of the suit [would be] dismissed. The Court of Appeals item has been argued before the Court of Appeals. We are hoping that a decision will soon be rendered by that court. That is on the Record of Policy Actions and the promptness with which the Committee must release it. At this time, no action from the Court of Appeals. With respect to the Reuss suit, Mr. Chairman, as the Committee knows, that's a suit brought by Mr. Reuss against all [Reserve Bank] Presidents, particularly those serving on the Committee [as voting members] at a given time, alleging that their service on the Committee, not being subject to Presidential appointment [and] confirmation by the Senate, is unconstitutional. That matter was briefed and argued before a District Court, and a decision was rendered by the District Court in favor of the defendants, representing the Committee. The matter was immediately noticed for appeal by plaintiff Reuss. He filed his brief; we in turn were to file our reply brief as of yesterday. We are still resolving some issues of law with the Department [of Justice]; the Department has obtained two or three days' continuance for our filing. So hopefully, not later than Wednesday, Mr. Chairman, we will file the reply brief on the part of the defendants. We're thoroughly satisfied here with our version of that brief, and hopefully the Department will coincide with our judgment in that regard. Finally, a note of current status on the minutes of the [Reserve Banks'] board of directors meetings for the years 1972, 1974, and 1975 that were requested by Mr. Reuss through our Chairman. Those materials were submitted in December to Mr. Reuss, and to this date, neither I nor my associates here at the Board have heard anything with respect to the [Reuss] committee's actions or [its] staff's review of that material. I should say that one of our Banks, the Federal Reserve Bank of New York, has received an inquiry from a member of that staff, indicating knowledge of copies in the minutes of that Bank's submission to Mr. Reuss. The request was reasonably innocuous; it doesn't forecast, I think, any problems per se. The inquiry--staff to staff--was made last Friday or Thursday, to the best of my knowledge, Mr. Chairman. It could be handled as a matter--the material which was inquired of, the physical material, was such as to almost be obtained under a Freedom of Information request. But he did ask questions about the so-called employees emergency loan fund, wondering what was the nature of that and did other Banks have it, etcetera.",784
-fomc-corpus,1977,The significant thing about all that is the date--that means that this is still alive. I was hoping it had died by now.,27
-fomc-corpus,1977,"I, too, Mr., Chairman; that is the significance of it. May I suggest, Mr. Chairman, that--pursuant to a direction, I believe, earlier given within this Committee--if other inquiries or questions are put to the Reserve Banks by members of the House staff, may I urge, Mr. Chairman, subject to your affirmation, that they be referred, at least conversationally, to the [Federal Reserve] Board here and to members familiar with those minutes so that we can have a single source of judgment.",108
-fomc-corpus,1977,"Oh yes. Let's be more specific. If any one of you [receives such a request], or if a request goes to any of our Reserve Banks, please advise Mr. O'Connell promptly.",41
-fomc-corpus,1977,"Thank you, Mr. Chairman. I have nothing further to report.",14
-fomc-corpus,1977,This particular request has one element of difficulty in it because of the supplement to the operation [unintelligible] which the New York Fed highlights the rate change from a very low rate to the discount rate presently. I would suggest that the Bank would not comply with this request--that they limit their compliance only to [unintelligible] report and not the supplement.,75
-fomc-corpus,1977,"Mr. Chairman, if I may, that direction is given. That is the understanding I had with Mr. Guy yesterday afternoon. He will send both to myself, not the supplement.",37
-fomc-corpus,1977,"Any other questions or comments pertaining to the lawsuits? All right, thank you, Mr. O'Connell, and we now proceed. A motion to approve, if we so desire, the minutes of the March meeting--such a motion would be in order.",52
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,The motion is before you to approve the minutes; the motion has been seconded. I hear no dissent. Let's turn to Mr. Pardee.,30
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,By what points has the yen appreciated over the past months.,12
-fomc-corpus,1977,"Now by a net of 1-1/2 percent ,and that's from the December figures. We started at around 279, got down to 271.",33
-fomc-corpus,1977,"Any questions or comments on Mr. Pardee's report? Well, thank you, Mr. Pardee. A motion to approve all the good deeds of the foreign Desk?",35
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Motion has been made.,5
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"Motion has been made, and I think it's been seconded. Do you have any recommendation? Thank you very much. We are ready now for your report, Mr. Kichline.",38
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,"Well, thank you very much, Messrs. Kichline and Zeisel. We are ready now for the discussion of the economic and financial outlook. And I think that we probably will need to spend more time on this subject today than we have in previous meetings. There's a new development in the governmental sphere, as well as in the private economy. There is a change in the federal government's fiscal policy; there is a new anti-inflation policy announced by our President; and there is, perhaps most important of all, a new energy policy that will be explicated by the President on Wednesday--there has been a good deal of comment on this subject already in the press, and apparently much of what has been published in the Wall Street Journal and elsewhere is approximately accurate. Who would like to speak first on the economic outlook? Mr. Black, please.",173
-fomc-corpus,1977,"I wonder if I might ask for some clarification on these revised projections. I was interested in noticing that the result of the deletion of the rebate issue had changed your estimates for personal consumption expenditures and inventory investments pretty significantly but that you had showed practically no effect on business fixed investment--it [actually] had been negative. I would expect the effect on the first two--most any model that used multiplier accelerator principles [would show it]. I wonder about effects on expectations and interest rates and what this might do to business fixed investment. I would expect a positive effect from the abandonment, which is not what you show.",122
-fomc-corpus,1977,"Judging from the behavior of the stock market, certainly last week, and bond markets as well, financial market participants looked upon this action as quite a favorable step and associated it with somewhat less upward pressure on interest rates and a lesser inflationary impact. In our own staff forecast, we did have a slight impact on business investment spending; in part that came later on from the removal of the business investment tax credit as well as a somewhat slower pattern of consumption. I think we have not generally allowed [for] much of the impact of an expectational sort within this forecast. Indeed, what we've done is try to strip out the explicit impact of the rebate that was in our earlier forecast, which to us seemed to be reasonable and on the moderate side.",151
-fomc-corpus,1977,"That's offsetting then--I mean, you've got the effect of somewhat lower interest rates to stimulate, but you have the effect of a lower investment tax credit to hold back.",35
-fomc-corpus,1977,That is correct.,4
-fomc-corpus,1977,"It is hard for me to believe that the original investment tax credit proposal would make an appreciable influence in the market for capital equipment--the difference of going from 10 percent to 12 percent, meaning a 2 percent difference in the price of equipment in a world in which prices are advancing 6.8 percent annually. If I were making a forecast myself, that would be one of the factors I would ignore because I would consider it so very, very small relative to--",97
-fomc-corpus,1977,"Of course, I don't suppose the interest rate effect is very large either. The interest rates are maybe a quarter lower than the other.",27
-fomc-corpus,1977,"On percentage terms, it's probably just about a wash, certainly after taxes.",15
-fomc-corpus,1977,"The major effect, one way or another, is the effect upon confidence.",15
-fomc-corpus,1977,"We noticed from Bob Black, in the directors meeting last time, some evidence that the [sentiment was positive] as a consequence of the reaction of financial markets",32
-fomc-corpus,1977,"That's what I really would expect, but I may be wrong, but everyone I see seems to be much pleased by the fact that the rebate was withdrawn--at least the business sector.",37
-fomc-corpus,1977,"On that same point, to what extent does a consumer confidence index reflect pessimism as a result of the elimination of the rebate?",26
-fomc-corpus,1977,"Well, it would be too early to tell.",10
-fomc-corpus,1977,I've seen no results; it would take a while before we get that kind of report.,18
-fomc-corpus,1977,"I have not seen recent Sindlinger reports. In the last three months or so, he has been reporting a decidedly bearish attitude; but that coincided with an exceptional surge in retail sales, which is very difficult to sort out.",46
-fomc-corpus,1977,"Well, I find it easy to sort out.",10
-fomc-corpus,1977,All you have to do is reverse what Sindlinger says.,12
-fomc-corpus,1977,"Mr. Kimbrel, please.",8
-fomc-corpus,1977,"Question, this to Mr. Zeisel. In your report, you make reference to the change in minimum wage. What sort of projections are you using with regard to your expectations of what the minimum wage will be?",43
-fomc-corpus,1977,"We have taken a position which is something of a compromise between the proposal made by the Dent bill and the Administration's proposals. We are assuming a July 1st, 1977, increase to $2.65. The Carter proposal was $2.50 on July 1st. The Dent bill was for $2.85. In talking to some people on the Hill, they fear that some modest increase above the Administration proposal would probably be worked out. This should apply to about 4-1/2 million people. And its effect on compensation is to raise it by about 3/4 percent for that quarter.",128
-fomc-corpus,1977,"All right, thank you, Mr. Kimbrel. Mr. Eastburn, please.",19
-fomc-corpus,1977,"My comment is a question on price indexes. In our exercises before these meetings, we project on through 1978, and we have the deflator ranging around a 6-1/2 percentage increase in that period. Your projections don't go that far, but they'd been starting out at a much lower base. Have you done anything through 1978 that you would--it seems to me that one of the big problems with the equation is 1978 rather than 1977?",98
-fomc-corpus,1977,"No, we haven't gone beyond midyear, and as we say, our projections for the first half of 1978 are about 5-1/2 percent for the fixed-weight index. It varies slightly from the deflator because of variables, items such as pay raises. Certainly the problem in the nonfood sectors [is that the] underlying [trend in these prices] is likely to be much more serious. We intended to utilize basically the trend in cost that we see--unit labor costs--in describing the pattern of price projections as we move that far out. Corporate profits have recovered rather well, and in that kind of environment we still feel that prices will track reasonably well with costs. We don't see any explosion in wage demands developing at the moment at that point. And we've taken a rather moderate view of the outlook for productivity. We have increased our wage projections slightly, to slightly over 8 percent, and with about 2-3/4 percent increase in productivity, that gives us a unit labor cost increase of about 5 or 5-1/4 percent. This is our projection for prices.",226
-fomc-corpus,1977,"All right. Mr. Mayo, please.",9
-fomc-corpus,1977,"I have several questions for the staff, Mr. Chairman. First of all, I don't want to phrase this too crudely, but the President's anti-inflation program came out Friday. Did this influence--is there any allowance for this in the revision of the projections?",56
-fomc-corpus,1977,"No, there is not.",6
-fomc-corpus,1977,"Second question, there has been a lot of talk about people having spent their rebate already, in anticipation of its coming. Did staff find that persuasive enough to make any allowance in your revisions?",38
-fomc-corpus,1977,"It's extremely difficult to assess that. Obviously, retail sales would be very strong, and that would be consistent with some anticipatory buying, but we are unable to evaluate that. We've made a small allowance for that, assuming that some spending occurred in the first quarter. But not a great deal.",59
-fomc-corpus,1977,"You did cut back the second quarter consumption increase, didn't you?",13
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,Even though the rebate wouldn't have been paid out until very late in the second quarter?,17
-fomc-corpus,1977,"Well, we were working with assumptions that the rebates would begin about mid-May.",16
-fomc-corpus,1977,"And between the last month and this month, while we still had rebates, we had changed our assumption to incorporate some of the rebates in the third quarter, some with payments to nontaxpayers, so that the earlier projections that we said incorporated--",51
-fomc-corpus,1977,"My third question relates to the projection of real GNP in your latest revision, which shows an increase in real GNP with the rebate out for the fourth quarter, and first quarter and second quarter next year. I guess I am a little surprised that you have introduced a negative effect of the rebate--if I may put it backwards--in that projection. Am I correct in that assumption?",78
-fomc-corpus,1977,"That, in a sense, falls out of the arithmetic. The rebate is assumed to have a temporary impact on the level of GNP, and in the early quarters, quarters two and three in 1977, it boosted activity to relatively high rates of growth. Stripping that away, what we find is that the rebate was having a dragging influence later on as the effect is wearing off. So we take out--what is implicitly happening here is the underlying level of GNP is returning to its longer-run trend rate of growth.",107
-fomc-corpus,1977,"I see, so you really have to look at the real dollars here, rather than the rates, to completely understand.",24
-fomc-corpus,1977,"The levels [without the rebates] remained below what they would have been with the rebates, despite the fact that the rate of growth accelerates.",29
-fomc-corpus,1977,"We tend to do this elliptically, to make it simple, but sometimes it gets more complicated.",20
-fomc-corpus,1977,"If I might, it seems to me that's consistent with what you would think the interest rate effects would be. I imagine you've got more housing than you did last time. And that would fall late this year and early next year because interest rates would be lower than they would have been had the rebate been paid [by financing out of the market]. I am not sure. I have not looked at it in detail. Is that right?",87
-fomc-corpus,1977,"We didn't change housing projections, but we did raise total construction expenditures slightly.",15
-fomc-corpus,1977,Were you surprised by the housing report yesterday?,9
-fomc-corpus,1977,"Yes, we were--quite surprised.",8
-fomc-corpus,1977,As indicated by the fact that our forecast is too low for the first quarter.,16
-fomc-corpus,1977,"The reason for my question is that, if that figure had been available, the staff might have raised slightly the estimates for residential construction.",27
-fomc-corpus,1977,"Definitely, we will revise them upward.",8
-fomc-corpus,1977,"Thank you, Mr. Mayo, for your questions. Mr. Coldwell, please.",18
-fomc-corpus,1977,"Mr. Kichline, would you repeat to me the odds on the scenario for higher interest rates, please?",23
-fomc-corpus,1977,The odds on the scenario?,6
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"If one were to look at our track record, you know what the odds would be. But ignoring the past and simply going on, this is a conditional forecast, as you know, and it's premised upon the underlying GNP package, which we view as quite strong. Second, it is premised upon alternative B in the Bluebook longer-run path of 5-1/2 percent M1. As you go on later this year and on into 1978, you get exceptionally large increases in money velocity, which we have had in the past, obviously, but we are anticipating that the effect of the downward shifting money demand function will gradually wear off. And looking at it from the money demand side, I think the odds are quite good that you have an increase in interest rates. The Treasury bill futures market anticipates roughly what we anticipate in terms of rising rates [and the structure of the yield curve is telling us the same thing]. Outside forecasts that I am aware of generally anticipate rising rates. And our flow of funds forecast is consistent, looking at it from the credit market side, with rising rates. I think the question isn't so much, Will rates rise? The question is, How much? And I guess my own feeling would be that rates may not rise as much as we have in here. If we're wrong, that would be a more likely outcome than that it would be higher. And that, in a sense, reflects my own judgment about the uncertainty regarding money demand functions.",302
-fomc-corpus,1977,"Well, your words, I believe, in the Greenbook reflect a ""balance"" or ""equilibrium,"" I forgot the word you used, of demand and supply of credit largely through the third quarter of the year. My question is, what upsets that balance?",54
-fomc-corpus,1977,"Well, in our forecasts, we have continued high governmental borrowing in the second half of the year. This quarter, as you know, is the quarter in which the Treasury is not expected to raise any additional funds, or in fact may be a net repayer of debt. But it will raise substantial funds in the third and fourth quarters. Secondly, we do have both private business credit demands and household credit demands rising in line with projections of our GNP. Third, the assumption in the Greenbook of the sustained 5-1/2 percent M1 growth--we assume that there will be strong underlying demands for cash given nominal rates of GNP growth in the double digit range. So it falls out, essentially, from our underlying assumptions.",150
-fomc-corpus,1977,"Governor Coldwell, I might add one other. In the second quarter, if our projections are correct, you'll have M1 growth on the order of 7 percent, or something like that. Assuming a 5-1/2 percent midpoint of the Committee's target, which is now in place, that would imply increasing rates of growth over the next three quarters. With GNP very strong, that implies an increase in the rate of increase in velocity. Velocity was very high in the first quarter. It will be very high in the second quarter. By the fourth quarter of next year, on these projections, it will be even higher, increasing around a 7 percent rate. And it's this--this could be one influence on our expectation that interest rates may rise. Of course, in 1975, we had such increases in velocity without increases in interest rates. But that is the principle effect, along with the associated credit market demands, that we would expect, and with the economy so strong.",202
-fomc-corpus,1977,Do you give any credence to the idea that the stock of liquidity [is] available to absorb it?,22
-fomc-corpus,1977,"There is a large stock of liquidity available to absorb it, but if people don't want to hold that liquidity, and they want to use it up, the way they use it up is to sell the securities, or increase their borrowings, and those are the factors that tend to put upward pressure on interest rates.",63
-fomc-corpus,1977,"All right, thank you, Mr. Coldwell. Mr. Jackson now, please.",18
-fomc-corpus,1977,"On your nonfinancial corporation capital expenditures, is it fair to say that you have not included the inflation budget as part of these projections?",27
-fomc-corpus,1977,That is correct.,4
-fomc-corpus,1977,"It strikes me, though, that perhaps one aspect of that inflation budget that could impact on this projection is an alleged commitment to speed up the approval process, through which planned expenditures--starts--could be made--construction permits. If we get that--",50
-fomc-corpus,1977,Do you expect to get it this year?,9
-fomc-corpus,1977,"I said, if we get that. The consequences would likely be that you would have an acceleration as a result of those that are already in the pipeline, going on the slow process, together with those that could get added to it in the speeded up process. Together with perhaps even a third factor, those that weren't quite committed to go forward because of the expected long delays, those might be encouraged to come along and do something. And so it could well be that, while these projections here look to me like they are very strong, it's possible that they could be strengthened even further, which would increase that gap between internally generated funds [and expenditures]. And it strikes me that those components of the so-called inflation package that might have a real prospect of taking place, this could well be one of them that would be more under the control of the Administration rather than require a more massive legislative package. And would that more likely take place and have an impact on the interest rate factor we just talked about and get translated into the market? The other question I had is this. We've seen automobiles be so strong for so long, and the figures would indicate that that has been assisted by a lengthening of the maturity schedule on automobile debt by consumers. And of course our consumer credit figures begin to look like there's a lot of it taking place. To what extent would you guess that this is borrowing from the future, rather than being a sustainable pattern of investment?",291
-fomc-corpus,1977,"I think it is really borrowing from the past. I think our analysis of the auto market suggests that, during 1974 and 1975, with the recession and with consumer attitudes depressed, the scrappage rate of autos declined very sharply; that is, consumers held on to their autos much longer than usual. And in our view, a good deal of current strength is attributable to replacement of cars that were not replaced on a normal cycle. And to that extent, it is a transitory influence, and we should catch up. But in any event, I don't think it's so much borrowing from the future as much as a catch-up phenomenon.",131
-fomc-corpus,1977,Which still seems to mean that lower sales may be expected next year.,14
-fomc-corpus,1977,"Well, it takes a long time for this process to work through. We were talking about, really, two years in which car sales were postponed. It is hard to sort out to what extent that's influencing the February-March numbers, and it might well go on [for] the balance of this year. But you're right, at some point that argument evaporates; then you're talking about that influence alone having a depressing factor on overall auto sales.",90
-fomc-corpus,1977,How does that tie in with the continued increase in the prices of used cars? Is that a function of the price of the new rather than the scrapping rate or the trade-in rate?,38
-fomc-corpus,1977,"Car sales were depressed in 1974 and 1975, and apparently there have been substantial increases for full-size cars for 1974-1975 model years, and there are relatively few of those available because that was a poor year for large-size cars to begin with and for total cars in general.",62
-fomc-corpus,1977,"All right, thanks Mr. Jackson. Mr. Baughman, please.",16
-fomc-corpus,1977,"Mr. Chairman, I guess I'm finding it rather interesting and somewhat puzzling that the [unintelligible] items are still being made in support of the fiscal stimulus goal. It's fairly common, I think, for Administration spokesmen to suggest that real GNP growth rate would be affected possibly by as much as 1-1/2 or 2 percentage points if the program were not put in place. It seems to me that we are [calculating] here that the effects of withdrawing would be substantially less than that.",107
-fomc-corpus,1977,I think the Administration spokesmen are no longer speaking quite the same way.,15
-fomc-corpus,1977,I don't think we ever added anything like that into our projection's fiscal package.,16
-fomc-corpus,1977,"At the maximum, we had about a point, and that was before the--some of it was stripped away last month, so the effect of withdrawing all of it becomes quite a bit less.",39
-fomc-corpus,1977,"The employment figures on the states in the Southwest, and I suppose in other states also, have recently been revised, and these revisions are shockingly large. For example, in the period from February 1975 through November 1976--and November 1976 was the last [period] in which the old series was available--in Texas, the old series showed a total increase in employment of 2.3 percent, and the new series showed an increase of 9.1. For New Mexico, the old series showed an increase of 6.5, and the new series 13.5 percent. For Oklahoma, 3.2 and 5.3; and for Louisiana, 1.7 and 8.0. Now when we inquire of the state offices from which these data flow, we seem to get a little less than a completely satisfactory explanation. One of the reasons, of course, is that the sampling process does not adequately pick up and record the effects of new firms being established. But they do not attribute all or even the main part of these changes to that. These increases compare with about 5 percent for the U.S. during the same period.",242
-fomc-corpus,1977,What was it before the revision?,7
-fomc-corpus,1977,For the U.S.? I don't have that; I am not sure.,15
-fomc-corpus,1977,"This is all strikingly new to me, and I don't know about these revisions. At least I haven't been informed, or if I have been, it may be one more paper lying on my desk that I haven't gotten to.",46
-fomc-corpus,1977,"Well, you certainly haven't been informed by me, Mr. Chairman. There have been no revisions at the national level of this magnitude. There was the usual revision last year of the benchmark, but it was not a very large revision. There will be another one coming out later this spring. But I have heard nothing to suggest that there was going to be anything of this magnitude at the national level. I think that the local data and state data are subject to substantially greater revision. And there is an awareness that those data are not adequate. There has been a congressional commission established to study the employment, nonemployment statistics, and one of their major emphases is going to be on trying to improve the collection process of local and state data.",148
-fomc-corpus,1977,"Now the figures that Mr. Baughman is referring to, are they figures from the Bureau of Labor Statistics?",23
-fomc-corpus,1977,They come from the state employment services through the Bureau of Labor Statistics.,14
-fomc-corpus,1977,These are the state data on employment and unemployment.,10
-fomc-corpus,1977,"I think it would be very helpful to have a full report on these revisions. Well, this is all new to me. I interrupted you, Mr. Baughman. Would you continue, please?",41
-fomc-corpus,1977,"I guess it occurred to me that, assuming they are, in fact, errors, I guess it leaves a question whether the pre-revised or the current series gives you the greatest confidence. Presumably, if there has not been much change in the national figures, there must be somewhat similar offsetting adjustments elsewhere, and it does tend to raise the question as to the confidence in the national figures. I guess these are based on establishment payrolls. So it shouldn't be a matter of wrong numbers but of firms covered. But the coverage of firms should be the important question. With respect to what retailers are expecting from the change in the fiscal package, for whatever it's worth, at a recent meeting of our board of directors, where we have a representative of the national retailing firms as well as local, they seemed to be in agreement that the expectation is for about 1-1/2 percentage points in the year-to-year percentage change in the second and third quarters and might be attributable to a change in the fiscal package. And they are not talking in particularly bullish terms, although the percentage change figures that they seem to be expecting appear to me to be fairly significant. They tended to be around the 10 percent level, which is roughly consistent with what we're seeing in the consumer spending change--a reflection of the reports from a number of the Districts in the Redbook of the tightening up of credit conditions in the agricultural areas. We see [it] in the Eleventh District also, and we're told that the U.S. Department of Agriculture is in the field with a quick survey as of April 11 to try to get a better picture of that situation, which would seem to be in the context [of] anticipating some additional federal program in support of agriculture.",356
-fomc-corpus,1977,"No, I don't think that's the case, and when you are through, Governor Gardner will comment on farm credit.",23
-fomc-corpus,1977,"I think that's about all I have to mention. There is still an unenthusiastic expectation on the part of large banks in Dallas, in particular with respect to the prospects for business loans. They apparently are having real difficulty rounding up business loans, and they don't see the situation improving. And this notwithstanding the fact that loan-to-deposit ratios are rising at the smaller banks around the District. And they seem to have quite an active demand.",89
-fomc-corpus,1977,How much of that is the falloff from expectations?,11
-fomc-corpus,1977,"Their expectations were not very bullish for a period of months. So I think very little, in this particular instance. Now the Houston situation is a little different.",32
-fomc-corpus,1977,"Thank you, Mr. Baughman. Would you, Mr. Zeisel, want to comment further on what Mr. Baughman's had to say about the farm figures and the like?",39
-fomc-corpus,1977,"Well, I really don't--I'm not familiar with those numbers, as I indicated. We will look into it and try to get a report to you on what they mean and what their implications are for both the national--",44
-fomc-corpus,1977,"I think that would be a report that would be of great interest to all members of the Committee, because regional variation would be brought out in such a report.",32
-fomc-corpus,1977,"We'll do that, Mr. Chairman.",8
-fomc-corpus,1977,"Mr. Gardner, you might want to comment on the farm credit problem that has been brought to our attention, now that you've done some intensive work recently.",31
-fomc-corpus,1977,"Mr. Chairman, I want to first disclaim any expertise in the agricultural lending field. On the other hand, I have talked to Roger, I've talked to some of our Branch directors in the agricultural area. All of this was inspired by significant interest recently in Washington about the problems of grain farmers and feed-lot farmers--[in the case of] the grain farmers, in carrying over crops because of low support prices and the need to [take] additional crop financing loans or operating loans for this season. There is clearly a very large overhang of wheat in the marketplace. Many farmers are heavily committed to carrying old crops, and smaller banks, particularly in the rural areas, have shown a counterseasonal or a larger-than-seasonal increase in their loan portfolios. Their deposit growth has not kept pace because of the backup in grain. As a result, there have been some protestations made in Washington by various groups, including authorities in Nebraska and the like. And the Agriculture Department, in order to provide an immediate short-term picture, made a quick survey, or is in the process of making a quick survey, Ernie, as you may know, of some 400 banks. They sought our help in designing a questionnaire, in selecting the banks; our agricultural economists here at the [Federal Reserve] Board participated in that endeavor. Now that process is still going on, and I don't know that we have any report on this yet, Jim, at all. But in addition to this, we have the aggravation, which you're very familiar with in the District, of low moisture in the soil and semidrought conditions in the grain-growing areas. I talked to the Iowa groups yesterday, and they don't seem to have the same problem in corn. But this is probably in large part an economic problem, because if foreign demand for grain--if grain prices were buoyant in the marketplace--at least you would remove this piling up of credit and stored grain. We think many of these actions were designated to focus the Agriculture Department's and the Administration's attention on the support price structure, hoping perhaps--and this is speculation on my part--that the new Administration would provide some short-term carryover bridge, higher support prices or loan values, for the grain. I'm not sure that's going to happen. We're still getting information here, and we can use any and all information, as Roger knows--he telefaxed to me most current material that he had, and some additional material that was quite interesting concerning the classification of loans in small banks and showing a rise in the classified loan portfolios for this very reason. Now, there have been some very abnormal events; a small bank in difficult condition began foreclosing on farmers. In so doing it made Newsweek or Business Week. This is what our media tend to do--highlight a problem with a dramatic example; and some fairly large farm operations were sold out because this bank needed to restore its proper financial condition. Incidentally, that bank applied to us a year ago to become a one-bank holding company, and we declined because of the condition of the bank, but that was an exceptional case. It just happens to be a newsworthy case. So, in general, there is clearly a pileup of bank credit, a pileup of inventories of grain. The best estimates given to me by others is that maybe 10 percent of the farmers are seriously disadvantaged by this problem in their area. Roger, I'd appreciate any additional information. In other words, I'm not suggesting there's a national crisis here but that there is clearly a problem, a visible problem because farmers have not marketed the last one or two grain crops, and they're growing another one now. Roger, would you care to add to that?",750
-fomc-corpus,1977,"Well, I can only say, Governor, that we are in the midst of another survey of 62 rural banks. Only 38 of them have reported so far, and I'll give you a memorandum that interprets those--with some caution, you can be sure. But, by and large, I believe that the credit situation in the rural small banks is tight, and there is some evidence of bankers asking farmers to dispose of their carryover crops of 1975 and some of 1976.",101
-fomc-corpus,1977,This applies to what state?,6
-fomc-corpus,1977,Pardon me?,4
-fomc-corpus,1977,This applies to what state?,6
-fomc-corpus,1977,"Generally, Mr. Chairman, it would be Nebraska, Kansas, eastern Colorado, and some parts of Oklahoma, and that's basically the drought area that we're looking at. But, at least in my judgment, what has occurred is probably a normal function of the financial intermediary in requiring some of these excesses to be turned in order to move into the next crop season. We see a tight situation but not one in which, absent a severe drought, there are no crops growing of any substantial amounts for 1977, that there is any crisis situation in this part of world.",115
-fomc-corpus,1977,"Roger, why didn't they get CCC [Commodity Credit Corporation] loans?",14
-fomc-corpus,1977,Pardon me?,4
-fomc-corpus,1977,Why didn't they get CCC loans?,7
-fomc-corpus,1977,"Well, they do. I think, Governor Partee, to the extent that the banks are not willing to accommodate any further extensions of credit, for example, for a new crop year, they do go to the PCA, Production Credit Association. Now, these are the farm credit types of loans. They are picking up, and have in the last year or so--rather substantial sums. In checking with the farm credit agencies out in the Midwest, we find that they are at very large levels of lending, and they are really concerned about the creditworthiness of some of those loans, simply because they have picked up what the banks wouldn't pay. So that's a secondary-type credit. And they do have a concern that they may get caught with some bad loans. But I think the banks generally are in very good shape, [whereas] bad loans are [rising] among the farm credit [types of loans].",184
-fomc-corpus,1977,Does this influence land prices upwards or downwards?,10
-fomc-corpus,1977,"It has not. And I might say that the continual increase of land prices is [supporting the use of land as] collateral for the additional extension of credit, not only by the banks but PCAs. If something were to occur, such as a mass selling out of farmers, for example--that might affect those prices on the downside. You may find the farm loans without sufficient collateral even if they chose to foreclose, because the increase in farm land prices is what's supporting these additional extensions of credit. But for that, they might be broke already.",112
-fomc-corpus,1977,Are those loans based on the market value of the land or based on the income-producing value of the land?,22
-fomc-corpus,1977,"Essentially the market value. And that may be established by ""Indians trading with Indians,"" but nonetheless there is a transfer of land establishing market value, and that's what's being used as a broad base for these [loans].",46
-fomc-corpus,1977,"Mr. Chairman, if I might just add one gratuitous comment here. In granting that the recent severe drought situation does not reach into the Eleventh District in any significant way at this point in time, it seems to me that this agricultural situation is one which can easily be exaggerated and could easily touch off governmental actions which would be difficult to withdraw from rapidly when they should be withdrawn.",77
-fomc-corpus,1977,"It contains the seeds of that, Ernie, in my judgment. It could develop, but it needs some more external unfavorable forces at this point.",30
-fomc-corpus,1977,"I'm trying to say, I think it deserves being played down a bit, rather than up.",19
-fomc-corpus,1977,"I take it that we've made it clear in the agricultural area, through our regional [Reserve] Banks, that seasonal credits at the discount window are available, and that we're encouraging--that is, that's my impression, that--",45
-fomc-corpus,1977,"It is correct. As a matter of fact, we analyzed the figures for all banks and notified those banks that actually have a seasonal privilege as we see it. And we have set specific communications with those banks, asking them to come in and to arrange for that seasonal credit. I might also add, however, so long as the discount rate remains substantially higher than the fed funds rate, we [haven't seen] a great deal of interest in seasonal credit [from us] other than as a lender of last resort, if you will. They look at us, but they can acquire those funds from a correspondent at something in the neighborhood of a 1/2 percent less than we're willing to lend them. They are going to go get the funds there or in the market.",156
-fomc-corpus,1977,"Very few seasonal loans, Mr. Chairman, even fewer than Kansas City. Maybe we haven't marketed it as well as they have. But there's very little interest in the seasonal loan program even with the liberalization on selling fed funds.",46
-fomc-corpus,1977,Have we liberalized sufficiently on seasonal credits? Any view on that?,14
-fomc-corpus,1977,"Well, I think this is part and parcel of a much broader subject, really, Mr. Chairman. Perhaps liberalization of adjustment credit generally. The line between the two is extremely difficult for our banks to perceive.",43
-fomc-corpus,1977,"I might make one additional comment with respect to that. The seasonal borrowing is based upon a five-year experience of the bank that you're looking at. When you have unusual situations, such as are occurring this year--sometimes you have a bank that has a real bulge this year, but, because you lay it against the past five years, you cannot find the seasonal borrowing privilege for them.",78
-fomc-corpus,1977,"Well, that raises the question about the validity of those criteria.",13
-fomc-corpus,1977,That's correct.,3
-fomc-corpus,1977,"I've also heard some suggestions that perhaps our use of seasonal borrowing at what we otherwise call reserve-city banks, or the denial of the use of seasonal borrowing for that size bank, has hampered the delivery system of crops in some sense. And I heard this in Memphis, Larry, that the people there were talking about their [being the] focal point for the delivery system [for] agricultural products, which produces seasonal pressures on the banks, but they didn't have the privileges that the country banks have. And that this was hampering their capacity to serve the agricultural system",113
-fomc-corpus,1977,"We've not heard this, Phil, in Chicago.",10
-fomc-corpus,1977,"Mostly that's a matter of the relative rates on federal funds and the discount rate, though, don't you think? You get complaints if they were more competitive elsewhere.",32
-fomc-corpus,1977,"Mr. Chairman, just a couple of additional observations. There had been a substantial interest in the seasonal loan programming in our District, but we only have one borrower at the present time, and it's this rate situation, where if you get funds at a cheaper price than elsewhere, you'll use them. With respect to the liberalization of the program, there were a couple of small changes in the program fairly recently, about a year ago, which made it easier to administer and, we believe, made it somewhat more attractive to the bank.",107
-fomc-corpus,1977,"Well, I think, Governor Gardner, you've been looking into this problem. I think that you might well want to take steps to reexamine the seasonal borrowing privilege and see if it cannot be usefully liberalized--this five-year formula obviously cannot cope with the kind of situation that appears to be developing in some of the grain-growing states.",69
-fomc-corpus,1977,"Mr. Chairman, there are other provisions, of course--Regulation A, which could be readily applied. In any case of emergency, there are provisions for loans at the regular discount rate independent of seasonal needs.",43
-fomc-corpus,1977,"Well, but this may possibly call for a conference of the discount officers, particularly in the farm areas. There may not be sufficient sensitivity to our regulations--",31
-fomc-corpus,1977,"What I was trying to say is that I don't believe there's anything in the regulation that will impede this kind of lending, seasonal borrowing or otherwise. It may be a question of rate, but there's nothing in the regulation.",44
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,Maybe a question of attitude on the part of the discount officers.,13
-fomc-corpus,1977,"That is possible, Mr. Chairman.",8
-fomc-corpus,1977,"I would make one comment, if I may, Steve. It is true that declaration of an emergency situation would permit us to lend and at the basic discount rate. It isn't that kind of a situation, I think, that we face. Rather, if they do not qualify for the seasonal, and if they do not qualify for emergency, than we have to go under the adjustment provisions of Regulation A, which essentially limits us [to] about a 30-day [period], and for an agricultural bank looking forward to a crop growing season, 30 days is--we'd tell them that and they'd laugh at us--you provide nothing for this.",131
-fomc-corpus,1977,It very well may be you need [an allowance for] more judgment in the seasonals; it's quite possible.,23
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Well, I get the impression that this is something that ought to be looked into, reexamined rather promptly. Well, I think this has been helpful. Let's move to Mr. Partee now, please.",43
-fomc-corpus,1977,"Well, coming back to the standard projection, you know, I was particularly impressed by the flow of funds projection that was included in the material that we got over the weekend. And I note there that on line 2 of table 1, the percentage of GNP of total funds raised is rising from, it looks like, about 14 percent in the first half of '76 to roughly the 16 percent level, which would be consistent with rising interest rates. And I notice on line 13 that household purchases of credit market instruments on a half-year basis go from negative 4 to an 18 billion, to a 26 billion, to a 38 billion annual rate, which I think is also very consistent with rising interest rates. Indeed, that may show quite a bit of strain developing, and I suppose there is a certain amount of circularity in that, but it's associated with the fact that loans of banks are growing more rapidly so that they'll be able to buy less governments. And I guess the same will be true of the thrifts, that mortgage loans are growing more rapidly, so they'll be able to buy less governments. So in effect, the public has got to buy the governments, and that almost always means rising interest rates, and they would bring them about. So totally ignoring any money supply analysis, Phil, I think that the flow of funds numbers come to bear out prospects, a tightening up of--",288
-fomc-corpus,1977,If you accept those numbers.,6
-fomc-corpus,1977,"Well now, the flow of funds numbers are consistent, of course, with the GNP projection, and that's the thing you have to ask yourself, whether the GNP projection is likely to be about right or too low or too high. I can't find a great deal to argue with in the GNP projection, except that it seems to me that there might be exposure to a somewhat higher rate of price increase than is in it. And if there is, why, the nominal GNP rise could be larger than the staff is projecting, in which case this pressure in the flow of funds would be greater than it's being shown to be here. So I think that the probabilities are on the side of more straining in the markets than is here projected.",151
-fomc-corpus,1977,"When you say the flow of funds estimates are consistent with the GNP estimates, you certainly cannot mean that, assuming the GNP projections, there's one and only one set of flow of funds estimates that is consistent with that, and that we have it on this table. But you didn't mean that. If you do, that's a strange kind of--",70
-fomc-corpus,1977,"Well, I don't think you can be quite that precise about it. But I don't think that there's much variation. If the GNP pattern, as well as the projection, is right, [unintelligible] so much investment, so much consumption, why of course, the whole thing isn't generally consistent and it tends to break up. Now you might have, for example, corporations borrowing less than Jim has indicated that they would do. But if they do, they'll buy fewer liquid assets than Jim has indicated they would buy, and it would tend to net out both sides of the flow. So there are lots of tricks in this, but I always felt that it was an alternative way of approaching the question of the possible [unintelligible] of credit markets to money supply analysis. And all I'm saying is that this strongly suggests to me a tension in markets developing in the projection period.",181
-fomc-corpus,1977,"If I may interject here. The overall figures, percent of GNP, do point in the direction that you say, Chuck. I look upon them the same way. I'm struck by the fact that the acquisitions by households, which are usually the marginal element--the regular sources don't produce enough, then the procedure used here squeezes it into household--do not increase their share as a percentage of disposable income over the quarters following the second half of '76. It remains pretty flat at a little below 10 percent.",105
-fomc-corpus,1977,"Well, no, I think the proper figure to look at, Henry, is the credit market instruments.",21
-fomc-corpus,1977,It would be line 16 on this table.,10
-fomc-corpus,1977,"Well, those go up because they assume some disintermediation.",14
-fomc-corpus,1977,"That's with squeeze. That's where they squeeze it. It's similar to Solomon Brothers' residual line in their analysis of supply and demand for funds, I think. Isn't that right, Jim?",37
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,So we do assume that some more credit instruments have to be pushed into the household sector?,18
-fomc-corpus,1977,Correct.,2
-fomc-corpus,1977,"But in lieu of what they would otherwise put into thrift institutions, so that the aggregate demand of their savings doesn't increase.",24
-fomc-corpus,1977,"Well, the total acquisitions of deposits and credit market instruments does decline over this period. It coincides with the period where households are also taking on large amounts of mortgage debt and consumer installment debt. But I think the important message is that the way in which households are induced to acquire additional market securities is through the interest rate process, that market rates rise relative to deposit interest rates, and hence they are induced to acquire less deposits and relatively more market securities. And that does show up in these tables.",100
-fomc-corpus,1977,How does the flow of funds projections predict interest rates over the past few years?,16
-fomc-corpus,1977,"Actually, quite a bit better than our other assessment. We would have gotten much looser credit markets than the money supply analysis would have given. But that's a track record which doesn't always hold.",39
-fomc-corpus,1977,"I don't think it does very well for level, but it does well for the direction of change.",20
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,"All right, thank you. Mr. Wallich.",11
-fomc-corpus,1977,"I have two questions. We're going through a period of very rapid changes in the picture: first the snapback from the cold spell, now the withdrawal of the rebate, thereafter possibly the impact of the energy message, so that one cannot expect a very smooth evolution of the cycle. But is there reason to think that the expansion is less well balanced now than it appeared a year ago or so, the main imbalancing to be a rather slow advance of business capital spending? Everything else was coming along pretty well, in balance. Now, my impression is that housing is very strong, automobiles are very strong--and that raises the question of whether there are some imbalances developing here. This is my first point. Second relates to my favorite subject, capital needs. There was a piece in the Wall Street Journal a little while ago which suggested that pressures for acceleration of capital spending tended to develop in recent cyclical periods at higher and higher levels of capacity utilization. Originally they used to begin, that is an acceleration of capital spending, in the low 80s of capacity utilization. Now they have moved up to the upper 80s, and in fact were getting into the area where capacity pressure shortages were typically beginning. Is there anything to that kind of analysis?",253
-fomc-corpus,1977,"Mr. Zeisel will answer the first, and I'll take it my hand at the second.",19
-fomc-corpus,1977,"In terms of the balance of the economy, we still are obviously running with capital spending significantly below what it should be, given past performance in an expansion period. And the outlook is still somewhat unclear in that regard. We anticipate moderate rates of growth, but it will be some time before the rate of capital spending would be in reasonable balance with other components of the economy in terms of historical relationship. But in terms of other sectors of the economy, inventories are in good position at this point, and in fact probably a little on the low side, so that there is room for expansion there. Housing has moved along at a very good clip recently. But we are not in a position where we are impinging in any very significant way on production capacity as yet. Looking over the materials producing sectors, production as a proportion of capacity has moved up significantly, but there's still a fair margin to move there, and we don't expect any significant shortages developing into at least the first half of '78, unless the economy moves much more rapidly than we're assuming. So in that sense, I would say that the expansion has not developed any severe distortions as yet.",230
-fomc-corpus,1977,"But you're overlooking the very sharp turnaround that has occurred in our foreign trade balance. And this is a drag on our economy. We not only have a deficiency in business capital investment but also in our net foreign trade. And the outlook, at least for this year, is for some further deterioration in this regard. So there are these two major imbalances, if you take past cyclical expansions as a yard stick.",83
-fomc-corpus,1977,"Any further deterioration from the current level? Further deterioration this year certainly, but I--",17
-fomc-corpus,1977,"I don't know. Mr. Reynolds, would you comment on that?",14
-fomc-corpus,1977,I didn't hear the question.,6
-fomc-corpus,1977,"The question is whether we would expect the trade balance to decline further from the level we've reached in the first quarter, not from last year.",28
-fomc-corpus,1977,"No, I don't think so.",7
-fomc-corpus,1977,But from last year.,5
-fomc-corpus,1977,"But from last year, certainly.",7
-fomc-corpus,1977,"All right, now, Mr. Kichline for the second.",14
-fomc-corpus,1977,"The second question as I understand it relates to the performance of investment and whether we're getting good gains in investment only when we tend to get much higher rates of capacity utilization. I think that [idea] is drawn generally from the performance of the early '70s to date, and I would hesitate to make a forecast relying on that alone. I think what's more important is that business attitudes have changed, and we are not getting a typical cyclical recovery in business investment, and hence we will find later on that one could say the excess capacity was a drag on activity. I think that's important, but more important, I think businesses are quite concerned about their financial positions, about the uncertainties regarding the economic outlook--importantly, about the uncertainties regarding prospective profits in an environment where we do have price performance that has varied a good deal in recent years, and we have on the horizon the energy program. All of these sorts of things, I think, track into an environment of uncertainty which would mean that you would tend to find businesses more reluctant at this point in the cycle to extend themselves on major investment programs. But I'm not sure that this recent performance represents more than a change in attitudes and the performance of the economy overall.",245
-fomc-corpus,1977,"I think your answer is very helpful, but it doesn't deal sharply with the question that Mr. Wallich has put to you.",26
-fomc-corpus,1977,"Well, it's very clear in our forecast that we do not--",13
-fomc-corpus,1977,"Let me just elaborate for a minute. I want to make a suggestion. You were referring to the so-called Eickhoff phenomenon, and that is a very interesting piece of analysis. And it calls for, I think, empirical study, and has the staff done that?",55
-fomc-corpus,1977,We have not.,4
-fomc-corpus,1977,I think it would be extremely worthwhile to look into that with very great care.,16
-fomc-corpus,1977,I might note that we are quite concerned about the whole investment area in a variety of ways and that we're undertaking--,23
-fomc-corpus,1977,"I know, but I'm talking specifically about the so-called Eickhoff phenomenon.",16
-fomc-corpus,1977,"That's right. That's part of it. What I was saying is, we're taking a broader tack in our research program, focusing on the business investment sector, and this is one part of the answer. We do not have any independent staff analysis to contribute at this point.",54
-fomc-corpus,1977,"I think it would be very instructive, as a part of that study, but as an isolated part, to start with that theory and try to determine to what degree there is a good empirical basis for it, to support the theory. Thank you, Mr. Wallich. Mr. Roos now, please.",64
-fomc-corpus,1977,"Early in the meeting, the Chairman referred to the energy package and to the possible effects of it. And as we discussed your projections, obviously automobiles sales and similar factors were cited as reasons for positive interpretation of what may happen. Are we going to get into any significant discussions on the effect that the energy package, at least as anticipated or reported, might have on all of these factors? Or has it been taken into consideration in--",86
-fomc-corpus,1977,"We have not included it in our forecast. We have not had an opportunity to analyze the program in detail. In fact, we don't know all of the details and the critical parts regarding rebate schemes, for example. It presumably would have a substantial impact on the economy. The only other comment I can make, I guess, at this juncture is, one, I think there is a risk of increasing uncertainty on the part of the business community, depending upon how the proposals are perceived, and that would impact back on business investment. And second is that it's my understanding that the Administration is taking a longer-run view, so that the immediate impact, aside from expectational influences, might be moderated by tracking the proposals over a longer time horizon. But I don't have any further comments at this time.",160
-fomc-corpus,1977,"Legislative action is almost certain to postpone the need for detailed analysis too, I think. It's going to take them a long time.",28
-fomc-corpus,1977,"I'd like to comment on that a little. I don't have much to say, but I am troubled. If this meeting had been held a week ago, I would have made a very bullish statement about the economy, and I have, fairly consistently for some time, with perhaps renewed emphasis. The President's renunciation of the rebates strengthened my judgment in that regard. The anti-inflationary message went a little further in the same direction, even though the strongest part of the anti-inflation message was not mentioned, the strongest part being the dropping of the rebate itself. The very fact that the Administration has shifted its emphasis is, I think, of very considerable significance. I would have said so [last week] and argued that point. But now we have the energy message coming along, and my impressions of that are poorly formed, but I am deeply concerned about this energy message. It's extremely complicated, and therefore I think it will be very difficult to grasp what the proposals [will] come to, intellectually--extremely difficult. Now, it will be difficult for members of the Congress, it would be difficult for economists. And even if you assume that what the President proposes, that Congress will accept--and that's quite an assumption--I think we'll be in the dark for some time. The economists will go to work, and some already have in the Council of Economic Advisers, and they will make calculations, and they will tell you what the effect may be on real GNP and on the price level. But I think they will also tell you that they're very uncertain about the validity, significance, degree of accuracy of all these calculations. I think that we'll be going through a period of very considerable confusion. A legislative proposal that consists of several dozen different items, each of which raises numerous questions--I think it will be so difficult to comprehend, that Congress will be at this for months. And there's no way of telling where or how the Congress will end up. Now there's one thing that I know, or I think I know, about the legislative process. If you come forward with something that is difficult, comprehensive, covers very many fronts--members of the Congress are confused, and they don't know what it comes to, just as the rest of the population, including professional economists, will be confused. But secondly, when you have such a comprehensive legislative proposal as this is going to be, different interest groups will find something that is of great importance to them, which they will object to. And then you may well have a coalition, an accidental coalition, in opposition to the proposal, and what may come of all of this, I find no way of knowing. My present impression is that the great element of uncertainty will be the immediate result of the Presidential message on energy and that this will be a negative influence on economic activity. I, for one, cannot as of today make the bullish pronouncement that I would have made a week ago, or a few days ago. I was briefed yesterday on the message in very general terms, and what I learned raised dozens of questions in my own mind. Now, in saying all this, I don't mean to be critical of the President, the Administration, the energy message. The purpose, I think, is profoundly right, that this country has a very serious problem, and I think the President is courageous in attending to it. Whether he's going at it in the right way or not I think is a fair question. And all that I can add is that when you try to bring up the oil price to the world level in a series of steps, [unintelligible] one will be effective upon passage. When you have numerous provisions designed to speed the conversion of industrial facilities and public utility operations to conversion from oil and natural gas to coal, when you impose a new gasoline tax, when you impose a tax on automobile guzzlers along with some rebate scheme on purchase of small cars, and when you do a dozen other things of lesser significance, you're releasing forces--I'm repeating myself. Our staff will get busy to analyze this, and after our staff is through, I can predict that our staff will say what economic staffs generally say about all these things--there will be a small effect on real GNP and a small effect on the price level, and I won't believe a word of it. And that's where I am as of today. Confused. Gladdened because the President is speaking out on the subject. Confused by the economic effects that may be invoked.",914
-fomc-corpus,1977,"Mr. Chairman, I gather, from what you're saying, that there are not really any surprises in there that we haven't pretty well read already.",29
-fomc-corpus,1977,"I'm told that the article that appears in the Wall Street Journal is more or less right, but of course, some changes have taken place, and other changes may take place within the next two days. Well, the President will be addressing the Congress, I believe, tomorrow evening, and then the legislation will be sent up a week later, when further changes will take place. But the shape is more or less determined.",84
-fomc-corpus,1977,"Isn't it possible that, in addition to creating uncertainty, which would have a negative effect on real output--[it would] enhance price expectations--higher price expectations?",34
-fomc-corpus,1977,"If I were to make a judgment at this time, and it's obviously premature, it would be that the effect on economic activity would be negative; and the effect on prices will be negative in the sense of prices moving higher. But I'm not ready to make a judgment.",54
-fomc-corpus,1977,"You say there is an initial price increase of energy, that is not [unintelligible].",20
-fomc-corpus,1977,No it doesn't.,4
-fomc-corpus,1977,"If it is the way it's been described, at least there is the advantage that [it] does work through the price mechanism, mainly taxes and rebates, and--",33
-fomc-corpus,1977,"Well, I would not describe that as working through the price mechanism; I certainly would not. I would say ""work through the price mechanism"" if you leave things pretty much to the market and leave taxes and rebates pretty much alone.",47
-fomc-corpus,1977,"Well, that would be very difficult in today's conditions if you want to achieve those objectives.",18
-fomc-corpus,1977,"That I'm not sure of, by that I'm not implying any criticism. I was just getting the terminology here.",22
-fomc-corpus,1977,"Well, it's a price-rationing effect--it may not be a supply-inducing effect.",20
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,I--,2
-fomc-corpus,1977,It's a manipulation of prices.,6
-fomc-corpus,1977,Your description reminds me of the FIA [Financial Institutions Act].,12
-fomc-corpus,1977,"Well, that's exactly what happened. You have a coalition defeating the Financial Institutions Act. And the coalition consisted of commercial banks, to some degree the S&Ls, the homebuilders, the AFL-CIO, the Federal Reserve--",46
-fomc-corpus,1977,Strange bedfellows.,6
-fomc-corpus,1977,And I think it was very similar because nobody really understood the Financial Institutions Act.,16
-fomc-corpus,1977,It seems like you described them as individual [unintelligible].,14
-fomc-corpus,1977,"But, individual interest groups, not excluding the Federal Reserve, understood specific parts of it, or they thought they did.",24
-fomc-corpus,1977,"I have to add, you were talking about the Financial Reform Act, gentlemen.",16
-fomc-corpus,1977,"I think that's a valid comment, yes, but I personally would say that with less emphasis with respect to the Financial Institutions Act. My own reaction to the Hunt Commission Report was, I couldn't understand it because it had so many recommendations. I could grasp 1, 2, 3, 4, 5, but when you have 100 recommendations, it is beyond my intellectual grasp.",80
-fomc-corpus,1977,"Mr. Chairman, we had an energy program proposed to the Congress that lived [unintelligible] for 12 months. And it went through almost exactly the process you described. The one key difference was that Congress was never persuaded to seriously consider it. But your comments about the uncertainty that this kind of process inspires is particularly germane, in my opinion, because of the effect on business investment. The uncertainty of how to proceed.",88
-fomc-corpus,1977,"Any other comments on the economy? Well, it's almost 11, and therefore it's time for a coffee break.",23
-fomc-corpus,1977,"Gentlemen, as I think you know, we will have to testify on our 12-month monetary ranges on May 3, 1977, and therefore we need to deliberate today on setting the ranges for the next 12 months. In view of the uncertainty connected with the energy problem, there is a chance that we may possibly want to reconsider before the testimony is given, in which event we will have a telephone conference on the subject. I have no way of judging the probability of that, but we must keep ourselves in a flexible position. Now I have asked Mr. Broida to distribute the memorandum that he prepared. That memorandum should have been distributed earlier. I had given Mr. Broida a very simple assignment, and that assignment was designed for my own instruction, and I didn't have the opportunity to read it before this weekend. And after reading it, I found that Mr. Broida had gone beyond my initial instructions, very wisely. And I thought it was such an instructive document that it would be helpful to all members of the Committee. It's too bad it reached you so late, but the fault there is mine. Now, let me say a few words, and I don't want to repeat what is in Mr. Broida's memorandum. But let me say only that we embarked on our 12-month--let me use the term ""target,"" though I try to avoid that in public utterances, and it's perhaps a little easier to say targets now and then instead of ranges. We embarked on this new approach just two years ago. And during that period, we have lowered the midpoint of M1 from 6-1/4 to 5-1/2 percent, and the midpoint of M2 from 9-1/2 to 8-1/2 percent, and the midpoint of M3 from 11 to 10 percent. During that period, the actual growth rates have not diminished, and as we examine M1 alone for the past 12 months, the growth rate is higher than for any other 12-month period, starting with April 1975. For M2 and M3, we're almost at the peak as well. Now I don't consider that a failure on the part of the Committee. We set ranges very deliberately, and we wanted flexibility, and I would draw the following conclusion, only--that those critics of ours who feel that we've not been liberal enough, the record hardly justifies that. And perhaps, on the other hand, the praise that we've gotten from many on the kind of monetary policy we've pursued--we deserve neither the criticism nor the praise that we've gotten. That's my own appraisal. Mr. Broida points out, and I have said this previously, that at the pace that we've been going, it will take something like 10 years to get the monetary growth rates down to a level that is, or appears to be, reasonably consistent with general price stability. And it would be excessively optimistic to believe that we will necessarily keep to anything like this pace, because over the next 10 years we will surely have moments of hesitation when we'll not make any adjustments. And there may be periods of recession. It would be surprising if we didn't have one or more recessions over the next 10 years, and during such a period, we are not likely to lower our monetary growth ranges. The good thing about our procedure is that we at least have a goal. We've set a goal for ourselves. We've moved in the direction of that goal, though perhaps we've moved rather slowly, and that is argued. Now, before I learned about the energy message that would be forthcoming, and this was late in the afternoon yesterday, I was still struggling between two choices that I was going to put before the Committee, or rather I was still struggling between two choices and hadn't yet made up my mind firmly, and I expected to do that before this morning. And the two routes I was struggling with were as follows: first, to lower the lower limit of the growth range of M1 by 1/2 percentage point, and second, to lower the upper limit of the growth range of M2 and M3 by a full percentage point. I am sorry--no, the second was to lower both the upper limits and the lower limits of M2 and M3 by 1/2 percentage point. Now in view of what I have learned about the energy message and the uncertainty that that introduces to my own mind, I am inclined to make a much milder recommendation to the Committee. I think that we should make another small move toward reducing our monetary growth ranges today. But I think the move should be small indeed, and of the kind that would arouse a minimum of controversy [that would add] to the uncertainty that is likely to prevail. And therefore my recommendation to the Committee, without arguing the case at the moment, would be to lower the upper limit of M2 and M3 by 1/2 percentage point [and] leave M1 unchanged--do nothing about the lower limit of M2 and M3, but simply lower the upper limit by a half percentage point. That is a minimum adjustment. We would still be working most gradually toward the objective of bringing the monetary growth rates down so that in time they will be consistent with general price stability. Now, one argument that I would make in this direction for making some small move, is that it is entirely consistent with what the President has stated, [unintelligible] bringing the inflation rate down by something like 2 percentage points by the end of 1979. Well, that's all I want to say at this time, and the question before us, these decisions, are never easy. There is never a good time to lower the monetary growth ranges, yet unless we work at it, at least just a little, I don't see much future for straightening out our economy and for helping to set a standard for much of the rest of the world, which is continuing to suffer from the ravages of inflation. Who would like to be first? Mr. Mayo, please.",1241
-fomc-corpus,1977,"Well, Mr. Chairman, I agree completely with your recommendation on M1 for the very same reasons, this area of uncertainty and the potentially serious misunderstanding of our objectives if, [at] the moment the rebate disappears, it seems that we are about to tighten up. I think that would not serve us well in our administration of an even-handed policy. I feel, in looking at our own charts on this, that to keep the 4-1/2 to 6-1/2 is actually a little more conservative from the present base than it was from the base that we are leaving--in other words, the fourth quarter. On the M2, I was prepared to propose that we go the half percent on both ends. I don't think this would be damaging, because whether we like it or not, the basic emphasis is still on M1 and will move only very slowly into M2. I think it does put us into a position, if we use 6-1/2 to 9-1/2, of supporting our basic thesis of reducing the ranges over a period of time. And yet I think it would be quite acceptable on economic grounds and quite acceptable in the area of analysis that relates to some tightening of interest rates, which I think would be a reasonable expectation coming out of the energy discussions. But the principle element in my reasoning is still the element of uncertainty we have dispelled. One uncertainty with regard to the rebate, we are substituting another one, perhaps even more serious, on the energy costs side, and I would prefer to bide my time on M1.",326
-fomc-corpus,1977,"Thank you, Mr. Mayo. Yes, Mr. Roos.",14
-fomc-corpus,1977,"No sir, I don't mean to go on--",10
-fomc-corpus,1977,"Yes, please.",4
-fomc-corpus,1977,"I would disagree with my good friend, Bob Mayo. It seems to me that the time couldn't be better for a more meaningful reduction in these aggregates figures. The President has enunciated a desire to get to 4 percent in a couple of years in terms of rate of inflation [and] dropped the stimulus package. It is almost unanimous that what the economy needs, or at least what business needs to move it ahead, is an indication that everyone is serious about dealing with the problem of inflation. It seems to me that if we were to follow in this direction, that if Congress took unwise action which would have a detrimental economic result in the sort of energy legislation that it passed, it seems to me that by our doing this, there would be less of a reason for Congress to do anything that would artificially stand in the way of stable economic growth. And I just feel that this would reinforce confidence in the economy, it would reinforce what the President and the Administration said they want to do, and would reinforce the confidence that the public might have in the fact that we're really serious about what we want to do. It is a matter of degree, but I don't really see the reason, or at least I can't reconcile myself to anything but a compelling reason to take the step that you felt a few days ago before the energy problem arose, or before the program was brought to your attention. I'd like to see us go more strongly.",288
-fomc-corpus,1977,"Thank you, Mr. Roos. Mr. Partee, please.",15
-fomc-corpus,1977,"Well, I disagree with Larry, and I agree with Bob, except that I feel that we really shouldn't make any move at all in the aggregates ranges at this time, in M1, M2, or M3. First of all, it seems to me that what has happened with regard to the rebate is perceived by the public and will be perceived by the Congress as a step back from a stimulative program. At the same time, we also seem to be tightening up monetary policy a little bit. I think that it's a very bad impression that would be left because we still do have a great deal of unemployment in the country. And it doesn't seem that there ought to be, in all areas of governmental macro policy, a stiffening at this time. Secondly, although one can agree in principle with getting the ranges down over time, I do think you have to have enabling conditions. And enabling conditions just aren't there if one believes at all in the staff projections. In the staff projections, we have an increase in nominal GNP over the next year of about 12 percent--some quarters a little higher, some a little lower. I have criticized the projection as perhaps understated in the rate of inflation that is likely. It certainly is true that the projection hasn't taken into the account the energy program, which would probably raise the rate of inflation to some degree. So it seems to me that we are stuck with the rate of inflation of at least 5-3/4 and perhaps more over the next year, and we need to have real growth in the economy so we'll make some progress in reducing the unemployment rate over this period. If one looks at the implied velocity figures from the midpoints of the ranges that we have had, what you find is that we will need to be entering into one of the steepest rises in velocity of this episode in M1 figures over this next year in order to validate the projection. Far steeper than has occurred in earlier recoveries and steeper than we've had over the past year. It is about a 7 percent increase in velocity required over the year. The interesting thing to me is that it would also require an increase in velocity of M2 and M3 to validate this staff projection. And, indeed, I've looked at the previous five recoveries, and at this stage in previous recoveries, the velocities of M2 and M3 have generally declined, not increased, at this stage. That is to say, M2 and M3 have grown more rapidly than the increase in nominal GNP. What shows up on the charts is a year delayed. The kind of an increase in velocity--again taking the midpoint for M2 and M3--the kind of an increase in velocity that in past recoveries has stopped the housing route, because if we look at this recovery versus past recoveries, you also find that housing is still increasing, whereas it had leveled off and to some extent was declining in previous recoveries. So I think that we already are dealing with very, very restrictive numbers in the Ms relative to what we expect in terms of the performance of the economy and relative to maintaining a reasonable, gentle rise in housing starts from this point on. And therefore, the way I see it, we are going to need the upper end of that range in M2 and M3 in order to make this system work over the next year. If we were to cut anything, I think it ought to be the lower end of the range because I don't think that will be effectively utilized over this time. But I would prefer as a matter of appearance, following right on the heels of the rebate withdrawal and right on the heels of an energy program that is perplexing the public, I would prefer to leave the ranges just exactly where we have had them in the last period.",770
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Volcker, please.",15
-fomc-corpus,1977,"Let me say first, Mr. Chairman, I just read this memorandum of Mr. Broida's during the break, and I found it a very interesting and persuasive document in terms of the difficulties of bringing these numbers down. I was also a little concerned as I read it. It seemed to put the Committee entirely in a rather passive voice, so to speak, to do what you can, when you can get by with it--until I get to the bottom of page 8, where I think it expressed the philosophy that we have to follow: that progress should beget progress as you succeed. And if what we're doing here makes some sense in affecting the economy as we succeed in bringing down these growth rates, the economic conditions that permit us to bring them down more will be facilitated. I hope that's true. I think maybe that's a matter of faith, but I think that's the faith upon which we're operating. If that suggests that I've become increasingly enamored with this aggregates approach during the past couple of years, I think that's true in this period of uncertainty. I think it has been one little beacon of reassurance, perhaps. I do think we now have a lot of uncertainties, and I don't think the [President's] inflation message does much, for better or worse, to eliminate the very deep-seated feeling that I seem to be getting from the business community and elsewhere, that the Administration isn't serious about inflation, and the Congress is less serious.",294
-fomc-corpus,1977,"Well, the one good thing about that message--there are two good things about that. First, that there was such a message concerned with the inflation problem, never mind this specific program. The second good thing about it is that the President indicated that it would be the objective of the Administration to reduce the inflation rate and bring it down to 4 percent by 1979 or the end of 1979. Now, these two things are of some significance. The specific program, well, the less said about that, perhaps the better.",109
-fomc-corpus,1977,"I agree with what you're saying. I think the business community has almost gotten neurotic in their concern about the Administration, and over time, that may be dissipated. I think they are misreading. I hope they are misreading it to some extent. And I think this message may go in that direction. But I still think there is a need in a sense to look toward the Federal Reserve as confirming that more hopeful approach [as] the real bulwark. Against all that kind of background, if I really had my druthers--if we were really living in an apolitical climate, I suppose--I would have bought both ends of your initial thinking. I would have liked to see the M1 range reduced by half a percentage point, just on the low side, and some reduction on both sides of M2 and M3. I am also conscious that it comes very rapidly on the heels of this rebate decision. I think that's perhaps more important in my thinking than the energy issue, which I agree is a very large question mark. But it's more a question mark than a fact. And I think you could argue, since that is bound probably to have some inflationary implications, that an offsetting action in some sense on our part could be reassuring. Putting all this together, I do think we ought to have some reduction in something. The easiest thing is the upper end of the range. And the most meaningful thing, as minor as it is--the upper end of the range on M2 and M3 by a half as you suggested. I guess I end up in a mood that I would accept anything between half a percent on both the upper and lower end of the ranges of M2 and M3 and half a percent on the lower end of M1--a kind of extreme program and the limited program. It's not very extreme in the context in which we're talking, but just half a percent on the upper end of M2 and M3 is my margin of being satisfied that we have taken the minimum steps that we should take at this time. In a way, I wish this meeting were a month later, one month removed from the rebate decision. I think we would not then be clouded by that psychological circumstance.",454
-fomc-corpus,1977,"Fortunately, the decision, whatever decision we take, will not be announced until May 3rd, and both the business and political community has a way of remembering only what happened yesterday or during the preceding week. So there will be a little distance between the two.",53
-fomc-corpus,1977,"Well, that's the range of my indifference, I guess. Not quite indifference, but tolerance.",21
-fomc-corpus,1977,"Well, I think that's a good a way of describing it. Thank you, Mr. Volcker. Mr. Coldwell, please.",28
-fomc-corpus,1977,"Mr. Chairman, I have a little difficulty today. I listened to what others have said about this. I am really more concerned about the performance than I am the ranges. And while we can jiggle the ranges around, we have taken some steps, as was pointed out, to reduce the ranges, and yet you point out our actual performance was somewhat higher, on average. I have a great deal of sympathy with Chuck's position that this is kind of a poor time in life to be changing something as visible as the ranges. On the other hand, if we're really going to live with this range business and make it meaningful to Congress and to ourselves, I think the latter is more important than the former. We ought to be doing something about it. I am bothered about the kind of philosophy behind this. If I understand this, and there is a high question about that, but if the prognosis is for a major increase in business loans, which puts some pressure on things around here, then it seems to me that much of that pressure ought to come through on the M1, not the M2 or M3 category, in the sense of building up the pressure. Now if M1 is the principle target here, and I think it might become one under such conditions, then we ought to be looking for the change in M1 or some more restrictive element. I am a little bothered, though, because I still have some sympathy, if not almost outright allegiance, to questions of interest rates and money market conditions. And I am a little concerned that this would appear to be a time when we're taking a step in emphasizing the aggregates which kind of prejudges what the interest rates will do. I'm not yet convinced that this long-range forecast of interest rate increases will come to this happy land yet. A very modest change on the upper range of M2 wouldn't bother me a whole lot. I don't know that M3 gains me a whole lot, because I have a lot of sympathy for Chuck's position about the velocity side. So I suspect that I would be willing to accept something in the very modest change in the upper limits of M2 and M3, and it may be something in the neighborhood of an 8 to 11 on M3 and perhaps a 7 to 9-1/2, but we then start narrowing the range, and that gives me some cause for thought. M1--I don't believe I'd touch [it] right now.",497
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Guffey now, please.",17
-fomc-corpus,1977,"Yes, Mr. Chairman, I agree with the philosophy that I think has been expressed, that we continue to make some movement. But as we took a look at the ranges that we've been operating within the past as a track record, and particularly focusing in on the midpoints, what has been projected is such that you're suggesting that there is only a 2-1/2 percent differential between the midpoint of M1 and M2, and the track record in the past would suggest that that's been a 4 to 5 percent differential. That suggests--",112
-fomc-corpus,1977,"That's the very recent past; that's not the long-range record, I believe. Mr. Axilrod, what are the facts?",27
-fomc-corpus,1977,"You go back as far as 1967, the differential between M1 and M2 is reading roughly 3-1/2, 2-1/2, 0, 2.3 but then it gets up to around 5 then 2-1/2, so I would say it's in the order of 2-1/2 plus or minus something--previous to the past three years or so.",88
-fomc-corpus,1977,"I went back to 1975 and 1976, and it ranges 4.4--",20
-fomc-corpus,1977,M2 and M3 recently have exploded.,9
-fomc-corpus,1977,"I see nothing that would materially change that in the period ahead, so as a result--",18
-fomc-corpus,1977,"Well, but M3 and M2, there are indications of their slowing down.",17
-fomc-corpus,1977,"To be sure, but projections of the staff would suggest that the interest rates that will affect those two aggregates are not going to start moving up until some time in the third quarter, which would affect the slowing of growth of M2 for example. If I read it correctly.",55
-fomc-corpus,1977,"That is, the rise in market rates would tend to bring M3 and M2 down.",19
-fomc-corpus,1977,"To be sure, but I think that's not projected by the staff until some time into the third quarter, into the fourth quarter",25
-fomc-corpus,1977,"But that's already under way--under way not so much because of the rise in interest rates but because of a feeling on the part of thrift institutions and, to some degree, commercial banks that they are flooded with money and they are no longer advertising as they had for their certificates of deposit. Some are no longer issuing the longer-term certificates, the passbook rate here and there has been lowered, they have been moving like that--am I right?",90
-fomc-corpus,1977,"They have been for some months--some reduction in offering rates. And very recently we've had a slowdown in net inflows in time and savings deposits relative to what it had been in the fourth quarter. We are projecting, Mr. Guffey, further slowdowns in the summer and fall, when we believe interest rates would start rising. But as of the moment, there is a slowing also.",80
-fomc-corpus,1977,"Well, just to follow this for just a minute if I may, whether it is believable or not, I would like to suggest that, because of the past track record and the fact that the slowdown may not come until later in this year, we not drop M2 or M3 at the upper rate; leave them the same, and to try to fulfill what I believe very strongly we should continue, a movement. I would prefer the first suggestion the Chairman made, and that is to drop the lower end of M1 a half percent. My own feeling is that this would not have any serious impact in the marketplace, and as a result we would have continued the process--we would have dropped the midpoint of M1 a quarter percent, to be sure. But it would also, I think give better alignment in what you might expect between M1, M2, and M3.",179
-fomc-corpus,1977,"Without arguing the point, I just want to be clear about my own suggestion to the Committee. I had struggled and struggled with the idea of bringing the lower limit of M1 down and might well have made that suggestion to the Committee. But learning about the energy message, my present suggestion to the Committee is to leave M1 alone. Thank you, Mr. Guffey. Mr. Lilly now, please.",83
-fomc-corpus,1977,"You mentioned a couple of times the President's stated objective of the 4 percent [inflation] rate in '79. I guess I could have asked the staff a question long before the meeting, but the [President's speech] wasn't available all that time. What should the rate of growth of M1 and M2 be in 1979 and late in 1978 to have this kind of condition occur at the end of 1979? That's the question I have. Are we taking a step toward achievement of that objective?",108
-fomc-corpus,1977,"I would say, in view of the Committee's recent practice of assigning approximately equal weight to M1 and M2, that lowering the one or the other, either at the lower end or the upper end, we are making a move in that direction. Now, whether the magnitude is sufficient or not, or more than sufficient, is another question. But it would be a move in the direction of the President's goal.",85
-fomc-corpus,1977,I have no quarrel with the recommended course.,10
-fomc-corpus,1977,"Thank you, Mr. Lilly. Mr. Kimbrel, please.",15
-fomc-corpus,1977,"Mr. Chairman, I have labored with the thought that there's probably never going to be that ideal time for us to make these moves, but listening to our own people and observing events in our own area, I continue to be considerably impressed with inflationary expectations, the prices, businessmen who are still fearful that controls could come along. I accept the uncertainty that the energy message induces, but I also have to associate with that the at least reasonable expectation that [the energy initiatives] may contribute further pressures on upward price movement. I recognize almost an abundance of liquidity, so I guess I am almost forced into feeling that we ought to move, and we ought to move in a fashion that would not shock the markets, to be certain, but would leave no question that we were attempting to restrain any inflation that would be forthcoming. Mr. Chairman, I would like to see us move the lower range of M1 to 4--down a half point. I would like to see M2, upper and lower, down a half, to 6-1/2 to 9-1/2. M3, a half point upper and lower, to 8 to 11.",240
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Jackson now, please.",16
-fomc-corpus,1977,"Mr. Chairman, one thing that hasn't been mentioned is the more recent environment of inflationary prospects and [unintelligible]. First, we have had recent price increases, and while the staff projection indicates that those will flatten out, and perhaps [during] the balance of the forecast period they may not be anywhere close to what they have been, we can view different opinions as to how likely that prospect can be. Each of us would have different [views]. I think there's a consensus around this table, as I hear it, and around the country, that any energy policy is likely to have a negative impact on the price situation--be likely to increase prices [unintelligible]. I think for that reason it's appropriate now for us to go ahead and lower slightly our future range. I recognize, Mr. Chairman, that we're in a funny situation. You have apparently some information about an energy policy that the rest of us don't have. And when all of us have that energy information, it might be entirely appropriate that we reconsider anything we do today. But unfortunately, for that reason, I think the judgment here should be based on what we know rather than what we think might occur. We have ample time to reassess our decision. Getting to the point, I noticed that in the first quarter 1977, our actually experienced rates of growth were 4.2, 8.0, and 9.7 for M1, M2, and M3. And while I recognize that that's only a relatively short period as to what we're discussing today, I don't see any indication that we're going to see dislocations of the type that Chuck indicated are likely to occur. Second, if there's any validity in the staff forecast, I would say the chances of M2 and M3 growing at a significantly slower rate than we've experienced are probable. That's in the range of probability, not possibility. All of that added together, I would support a 4-1/2 to 6-1/2 for M1 and reduce the range for M2 a half a point on both ends to go to 6-1/2 to 9-1/2, and M3, 8 to 11.",451
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Willes now, please.",15
-fomc-corpus,1977,"Thank you, Mr. Chairman. My original predilection was to be very quiet today and listen and be instructed by the members of this Committee. But as I have listened to the discussion, it appears to me that the issues are sufficiently important that the District should at least be represented in deliberation. One of the happy things that has happened to me upon my appointment is that I have been called by more than the usual number of businessmen and others to give me their greetings and well wishes. And that has afforded an opportunity to hear from what for me would be an unusually large sample of businessmen from around the country, and it has been interesting to me as they have discussed the rebate, their expectations of what the energy package would consist of, their expectations as to what the President might do in terms of inflation, and so on. And for better or for worse, the message that a large number of them have had is that, while they expect the energy program to be troublesome and somewhat disruptive and certainly to have a positive impact on price increases, and while they expect the President to try to do something with inflation, they are not sure how successful he will be with that. They are greatly relieved by the withdrawal of the rebate. And putting all those things together, they seem to give more weight as reflected in increases in spending plans and so on, than they had in earlier weeks and months. All of which is just a way of saying that if there seem to be risks in the current forecast, they would all seem to be on the side of greater inflation rather than less. And if that's the risk that we focus on most intently when we think about what to do with these ranges, I think our District would very much support the notion of doing something. I would take the arguments that Governor Partee made, and I guess I'd just almost reverse them in a sense that, given the expectation for additional inflation, at least the possibility of that, that would weigh in my mind to argue almost the opposite of what he did. I would be happy to go beyond those suggestions that you made, but fortunately I understand these discussions come up every three months, so that there is another opportunity relatively soon to reassess that when more information is in. So we would certainly go along with the suggestion you made, emphasizing that it is in large part more a signal that the System intends to continue to pursue the objective of bringing inflation in line. I think the comments that have been made that our actual performance over the months ahead will have more real impact on what happens [unintelligible], that's except for the psychological one, which I think is of real import.",534
-fomc-corpus,1977,"Thank you, Mr. Willes. Mr. Wallich now, please.",16
-fomc-corpus,1977,"I'd like to set forth new considerations: First, I think when we set longer-run ranges we ought to look at the base drift which has taken place, and this is very usefully reflected in the appendix here. Over the last quarter or so, there hasn't been significant base drift, so we [do not] have much getting back on track to do. If we go back one quarter further [to a third-quarter base], we see that M1 is pretty much on track, but M2 and M3 actually overshot, so that [if] we wanted to go back to that track we have to come down somewhat for the actual higher aggregates. Certainly, it seems to me, we've got to look at the general fact that inflation has accelerated as a result of outside forces, in a very small way the same as the oil shock. After many debates, I have come to the conclusion that such an event should not be fully accommodated by a monetary policy that would just build the price increase into the economy permanently as a continuing rate of inflation. Neither could it be ignored fully, because that might create a high degree of monetary stringency, and so I tend to feel that, other things equal, which in this case they are not, one should accommodate that in part. The third set of considerations is that we have major changes on the fiscal side and on the side of the Administration. Fiscal policy has just given the signal that plans were too expansionary and they have been cut back. That to me seems to say we should certainly not compensate that but, if anything, either move in the same direction or stand still. The energy message--I find it hard to evaluate; a greater uncertainty does suggest doing less. The President's inflation message, it seems to me, we ought to attach ourselves to very firmly and take this objective of getting inflation down by 1 percent or so per year very much to heart, and help the President by getting our aggregates down over time. I think that is an excellent point both of substance and a talking point. Well--putting these things together, I've looked at what's going to be ahead. What seems to be likely to me is that interest rates have to go up and that we will be pushed into that by pressure on the aggregates on the upside. If we do not allow interest rates to go up, then the aggregates are likely to accelerate. I know this forecast has been wrong before, but it looks plausible to me now; it's the best thing one can go with. So what matters are the upper ends of these ranges. It therefore becomes a relatively cheap shot to reduce the lower ends. I think it unlikely that those [lower limits] would be triggered. I would argue that we can go down with M1 a half percentage point without achieving much of a result. The trigger that is likely to be touched is the upper [end]. On M2 and M3, the same argument, same reasoning, would suggest that one again lowers the lower [limits]. I would be more inclined to lower the upper part of the range, on the grounds that I would like to bring a little closer the [triggering] that is likely to cause the rise of interest rates that somehow has to be distributed over the course of the year. It's also in conformity with the overshooting that has occurred over a longer period in the two higher aggregates. So, in summary, I would say on M1, 4 to 6-1/2; on M2, 7 to 9-1/2; and M3, 8-1/2 to 11.",731
-fomc-corpus,1977,"Thank you, Mr. Wallich. We'll hear next from Mr. Black.",16
-fomc-corpus,1977,"Mr. Chairman, I guess I'm going to be the hawk today. I thought several times that someone was going to steal all I had to say, but I still come out a little further to the right on this. The question to me still is not whether we should cut the limits but really by how much. For a long time you have been testifying, and the rest of us have been taking every opportunity to say, that we want to work down the long-run rate of growth in the aggregates, and there always seems to be a reason why we can't do this. And Governor Partee has spelled out particularly well why this is not exactly the most advantageous time, and I am well aware of that. But at the same time, I think it's about as good a time as we are likely to get, and to make a long story short and not draw this out, I would cut the upper end of M1 by half a percentage point and the upper ends of M2 and M3 by a full percentage point.",208
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Morris now, please.",14
-fomc-corpus,1977,"Mr. Chairman, I like your proposal, and I agree with Henry Wallich that the rebate was killed because the economy is performing much better than we thought it was at the time the rebate idea was generated. And for the same reason, it seems to me that this is exactly the kind of time monetary policy ought to respond. I think we got a strong full thrust in the economy, [and] perhaps our second quarter estimates are on the conservative side. I have an intuitive feeling that things are really moving, and that while the uncertainties over the energy policy are likely to have a drag on capital investment, that's not where we're getting the thrust at the moment, and I don't see any near-term concern stemming from that. As I mentioned to you at the coffee break, I think, near-term, the energy program is going to be a drag on investment decisions--simply the uncertainty of not knowing what kind of rules of the game you're playing under--but I think, long-term, it is going to have a very positive effect on investment decisions. Once the program is adopted and people know what the rules of the game are, I think we are going to see a surge in energy-related investments. I think that we can also defend your program on structural grounds. I think there is pretty clear evidence that we are returning to a more normal relationship between M1 and M2. And it could be defended--if for no other reason than I think that this combination is structurally better than the former one. And I also think Henry Wallich's base drift argument is a good one. I think in looking at ranges for the future, we ought to give some recognition that we have had overshoots--and undershoots--in the past, and clearly we have had an overshoot in M2. And to scale down the year ahead makes good logic.",376
-fomc-corpus,1977,"Thank you very much, Mr. Morris. Mr. Eastburn, please.",16
-fomc-corpus,1977,"Thank you, Mr. Chairman. I came to the meeting with the notion that the M1 floor should be lowered by 1/2 percent, and I discovered, listening to the conversation, that it is a more complicated issue than I thought. There has been a great deal of discussion about the public impact, the psychological effect of what we might do--the appearances. And it seems to me that these cut so many different ways that they are very difficult to analyze. On one hand, the reduction of that kind would seem to be consistent with the President's anti-inflation program, but on the other hand it might seem to be inconsistent with the rebate situation. Because that is so confusing, I am inclined to resort to what I think is more basic, and that is the economic considerations. In that sense, it seems to me that we do have a much stronger economy than we had the last time. There is, to be sure, an uncertainty about the impact of the energy program, and that is an uncertainty in my own [mind]. My own hunch is that that will [be adopted], and it will leave higher inflation expectations in its wake. As I indicated earlier, our own projections for 1978 indicate a higher rate of inflation. And I think it could be quite possible that, a year from now, we will find ourselves looking back on this period having committed excessive growth in money. For those reasons, I'd be inclined to bite the bullet and lower the M1 floor by half a percent. I am less concerned about M2 and M3 because, as you indicated Mr. Chairman, I think these growth rates have been coming down, and they are likely to come down further. So I would concentrate on M1, and I think that this would stand us in good stead for the future.",368
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Baughman, please.",16
-fomc-corpus,1977,"Mr. Chairman, I guess it seemed to me that, in the review of Mr. Broida's document, it is essentially a report card, [and] he gives us, at best, about a ""C"" in terms of what we might characterize as classroom performance. But the document does not grade us on what we might call our lab performance, where you observe the results of the experiment, and there it seems to me at the present time the grade would come in a little better. But we now seem to be looking into a situation where that lab grade, at least on the inflation side, may start slipping back. And I reconciled myself, I think pretty much because of what I judged to be the politics of the situation, to a stand-still posture during a couple months of high uncertainty with the fiscal stimulus program coming in. [But] it seems to me that, with that big uncertainty set aside, we should be moving a little further to try to improve the classroom performance. And I come out with the prescription that Governor Wallich came out with, which I believe, Mr. Chairman, is the same as yours except a small move on the bottom of the M1 range as well.",246
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Winn now, please.",16
-fomc-corpus,1977,"Mr. Chairman, I feel quite inadequate in trying to assess the psychological aspects of many of the current developments, but I feel rather strongly that the economic underlying factors are quite strong, and we may even see them stronger as the inventory scramble adds on to some of these other efforts here, as the inflation psychology builds to even a greater extent. I'd be inclined at this moment to indicate some decline in all of the items, and I would join with Mr. Wallich and Baughman.",98
-fomc-corpus,1977,"Thank you, Mr. Winn. Mr. Gardner now, please.",14
-fomc-corpus,1977,"I hope to be brief. The economic [situation], as Willis has just indicated, is clearly buoyant. It has rekindled more specific fears of inflation. We have to expect that. That was bound to happen whenever the economic data became clearly positive. It seems remarkable to me that with the dispensing of the rebate program, we've gone from fears of too much stimulus to fears based on the yet unannounced energy program, which clearly will have some significant impact, depending on its reception and development in the Congress. I often have taken the position of staying in place. I think clearly it is appropriate for us to continue reducing our targets or our ranges. I would support the reduction in M2 and M3 that is proposed; I would support a reduction in M2 as shown in alternative B, and M3 a half point on either end. But I think the principle is more important. I think we should make some changes. We are asked to do this tentatively, subject to our afterthoughts after the President's program is announced, and for that reason I would be happy with leaving M1 alone at the moment. We do have to look, in a minute, at where we are with M1 and where we will be in the next quarter with M1. And so I would support either a 7 to 9-1/2 or 6-1/2 to 9-1/2 for M2. Commensurately, an 8 to 11 or 8-1/2 to 11 for M3. I think that is the important action to be taken today--a one-year adoption which we will of course review again in three months.",345
-fomc-corpus,1977,"Well, all members of the Committee in attendance have now expressed their views about the lower range in targets, and before I jump to summarize and make a suggestion to the Committee, would any member of the Committee perhaps want to say an additional word at this time? Mr. Volcker.",57
-fomc-corpus,1977,"I'm afraid I left myself with a range. I'd rather retract, after listening to everybody here, with the idea of going down half a percent, as you suggested, with M2 and M3 and also a half percent on the lower end of the range of M1, as I take it Governor Wallich first suggested and others did. It has some minor symmetrical advantage of putting all the ranges at 2-1/2 percent, or all the same.",93
-fomc-corpus,1977,"Mr. Chairman, may I just inquire the impact that the Chairman sees--the possible impact of the energy proposal would be inflationary--could you just reiterate that? I'm a little lost as to why--",42
-fomc-corpus,1977,"Well, it's really too early for me to speak on the subject. My guess is that the energy message will tend to slow down business capital investments. Or more accurately that, as a result of the message, some projects that are now being discussed within the business community, and where business managers, boards of directors, are on the margin and might well have [gone] forward, [they] will continue to hesitate. And possibly some who have crossed the margin, [but] not by much, may reconsider. As for prices, the longer-range effect I think will unquestionably tend to raise prices. And I see no escape from that, but I don't think that will happen for this calendar year. But these are impressions. They're not judgments at all, they are intuitive opinions and don't deserve any significant weight on the part of the Committee. Would anyone else like to speak?",175
-fomc-corpus,1977,"Well, I don't think--maybe I made clear the association that I draw between the long-range targets and the rebate; it's partly the impression of increased restraint in both areas, which I did mention. But in addition, there's a real effect, and that is, the Treasury will be borrowing some $10 billion less in the period immediately ahead than they would have been had the rebate gone through. And so I think we may have a period yet of stable or even lower interest rates. And there is a good possibility that the time deposit inflows will be quite strong over that period because of a favorable rate relationship. So my preference because of that rate relationship, which affects my preference, would be to wait until we can see if pressures begin to develop, which I think will be [a quarter from now] rather than now, to reduce what will certainly in the longer run have to be a reduction in the ranges for M2 and M3.",190
-fomc-corpus,1977,"Any other opinion or comment? If not, one conclusion is very clear, and that is that the Committee is nearly unanimous in believing that some reduction somewhere in our monetary growth ranges is indicated to be proper, appropriate at this time. The Committee is nearly unanimous on that, the consensus is quite clear. Now, otherwise, a range of views have been expressed, and a clear majority of the Committee is in favor of leaving M1 alone at this time, a thin majority is in favor of lowering the upper limit of M2 by 1/2 percentage point, and as far as M3 is concerned, one-half of our membership is in favor of lowering the upper limit of M3 by 1/2 percentage point, and the other half are at opposite ends, wanting to lower it more, or both ends, or leaving it unchanged. And in view of the opinions or judgments that have been expressed, I think I'm justified in putting the following to a vote at the present time: namely that the M1 range be retained at 4-1/2 to 6-1/2 percent; the M2 range be lowered at the upper end by 1/2 percentage point, namely 7 to 9-1/2; and the upper end of the range for M3 be likewise lowered by 1/2 percentage point. And unless there are questions or comments, I will now call on the Secretary for a vote.",292
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee No President Roos Yes Governor Wallich Yes Eleven to one.,49
-fomc-corpus,1977,"Well, we still have time to do a little more formal business, and I shall now call on Mr. Sternlight to report on operations of the Desk.",32
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,"Thank you, Mr. Sternlight. Any questions for Mr. Sternlight?",16
-fomc-corpus,1977,Is the change in the shape of the yield structure in your opinion indicative of a substantially different expectation of the market about short-term rates in quarters ahead?,30
-fomc-corpus,1977,"I would say yes, Governor. I think that what we got was a partial reversal of the swing in the yield curve that had come about in January, which had come, as you recall, just about when the Administration was announcing its fiscal stimulus plans, and this has now reversed a good proportion of that as a major part of that plan was modified.",71
-fomc-corpus,1977,Thank you.,3
-fomc-corpus,1977,"Any other question or comment? If not, a motion to ratify action that the Desk [has taken would be] appropriate.",26
-fomc-corpus,1977,I so move it.,5
-fomc-corpus,1977,"The motion has been made and seconded; I hear no objection. We're ready for you, Mr. Axilrod.",25
-fomc-corpus,1977,"[Secretary's note: This statement was not found in Committee records.] CHAIRMAN BURNS [interrupting Axilrod statement]. You mean that in the absence of the special factors, the monetary growth rate would be 5 to 6 percentage points?",52
-fomc-corpus,1977,Those three that I listed. Some of which were unanticipated.,13
-fomc-corpus,1977,I see.,3
-fomc-corpus,1977,"You said 13, and you said these were 5, but [what] did you do with 8?",24
-fomc-corpus,1977,Yes. I didn't hear it. [Statement continues.],11
-fomc-corpus,1977,"Thank you, Mr. Axilrod. Any questions for Mr. Axilrod?",18
-fomc-corpus,1977,The growth rates in appendix 4 for V1 and V2 are intended to be over the first quarter?,22
-fomc-corpus,1977,"Yes, it's the growth rate in velocity from the first quarter on average to the second quarter on average at annual rates.",24
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,And similarly for other quarters.,6
-fomc-corpus,1977,"Yes, Mr. Morris.",6
-fomc-corpus,1977,"Steve, do we know in advance that the Social Security Administration is going to issue checks early?",19
-fomc-corpus,1977,"Yes, we made an effort to allow for that. Of the three special factors I mentioned, that one we allowed for possibly not enough.",28
-fomc-corpus,1977,"You mean the seasonal adjustment factor was changed, or just how did you?",15
-fomc-corpus,1977,"When a Saturday or Sunday is the third day of the month, they put out the Social Security payment on the preceding Friday. Ordinarily, they pay it out on the third day of the month. And that puts it in M1 for a couple of extra days for the monthly average. So you get about a 1-1/2 to 2 percentage points impact on a month from that. That, we made an effort to allow for. I don't really think quite enough. And the other two factors, we did not allow for at all as I look at our weekly projections as they evolve. In any event, we would have been too low, but not--in any event we wouldn't have had as high a month, but we wouldn't have been as badly off.",157
-fomc-corpus,1977,Any other questions?,4
-fomc-corpus,1977,"Steve, is the timing and magnitude of the tax returns giving you any problem this year?",18
-fomc-corpus,1977,"Well, they may be. I can't explain why, in the week preceding the tax period, M1 ought to be relatively strong. It doesn't make sense to me that people have accumulated deposits in order to pay their taxes in advance. That seems to be something of what's happening.",56
-fomc-corpus,1977,Why doesn't that make sense to you?,8
-fomc-corpus,1977,"Because it hasn't happened in earlier years. In the abstract it makes sense, but then I would not have expected the phenomenon just this year and last year. That's the problem I have with it, and I don't have enough information to say that the tax payments are becoming larger, or how people might be varying their payment patterns. But aside from that, that's the thing that's giving me trouble at the moment.",81
-fomc-corpus,1977,"It could be also on the other side of the extreme, people may be filing returns and you're getting the rebate--",23
-fomc-corpus,1977,"Well, the refunds are coming in. We may not be allowing for them properly, but the refunds are coming in pretty much exactly as we have projected.",31
-fomc-corpus,1977,The magnitude and timing?,5
-fomc-corpus,1977,"Yes, and there is no extra. Refunds in this early week in April were almost exactly as we projected and are not substantially more than they were last year. [They are] about the same as last year. So the refund pattern is not in itself causing us to go off in the sense that we--what is occurring is what we had expected. We may not have allowed for it properly, but at least what is occurring is what we had expected. And the special factors--I pointed to two of them--we really hadn't expected.",110
-fomc-corpus,1977,"Wouldn't that wash out right away, the tax effects?",12
-fomc-corpus,1977,Refunds?,3
-fomc-corpus,1977,"No, no, the tax. If people were accumulating for the taxes, now IRS separates those checks and [the money balances are drawn down]?",29
-fomc-corpus,1977,"That's right. We are projecting a drop in the money stock of some magnitude after the week ending April 20. We did not project a drop in the week of April 20 because of the averaging effect, presuming these aren't paid until the end of the week and a little more mobilization occurs. But we are projecting a drop, and that's what gets us the low May growth rate. I mean that they are coming down.",87
-fomc-corpus,1977,"Any other question or comment? Gentlemen, we still have to make our decision with regard to our two-month ranges and the domestic policy directive. The clock is not supposed to be accurate. What is the time? Well, at 6 minutes to 1 there is a chance that if we stayed until 1:30 we could finish this meeting. Now what is the sentiment of the Committee? Is it to break now or try to finish our deliberations, and we may or may not succeed?",101
-fomc-corpus,1977,Let's go ahead and finish.,6
-fomc-corpus,1977,"Let's go ahead. Is that the sentiment? Well, let's try. In the interest of preventing pangs of hunger on the part of members of the Committee--that would be a short-run misfortune, but still a misfortune--in the interest of preventing that, let me make a suggestion to the Committee. By and large, I find alternative B attractive. I would recommend only a somewhat narrower federal funds range--namely 4-1/2 to 5-1/4, with an asymmetrical midpoint, namely 4-3/4--for the time being, and then the Desk to move as it normally does according to our procedure. Who would like to speak first? Mr. Coldwell.",146
-fomc-corpus,1977,"I was ready until you did that last thing. I was going to buy alternative B all the way across the board because I thought it was reasonable, as we've done in the past with the rise in [unintelligible] stability at this time of considerable uncertainty, and the impact of the rebate program. All of which I think is more immediate than the longer-range question we adopted. I would prefer that we stay with 4-1/4 to 5-1/4, and I'm perfectly willing to take the center range just as it's normally handled--4-3/4. I gather, Peter, that's where we are now?",131
-fomc-corpus,1977,That's where our aim's been.,7
-fomc-corpus,1977,"The difference between us is very small really. In view of my suggestion of an asymmetrical midpoint, the 4-1/4 strikes me as unrealistic. That is, we're not going to get down to 4-1/4--that played some role in my own thinking. Well, let me not elaborate, but move on. Mr. Partee.",74
-fomc-corpus,1977,"Well, I think I would find this acceptable, your suggestion. I think you're right. It's hard to imagine us getting down to 4-1/4 with an April number, but this, I think, is likely to hold up and be quite a high number. So even if you had indications on a very low May number, why, putting the two together, the chance [is] that we wouldn't come down any more. I would hope that we would use the top half of the range, that is, the 4-3/4 to 5-1/4, as part of the range, if in fact it doesn't turn [out] that the aggregates immediately quiet down. Because, I don't know, I think it's a very mysterious business. I can't quite credit Social Security having that much effect over the monthly, and I'm a little uncertain about this income tax payment thing. And it could be that we've had an increase here, some durability in the demand for money, and if we have, we ought to begin to move. And so if we are prepared to use the top half of the range, I think that's a little acceptable.",235
-fomc-corpus,1977,"Well, we function under a rule which requires that. We might want to modify it, but that is the rule.",24
-fomc-corpus,1977,"No, we didn't move very much when we got evidence that the aggregates were beginning to strengthen.",19
-fomc-corpus,1977,That came toward the very end of the intermeeting period. Mr. Jackson.,16
-fomc-corpus,1977,"That's one reason I'd accept your proposal, except I would go to the midpoint instead of having an asymmetrical midpoint. I'd go to the natural midpoint, if there is such a thing.",37
-fomc-corpus,1977,"Well, it's arithmetically possible. Mr. Volcker.",14
-fomc-corpus,1977,"It seems to me we're in a little bit of a peculiar position here. These aggregates did go up at the end of the period; we didn't react to them--I think quite properly. But if we now take off from the top of the range we had last time--or even beyond it, I guess, in some cases--then we add to it some extraordinarily high ranges against our long-term range for this two-month period. The implication is, we could have quite a long period of excessive growth in the money supply without reacting at all. And I don't think it's time to react now in substance. And in terms of the federal funds rate, I like the proposal you made, and I think we ought to probably stick around the 4-3/4 for a while and get evidence that the aggregates really are staying high before we react. But if they stayed even as high as projected, it seems to me we probably ought to be reacting before the next meeting in a modest way. And I would, I think, prefer--so that we don't get locked in too long with too high figures--the kind of federal funds range you have, with the expectation [that], unless something extraordinary happens, we're not going to move from that asymmetrical midpoint until we get quite a lot of confirming evidence to combine that with something like the alternative C ranges. So that we do react if these numbers come in that high before the next meeting date.",291
-fomc-corpus,1977,What are the two months on M1 Steve? Are they 13 and 3?,18
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,May looks like 3.,6
-fomc-corpus,1977,"But combined, that comes out--well, in the Board's estimate--8.",17
-fomc-corpus,1977,I don't know what May looks like.,8
-fomc-corpus,1977,"Yes, I don't know what May looks like either, and I'd like to get a little closer before I do anything.",24
-fomc-corpus,1977,"Yes, but he said that if you came in as high as these numbers, and that would mean you come in looking like 3 for May.",30
-fomc-corpus,1977,"But 13 for April, which leaves you an average of 8. Which is pretty high for a two-month period for no reaction.",28
-fomc-corpus,1977,"All right. Mr. Eastburn, please.",10
-fomc-corpus,1977,"If I understand Paul's position, I think I can also support that. It seems to me that we should be prepared to let the funds rate go up. But had we had more time last time, we probably would have done so. And I can buy your range, Mr. Chairman, of 4-1/2 to 5-1/4, but I really think we should be ready to move that promptly as the figures materialize. And so far as the ranges are concerned, I'd combine that with the alternative C aggregates specification.",110
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Mayo, please.",14
-fomc-corpus,1977,"I like your prescription of 4-1/2 to 5-1/4 Mr. Chairman. I would keep the M1 and M2 ranges just where they are. I would prescribe though, a continuation of our idea of an asymmetrical inner range, and 4-3/4 to 4-7/8 appeals to me as permitting probably the degree of flexibility that we need. I would interpret it in the first week or so, however, broadly enough to encompass 4-11/16. I wouldn't set the fire engine out.",114
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Black, please.",13
-fomc-corpus,1977,"Mr. Chairman, I think we're presented with essentially the same problem we had last month in trying to separate out unusual seasonal factors from the underlying demand for money. In fact, we wouldn't be surprised to see these aggregates coming in somewhat stronger than the staff is estimating, but we believe that if this is true, then you've certainly got to strengthen the demand for money. So we'd come out where you did on your M1 and M2, and here the federal funds range sounds fine to me. One thing I would like to throw out for consideration, however. I always like to go with the aggregates formulation if we can, but if you notice, on lines 46 and 47, it says ""growth rates over the two-month period were deviating significantly from the midpoints of the indicated ranges."" Well, I would prefer to change that to say ""are moving beyond the limits of the indicated ranges."" In other words, unless they go above these ranges, I wouldn't do anything for the federal funds rate because I think it's largely seasonal or special factors.",212
-fomc-corpus,1977,I'm lost.,3
-fomc-corpus,1977,"It's page 3, Mr. Chairman.",9
-fomc-corpus,1977,Page 3. How would you have that read?,11
-fomc-corpus,1977,"Lines 46 and 47, where it says ""would deviate significantly from the midpoints"" I would change that to ""moving beyond the limits of the indicated ranges."" Now that may not sound consistent with my hawkish--",46
-fomc-corpus,1977,You are going all the way up to 10 before you move?,14
-fomc-corpus,1977,"Yes, because of special factors at work, really. That's my feeling. Anything up there--",19
-fomc-corpus,1977,You and Paul are taking exactly the reverse--,9
-fomc-corpus,1977,I'll apply his language for lower limits.,8
-fomc-corpus,1977,"And I'm sure mine seems inconsistent with my earlier hawkish position, but I think you've got some special factors here that we ought not react to unless they turn out to be really a manifestation of strengthening demand for money. If it goes beyond that, yes, I think it clearly is, but up to that point I'm not sure. I would buy pretty much Steve's analysis on the thing.",78
-fomc-corpus,1977,That's just the money market directive without saying it.,10
-fomc-corpus,1977,"That's right. I have a bias in favor of the aggregates directives, is what it amounts to, and I just like to stay there in this particular case. With special factors at work, I'm willing to compromise my ideals to a certain extent.",49
-fomc-corpus,1977,"That's the same wording as in the money market directive, essentially.",13
-fomc-corpus,1977,"I hadn't thought about making a suggestion, but as long as Mr. Black [is] talking about [it], our wording was to move toward the upper limit rather than deviate significantly.",38
-fomc-corpus,1977,"These are really very, very subtle nuances.",9
-fomc-corpus,1977,"I think you may well be confronted with a situation where you've got to move up beyond 4-3/4 if you adhere to this language, and it may well not be warranted, maybe it will, I don't know. Whether that's [indicating] real demand for money or these special factors that Steve's outlined, I'm inclined to think [it would be] the special factors up to that point. But as I indicated, we think it's probably going beyond that.",95
-fomc-corpus,1977,"Well, we'll come back to the language later on. Thank you, Mr. Black. Now Mr. Kimbrel, please.",27
-fomc-corpus,1977,"Mr. Chairman, I think the numbers are perfectly acceptable as you assigned them. Except at the midpoint, I guess I have to be more leaning away from asymmetrical. I'd like to see it [at the] actual midpoint, and maybe not too far away.",53
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Who would like to speak next? Mr. Guffey.",22
-fomc-corpus,1977,"Mr. Chairman, I particularly like your proposal on the federal funds range. And it seems to me that the argument Mr. Volcker makes with respect to the M1 and M2 ranges is appropriate. I would also, I guess, like to speak to the point that Bob Black makes. I would like to see an aggregates directive, retaining the language that's proposed, which I understand to mean that you probably maintain a 4-3/4 to 4-7/8 range until we got something over 9 percent. And that seems to me to be appropriate.",116
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Wallich now, please.",17
-fomc-corpus,1977,"Well, I have no quarrel with the aggregates of B, given the uncertainties. I'm a little troubled by the long stability of the funds rate. I think we're in danger of accustoming the market too much to that. Also, I think that there might be more real pressure on the aggregates than we think and less of a noise element. So I would like to see the funds rate 4-1/2 to 5-1/2 but go up toward the midpoint of that very slowly. Certainly not the first and second week.",111
-fomc-corpus,1977,"Thank you, Mr. Wallich. Who would like to speak now?",15
-fomc-corpus,1977,"Mr. Chairman, I have found some support for my concern about a 10 outer limit on an M1 growth. I'd like to see that range 9-1/2 or something. I guess it's a point of principle with me. I believe we do have special factors, but I believe they're also indigenous to April at the moment until proven otherwise. If we get a range of growth from that range of the size indicated in alternative B, I think we would all be disturbed. I can really be. I'd be glad to move up the bottom of the funds rate to 4-1/2 and to begin to take some action on the funds rate if warranted, but the idea that the outer limit of the range of M1 at 10 is deeply disturbing to me. We've had our huge burst. If we get no reaction in the next month or two, or no diminution of the size that the staff presently anticipates, I suspect we'd be having a meeting of this Committee. I just would like to see that range dropped a little bit.",213
-fomc-corpus,1977,"Thank you, Mr. Gardner. Yes, Mr. Morris.",13
-fomc-corpus,1977,"Mr. Chairman, I support your proposal. Even though the difference between 9-1/2 and 10 is pretty small, as these things go, I think, given the fact that this bulge is the bulge of only one week at the moment, I wouldn't be comfortable [with] even that modest narrowing of the range. I would like to stay with the original proposal.",79
-fomc-corpus,1977,"Thank you, Mr. Morris. Mr. Willes, please.",14
-fomc-corpus,1977,"Thank you, Mr. Chairman. I hate to admit it, but I find I'm getting confused with this discussion and having a little difficulty understanding--",29
-fomc-corpus,1977,The hour is conducive to that sentiment.,8
-fomc-corpus,1977,"I hope that, when I go back to the clean air of Minneapolis, I can figure out what happened.",22
-fomc-corpus,1977,"You're casting aspersions on the air of Philadelphia, and I don't think it's being fair.",19
-fomc-corpus,1977,"Lest that be the lasting impression, let me say that I find that I'm delighted to see that my former colleagues in Philadelphia and my former neighbors in New York seem to agree on the same prescription, and still being favorably under their shadow, I'd like to align myself with their comment.",58
-fomc-corpus,1977,"All right. Who would like to speak now? Yes, Mr. Baughman.",18
-fomc-corpus,1977,"I haven't been to either Minneapolis or New York, but I'll have to admit I come out at the same place, which means concurring with your recommendation on the federal funds rate, but essentially alternative C for the aggregates ranges.",45
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Roos, please.",16
-fomc-corpus,1977,I'd just like to say ditto to that.,10
-fomc-corpus,1977,"Thank you, Mr. Roos. Mr. Lilly, please.",14
-fomc-corpus,1977,"Well, I'd like to associate myself with alternative B and the 4-1/2 to 5-1/4 range. If we take seriously what we just disposed of not so long ago, I think this is an interim step, and I would hope that we don't restrict the growth of M1 by an increase in the funds rate at a very inappropriate time.",75
-fomc-corpus,1977,"Thank you, Mr. Lilly.",7
-fomc-corpus,1977,"Mr. Chairman, it seems to me that it's flip a coin because our precision doesn't match our finite aptitude to focus on either one of them.",29
-fomc-corpus,1977,The precision of our language?,6
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Well, I think that there was a rough consensus within the Committee in favor of a range of 6 to 10 for M1, 8 to 12 for M2, and 4-1/2 to 5-1/4 for the federal funds rate. A rough consensus further for an asymmetrical midpoint of the federal funds rate, that is at 4-3/4. I believe also that not everyone has expressed himself on the directive. I believe that those who have expressed themselves are in favor of a monetary aggregates directive. There is a question of language that Mr. Black suggested previously, and if you'd be good enough to repeat once again your suggestion, Mr. Black, with regard to lines 46 and 47.",152
-fomc-corpus,1977,"Yes sir. The words ""will deviate significantly from the midpoints"" would be replaced with ""are moving beyond the limits.""",26
-fomc-corpus,1977,"Would you accept the language ""approaching or moving beyond the limits""?",14
-fomc-corpus,1977,"Yes sir. Then we'd strictly have the money market directive, but call it an aggregates directive. I believe that's exactly the wording in the money market directive.",31
-fomc-corpus,1977,"Well, let's have first a show of hands on the language as it stands, on lines 46 and 47, by members of the Committee.",30
-fomc-corpus,1977,Six.,2
-fomc-corpus,1977,"Now let's have a show of hands on Mr. Black's suggested language, paying no attention at this point to my suggested modification of the suggested language. Let's have a show of hands.",37
-fomc-corpus,1977,Could you repeat your language Bob?,7
-fomc-corpus,1977,"I'd be glad to, Steve. On page 3, lines 46 and 47, beginning with the words ""will deviate significantly from the midpoints"", replace that with ""are moving beyond the limits.""",43
-fomc-corpus,1977,That means that you wouldn't move the funds rate unless M1 was at 10 percent.,18
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,[Unintelligible].,6
-fomc-corpus,1977,Below 2.,4
-fomc-corpus,1977,"Let's have a show of hands on Mr. Black's suggested language. Now let's have a show of hands on my modification of that, and that doesn't mean I'm endorsing it. I'm simply trying to determine the Committee's thinking. Then it would read ""if it appears the growth rates over the two-month period are approaching or moving beyond the limits of the indicated ranges."" Let's have a show of hands on that.",83
-fomc-corpus,1977,Can you stand an editorial comment?,7
-fomc-corpus,1977,No. Declined.,5
-fomc-corpus,1977,"If it adds to confusion, yes.",8
-fomc-corpus,1977,"Well, you're solving my problem. I wanted to reduce the range, and so if you approach it, why that satisfies me very well.",28
-fomc-corpus,1977,You misunderstood me.,4
-fomc-corpus,1977,He hasn't widened it as much as Bob Black widens it from this language.,16
-fomc-corpus,1977,It narrows --,4
-fomc-corpus,1977,The other would mean you would move the funds rate if you were significantly above 8.,18
-fomc-corpus,1977,Ask Peter.,3
-fomc-corpus,1977,I won't.,3
-fomc-corpus,1977,"Gentlemen, I think we're ready for a vote to employ the monetary aggregate directive, to leave the language as the staff has worded it, to have a range for M1 of 6 to 10, for M2 of 8 to 12, and for the federal funds rate 4-1/2 to 5-1/4, with an asymmetrical midpoint at 4-3/4.",87
-fomc-corpus,1977,Would it be helpful to the Manager to describe how we now interpret this thing?,16
-fomc-corpus,1977,I hope the Manager will not be surprised by it. We do have difficulties at times.,18
-fomc-corpus,1977,"No, what you're proposing now is just the standard language, now. I would have liked clarification had the Committee voted for one of those alternatives. I've no problem--",33
-fomc-corpus,1977,"The standard language is something you've lived with for a long time, and therefore you have--",18
-fomc-corpus,1977,"That's right, I have no problem with that, just on the alternatives.",15
-fomc-corpus,1977,"I think we're ready for a vote, unless members of the Committee want to discuss the matter further. Apparently not. Would you be good enough to call the roll?",33
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Unanimous.,49
-fomc-corpus,1977,"Well, the final item on the agenda is the date of the next meeting, and I take it we're confirming it, and therefore we've beaten our own time and we're ready to adjourn.",38
-fomc-corpus,1977,A motion to approve the minutes of the April 19 meeting will now be in order.,18
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Any objection to that? We pass now to Mr. Holmes's report on foreign currency operations.,19
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Holmes. Are there any questions? I hear none. A motion to approve the transactions on foreign currencies would now be in order.",31
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Second.,2
-fomc-corpus,1977,"Do you have any recommendations, Mr. Holmes?",10
-fomc-corpus,1977,"No, Mr. Chairman, except, as I mentioned earlier, there may be a possibility that we may want to make small drawings on the swaps. I think we have the authority to do that. I have no new recommendations to make.",48
-fomc-corpus,1977,"All right, then we will turn to Mr. Kichline now. May we have your report, Mr. Kichline.",27
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Kichline. Now, we are ready for such views as members of the Committee may have on the state of the economy or such questions as they may wish. Mr. Mayo, please.",44
-fomc-corpus,1977,"Just one supplementary comment, Mr. Chairman. We have checked out some of our heavy-goods industry people since the energy message occurred, and they have no changes contemplated in their capital spending. Part of this is just time, but to the extent that it's been discussed, and it has been discussed quite a bit in these companies, they see no effect at this point on capital plant and equipment spending.",80
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Winn, please.",13
-fomc-corpus,1977,"Mr. Chairman, the scenario that has just been presented, and also it's in various [staff] books--it seems to me highly probable. On the other hand, I am puzzled by the loan demand facet of the future. When you talk with insurance companies, their backlogs are going down, not up. And this doesn't look like robust demand. Second, some of the financing they are doing [arises from] the fact that some people feel that interest rates are a little low, and they are refinancing their position to take advantage of the interest rate, and that money is not going to [be] constructive for future expansion. The bank demand, as I see it, is in part the inventory buildup that is going on currently, and beyond that, we've got mortgages and installment credit, some agricultural demand, but not a heavy push toward expansion. And the thing that troubles me is, are we seeing a little inventory cycle at the moment, occasioned by the bad winter weather of the first two months? And the plant and equipment expansion plans and that sort of thing seem to me heavily related to automobiles. If you take the utility component out of it, in this sense of the term, and with the feeling that businesses have developed ways of using existing plant and the machine tools they're putting in--[they are] providing fantastic increases in output for the capital investment. And are we really going to get the pickup in the investment sector that we need in terms of the continuation in output? I just raise a questions mark, particularly if you look at the lack of financing plans for this sort of expansion.",323
-fomc-corpus,1977,"Mr. Chairman, let me clarify the point you made. My recollection is that the staff memorandum we received indicated that the outstanding volume of commitments by life and insurance companies was going up. Did I forget--",42
-fomc-corpus,1977,"I think the recent data that we have from the Life Insurance Association of America--and it's about three-fourths of the industry--indicated rising corporate commitments. The weak segment continues to be the commercial mortgages, but that, too, was just edging up a bit. I think one of the comments that we sorted out from our contacts with the insurance industry is that they are literally flooded with funds, and one of the problems, I think, is sorting out the extent to which they'd like to invest in high-yield acceptable instruments relative to the amount of money available, and I think they have more money than they see good commitments available. Perhaps it's that interpretation that they are placing upon the flow of funds.",142
-fomc-corpus,1977,"All right. Thank you, Mr. Winn. Mr. Willes, please.",17
-fomc-corpus,1977,"Thank you, Mr. Chairman. Just one question. When our staff worked through the numbers for this month, they came out in general very close to where you came out. They did place less confidence in consumer spending and more confidence in business fixed investment. I just wondered, suppose that consumer spending was not as strong as you are assuming; would that really do much to your feel for the vigor of the expansion?",83
-fomc-corpus,1977,"Well, I think the key area of business investment--that's the one that has fooled us for some time. And if we got into a situation where consumer spending slowed substantially, we could find that business investment plans were deferred, and I think that would pose a risk to our forecast. I might note, though, that in terms of our consumer spending projection, we have looked at that very carefully because it is a place where our forecast differs from a number of outside forecasters, for example. And just to indicate what we have in the second quarter, we've assumed an increase in retail sales in May and June, 1/4 percent each month. That will get us on average something like a 10-1/2 percent [annual rate] increase in personal consumption expenditures this quarter, so we have already seen a massive burst of spending. And secondly, if we move into the third quarter, we have in our forecast a dropping off in consumption expenditures to about an 8-1/2 percent annual rate, so we have allowed, we think, for an appropriate lull in spending. It gets much worse than that, I think. It could well be feedback, at that time, in the business equipment area, which I think does pose a problem there.",255
-fomc-corpus,1977,How soon would you think that feedback would come?,10
-fomc-corpus,1977,"Well, I think, perhaps by later this year. We have raised our forecast for this quarter in plant and equipment expenditures, and I think the third quarter looks very good, given the orders and shipments data. But as you get on into the fourth quarter and early next year, I think that's where you might find something happening.",66
-fomc-corpus,1977,What kinds of probability would you assign to that kind of scenario?,13
-fomc-corpus,1977,"We talked about that--among the staff--and I think our assessment is rather low. But not minimal. I think there is a risk, of course, if consumer spending were to slow and the momentum that we have now in industrial production [were to be maintained],we could find inventory backing up a good deal. And concerns could arise similar to those that developed a year ago.",77
-fomc-corpus,1977,"All right. Mr. Baughman now, please.",12
-fomc-corpus,1977,"Mr. Chairman, we have no areas of significant difference with the staff's projection. It seems a good a characterization of prospects to me. And I guess it probably comes as no surprise that the President's energy program was received with a good deal of wailing and gnashing of teeth in the Southwest. But that notwithstanding, the onshore drilling activity is moving forward very well. There is literally no idle equipment around, but not enough demand pressure [to drive] up prices yet, at least. But probably the most encouraging element is that contracts are beginning to work down the idle capacity in offshore drilling rigs, where there has been, and still is, a substantial amount of idle capacity. It seems to me that an area of possible concern are the indications of renewed speculation in real estate. I would be interested in anything John Balles might have to report on what I read about what's going on in California. It seems to me I see just mild indications of that sort of thing going on in some of the Southwest centers, both with respect to residential properties and with respect to farm and ranch lands. And it almost seems to have some of the flavor of people having concluded that money is going to continue to decline in value at a fairly rapid rate. They might just as well get into a margin situation in real estate so long as credit's available. And thus far, I have seen no indication that the prospect of increases in the cost of fuel are having a locational effect with respect to the areas in which this speculative interest is beginning to appear. That's all I have to say.",317
-fomc-corpus,1977,"Thank you, Mr. Baughman. Would you--yes, Mr. Balles.",19
-fomc-corpus,1977,"Since Ernie has brought up this housing boom situation in California, I suspect I should say a few words on it. It's obviously a very unhealthy development, and I would have to also say it's being somewhat encouraged by all the major banks in California getting into a second mortgage business. That used to be anathema in the banking business, but there is a great rise in real estate values in the residential field because of the population growth limitation on available land, or what have you, in California. It's not untypical for the prices of houses in suburbs to have about doubled in the last four years. That suddenly gives people a lot bigger equity position, and the major banks in the state are now promoting a second deed of trust at a 12 percent interest rate--take a trip around the world or invest, send your kids to college, or do anything you like with the money. And I am afraid a lot of people are taking this equity out of their present homes and using it for speculation in other houses. We have seen instances in which this has been reported by several of our directors, where, before the builder even has the houses up, he's got all the sales completed, and the minute somebody buys it they can turn around and sell it within 10 minutes at a $10,000 or $20,000 profit. There's something wrong with the pricing system. The builders themselves aren't setting a high enough price on it. But that sort of speculative bubble is bound to come to an end at some point. And when it does come to an end, there is going to be a lot of lending institutions left with some bad loans. Now, fortunately, some of our banks and some of the S&Ls have taken steps to try to head this off. The Home Loan Bank increased its lending rate by a full percentage point not long ago. Some banks are requiring that borrowers sign a statement that they will occupy the residence or the house that they are going to buy, or not sell, within two years. There have been a number of such statements. But unfortunately, like shoveling sand against the tides, speculative profits are so large that a 1 point increase in interest rates or the requirement to sign a statement that you don't move out or intend to sell this property or intend to hold it for investment--people will sign those things lying through their teeth. So we don't know quite how to come to grips with it, but it's not a healthy development.",497
-fomc-corpus,1977,"I might add, Mr. Chairman, that farmland values and sales prices in the Midwest are continuing up. We have 10 percent higher just in the first quarter of this year. We were expecting that this would level off. This is a 40 percent annual rate--sales are basically at a 40 percent higher price than they were this time a year ago.",73
-fomc-corpus,1977,These are very disturbing comments. I am not too aware of the speculation and things going on in California. Which banks are involved in the second mortgages?,30
-fomc-corpus,1977,"My recollection, right off the top of my head, Mr. Chairman, is that there is not a single major bank that isn't involved.",29
-fomc-corpus,1977,Does our staff know anything about this?,8
-fomc-corpus,1977,"We're familiar with the housing situation in Southern California, especially, but I'm not familiar with the second mortgage situation.",22
-fomc-corpus,1977,"This is nothing new, Mr. Chairman. This has been going on all throughout the country for the last 10 years or so. Really, consumer finance companies have offered this type of financing. Their experience has been excellent. The last nationwide figures I saw for one of them showed a net underwriting profit instead of a loss. In other words, they had no loss whatever. Many of the bank holding companies have entered into this type of activity through their consumer finance subsidiaries. Their experience thus far has been generally good. I would suspect that if you looked at the actual loan-to-value ratios, you would find that the first and second mortgage combined wouldn't exceed a prudent first mortgage whatever, and probably the combined debt service would not be materially more burdensome than that on a first mortgage at current rates.",159
-fomc-corpus,1977,"Well, I think--",5
-fomc-corpus,1977,I need to be shown the figures to see that this is wild speculation on the banks' part because it's a practice that's been pretty well known throughout the country in the last 10 years.,38
-fomc-corpus,1977,"I think I would want to see the figures to see whether it is or isn't. I think we need to gather evidence, and I think our staff should look into this very promptly.",37
-fomc-corpus,1977,"This, I think, performs a function. People have substantial capital gains in their homes. All they get out of it so far, if they don't refinance, is higher taxes, so they actually think they're poorer when their wealth has increased. Their consumption could legitimately rise. So therefore, a question of how soundly this financing is handled--but basically, I think this is a logical and good development, where the financing system fills a gap which so far has not been filled properly--how to cash in on these capital gains that are quite invaluable.",110
-fomc-corpus,1977,Why aren't these mortgages refinanced? Why a second mortgage at 12 percent instead of a first mortgage at 8-3/4 or 9?,31
-fomc-corpus,1977,"Because many times the existing first mortgage, which may be assumed or retained, is at such a low interest rate--4, 5, 6, or 7 percent--that the combined total cost of the two produces a lower cost to the customer than a refinance rate at current rates, which now have risen to the 9 to 9-1/4 rate, I understand, out there. Is that correct, John?",88
-fomc-corpus,1977,"That's right. The prime lending rate on [mortgages] for good property has gone up about a half point. But in response to your comment, Phil, I agree that there is nothing new in this in terms of the principle. But what is [new] in my opinion is the intensity of the speculation to get amateurs of all kinds buying these second and third houses, renting them out for awhile, and hoping to make a killing. And, you know, as long as values stay up, that's fine, but if the values collapse, [there's] going to be some people unable to service those second mortgages, in my opinion.",129
-fomc-corpus,1977,"Are these real estate loans, John? Do they classify them as real estate?",16
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,So they are primarily secured by the real estate.,10
-fomc-corpus,1977,"The second deed of trust. And it's not just the banks, it's the S&Ls, too, that are doing it.",26
-fomc-corpus,1977,"Mr. Chairman, I think a similar phenomenon is occurring, as Bob Mayo has said, in bank loans to farmers. These loans are frequently predicated on the value of the land, which has been speculatively bid up terribly and unrealistically high in Illinois and Missouri and places like that. And the farmer's ability to repay in many instances is limited by the income that he can earn off of working that land. There is an imbalance developing due to the extent of credit the bank is willing to make and extend and the inability of the farmer to work his land in a manner to service that loan, which is really a larger loan than he normally would be entitled to because of the speculative increase in value of the land. If this bubble bursts, it could be terribly serious to the agricultural economy, as I understand.",164
-fomc-corpus,1977,"Mr. Chairman, there are two aspects of this farm pricing question. Some of it is accounted for by speculators. A large part of it, however, is accounted for by dollar averaging by the existing farmers who have such a low price basis for their existing farms that they can get their neighbor's farm at a decent price--I should say, even at an inflated price. It still pays them to pick up that property and, in effect, dollar average it in, and they can still make money on that basis. The part of it that worries me most, though, is those, like [those in] John's statement, who are amateurs in this business. And to the extent that they can persuade farm organizations and congressmen and so forth for greater price supports for aid to agriculture to, in effect, support the value of their farm later on--this is something that isn't too evident yet, but it may be--",186
-fomc-corpus,1977,It's not evident to the farmers yet.,8
-fomc-corpus,1977,Not as such.,4
-fomc-corpus,1977,"Mr. Chairman, as an addendum to what Bob Mayo has said, I would also note that this increase in the farm values in our part of [the country] is the support for the bank loan to these farmers and ranchers--they have not sold their crops since '75 and '76--they're in business to put a new crop in. It is a support that permits additional lending to those units.",84
-fomc-corpus,1977,"Well, I continue to think that this is a disturbing development. When you can pick up a piece of real estate at one price today and sell it at a profit the next day or the next week, you've got a real estate boom that can't last. And the world has had a great deal of experience with that, and I've lived through more than one real estate cycle like that.",77
-fomc-corpus,1977,"Well, I think, John, isn't this pretty well isolated down around San Diego, the intensity of this boom?",23
-fomc-corpus,1977,It's more pervasive in Southern California than in Northern California.,11
-fomc-corpus,1977,"Even less than Southern California, as I remember your board meeting last week. They talked about how, really, around San Diego--",26
-fomc-corpus,1977,"Actually, it's in Orange County [unintelligible], east of Los Angeles, but it's certainly not limited to that.",25
-fomc-corpus,1977,"Well, people offer more money every day for that property down there and [unintelligible]. It must give a sense of speculative opportunity--every day the paper has got a new higher price bid for that urban property.",45
-fomc-corpus,1977,"But this is also happening in farm land, a very similar occurrence. It isn't just residential property, that type of speculation. I think the land that Mr. Mayo speaks of has been bid up unrealistically, and it has [been] in Missouri and some of these other areas [unintelligible].",62
-fomc-corpus,1977,"Mr. Chairman, there is another side of this that I think is sometimes overlooked. We pay attention to the behavior of the stock market, that is, what it does to people's attitudes and their spending plans and so forth. But when we take a look at the financial assets of the consumer, we forget the changes in market value that have taken place in this real estate area. And some of the debt-equity ratios really are quite a great deal better for the time being if you take market values than when you take costs on some of these things. And it affects the consumer's willingness to spend because of the fact that the values have gone way up and [they're used] to borrow again rather than to sell or something of that kind. So there is another side of this value change that I think is important, frankly.",167
-fomc-corpus,1977,"This [is] compensation for the very high rates of interest that people have to pay. Unless the property goes up, there is really no justification [for borrowing], but they are collecting for the interest by remortgaging the property.",48
-fomc-corpus,1977,To what extent have we seen a growth in the use of margin accounts for personal consumption purposes versus securities purchases? Is there any indication of that--I know there are several plans afloat that would relate the two types of financing so that you could use a margin account for personal consumption purposes.,57
-fomc-corpus,1977,I'm not aware of any dollar magnitudes that are available on that. The aggregate use of margin credit has been increasing and is now at a new high level. It's about a billion dollars over what it was six months ago. But I'm not aware to what extent it's to purchase securities as opposed to withdrawing the funds from the account.,66
-fomc-corpus,1977,"I think there has been a good deal of that, Phil, simply because the brokers find that they can offer better rates than the banks, and I think another piece of evidence is that the performance of the stock market relative to the growth in margin credit is much weaker than you would otherwise anticipate.",59
-fomc-corpus,1977,"Well, that's my judgment. It's obvious the money is going someplace.",14
-fomc-corpus,1977,"Because otherwise you've got to assume [unintelligible]--somebody's moving out of the market and allowing the little guy to take it over, and that doesn't seem to fit the facts.",40
-fomc-corpus,1977,"Well, the last two years have been characterized, by and large, by remarkable [unintelligible] from excesses and speculation. This is the first significant sign that I have heard of and I'd like to see this watched very carefully. And I think that [in any] study that our staff may be undertaking, it would be very useful to comment on this phenomenon in the real estate market, urban and rural, that we have just been discussing, to comment on that in the Redbook. And who's responsible for the Redbook, Mr. Kichline?",115
-fomc-corpus,1977,The System Research Advisory Committee.,6
-fomc-corpus,1977,"Will you make sure that whoever is responsible gets on top of it promptly, and next month we will get reports through the Redbook on this alleged phenomenon.",31
-fomc-corpus,1977,All right.,3
-fomc-corpus,1977,"Mr. Black, may we hear from you now?",11
-fomc-corpus,1977,"Mr. Chairman, I find myself in close agreement with Mr. Kichline's assessment of the business outlook, in particular for the outlook in plant and equipment expenditures. I was puzzled about one thing, Jim, on [page] II-15 in the Greenbook, where you have the Commerce Department series on contracts and orders for plant and equipment.",71
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"The last couple of lines there show weakness of the last two months, February and March--and I'm just wondering if there were special factors in the private nonbuilding area for utilities and pipelines, or something of that sort, that would account for that weakness there. All the other indicators would be sort of strong in the direction you have indicated.",68
-fomc-corpus,1977,"I truthfully don't know--this is a highly volatile series, as you know. I think that is part of it; the weather effect may have been another. We have also heard at McGraw-Hill that the bulge in March reflected some contracts that were just reaching fruition about the same time, and it may be sort of a lumping problem over the February-March period. But I am not aware of anything. Jerry, maybe you are?",92
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,What I'm really trying to get at is whether the nonbuilding part of it--,16
-fomc-corpus,1977,"It almost has to be, if you read that footnote. That's the only thing that isn't shown separately.",22
-fomc-corpus,1977,But I was wondering whether it was just an aberration or whether that could be a weakness that might overwhelm the strength received.,25
-fomc-corpus,1977,"When I read that table, I was disturbed by exactly the same point. Then I consulted the table on page 12, which seemed to contain a reassuring answer--that is, you find that, according to the latest McGraw-Hill survey, expenditures--plant and equipment expenditures [for] electric utilities are scheduled, if these figures can be trusted, to go up by 21 percent, and for gas utilities by 34 percent, and you find a sharp increase in the estimates prepared in February for those occurring two months later. So it looks like an aberration.",115
-fomc-corpus,1977,"Well, that's what I felt. It was because everything seemed to indicate that it might be, but I just wanted to go ahead and take the information on it anyway.",34
-fomc-corpus,1977,I'm sorry we don't--,5
-fomc-corpus,1977,"Well, I think Chairman Burns has confirmed my feelings about it, by pointing these things out, that's certainly not [unintelligible].",28
-fomc-corpus,1977,"Well, it's also, if you look at the last column there, the year-over-year is much less, possibly, than the other component. The other component would have to be remarkably weak.",39
-fomc-corpus,1977,I think this is something that should be looked into. There are margins of uncertainty throughout.,18
-fomc-corpus,1977,Fine.,2
-fomc-corpus,1977,"All right. Mr. Partee now, please.",11
-fomc-corpus,1977,"Well, I want to return to this question of a possible pattern developing throughout the year. I certainly agree that all of the figures currently look very strong. One can't really find anything--except for the concern about the rate of inflation--to be very disturbed about with the performance of the economy in the last couple of months. But it is also true, as a number [of us] have pointed out, that the configuration could be something like that of last year. As I recall, retail sales rose strongly in the first few months last year to a March or April point--I would say a decline, although I think there were a couple of months of decline, and then [it] leveled out for the next six months. And it wasn't very long at all before that had a marked effect on inventory attitudes, in particular. And the question is, is there enough strength elsewhere in the economy to offset the possibility of that occurring again, and you have it in a modest degree, in the sense that you're bringing up the saving rate gradually over the next couple of quarters, so your increases in consumer spending are less than they have been running. But it isn't a leveling off, by any means, that you have. And in that connection, I notice that the March inventory numbers, I think it was March, really were pretty large. Thirty billion or 31 billion in the supplement, and that made me wonder about the first quarter GNP numbers. So far, I guess, we've just had the Commerce preliminary, and there'll be a final or semifinal here in a few days. It could be that that inventory number is already higher than we think it is. Jerry, do you have a view on that?",346
-fomc-corpus,1977,"Well, yes, there was a very large increase, particularly in retail trading inventories in March.",19
-fomc-corpus,1977,"Yes, but the total is $33 billion; that's quite a large number.",16
-fomc-corpus,1977,"The $33 billion for total business--manufacturing and trade, the average for the first quarter is about $30 billion. Given the very rapid increase in wholesale prices, our IVA is jumping and now is somewhere in the low 20s, so that it's possible that the inventory figure, as you suggest, may be stronger in the first quarter. I wouldn't expect it to be a great deal stronger. It is a little hard to make out that retail trade inventory figure for March because it comes in the face of very strong growth in sales and perhaps, quite frankly, [is] a bit surprising. In terms of the point about consumption, Governor, Jim earlier cited the increases that we are projecting for personal consumption expenditures in current dollar terms. I think the story as we can foresee it is even clearer if you look at it in real terms. For the second half of 1977, we're forecasting about 3-1/4 percent real rates of growth for personal consumption expenditures. And that's really quite modest. In terms of the possibilities of a weakening, of course, they are there. And there's a very real concern about that, but we have had fairly substantial gains in income recently; wages and salaries have been rising at 1-1/2 percent per month for the last several months, and that gives a strong basis for continuing growth in consumer outlets. And our judgment is that even with the slowing down of personal consumption expenditures to something like a 3 to 3-1/2 percent rate, there's enough strength evident in the other sectors of the economy to keep the momentum moving at something close to 5-1/2 to 6 percent overall for GNP.",340
-fomc-corpus,1977,"But you do have every line moving up strongly. Except net exports, which moved up slightly; but everything else is moving up strongly in order to give you this 5-1/2 percent for GNP.",43
-fomc-corpus,1977,"We have business fixed investment certainly moving up strongly. I must say, our assumption about inventories remains approximately what it has been in recent months, to wit, a rather conservative rate of growth. The inventory-sales ratios continue edging off all through 1977, and we just turned them around as we move into 1978. That I consider conservative, given the projection of business fixed investment we have in there. There's generally a buildup of durable goods inventories that is associated with that, and so I think that's a conservative picture. We do have considerable strength in residential construction for the next couple of quarters, but I think that's pretty well in the bag with the kind of increase we've already had in housing starts. So we [have what] I think in those two sectors are reasonable views on what is likely to happen. Certainly, I think the key to this is really business fixed investment, as Mr. Kichline said earlier; if we don't get the kind of growth that we are now anticipating, then the economy could well falter later in the year. But we have had some fairly good news there. The orders figures have held up well. McGraw-Hill survey figures have come in quite strong, the backlog of orders has begun to build for nondefense capital equipment, so there seems to be a basis for assuming continued growth.",269
-fomc-corpus,1977,"All right, we will hear from Mr. Wallich now, please.",15
-fomc-corpus,1977,"I wanted to address myself to the same subject as Chuck and look a little farther ahead, if possible. This recovery is now entering its third year, so it's beginning to be an old one, and while there are no clear imbalances--",48
-fomc-corpus,1977,An old one with new life.,7
-fomc-corpus,1977,"--a new one, maybe with new life; we certainly wish it a long and happy life. But what I seem to see in the projections is some kind of a rolling readjustment, with some things losing strength and other things therefore necessarily being relied on to gain strength if the expansion is to continue. So if housing were weak--you've still got it very strong, but you've got good reasons why it should come down: flows of funds, interest rates. Consumption has carried this expansion for a long time, autos have been very important in it--we could easily, with the savings rate rising, have some slowing there. And government, while scheduled to be strong the next couple of quarters, also into 1978 tapers off. And what we have is businesses fixed investment hopefully coming along and the very strong inventory numbers in the middle of 1978. Those are the two big elements of the strength. Both are not assured. It's conceivable that one could have a cycle without an investment surge, and it is conceivable that that cycle can peter out without ever reaching a credit climax. At any rate, I think what one has to accept is that the elements that are carrying the thing forward are changing guard. And what's carried it so far will probably be relieved , in the next quarter or two, by some of these new forces, if things work out right.",276
-fomc-corpus,1977,"But there could well be a pause there; you mentioned new cars. I recall 1955 as a year in which new car sales were extremely strong for a while, and when they fell off, why there wasn't really anything. Well, the economy continued all right, but there was a pause in the sense that there wasn't anything to take their place.",71
-fomc-corpus,1977,"In those days I think your report, Mr. Chairman, called it a rolling readjustment, and [it] went from one sector of strength to another sector of strength, and so there was hope the business cycle had been overcome.",48
-fomc-corpus,1977,"As I remember that period, you had a decline in automobile production, and that was accompanied by a decline in homebuilding, and those economists who look upon those two industries as dominating the economy were crying, ""We must have a depression, it's coming immediately."" Eventually they were right, but we had a considerable period of expansion with these two factors of the economy moving down and other factors compensating for that decline.",83
-fomc-corpus,1977,"Right, there was a real sequence, first housing in '54, then cars in '55, and plant and equipment thereafter, so it was really going from one support to another. It's just a question of whether these things will always show up in time.",52
-fomc-corpus,1977,"Jim, what's your balance between industrial production and inventory gain? You've had about a 2-1/2 to 3 percent increase in industrial production, first quarter, and I noticed looking down here that, taking off from the third quarter of 1977, our industrial production growth--7.8, 8.8, 9.0, 10.1--a steady rise throughout this. Is this balanced between industrial production and inventory?",92
-fomc-corpus,1977,"I think the gains in industrial production--I don't have the numbers right handy--were stronger through the first quarter on average. I think it is closer to 5 percent. And given the strong surge in sales, the inventory numbers that we have, and what we would anticipate for the second quarter, much of the production is going into final consumption. It is not showing up in inventories. Most recently, in looking at the industrial production index, there has been a pickup, however, in nondurable goods supplies, materials and supplies, and so if you look back in terms of stable processing, we're getting a buildup there, which will feed through. And I think that's where the inventories are now concentrated; it's in its early production process. And I would not view the current numbers as being out of balance. Jerry, would you have a comment?",170
-fomc-corpus,1977,"No, I think, Governor, that you were making a valid point in the sense that there is a somewhat closer relationship between the growth in industrial production and real final sales than between industrial production and, let's say, the commodity portions of GNP at the moment, because of the relatively sluggish growth in inventories. We expect that industrial production will be rising relatively more rapidly in GNP later on as we start building inventories. The relationship is really quite close over the last couple of quarters, but by late this year, we expect growth rates of industrial production in the 8 to 9 percent range as inventories are built.",124
-fomc-corpus,1977,I wonder if it's inventories. I wonder if inventories are the reconciling factor or the expenditures on services.,22
-fomc-corpus,1977,"Well, I--aren't they really basically the same?",12
-fomc-corpus,1977,"You and I are not on the same track. Go on, just elucidate your thought.",19
-fomc-corpus,1977,"The balance of gross national product has been heavily toward services, in part because of the lack of investment in inventories. If there were more rapid rates of growth of inventories, that sector of the economy would be growing somewhat more strongly, and so the balance between services and goods would be somewhat more normal than it's been recently.",64
-fomc-corpus,1977,You lost me a little bit on that last comment.,11
-fomc-corpus,1977,Inventory to services--,4
-fomc-corpus,1977,"Well, I understand that. Coming back to the inventory question, though, I'm just a little bit puzzled. Jerry, if you take an early inventory buildup in nondurables at the manufactures level, which I believe is what Jim said, do we have enough track record to call that a forecasting development to [an] enlarged total inventory, and does the balance between your industrial production, with that track record, give you pause for thought? An inventory cycle question.",93
-fomc-corpus,1977,I think it depends very heavily on one's expectation for sales and--,13
-fomc-corpus,1977,But you said yours was going down.,8
-fomc-corpus,1977,"That's right, but the inventory growth that we have projected is really quite moderate relative to sales, so we still have in our projection, in each of the four quarters this year, a decline in the inventory-sales ratio.",44
-fomc-corpus,1977,That's exactly my point. That's where I think I get off the track--I think that the inventory-sales ratio either should level off or go up. If sales weaken and you continue your industrial production--,40
-fomc-corpus,1977,"Well, the arithmetic, I think, is correct, so what one has to focus on is the two parts of that ratio. Either you get a faster increase in production--a buildup in inventories--or alternatively, sales don't keep pace and production adjustments come along with a lag and you get this buildup in the ratio because sales tend to falter while production is still roaring along. We don't have that in our forecast; it's one of those things that obviously could happen, and it did, indeed, happen last year.",104
-fomc-corpus,1977,You do have a rapid increase in the inventory-sales ratio in early 1978?,17
-fomc-corpus,1977,"Right. It's in the first quarter, I think; it begins to turn around, and in the second quarter of 1978, we have it bouncing up.",33
-fomc-corpus,1977,"Well, Mr. Eastburn.",7
-fomc-corpus,1977,"I'd like to come back again for a minute to this question of a possible lull or rolling readjustment. We've been talking about this, too, and I think the probabilities that I would assign would agree with the ones that you have. At the same time, I've been concerned about the possibilities for further price increases. And I'm just wondering whether some kind of a rolling process, as long as it doesn't adversely affect the capital goods area, might not be just what we need, in terms of the price pressures we might be experiencing later on this year. Would you think that if those probabilities were to materialize and we were to have something like the situation that we had a year ago, that this would have a material effect on the price changes?",150
-fomc-corpus,1977,"If we had something like we had a year ago, I think we'd be talking about significantly less real growth in total. And I must say, personally, I'm getting a bit discouraged with the behavior of markets in terms of pricing behavior relative to the strength of markets. I think increasingly, the staff is convinced that transactions prices in many areas are differing from list prices, and that's in part confusing the situation, in that many industries are attempting to push through price increases at every opportunity. And more recently, we have had reports that, with the pickup in demand in certain areas, there's been a very rapid increase in prices, but at the same time, it has not been affected in terms of the actual transactions prices. And so it's not at all clear to me--the impact of this so-called rolling readjustment on actual transaction prices. I think that it could well be that you begin to get, in some areas like capital goods, some price increases that we haven't seen yet because there hasn't been a good deal of strength. In other areas, it may well be that list prices don't change very much, so that the indexes as they measure prices perhaps are giving us a poor reading. It certainly can't hurt; it runs in the direction of lessening price pressures. I think this is particularly important in the housing area, which is the one place where we have heard reports of potential supply problems with wallboard, insulation, that sort of thing. So with a slowdown in housing for example, I think it [unintelligible] the price problem--",312
-fomc-corpus,1977,"But your overall industrial utilization figures are not so high until you get into next year, I think by the middle of '78. That's a pretty high number.",32
-fomc-corpus,1977,"They get in to the 85, 86 percent range.",13
-fomc-corpus,1977,"A lot of inventory accumulation, and then an 86 percent capacity utilization rate. But for the time being, you don't have that overall utilization pressure. And what Dave said occurred, you have to remember--the effect would be a higher unemployment rate. In other words, if there were slower real growth. And the question is, What would be a congressional response to the higher unemployment rate?",78
-fomc-corpus,1977,"Well, the irony of it would be, Chuck--and this was the thrust of my question--that you might suffer a higher unemployment rate and still gain no ground on the price front.",38
-fomc-corpus,1977,"You might, yes.",5
-fomc-corpus,1977,"You sound like a very discouraging lot. We seem to be looking for trouble. Speculating about possible sources of trouble. Why don't we look for possible sources of price stability, possible sources of encouraging, balanced economic growth? Mr. Kimbrel, perhaps you'll supply that function.",57
-fomc-corpus,1977,"Well, Mr. Chairman, indeed, in our area, we are hearing an awful lot of very happy news. Everything is relative, though, I guess. But I was concerned at our breakfast meeting last Friday and in some of our sessions very recently with businessmen that, for the first time, we've been observing purchases anticipating high prices or anticipating the possibilities of some slow deliveries. I wonder if you are observing this in other areas.",86
-fomc-corpus,1977,"Jerry, would you--Jerry has been watching this particular situation.",13
-fomc-corpus,1977,"There hasn't been too much; there have been some reports in that direction. We don't have very great quantitative information, but you have the reports of purchasing agents, which seem to be fairly concrete, and there has been some tendency in that direction, but nobody is complaining very greatly yet, as far as I can tell.",64
-fomc-corpus,1977,From deliverywise?,4
-fomc-corpus,1977,Deliverywise.,3
-fomc-corpus,1977,You would not assign a great dimension of current purchases against borrowing from the future.,16
-fomc-corpus,1977,On the part of consumers or on the part of businessmen?,12
-fomc-corpus,1977,"Well, businessmen.",4
-fomc-corpus,1977,"It's a little hard to evaluate since we have no real concrete information. But it would seem to me that, given the generally available capacity and no significant indications of shortages in the immediate future, I wouldn't think that there would be too much stockpiling except as you suggested, some possibility of anticipating further price increases.",63
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Volcker, please.",16
-fomc-corpus,1977,"I don't know whether I want to add a great note of cheer around the table, Mr. Chairman. I came in feeling somewhat the way Mr. Winn started us off with, maybe a little more reason for uneasiness about the pattern over time. I think our basic forecast is a little stronger in the short run and a little weaker as time passes. There seems to be something--I don't necessarily have a better projection to offer--but something inherently improbable about the inventories proceeding quite so smoothly as the staff has it here, with steady increases through the next four quarters. I would think that might come a little sooner in terms of big increases and take some of the strength out of the latter quarters. As I listen to this conversation, this kind of uneasiness gets reinforced, and I do have a feeling that maybe it's going too far. I don't necessarily anticipate quite as smooth an advance as has been presented by the staff this morning. I'm not sure--",193
-fomc-corpus,1977,"Let me just say a word about the staff. Chances are that members of the staff have thought of many of the uncertainties that have been mentioned around the table, but they don't know how to translate that into numbers over time, so they have a smooth--",51
-fomc-corpus,1977,"That's right, that always happens in forecasting, and I sympathize.",14
-fomc-corpus,1977,"If I may say--add another word--I have the feeling that this is true of much of mankind--it's certainly true of this Committee today--we do a constant amount of worrying. We don't have real problems to worry about, but we'll still worry, and we will create problems.",58
-fomc-corpus,1977,"I agree with all that, but I still have a little more worry. Not quite as much as the general tone that's emerged. Yes, I think for the first time, maybe, in this expansion you can begin pointing to some things that could develop in an unsustainable way over time. But maybe the most serious thing in the background is, I don't like the way prices, and particularly costs on the compensation side, are developing. They are not developing as smoothly or as optimistically as I thought some months ago. And I do share the comment that Mr. Kichline made in that respect just now, that my earlier optimism on that score is being somewhat eroded. I don't think it is a good thing, in a vague way, looking out [to] the expansion a year from now. But also, it has interesting implications for how you handle this in terms of policy. This is a main source of concern.",187
-fomc-corpus,1977,"Perhaps the only word that I can add to this discussion is that, we are having, I think, a very normal expansion. That's all that I see, with all the uncertainties--prices accelerating, and there will continue to be surprises--but I see nothing abnormal about the expansion so far. The one disturbing thing that I've heard was what Mr. Balles developed, the facts that he presented, and then Mr. Mayo, Mr. Roos, about farm real estate values. That's something that doesn't develop on a significant scale in every business cycle expansion. And when it does, yes, it will go for a while, but it carries the seeds of trouble, and therefore, we will have to watch that carefully. Who else would like to speak now on the state of the economy?",159
-fomc-corpus,1977,"May I ask, that first-quarter compensation increase had some--was more--and perhaps you were referring to that, Paul, about the faster compensation rates. But that had some special factors in it, didn't it?",43
-fomc-corpus,1977,"Well, the first quarter was certainly more, but if you just look at the projections beyond the first quarter, it is also more than it was last year, although not as much as the first quarter.",41
-fomc-corpus,1977,Are we seeing a speed-up in the size of contract settlements or nonunion wages? Are they accelerating? Is there anything detectible as yet in the figures on that?,34
-fomc-corpus,1977,"It's a mixed picture. I hate to use that phrase, but it is. You mentioned the contract settlements in the first quarter. They were not out of line with what we had been having through 1976. But there has been a distinct speed-up in average hourly earnings, and we think that this is a function in part of the composition of recent employment growth being oriented toward high-wage industries, which happens to jack the figures up. But also, there are hints that earnings may be rising a little more rapidly than we thought, and we have built in a slightly larger projection of compensation for 1977 this time than last. It's about 3/10 more.",136
-fomc-corpus,1977,"It discourages me about this a little bit more. One more comment on this point, purely a qualitative reaction. The more time passes, businesses seem to take it more and more for granted that you give a 9 to 10 percent [compensation] increase, and we don't even raise much question about it. It's the normal, expected way the economy works these days. It seems to be part of the mentality. I don't know how you get out of this syndrome.",96
-fomc-corpus,1977,"Just a question, Jerry. What does the staff think about the proposal to increase Social Security withholding applied solely to the employer?",25
-fomc-corpus,1977,"It's going to be expensive. Obviously that goes directly into labor costs. The proposals, which carry through over a number of years and eventually involve no ceiling on employer contributions, run into a fair amount of money. We have some rough estimates of the amount. Most of that is far off, several years from now. The adjustments that we've already had are fairly significant; let's see--",76
-fomc-corpus,1977,It must be at least 1 percent of payroll.,11
-fomc-corpus,1977,"It runs above 1 percent of payroll, Governor. I think, if I remember correctly, the adjustments run 1, 1-1/2, and 2 percent of payroll over three succeeding years.",43
-fomc-corpus,1977,"Well, I hate to join the questioners and doubters, but I have to at this point. Not so long ago the Administration made a proposal to its Congress, namely that business firms be granted a tax credit in the amount of 4 percent of their payments on account of the Social Security tax, and this measure was described as an employment stimulating measure. This was a minuscule reduction of taxes for business firms, and that minuscule reduction was designed to increase employment. And now we have a massive increase in taxes on employers proposed by the Administration, and not a word is said about the effect that that may have on employment.",129
-fomc-corpus,1977,"Oh, no, no, on the contrary. The Secretary was asked about that, and he said that it would have no effects on employment. And then he was asked about the effects on prices, and he said it would have no effects on prices. And the reason is the business would absorb costs.",61
-fomc-corpus,1977,That hardly improves the thinking process that is going on in this area.,14
-fomc-corpus,1977,"Mr. Chairman, we have an explicit estimate of the Administration proposal. Governor Gardner, [for] the first quarter of 1979, which is when it will become effective, our estimate is that it will add 1-1/2 percentage points annual rate to total compensation, 2 percentage points in the first quarter of 1980, and 2-1/2 percentage points in the first quarter of 1981.",88
-fomc-corpus,1977,"You know, if I were a businessman today, I think I would be bewildered. Here you have something called an energy policy, and this energy policy contains the most massive tax bill ever presented to Congress. With taxes running up, money being taken out of one set of pocketbooks in the amount of perhaps $70 billion per year by 1985, and the money going elsewhere--it isn't at all clear into which pocketbooks that money would go. And also the Social Security tax and the rebate one day and down the next day. I think I'd be a little confused, and as a businessman, I think what I want--and Dave, I'm looking at you to refute or confirm what I'm saying--I think I could live with a tax gain within broad limits, aggressive, encouraging, mild--but I need stability. I'm not getting much stability in the area or I'm thinking about the tax area and I think I would find that very disturbing if I were a practicing businessman. Am I making sense?",204
-fomc-corpus,1977,"Well, if you will remember when you were talking about a speech you were giving on this subject, I suggested you say that, until we have an energy policy, there's more uncertainty than ever. And the minute that all of the proposals have gone to Congress, we have had some kind of a policy--I guess you'd call it a no-policy policy--on energy. Now we have a series of proposals for a policy which is adding even more to the confusion, and until the Congress works through the package, the uncertainty is going to be higher, and that's why I thought it was appropriate that you suggest to the Congress that they hustle the thing along. There is a great deal of uncertainty right now. However, people are also feeling very good. I'm a little surprised to find this group feeling as somewhat depressed as it is. All of the directors meetings that I've been to around the country have been uniformly bullish. I went down to the Business Council meeting last Friday, and other than this squabble with [special adviser to the President on energy, James] Schlesinger, they were very bullish. I'm concerned that there may be too much bullishness in the air, and I'm concerned about some lag effects in what's happening in the interest rate structure.",251
-fomc-corpus,1977,"All right, thank you. Mr. Guffey, you will now speak.",17
-fomc-corpus,1977,"I can only observe--the philosophy of these meetings seems to be, if things are going well at the present, the meeting gets longer because of the [unintelligible]. And I would suggest, as Chuck has mentioned earlier, we have had rain in the Midwest--spring has arrived, the sap is rising. There is an increased demand in the recreational areas of Wyoming and in Colorado for condominiums, which is something we have not seen over the last two or three years. And another sort of interesting thing that's heard--the announcement of the energy package or proposed legislation has apparently not deterred those looking for gas and oil drilling operations, because the loan demand at the banks has continued to increase, even in view of the supposed uncertainty. Now, whether or not this was something that was in the pipeline before and is just now being taken down, or whether these people are just overlooking the uncertainties that hinge on the policy is not clear. But it is going forward; the drilling is accelerating in our part of the country really nicely. Things look good in the western part of the Midwest.",220
-fomc-corpus,1977,"Gentlemen, I think this is a very good time to stop our discussion on the state of the economy. Mr. Sternlight, would you like to report on operations of the Desk?",39
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,We'll continue our deliberations and go along with Mr. Axilrod's statement. Mr. Axilrod.,23
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Axilrod. We are ready now to discuss the reports by Mr. Sternlight and by Mr. Axilrod. Mr. Coldwell?",35
-fomc-corpus,1977,"Mr. Axilrod, in forecasting the aggregates over the remainder of May and early June, my recollection is that you are looking at about 4 to 5 for May and 1 to 2 for June. Does your cutback reflect the idea that April is now explained at least partly in a seasonal, or is this a stock and flow concept--there's enough in the hands of the consumer to do what he wants to do over the next month?",94
-fomc-corpus,1977,"It's the latter, principally, Governor Coldwell. There's enough in the hands of the consumer now, or in the public, generally financed in the second quarter transactions. Our second quarter growth rate, as I mentioned, is still a relatively high 9-1/4 percent. So we have not assumed that, say, a half or even two-thirds of that April growth was money that was going to be offset by negative numbers. We believe, or I believe in any event, a large part of that reflected the strengthening of the economy and will be reflected in the higher growth rate in the second quarter, and increased velocity.",126
-fomc-corpus,1977,"Well, I may be missing something in the rationale here, but see if you can help me. If this is a position in which sufficient [funds have] been created now to handle the second quarter's expenditures, and we still get further enlargement of the recovery and growth in the economy, presumably creating additional funds--yet I believe I heard you say that you are going to have a further slowing of the time and savings deposits. Now what am I missing, if the time [and savings deposits are] going slower and the demand [for them] is going slower.",115
-fomc-corpus,1977,"We're not expecting--I was trying to explain the behavior of time and savings deposits recently. In April, there were both special factors as well as, I believe, shifts to demand deposits for spending purposes as well as direct use [of the original demand deposits] for spending purposes. We're actually projecting some pickup in the rate of growth of time and savings deposits, but not at a rate as fast as occurred in the first quarter. A slower rate of growth, but a pickup from the pace of April-May.",102
-fomc-corpus,1977,"[Does] your forecast for these various alternatives range no higher than 8 percent for M2 and go as low as 2-3/4 per cent, depending on the alternative selected?",39
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,"Now, that to me sounds like you're still slowing this time and savings [deposit] package.",19
-fomc-corpus,1977,"Well, we're getting a very low growth rate in May because of the pattern. We had a jump up in the beginning of April, it's been very stable through the first week in May, and then we're beginning to pick up the rate of growth in May. But that gives us a very low growth rate in May as compared with April, and then you get a rather more normal growth rate appearing in June. And so when you average the two months together, you do come out with a low growth rate for June, as a rather more normal growth rate for the time and savings deposits on the order of around 10 percent, whereas May is an abnormally low growth rate, on the order of around 5. We are projecting a pickup.",150
-fomc-corpus,1977,"I won't take any more of the Committee's time Mr. Chairman. I don't quite understand the figures with what I've heard when you look at the forecast of the June rate on M2 at 6 percent. But on the second sheet, page 6, on the alternatives [unintelligible].",61
-fomc-corpus,1977,"Well, you see, that goes with a 1 percent M1, and so your time deposits would be on the order of 10 percent for another month.",33
-fomc-corpus,1977,"All right. Mr. Partee next, please.",11
-fomc-corpus,1977,"I had two questions. First, Mr. Sternlight, as you stated in your review, the adjustment in the market [to] the changes in observed Federal Reserve policy was remarkably, extraordinarily smooth. Would you say, Peter, that it's completed? That is, would you say, since it was so smooth, is it still partial? Or, say that the federal funds rate stayed in the 5.25 to 5.30 range, where it's been trading--do you think the market adjustment was not--",104
-fomc-corpus,1977,I think the adjustment to that 5.25 to 5.30 or--,17
-fomc-corpus,1977,--or 5.35--,7
-fomc-corpus,1977,"--area, or something like, has been completed.",11
-fomc-corpus,1977,And that involved an increase in bills from about 4.40 to about 5 percent?,19
-fomc-corpus,1977,"Thereabout, 4.50 to 5 percent.",12
-fomc-corpus,1977,"--4.50 to 5 percent. Which brings me to my question to Mr. Axilrod. Now this last 50 basis points in bills was really not a segment of the [interest] rate range competitive with thrift institutions and time and savings deposits. If you have another--and I guess this is sort of like Phil's question--if you had another 50 basis point increase, it would be a much more sensitive increase wouldn't it, from the standpoint of limiting growth in time and savings deposit forms? I think you made that comment in the Bluebook, but you didn't dwell on it in here, in your oral comment.",129
-fomc-corpus,1977,"Well, that's essentially why, under alternative C, which assumes another 50 basis point increase in the funds rate and approximately that in the bill rate, that we have a somewhat more substantial slowing in M2 than we would ordinarily have in comparing two alternatives. And our thought was that you would force out a considerable amount of the hot money, in effect, that had been put in savings deposits as the rate gets significantly above the ceiling rates of 5 and 5-1/4 percent. And a large part of that money would flow into Treasury securities. Some of it might flow into large nonnegotiable CDs that would have no effect on M2, but some of it would also fall into Treasury securities, so we would expect a more substantial one-time reaction in time deposits.",158
-fomc-corpus,1977,"And that could be even more so, I suppose, Steve, because we have a larger proportion in time and savings deposit form now that are really sizable sums. I happen to divide our categories in savings and time deposits between the consumer type and business or institutional type, and the consumer type has held up very well through April. The cumulative increase in consumer-type savings and small certificates is at a 10.6 percent annual rate through April. Whereas the other, the residual, that includes large nonnegotiable CDs and things like that, has dropped off from a 20-25 percent rate earlier to a cumulative of only 9 by April.",130
-fomc-corpus,1977,"I might add, Governor Partee, if we are right and you don't get an offset in some other components of time deposits, this effect I think would be temporary, and you would return later to a higher growth rate even at the higher level of interest rates because you would have just removed--",59
-fomc-corpus,1977,You have a stock adjustment.,6
-fomc-corpus,1977,"--you would have removed a stock of hot money; that's what we are assuming. So therefore, that's why we suggested a 3/4 point drop in the alternative C range for M2 relative to alternative B, to accommodate that stock adjustment without having to make a policy move.",57
-fomc-corpus,1977,And what that's associated with is another increase in the complex of market rates of about 50 basis points.,21
-fomc-corpus,1977,"In effect, to moving the Treasury bill rates, obviously, well above the passbook ceiling rate. On an investment yield basis, it's above the commercial bank ceiling rate right now, of course.",39
-fomc-corpus,1977,Thank you.,3
-fomc-corpus,1977,"All right. Mr. Black, please.",9
-fomc-corpus,1977,"I'd like to ask Mr. Sternlight--Peter, a couple of things impress me about the behavior of the financial markets since our last meeting. One is that most rates, and long rates, of course, in practice have moved up less than the federal funds rate. The other is, you've had some little strength in the stock market in the face of an increase in the prime rate. And I'm wondering here, and this is a very hard question to answer, do you read into this any feeling on the part of the market that inflationary expectations have diminished at least temporarily, [any] feeling of relief that we have provided evidence that we are moving to stem inflation?",135
-fomc-corpus,1977,"I think that some market participants would take some comfort in observing that the System has moved to counteract that burst of growth in the aggregates. I don't know if I'd want to go further than that, as to saying that inflationary expectations are significantly diminished, because the markets were also getting evidence through this period of continuing price increases.",66
-fomc-corpus,1977,"All right. Mr. Eastburn now, please.",11
-fomc-corpus,1977,"Steve, you mentioned that you've revised your interest rate forecast upward. One of the things that we have been doing regularly once a month is to look at the interest rate patterns to see what this tells us about expectations and forecasts for interest rates on the part of the market. And, with the exception of one month, the market pattern has consistently forecast lower interest rates than the Bluebook has expected. Do you have any feeling about what that means? The only thing that occurred to us was that the market may believe that we're going to be more liberal with the aggregates than in fact we think we are going to be.",123
-fomc-corpus,1977,"Or the market may have a weaker economic forecast, more obviously. We do check our forecasts against what's in the futures market, and what's implicit in the yield structure--both. And at the time we were making the forecast, the three-month bill rate in the futures market, by the first quarter of '78, was being forecast at 6-3/4 percent; by the second quarter, around 7. And implicit in the yield structure, it was being forecast around 6-1/4 percent. So you are about 1/2 to 1 point, roughly, below what we would expect a three-month bill rate to be at that time. But I have no way of knowing whether it's a weaker economic forecast, or a higher money growth forecast, or just sheer hunch. I just literally couldn't quantify that.",169
-fomc-corpus,1977,Have you ever gone back to check the accuracy of these two methods of--,15
-fomc-corpus,1977,"No, I haven't, but I'd say it was a good thing to do. I think we will.",21
-fomc-corpus,1977,"All right. Mr. Jackson now, please.",10
-fomc-corpus,1977,"Steve, in view of your flow of funds projections and the general scenario painted in the Bluebook, what do you see the yield curve doing during this next six to nine months? Is it going to get significantly flatter, or are long-term rates going to react upward, where you continue to have a significant disparate view between short and long term? Or what's the general scenario you are expecting to pull out of all of this?",85
-fomc-corpus,1977,"I believe that if short rates go up over the next several months, roughly the order of magnitude that we projected or a little less or a little more, that you'll have not very large effects on long-term rates on average. Any time that the short rate begins to move up, we'll have an expectational effect, or just an adjustment effect, then it might ease off a little. So I think the yield curve will follow something like the normal cyclical pattern, that it will tend to flatten. And of course, in saying that, I'm making an assumption that any tightening that develops will be of a kind that restrains inflation and not merely an increase in rates that is reflecting an inflation that is, as it were, pulling the rates up. If you're in that situation, then I think that long-term rates would move up rather sharply.",169
-fomc-corpus,1977,Does that tie in with the flow of funds projections that we've got?,14
-fomc-corpus,1977,"Yes, they're consistent. We have a fairly easy corporate bond market. We've got a lot of institutional money around, and some drop-off in corporate bond market borrowing. Our explicit forecast of a corporate bond rate is, by the end of this year, to the 8-1/2 percent area, which is only up about 1/4 point, so you do have a substantial flattening in the yield curve as you go through the year.",91
-fomc-corpus,1977,"I would like to point out, Governor Jackson, because I think it's a very critical point, that if you think back to '74, while the yield curve flattened, there was a sharp tightening in the money market partly because of how sharp the rate of inflation became, and so you did get a very sharp rise in long-term rates at the same time. And I'm assuming that the restraint on the aggregates, if that develops, would be sufficient to keep the rate of inflation from accelerating significantly.",99
-fomc-corpus,1977,"All right. Mr. Balles next, please.",11
-fomc-corpus,1977,"Just a comment on the Board staff forecast, Steve, of M1 and M2. My staff's been keeping book on the accuracy of these things and found out something rather interesting, I think. In the first place, we always filter out the noise in the week-to-week series, as you know, by using these 13-week moving averages, and we incorporate your forecast numbers into our moving average. But for the first quarter of this year, it was quite significant, we thought, that the accuracy of the M2 forecast that you have was considerably better than that for M1. Specifically, for the first quarter, the average error in the forecast of [the] M1 average is at about 1/4 percent [relative] to the actual level of the aggregates, but for M2, only 7/100 percent. Now, so far, we haven't gone back earlier than the first quarter of this year; perhaps you have. I wonder if you would comment on any impressions you might have on the accuracy of these forecast numbers which, at least at the moment, seem to indicate that a better job is doable on M2 and not M1.",236
-fomc-corpus,1977,"No, I don't have any good feeling of the last year. And I think that we will go back and assess both our interest rate forecast in line with President Eastburn's suggestion and our M1 and M2 forecast. As you know, we reassess these things periodically and have normally found that there is somewhat less error in the M2 forecast because you do have some offsetting shifts between demand and time deposits that help you, and it's a larger number, in a sense. If our error is, as you have noted, 1/4 percent on M1, it's got to be the lowest in history.",125
-fomc-corpus,1977,That's on a moving average.,6
-fomc-corpus,1977,That's why we would have--,6
-fomc-corpus,1977,And it didn't include April.,6
-fomc-corpus,1977,"Any other question or comment? Well, if not we still need to act on the activities carried out at the Domestic Desk. Is there a motion to approve the transactions of the Desk.",37
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,"The motion has been made and, I take it, approved. We're ready now to turn to monetary policy and our domestic policy directive. I think in some ways our task today is an easy one, and in other ways it's somewhat puzzling. I think our decision last month was certainly in the right direction, and I think it's been carried out well at the Desk. And we're in a stronger position than we were a month ago. But when I look at the several alternatives for M1 on page 5 of the Bluebook, I'm a little puzzled. Take for example, the figures under alternative B. Well, now, suppose that the rate of growth for the May-June interval of M1 was as low as 1 percent. Then, to be consistent with that, as indicated in this tabular construction, the federal funds rate would need to be 4-3/4 percent. I think it would be a great mistake to move down from the present level--which is, I think, a little closer to 5-3/8 than it is to 5-1/4--back to 4-3/4, if we had 1 percent [growth of M1]. I'd say the same if we had a figure of zero. I'd say the same if we had a figure of minus 1 or minus 2. At some point, I would stop saying this, but you see what I'm getting at. We ought to be willing to tolerate an extremely low rate of growth over this two-month interval without having the federal funds rate decline at all appreciably. Now, that leads me to feel that the lower limit of the federal funds rate ought to be 5 percent, or preferably 5-1/4 percent. And that we might have a narrow range for the federal funds rate, say 5-1/4 to 5-3/4 percent--the Desk staying at the present level, and then moving to one direction or another within that narrow range, depending on how the rate of growth of the monetary aggregates develops. Now as for the rate of growth of the monetary aggregates, I think I would prefer the figures under alternative C more than the figures under alternative B. Actually, the figures that I would suggest that the Committee consider are as follows: zero to 4 percent for M1, 3 to 7 percent for M2, and perhaps 5-1/4 to 5-3/4 percent for the federal funds rate. There may well be inconsistencies that we would need to consider, either through a special telegram from the Chairman or through a telephone conference. Well, let's hear from members of the Committee. Mr. Coldwell, please.",551
-fomc-corpus,1977,"Mr. Chairman, you started taking my speech away. I was going to suggest a 5 to 5-3/4 with a 5-1/4 to 5-3/8 midpoint, and 5-3/8 happens to be the midpoint of 5 to 5-3/4. And I was with you until you started talking about the aggregates. At that point, I dropped off the list because I'm a little bit hesitant about some of the forecast on this. I'd take the M1 forecast of 1 to 5. I'd prefer M2 of 4 to 8 because I suspect that we are going to get some reactions in this picture ahead. I, too, am not willing to give up what we've already had, but I don't believe I want to say that if the thing comes in at below zero, I'd be unwilling to lower the funds rate target. We need to be flexible on both sides. We reacted to a very high April. You get a very low June, then I think we ought to have some reaction to that. But that kind of a construct sounds perhaps equally unbalanced to yours, where you took the alternative C and I took in effect, alternative A, to some extent, although I didn't go that far.",260
-fomc-corpus,1977,"For purposes of clarification, I made some introductory comments first and then suggested some numerical specifications. Taking my numerical specifications, you see--zero to 4 for M1, for example--if a negative figure for M1 developed, and assuming that there was no counterindication arising from M2, then an inconsistency would emerge that would call for special action by the Committee. All right, let's hear from Mr. Willes first now, please.",91
-fomc-corpus,1977,"Thank you, Mr. Chairman. Last month--which, of course, was my first meeting--the Committee was very cautious in approaching policy. And I suspect that was, as you indicated, very prudent in light of the uncertainties that the Committee faced. But I, for one at least, feel much less cautious today than I was inclined to feel last month. Most of the uncertainty relating to the energy program seems to be uncertainty as to what would get passed rather than how much of an impact it would really have on business spending. None of the businessmen in our District really are changing their plans or have any inclination to change their plans. The underlying economy is strong and seems to be getting stronger each time we look at the numbers, which raises again the threat of increased inflation. The international situation would seem to call for a very careful management of the expansion in the economy. And I was interested in Paul Volcker's comment about how do you change people's willingness to grant large wage increases, and there has been a feeling that there's nothing you can do about that. But I guess I'm not persuaded. In Philadelphia, they've just had a very serious transit strike. A statement made by city government at one point was, we're just not going to give you any more money. They went out on strike for a long time and finally settled for no more money. And then the next group that came in to settle after that, settled at precisely the same rate.",291
-fomc-corpus,1977,"Well, that must have been [a matter] of financial stringency--we don't have more money to give you. Now, to the extent that business firms are in the same position, they can hold out also against large wage demands, but you need a little adversity to produce that result.",59
-fomc-corpus,1977,"I think that's exactly right. And that's my point. I think if businessmen think that every time there is a little adversity, whether it's an increase in the Social Security tax or something else, and we are going to bail them out with monetary policy, they've got no inclination to stand up. But I get the impression from many that I've talked with that they think we are serious about combating inflation, and they think that's very good. They're looking for that kind of support and strength in the actions that they are taking. Well, given that, I would have a preference for taking a fairly significant step toward moderation in the rates of growth in the aggregates. And even though I'm currently trying to negotiate for a mortgage, and this is probably not in my self-interest, I would not be at all averse to seeing interest rates increase. I think the numbers that you have come up with in terms of the aggregates are certainly fine. It would not disturb me if we had negative growth in M1. I guess the only concern I would have is whether--well, I don't really understand, I guess, the way the Desk works. The range 5-1/4 to 5-3/4, I wouldn't be at all concerned to see it go up to 5-3/4, but I get the impression that you only use the upper portion of that range if the aggregates are growing more rapidly than these numbers would suggest and so on.",292
-fomc-corpus,1977,"No, if--let's take, just for purposes of illustration, a range of growth of M1 of zero to 4. And let's ignore the fact, for purposes of this illustration, that the Desk gives equal weight to M1 and M2. Then, as 4 was approached, the Desk would be moving the federal funds rate toward the upper limit of 5-3/4.",81
-fomc-corpus,1977,"I see, okay.",5
-fomc-corpus,1977,Or vice versa if it's toward zero.,8
-fomc-corpus,1977,"All right, that's a little different than my understanding, and that helps. I guess, if anything, I'd be inclined to go 5-1/4 to 6 just so the Desk did feel willing to move fairly aggressively on [the] interest rate. The only other comment I would make is that, in addition to these steps in terms of open market policy, I would think that, fairly quickly, we might want to consider an increase in the discount rate, and I know our own board of directors is becoming increasing inclined to move in that direction.",113
-fomc-corpus,1977,"All right, Mr. Willes. Mr. Eastburn now, please.",16
-fomc-corpus,1977,"Well, I would agree essentially with the staff's projections on the economy, with the possibility that we will be seeing a slowdown in the latter part of this year. And as I indicated earlier, that might not be too undesirable. So I approach this session with two main points of view. One is that we should be seeing adjustment toward our longer-range targets for the aggregates, and that requires a small increase for this two-month period. Second, that unless unusual developments occur, the funds rate should not decline. So I like your specifications, Mr. Chairman. I think that I would be reluctant to see a significant negative figure for the two-month period because, if May comes in at 5 percent, as now forecast, that would imply a significant decline for June. And I'm not sure that I'd like to see a very large decline--",168
-fomc-corpus,1977,"Well, you say it would imply a significant decline for June. If May, I think our staff in that event would be revising the figure for June. Isn't that correct?",36
-fomc-corpus,1977,"Yes, if May were coming in weaker, we would of course, begin writing down June right around that time, so that both months could in effect be quite weak. Something like that. There could be a large negative in May, even a small plus for June; you can't tell quite how the pattern would come.",64
-fomc-corpus,1977,"Well, all I'm saying, unless I don't understand what you're saying, you have a zero or a significant negative figure for the two-month period--I think [that] is a little risky, and this leads me a little bit to alternative B.",50
-fomc-corpus,1977,"I expressed a personal attitude, and that personal attitude was not translated into a numerical specification that I suggested to the Committee.",24
-fomc-corpus,1977,"So I think the important thing is to have the funds rate reasonably stable and be prepared to move it up, if necessary.",25
-fomc-corpus,1977,"All right, thank you, Mr. Eastburn. Mr. Partee now, please.",19
-fomc-corpus,1977,"Well, two things restrain me from moving with anything like as much alacrity toward monetary tightness as Mark Willes suggests. The first is that in addition to an inflation objective, we also have the objective of maintaining reasonable growth in the economy, and the growth rates that are being projected by the staff are not unreasonably high. This quarter, and I agree that it will be a high quarter, is perhaps a little on the high side. But after that, even with every considerable strength, as I mentioned before, in each line of the projection, why we're talking about a growth rate of around 6 percent or perhaps a shade below, which we need unless we are to accept this unemployment rate as a permanent thing. And I think it's too high, of course, to accept as a permanent thing. So I would argue that the economic situation, which calls for some trade-off between inflation and growth in the objectives, ought to restrain [us] from being too restrictive, Mark, until you clearly see a period of excessive growth developing. The second thing, though, that restrains me a little bit is we have done this twice before. We did it in the spring of '75, and in fact the aggregates then came in quite weakly, and we eased off. And we did it a year ago.",269
-fomc-corpus,1977,What harm did we do?,6
-fomc-corpus,1977,"And the aggregates eased off. But I would rather not go a long way in that direction until I felt fairly certain this time that the trend was really with us. And I think it probably is, but then I thought it probably was a year ago, and so I don't know that I'm much of a forecaster.",64
-fomc-corpus,1977,"Do you think we did much harm, significant harm, in '75 or '76? You know, we reversed rather quickly.",26
-fomc-corpus,1977,"No, I don't think we did, because we did reverse, but I think it's something I would prefer not to do if I didn't--",28
-fomc-corpus,1977,"Oh, in other words, you prefer not to make a mistake.",14
-fomc-corpus,1977,"But in any event, you know, we only have one high month--now, it's an awfully high month.",24
-fomc-corpus,1977,Sure is.,3
-fomc-corpus,1977,"But on the other hand, there could well be a negative, which isn't really projected in the May-June period, because if one is to use that as a sort of a stock adjustment in money supply, it may have been overdone. And it may not turn downward. So I think we ought to be a little cautious for another month or two about going gung-ho toward increased tightness. The Chairman's suggestion of zero to 4 for the M1 range I think is appropriate. According to my figures, if the midpoints of the staff's alternative B projection were realized, the December-to-June increase in the narrow money supply would be 6-1/2, which is right at the very top of our range. And cutting that just a little bit would make me a bit more comfortable, so I think zero to 4, which I think may well be where we'll be in May and June, is reasonable. On M2, I think I would go Governor Coldwell's way and say, well, M2 hasn't been all that strong, and therefore we can afford to accept without real concern, say, a 4 to 8, which would mean that the December-to-June growth would be at the midpoint of our range or even a little below, if we fell in that range. So that in case there is a snapback in time deposits, and I think it's possible, I wouldn't want to see us tighten if it were in that modest range of 4 to 8 percent. And on the funds rate, I would, as I suggested earlier, argue that the next half [percentage point] is more important than the last half percent[age point] movement in the rate, and so I think we ought to be fairly cautious. But a 5 to 5-3/4 strikes me as being a good range, with a 1/4 to a 3/8 midpoint range, which, as I understand it, is about where we are--we're probably a little above a quarter, so we're probably not quite at 3/8. And so a 1/4 to 3/8 is about a characterization of current condition. But unless we continue to get unusual growth in the aggregates, which we may, I don't feel I'd want to make a really major move in our posture, and so it's only in that case, which would call for a special wire, that I would want to see [us] go above 5-3/4 in this next--I guess it's a five-week interval before the next meeting, is that right? It is a five-week interval, so we have a little longer time to make. But it may call for a wire, but I would want to stop and consider before we went above 5-3/4.",575
-fomc-corpus,1977,"Well, I would certainly join you in considering pretty carefully. Mr. Jackson, please, now.",20
-fomc-corpus,1977,"I would share a lot of the judgments that have been expressed about the concern for an unusual rate of growth, but I also am concerned about the uncertainty of the reaction that might flow from that. I wouldn't want to hesitate to restrain that rate of growth if it's quite clear that, in the period ahead, this growth has some underlying fundamentals to it. But at the same time, I think it would be a mistake to try to react to it too severely when it could be seasonals and everything else that would distort the course of policy. I would prefer that we do so with a slightly different technique. Of course, the one alternative would be to use the money market approach, but I think that's a mistake under the circumstances, with the underlying economic conditions developing the way they are. I think perhaps a better way, in my judgment, would be to intentionally broaden the ranges. More specifically, zero to 5 [for M1], 3 to 8 [for M2], which would give us the flexibility of recognizing that we may have some reaction within a range. But at the same time, it would give us the capacity--without having to have any special meeting or anything of that sort if the aggregates were clearly way below any expectation or the strength continued--to react and go ahead and move to it with a 5 to 5-3/4 percent federal funds range and the same midpoints of 5-1/4 to 5-3/8 we talked about. But it strikes me that this may be an easier operating method of approaching the same goal that's been expressed by all of us.",328
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Black now, please.",14
-fomc-corpus,1977,"Our work with the aggregates tends to pretty well confirm the staff's guess as to where these would come out for the second quarter, around 9 percent on M1, which is well above our long-run target rates. But at the same time, as Governor Partee has pointed out, we ought to be careful to note that, historically, the second quarter in the last couple of years has been rather strong, and the third quarter has been somewhat weak. And I think we ought to take that into consideration in reaching our decision today. And I think it's also worth noting that, while M1 has accelerated pretty sharply in the current quarter, M2 is moving less rapidly and may move even less rapidly than that in the future. And in view of all of this and our having moved the fed funds rate up by over 50 [basis points] fairly quickly , I would be inclined to stay about where we are at present. And I would buy your specifications, Mr. Chairman, and the monetary aggregates directive. But I think we ought to be quite prepared to use the latitude in the federal funds range if the aggregates in fact do tend to come in higher than we are estimating. I think the economy is quite strong. I would not be surprised to see more strength than some of my colleagues think will be there.",265
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Morris now, please.",14
-fomc-corpus,1977,"Mr. Chairman, could I clarify your proposal? Do I understand you properly that you keep the funds rate at around 5-1/4 and only move it up if we were hitting the higher part of the ranges?",45
-fomc-corpus,1977,"No, I would use the federal funds rate range in the normal fashion, and the federal funds rate now is closer to 5-3/8 than it is to 5-1/4--that's my understanding. And I would leave it where it is for a week or so, and then depending on how our estimates of the monetary aggregates come in, move within the indicated range. But the [center point of the] indicated range that I suggested is asymmetrical.",96
-fomc-corpus,1977,"Well, I think that my feeling, Mr. Chairman, is that we ought to make a bigger move right now. I think the economy is very strong. I think the lull that Mr. Partee and Mr. Eastburn speak of is certainly a possibility, but I don't see in the indicators any evidence that it's probable. We are faced with this April bulge in the money supply, which means that even if the staff's projections are correct for May and June, that we are going to come out with a very high M1 number. And in order to meet the midpoint of our longer-term ranges, this would mean M1 growth at 4 percent and M2 at 6.8 for the subsequent three quarters, and that, gentlemen, if our forecast is correct, is going to be very difficult to do. It seems to me that we need to take out some insurance today against the May and June aggregates coming in higher. And therefore, I would propose a funds range of 5 to 6 percent, with the Manager instructed to move to 5-1/2 next week. Now, unlike Mr. Partee, I don't view the spring of 1975 experience as a mistake. It seems to me that that's sort of the model that we ought to be thinking of in this kind of context. Because it seems to me that the move we made for the spring of 1975--because it was reversed rapidly as the evidence came in showing that we didn't have a permanent increase in the demand for money--we didn't harm the economy. But if we had been right, and there was a big increase in the demand for money, we would have been in a much better posture to meet it, and--",350
-fomc-corpus,1977,I would go even further to say that the fact that we moved that early in 1975 gave reassurance to the business and financial community.,28
-fomc-corpus,1977,"Well, it seems to me that, again, it is a matter of taking out insurance [in case the] second quarter bulge turns out to be bigger than we are now projecting. But I think we ought to make another move, and I'm just talking about a modest initial move next week, to 5-1/2 [and] give the Manager authority to move as high as 6 if the numbers come in on the high side. It is not often, Mr. Chairman, [that] I'm on your right.",108
-fomc-corpus,1977,"Thank you, Mr. Morris. Mr. Balles now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I find a great deal of merit in your proposal, both for the reasons that you cited in your comments and because of the considerations in the longer term, as you set forth in your recent testimony on monetary policy. But looking upon other things, the fact [is] that, if anything, we have probably been a little too stimulative in the past. As you all know, we've had some quite significant increases in the aggregates in 1976. M1 over 6 percent, and M2 almost an 11 percent annual rate, and I can't believe the full effect of that has yet pulled through the economy. Aside from the real estate speculation in California and possibly elsewhere, I was not one of the worriers today about the general economy. I consider it to be quite strong for the balance of the year. And I think my principal concern is that the longevity of this expansion may in fact be threatened by the strong inflationary tones we saw in the first quarter of this year, only a part of which I think is temporary. I find it interesting to look back to, say, the January Greenbook and see the increases in the staff's forecasts for real GNP and inflation that have occurred since that time despite the withdrawal of the fiscal stimulus by the Administration. And, if I can get in a plug for some recent research work we've been doing, I think this upward revision might have been anticipated if we had paid more attention to what's been going on in M2. That is to say, this recent paper I have circulated to all of you suggests that M2 is presently, and has been since early 1975, a better predictor of income growth and of future price developments than has M1. And we don't see any signs of M2 growth slowing significantly. The first half of 1977 looks to us like it's going to increase at about a 10-1/2 percent annual rate. As far as the M1 figure is concerned, I think we need to keep reminding ourselves of the work that Messrs. Axilrod and Paulus have done in their memorandum of last November suggesting, in effect, that M1 growth was really understated by all these financial market innovations by about 2 percent and perhaps another 1-1/4 percent this year. It suggested that the true growth of M1, if it had not been subject to these changes, would have been more like a 7-1/2 percent [rate]. In short, I'm of the opinion that we have been overly generous. I concur with you on that point in our past policy. So that net-net, I believe it would be a mistake to let the federal funds decline right now, and if anything, [we] can move it up in a cautious manner rather than let it go down, with a view to keeping the aggregates under control, keeping them within our ranges, and giving allowance to the fact that there are long lags, as you know, between the aggregates and the effect on prices. And I think there was quite a bit of stimulus in 1976 and so far in 1977.",633
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Winn now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I'd like to associate myself with the description provided by Chuck in what we should be doing. The demand for credit, particularly for the large commercial and industrial borrower, is the thing that gives me pause at the moment. I guess if we hadn't had our blip in the money supply, we'd have been closer to a cut in the prime than the increase that occurred. And the uncertainty with respect to future demand gives me pause about the outlook. And in terms of the way we've had to revise our numbers, looking back, the blip may not be quite the blip that we think it is. Yet, at the moment, I would tend to say, steady as you go. If the numbers come in again adversely, I'd be prepared to move upward, but until we have a little more confidence, I'd be inclined to hold as Chuck suggested.",174
-fomc-corpus,1977,"Thank you, Mr. Winn. Mr. Kimbrel now, please.",16
-fomc-corpus,1977,"Mr. Chairman, it isn't often that our view in the deep South coincides so much with New England, but this morning I'm very close to Mr. Morris. We've done a little more than our usual checking on attitudes and relationships with businessmen in the last couple of weeks. And we find them ebullient. We find the expectation [for] the economy strong and likely to continue, including the New Orleans area for investment and retail trade. Our Florida friends are almost completely overlooking the weather-induced difficulty [with the] citrus [crop]--[they] almost think that it was an act of providence [because of] our overproduction.",130
-fomc-corpus,1977,It keeps the price up.,6
-fomc-corpus,1977,"Right, right. The vegetable people have already come along with a crop to regain [unintelligible]. Flowers and houseplant people are full speed ahead, so they are very happy. Tourist [offices] admitted that the studies they are making with relation to gasoline are not very scientific, but they are [saying] that [it] would take a dollar a gallon to very much [reduce] tourist activity in Florida. Well, moving [from] that to the possibility that the minimum wage is going to be raised, I have come [to] the very strong feeling that business leaders are confidently expecting that the system is going to lean against inflationary pressures that are building. Frankly, I think we should, and I concur on that view and that we should continue to do so gradually. If I had any difference of view with the numbers you've specified, I would take 5-1/4 to 6 percent on the federal funds rate and use it. We've stuck for some months and then gradually moved since our last meeting, so I think the market really is about ready to accept this restraint. I'd accept the other numbers you've assigned under an aggregates objective.",237
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Wallich now, please.",17
-fomc-corpus,1977,"I am one of those who worried about the economy, but more because I didn't understand what was going on than because I had a negative forecast. Now I am impressed by the very peculiar behavior of the aggregates. I think this may be a time where one might contemplate a money market directive. I think that no matter what happens to the aggregates in the immediate future, the second quarter and even the first half will look like a period of very high monetary expansion, and I would like to hold that down while at the same time not relying too much [on] what one can guess [about] which way the aggregates are going to move from here. So I would go with Philip Jackson and widen the aggregates range. My preference there would be to allow even a negative number in M1, negative 1 to 4; and on M2, 2 to 7. Now the funds rate--I am impressed by the fact that, according not only to our own forecast but even to Otto Eckstein, we have got to go up 150 basis points or so by the end of the year. We have taken one bite right now, but there are three more bites [of] that size ahead. I think we cannot--",248
-fomc-corpus,1977,"That is, ahead according to Otto Eckstein.",10
-fomc-corpus,1977,"Well, that's a hint according to Otto Eckstein; then more may be ahead according to--",19
-fomc-corpus,1977,"Is that 150 from here, Henry?",9
-fomc-corpus,1977,"From here to 6-3/4 or 7. But we've three more bites of the size that we have taken just now. Each time will take a great effort of will on our part to steel ourselves for that. And given that the aggregates behavior right now has been helping us and justifies the appearance of a further move, I'd go to a 5-1/4 to 6 on the funds rate and move slowly, not immediately, to the midpoint of that range. And as I say, I'd be open to a money market directive on that if there is some spirit for that from the Committee.",125
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Gardner now, please.",15
-fomc-corpus,1977,"Gentlemen, I have been listening to a great deal of wisdom. I guess we all know who we are today. I think originally, until I heard the Chairman's suggestion, [unintelligible] I asked myself, in view of the buoyancy of the economic indicators, what would we be doing if we hadn't had a 19 percent growth in M1 in April? I suspect we wouldn't be quite as aggressive in raising rates as some of our colleagues are proposing. So if we look at the alternates involving quite constraining M1 and M2 ranges and, on the other hand, a fairly narrow and modest proposal on the funds rate, I think this has some advantage. If we can achieve what the staff forecasts and [eliminate] the very dramatic bulge in M1 in April through passage of time, we'll have present market rates already up and [a] willingness to go up half a bite, Henry, in our range for the federal funds proposal. It seems to me that incorporated in this reduction in the aggregates ranges and retaining or narrowing the federal funds range, we have a compromise that makes a good deal of sense to me because there [were] a great number of queries expressed about the future of the economy. We've put a lot of attention on automobiles. The auto business falls apart in the middle of the year, as we all know. It may fall apart further this year because of the incipient energy program that might change the mix significantly. I'm quite happy with this alternate suggestion, although I haven't heard it before because I think it's a balanced suggestion.",320
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Lilly now, please.",14
-fomc-corpus,1977,"Well, I'm glad to be almost at the last because, as the meeting started out, I had kind of a sense of dismay about whether I was going to be able to voice my theory. But then Frank spoke up, and now I have somebody to speak against. Thank you, Frank. We have moved 70 to 80 basis points since last January, depending on how you figure it. It's 72 to 84 basis points, and I think that's a rather significant movement, particularly when it takes us right back to where we were [in] June a year ago. And my feeling is that we ought to look for some lag effects and make sure that we haven't moved too rapidly before we go any further. And I, therefore, think this: I don't find that there's a great deal of difference between any of what I've heard, and I would associate myself with Chuck's position just because of a little more flexibility. And that's zero to 4 [for M1], 5 to 8 [for M2], and the 5 to 5-3/4 [for the federal funds rate] with the midpoint--one of those wonderful things that this Committee decides a midpoint is--another range, 5-1/4 to 5-3/8.",261
-fomc-corpus,1977,"All right, thank you, Mr. Lilly. Mr. Mayo now, please.",17
-fomc-corpus,1977,"Mr. Chairman, as a preamble to my remarks, I should report an observation coming out of my recent brief vacation in Greece. I decided that, despite my confidence in the staff projections and in the ability of this Committee to do a good job, I'd like to consult the independent sorts of wisdom, so I spoke with the Oracle at Delphi about monetary policy. The Oracle is strangely silent about M1 and M2. The Oracle gave me the impression that these things had to be viewed in longer[-run] terms, and one shouldn't be too concerned with things that are happening right at the moment. The Oracle in effect then suggested that I look around me and make my own observations. I observed that Greece at this time of the year was very green. It was raining when I was there. I interpreted this as the Oracle telling me that we did have, indeed, at least plenty of liquidity in the country and maybe too much. I also observed around me the ruins of half a dozen treasures of the city states of Greece. I noticed that the treasury of Athens still had its walls intact, but the roof had fallen in. I took this to mean that we, too, should be concerned about the affairs of the Treasury. To get back from Greek mythology--the Oracle was often wrong on substance--I find your prescription quite appropriate today, Mr. Chairman. I wouldn't object to going to the zero to 5 on M1, or the 3 to 8 on M2. I feel that, indeed, looking at this in a little longer perspective, we've had this increase in M1. I suspect that this may be a place for a pause in our movement upward, which I think may proceed over a period of time here. But I would prefer going along with the 5 to 5-3/4 percent range in the money market directive. I think the 5-3/8 is a suitable midpoint at this time. I have as a side issue a little concern that if we start paying more attention to M2--I'm not disputing Mr. Balles's analysis, I think it is a very good one--[but] we may find that we are giving ourselves too much stimulation in terms of over-reliance on a target of M2; [it] may mislead us with regard to M1, to which the market, for better or for worse, still pays most attention.",490
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Volcker now, please.",15
-fomc-corpus,1977,"I'm afraid New York is not to be confused with Athens, although I sometimes think the roof is falling in. Everything that I could have said has already been said in one way or another. Let me just say in terms of the business situation, where I think that a fair number of uncertainties could develop later this year and into next year--but that's always the case--I do think there's a lot of buoyancy now, and as I add up the business and inflationary situation, we may be better off to meet these uncertainties later in the year by moving a bit now. And I think it would be reassuring psychologically and otherwise. I think the aggregates have certainly been rising too rapidly. This April figure puts the frosting on the cake in a big way, but they were rising somewhat too rapidly before. And when I look at this pattern projecting ahead, with all the uncertainties that it has, it brings the aggregates down within the targets, but it does it with a lot of interest rate increases later in the year that I'm not sure I would like to see, given the uncertainties that exist. We've also gotten by with an adjustment so far with very little disturbance in the market. And I think I'd like to press that luck a little further. This may be a better time to do it, with the market in good technical shape, than some subsequent time. So in terms of the actual specifications, I had the same numbers in mind that you cited about an hour ago, that if the range was widened at all, and I sometimes think it's useful to widen the range. I must say I would lower it. I'd put negative 1 to 4 [for M1], as Henry Wallich suggested, and 2 to 7 [on M2], if I was going to move in any direction. It wouldn't disturb me at all to see zero or a slight minus figure in this particular period against the background that we have. I would be content with zero to 4, 3 to 7. I also think the federal funds range of 5-1/4 to 5-3/4 is a good one. I'd want to stop and pause before going above 5-3/4. But given the way I feel about the aggregates, I'm not very eager to see the funds rate being reduced if we were plus 1 or 2 percent on M1 or equivalent figures on M2, so that [a midpoint anywhere from] 5-1/4 to 5-1/2 strikes me quite nicely. I suppose I would be a little cautious after what we have just done and like to consider the midpoint something like 5-3/8 or 1/2, implying a pretty modest move at the moment. But anything from 5-1/4 to 5-1/2, whether we consider it fully symmetrically or a bit biased at least in not moving too rapidly to 5-1/2, is fine with me.",605
-fomc-corpus,1977,"Thank you, Mr. Volcker.",8
-fomc-corpus,1977,"Mr. Chairman, as mentioned earlier, it seems to me I see indications of a spreading speculative inclination in the economy, and while competitive efforts of extenders of credit to put out funds probably don't guarantee speculation--",42
-fomc-corpus,1977,"I am having a little difficulty hearing you, Mr. Baughman.",15
-fomc-corpus,1977,"It seems to me that the competitive efforts of lenders to put out funds don't guarantee speculation, but they do nevertheless provide an environment in which it can be continued and spread. And so it seems to me that we're at a point where we should be pretty sure we don't add further to liquidity in the economy and [therefore we should] possibly tighten up just a little. It's in that context that your specification has great appeal to me. It seems to me that it just does the job about right--starting with the present market rate on fed funds and with the intention not to move below that, and if we see the substantial growth rate in either M1 or M2 move up from that level. And it seems to me that's appropriate. I would make one other kind of gratuitous observation, and that is, with the proposed well-head tax on petroleum products, that it would be appropriate to start [feeding] into the conversation at the Washington level, if possible, that those funds, if collected, not be collected [to] be fed back into the economy into the hands of petroleum users but rather be funds used either for the purpose of reducing the federal deficit or for being available for some kind of reduction in tax rates. And the experience with respect to the $50 rebate just might have set the stage for some such operation being effective also.",270
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Guffey, we haven't heard from you yet.",22
-fomc-corpus,1977,"Mr. Chairman, waiting until or near the end to speak should be of some help, but it is not to me this morning because I had an underlying philosophy or feeling to want to take a bite against inflation. But I'm also troubled by the fact that we have received a rather substantial surprise in April. And there is not a great deal of uncertainty toward May or June. And as a result, I'm attracted to a proposal essentially made by Governor Partee, that is the aggregates, zero to 4 [for M1], 4 to 8 for M2, but I would also adopt your proposal for the funds rate, with some restraint on the Desk to move from the current level until we get fairly near the upper bounds of those ranges. And as the result, I think it would be appropriate to adopt the money market conditions directive, with that type of restriction.",176
-fomc-corpus,1977,"Thank you, Mr. Guffey. And we will hear from you, Mr. Roos.",21
-fomc-corpus,1977,"Thank you, Mr. Chairman. We feel a greater concern of danger at the upside than we do at the downside. I personally don't share the concern that has been expressed this morning that there could be a slight slackening in the rate of in the recovery. I think if the recovery continues to move ahead at its present rate over a prolonged period of time, we'd have a greater problem than if there were a moderate slackening of that. Specifically, I would subscribe to the Chairman's ranges for M1 and M2. Philosophically and for other reasons, I resist a narrowing of the funds range, and I would prefer to see 5-1/4 to 6 percent. We don't have to use the 6 percent, but it's there. We have a--probably isn't too relevant--but we have a large cemetery in St. Louis, Mr. Chairman, which I passed on the way to the airport, which advertises its plots by saying it is better to have and not need than to need and not have, and if there is a need to go to 6 percent, maybe it's better [that it] be there.",231
-fomc-corpus,1977,"I'd like to pick up where you left off and say a word about cemeteries. I think cemeteries should be used more extensively than they are. They could serve a novel purpose, namely to bury economic forecasts. Now where we were about three months ago or so, and the Administration came forward with a fiscal package, the Administration made its forecast for the economy. Well, since then, the President has withdrawn his recommendation for a rebate, and federal expenditures are $10 billion lower than had been estimated, and the economy is now just about where the estimators thought it might be at the end of the year. Now all this proves that we've put so much emphasis on changes in fiscal and monetary policies, and we tend still to ignore the great momentum that our private economy is capable of carrying through on its own. And I think this has a bearing on today's discussion. I still have to review the sentiments and the views expressed by members of the Committee, but as I listened to members of the Committee, I thought we were all saying pretty much the same thing. But I guess there were differences. The differences were all over the lot. But the differences were within an extremely narrow range and a range that is of no significance at all relative to the errors that we keep on making and that we don't know how to improve upon. And now, if you will just forgive me, I want to study these minutiae and give my best report on it.",293
-fomc-corpus,1977,"Mr. Chairman, while you are studying that, may I ask Mr. Kimbrel a question? In discussing the Florida freeze, you mentioned that you thought it might have been an act of providence. We are aware that certain of your townspeople are now running the United States government, but I didn't know they had taken over the weather.",70
-fomc-corpus,1977,I hope they do a better job of that than they do some other things.,16
-fomc-corpus,1977,Is there anybody left in Atlanta?,7
-fomc-corpus,1977,Really got our share of--,6
-fomc-corpus,1977,They certainly loaded the airplanes to Atlanta from Washington every Friday night.,13
-fomc-corpus,1977,"Gentlemen, I could take a great deal of your time and my time summarizing these figures, and, if you will permit me, I will not do that but simply make a suggestion to the Committee that I think comes close to summarizing the central tendency of the Committee's thinking. I would suggest we vote on the following: A monetary aggregates directive on an M1 range of zero to 4, on an M2 range of 3-1/2 to 7-1/2, on a federal funds rate range of 5-1/4 to 5-3/4 with the midpoint of 5-3/8, a figure that is to be approached within the next few days--the Desk is very close to it. That is my suggestion to the Committee. I think it expresses the tendency of the narrow ranges within the Committee's thinking during this 3-1/2 hour meeting. Are there any questions or comments?",196
-fomc-corpus,1977,Could we take a vote on money market versus aggregates?,11
-fomc-corpus,1977,"Yes, let's do that. Let's have a show of hands on monetary. Those that prefer a monetary aggregates directive, raise their hands, please.",29
-fomc-corpus,1977,Seven.,2
-fomc-corpus,1977,Estimating errors really are getting tough around here.,10
-fomc-corpus,1977,Do you mean to say we can't even count hands?,11
-fomc-corpus,1977,I didn't say that.,5
-fomc-corpus,1977,"Good. Any other questions or comments? If not, will the Secretary be good enough to call the roll.",22
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes It's unanimous.,48
-fomc-corpus,1977,Anything else we have to do today?,8
-fomc-corpus,1977,Set the date for the next meeting.,8
-fomc-corpus,1977,"Well, I think the date is set. We will go to lunch punctually, and we will have three members of the staff with us. We are going to discuss the legislation with regard to NOW accounts and paying interest on reserve requirements. I hope all of you can come, because this is a matter of great importance to the System.",68
-fomc-corpus,1977,"Gentlemen, we are starting a bit earlier, and the reason is that I will have to leave this meeting at about 12:15. I would hope that we could get through with the monetary policy directive by that time; and without interrupting members of the Committee or interfering with the flow of thought, I hope that we can accomplish that. In the interest of trying to accomplish that, I am going to defer the discussion of foreign currency operations until later on in the meeting, and also the special problem that has arisen in connection with foreign accounts, repurchase agreements. These two matters could be taken up readily in my absence. Also, I'm scheduling an informal meeting--meeting is hardly the word, really--Tom O'Connell will have the right word for it. You know, [in] these days of the [Government in the] Sunshine Act, I'm at a loss for vocabulary--a new lexicon will have to be devised to fit Sunshine. In any case an informal discussion--or [an] informal something--is scheduled for 2:15 this afternoon, and I hope as many of you as can do so will be present. Some recent correspondence with members of the Congress will be discussed at that time, and also some legislative matters on Capitol Hill that are of interest to the [Reserve] Bank Presidents will be discussed at that time. The meeting is of special significance for the Bank Presidents, but I hope that Board members will also attend, because we belong to one family, and these are matters of a mutual concern. One or two matters, actually, I have not yet had an opportunity to discuss with my colleagues on the [Federal Reserve] Board. So I hope the members of the Board could be there as well. Now, when I leave, Mr. Volcker, the Vice Chairman of this Committee, will of course preside. We need to act first of all on the minutes of the May meeting. Is there a motion to approve?",398
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"The motion has been made and seconded, and I take it there is no objection. And we will pass now to the report on the state of the economy. Mr. Zeisel, would you be good enough to address the Committee?",48
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Zeisel. The increase in rentals. I haven't followed those figures recently. What has the rise, and the average rise, in rentals been?",34
-fomc-corpus,1977,"Those figures, I must say, are not the best base that we have, but they come from the CPI, and they show a fairly steady rate of increase in rentals over the last year.",39
-fomc-corpus,1977,Of how much?,4
-fomc-corpus,1977,"I don't have that figure with me, I am afraid.",12
-fomc-corpus,1977,I somehow have the impression that the rise in rentals has been below the rise in the consumer price index.,21
-fomc-corpus,1977,"I think that's right. But, of course, the rise in the consumer price index, Mr. Chairman, has accelerated considerably recently because of the food and the--",33
-fomc-corpus,1977,"Does anybody know? We are all homeowners, and we don't have rental--",15
-fomc-corpus,1977,We can obtain that number and provide it in a few minutes for you.,15
-fomc-corpus,1977,"All right, any question or comment? Yes, Mr. Black?",14
-fomc-corpus,1977,"Jerry, could you give us a little bit more on the revised first-quarter figures for GNP? I'm interested more than anything else in why it was revised upward and what final demand did.",38
-fomc-corpus,1977,"The revision occurred basically in corporate profits repatriated from overseas. Its counterpart on the product side is net exports. So two figures on the income side were corporate profits, which now show a slightly larger rise than they did in the earlier estimate; and net exports, which show a slightly stronger figure than before, and this resulted in an upward adjustment in the GNP projection for the first quarter.",79
-fomc-corpus,1977,Were inventories about the same?,6
-fomc-corpus,1977,Inventories were unchanged from the earlier figure.,9
-fomc-corpus,1977,"But you did mention the figures on final demand in percentage terms, and I was trying--",18
-fomc-corpus,1977,Final demand [was] revised up to a 4.2 percent real rate of growth for the first quarter.,23
-fomc-corpus,1977,That's the one I missed; thanks a lot.,10
-fomc-corpus,1977,"All right. Mr. Eastburn, please.",10
-fomc-corpus,1977,"A comment and a question. I noticed in the New York Times that there was a listing of forecasts for 1978--some 35 forecasts. Which, as I read what the Greenbook has, would put your forecast at the upper end of the list, probably at the top end of the list. I have some reservations as to whether that will materialize, and I'm partly influenced by some meetings that we have been having in the last couple of weeks with several dozen businessmen, and I must say, sentiment is very pessimistic. Partly this is a function of the fact that it's being held in Philadelphia, and the Philadelphia area is not very strong, and there is a special problem attached to that. But I think that the degree of optimism is very low. We had one participant express this quite eloquently. He said, ""In the past, I have always had a kind of well of optimism that I could dip down into and draw when there was a shock,"" and he said, ""My well has run dry."" And shocks do come along to the economy--so, I think that, first of all, the forecast--",230
-fomc-corpus,1977,Do you want to elaborate on that--the grounds for pessimism as voiced at the meeting?,19
-fomc-corpus,1977,"Yes, I think it's a function of several things. One is the fact that businessmen feel lost, that they don't know where things are going, that the old rules no longer apply, that they don't know what government is going to do, particularly in the area of energy. And although they have become used to uncertainty, I think the degree of uncertainty is a great deal stronger than they have had in the past. This year has led, I think, to distrust of what the consumer is going to do. For example, one retailer talked about his doubts and uncertainty. I pressed him for his forecast for sales in the second half of the year as compared to the first, and he said the second half is going to be about as good as the first. And I said, how can you be so pessimistic? And he got off on costs and various other uncertainties.",175
-fomc-corpus,1977,"Now, wait now. When the retailer says that, I would interpret it to mean that the increase between the first half of 1976 and the first half of 1977 is of a certain magnitude and that he expects that the increase from the second half of 1976 to the second half of 1977 will be of the same magnitude, which is that's the way retailers tend to talk or tend to think. Well, that is not necessarily a pessimistic statement--it doesn't necessarily mean at all that retail sales will be flat in the second half of this year.",116
-fomc-corpus,1977,"That was the way I interpreted it--that, in fact, his forecast is not pessimistic, but his attitude is pessimistic. And I suspect that the pessimism is overdone in many cases, but I think it is there and is reflecting itself in attitudes toward capital spending and willingness to take ventures and to move out in the near future. My question has to do with the forecast projections--to what extent this is judgmental and to what extent it represents models.",95
-fomc-corpus,1977,It's very heavily judgmental.,6
-fomc-corpus,1977,Is there a difference between what the model is saying and what the--,14
-fomc-corpus,1977,"The model is weaker, and particularly consumer spending is weaker. And the pattern on inventories is such that, at the end of the projection period, accumulation of inventories is about the same. But in the earlier periods, the model is considerably weaker, which would give you a somewhat weaker second half, particularly, than the judgmental forecast. But I think the major difference is in this consumption area, which is clearly weaker. And you end up with slower growth of real GNP over this projection [period] if you take the monetary assumptions [as being] the same and just run the model without any judgmental influence.",124
-fomc-corpus,1977,Is the increase in the saving rate larger on the model than it is in the--,17
-fomc-corpus,1977,"Yes, right. That's what happens. The saving rate drifts up higher. I might note that it looks like the model is indeed going to be off on the consumption sector in the first quarter and second quarter. It clearly understated the degree of spending.",51
-fomc-corpus,1977,The model doesn't sustain capital spending as strongly as we--,11
-fomc-corpus,1977,Can't hear you.,4
-fomc-corpus,1977,"Excuse me, Mr. Chairman, the model does not sustain capital spending as strongly as we do judgmentally into '78.",26
-fomc-corpus,1977,"Well, I think these differences may account for our tendency to be somewhat lower.",16
-fomc-corpus,1977,"Of course, the relationship of consumption to capital spending and the generation of income is obvious.",18
-fomc-corpus,1977,"All right, thank you. Mr. Balles now, please.",14
-fomc-corpus,1977,"Mr. Chairman, I would like to ask a question about the Board staff forecast, mainly to clarify my own understanding of what's been happening here. As I look over the inflation forecast made monthly since the first of the year, we know it has been moving up steadily, starting off with a forecast of 5.5 percent for the year, May to January. It's now up to 6.2 percent. Over that same period, your forecast of real GNP has, on balance, remained virtually unchanged, your January forecast being a 5.7 percent increase for the year, and your latest June forecast being 5.8 percent. Given the fact that monetary policy has been roughly steady in this period, I guess one would normally expect, with roughly constant monetary policy, the same projection for real growth but increasing inflation. Something has got to be a balancing factor there. Are you expecting higher velocity now than you were, for example, at the first of the year, or just how do you get this result?",206
-fomc-corpus,1977,"Well, we have gone through a period in which the economic information that's come in has grown progressively stronger. The evidence, for example, of consumer markets has been for a considerable degree of consumer optimism, apparently. Retail sales have been very strong, and we have been going through a process recently of revising upward our estimates of consumer outlays. The other area where we have shown additional strength to support continued [economic growth] [has been] residential construction, which has proved to be substantially stronger than we had thought it was [going] to be six months ago. And this has proved the basis for a very strong growth as well. So that, basically, while the information on prices has been on the negative side, the information on real demands has been on the positive side. And I think this has been the key that has allowed us to get what otherwise might seem to be an inconsistent set of adjustments, to wit--rising prices without any negative effect on real output.",197
-fomc-corpus,1977,"I think also the interest rate side--I don't recall precisely what we had for interest rates, but I do know by this time we had anticipated higher market rates, so that if velocity is pretty much on course, I think what is off is indeed that interest rate levels are less than we had anticipated given the kind of strength in economic activity that we now see developed.",74
-fomc-corpus,1977,"Well, net-net, I was guessing that what was happening was that implicitly your velocity forecast has risen over this period, because normally you would expect a combination of steady monetary growth and inflation to produce some reduction in real growth, and yet you don't have that. Am I interpreting your figures correctly? You are expecting higher velocity.",65
-fomc-corpus,1977,"I think that's right. I don't have the numbers back in the January-February period. It's clear that over the balance of the projection period, we have M1 velocity rising at around a 7 percent annual rate, which is really very high, as you know.",54
-fomc-corpus,1977,I noticed that in the Bluebook. I thought it was awfully high.,16
-fomc-corpus,1977,"Let me just note that we do have some numbers on this residential rent index in the CPI, and in '75 and '76, that index had been rising at around a 5-1/4 percent annual rate. And in the first quarter of this year, it's 5.8 percent. The monthly pattern is, February, a 3.6 percent annual rate, 6 percent in March, 8.4 percent in April. So we seem to be on a somewhat rising pattern for that particular measure of rents.",108
-fomc-corpus,1977,"That's gross rent, that's not net rent, which is a little bit--",15
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,"Net rent may well have gone down, based on those figures.",13
-fomc-corpus,1977,"All right, thank you, Mr. Balles. Mr. Partee now, please.",19
-fomc-corpus,1977,"Jerry, I was surprised how pessimistic your comments were regarding prices. I was surprised because I'm not that pessimistic, obviously. But I wonder whether what you're picking up in the GNP forecast, and second quarter forecast in particular, isn't a reflection of past increases, principally in food prices. If you look at wholesale prices of industrial commodities, the rise is slowing. That's particularly true at the raw stage of industrial commodities, but it's also true of industrial commodities as a group. Indeed the [total] wholesale price index was up quite a lot less in May than before. And I know that the sensitive industrials in our weekly index have been declining in the last couple of months. That's just a few items, but perhaps indicative of reduced pressure in the market. And if you look at the hourly earnings index, why it seems to me the performance is really pretty good. Year over year [in May], the increase was 6.9 percent; [for the] month, the increase was a 5.7 [percent annual rate]. But this far into a recovery, it seems to me that that's a pretty good performance for wages, and it implies that unit labor costs are not, at least at this point, accelerating, looking through the bobbles you get up and down. I assume that the forecast you have given us is largely based on higher food prices. But even there, the impression I had is that the agricultural situation is better, rather than worse, than it was a couple of months ago in basic terms, because it's rained, and the wheat's coming in, and that kind of thing. It might have some temporary effect in holding back meat animals and things like that in the market and give you a little increase in prices. But sort of fundamentally, as I look at the picture, it's improved in the last two or three months with regard to the price outlook, rather than deteriorated. Are you going to comment on that?",394
-fomc-corpus,1977,"Yes, you are perfectly right. My view of the price situation has deteriorated along with, I guess, my perception of what seems to be happening. You are perfectly right, also, the adjustments at the moment are very largely in the food component. Those prices came in much larger than we had anticipated for the last couple of months and have resulted in our raising our estimate of second-quarter food price increases--doubling them from about the 6 percent range.",93
-fomc-corpus,1977,6 to 12.,5
-fomc-corpus,1977,"12 for the quarter. And this is, in itself, a shock. There are elements in wholesale food prices that are still to come through to retail--coffee is a particular case.",37
-fomc-corpus,1977,But there we've been reading of reductions.,8
-fomc-corpus,1977,What we have been getting unfortunately--well fortunately--,10
-fomc-corpus,1977,Wholesale price of coffee has been coming down. But the retail price has been below the wholesale.,19
-fomc-corpus,1977,That's correct. That's exactly--,6
-fomc-corpus,1977,Therefore that can rise.,5
-fomc-corpus,1977,"--so that, as the Chairman points out, the reductions we are seeing really are going to prevent future increases from being as large as they would otherwise be.",32
-fomc-corpus,1977,Are going to limit or possibly prevent--,8
-fomc-corpus,1977,"Isn't that a favorable factor? To limit or possibly prevent the increases that otherwise would have occurred--[that's] an improvement, isn't it?",29
-fomc-corpus,1977,"Yes, in that one factor.",7
-fomc-corpus,1977,"That's correct. In that sense, Governor, I had commented that we may be getting some of the price increases clustered in the second quarter that we had anticipated might occur in the second half--",38
-fomc-corpus,1977,"I don't know what this debate is about. I'd like to have the question clarified. Looking at the projections by our staff, the second quarter estimate on prices is a 7.1 percent annual rate, and then the figure falls in the next two quarters to 5.8 percent.",58
-fomc-corpus,1977,"I was referring, Mr. Chairman, more than anything else, to the pessimistic tone of Jerry's comments about the worsening in inflation. Simply all that the--",33
-fomc-corpus,1977,He was simply anticipating Mr. Eastburn's comment.,11
-fomc-corpus,1977,"If I may suggest a different explanation, it is that there has not been a deterioration in the inflation outlook that we did not previously foresee; the amount of increase, particularly in food prices, that [we] did not build in [resulted from] the winter and the early spring drought and that kind of thing--and, indeed, that fundamentally there really has not been [an underlying] deterioration. At least that would be what I would submit on the basis of my reading of the figures.",100
-fomc-corpus,1977,I think there's a certain validity in that Governor--,10
-fomc-corpus,1977,I would join Mr. Partee. I'm impressed by the decline that has occurred in wholesale prices of food stuffs and industrial raw materials since mid-April--I wish I understood it better--and that is a favorable development on the price front.,49
-fomc-corpus,1977,"Mr. Chairman, I find it difficult to believe that this isn't going to go into wages at some point. These CPI increases--with a lag, I suspect--are going to influence hourly earnings.",40
-fomc-corpus,1977,"Well, they could, but they haven't yet.",10
-fomc-corpus,1977,"Well, yes, but there's a lag in these--",11
-fomc-corpus,1977,"Well, you say they haven't yet. The figures that I have in mind on wages that I try to follow relate not to average hourly earnings but to compensation per man-hour in the private nonfarm sector. The quarter-to-quarter fluctuations--these quarterly figures are unreliable. I follow [the compensation data] on the basis of a moving 12-month period, and what that shows is a steady acceleration over the past five quarters. Gradual, but without a break. So the wage curve including fringe benefits, which the average hourly earnings figure omits, does show acceleration.",114
-fomc-corpus,1977,"As you know, the problem that I have with that is that the last quarter in the series includes the minimum wage increase and the increase in Social Security taxes. I think it tends to give you an overly high reading for this most recent--",48
-fomc-corpus,1977,"Yes, that may well be. The jump is largest in that quarter, Chuck, and therefore, allowing for that, perhaps you still have the acceleration, though I'm not sure.",36
-fomc-corpus,1977,"My impression is the same as yours, Mr. Chairman. There has been a slight deterioration in the wage pattern. We also, at this stage, expect to get slower growth in productivity, I think. And the wage-cost element in the economy strikes me as being less favorable than I had hoped earlier in the year--not by a major amount but moving in that direction. And I must say I am struck by the kind of deeply ingrained expectation of businessman and others in giving wage increases. There seems to be very little resistance to a kind of 8 percent or higher level. No willingness to look forward to a decline in the rate of inflation. And a kind of feeling that it's only fair to give 8 or 10 percent.",149
-fomc-corpus,1977,"Well, I don't know whether it's only fair or only necessary.",13
-fomc-corpus,1977,"Well, they certainly argue it's necessary. They're certainly not going to be willing to take a fight or strike or anything. Well, I don't think it's terribly unusual for the big negotiated settlements. It's obviously not the average increase. But the general feeling of no resistance because they think they can't presumably--and they think that the prices are going to go up in the following year to justify--it seems to me to be very strong, and we have made very little impact on breaking it. While I have the floor, let me just say that I certainly have noted--pessimism may be too strong a word. But the strongly increased caution of the business community that Dave Eastburn talked about has been reflected to me, too, and I haven't been able to quite figure out why it takes place during a period when the economy has been expanding more rapidly. Maybe the stock market had something to do with it. I don't quite know why it has happened, but I have detected this mood of great caution, apparent on the surface anyway, in the business community.",213
-fomc-corpus,1977,"I'd like to say a word about that. There are businessmen complaining. And businessmen are complaining about the atmosphere of uncertainty in which they live; and they don't know what will happen to taxes, and don't know what will happen to our antipollution legislation, and don't know what kind of energy bill Congress is going to write eventually, and this undoubtedly is retarding business capital investment. At the same time, while businessmen are complaining all over the lot, their overt actions--as expressed in orders for capital equipment, as expressed in appropriations for capital expenditures, as expressed in plans for actual expenditures, as expressed in plans for actual expenditures, the successive survey reports--do indicate increasing spending. And I would interpret that to mean that optimism fundamentally is gradually gaining ground. There is a return of optimism, but it's much slower than one had any right to expect at this stage of the business cycle, and particularly in view of the rate of utilization of capacity. According to our index, we are up to 83.3 percent, and the peak was only 88 percent. Businessmen are complaining. They are paid good salaries--one of their functions is to complain. They're justifying the salaries that they earn partly by complaining. They have reason to complain--I don't question that. But I would not take that as an index of the underlying attitude. Yes, I want to listen to them, and I do, plenty. I have taught myself to do that. But I also watch what they actually do. And there I see, increasing slowly, a slow return of confidence. That's my reading.",320
-fomc-corpus,1977,"As long as you are talking about this, there may be some function in age, because I happened to speak to a group of young businessmen who, by definition, had to have been president before they were 40, and they could not be over 50 and still attend this meeting over the weekend. They were all very exuberant about everything, in fact so much so, that approximately 80 percent of them indicated with a show of hands that they thought monetary policy ought to be tightened--that things were running well.",105
-fomc-corpus,1977,That's interesting.,3
-fomc-corpus,1977,"That is in the Southeast. I think--you were talking about the New York attitudes, and Dave, Philadelphia. It may be a reason how effective some [unintelligible].",37
-fomc-corpus,1977,What about New England?,5
-fomc-corpus,1977,"Well, I think in general we are more optimistic than Paul suggests [for] New York. I think we have seen our capital goods industries continue to rise in orders--a feeling that capital spending is about to get going. I think New England is pretty optimistic at the moment. Not bullish. No one has been looking for a boom, but no one really wants a boom, and I think there is a pretty general degree of satisfaction for the way things are going.",94
-fomc-corpus,1977,"Well, I think, Mr. Chairman, these things need to be interpreted in the light of what we have heard about investment predictions. If [the estimate is] correct, despite our belief that investment is peculiarly low, then we don't need to attribute this to business pessimism if the objective facts as embodied in the model seem to say that investment should be even lower. It must be the peculiar result that the objectives, factors--despite what I would have thought--point toward low investment. Excess capacity, cost of capital, and whatever goes into that equation.",115
-fomc-corpus,1977,"I don't know what goes into that equation, but I would have said, and I still say, that objective factors, putting aside uncertainty about legislation, point to increased capital investment.",36
-fomc-corpus,1977,"That's been my intuitive interpretation, too, and I am surprised at what the equation says, but I think one has to pay attention to it to some degree.",32
-fomc-corpus,1977,"Well, maybe you do. Everyone has to speak for himself. I have managed to get to my present age without paying much attention to what these equations have to say. And I haven't done too badly in judging the business situation. I see no reason for learning these things at the present time. However, if our staff can teach me what they know or think they know in an hour or so, I would be very glad to listen to them.",90
-fomc-corpus,1977,"I think, when you listen to businessmen comment, you forget that they look at you as ""Washington,"" and it's an opportunity for them to sound off on what they think is the matter with the government and their state of affairs. I think lot of what you hear is being addressed to trying to correct the situation in Washington rather than reflecting their own state of affairs. Because business is damn good--",79
-fomc-corpus,1977,"Well, you talk to--",6
-fomc-corpus,1977,--let's not kid ourselves.,7
-fomc-corpus,1977,"--yes, you talk to a lot of businessmen. You have been devoting a good part of your energy [to that]. What is your sense of the thinking of the business community?",38
-fomc-corpus,1977,"Well, they just hate Washington. All of the regulations are driving them up the wall. The biggest problem they have is that, instead of having no energy policy, we have a non-energy policy now. No one has been able to make any plans in terms of where to put a plant because they just don't know what's going to happen in the energy field. And until that energy policy question is cleared up, I think you are going to have a great deal of hesitancy on expansion of industrial capacity. [Unintelligible] its business is damn good, and they all will admit it privately, but they won't agree that the government is damn good. And that I think is what you are hearing--",143
-fomc-corpus,1977,"Of course, Dave, they never have and they never will. I think that's part of the--",20
-fomc-corpus,1977,"I'm not speaking of any specific government, I'm just saying--",12
-fomc-corpus,1977,"No, the government. But I think this is a characteristic of the business community.",17
-fomc-corpus,1977,"I do, too.",5
-fomc-corpus,1977,"We have to evaluate [it] in terms of degree of decibels--it's a little different. And I guess I basically come out much as the Chairman does. That businessmen are paid to complain, and you have to--this is very sensitive--we do not have any index of businessmen's complaints. We have to judge it by what they are doing in spite of the complaints, and business is good. Even the one of the most profitable huge food companies in the Midwest--worldwide--the chairman told me the other day--""Well, it's pretty good, Bob, but it could be better."" But that was in view of an outstanding record for the first quarter and for 1976, and he is one of the highest paid executives in the United States. That's his way of expressing things. And you get used to this. And you evaluate differences in the way they say it.",181
-fomc-corpus,1977,"Another thing you should also be concerned about--as a concern about the future--and that's the farmer. And I do not agree with Jerry in terms of the estimated price increases. In farm products, I think you got a situation where you are going to have a bumper crop--that's certainly the way it looks today--and it's going to have a downward pressure on prices, both meat prices and grain prices.",82
-fomc-corpus,1977,Mr. Chairman?,4
-fomc-corpus,1977,"Let me just interrupt for a second. The consumer price index has just been released, and it shows an increase in the seasonally adjusted figure for May, of the overall index, of 6 tenths of 1 percent. Yes.",48
-fomc-corpus,1977,"We have continuing meetings with major heads and treasurers of our major corporations in the area. They are optimistic, but I think we are overlooking, at least from my point of view, one issue there--they are certainly disturbed about regulation, they are certainly disturbed about uncertainties--but the one underlying concern that they have expressed to us is their concern about prices and about inflation. We have not met one of these individuals--and this is not an exaggeration, we have been with scores of them--who has not said, ""For heaven sakes, do everything you can to protect us from further inflation."" Now, I don't think that factor has been given sufficient--maybe credence is the wrong word--but attention this morning. I think that worries them as much as energy. That worries them as much as regulation. And they don't see a real pattern, they don't have real optimism over the long pull as to the probability that our inflation rate is really being reduced.",196
-fomc-corpus,1977,"Well, that's a very important observation [unintelligible], that the high rate of inflation means a deterioration in business profits. And partly because of the behavior of wages and raw materials prices, and partly because of our tax laws and our accounting practices, businessmen in periods of inflation have to pay income taxes on phantom profits. And they have learned that. And accounting is one of the most backward of our professions. You know, there was a time when businessmen looked forward to a time of inflation because they saw wages lagging, prices soaring, profit margins rising, the stock market roaring, but things don't work that way any longer. Businessmen now know it. And I think that's why they speak and think as they do on the subject of inflation. Mr. Wallich, we want to hear from you now.",164
-fomc-corpus,1977,"I have a couple of questions concerning rather minor aspects of the data you present. One has to do with corporate profits. I see that some of the inventory valuation adjustment and the capital consumption allowances in the first quarter was $40 billion, which is more than one-quarter of profits before tax; in other words, very large. You then have it going down in your projection to a much smaller sum, $26 billion, which is one-seventh of the then-expected profits. My question really is, what makes it so large now, and what hope do we have that it will decline, given that the price trends aren't all that favorable as projected.",131
-fomc-corpus,1977,I'm just searching for them. I'm sorry.,9
-fomc-corpus,1977,On page I-7 of the green pages in the Greenbook. And a little below the middle of the page.,24
-fomc-corpus,1977,"I'm a little surprised at the rate of growth of the IVA in the first quarter that you cite, Governor. I thought it was somewhat below that in the--actually below $30 billion. We would anticipate a more moderate rate of increase in the IVA because we do have some moderation in the rate of price increase later in '77, as the Chairman pointed out. I'm sorry, we'll have to look into this and I'll have to get back. We'll give you an answer on this.",97
-fomc-corpus,1977,The first quarter could have had a lot of oil in it.,13
-fomc-corpus,1977,Do you think it's oil?,6
-fomc-corpus,1977,"It could have, I don't know. I'll have to look into it.",15
-fomc-corpus,1977,"You know, I have not studied these figures on profits, but I am surprised. Figures that I've seen indicate that, during the first and second quarters, the improvement in profits has been negligible.",39
-fomc-corpus,1977,Very small increase in the first quarter.,8
-fomc-corpus,1977,"And that surprises me, and I haven't tried to analyze it. You have these very sharp increases in physical volume of business activity, accompanied by virtually stable profits.",32
-fomc-corpus,1977,"Well, the first quarter is partly influenced by the winter weather, which presumably affected costs more than it did sales and profits. And on a quarterly average basis, the pickup that you are talking about really occurred later in the quarter. So I think there's a lag phenomenon at work there that would affect the first-quarter performance. In addition, we do have the minimum wage increase--and at an annual rate you get a shock effect in the first quarter, which presumably is also calculated in these figures. So some of that ought to show up later on in the second quarter, but the second quarter does look very strong to us, either, I guess, in terms of profits performance.",136
-fomc-corpus,1977,"Well, the figures I've seen for the second quarter look remarkably low.",14
-fomc-corpus,1977,We have a very moderate rate of increase in profits projected for the second quarter.,16
-fomc-corpus,1977,"That's [why it seems so odd]. Even those profits that we see are deceptive, that is, the result of inventory and underdepreciation.",30
-fomc-corpus,1977,"We'll have to look at this a little more carefully, Governor, and report to you.",18
-fomc-corpus,1977,I think that an interpretation of these profits figures is very important. That may help to explain the phenomenon that Mr. Eastburn described in his area. The acceleration in inflation that you commented on may possibly be reflected in these profits figures. And your estimates for profits later on in the year look remarkably high.,61
-fomc-corpus,1977,"Well, it's in part this lag effect, believing that the first half is an understatement of the underlying trend and that we have got special factors at work. We are not as high on corporate profits as we were several months ago, [and the change] reflects, in part I guess, the somewhat less optimistic view on corporate costs and, secondly, a somewhat weaker picture for real GNP.",79
-fomc-corpus,1977,"Of course, the level of '76 was much higher than the level of '75.",18
-fomc-corpus,1977,"Oh, yes.",4
-fomc-corpus,1977,[Unintelligible] $40 billion in total profits [unintelligible].,18
-fomc-corpus,1977,"You have a very sharp increase in '76, you know.",13
-fomc-corpus,1977,"My second question, Mr. Chairman--in the federal budget, I see that from the first to the third quarter, we have a massive swing in the high-employment surplus or deficit going from plus 10 in the first quarter to minus 10 in the third. And I wonder whether this plays a significant role in your evaluation of the stimulating effect of the budget.",74
-fomc-corpus,1977,"We have a rapid increase in federal grants to states, which are coming into play in this period, so in a real sense this will underlie the increase in state and local spending that we anticipate in this period. You've got a number of pieces of legislation that relate to public service employment and other support programs, which move the federal grants to states and localities from about a $4 billion rate at the moment to about a $12 billion rate, I presume, in the first half of '78. And that's a big element in the swing in the budget and should be evident in terms of stimulus to real activity.",124
-fomc-corpus,1977,"I might also note, early in the year we had a high-employment surplus of about $10 billion. And, in part, a transitory effect [is] reflected in that number, that is, gift taxes shot up to something like a $6 billion annual rate in the first quarter. And that particular number, of course, works into higher receipts. And so the first-quarter performance, I think, is the wrong base to measure from.",91
-fomc-corpus,1977,Is that a consequence of returns filed in the first quarter for gifts made in the last quarter of the term?,22
-fomc-corpus,1977,"It's a consequence of the change in the tax law last September, which in effect changed the rules on gift taxes. And apparently a lot of gifts were made in December to avoid the higher taxation implicit in January. And those were paid largely in the month of February. And [in] the first quarter, it's about a $5-1/2 billion to $6 billion annual rate, which in effect also shows up in our numbers in the first quarter as a reduction in the saving rate by about four-tenths. So that saving rate is a bit lower, as well, because of this effect.",122
-fomc-corpus,1977,"All right, thank you, Mr. Wallich. Mr. Black now.",16
-fomc-corpus,1977,"Mr. Chairman, I have a question about the revision in your inventory projections for the balance of the year. You reduced these for the second, third, and fourth quarters relative to what you thought a month ago. Is this largely a result of the larger increase than anticipated in inventory building in the first quarter? Or do you have in mind some more fundamental factors? The reason I'm really intrigued by this more than anything else is that I've been playing around with some of the ratios put out by the Commerce Department in terms of '72 dollars, which should remove any downward bias from the switch to the LIFO method of accounting. These show inventory-sales ratios greater than we actually had when the recession began, and I've been thinking all along that inventories were in pretty good alignment. But they really don't look that good when you look at them in constant dollar terms.",171
-fomc-corpus,1977,"Well, we haven't changed our view of the likely rates of inventory investment of this--what you note is a reflection of the fact that we got a larger inventory adjustment in the first quarter than we had been expecting. And rather than a moderate rate of growth sustaining through the year, we now tend to have a slower rate of growth later in the year. And basically the inventory-sales ratio at the end of the period remains about the same as we had had it earlier. But we get there a little earlier, in a sense.",106
-fomc-corpus,1977,"I assumed [that's] what it was, but I didn't know. These constant-dollar ratios are very interesting, I think.",25
-fomc-corpus,1977,"Yes, that's right. They do show a very different picture.",13
-fomc-corpus,1977,They sure do.,4
-fomc-corpus,1977,"All right, thank you, Mr. Black. Mr. Baughman now, please.",19
-fomc-corpus,1977,"Mr. Chairman, I guess I feel obliged to report that in the Southwest we do continue to see a strong and growing demand for most everything, and the list of activities-- that is, types of labor that are in short supply--is growing. And we're seeing indications, of course, of a rather rapid rise in wage rates, in part related thereto, but it's probably not a dominant factor in the rise in wage rates. We've also had reports on two recent occasions of shortages of transportation, particularly trucks. A couple of months back, there were reports of fairly serious shortages of capacity to move sizable equipment and also cement. And recently there were reports of significant shortages of trucks to move produce.",139
-fomc-corpus,1977,To move what?,4
-fomc-corpus,1977,"Produce. Specifically, a lot of melons apparently being permitted to spoil in the fields because transportation could not be acquired to move them out to market. And it's reported, largely as a suspicion or an assertion rather than a fact, that there's been some lack of interest shown by the so-called independent trucker because of increased regulations, licensing, taxes, that sort of thing.",75
-fomc-corpus,1977,Lack of interest in expanding their operations?,9
-fomc-corpus,1977,"Well, not so much expanding, but even coming in, in the usual volume, into this area to move these products at this point in time. I don't have more on that. I've undertaken to learn more about just what's involved. It appears to be a fact that the produce has been permitted to spoil in the field in substantial volume and apparently for this reason--at least they have not cited as an additional reason, thus far, an inability to acquire the labor to harvest the product. Now, of course, in the labor force in that area there is a presumed substantial elasticity of supply of illegal labor. And there have been indications of substantial mobility of labor, particularly skilled labor, into the area. With respect to energy, we hear all of the conversation about the uncertainty, and lack of program, and lack of specific goals and objectives which have been reported here. But even in the face of that, all of the available rigs for drilling on land are in use, and the lease rates are rising. The time lag to get a rig is lengthening--just to get on a list of a driller to drill. And here again, you get into an area where it's not reported as fact, not talked about openly, but there is a pretty generally accepted view that quite a bit of this drilling is being done for purposes of proving up supplies to be offered in the market at a later time, as compared with bringing [them] into the market immediately. Here, of course, is reflected in a meaningful sense some of the uncertainty as to the price [or] prospects for those products. We continue to see announcements of sizable commercial construction projects in the major cities in the area. And it's interesting that a fair number of these are being announced for downtown.",354
-fomc-corpus,1977,What kind of construction projects? Commercial--,8
-fomc-corpus,1977,"I'm speaking primarily of office building structures, but also multi-unit residential and hotel.",16
-fomc-corpus,1977,What about large industrial construction? Any of that?,10
-fomc-corpus,1977,"There is some of it. Largely in the petrochemicals area. And that tends to be concentrated in a fairly small geographic area down along the coast. Aside from that, both indicated in the figures and just from observation as one travels around, it seems to be large numbers of fairly small developments, largely in suburban areas around the larger cities. With respect to the pessimism, and it would seem unusual I guess, to find any of it in that kind of a general environment, but there is a good deal of pessimistic talk, and it seems to me that it traces both to the uncertainty of the application of regulations flowing from legislation that's already on the books as well as uncertainty as to prospective future legislation. The regulations flowing from legislation already on the books has greatly lengthened the developmental time or gestation time for bringing projects into being, into completion. And that, it seems to me, is a matter which is irritating businessmen as well as the bankers who finance businesses. With respect to the general economic outlook, I guess the sector of it that interests me most, and in which I maybe feel less certain than other aspects, is this prospect for capital investment. And I don't have anything to add to the conversation that's taken place here. But it would seem to me that there is a very heavy dependence upon what develops there, as to just what the pace of progress from here will be over the next year or two. That's all I have, Mr. Chairman.",297
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Partee now, please.",17
-fomc-corpus,1977,"Well, Mr. Chairman, I just wanted to set the record straight. Although I was a little critical of the comments on inflation that Jerry had, I think that the staff projection is very defensible; and in general terms, the 5-1/2 percent increase in real GNP looks to me quite supportable on the basis of the sector. The state and local spending outlook is vastly improved. Not only because of the federal transfers but also because of much better revenues as the recovery has proceeded. I agree with you on plant and equipment. I think it looks pretty strong, and strengthening for the foreseeable future. And with that it seems to me would go increased inventory accumulation. So about the only black spot that the economy is likely to have, as I see in the forecast period, is in durable goods sales to consumers, in particular, automotive sales.",174
-fomc-corpus,1977,Also foreign trade.,4
-fomc-corpus,1977,"Well, I think probably most of the deterioration is over in foreign trade. It may not be that there [will] be much improvement, but probably there won't be much [further] deterioration at this point. But we should expect to see car sales level off or even decline after this period of extremely strong demand, and that will be associated with the rise in the saving rate. But I think the other factors in the economy will overcome the phenomenon. The difference between 5-1/2 percent in the forecast for the year ahead and 5 is not very great. I really don't know that I could choose between them. I guess I'm inclined to think that 5 is a little weak, but in any event, if it's 5 or 5-1/2, it's still in the range of continued expansion at a reasonable rate. And I think that's what we ought to keep our eye on. Now, one other comment--although I'm not as critical of models as the Chairman--it is true that the models very often, for short periods, are quite wrong. And the fact that our model delivers lower business fixed investment doesn't surprise me. It [has done so] repeatedly, and it's delivered a high one repeatedly. It's just that it's [based on] an average experience, and it just doesn't seem to work too well in short-period forecasting. And the fact that the model has lower consumption than [does the] judgmental [forecast]--[that phenomenon] has occurred, as I remember, repeatedly over the last several years. So there's nothing terribly unusual about that. So I would not use the fact that it's a model to give it added importance or added weight; it needs to be taken into account, but I don't think it deserves added emphasis for that reason.",361
-fomc-corpus,1977,"You know, I think one needs to look at what goes into it and what are the factors that produce this result. That's why I say--when I spoke of a particular equation--see if it's the stock market, or excess capacity, or orders, or some other variable.",56
-fomc-corpus,1977,"The stock market, I think, is probably having quite an effect--",14
-fomc-corpus,1977,"The survey results are not particularly encouraging, either.",10
-fomc-corpus,1977,Pardon?,3
-fomc-corpus,1977,"I say, the survey results are somewhat in the same direction, are they not?",17
-fomc-corpus,1977,"Yes, except that that looks so unreasonable, doesn't it, to see that the first half has been going on at a very substantial pace, and then all of a sudden you have this slump. It just doesn't seem very likely, you know, that it would be the way things would work out--especially since, as the Chairman said, none of the other figures you would look at support the idea of a marked, almost immediate slowing in the rate of increase in capital spending. Which is what you'd have to have for that Commerce survey to come off.",111
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Guffey now.",15
-fomc-corpus,1977,"A couple of comments with respect to the level of optimism in the High Plains area. It's been sort of divided, up to this point, in the sense that in the metropolitan areas there have been, for the early part of this year, fairly high levels of optimism. But there have been a couple of things that have occurred that are not readable yet but could very well dampen that somewhat. One is the fact that in the Colorado-Wyoming-New Mexico area, the drought has culminated in a limitation of any new [water] hookups, both commercial and residential. It's only a limitation--they still can hook up, but a very limited number over the rest of the year and projected into 1978, which is dampening considerably the construction of both residential and commercial. The other event that had just occurred is a Federal Power Commission order that limits, as of January 1978, any new hookups--as far as gas is concerned--throughout an area of Kansas, Missouri, part of Oklahoma, and part of Nebraska, which means that if that order is in effect, there will be no new gas hookups as of January 1. Again, the comments coming from the business community, and particularly in the construction industry, are fairly [critical]. Lastly, with respect to the agricultural sector--which has been sort of depressed in terms of level of optimism up to this time because of the drought--[it] has all turned around in the crop areas, for example. What we are projecting now is a wheat crop that is larger by about 10 to 15 percent than in 1976, which was a very good crop year. The problem is now, not that they're not going to grow anything, but rather that they're adding to the carryover they already have, thus further depressing the price of grain, on top of which there is no clear capacity to store that grain. The price, as reflected by the futures, continues to deteriorate. On top of that, in the agricultural sector, what has been anticipated for meat prices, for example, particularly cattle, has been an increase, particularly in the latter part of this year. But the track record has been that cattle prices and red-meat prices [have] again turned down, so that there is a pessimism that's arising--not only [regarding] the cattle but the wheat--in the agricultural sector. So you put all those together, and what was kind of mixed before might turn out to be a fairly pessimistic outlook for that whole midsection of the country.",515
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Morris now.",14
-fomc-corpus,1977,"Mr. Chairman, I have two comments. I think there's one measure of confidence that we shouldn't overlook, and that is the remarkable performance of the bond market in the last few weeks despite the fact that we pushed up short-term rates--and in fact probably because of it, because we showed the determination to move promptly. And despite the poor price index numbers coming out, we have seen a willingness in long-term investors to buy at declining yields, and the long-term market is significantly below where it was when the federal funds rate was at 4-3/4. So I think that is one area of confidence.",124
-fomc-corpus,1977,"How do you interpret that, Frank?",8
-fomc-corpus,1977,"I think there is an expectation that we are not going to have a sharply rising trend in interest rates. That also shows up in the Treasury bill futures markets. The Treasury bill futures yields are going down, reflecting an anticipation of that.",47
-fomc-corpus,1977,"You think this behavior of long-term interest rates reflects, in part, confidence in the Federal Reserve's policies?",22
-fomc-corpus,1977,"I think so, yes.",6
-fomc-corpus,1977,"Well, that's been my own judgment, but it's a hard thing to be sure of.",18
-fomc-corpus,1977,"I think if we had not moved in the face of that April bulge [in M1], we would not have had a decline in the long-term yield.",33
-fomc-corpus,1977,"How did you relate the stock market to that, considering that many of these long bonds are purchased by people that would normally have been in equities to a certain extent. And they obviously are not going to.",41
-fomc-corpus,1977,"Well, I think if we get this continued confidence in the bond market, it's going to spread to the stock market as well.",26
-fomc-corpus,1977,But both could be consistent with not expecting a boom--,11
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,--a willingness to invest in long-term instruments and holding away from the stock market.,17
-fomc-corpus,1977,"My other comment is less optimistic, Mr. Chairman. Getting back to the wages issue, which I think is going to be very critical in the next 18 months or so. I was talking recently with John Dunlop, and he is very pessimistic on wages. And his argument is that we've had a number of settlements recently in automobiles and other areas that have produced a maladjustment in the normal wage structure. And therefore, that is going to put pressure on union leaders in other areas this year and next to come up with settlements that will bring them back in line with the auto workers and steel workers and so on. I was wondering if the staff had looked into this--what Dunlop considers to be a really difficult structural wage problem?",150
-fomc-corpus,1977,"I trust Dunlop puts a good deal of emphasis on that kind of analysis of the wage market, that is, the differentials, and in fact that proved to be a very important factor in areas like construction and raising wages.",46
-fomc-corpus,1977,"A little louder, please.",6
-fomc-corpus,1977,"Excuse me, I think there's no question that that's going to have a significance. That's going to play some role in wage determination in the near future. My own feeling about wages, I think, has deteriorated slightly because I'm afraid of the feedback from the rapid increase in prices that we've had recently. And I think that's been the most significant factor in my own adjustment upward of the outlook for wages later on this year.",85
-fomc-corpus,1977,"You know, I think it would be a good idea for the staff to keep in touch with John Dunlop and one of our own [Reserve Bank] directors, Arnie Weber. They are probably the most astute students of the labor market that we have. And in judging wage trends, I think it would be a good idea for you to talk to each of these two men once every few weeks.",82
-fomc-corpus,1977,He is pretty happy about the construction sector. But it's outside of construction that he thinks we're--,19
-fomc-corpus,1977,He thinks steel and autos are well ahead of their [projected production] and so on.,19
-fomc-corpus,1977,Yeah.,2
-fomc-corpus,1977,"Thank you, Mr. Morris. Mr. Fossum, please.",14
-fomc-corpus,1977,"Mr. Chairman, I'd give the Committee a little sense of the sentiment from the Southeast based upon the expressions by our directors at their recent meeting. I'd say, almost to a person, our directors expressed, not pessimism, but very cautious optimism about the near-term economic future. And this is based in considerable part on the revived construction activity in our District, which is pretty general. Real estate is moving actively again in all of the regions. We still have an overhang in central Florida. In south Florida, activity has picked up considerably, based in part on purchases being made by foreigners--mostly Latin American, I would say, although some Swiss money is coming in. One of our directors who is an industrial contractor reported that, despite the fact that it is not yet showing up in the figures, small, medium, and large companies are making commitments in a big way now for capital expenditures. And that they will be coming online, they've got all the business that can handle in the near-term future. Supporting what Mr. Baughman reported, we are seeing shortages showing up now in oil drilling, rigs, and in labor. There is a shortage of oil barges in the Gulf area. Quite active activity on the Mississippi and Louisiana coast, but concern expressed for shortages that are impeding that. But generally, the outlook is one of cautious optimism.",273
-fomc-corpus,1977,"Thank you. Mr. Coldwell now, please.",11
-fomc-corpus,1977,"Mr. Chairman, there are only three spots in the change, or in the projections, which raised some flags for me. First, the inventory change, shifting--from the first quarter to the second quarter--from 12.1 to 3.0. And secondly, the increase in final purchases jumped from 39 billion to a 57 billion rate. And then, finally, the net export picture, from a negative 13 to a positive 1. These are very large changes in these units as the forecast--",106
-fomc-corpus,1977,Those are for the second quarter?,7
-fomc-corpus,1977,"Between the first and the second quarters. I think, as I look over these figures and other matters, that the directions are right. I wonder if the magnitudes are quite that much in the way of change. I particularly question the degree of change in inventory because I think you're going to get more rather than so much less. The net export figure, I guess, was an oil figure more than anything else in the first quarter, and maybe that will swing that much. But a shift [in] consumer purchases by that large a change is truly a major shift. I guess all of this means to me that you've got negatives and positives on the side of the total change in the GNP. And I just wonder if maybe the second quarter isn't going to be stronger than what you're reflecting in this forecast.",162
-fomc-corpus,1977,"As far as inventories are concerned, Governor, the first quarter was extremely strong in part because it was a substantial shift--a swing in inventories from the fourth [quarter] to the first. The actual rate of inventory accumulation in the second quarter is higher than the first at a reasonably--not a high rate, certainly relative to GNP, but certainly within a reasonable range relative to the growth in GNP. The net export situation in the second quarter is reflecting a continued high import of fuels, a much larger import of fuels in the second quarter than we had anticipated, and this involved an upward revision of the import figure and of further weakness in the net export figure for the second quarter. Now, there is a bit of a long lag there, obviously, in getting figures on foreign trade, and those could be revised by the time the figures come out. But they look like they're moving in that direction. We've revised upward our personal consumption figures for the second quarter and now have a very strong increase in that sector, so I think we have a pretty strong rate of increase in that sector. It's certainly possible that the second quarter may turn out to be even stronger. The inventory figures we have are for April. They don't show any great acceleration from the earlier months, but they could move up rather swiftly.",262
-fomc-corpus,1977,"All right, thank you, Mr. Coldwell. Mr. Lilly now.",16
-fomc-corpus,1977,"Well, I just wanted to point out that they would be unable to build 1978 models until the legislation that was in front of the Congress to reduce the emission standards was passed. I'm very much concerned about the 11-1/2 million annual rate of autos that you have projected, which includes the 25 percent decrease in imports, in view of the fact that legislation has not yet passed Congress, and the Ford Motor Company in the last couple of days announced they were going to put a '77 label on '78 models. I'm sure that General Motors is going through the same kind of problem as to what they're going to do, because the time for production is here. Now they can, as most of you know--the '78 models are mainly made in '77. So they have the balance of '77, they can build '77 models and they can call '78 models '77, but once they get to the first of January, they're in real trouble.",198
-fomc-corpus,1977,What is the status of that legislation?,8
-fomc-corpus,1977,It's still in conference.,5
-fomc-corpus,1977,Expected soon?,3
-fomc-corpus,1977,"Well, you know, last May 25 it was expected almost daily, and nothing has happened, and we've all--",24
-fomc-corpus,1977,Who's holding it up? Do you know? I haven't been told.,14
-fomc-corpus,1977,"Well, I don't know.",6
-fomc-corpus,1977,[Unintelligible]. It seems to me there's one last week--,15
-fomc-corpus,1977,"We have kept in touch following your comments last month, Governor. We kept in touch with this legislation and, obviously, you are perfectly right. The producers are disturbed, quite worried--",37
-fomc-corpus,1977,"Well, here's Ford, you know--now putting a label of '77 on a '78 model--incidentally that has an interesting effect because they're going to have to sell it at '77 prices, they think. So it's actually coming on the market a little cheaper.",55
-fomc-corpus,1977,It might be a good idea to extend the thing.,11
-fomc-corpus,1977,They do anticipate--,4
-fomc-corpus,1977,I was afraid they might see that.,8
-fomc-corpus,1977,"They do anticipate action very soon on this legislation. And on the basis of our discussions with Detroit, we have continued to assume that the legislation will get out very soon and that they will be able to move on to '78 production on schedule. And they are making that assumption.",56
-fomc-corpus,1977,At higher prices.,4
-fomc-corpus,1977,At higher prices.,4
-fomc-corpus,1977,"All right, thank you, Mr. Lilly. Mr. Winn now, please.",17
-fomc-corpus,1977,"Two brief comments, Mr. Chairman. First, in terms of our capacity measures. I'm quite impressed, on the one hand, with what industry has been able to do with some small retooling in terms of dramatically increasing the capacity of output for their plants. And so part of the new technology is just being factored [in] as the pickup occurs now in machinery orders and some of these things. So this is one thing to sort of take a look at, that we are getting tremendous output potential from very small increases in investment, a result of new technology. On the other hand, the amount of real investment that has to come in our mining, coal, and other areas is just almost beyond imagination. And some of this is starting. The highly dramatized labor difficulties in coal haven't really led to an awful lot of inventory building up. Normally, you would think that would occur rather rapidly. Coal prices are firming, and their outlook is good. But the transportation investment is very real, it's resulting in changes in the location of coal. Instead of Duluth being a mining center, it may be a coaling center. The third comment I'd like to make is, in Ohio the agricultural situation is not nearly as good as in other parts of the country. The drought this year, and the freeze, which affect the fruit crops and other things, added a little bit of pessimism into the air. [Report on domestic open market operations]",293
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,Thank you for a very interesting report. Any questions of Mr. Meek?,16
-fomc-corpus,1977,"I wonder to what extent open market operations in bills offset what the Treasury does by running off its bills? You mentioned one week where the numbers seemed to be not too dissimilar. But then you said that, over the quarter, the Treasury reduced bills, I believe, by $10 billion, which surely is much more than the Fed could have sold.",71
-fomc-corpus,1977,"Well, our operations in the short run, of course, add to the available supply of market bills, and in this period they reduced the shortage in the market. Nonetheless, the shortage of bills in the market has been one of the reasons that the bill rates have been out of line with other short-term rates during this period.",66
-fomc-corpus,1977,"Any other questions? Well, thank you. And Mr. Kichline, could you introduce us to the Bluebook at present?",27
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,Thank you. I overlooked an action that is required on the operations at the Domestic Desk that we need to approve if we are so inclined--what the Desk has done during the past month.,38
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Motion has been made and actually seconded.,9
-fomc-corpus,1977,Do they have to buy them themselves if we don't approve?,12
-fomc-corpus,1977,"I hear no questions or objections. All right, any question to Mr. Kichline?",19
-fomc-corpus,1977,"Jim, on alternative B, you are looking at an M1 [growth rate] rising from 1.9 [percent] in June to 8.2 in July. Would you tell me what the pattern of that was in 1976?",51
-fomc-corpus,1977,For the June-July period? We have it in one of these tables if I can locate it. M1 in June of last year declined 1.2 percent and in July rose 7.1 percent.,44
-fomc-corpus,1977,So your pattern isn't much different.,7
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,One point higher.,4
-fomc-corpus,1977,"No, that is right. We are starting clearly at a June base that's roughly a bit higher. But essentially the same sort of thing in terms of, after two months or so, we assume that resumption of growth will occur. That's what we've built into our patterns this time. This is two months after this massive bulge--",67
-fomc-corpus,1977,"Yet, your economic situation is sharply different.",9
-fomc-corpus,1977,"That's right, if our forecast is right, it will be stronger this time around than last.",19
-fomc-corpus,1977,"Which ought to then build a higher rate for M1, shouldn't it?",15
-fomc-corpus,1977,"Well, since we have a little bit higher rate on average for that period, we have a higher rate.",22
-fomc-corpus,1977,"I know, but starting at the lower base you still are moving roughly the same--",17
-fomc-corpus,1977,"We, by the way, are just about on track now in terms of [the second] quarter. We had an 8.2 percent annual rate of growth, and we have about the same this time. So, on average in the second quarter this year and last, there's not much change.",61
-fomc-corpus,1977,"All right, thank you, Mr. Coldwell and Mr. Kichline. Mr. Morris please.",22
-fomc-corpus,1977,"Mr. Chairman, I'm very much disturbed by this prospect of an early July artificial bulge in the money supply. It seems to me that our response ought to be to adjust the seasonal adjustment factors to reflect the fact that our present seasonals are wrong. To do otherwise is to give a market which is very sensitive to these numbers a misleading impression as to what is going on. We now have in the marketplace a feeling of confidence that we have got the money supply under control. I don't think we ought to mislead the market, but on the other hand, for us to publish numbers where we know the seasonal adjustment factor is wrong, I think doesn't make any sense. I hope I can find some support around the table [for] that possibility.",151
-fomc-corpus,1977,"You have me as a supporter, at least tentatively. What is the answer to Mr. Morris?",21
-fomc-corpus,1977,"Well, this is the first July that we had this. [Previously there were two instances] of this sort of experience--the third time around [will be] this July. In April, there were clearly a number of things going on. We had three special factors, I remember, plus sort of underlying transactions demands. So one of the issues is, how much do you allow for seasonal impact of this Social Security check? And, quite frankly, the reason I brought it up is to call it to your attention, but also I'd like to put a little tone of uncertainty on it. I know the New York Federal Reserve Bank has a somewhat smaller allowance--at least in our staff discussions early on they have allowed something smaller than we have. So I think there is a good deal of uncertainty as to how much one ought to put into this special factor.",173
-fomc-corpus,1977,"Well, I think seasonally adjusting weekly data involves a lot of uncertainty anyway. But it seems to me that we do have some historical basis for making an adjustment we ought to use.",37
-fomc-corpus,1977,"Well, is this seasonal? You've had two occasions--two different weeks and two different months, and the third one is coming up. Now, the two seem to go the same direction, so do you already bet and change the seasonal? What if the third one doesn't happen?",56
-fomc-corpus,1977,Suppose you didn't call it a seasonal? Suppose you called it an identifiable special factor that you are correcting for?,23
-fomc-corpus,1977,"It's not very identifiable, is the trouble.",9
-fomc-corpus,1977,"What's that? Well, not the amount, no.",11
-fomc-corpus,1977,"One way of handling it is, when you announce the figure, emphasize that this happened.",18
-fomc-corpus,1977,"It seems to me that's the better course to go, Mr. Chairman. I don't visualize this, just by reading the explanation correctly, as a seasonal at all. It's an increase in the money supply that is on the books of the private sector for a longer period of time during a month, during the year.",63
-fomc-corpus,1977,"If it happened every year, then the seasonal would take [it] into account, and we would not be showing a big bulge. It's [because of] the fact that it doesn't happen every year that we've got a problem.",47
-fomc-corpus,1977,"But that's my point, I think, Frank, that this isn't a seasonal. If it happened every year, it would be up every year because you have a larger volume of money in the hands of the Social Security recipients for a longer period during that year. But I don't think it is a seasonal at all.",63
-fomc-corpus,1977,"It won't happen, of course, in the same month. It only happens when, as I understand it, the first of the month is a weekend.",31
-fomc-corpus,1977,"Well, the third of the month is on Saturday or Sunday or holiday. I might say there's a chance--",22
-fomc-corpus,1977,Isn't this analogous to the kinds of adjustments our statisticians have learned how to make in retail trade because of the shifting date of Easter?,28
-fomc-corpus,1977,"Exactly, or the number of trade days in a month.",12
-fomc-corpus,1977,"I have sympathy for what Mr. Morris has suggested, having worked on problems of that sort, not recently, but over many years in the past. What I could say in defense of the staff is that what they are allowing for, this exceptional factor, is not very large. And when you make your seasonal correction, the elements of uncertainty are parallel--[it] is much larger than the allowance which they make; therefore, practically, I don't know that it makes too much difference.",98
-fomc-corpus,1977,How much are we talking about?,7
-fomc-corpus,1977,"In dollar terms, a billion and a half. But let me just say for that particular week, July 6, our weekly pattern consistent with alternative B has a not-seasonally adjusted increase of $10 billion and a seasonally adjusted increase of $3 billion. So there's a $7 billion seasonal adjustment there in that week already, so out of the three we assume that 1-1/2 is associated with this Social Security affect.",89
-fomc-corpus,1977,"Will you translate that into percentage change, too, Jim? A third of your 8.2 would be--",23
-fomc-corpus,1977,Yeah. Without it we would be down to a 5.8 percent annual rate of growth in July.,22
-fomc-corpus,1977,5.8 without this special Social Security factor. What is it with that factor?,17
-fomc-corpus,1977,8.2.,4
-fomc-corpus,1977,"Gentlemen, I think you've heard me say time and again at this table that 4 equals 8, and now we have 6 equaling 8. And I still would go with Mr. Morris, I think, but it's not a factor of much consequence, really, practically, because of uncertainty in measurements that surrounds our entire operation here.",72
-fomc-corpus,1977,"Conceptually, I don't see why this affects more than one week. Why isn't it all washed out the next week?",24
-fomc-corpus,1977,"Well, but it's spread out. The average effect on the month.",14
-fomc-corpus,1977,"I understand that, but you get a higher month because one week is higher.",16
-fomc-corpus,1977,And therefore the rate of change is--,8
-fomc-corpus,1977,"It's that the change from [the week of] July 6 to [that of] July 13 is different with the higher level in the first week. We have it all washing out in the first 15 days of July. And that's indeed what happened, if our interpretation is correct, in both October and April--that it's a first-half phenomenon, and it occurs largely in the first week, and a little bit in the second week, and in the third week it's all gone.",99
-fomc-corpus,1977,"All right, thank you. Mr. Mayo.",10
-fomc-corpus,1977,"Well, I was on the same track as Frank--I think this is an absurdity in the [sense that] it causes people to suggest, when they hear the explanation, that we are all nuts down here. It isn't even clear--even if we say it's washed out, well, we are saying it really isn't washed out because it makes a difference in the way the rates go. And if it is not washed out--if we are saying that, well, the Social Security recipient actually has on average more money in the month of July than he would before, [then] I think there is a real increase over the entire year. Maybe it's tiny here; maybe it's only 1/10 of 1 percent in the overall, but isn't that what we are saying, that it isn't strictly a seasonal?",165
-fomc-corpus,1977,"You're quite correct. I meant that the level of the money stock is not higher after mid-July, but on average you are talking about--",29
-fomc-corpus,1977,"But on average it is, and so that enters in--to put this absurdly, perhaps--this enters in to maybe 1/10 or 2/10 of 1 percent higher money supply growth for the entire year , or an annual rate of 2-1/2 for the month of July. And so we should theoretically set our long-term target ranges one-tenth or two-tenths higher for what is an absurd factor. And I think this does make us look rather foolish. So I would vote very strongly for an adjustment to wash the thing up.",117
-fomc-corpus,1977,"I don't think it makes the average figure for the year higher, because the rate of change in August would be lower because of this.",27
-fomc-corpus,1977,"Not necessarily. If you are a Social Security recipient and you have that money two days earlier, you have an average balance of cash for the month of July that's higher than it would otherwise be, right? It hasn't anything to do with August, September, or any other month. But it's an absurd economic practice.",63
-fomc-corpus,1977,A billion and a half dollars for two days can't affect the annual average by even 1/10 of 1 percent.,25
-fomc-corpus,1977,"It affects the monthly average by 2-1/2 percent, Paul. Now, what I'm concerned about is the expectation in the marketplace that, by God, the money supply is exploding on us again.",42
-fomc-corpus,1977,"Let's be careful; we are not talking about the explosion, we are talking about--",17
-fomc-corpus,1977,"We are talking about very big increases in the first week of July, Mr. Chairman--about $3 billion.",23
-fomc-corpus,1977,"We are talking about a difference between 5.8 and 8.2, and that is well within the normal margin of error of the seasonal calculation.",32
-fomc-corpus,1977,That's for the month. I think Frank's talking about the first week.,15
-fomc-corpus,1977,"Well, that's true, for the first week it will be very much bigger.",16
-fomc-corpus,1977,"Well, I think Paul's got the right idea; you just emphasize it in the statement. If you start to adjust your statistics ad hoc, there is a question of credibility: ""Why are you doing that? Because you didn't want to show a large increase?""",52
-fomc-corpus,1977,We do this for the industrial production index when we have a special factor.,15
-fomc-corpus,1977,"Well, I know, but I have always been a little nervous about that.",16
-fomc-corpus,1977,"The difference there is that it's been done for years, and therefore it's a respectable procedure by now.",20
-fomc-corpus,1977,"Well, the other special factors from time to time--when we have to do the same for each of them, in the end, then we find that the money supply throughout the year grows at 5.5 percent.",45
-fomc-corpus,1977,"Seems to me [that] protestations about people who have watched our money supply figures and immediately translate them into market actions are contradictory in the sense of the subject we are now discussing. If we are really going to tell the world to stop worrying about weekly fluctuations, we ought to think a long time about making adjustments in those weekly fluctuations. I wouldn't mind commenting on them. If we don't want people to do what they are already doing, and I suppose that's a vain hope--",96
-fomc-corpus,1977,"All I'm suggesting, Steve, is that we have a good seasonal adjustment instead of a lousy one.",20
-fomc-corpus,1977,"Well, I would suggest that we might discontinue the seasonally adjusted weekly figure as of the first week of July and give this as a reason. There are so many odd things affecting that seasonal pattern, that we are going to stop seasonal adjustment.",49
-fomc-corpus,1977,"I think we have to be very careful about that. A campaign is being waged against the Federal Reserve now by some economic and statistical quacks. And for us to discontinue the seasonal calculations would, I think, be a concession on our part, which I am not ready to make at all--that the quacks who make a living out of quackery have suddenly become prophets and valid interpreters of statistical procedures. I don't think we ought to do that. I think we ought to follow Mr. Morris's suggestion, or do what the staff is now doing, or something in between. After all, there is some leeway here. If we follow staff procedures, some explanation of the numbers ought to be indicated in the news release. I would not suspend the seasonal calculation. What we ought to take up--and this is not the day to do it--is the question of publication of these weekly figures. I will finally argue, I think, that we ought to discontinue. These are sheer noise. We would have to take some heat from the journalists and congressional people, but there has been enough discussion of that--the unreliability over those figures--to justify our doing that. [But] let me not debate that issue today.",252
-fomc-corpus,1977,"You have my vote, if you are going to vote today.",13
-fomc-corpus,1977,I'll second it.,4
-fomc-corpus,1977,This is discontinuance permanently. I thought you were suggesting for the one week.,16
-fomc-corpus,1977,"No, for permanently, of the seasonally adjusted weekly figures.",13
-fomc-corpus,1977,"Well, no, I would--",7
-fomc-corpus,1977,You can't discontinue the unadjusted figures. Freedom of information requires--,14
-fomc-corpus,1977,"I don't see why you can't. After all, we don't publish daily figures, thank God. We could do it, we've got them.",28
-fomc-corpus,1977,You'd get a court case.,7
-fomc-corpus,1977,"Look, whether we win or lose a court test, you do the right thing in this shop. But let's not debate that issue today. Mr. Balles, you had a question on the Bluebook.",42
-fomc-corpus,1977,"I wanted to ask Mr. Kichline a question, not on Bluebook per se, but on related matters in financial markets. Just a comment. In the first place, I find it rather strange, this dichotomy in the trend of business loans since the first of the year--New York versus the rest of the country, among the big banks. Total business loans are up about 600 million in the aggregate among the big banks, but New York's gone down 2-1/2 billion, and the other banks have gone up 3.1. I wonder if that's got something to do with the recent downward adjustment in the prime rate in New York. I am particularly interested in [whether] the staff has a view on the dichotomy in the behavior of business loans--New York versus the other large banks. And whether you had a view, secondly, on whether there might be a further narrowing in the present differential between the prime rate and the commercial paper rate.",199
-fomc-corpus,1977,"With regard to New York, the only information that we have that seems quite consistent--we've checked reasonably thoroughly on this--deals with the performance of the commercial paper market. Many of the prime customers apparently were in the paper market. We tracked down the names of some of those issuers who were large borrowers earlier in April and May, particularly, and they seemed to have been candidates for New York City banks. And perhaps the borrowing that would normally have gone to the New York banks showed up in the paper market. With regard to the prime rate spread, it clearly has narrowed. I don't know about further narrowing. I think that the pressure would be there, given the New York banks' performance on business loans, and the Redbook clearly reports qualitative comments that business loan demand at New York banks is relatively weak. And so I think that there would be some continued pressure because of the preference of many of the borrowers to seek alternative sources of funds. And so I think that the pressures are in that direction for a narrowing of the spread.",210
-fomc-corpus,1977,"In that connection, John, I happen to have been at the New York board meeting, and I don't think Paul was; Alan was, some others. But there was some indication that this was not an unusual phenomenon, that typically loan demand growth in New York lagged the rest of the country in a business cycle, and that this was not abnormal in any sense of the word--",77
-fomc-corpus,1977,"Well, it is true that New York normally lags, but this has been an exceptionally long and pronounced lag. And I think the normal, usual explanation for it in the Treasury market is that the biggest companies in the country are relatively liquid, and most of the loan demands must be coming from smaller ones, which is reflected in the fact that outside the weekly reporting banks, it's stronger than in [larger] weekly reporting banks outside of New York. And this is an exceptionally wide discrepancy by historical standards, although, in [its] general direction it's not unusual. I think the banks are in a conflict about the pricing of their loans. They don't want to reduce the prime rate. They feel it loses profit margin all around. On the other hand, they have this problem--if they could reduce the prime rate without reducing it on so many secondary loans, I think they would do it. They are unhappy with the pricing structure--there are too many people with the prime rate; they haven't been able to correct it.",206
-fomc-corpus,1977,"All right, thank you. Mr. Willes, please.",13
-fomc-corpus,1977,"I have just one question, Mr. Chairman, following along essentially the same line that Governor Coldwell was on earlier. I assume, given the robustness of the economy, that if your forecast for M1 turns out to be in error, and you are surprised by the number that you see, [would you] expect to be surprised with higher, stronger numbers?",73
-fomc-corpus,1977,"I wouldn't be surprised to see anything, frankly, on a monthly basis, but I think one of the factors tending to hold down July growth in our view is still some continuing lag impact of the higher interest rates--that we ought to be having some marginal trending down of what would otherwise be the underlying rate of growth of money demands holding interest rates constant. So I think our guess at this juncture is quite good. But if I put all the special factors together and what would likely come out, I think that we could very well be in for somewhat higher rather than somewhat lower numbers.",118
-fomc-corpus,1977,"All right, we will hear from Mr. Jackson and then break for coffee.",16
-fomc-corpus,1977,I have already said what I was going to say.,11
-fomc-corpus,1977,"Very good. We'll take a break now, a brief break.",13
-fomc-corpus,1977,"Gentlemen, we have to resume our deliberations, and we want to turn now to the policy directive, and let me just say a word about that--give my own views. We embarked on some tightening; what we sought to achieve, I think we have achieved. There has been a marked slowing down in the monetary aggregates. Also, while short-term interest rates have risen, the long-term interest rates not only have not increased, they have actually declined. To a degree, I think, we have been lucky. To a degree, however, I think our action has been very reassuring to the business and financial community. We have indicated that we do have a firm policy for dealing with inflation and that we at least are discharging that responsibility. And we are not going to let the monetary aggregates explode, and we'll do our job. And I think this has been comforting to the market and is perhaps partly responsible, to say the least, for the behavior of long-term interest rates during the past three weeks. I would recommend to the Committee that we stand still. And alternative B looks good to me. As far as the federal funds rate is concerned, I think I'd stay where we are, with a range of 5-1/4 to 5-3/4, and with an asymmetrical midpoint at 5-3/8. Now, I've had a discussion with the staff about the Social Security factor. As I think you all know, the New York Bank holds a weekly [press] conference on the meaning of the figures they put out. And this time, at the New York Bank's press conference, the point will be made quite sharply and very clearly that the weekly figure is affected by the Social Security factor, and therefore we will not be misleading the market. As far as the figures are concerned, under alternative B, if, let us say, we did follow Mr. Morris's suggestion, instead of having 3 to 7 for M1, the figures would be 2 to 6, you see. And it's a difference almost without much meaning. While I lean in favor, logically, to Mr. Morris's suggestion, I think that it would be a mistake to dictate to the staff on a matter of this sort, and Mr. Kichline has indicated to me that, in addition to the Social Security factor, there are other factors, technical factors, at play that have not been properly evaluated. And, therefore, I would stay with the staff adjustment as it stands and not interfere with it but make a full explanation of the uncertainty and the special character of the figure at the New York Bank press meeting. Well, to repeat, my best suggestion to the Committee is to adopt alternative B as far as the monetary aggregates are concerned and to stay with the present federal funds rate range. I see no good reason for changing.",580
-fomc-corpus,1977,"Would you use the money market directive, Mr. Chairman, or the aggregates directive?",17
-fomc-corpus,1977,"Well, logic is a stern master, and if one respected it, really, one would have to use a money market directive--but I have found it desirable at times to throw logic to the winds, and I see some advantage in the monetary aggregates directive because, basically, that is what we ought to be doing. Who would like to speak first? Mr. Volcker, please.",78
-fomc-corpus,1977,"I have the same feeling about the federal funds rate range that you do. I think, basically, we are talking about B. I am, anyway, and you are. I think I feel a little more cautious about the business outlook than the staff does at this point. But also the aggregates are going up higher, and I think that this is a little above our target. This is the right compromise, and I wouldn't like to see the federal funds rate declining [to] 5 percent here, so I'd like that lower base, the one we have been working on. And the aggregates are also all right with me. I'd be perhaps a little happier by lowering the lower end of the range of M1, just in case it did come in low, because we could stand it coming in low again--make it 2 to 7--but 3 to 7 is also acceptable to me. I think the important thing is, if the aggregates come in a little low, we can take that and not go below the 5-1/4 on the funds rate.",219
-fomc-corpus,1977,"All right, thank you, Mr. Volcker. Mr. Roos now, please.",19
-fomc-corpus,1977,"Mr. Chairman, I would like to speak in behalf of the alternative C pattern, for a couple of reasons. It is obvious that our aggregates are at the upper portion, the upper limits, even beyond the upper limits, [of the] long-term ranges. If we are going to get these down, we are going to have to, somewhere along the line, make a correction, unless we determine in July to again raise the base from which we project these ranges. And if we do that, if the ball game is similar to where it is today, I think we will find ourselves at a dangerously high range for the aggregates. If we are going to have to make a correction, it seems to me that, if we do it at a time when businesses are relatively strong, we create less of a reaction in the business community and less of a potential reaction psychologically. If, for example, in the latter half of the year, due to capacity constraints, there is a turndown in the economy--if we move at that time to make such an adjustment downward in our aggregate targets, I think it will be a much more difficult time to bite the bullet than if we do it now. And even though we see a great deal of confidence today, we do see the possibility of a significant turndown in the last half of the year. We think it would be awfully difficult to make this adjustment later on, and I'd just like to, for whatever my opinion is worth, express a preference for C.",307
-fomc-corpus,1977,"Let me make this observation. It's not that I want to be argumentative. I'm trying to be factual. If the economy should turn down, you can rest assured that the monetary aggregates will come in at a very subdued rate no matter what our target's going to be. And therefore, the monetary aggregates will slow down even if we left them unchanged, no matter what we do, pretty nearly. That certainly has been the experience over many, many years. Mr. Mayo now, please.",98
-fomc-corpus,1977,"Mr. Chairman, I feel quite strongly that the federal funds rate range should remain exactly where it is. I feel also, though, that I would rather adopt the monetary aggregates specs of C, because I am concerned--I don't want to see us move as much as the fed funds range would indicate if, indeed, we only get a 2 percent or 1-1/2 percent increase in M1 and, correspondingly, with M2. So, I would prefer to see the lower ranges adopted by this Committee for both M1 and M2 as being quite consistent with the 5 to 5-3/4 range. I also prefer the money market directive, but I don't feel strongly about it. But I think it is the preferred course this time.",157
-fomc-corpus,1977,"Mr. Black now, please.",7
-fomc-corpus,1977,"Mr. Chairman, I feel that M1 in the second quarter is still going to be moving a little faster than we'd like to see it. In view of the likelihood that the economy will continue on upward, the demand for transactions balances is likely to lead to some rise in the demand for money. But fortunately, it looks like M2, which I consider a lot more important, is coming in better now, and the prospects for holding that within the target range seem pretty good to me, so I come out almost where you did in saying we ought to stay about where we are. I was leaning toward the money market directive, which I don't like to do, either, and if you are prepared to throw logic to the winds, I'll go along with you and go with the aggregates [directive], which I really prefer for philosophical reasons. Like Mr. Mayo, I would prefer the ranges on M1 and M2 embodied in C because our projection suggests, quite surprisingly, that we may have a little less growth than staff suggests.",208
-fomc-corpus,1977,"Okay, Mr. Black. Mr. Coldwell, please.",13
-fomc-corpus,1977,"Mr. Chairman, I'd be perfectly satisfied with the steady policy directive this time, but that, to me, implies use of the money market directive rather than the monetary aggregates directive. I would prefer that we use the full specs of alternative B, 5 to 5-3/4 on the funds rate range. If things turned out to the point where you had a very large shortfall of the aggregates, I wouldn't want to be limited to only 1/8 of 1 percent change in the funds rate. It seems to me that, looking further on down the road, we've got ourselves built into a very high velocity estimate, and I'd like to maybe soften my bet a little bit on that, so I'm perfectly willing to stay in the 3 to 7 range for alternative B right now. But I'd like a little flexibility in the funds rate and use the money market directive.",180
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Balles, please.",15
-fomc-corpus,1977,"Mr. Chairman, in spite of some jawboning that we have gotten from certain quarters, I feel personally pretty good about what we did in calming down the monetary aggregates. I think that has worked quite well. We have reassured markets, as you've mentioned and as Frank Morris alluded to earlier. In terms of the decline in long-term rates, and in terms of the decline in the T-bill futures market, I would stay just about where we are and see what happens for another month, when we get a peek at the August estimates. I'm basically fairly bullish on the economy. I recall somewhere here [at] the table last month, maybe it was Mr. Guffey--I know now to call this Guffey's law--saying that the better the economy, the more time we spend looking for problems. Despite the fact that you can always find certain areas of risk, I think the economic outlook is quite bullish, and therefore I'd be prepared to stay with alternative B on the federal funds rate. Like several others, including Mr. Mayo and Mr. Black, I would prefer the alternative C specifications on the monetary aggregates, and I would go for the aggregates directive. I'd be prepared to rise above principle in this case.",252
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Eastburn now.",14
-fomc-corpus,1977,"Mr. Chairman, I like your suggestion of alternative B. I think, also, that it is consistent with the uncertainty that I was talking about earlier. And one of the things we also hear when we talk of businessmen is that they do look to the Fed for some source of stability. And in that connection, I was interested to read in the Redbook a comment by Professor Samuelson--zigzagging around the desirable range as new information cumulates is the optimal policy posture in a changing world filled with uncertainty. I am not about to take on Professor Samuelson, but I understand that that position, even in technical terms of optimal control theory and rational expectations, is questionable, and certainly [it is] in terms of the intuitive feeling that I have about uncertainty. It seems to me that whatever we can convey to the business community that we're going to move gradually, I think would be for the good. In that context, it seems to me that it would be well for us to go with alternative B.",204
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Willes, please.",15
-fomc-corpus,1977,"Thank you, Mr. Chairman. We've talked a lot today about uncertainty, about businessmen's feelings, and so on. It seems to me that one element of consistency between what businessmen tell us and what we've heard around the table today is an increasing concern for inflation. And I guess, in the comments that you made earlier about the salutary effect that monetary policy has had on businessmen's expectations--I find that very compelling, and I would take that same argument, that same logic, and apply that in a context today of suggesting that we ought to continue to give fairly overt signals that we are sensitive to that concern and we are going to continue to press gradually and modestly in that direction, even at the risk of some increase in short-term rates. That has the added advantage--if the Bluebook is correct, and I find the argument fairly sound--that an increase in rates now would imply a smaller increase in short-term rates 9 to 12 months down the road, and that would have some obvious advantages as well. So I would prefer to see the Committee move in the direction of alternative C.",223
-fomc-corpus,1977,"Thank you, Mr. Willes. Mr. Partee now, please.",16
-fomc-corpus,1977,"Well, I am in agreement with your proposal, Mr. Chairman. I think it would be a good time to stand still because it isn't altogether clear to me which way we are going to be going from this point. There are a few signals in the economy that are a bit bothersome. On the other hand, it seems to me the bulk of the evidence is that we'll have continued substantial expansion. Also, I think if you look at alternative B's ranges--M1, 3 to 7--well, assuming June is right, at about 2 percent, that means M1 below 4 in July would get you below the lower limit. Now 4 is not such a disturbingly low figure. And so I think it's set about right. And on the other side, to get 7, you would need to have quite a large increase in the month of July. Now it is possible, so I think that these are very good outer bounds of the tolerability we ought to have for what might seem to be developing as we go into the early summer. I'm inclined to think it ought to be a money market directive because of the very narrow band on funds, and also because of this uncertainty we have about the month of July with the technical factor that was discussed before, and with the question of how much rebound there will be. And that would leave open the possibility of a special meeting or a special wire if, in fact, July developed very unusually in terms of the aggregates. So I would take exactly the specs you suggested, but I would prefer a money market directive.",322
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Morris now, please.",15
-fomc-corpus,1977,"Well, Mr. Chairman, I think we are very fortunate that the staff projections for May and June turned out to be pretty close to reality and that we didn't need the insurance on the funds rate that I feared we might need a month ago. I like alternative B. I would hope that we could stay, as Dave Eastburn suggested, at 5-3/8 for the month. But on the other hand, I would expect the Manager to use a full range in the event that we get a radically different performance in the aggregates than we're now expecting.",113
-fomc-corpus,1977,"Who would like to speak next? Yes, Mr. Jackson.",13
-fomc-corpus,1977,"I prefer alternative B, but I would prefer a money market directive. If you look at the calendar and the distortion to take place July 1, and we meet on the 19th, and the projections are that it'll take two weeks for this to be worked out, we will really hardly know what's going on for July or most of the period ahead of us. So I think a money market directive would be preferable.",85
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Wallich, please.",14
-fomc-corpus,1977,"Well, we've worked off most of the bulge of April and the two following months, but not all of it is for M1. So to be going again at 8 percent in July is something of a concern. However, this is a special situation, and so I would not take issue with the alternative B range of 3 to 7 [for M1]. As far as the funds rate is concerned, I hope we can stay at the present level and take our subsequent moves in discrete steps. So again, I would go with 5 and 5-3/4, although ordinarily I would prefer a wider range. As far as the directive is concerned, I have preferred on general principles an aggregates directive.",147
-fomc-corpus,1977,"Thank you, Mr. Wallich. Who'd like to speak next? Yes, Mr. Guffey.",23
-fomc-corpus,1977,"I'd like to join those--I guess Paul Volcker, Bob Mayo, and others--that have suggested that we adopt the aggregate ranges of C but rather the federal funds that you have suggested, 5-1/4 to 5-3/4, and staying at the 5-3/8 as long as possible. That seems to me and our staff a little more consistent with staying where we are and avoiding a drop in the federal funds rate that might possibly occur. The other point that I'd like to make, whether it's a money market directive or an aggregates directive, I guess it's not of great importance to me. So long as we have that lower range of the fed funds of 5-1/4, it will not go below 5-1/4 under any of those, and I could accept either a money market or an aggregates [directive].",178
-fomc-corpus,1977,"All right, thank you, Mr. Guffey. Now, Mr. Baughman.",20
-fomc-corpus,1977,"I get the feeling that we are once again gradually building a procyclical record of monetary policy. Granting the great uncertainty of the numbers--as we attempt to peer a few weeks ahead, it seems this moves me into the direction of those who have suggested a little firming, or at least posturing for some possible firming. And I find myself in a position of substantial indifference as to whether that be done by raising the bottom or the top of the funds range and riding with the aggregates shown in alternative B, or standing with the present fund range and adopting the aggregates in C. My preference would be to ride with the aggregates in B and raise the ceiling a little for the top end of the range on the federal funds rate. With respect to the form of the directive, it seems to me the probability still is [that it is] desirable to ride with the aggregates rather than the money market conditions directive.",187
-fomc-corpus,1977,"All right, thank you, Mr. Baughman. Mr. Winn, please.",18
-fomc-corpus,1977,"Mr. Chairman, these are mighty small difference we are talking about. I think [if] our posture could be steady as you go, we probably are in the best position. I think I would prefer the B, money market directive.",48
-fomc-corpus,1977,"Thank you, Mr. Winn. Who would like to speak now? We have a few silent members of the Committee still. Mr. Gardner, please.",31
-fomc-corpus,1977,"My experience with this recovery--the only one I've had the opportunity to live with in the introspective halls of the Federal Reserve System--is that we are never quite sure of it. It is certainly protracted, it certainly has not spawned an enormous number of pressures. It has not been traditional. I can understand all of those uncertainties because of the world's present environment--the energy problem and the like. I think our posture, standing firm or standing where we are now, is entirely appropriate. We had a long discussion this morning about pessimism or unease in the business community. These are quite different, I would suspect, than any discussion which might have occurred prior to the oil embargo and other events that have taken place in our historical perspective. Therefore, I'm pretty sure that the recovery is still going to drag out. I think that's a logical presumption to make. And I've been told that the federal funds rate is going to be at 7 and 7-1/2 or 8 percent six or eight months from now ever since I arrived. Therefore, I want to stay where we are, and I think it would be wise to adopt a caution in the sense of the sensitivity to the economy by keeping that 5-1/4 to 5-3/4 federal funds rate. And I think there has been a lot of wisdom expressed for having either an aggregates or a money market directive. I'm not going to invert logic further; I'll accept whatever direction the Committee agrees on.",302
-fomc-corpus,1977,"I'd like to second that, that's my view. Thank you, Mr. Gardner. Mr. Lilly now, please.",24
-fomc-corpus,1977,"Well, we are talking about such a small difference between B and C that I find it difficult to have an opinion. But I must make a bow toward the longer range, and this is what we have to do over the coming years. It would seem to me that any slight tightening possible should be undertaken, so I would be in favor of C on that basis and the funds rate--the range that you suggested--5-1/4 to 5-3/4, with a 5-3/8 midpoint.",107
-fomc-corpus,1977,"All right, thank you. Anyone else would like to speak?",13
-fomc-corpus,1977,"Mr. Chairman, we would support the alternative B. One possibility that occurs to us is that [for] the M1, which has been excessive in the second quarter, the alternative C ranges might be more appropriate. M2 has been performing much better, and perhaps the 6 to 10 range is more appropriate there.",66
-fomc-corpus,1977,"Thank you, Mr. Fossum. Mr. Winn, are you in a mood to speak? Oh, yes, of course you did. Are you in the mood to speak again?",38
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,"I think we have heard now from every member of the Committee. As far as the language of the directive goes--I haven't kept a record--I am a little uncertain what the rest of the Committee's thinking is. I have the impression that as many are in favor of the monetary aggregates directive as the money market directive. Let's have a show of hands on the part of the Committee, those who favor a monetary aggregates directive.",86
-fomc-corpus,1977,"Four, Mr. Chairman.",6
-fomc-corpus,1977,Now we'll just check that--those who favor a money market directive.,14
-fomc-corpus,1977,I was going to vote for the majority.,9
-fomc-corpus,1977,"Six, Mr. Chairman.",6
-fomc-corpus,1977,"All right, I will vote with the money market directive. Let me just take a--well, my Secretary has given me somewhat incomplete information, I am sorry to say, and I don't trust my memory. There is, as I read the record, a majority in favor of 3 to 7 for M1; there is a majority in favor of a federal funds rate of 5-1/4 to 5-3/4. I'm uncertain about the attitude of the Committee toward the range for M2. Let's have a show of hands on the range indicated in alternative B, 6 to 10. Those who find it more or less acceptable will kindly raise their hands.",140
-fomc-corpus,1977,"Ten, Mr. Chairman",5
-fomc-corpus,1977,"Well, gentlemen, any further indication of the Committee's thinking?",13
-fomc-corpus,1977,"I think there is some logic, as Mr. Fossum suggested, in just reducing the M1 a little bit. It is M1 that's above our ranges, not M2--one way to compromise it for me.",45
-fomc-corpus,1977,"Yes, I thought it was a reasonable suggestion.",10
-fomc-corpus,1977,I see no difficulty in having the range 2-1/2 to 6-1/2. Let's have a show of hands on preference. We're going to be comparing 3 to 7 for M1 over against 2-1/2 to 6-1/2. Those who prefer 3 to 7 will raise their hands.,73
-fomc-corpus,1977,"Two, Mr. Chairman.",6
-fomc-corpus,1977,"All right, those who prefer 2-1/2 to 6-1/2 will raise their hands. Very well, that's helpful. Any other comment? Well, I hear none; therefore, I think we ought to vote now on a money market directive and an M1 range of 2-1/2 to 6-1/2 percent, an M2 range of 6 to 10--I don't want to push logic--and a federal funds rate range of 5-1/4 to 5-3/4 with an asymmetrical midpoint that is 5-3/8. Are we ready for the vote?",134
-fomc-corpus,1977,"I think I'd be constrained on that last one, Mr. Chairman. I think we need more room on the bottom side.",25
-fomc-corpus,1977,"Well, I respect that. There is a very clear majority favoring the lower limit of 5-1/4. I don't think the difference is really very large. If and when we get to 5-1/4, depending on how events in the economy, and the money market, and the financial markets more broadly are developing, we can take another look at it, if we are not rigidly bound by the decision reached. We can communicate with one another between meetings. I think we ought to have the vote now.",109
-fomc-corpus,1977,"Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell No Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Eleven to one, Mr. Chairman",52
-fomc-corpus,1977,"All right, thank you. Now, we concluded what I wanted to conclude a little sooner than I thought, I am glad to say, but if the Committee consents to my doing so, I'd like to leave now and turn the meeting over to Mr. Volcker. The subjects to consider are, first, the foreign currency activities that we have been engaged in, and second, the special problem with regard to repurchase agreements on accounts of foreign institutions. And, of course, we have to confirm the date for the next meeting. And any other subjects the Committee considers appropriate, Mr. Volcker will deal with. We'll reconvene, Mr. O'Connell, at 2:15, and we are not subject to any Sunshine limitations, considering what we intend to talk about. And you know the subject.",165
-fomc-corpus,1977,"I do, and in my judgment you are not [subject to Sunshine Act limitations at that session], Mr. Chairman. And with your permission, if, in the course of that discussion, it appears to be otherwise, I will hasten to remind you.",52
-fomc-corpus,1977,"Well, you'll be there as our moral as well as our legal conscience.",15
-fomc-corpus,1977,Will we reconvene as the FOMC?,10
-fomc-corpus,1977,No. We are reconvening as a--,10
-fomc-corpus,1977,I think that we need a report on foreign currency operations from Mr. Holmes.,16
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Mr. Morris, please.",6
-fomc-corpus,1977,"Alan, what's been the reaction to the comments in the BIS [Bank for International Settlements] report about the place of the American dollar?",28
-fomc-corpus,1977,"Hasn't been much visible market reaction to that. I know it has caused a great many people inside government to think about how long we can sustain this without some pressure developing on the dollar. But I think more important is how well we do on the inflation front compared with Germany, Switzerland, and some of the others. Right now we're sort of average and not doing as well as they. But with our interest rates a bit higher, the dollar has been extremely steady in the exchanges.",97
-fomc-corpus,1977,"I have a feeling we have been pretty fortunate that the dollar has been as steady as it has been in view of the trade balance and our inflation performance. And the key, I suspect, in the last month or so was this rise in interest rates that came along at a fortuitous time from that standpoint.",63
-fomc-corpus,1977,"We had no appreciation of the dollar, but it did offset these other movements attempting to weaken it.",20
-fomc-corpus,1977,"Well, one wonders whether the dollar shouldn't appreciate.",10
-fomc-corpus,1977,"Well, we've had some discussions on that recently with foreigners, and what they point out is that there's no indication that our trade with other industrialized countries is really suffering. It's oil, and LDCs [less-developed countries] for various reasons, and Japan--Japan [as an industrialized country] is the one exception to that.",68
-fomc-corpus,1977,"Yes, if you take out the OPEC countries, I think you still find the deterioration.",19
-fomc-corpus,1977,"That's right. But it's in the LDCs and in Japan. It's not vis a vis Europe--well it is Canada, too; [trade with] Canada has been [deteriorating].",41
-fomc-corpus,1977,"Well, if you break up the world into enough separate spots, you're going to find some place you're in balance with.",24
-fomc-corpus,1977,"Well, this is the European argument you hear back, though. There is no need for any depreciation of the dollar vis a vis Europe. Which is basically what you are talking about here.",38
-fomc-corpus,1977,"Did you say, Alan, that money market conditions were easing in Germany?",15
-fomc-corpus,1977,They had been except around the tax date.,9
-fomc-corpus,1977,Do you think it was a special thing?,9
-fomc-corpus,1977,"No, I think they deliberately tended to keep interest rates on the low side.",16
-fomc-corpus,1977,The Italians are a bit worried about their economy turning down; mass production figures showed a decline. Any other comment?,24
-fomc-corpus,1977,"When you observe that some pressures are being brought on the Japanese with respect to the upcreep in their reserves as a result of nonmarket acquisitions, [do] you see a tendency there to also try to accumulate, to some extent, high reserves at commercial banks?",54
-fomc-corpus,1977,"No, I think the Japanese have really abstained. And I suspect, of all the central banks, we have a larger share of their total dollar holdings than any other. In fact, they have used us to keep all those visitors from pounding on their doors. They say, ""No, the Fed wants us to stay with them,"" which we have not said. But it's a good way to keep that steady stream of commercial and investment bankers away.",91
-fomc-corpus,1977,That doesn't say whether they are hiding it?,9
-fomc-corpus,1977,"Well, I meant by commercial banks, banks of the Japanese--",13
-fomc-corpus,1977,Japanese commercial bank holdings.,5
-fomc-corpus,1977,I have no evidence of this.,7
-fomc-corpus,1977,The opposite of what the Italians are doing.,10
-fomc-corpus,1977,I have no evidence.,5
-fomc-corpus,1977,"Any other comment? I take it that we have to approve, ratify, and confirm.",19
-fomc-corpus,1977,One transaction.,3
-fomc-corpus,1977,"Without objection, that is done. The only other thing we have is this foreign RP [repurchase agreement] business. I don't know whether I can assume you have all read these memoranda--there is one from me and one from the Board's staff analyzing some of the pros and cons. If I can, let me just put the issue as simply as I can. If we continue providing this facility for foreign central banks, it appears, under our current understanding of IRS [Internal Revenue Service] regulations, we need to inject some arm of Federal Reserve System as principal. Which means it would be an obligation or instrumentality of the U.S. government and therefore free us from withholding tax. And the legal situation is such that, even if we just inject the New York [Federal Reserve] Bank as principal of the [Federal] Open Market Committee, it then becomes an open market operation, which the [Federal] Open Market Committee must approve. So that's why we have an issue for the Committee. I think there are a couple of underlying questions that have been raised: whether in principle it's a good idea for the Federal Reserve to have such a facility for foreign central banks or governments; and second, whether it helps, harms, or is neutral in terms of affecting the conduct of our own domestic open market operations. Mr. Holmes might offer a comment on that at the beginning. Just to review the general background, we fell into, if that's the right word, this practice fairly heavily after the oil crisis, [when] a lot of short-term money was moving around. There had been some isolated examples of doing RPs before. But after the oil crisis, there was a lot of foreign central bank money that wanted a very short term investment vehicle. When they came to us, it seemed logical to do RPs in a pattern of what had been done for the System account. And this has become a regular thing, averaging about a billion and a half dollars a day, these days. We were operating under the presumption that foreign central banks are subject to exemption from withholding tax so long as they are in government securities. What has changed is [that] the IRS recently had a rather definitive-sounding ruling in a very different context. It concerned a REIT [real estate investment trust] that wanted to count RPs that had been made [in] government securities [under] certain other IRS regulations. And the IRS, for the first time [with regard to] government securities--they said it before in municipal securities to avoid the tax-exempt pass-through--they said an RP was a loan for tax purposes and not a security. So the technical problem was, once they became a loan instead of the security--and the loan in this case presumably from the government securities dealer, and we were acting as an agent in between--there is a clear, definite threat that withholding is necessary, to the point where I thought we could no longer proceed in this knowledge, so we stopped it. And since then all transactions have been done with the System account, which was the pattern of 70 percent of the transactions earlier. The general practice has been, if the System account is operating anyway, they are done with the System account. The System account, as Mr. Meek reviewed, has had a lot of ups and downs recently, so we have been able to do them all with the System account. But the question now is, how the Committee wants to regularize this, if at all. I should say, if they are cut off, there is, I think, a justified feeling, although the magnitude of it can't be identified, that the RP facility has become enough of a part of our investment services and other services to central banks generally that what would be affected is not just the RP facility but some of the other investment transactions in some unknown dimension. Technically there is another route that could be [taken]. Foreign governments are also exempt from withholding tax, and whatever they hold there, with some exceptions. But in general they are exempt. Foreign central banks, if they are wholly owned by governments, which is a big if, would presumably be exempt under that provision, but they can only get exempt by making individual application for a ruling to the IRS. And it appears very doubtful that they would want to do that because it raises other complications. There is one central bank--I guess I am a little doubtful whether it was a central bank, because of its name, the Saudi Arabia Monetary Authority--that has made such an application and is deemed exempt, but that is the only central bank that is in that category. As a practical matter, I think if you relied upon that exemption, the foreign central banks would not apply, by and large, and it would certainly introduce a discontinuity. There have been conversations between us and the Treasury and between the Treasury and the IRS, and where this stands at the moment is, the Treasury has gone to the IRS on our behalf, so to speak, and discussed the problem and asked essentially whether the IRS agreed with the theory that as a government instrumentality, if we're injected as principal, there would be no withholding tax. They got a favorable sound in response to that, but they also got the response that we should ask for a ruling precisely to confirm that. The Treasury suggests that we apply for the ruling, and technically we would apply for it as [the] New York [Federal Reserve] Bank with the full support of the Treasury. The Treasury would attach a memorandum, and so forth, saying they think it's appropriate and proper. And in view of this apparent necessity to ask for a ruling, I personally think it is appropriate today for the Committee to decide basically what it wants to do, but not to take any formal action. Authorize us in effect to apply [for] the ruling. Assuming the ruling is favorable, then adopt a formal action that regularizes the whole procedure. Otherwise, it is at least theoretically possible that we would formally approve an approach here and then find that the IRS didn't act, and we might look a little silly--after we have to reverse the action. So you can do what you want to do--I guess the basic question is whether you want to do anything. I don't think there's any necessity for taking action today. But before we [go] to the IRS for a ruling, I want to know whether you are prepared to take the action following presumably the favorable ruling. We've proposed three alternatives here. I think the Board's staff is in general agreement here that these are the appropriate alternatives. If I understand it correctly--although you are the man, Tom; you can [speak] to it--they prefer what we cited as the third alternative, which is permitting the Federal Reserve Bank of New York to act as principal on these transactions. And we would then act as principal when we were conducting it in the market. If it was convenient for the [Federal] Open Market Committee, for the [System] Open Market Account, as in the past, if [the System account] wanted to take the transactions, [it] could be principal. A variant of that is to put the New York Bank as principal whether or not the System account is also principal. That is the course of action that I favor myself because it seems to me closest to past practice and does not involve any question of whether the System account is being involved in anything that's special for foreign accounts. But I think the other alternatives are technically feasible. The first alternative would not require any explicit action at all, just an understanding that the present directive covered it. In effect that's the way we are operating at the moment. But in regularizing it, as I say, I have some preference for what's presented as the third alternative. I don't know whether you want to say anything about the effect on the System account, Alan and Tom, and the different alternatives, or any other aspect of it.",1601
-fomc-corpus,1977,"Would you start off by saying what we are doing at the moment, Alan?",16
-fomc-corpus,1977,"What we are doing at the moment. At the moment, if the foreign account wants to make a repurchase agreement, we do a matched-sale agreement with them. With the System account.",38
-fomc-corpus,1977,Whether or not the account needs to have that reserve [drain]?,14
-fomc-corpus,1977,"If we need to absorb reserves, that helps us to absorb. And then go into the market and do it for the System, matched in the market. So that in that case it helps. If we are not supplying reserves at all, our practice up until now had been to do it in the market. Now [if] we did [it] with the System account [when we do not need to absorb reserves], [we] offset that by a corresponding reversing--in other words, we [treat] it like a market factor that [is] absorbing reserves, and we offset it. Now, when we were supplying reserves, we would also go to the market. We would do the matched-sale purchase with a foreign account but do correspondingly more in the market on the reserve supplying side. Again, treating it like a market factor, which we have been doing. If it helps us, fine; if it doesn't, we offset it.",192
-fomc-corpus,1977,"Well now, what will happen when you get to [a] lower [volume of] operations if the legislation concerning Treasury interest on balances passes? Wouldn't you then find yourself sometimes in the position, and perhaps quite often, that you are acting in the markets simply in order to offset something that you've done with the foreign accounts? You then tell the market, don't you, that this is a foreign account, you don't--",85
-fomc-corpus,1977,We would say it's in connection with a customer transaction.,11
-fomc-corpus,1977,So there's no danger of misleading the market that you're actually trying to achieve an objective that isn't the case.,21
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,But it could still appear after a while that a very substantial part of total transactions reflected these customer transactions in the foreign accounts.,25
-fomc-corpus,1977,"Yes, but this is very common in the bill market when we buy outright. As you know, we buy and sell for foreign accounts, over three or four times as much as we do for the System account outright. And we identify those as customer transactions when we do them in the market. And that's caused us no trouble.",66
-fomc-corpus,1977,"Under the alternative proposal, anyway, these transactions would be for the New York Bank as very brief principal to a foreign account, and not to the System account. They're all done as a trading [unintelligible].",44
-fomc-corpus,1977,"But that would have a reserve impact, Paul. It's no different than dealing for the System Open Market Account.",22
-fomc-corpus,1977,"Well, it depends upon where you begin this process. A foreigner brings money in--of course, he wouldn't bring money in if we didn't have the facility--but if that was not offset, it would be a drain. When the Bank acts for its own account, there is no reserve impact. That's one way of looking at it. It's just monies passed through to the market. There's only a reserve impact when the System account gets in on the other side. Depends upon how you look at it.",102
-fomc-corpus,1977,"[Unintelligible] right away, like you would if you bought bills for it.",19
-fomc-corpus,1977,"That's right. It's just like using bills for the foreign account. Except the only difference is a technical one. We buy bills as agent. Here we would just inject our name as principal on both sides of the transaction. That's the only change that would take place. Where we're not acting as agent, we would act as principal, technically.",68
-fomc-corpus,1977,"Paul, you are suggesting, really, that we continue under the first approach and consider, after the IRS ruling, whether to adopt the second or the third approach.",33
-fomc-corpus,1977,Right.,2
-fomc-corpus,1977,"Now, you've already had a meeting of the FOMC to discuss this by telephone.",18
-fomc-corpus,1977,It was not a meeting. It was an informal discussion.,12
-fomc-corpus,1977,"Informal discussion, all right. I have a strong preference for the second approach, but I will deal with that as you find it in order to be dealt with. Because we are not going to make, according to your specifications, a final decision.",51
-fomc-corpus,1977,"I think that's right, and I don't think we need to know specifically which approach will be adopted in the end. I think we need to know that one of the three will be adopted. That decision, I think, should be made today.",49
-fomc-corpus,1977,So the decision is basically whether the facility is worthwhile or not?,13
-fomc-corpus,1977,"Although, I guess in applying for the ruling, [we] will have to apply either in our [Federal Reserve Bank of New York] name or the System name, won't we.",37
-fomc-corpus,1977,"Yes, I think that, too, can be a matter to await a decision. I agree with President Mayo that, at this time--or, may I suggest, Mr. Chairman, the [discussion], first, as to whether or not you will continue this operation, is appropriate; and then, whatever sense of the Committee [is] in terms of the alternative, to follow that.",79
-fomc-corpus,1977,"I think that is right. The basic issue is whether we have this facility at all, at least on the present scale. And you may still do it in a very limping way. You can certainly do it with the Saudis.",48
-fomc-corpus,1977,Do you want a motion to that effect or would you just rather have a--,16
-fomc-corpus,1977,"Before we start that, may I ask a couple of questions about the issues. First, Alan, to what extent are we dealing with others rather than central banks?",33
-fomc-corpus,1977,"It's been entirely, well, if you include some of the monetary authorities as a central [bank], it's strictly central banks.",25
-fomc-corpus,1977,Some central banks acting as agency for their government.,10
-fomc-corpus,1977,But that's because they do it anyway.,8
-fomc-corpus,1977,We are dealing only with central banks.,8
-fomc-corpus,1977,Asian Development Bank is also a customer.,8
-fomc-corpus,1977,Asian Development Bank is a customer.,7
-fomc-corpus,1977,"Yes, some of the international--",7
-fomc-corpus,1977,"Ficio, in Italy, has been one; that's probably one we have to stop anyway. It is not clear what its status is.",28
-fomc-corpus,1977,That's finished.,3
-fomc-corpus,1977,That's finished?,3
-fomc-corpus,1977,"But it's only with people that are authorized to have an account with us. It's mainly central banks; it would be one or two international institutions that from time to time might have just raised a bond issue, have plans to invest that money or use it within a week, and they might ask us to do an RP.",64
-fomc-corpus,1977,"In all respects, it's the same people for which we have always had investment accounts, which is--",20
-fomc-corpus,1977,How do you distinguish doing it for the foreigner and not for a U.S. government agency? Let's say the Home Loan Bank Board would like you to start investing its money.,36
-fomc-corpus,1977,"I think they would much rather do it themselves. As far as RPs are concerned, I know that for a fact. That's a big operation they have, and I wouldn't want that operation; that's a big operation. I'd much rather see them be part of the market.",55
-fomc-corpus,1977,"Though, of course, you are talking about a billion and a half, if I understand, and that's a very large operation.",26
-fomc-corpus,1977,"Yeah, but the Home Loan Banks are doing more than that themselves each day.",16
-fomc-corpus,1977,"Has this question ever risen, of a U.S. governmental agency wanting us to--any kind of government agency.",23
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,We haven't sent them a circular offering--,8
-fomc-corpus,1977,But I think we did make some for the postal--,11
-fomc-corpus,1977,"Well, we do.",5
-fomc-corpus,1977,"At one point, I think before they took it over themselves. I think the Treasury--",18
-fomc-corpus,1977,"Well, regularly these transactions, they just go through the Treasury. I am certain the FDIC [Federal Deposit Insurance Corporation] was always investing through the New York Bank, but they did it through the Treasury.",42
-fomc-corpus,1977,"Well, government operations are one thing you do with a government institution, but here we are taking business away, it seems to me, from the market. Now is this analogous to operating in bills on behalf of customers? If commercial banks did this for a foreign central bank, would that commercial bank be making a profit or getting maybe some kind of a collateral advantage out of the operation?",77
-fomc-corpus,1977,"Oh, yes, I believe it would.",9
-fomc-corpus,1977,"So we are already, by virtue of having all of these securities, taking something away from the market.",21
-fomc-corpus,1977,"We have always had the attitude, Governor Wallich, that if central banks would prefer to deal directly in the market, go ahead and do it. We have interposed no objection to that. But we feel that ever since we started operations--we have done operations before in central banks--they like it, it's part of our close working relationships with the foreign central banks. And I think they are considerably useful to us, first, in watching these flows into and out of the dollar, and also in getting subsidiary information from the central banks because we have close daily contact with them on these operations.",120
-fomc-corpus,1977,"Well, I can see there are advantages, but I can also see that the general principle that one should let the private sector do what it can is in danger of being violated here. There may be many things that we could do better, or at least we could take away from the private sector, if we were so minded. And I think, unless we can demonstrate that this is very important to us or that we do it substantially more to the liking of the foreign central bank, there is a presumption of letting the private sector do it.",110
-fomc-corpus,1977,Especially because we make no charge for doing it.,10
-fomc-corpus,1977,"Well, the charge is a separable issue. I think we ought to charge, myself. And we are preparing some plans to that effect, and the charge would be--",35
-fomc-corpus,1977,"Mr. Chairman, on that point, it is observed in the report that the operation in the aggregate is a bit on the profitable side. What is the source of the earnings at present?",38
-fomc-corpus,1977,"Well, the whole foreign department in New York is a very profitable operation. If you take all the balances which foreign central banks hold with us and assume some earnings made on those balances, yes, just demand deposits. It is now, however, very unevenly skewed. Some accounts have a sizable balance that we don't do much for, some we do quite a lot for and have very minimal kind of balances. There is no explicit charge, although the total operation is quite a profitable one by commercial standards.",102
-fomc-corpus,1977,What is the nature of the earnings on the foreign balances?,12
-fomc-corpus,1977,"Well, it's just that we assume the earnings rate on the portfolio--",14
-fomc-corpus,1977,An assumed income?,4
-fomc-corpus,1977,"No, it's an actual income because the fact that the central banks brought money in and left it has absorbed reserves. In offsetting that, we've bought securities.",32
-fomc-corpus,1977,"For every dollar they have in an account balance, it's a drain on reserves which we have offset through enlarging the System Open Market Account.",28
-fomc-corpus,1977,Are any of those balances in the funds markets?,10
-fomc-corpus,1977,"I think this would be one alternative, if we gave up the facility.",15
-fomc-corpus,1977,The RP market's not much different.,8
-fomc-corpus,1977,"Well, the question--",5
-fomc-corpus,1977,The RP market is not quite as high a rate.,11
-fomc-corpus,1977,"The RP market itself, I think, is going to be difficult--the federal funds market--for many of them to operate in. But they will make other arrangements, and the question arises, what happens to the money? My own sense of it is that probably most of it will go into the Eurodollar market. That's the big competitor. They will have tax problems, among other things, if they put it in the federal funds market here. But many American banks would try to take it and put it offshore, which is where the bulk of this money is now. There's a hell of a lot more there than there is in our billion and a half. Now some of them will reevaluate their position, and you can theoretically, or in practice, I suppose, have some of it moving in the foreign currency markets. I don't think that would be the largest part of it by a long shot. I think that would be a small part. But they've got to put the money someplace else, and those are their choices: elsewhere in the U.S. market; the Eurocurrency markets one way or another, which I think is where most of it would go; [and] to some limited extent, perhaps, in foreign currencies.",250
-fomc-corpus,1977,So there would be some slight pressure on the dollar from possible movements into other currencies.,17
-fomc-corpus,1977,"I think it would be slight, but there would be some.",13
-fomc-corpus,1977,And you're putting a little more in the Eurodollar market. I think that's quantitatively more important. You are promoting the growth of the Eurodollar market as opposed to domestic markets.,38
-fomc-corpus,1977,"Isn't this function quite well justified, Paul, as part of, in effect, the execution of monetary policy, in that we know instantly what's going on? If it were through commercial bank channels, we would know, but it wouldn't be that perfect information.",52
-fomc-corpus,1977,"It's been my strong impression that our record has not been good in getting information elsewhere. We have always taken the position--and quite often they will ask, ""Do you have any objection if we operate in the private market?"" And our answer is basically, ""No, but we would like to keep informed about what you're doing."" Any reports about what they are doing are extremely scarce.",77
-fomc-corpus,1977,"I think that's quite right; we are not well informed about what they're doing in the market. We can make a big issue of this, and maybe we should make an issue--I have in one or two cases, but--",46
-fomc-corpus,1977,"And yet, you see, I'm concerned about the domestic operations effect. First of all, within the last five weeks, I testified on behalf of the Board's support on this Treasury investment process, emphasizing the fact that it was very difficult for us to have to deal with all these Treasury balances moving in and out and the offsetting open market operations. Superficially, I fail to see the distinction between that and the difficulty that the foreigners could cause for us by our having to engage, in effect, [in] open market operations. Secondly, I recall, Alan, that you were having trouble with Venezuela some years back. That it was hard to lay out that money that they wanted to invest. That was before the Treasury had decided to bring all its money into the Fed, and so you didn't have that scale of operations. Now if the Treasury moves back to its previous situation--and apparently this Venezuelan thing has spread, so that it's now quite general that people are doing the RPs--first of all, what's the defense? Isn't that just the opposite of what you said you wanted to avoid in the case of the Treasury? Secondly, couldn't it cause us some days when [we would have] considerable difficulty laying all that out.",250
-fomc-corpus,1977,"To your first question, at least these operations are all in one direction. They don't go up by 9 billion and down 9 billion; they're fairly steady in size, and they are predictable.",40
-fomc-corpus,1977,And they're just repetitive.,5
-fomc-corpus,1977,"And they're repetitive, right. Secondly, we retain the right--if it interferes with open market operations, I'll be the first one to come to this Committee and say that we're going to stop all of this. Because we can't allow that to interfere with open market operations any more than we could let these big swings in the Treasury balance [interfere]. I think since it's predictable and not too large, we can approach some people and say, ""Look, you're putting too much in the RP market, get some of it out."" We can do that, and we have done that--on one of those occasions where we did have a one-day difficulty doing what we wanted to do for the System because this was interfering.",146
-fomc-corpus,1977,"They'll still go ahead and do it in some form or another, whether or not we're the intermediaries.",22
-fomc-corpus,1977,At least that will get the money out of our accounts.,12
-fomc-corpus,1977,"Yeah, get the money out of the account, that's all.",13
-fomc-corpus,1977,"Alan, operationally, do you have any advantages other than the knowledge of flows?",17
-fomc-corpus,1977,"Well, I can recall--remember, go back to the time when we had those huge currency inflows from Germany and the rest of the continent in 1971. Instead of going into the market--well, you know what would have happened, the bill rate would have gone to zero. But the fact that it was coming to us and we could see the dimensions of it, we could go to the Treasury and work out a system by which it could be accommodated without any impact on our reserves, or much impact--certainly there was some on interest rates.",114
-fomc-corpus,1977,"In general terms, the background of this whole operation in dealing as agent for foreign central banks, whether it's RPs or anything else, I think this grows out of a tradition--and stronger than the tradition in most central banks--the policy that they want this money funneled through central banks, and this is a service that's expected to be provided, and I think virtually all central banks would provide this service. The difference is that most of them would say, ""You've got to go through us--we think it's discourteous to put it in the market."" We don't say that.",118
-fomc-corpus,1977,This kind of operation doesn't happen in very many countries--,11
-fomc-corpus,1977,"It's [in] relatively few countries--sterling, the French franc to some extent. It occasionally happens in other countries, but for isolated situations. Of course, we don't have much occasion because we don't keep foreign balances. But when we do, we do use the facilities through the foreign central banks.",61
-fomc-corpus,1977,What sorts of comments do you get from the market? Is there a sense that they're being done out of a little business?,25
-fomc-corpus,1977,"Well, as you probably know, we have tremendous competition. There are teams from all of the investment banks and all of the large commercial banks that spend all of their time in seminars and going around trying to sell central banks their services. And in recent years there has been a drift away from us. I think we have a smaller proportion now of the total dollar holding. In fact, I know we have smaller proportions than we did, let's say, three or four years [ago]. There is a big selling campaign going on.",106
-fomc-corpus,1977,Is it important to the private sector?,8
-fomc-corpus,1977,"Well, there is some sense of competition, I think that is fair to say. It's not hugely important. Obviously these are not very profitable operations, and turning over short-term money of this sort, you make a little commission on it. It's not--",51
-fomc-corpus,1977,"If I were a central bank, Paul, and I went into the New York market, I wouldn't be content, would I, to just deal with one bank. I would split it up.",39
-fomc-corpus,1977,I think most of them do.,7
-fomc-corpus,1977,"And then these things get magnified out of all proportion in terms of what you might call market turmoil. Now, theoretically, we are not concerned with market turmoil; it always settles through. But as a practical matter, aren't we? Isn't this what would happen?",53
-fomc-corpus,1977,"Well, I think it would depend upon the individual banks. Some of them would pick out an agent; some of the ones that aren't too big, I suspect, do it--tend to concentrate in one agent. Some others would scatter it around. I think most of them, even the ones that don't use us much, like to feel that they could use us in particular circumstances when they didn't want to operate through the private market for some reason, or [as a] kind of backstop to their arrangements in the private market. I think part of it is basically that some of them are uneasy about keeping so much in the Eurodollar market. And for this very short-term money, there isn't all that much alternative to an RP in the American market. And anybody is going to run into this tax problem on RPs.",168
-fomc-corpus,1977,"One thing that has concerned me a bit, it hasn't developed, but it is something that I think we ought to keep our eye out for. And that is, some of these people who are selling these services sell them on the basis that they can arbitrage that account very heavily. And that could be bad for our market if it got too large.",71
-fomc-corpus,1977,"We have told the market in writing a couple of times that we have no objection to them competing for this business, no objection to a central bank using them. We didn't like the idea of very heavy arbitrage operations, so they are in and out every day for billions of dollars in order to try to get next to three basis points.",68
-fomc-corpus,1977,And I think this is an appropriate central bank function and we ought to enthusiastically support it.,19
-fomc-corpus,1977,Could I ask you a question on that? You mentioned consideration of charging. I think we have a potentially explosive issue. It involves a whole group of services to central banks. It involves some benefits to both parties. Is it possible to cost out--,50
-fomc-corpus,1977,"Yes, I think we can. We do have a charge for handling gold, for example, which we've just revised to reflect current costs. We do charge for a few things, a very few things.",41
-fomc-corpus,1977,"I am assuming that in addition to the courtesy that's involved in this kind of service, that there must be some advantage to the foreign central bank in dealing with the Fed rather than with the market. And the market may stay quiet about this forever, but then may not.",54
-fomc-corpus,1977,"I personally think it's very legitimate to make a charge. I don't know just what that charge should be, but I--",24
-fomc-corpus,1977,Balance or actual cash?,5
-fomc-corpus,1977,"Well, I was thinking earlier in terms of balance. Before this issue ever arose, I thought the most straightforward way to do it may be a minimum balance. That may still be true, but now, it's come up in terms of this particular issue, I think you could inject a little commission for RPs.",63
-fomc-corpus,1977,"I'd feel better about it if there were some specified charge so that we couldn't be accused of competing on the basis of no charge, no profit.",29
-fomc-corpus,1977,"Alan, to what extent have you been able to move some of the people out of RPs into regular transactions in bills?",25
-fomc-corpus,1977,"Well, we really haven't made much of an effort except when it was building up to be a problem. But that was quite successful.",27
-fomc-corpus,1977,It was successful.,4
-fomc-corpus,1977,"Some of the money disappeared, and I don't know where it went, and some of it went into short Treasury bills--through us. I suspect the other went into Europe.",35
-fomc-corpus,1977,"Change of focus for just a moment. As I understand, we've changed our practice so that we are accommodating these RPs currently.",26
-fomc-corpus,1977,"Well, changed in the sense that we have stopped doing any of them in the market.",18
-fomc-corpus,1977,We are offset through the open market.,8
-fomc-corpus,1977,"If we were to continue to do that, is there a compelling need to go to the IRS for the ruling itself, or can we just let it ride and continue to accommodate these types of transactions?",40
-fomc-corpus,1977,"Well, we could, but the issue having been raised, and raised in very plain form by this IRS ruling--and in the light of the consultations with the Treasury, and then in turn the Treasury with the IRS, and the IRS saying it looks okay but we really want you to have a ruling--I think we ought to have a ruling. And that, you know, [it] would have been nicer not to, but given where we are, given the question that has arisen, I really think we have to clarify it.",108
-fomc-corpus,1977,The Treasury has promised very strong support on this.,10
-fomc-corpus,1977,Would the ruling block out the idea of the central bank applying for exemption?,15
-fomc-corpus,1977,"No. Well, I don't think any of them would without the ruling. With the ruling they wouldn't have any incentive. But if they had another reason to apply, for other types of transactions, for instance--if they wanted to do an RP in the market, where you don't have this governmental instrumentality interjected, they'd have to get a ruling.",71
-fomc-corpus,1977,"Well, if they did, then we could still work through the market.",15
-fomc-corpus,1977,"If they got a ruling, we wouldn't need the ruling for that particular central bank.",17
-fomc-corpus,1977,One hundred and four central banks going to the IRS for a ruling.,14
-fomc-corpus,1977,There are some central banks we know will fail in getting the ruling because they have some element of private ownership in them.,24
-fomc-corpus,1977,"[Unintelligible] does, doesn't it?",11
-fomc-corpus,1977,"No. Venezuela did--Venezuela is our big problem, historically. Venezuela passed a law to eliminate their private holding, but during most of this period they had some private holding. So they do not have available to them the defense that they are a government institution. We don't know about all the [central] banks--it's hard to tell whether some of them are privately owned or not. There are maybe a dozen that we suspect have some private ownership in them.",94
-fomc-corpus,1977,"The major [central] banks would be government owned, I am sure.",15
-fomc-corpus,1977,"Well, some major banks do have private ownership. The Bank of Belgium just comes to mind. But they are exempt by treaty. And there are several things that cut across here. The Swiss have private ownership and are exempt by treaty; fully exempt, too.",52
-fomc-corpus,1977,The Federal Reserve could not get a ruling.,9
-fomc-corpus,1977,"The Federal Reserve could not get a ruling, that is right. We are a governmental instrumentality under the IRS, but we are not a government.",30
-fomc-corpus,1977,I was thinking in terms of the volume you do. Your volume would be largely with government-owned central banks.,22
-fomc-corpus,1977,"Except Venezuela is big, and I'm not sure--we think they are government owned now, [or] they will shortly become, but they may still be in some transition state. The deadline of the law saying that they are [completely] government owned is past, but we understand that not all the private owners have coughed up their stocks. So their status is a little ambiguous at the moment.",82
-fomc-corpus,1977,"Paul, carry this one step further. If we do, indeed, get a satisfactory ruling, that essentially forces all central banks to move through us.",30
-fomc-corpus,1977,"No, well, no more than they are now. Well, I just don't know the extent to which they are now doing RPs in the market, assuming they're exempt. There is probably some of that. But we don't know how much. Certainly when this [recent IRS] ruling comes to their attention and is fully analyzed, to the extent they are doing it they must be stopping.",78
-fomc-corpus,1977,"That's right, they will come to us, so we will essentially force them all into the Federal Reserve because the uncertainty--",24
-fomc-corpus,1977,"Our impression is, and I think it is mostly an impression, that they do a lot of this with American banks, but the American banks book it in the Bahamas, basically. I mean they move it offshore, for this reason.",47
-fomc-corpus,1977,And that could still go ahead.,7
-fomc-corpus,1977,And that still goes ahead. And that's what they have to do with all of it--they have to get out of the RP vehicle. There may be other vehicles for doing it in the domestic market. But that's why I think the bulk of it will go into the Eurodollar market.,59
-fomc-corpus,1977,"Paul, I might add that a great deal of the countries, the smaller LDCs who have money, come in for a very short time, and they don't add much to the size of the operation--but [it's] extremely useful for them in trying to manage a fairly small portfolio of dollar assets.",62
-fomc-corpus,1977,"If we are very useful to them, then wouldn't they be willing to go and seek certification?",19
-fomc-corpus,1977,"Some of them might. I can't predict that. I would just suspect that it's not going to be important to most of them to want to horse around with the IRS in the United States, which raises a question about their other income from the United States if they didn't get the ruling. Somebody more legally informed than I can pick this up, but we can now certify under the present exemption for central banks that they are a central bank and therefore exempt on their government securities holdings. We can't certify that they are a government; we can certify that they are a central bank. Now if, for instance, they applied for a ruling that they were part of the government and somehow failed, they might worry about jeopardizing the exemption they might already have as a central bank. I would just guess that, you know, going to the IRS is a kind of a horrendous decision for a foreigner, and they are not going to be eager to do it. But some of them, I'm sure, would.",201
-fomc-corpus,1977,"I'm looking at this as a measure, you know, of the eagerness of the central banks to have this facility and the importance of it to them. And the result of the test is that it's not all that important; they are not willing to run that risk.",55
-fomc-corpus,1977,I don't think that anybody could argue that this is absolutely crucial to a central bank's operation--it's a convenience for them.,25
-fomc-corpus,1977,[Unintelligible] cover RPs in governments.,12
-fomc-corpus,1977,Pardon me?,4
-fomc-corpus,1977,Your exemption covers RPs in government [securities].,11
-fomc-corpus,1977,The exemption that we are looking for says it doesn't make any difference what obligation we are giving them because all obligations of a governmental instrumentality are exempt.,30
-fomc-corpus,1977,"Yes, but your present [unintelligible] this exemption covers government[s] only.",19
-fomc-corpus,1977,"No, anybody's--",5
-fomc-corpus,1977,Any secured government loan. That's the issue isn't it?,11
-fomc-corpus,1977,The way you say our present exemption--let me make sure.,13
-fomc-corpus,1977,You have the authority to provide certification.,8
-fomc-corpus,1977,"Yes, that's just for government securities, or deposits, I think.",14
-fomc-corpus,1977,"Well, my question is, how much of these RPs are covered on the government--",18
-fomc-corpus,1977,"None, no. Because that is what the ruling was. They said these are not government securities, these are loans. That's the problem.",28
-fomc-corpus,1977,"The whole legal situation rather confuses me, I must confess. Because for open market operations these are purchase and sales of securities, and that's the legal interpretation. It's the IRS interpretation, I think, that could be challenged, but I am not a lawyer. Because when we buy securities on RPs, we take delivery of them. If there were a failure on the other end of the RP, we would have the right to sell those securities on behalf of the foreign central bank. So you know, not being a lawyer, I stick with the idea that this is a purchase and sale.",119
-fomc-corpus,1977,Under the Federal Reserve Act these are still purchases and sales as far as we are concerned. Under the Internal Revenue Code they say they are loans.,29
-fomc-corpus,1977,"The exemption you seek, then, is just the RP exemption.",13
-fomc-corpus,1977,"That's all. Well, the exemption we seek is just to say that we are a governmental instrumentality. I think a ruling that we are a government instrumentality, which then permits us to make what we call RPs and what the IRS calls loans. We want a declaration that we are a governmental instrumentality. Because then the law is quite clear. It says obligations of governmental instrumentalities are exempt.",81
-fomc-corpus,1977,And that would have to be the Fed of New York.,12
-fomc-corpus,1977,"No, the System Open Market [Account].",9
-fomc-corpus,1977,No. That depends on which alternative you take. Whether it's the Fed in New York or the System Open Market Account.,24
-fomc-corpus,1977,"It's clearer, I think, for the System Open Market Account, but then I am bothered at doing things in the System Open Market Account that aren't called for as a monetary policy action.",37
-fomc-corpus,1977,I defer to the lawyers. My understanding is that it doesn't make any difference to the lawyers whether it's the Federal Reserve Bank in New York or the System Open Market Account. So I don't think legally it makes any difference whether it's New York or the System account.,52
-fomc-corpus,1977,"Well, I expressed earlier a preference for alternative 2 if you want to debate that, but I didn't think you wanted to debate all these alternatives. Incidentally, SAMA [Saudi Arabia Monetary Authority] didn't apply for the exemption for any reason connected with this transaction at all. It applied for an exemption some years ago for other investment purposes. They got a declaration that they were in effect an instrumentality of the Saudi Arabian government. Which is all they got. So whatever they do in our marketplace would be an investment in private or government securities, they're not subject to the withholding tax that's applied to foreign investors.",123
-fomc-corpus,1977,"One of the reasons, I think, [other central banks] will be cautious about getting a ruling is there will still be some question about [whether] certain operations are a business in the United States, in which case they wouldn't be exempt. Or whether it's a passive investment of some sort, so there are all these complications around the edge. I think what we really need here, and all we need, is a clear expression of sentiment by the Committee--I don't think we need a formal vote--that alternative 1, 2, or 3 is okay. One of those three at least will be all right. And in effect, authorizing either the Bank or the System Open Market Account--presumably do it in the form of both. So that we could go either direction. Go to the IRS for the ruling.",168
-fomc-corpus,1977,"It's understood that if we do this, you'll impose a charge of some for--",16
-fomc-corpus,1977,"Well, that's an additional question. I'm happy to do it under that arrangement. Because I think we should anyway. If the Committee wants to issue that sentiment, I think that's appropriate, too.",39
-fomc-corpus,1977,I think we ought to have a report back to the Committee on the pros and cons and the way in which changes are going to be implemented. We have had enough problems with this pricing business.,39
-fomc-corpus,1977,"Let me propose specifically, and maybe we can have a showing of hands. The Committee is in agreement that we go to the IRS for a ruling in contemplation that one of the three approaches will be adopted assuming a favorable ruling, and that we will come back to the Committee with a proposal on changes and an analysis thereof.",64
-fomc-corpus,1977,And selection of which of the three.,8
-fomc-corpus,1977,"And selection of which of the three, right.",10
-fomc-corpus,1977,"In essence, this is the same subject that was discussed at the conference call, but that was not a meeting, and this is a meeting of the FOMC.",34
-fomc-corpus,1977,Are we ready for a showing of hands?,9
-fomc-corpus,1977,This is not--we wouldn't be indicating a preference for one of the three. I have trouble with your dealing as principal with the Committee.,28
-fomc-corpus,1977,But you're indicating that one of the three is going to be acceptable to the Committee.,17
-fomc-corpus,1977,That means in effect that New York will continue its provision of the service of RPs to all customers.,21
-fomc-corpus,1977,But through the System account.,6
-fomc-corpus,1977,"But no matter how it's done, you will continue to provide that service.",15
-fomc-corpus,1977,"May I also understand, Mr. Chairman, that the proviso that Alan added, which is that if there is ever any difficulty, interference with open market operations, he will immediately bring it to our attention?",42
-fomc-corpus,1977,"Beyond that, if there is a real difficulty with System operations during this interim period , we won't do it on that day.",25
-fomc-corpus,1977,Because you have been able to do it only due to a large movement.,15
-fomc-corpus,1977,We would only be able to do it in conformance with past practices during these fortuitous large movements in the System.,25
-fomc-corpus,1977,"You want a showing of hands, Mr. Chairman?",11
-fomc-corpus,1977,"Yes, I would. This is in favor of a suggestion that I had made. Do you have any expression of opposition? Okay, well, we will proceed and ask for a ruling in conjunction with the Board legal staff and in conjunction with the Treasury.",51
-fomc-corpus,1977,"Does that mean that you will ask the IRS for a ruling either way, for [the System] account or New York?",25
-fomc-corpus,1977,"Yes. I guess we are just left with the date of the next meeting, which is July 19.",22
-fomc-corpus,1977,Why do you say it's overdone in terms of fundamentals?,12
-fomc-corpus,1977,"I think, Mr. Chairman, there is nothing that's happened since June 23--taking that as the base date--that would cause a 4 percent depreciation of the dollar against the mark and the Swiss franc.",43
-fomc-corpus,1977,"No, nothing has happened since June, yes, but what about what happened before then, and the market was quiescent in absorbing it?",29
-fomc-corpus,1977,"Well, if you take last year, Mr. Chairman, we have depreciated by about 14 percent against the mark, the Swiss franc, the Belgian franc, and the gilder and about the same amount against the yen. So over a longer period there has been a substantial movement of exchange rates.",61
-fomc-corpus,1977,"With a differential in price increase of about 4 percent, I guess.",15
-fomc-corpus,1977,I'm sorry?,3
-fomc-corpus,1977,"About a 4 percent difference in price increase, I would guess.",14
-fomc-corpus,1977,"Yes, right, right.",6
-fomc-corpus,1977,And a 14 percent depreciation.,7
-fomc-corpus,1977,Going back to June 30 of 1976.,11
-fomc-corpus,1977,"The Bundesbank reaches to the beginning of 1976, and they say it's on the order of 19 percent.",24
-fomc-corpus,1977,"Now, there have been developments this morning, Mr. Chairman. As I say, we intervened yesterday, more than we have, but still a modest amount, and not enough to keep rates even steady, but [continuing to moderate its] going down. Today the Germans have already bought $191 million. They see signs of OPEC flows of money into marks and out of dollars, and there are all sorts of rumors of other such flows. A more forceful approach to the market may be really necessary if we want to avoid some potentially disturbing flows of funds out of the dollar by important countries. And this could again thoroughly unsettle the exchange markets and then lead to a further depreciation of the dollar, which I do not think could be justified by any fundamentals at the [present] time. I'd be prepared to recommend that approach today, but I think this requires further discussion within the System. It would require the full agreement of the Treasury, which, while posing no objections to the intervention we've been doing so far, has at least been lukewarm in agreeing to these efforts. So I think we have a new situation in the exchange market. It could correct itself; on the other hand, unless we want to see things going even further than they have, and fast, in a disorderly manner, we may have to be prepared to draw a bit more on the swaps than we have so far. Now, in our other operations, we of course are continuing to repay on our long-term debt in Swiss francs. We're paying a further $56 million right on schedule, with our remaining liability just a bit over a billion at current market rates--which are getting worse every day. That's all I have, Mr. Chairman.",349
-fomc-corpus,1977,"Well, my own feeling is that the markets are behaving quite rationally in view of the magnitude of our trade deficit--it's enormous. In view of the prospect--these things get around--that no improvement in that trade deficit or in our current account deficit, for that matter, is in sight. In view of some acceleration in the inflation rate in our country, I think the markets are behaving quite rationally. And now the implication of that for operations of the Desk are not entirely clear. When you speak of disorderly markets, it's one thing; when you comment on fundamentals, well, you may be right, but that's not my present interpretation of what is going on.",136
-fomc-corpus,1977,"Mr. Chairman, as you know, what we've been doing is just following the rate down, not trying to maintain it at any rate. At some point I think it becomes much more expensive to operate in that way, and I'm not suggesting that we ought to have pegged rates here, by any means. But the continual depreciation in a rather bad atmosphere--if you're close to the market and listening to comments from traders, one gets the impression that it's reacting more to what they consider to be an official policy, that we want the rate down, and nobody knows how far.",116
-fomc-corpus,1977,"Well, I think some pronouncements by the Treasury have been unfortunate, and I think it's always an unhappy day when the major financial officer of the government conveys the thought that his country does not care about the value of its currency in a foreign exchange market. And something approaching that apparently has occurred. I still think that markets by large are behaving rationally. And to go in on any large scale--I don't think we can stem the basic tide, and I see no point in inviting large financial losses, if my interpretation of the trend is anywhere near the mark.",113
-fomc-corpus,1977,"I might say, I agree with you, Mr. Chairman, and I also think that it's not clear to me that it isn't U.S. official policy to let the mark and the franc and other countries with balance of payments surpluses as current account surpluses rise against the dollar, so I am not at all sure that it would be--without a great deal more checking--appropriate for us to intervene in any sizable scale. Because I'm not quite sure of the U.S. policy.",100
-fomc-corpus,1977,I wonder how we'll proceed in the market. Is the market aware of the moderate intervention you've been doing?,21
-fomc-corpus,1977,"Yes, I think they have become aware of moderate intervention.",12
-fomc-corpus,1977,And how are we perceived by the Europeans? As doing enough so that we're not going to [be] blamed for benign neglect?,26
-fomc-corpus,1977,I think the impression would be that we're not doing enough under current circumstances.,15
-fomc-corpus,1977,But are they doing too much?,7
-fomc-corpus,1977,"Well, up to just recently, when the Germans came back in, the Germans and the Japanese were really staying out of the market. The Japanese intervened heavily the day before their Sunday election, I think for political purposes. The countries that have been intervening are the weak currencies--the pound sterling, the lira, the French franc. And they have picked up tremendous amounts of money, over $3 billion in the last three weeks.",89
-fomc-corpus,1977,"One of the problems that we've had with floating exchange rates is the tendency to overshoot and to have exaggerated movements of rates. Many people in the central bank community have been rather pleased that they have avoided some of these wide swings that we had in '73, '74, and coming into '75. And now, partly [given] the perception in other markets, but more on the basis of these announcements, we have a very sharp swing effect. There's no stopping the sharp swinging effect. We're running the risk [that] other wide fluctuations will perhaps have to develop later on, which, as far as U.S. policy is concerned, would be embarrassing. So it's better to have something that is in line with fundamentals than exceeding it.",149
-fomc-corpus,1977,"The underlying economics are quite debatable, it seems to me. An exchange rate move does not change a current account very much until a year or two later. So that's really what we're saying--these exchange rate movements are necessary to alter the German, Japanese, etcetera, surplus one or two years down the road. Now, by that time, who knows what cyclical developments may have done. We think that part of our present deficit is cyclical. It will continue to be so next year but perhaps get somewhat worse. But eventually, one would think that other countries would catch up with us. Meanwhile, the short-run effect of an exchange rate move is the familiar J curve. In other words, the Germans sell the same amount of goods at slightly higher prices and realize higher dollar receipts and a bigger surplus, for some months at least.",170
-fomc-corpus,1977,"Mr. Chairman, if I may add one other point. It seems to me that one of the reasons that investment demand has been so sluggish in Germany [is that], if they see a continual appreciation of the mark against other currencies, they don't quite see where their markets are going to be in the future. I think a further appreciation of the mark could rebound to have an adverse effect on the growth of the German economy, [growth] that everybody, including the Germans and us, wants to see. Which is really the way they're going to cut back on their current economic surplus--by internal growth.",121
-fomc-corpus,1977,What about the U.S. economy?,8
-fomc-corpus,1977,That's the opposite side of the plan.,8
-fomc-corpus,1977,"Where do we have a current account deficit from? We've got it partly from oil. It's our own oil program as well as expansion. I think the rest of it is largely cyclical, as Henry suggested. And it is likely to continue. And I do think there's a question whether this exchange rate change, going much further, anyway, is productive or counterproductive in terms of the cyclical forces in both places--for the reason Alan suggests in Germany, [and] in the inflationary psychology it may stimulate here. At some point, when this gets in the newspapers and gets in the consciousness, I think it [will be] upsetting in terms of what we're trying to achieve through a steady monetary policy. I don't know what the rate should be fundamentally now--I don't think anybody does with these imbalances in current accounts. But I do think we're now verging, more than verging, on the risk of the rate [movement] being overdone in terms of rapidity, with destructive psychological effects cyclically, both here and abroad. I don't think that means we can act very aggressively if the Treasury is going to be talking the other way. But I think it does suggest that we ought to have some renewed consultations with the Treasury at this point to see whether they don't want to take a little more overt line, given that the rate has gone as far as it has in the last month since they gave the tone of acquiescing--at the very least--and we have had a significant change since that time. So the rate of speed is certainly at issue at the moment, it seems to me, given what's happened in the market in the past week, and particularly in the past couple of days.",346
-fomc-corpus,1977,"And the rate of speed is really the only thing we can influence. When you look at these large amounts that Europeans, not primarily Germany and Switzerland--Alan said the British and the Italians--billions they've thrown into the market. We couldn't operate on that scale, and so we could not expect to do very much to the longer-term outcome of the rate movement. But we can moderate the speed of the movement, and to the extent that that has something to do with the long-term outcome, then we do have some significance.",107
-fomc-corpus,1977,I am not sure you're right about that. I think that operating on the scale on which Alan has been doing isn't going to make much difference one way or the other in the present mood of the market.,41
-fomc-corpus,1977,"Well, I'm saying, to the rate of movement, not to an ultimate equilibrium level.",18
-fomc-corpus,1977,That's what I'm addressing myself to.,7
-fomc-corpus,1977,"Mr. Chairman, could I ask a factual question? Alan, how does the amount of intervention by all countries in this current situation compare with other situations since we've had trouble with the British?",38
-fomc-corpus,1977,"I would think that the gross amounts are not far different than from other periods. There have been other periods where it's been even greater. And you had a different composition of intervention when the Japanese used to be very heavy interveners. They have really refrained and intervened only once, I think quite heavily, in I don't know how many weeks, but in a number of weeks. There is an acceptance by the Japanese and the Germans and the Swiss that their [currencies] ought to appreciate. Their concern is that appreciation does reflect something fundamental and not [just] people talking the rates up or down. I think that is where their main concern lies.",132
-fomc-corpus,1977,Probably a statement by the Treasury that it's satisfied with the rate movement would help a heck of a lot more than any intervention.,25
-fomc-corpus,1977,I agree with that,4
-fomc-corpus,1977,"I don't agree with that. I think Treasury ought to keep quiet for awhile. That's the best contribution they can make now. In fact, I advised them that way this morning at a breakfast. Well, this isn't easy, gentlemen. You know, we all would like to see the world stand still--let's not kid ourselves, that is a bias that everyone has. And the world will not accommodate us. We're paying a price now in exchange markets for the policies we have been pursuing: The rate of inflation has intensified; people read the newspapers, they know what has happened to our balance of trade; they read about the minimum wage and labor legislation and the way it's moving on Capitol Hill; they know that the budget deficit next fiscal year will, according to present projections and plans, be higher than this year. Now markets, I think, are behaving quite rationally. We wish they didn't behave that way, just as the Germans would, sure. But my guess is that, to influence the market at all perceptibly, we would have to move on a very large scale. The time for that may come, [but] I don't think it has come yet. And massive intervention may be necessary later on, but not as of today.",251
-fomc-corpus,1977,"Mr. Chairman, I don't see how we can jump into a massive intervention if the Administration part of this government is going to talk the other way.",30
-fomc-corpus,1977,"Well, needless to say, I've thought about that. I don't know what else we can do here, really. What is your recommendation, Alan? Do you have any? Or do you want us to just sit here and shed tears along with you?",51
-fomc-corpus,1977,"I think, Mr. Chairman, for the moment, we should temporize. Talk to the Treasury and see if we can pinpoint their views, whether they feel that they've had enough adjustment for the time being. Again, I am not thinking of a permanent peg but sort of a relief from what has really stemmed from too much talk and too much [news]paper comment. If you talk to the exchange traders, they will point much more to the talk than to anything fundamental as being the cause of current movements in exchange rates.",107
-fomc-corpus,1977,"Well, that's the way traders think--what happened yesterday. But the underlying forces do catch up with them. Well, look, we're talking to the Treasury, you keep on talking, that will go on--",42
-fomc-corpus,1977,"Yes, sir. I should suggest that we go about as we have, maybe intervening on the scale that we had to yesterday, perhaps a bit more. This would entail additional drawings on the swaps, but not massive drawings.",46
-fomc-corpus,1977,"Alan, what are the ramifications of significant changes in official holdings?",13
-fomc-corpus,1977,"Well, this is a thing that does concern me, because we are relying really on large OPEC flows to finance our current account deficit, which isn't going to change overnight. And if you get a redirection of those flows--even [if] they are not terribly large, because you know, there's not too many places they can go in any size--it doesn't have to be very large to have a rather significant impact both real and psychological on the exchange market.",94
-fomc-corpus,1977,"Well, now, you refer to a flow of OPEC money into foreign currencies. Is this a rumor, or is this a fact? Do you know?",32
-fomc-corpus,1977,"I think, in our conversations with the Desk this morning with Germans, they see some as a fact. I think there is much more in terms of rumor than there is in fact, but I think there is something in fact.",46
-fomc-corpus,1977,"Well, would you try to ferret out precise facts for me, please?",16
-fomc-corpus,1977,"We will, indeed, Mr. Chairman.",9
-fomc-corpus,1977,"Are you referring, Alan, to switches of existing holdings or redirection of the new money that they have to--",23
-fomc-corpus,1977,I think it's more the switches of existing holdings. But we had huge payments into OPEC accounts just over the last weekend and yesterday--the midmonth oil payments. Some of that is in overnight money and can move out very rapidly.,47
-fomc-corpus,1977,To what extent has that total flow been reduced by the change in levels of exports as a result of seasonal impact and also by all reserves having been built up?,32
-fomc-corpus,1977,"I don't really have current facts, Governor, on that.",12
-fomc-corpus,1977,"As I recall from the weekly report last month, at least one of those countries that had normally made substantial RPs [repurchase agreements] had substantially reduced deposits to transfer what small amount there was to Europe immediately to cover some of their old--",49
-fomc-corpus,1977,"I don't really think you are going to find much statistically here. And this floating rate system--you can't have a net capital flow except to the extent there's intervention--for every transfer, you're going to find somebody in the other direction. The question is at what rate it's taking place?",57
-fomc-corpus,1977,"Well, there's been over $3 billion on interventions.",11
-fomc-corpus,1977,Any further comment? Is there a motion to approve transactions at the foreign Desk?,16
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"A motion has been made and, I take it, approved. Do you have any recommendations, Mr. Holmes?",23
-fomc-corpus,1977,"Mr. Chairman, we have no swap maturing in the current period. And as I say, we have started drawing on the German swap--for the first time in I don't know how many months, we've had to draw on a swap line.",50
-fomc-corpus,1977,"Have they been at all restrictive, as they sometimes have been?",13
-fomc-corpus,1977,"No, I discussed it very briefly in Basle as a contingency, and they had no problems.",20
-fomc-corpus,1977,"How are you getting your Swiss francs now, Alan?",11
-fomc-corpus,1977,We are buying them from the Swiss National Bank.,10
-fomc-corpus,1977,Not in the market?,5
-fomc-corpus,1977,"No, Mr. Chairman. Once in a while, we have a chance to pick some up from one of our customers who's a seller, and we do that from time to time.",37
-fomc-corpus,1977,"Well, for a while, I'd stay out of the market.",13
-fomc-corpus,1977,"Oh, absolutely. We don't want to make it any worse than it is.",16
-fomc-corpus,1977,"I might just note that, when you speak of massive intervention, that is a residue from a previous massive intervention with the support of the Treasury. Still paying it off, six years later.",38
-fomc-corpus,1977,"A somewhat different context. Oh, fixed rates.",10
-fomc-corpus,1977,"Was that required by law at that time? Legally, we couldn't have done anything else, could we, but perhaps defend the dollar?",28
-fomc-corpus,1977,We were on a fixed rate then.,8
-fomc-corpus,1977,We could have gotten off the gold standard faster.,10
-fomc-corpus,1977,But that was a very major action.,8
-fomc-corpus,1977,The Treasury could have bailed us out.,9
-fomc-corpus,1977,"Gentlemen, let's look to the future. And we will do that presently. Mr. Kichline, may we have your views on the economic outlook?",33
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,"Mr. Kichline and Mr. Zeisel, I think you have provided this Committee with a very illuminating set of charts and interpretations. We're all very grateful to you. Any questions or comments? Mr. Wallich, please.",47
-fomc-corpus,1977,"I'm a little puzzled by the balance of forces that I see projected here. With the rate of expansion that is indicated--that is, a slowing in 1978 even below 5 percent--I don't see much wrong because, as time goes by, we are getting closer to the full-employment ceiling and, even sooner probably, to the manufacturing capacity ceiling, the capital stock ceiling. So we have to think of not going much above the trend rates of growth as we get in the neighborhood of these limits. And I guess that slowdown is in the works now. But at the same time, I see some things that suggest to me that strongly expansive factors may be at work, especially the federal deficit. We've got a rise in the federal deficit projected in a range, I guess, of $10 billion to $15 billion. And state and local expenditures, which I haven't observed, apparently are growing very sharply--there may be some overlap here. Can you give us an evaluation of these conflicting elements pushing very strongly and yet the overall tendency [going] toward slowing down?",216
-fomc-corpus,1977,"Well, as you point out, this is a matter of offsetting forces operating. On the positive side, you point out that fiscal policy is becoming somewhat more stimulative, but only rather briefly. It happens to be occurring over the next half year or so, and then the high-employment budget begins to move back into balance again, in the absence of any new fiscal initiatives, toward the end of 1978. And that's one of the factors tending to retard growth. But on the negative side, we've had an extremely rapid recovery recently in residential construction activity. Housing starts for single-family housing are at record levels. While there probably will be some further gain in multifamily housing activity, it's not likely to be providing the kinds of support that the growth in single-family construction has provided us over the last year, and this will begin to be a retarding factor as we move on. We have similarly had a fairly substantial recovery recently in inventory positions. Our attitude, in part, reflects the recent very conservative attitudes on the part of businessmen toward their inventory positions. But unless they change their views significantly, we feel that inventories are likely to be providing less support to the economy from here on out. Similarly, consumption--",245
-fomc-corpus,1977,"If they did give support to the economy, it wouldn't last.",13
-fomc-corpus,1977,"It would be a very brief kind of activity, and possibly a destabilizing one at that.",19
-fomc-corpus,1977,"You have supportive business inventory numbers, as I read it.",12
-fomc-corpus,1977,"I am sorry, sir--",6
-fomc-corpus,1977,"You have supportive business inventory numbers. That is, you don't have any collapse in inventory accumulation at any point. But it isn't contributing in an algebraic way very much more to the growth in GNP.",41
-fomc-corpus,1977,"That's right. So basically, we have several sectors of the economy which have provided very substantial support in the recent past which are beginning to fade. And happily we have some components to the economy which are coming along to provide some support and give us a rate of growth which, in our projections, seems like a reasonable path toward higher employment.",68
-fomc-corpus,1977,"All right, thank you. Mr. Mayo, please.",12
-fomc-corpus,1977,"Jerry, the high-employment budget chart strikes me as being even more artificial than usual, if I may use that phrase. How do we calculate the high-employment budget balance these days? It certainly still isn't back at 4 or 4-1/2 percent unemployment.",56
-fomc-corpus,1977,"No, the unemployment rate at the moment is about 4-3/4 percent.",18
-fomc-corpus,1977,Yes. And that's why it looks so artificial.,10
-fomc-corpus,1977,What about the inflation rate? What's the inflation rate that's assumed? Is it the projection?,18
-fomc-corpus,1977,"This is our calculation and therefore a projection. Yes, and different from the Council [of Economic Advisers]'s projection, to that extent. The key point here, of course, is not so much the level, which will differ depending upon who does the calculation, but the movements. And my presentation really was to suggest that, interestingly, the last half-year was a period in which the full-employment [budget] moved into surplus [with] a rather large, rapid increase in real GNP, and that it moves back into deficit because of fiscal initiatives and certain other factors later this year. And [it] tends to act as some support, particularly in terms of the grants to state and local governments.",145
-fomc-corpus,1977,"Well, I guess my point is, my problem, Jerry, is that the concept is just becoming so obscure that I'm wondering why we even pay much attention to it, calculated that way, with participation in the labor force on an entirely different structure. Even the goal of 6 percent unemployment seems difficult to attain these days. And to even show figures--I'm not criticizing staff--the basic idea, I think, becomes misleading. Anybody who saw a chart like this would say ho-hum, we've got everything under control, if they look at it just as the chart shows, wandering between around zero here, or to the other extreme--it's absurd. I'm dramatizing it perhaps a little too much, but I feel that this is almost a waste of paper. I also have another question. It's a much more short-term question. I was curious--on this chart on personal saving, is there any theory that some of this dip in the personal saving rate reflected an anticipated rebate that didn't occur? People spent the money before they got the rebate, and now an effect is showing up? Is there any of that in there?",226
-fomc-corpus,1977,"We expect 32 Ph.D. dissertations on the subject, but at the moment we don't have any definitive way of answering that. That is certainly a possibility",31
-fomc-corpus,1977,The 33rd dissertation will have the definitive answer.,11
-fomc-corpus,1977,Until the 34th comes around.,8
-fomc-corpus,1977,"Sounds like a Masonic Lodge to me. One further question that's more broadly based as it relates to our upcoming discussion on the range of our goals over the next year on monetary aggregates. If you were to construct these figures--your outlook on 5 percent as against 5-1/2 percent as a central tendency--would you have significantly different results? I am not asking for detailed answers, but do you find that the change in the basic assumption on M1 and M2 makes only a marginal difference or a significant difference on the basic economic factors?",112
-fomc-corpus,1977,We specialize. Mr. Kichline will answer that one.,13
-fomc-corpus,1977,"Before answering, let me just say that we're having a great deal of difficulty with the econometric model in the money demand function, which has been causing most people difficulty. And so I think the confidence which we would associate with our alternative M1 rates of growth and what the impacts are is less today than what it would have been two or three years ago. For what it's worth, in the first year, if you go from Q2 1977 to Q2 1978, a half a percentage point less M1 is worth, in terms of real growth, according to the model, about 2/10 or 3/10 percent, and it's worth 1/10 percent rate of growth on the deflator. As you stretch on in the second year, the impacts become considerably larger, especially on the deflator. It's worth about 3/10 lower price inflation there in the second year, and it's worth about 5/10 or 6/10 lower real growth.",202
-fomc-corpus,1977,"Well, thank you very much.",7
-fomc-corpus,1977,That was a 1 percent difference?,8
-fomc-corpus,1977,One-half--,3
-fomc-corpus,1977,"If I can follow-on there, Mr. Chairman, with a question in this connection? If I have my facts straight, your projections this time are very close to what they were last time, within a tenth or two. But the money supply assumption has implicitly been changed because you're assuming 5-1/2 from the second quarter instead of from the first quarter. So, the result is a money supply assumption of something like 1 percent higher over the course of the year. And with the same economic projection and the higher money supply projection, the implication is, I guess, one of two things happening: One is that the business situation basically is somewhat weaker, offset by higher growth in the money supply, so you came out the same. Or you discounted the change in the money supply.",160
-fomc-corpus,1977,"The former. The rate of growth is about 3/4 percentage point more--I think it's the equivalent of 6-1/4 percent versus 5-1/2. It's reflected in our projection most explicitly in the fact that we have lower interest rates now associated with virtually the same level of nominal GNP. But the incoming information, as we've read it, has, on average, been weaker, and so it works out essentially to an unchanged overall position.",96
-fomc-corpus,1977,"May I ask a question about capacity utilization? I know the projected rate of utilization reaches around 88 percent by the end of the projection period--that is, the fourth quarter of 1978--87.7 for materials and 88.3 for all manufacturing. And the unemployment rate is still 6-1/4 percent or thereabouts. Now what I wonder is, what kind of pressure that capacity utilization rate would imply in light of what seems to be an Administration program for continuing to have growth through the '70s--that is, until 1981--on the order of 5 to 5-1/2 percent? Does this imply that we've reached capacity bottlenecks long before we get the unemployment rate down to the objectives, in your view?",157
-fomc-corpus,1977,"Those rates are pretty high relative to the peaks that we obtained in 1973--particularly for manufacturing, a little less so for materials. Actually, the 88 percent is very similar to the peak rate that we achieved for total manufacturing through 1973. Materials a little better. Our peak in major materials was 93 percent.",67
-fomc-corpus,1977,90-what percent?,5
-fomc-corpus,1977,"93 percent. So we remain a bit under there, and of course this is the sector where we ran into trouble back in 1973.",29
-fomc-corpus,1977,"Quite a bit, this is 87, this is 88.",14
-fomc-corpus,1977,It's 88.,4
-fomc-corpus,1977,You're 5 points below,5
-fomc-corpus,1977,"We're 5 points below, so we still have a fair amount--not a fair but a reasonable amount--of margin there. But certainly we will be approaching the position where selective problems will be developing, I would think.",45
-fomc-corpus,1977,Which would have implications for the rate of inflation.,10
-fomc-corpus,1977,"In terms of your reference to unemployment, I think one has to, as you know, recognize structural changes that have tended to occur in the labor market--tended to bias up the unemployment rate. And, in addition, we've just recently been through a period of enormous growth in the labor force, which was very largely made up of women, who tend to have high frictional rates of unemployment. I think the 6-1/4 percent rate, really, for comparison with past periods, has to be adjusted down somewhat.",107
-fomc-corpus,1977,You mean 6-1/4 might be a pretty good rate of unemployment?,17
-fomc-corpus,1977,"Well, 6-1/4 by capacity, yes.",13
-fomc-corpus,1977,Although I haven't heard anything here in the city that would suggest acceptance of that.,16
-fomc-corpus,1977,"Not at 6-1/4, but as a goal. But the Council [of Economic Advisers] has recognized--the government, Administration--has recognized the fact that a goal of 4 or 4-1/2 is now unrealistic, and we're talking about 5-1/2, 5-3/4, in that neighborhood.",74
-fomc-corpus,1977,"Well, as I recall the figures, if we had a labor force composition similar to that of 1970--teenagers, women, and adult men--the consequences today would be roughly 1 percent lower on the unemployment rate.",47
-fomc-corpus,1977,"The mid-60s, roughly.",8
-fomc-corpus,1977,If you had the same composition--,7
-fomc-corpus,1977,Going back to the mid-60s--,9
-fomc-corpus,1977,What--,2
-fomc-corpus,1977,If you went back to the mid-60s.,11
-fomc-corpus,1977,--about 1 percentage point difference.,8
-fomc-corpus,1977,"Mr. Chairman, may I talk. In focusing on your capacity level, have you taken cognizance of the full pack of energy regulations and anything like that, which could reduce that capacity level below the 88?",44
-fomc-corpus,1977,"We haven't explicitly considered that, but we are aware that there are some problems. The aluminum situation in the West is one. We understand that there are some aluminum facilities in the Southwest that use natural gas that are not effective in today's environment. They are included in these numbers in the capacity side. But clearly, the energy situation in some industries has reduced potential capacity, and it's just very difficult to get at that. So I think perhaps the energy situation has, in effect, lowered the full capacity utilization rate from what it would have been otherwise. But by how much, it is difficult to tell.",120
-fomc-corpus,1977,"But your projection is basically exclusive of those problems, but it may have reduced them?",17
-fomc-corpus,1977,"We will know more about that as we get reports in. Basically, we derive our stock figures, our capacity figures, from producers themselves, and there is some lag in getting that kind of information. But as we get it, of course, we will build that in, and it will reflect their view of what the energy situation has done to their capacity.",72
-fomc-corpus,1977,"Well, I think we should move on. Mr. Balles, please.",16
-fomc-corpus,1977,"Well, Mr. Chairman, my question has already been anticipated by Bob Mayo, but I would like to elaborate a bit and perhaps suggest something in terms of how we deal with this matter in the future. Since we're faced with a choice of alternatives A to D in terms of the longer-term growth ranges of the aggregates today, I was wondering if the staff could, as a regular part of this presentation in the future, and however imprecise these estimates might be, give us some charts--as I seem to recall that we have seen earlier--on the implications of these alternative growth paths, not just for the two variables that you mentioned, which would be real growth and the deflator, but also on the unemployment rate. And perhaps not for just one or two but perhaps even three years ahead, in view of the long lag that obviously exists, especially on the implication for prices. Now perhaps you don't think that's useful anymore, perhaps there are too many difficulties. But I'd like to get the staff views on why you have discontinued it--if my recollections are correct that you used to do it.",222
-fomc-corpus,1977,All right.,3
-fomc-corpus,1977,"You recollect correctly, and I think the last time that it was done might have been something like a year ago. And I believe that the major difficulty that we faced is our own concern about measuring policy impacts in a model in which the money stock is quite important, or interest rates are quite important. You specify one or the other--we've been specifying M1--and we find that for the last two years, the equation has been off literally by 2 percentage points. And so it causes a great deal of difficulty. If it's a shift that stops and we go on from here, then we would have confidence in the output. I think it's useful. We have been doing it at the staff level each month, looking at alternatives, and so I wouldn't have any difficulty in providing the Committee with the information. I would just feel less comfortable than I would have some time in the past. But we can certainly do it, and there is no difficulty in providing it.",197
-fomc-corpus,1977,"Well, thank you. I was sure that the staff had some views on this and was undoubtedly doing some work on it. In our Bank, we happen to be convinced that, currently, M2 is a better predictor of the real economic variables than M1, and that was detailed in a paper circulated recently. My own staff does do these calculations for one, two, three years ahead for the alternative growth paths of the aggregates, and I for one would be very interested in seeing how our work compares with that of the staff down here. Because that is really the key choice we have to make today, I think, in terms of policy as among these alternatives paths. So if the staff believes this is useful and feasible, Mr. Chairman, I would like to suggest that it be a part of the regular presentation so we can study their figures and look at them during the course of the staff presentation prior to the time we get to the choice of the longer-term growth paths.",197
-fomc-corpus,1977,"I think that we must leave some elbow room for the staff. Unless there is a request of this kind from the entire Committee or a sizable number of Committee members, I think we should rely on the judgment of our staff. However, any member of the Committee who wants the calculation that Mr. Kichline has described, and which he has indicated the staff makes regularly and which he could supply very easily to any member of the Committee--I think all you have to do is ask for it and you will receive it.",105
-fomc-corpus,1977,What about--,3
-fomc-corpus,1977,"Whether it should be done as a regular presentation, I think that should depend partly on the thinking of our staff and partly on the wishes of the Committee. I don't think we can load up these meetings in response to individual requests. I think individual requests of Committee members should always be respected. But it is one thing to respect a request by an individual Committee member and quite another thing to expose the whole Committee to it formally.",85
-fomc-corpus,1977,"I might say, Mr. Chairman, that I have asked for the data, and they've been made available. It is a question of remembering to ask for it in time. If we can sort of put in a standing order, I'd be satisfied.",50
-fomc-corpus,1977,"Well, I see no reason why it can't be done in the same way the flow of funds table is done, except to make it just once a quarter. But I would be opposed to giving much Committee time to it, because I don't think those figures are worth anything. I mean I think that the aim of the Committee [as has been explained], properly, is to get the minimum tolerable growth in the monetary aggregates, and that really doesn't have to do with projecting a year or two or three ahead. It is a question of what you can get in the way of minimizing monetary aggregates over a period of time and still have an acceptable economic performance. And that depends on velocity, as the Chairman has so often said, and we have found that we are not able to predict the demand function--I believe that's what Jim said--well enough to make any difference between 4 and 5 and 6 percent, say, growth rates on M1. So I wouldn't want to see much time spent on it in the Committee.",208
-fomc-corpus,1977,"Chuck, I think you're right on the allocation of time here, which is precious, but I found the staff's answer to my question important and yet I don't want to pursue it in detail. They have developed a model--we certainly are all sophisticated enough to know the perils of these models. And their judgment as to the increased perils in this particular case, we have that in mind, plus the observation that over the next year it's only 2/10 percent difference in real GNP and 1/10 percent difference in the deflator. [But] even if it's double or half of that, I find that [result] sufficiently in what you might call a philosophical ballpark to have some influence on my own thinking as to the long-range paths on M1 and M2.",161
-fomc-corpus,1977,"Well, it's particularly [useful] running it out a long time, even though it's very hazardous and all the qualifications attached. Since we're dealing with something that has an effect only with a long lag, it isn't really helpful to ask ourselves what it will accomplish over a year. It accomplishes minute differences. Now, if it accomplishes anything, it does so at the best over two or three years, and we ought to at least have a shot at it.",94
-fomc-corpus,1977,"But we are revising these paths quarterly, so I take some shelter in that.",17
-fomc-corpus,1977,"I don't want to prolong this unnecessarily, Mr. Chairman, but I find myself very sympathetic with what Mr. Partee had to say. It seems to me there is some danger of lending more weight to this than it's really worth. What we have is an equation, as I understand it, that's always going to have more or less the same answer. And if we get the equation once, we ought to understand the answer that the equation has. But arraying it every month in terms of the marginal effect on GNP and prices is telling us the same thing every month. It tells us what this rather inadequate equation discloses, which is not a very weighty piece of information, I think, to have before us every month.",149
-fomc-corpus,1977,"Paul, I wasn't suggesting every month. I was suggesting like once a quarter, when we consider the longer-term ranges.",24
-fomc-corpus,1977,"I think Paul's point is still that the staff can give you the schedule that's good for all time on what 1 percent [more] or 1 percent less of the money supply will do one year, two years, three years out in terms of real GNP and the price deflator.",59
-fomc-corpus,1977,Until they revise the equation.,6
-fomc-corpus,1977,"That is, if you're just reading the model. Now, we used to try to adjust the model. We never did present to the Committee just the econometric model. If you go to the econometric model, which I think is really all that can be done now [given] the state of the information we have, why, it will give you the same answer every time.",77
-fomc-corpus,1977,"Well, Chuck, I'll say one more thing on this and then I will shut up. Does that suggest to you, then, that this choice among alternatives A, B, C, and D, isn't really a meaningful choice?",46
-fomc-corpus,1977,"I think it's meaningful in the sense that I expressed it earlier. We are trying to probe to see what is the minimum rate of growth we can achieve. And I think, in that sense, you do have, indeed, ranges of choices of the kind that are shown in A, B, C, and D. Except for D, there's not very much difference between them.",76
-fomc-corpus,1977,That would only say that you have to make up your mind.,13
-fomc-corpus,1977,"In the last analysis, what are we talking about? We're talking about being guided by judgment or being guided by a mechanical model. And some of us may wish to be guided by the latter. May God bless the efforts of those who proceed in either way. Let us move on.",57
-fomc-corpus,1977,"That's--forgive me, Mr. Chairman, but that's really not the issue. The issue is time. We take these one-year data. We always find that, for a painful increase in interest rates, we get very little gain on inflation--",50
-fomc-corpus,1977,"That's what the model tells us. And then if we take two years, it increases; take three years, it increases more. And that answer is given once and for all, as Mr. Partee and Mr. Volcker have indicated. We know what the model is going to tell us. If we don't, we haven't been listening. However, look, I have no objection whatever to having the staff provide any member of the Committee who wishes it. Each month. Why not? You want it, you are entitled to it. In fact, let's make it mechanical--if you want to, send it to everyone. Some will memorize what is on the chart, others will not even look at the chart.",144
-fomc-corpus,1977,"Mr. Chairman, we can put that--",9
-fomc-corpus,1977,"It's a free society, and each of us thinks for himself, thank God.",16
-fomc-corpus,1977,"We can put that together. I would hope it's quarterly and not monthly, though.",17
-fomc-corpus,1977,No. We've talked too much about this. Let's move on to Mr. Baughman.,19
-fomc-corpus,1977,"Mr. Chairman, a question with respect to the inventory data. You have the impression that these data attempt to take into account the continuing shift of business firms to the so-called LIFO method. Or [do] they just kind of pass that by and [are] based largely on inventory estimates at current market prices?",64
-fomc-corpus,1977,"Well, the GNP inventory estimates attempt to make--",11
-fomc-corpus,1977,"I'm sorry, I can't hear you.",8
-fomc-corpus,1977,"I'm sorry. The GNP inventory estimates attempt to make an adjustment for shifts between LIFO and FIFO. They do surveys periodically to get some kind of estimate of the percentage of firms using each of the types of accounting procedures and adjust for it. Now, there is obviously a lag in that kind of calculation because they get that kind of information, at best, yearly, and it's probably not very accurate. But an effort is made to put out a figure which is a real deflated inventory total on a consistent basis.",104
-fomc-corpus,1977,"But if the attempt is to deflate the inventory, then we could be looking at a series of inventory-sales ratios which do not adequately reflect the volume of goods and inventory in relation to the volume of sales being valued at current prices. And I am wondering whether there is a possibility that we've got more goods in inventory than either the inventory figures or the inventory-sales ratios suggest.",75
-fomc-corpus,1977,"Well, it's certainly true that--",7
-fomc-corpus,1977,I thought that there was a bias like that in those statistics.,13
-fomc-corpus,1977,"What bias do you mean, Mr. Chairman?",10
-fomc-corpus,1977,The kind of bias that Mr. Baughman is suggesting.,13
-fomc-corpus,1977,"You mean as prices tend to rise, biases over a period of time exist?",16
-fomc-corpus,1977,Now that the rise in price is clearly reflected in the sales figures and less so in the inventory figures.,21
-fomc-corpus,1977,"That's correct. You would get that kind of thing. I think this is one of the most difficult areas to calculate, to deflate and calculate a real figure. But looking at the various kinds of inventory figures that we have available--the book-value figures are generally undeflated and without adjustments for types of accounting procedures; and the GNP numbers--the configuration certainly in a cyclical sense appears to be relatively similar. Over a longer period of time, you do get a bias introduced, and that is a problem. There is a real question about how much of a downward bias there may exist in inventory relative to sales.",125
-fomc-corpus,1977,"To clear this up, Jerry, they standardize inventory change in the GNP, but the book-value figures are not standardized--",26
-fomc-corpus,1977,The book-value figures are not standardized. Nor are--,11
-fomc-corpus,1977,"--and so the inventory-sales ratio is reflecting--in addition to a lag, say, at the time that Ernie is speaking of--changes in the mix, that is, changes as you get more and more LIFO firms and fewer and fewer FIFO firms; there would be a drift--",59
-fomc-corpus,1977,Absolutely correct.,3
-fomc-corpus,1977,Would it be possible to adjust them based on a changing rate of inflation? Would that be just too complicated to be meaningful?,25
-fomc-corpus,1977,"You do have such a series that does show that the inventory ratios are higher, I think, than you get on a conventional basis.",27
-fomc-corpus,1977,There is a deflated rate series on book value. Is that what you were talking about?,19
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Well, I understand that [the] Commerce [Department] does go through a process in which they attempt to neutralize the effects of the shifting proportion of firms that are on LIFO. But I guess it seems to me the meaningful inventory ratio to be looking at would be a ratio between inventories valued at market prices and sales, in view of the fact that sales are always reported at current prices.",80
-fomc-corpus,1977,"My understanding of this is that there are two deflated series, and unfortunately they show different answers.",20
-fomc-corpus,1977,"There is a series on book value that is deflated fairly recently, and there is the GNP deflated series.",24
-fomc-corpus,1977,"All this is terribly complicated. I don't know where we are going to get. The one simple thought to put to the statistical people is, in gathering their inventory figures, could they not get inventory figures for LIFO firms and then for other firms and examine these two bodies of data separately? Then you can get at these problems. In the absence of information like that, everybody is going to be guessing. And I should think that all you'd have to do would be to ask a question: Are your inventory figures on the LIFO basis or not? Or you can make that question a little more detailed.",121
-fomc-corpus,1977,"Unfortunately--I don't want to [complicate] the discussion--but apparently firms switch back and forth, though they are not supposed to. At the end of the year they use one process, and then during the year they use another process. It's apparently a terribly, terribly messy business and tends to give you within-year swings in inventory. But certainly what you suggested is the approach, and Commerce is attacking it that way--inadequately, I might say--and we're trying to keep up with it.",102
-fomc-corpus,1977,"Might I interrupt? There is a great problem connected with going on LIFO. Once you have gone on LIFO, you can't return periodically. And furthermore, you can't even indicate what the difference between LIFO and FIFO is in your annual statement.",51
-fomc-corpus,1977,"Of course, there may be a distinction between accounts kept for tax purposes, which is the point that you're referring to.",24
-fomc-corpus,1977,For reporting purposes.,4
-fomc-corpus,1977,"For reporting to stockholders, you cannot. What about your own internal--",15
-fomc-corpus,1977,You can only footnote it in your annual statement.,11
-fomc-corpus,1977,What I think Jerry was saying [unintelligible] quarterly report from the annual report.,19
-fomc-corpus,1977,"You cannot do it on your quarterly report, and on your annual report you can always footnote it in the appendixes, and this is an Internal Revenue [Service] ruling that came in the night.",41
-fomc-corpus,1977,Apparently there is some institutional problem in the sense that the people who report to the Census Bureau on book-value inventories give slightly different figures.,27
-fomc-corpus,1977,"To the Census Bureau it's an entirely different matter, but to the public stockholders, I have gone through this point personally.",25
-fomc-corpus,1977,"Just by way of comment, I thought it was interesting that in the Redbook this time there was reported quite a variety of views of businessmen--how businessmen view the inventory situation. And in that connection I would like to mention that the retailers represented on our board of directors--this was not in our contribution to the Redbook--have a very bearish view, I would say, of the inventory-sales situation in general-merchandise retail.",88
-fomc-corpus,1977,Meaning by that there were--,6
-fomc-corpus,1977,"Meaning that inventories currently are relatively high compared to sales. They are not optimistic on sales, and they observe a continuing high flow of new orders. And those who are in the manufacturing business, as well as retailing business, reported that they see this continued high flow of new orders to the manufacturing part of their business, whereas in the retailing part of their business, they feel that they are getting--",81
-fomc-corpus,1977,I'm lost. New orders refer to what?,9
-fomc-corpus,1977,The placement of orders to the manufacturer.,8
-fomc-corpus,1977,For what?,3
-fomc-corpus,1977,For--,2
-fomc-corpus,1977,Retail goods of a kind sold by retailers?,9
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Well, if they think that their inventories are top-heavy, why are they ordering at a high rate?",21
-fomc-corpus,1977,"Well, this is their concern. What they are seeing is the orders from the industry flowing to the manufacturing part of their respective businesses and they report that they are in a situation again where the managements of the retail establishments are finding it difficult to hold down the placement of orders from their buyers. And they are concerned that the buyers are setting the stage for a significant inventory problem later in the year.",80
-fomc-corpus,1977,"Well, I think if that's their problem, they better tighten up their management techniques. I don't follow it.",22
-fomc-corpus,1977,"That's all, Mr. Chairman.",7
-fomc-corpus,1977,"Could I piggyback on this for just a minute? I wonder if we are not seeing a structural change in the ratio as a result of many of these firms having been burned on the inventory problems. And while we've talked about this for a long time, [a] number of companies have really increased their computer control of their activities, and some of the major retailers [are] among them in this category. [Perhaps we are] seeing really drastic changes in what they consider normal inventory-sales relationships, and following the historical series may be misleading in terms of what they regard as the adequacy or inadequacy.",123
-fomc-corpus,1977,You think that's really biting? I've been saying that for 20 years.,15
-fomc-corpus,1977,"So have I. But when you look at what some of these major stores have done, you really get impressed. They are seeing rather dramatic changes--",30
-fomc-corpus,1977,In the last two or three or four years?,10
-fomc-corpus,1977,"Yes, well, even the last two years--",10
-fomc-corpus,1977,"As I have read the statistics over the past year and a half, I think that we have had more prompt adjustments of inventories than previously. I think that's in process at the present time. And I think it's a very healthy thing.",47
-fomc-corpus,1977,"The main item in the GAF [general merchandise, apparel, and furniture] area is a thing that's happening--decreasing the number of items available.",31
-fomc-corpus,1977,"We've been talking about better control for some time, but we still had a pretty good inventory cycle last year.",22
-fomc-corpus,1977,We sure did.,4
-fomc-corpus,1977,"Well, we had a very minor inventory cycle. I think we're having one now. These minor inventory cycles prevent the major ones. Or that, I think, is at least a powerful tendency. Mr. Kimbrel, may we hear from you now?",52
-fomc-corpus,1977,"Mr. Chairman, just a bit curious--in your basic assumptions, what are you incorporating about the minimum wage changes, and do these have any significant implications for your projections?",35
-fomc-corpus,1977,"Yes, we've introduced the minimum wage change which apparently has been agreed to by the Administration, that is $2.65 as of January 1, 1978. And that will be indexed to straight-time earnings in manufacturing, and that affects our compensation figures in earlier 1978 to the tune of--I don't remember--it's a couple of tenths.",73
-fomc-corpus,1977,"Somehow, the more we compute, the less we get. And what happens in the economy--we find it makes no difference.",27
-fomc-corpus,1977,"Well, I may be wrong on that--",9
-fomc-corpus,1977,"But look, when you raise the minimum wage, what you are doing is applying a lever to the entire wage structure. And every trade [union] leader knows that. And that's why he wants it. Now did you take that into account in your calculations?",52
-fomc-corpus,1977,Yes--,2
-fomc-corpus,1977,We have the compensation--,5
-fomc-corpus,1977,Lifting the entire wage structure as a result of the lifting of the minimum wage?,17
-fomc-corpus,1977,We have not explicitly sorted that out in our discussions internally. That was one of the factors that influenced us in showing a drifting up of compensation throughout 1978.,33
-fomc-corpus,1977,"Well, I was getting at the numerical figure. The more I see the numbers, the less I want to see them.",25
-fomc-corpus,1977,Let me correct my figure-- we've jacked up the first quarter of 1978 by 7/10 percentage point as a result of the minimum wage. It isn't quite as bad as I said; 3/4 percent effect of the minimum wage in the first quarter of '78.,59
-fomc-corpus,1977,"Now we are getting something. My confidence in numbers is rising. Let's move on to Mr. Jackson, please.",23
-fomc-corpus,1977,"I was just interested in the comparative mix proposed in automobile sales, which has been a major source of strength in the economy. And over the next quarter, or [few] quarters, it looks like you are staying pretty much constant about the total. But the mix between foreign and domestic looks like it changes. And I am wondering [whether] you had anticipated the type of exchange rate actions that we have had this week, and [if so], we should perhaps listen to you more often than we do to some of our foreign traders, because you knew more about [that] more fundamental situation that influences that. My only reaction is that I have had some question about the rate of auto sales that you proposed. Because if you're proposing a 6 percent rate increase in prices here, together with the consequences for foreign sales that are likely to occur as a result of a change in exchange rates, together with the continued high levels of consumer debt despite your low ratios to disposable income--the chances of a lower total auto sales picture seems to me to be substantial. In addition to that, we see a strength in the single-family house sales, and I wonder if we looked very carefully at the rate of sales that have taken place for new houses in the last three months, because it has been down, down, down. Not major, but distinct--",270
-fomc-corpus,1977,But just the other way for existing houses.,9
-fomc-corpus,1977,"But, on the point of view of the GNP figures, [unintelligible].",19
-fomc-corpus,1977,"Yes, but let the existing house sales increase, and the others will catch up a month, or two, or three later.",26
-fomc-corpus,1977,"Maybe yes, maybe no; time will tell. The disparity in prices makes you begin to wonder when you see the price differential now $10,000 on median prices. It will begin to have its impacts, I think.",45
-fomc-corpus,1977,"What is the differential? I'm sorry, I missed the point.",13
-fomc-corpus,1977,The differential in price between existing and new houses. Wider and wider.,14
-fomc-corpus,1977,"About $10,000 you say?",8
-fomc-corpus,1977,"My recollection is that it is over $10,000. I have forgotten the figure.",19
-fomc-corpus,1977,It used to be about 3.,8
-fomc-corpus,1977,The median price for new housing is so substantially higher than the median price in existing houses.,18
-fomc-corpus,1977,"Yes, but the two are not comparable. You are talking about different kinds of housing. If you took existing houses of the same quality, I don't think you would get any such differential.",38
-fomc-corpus,1977,"I am suggesting that the capacity of the consumer to continue to pay for the new house is being diminished. And the capacity of the consumer to be willing to pay for the additional price of the new houses is being diminished. And in that way, sales of existing homes may not translate into sales of new ones.",62
-fomc-corpus,1977,"As far as consumer purchasing power goes, what difference does it make whether he buys a new house or an existing house?",24
-fomc-corpus,1977,The difference in price.,5
-fomc-corpus,1977,Or buying a different kind of house.,8
-fomc-corpus,1977,"So you trade down by buying a used house instead of a new one. That's your point, isn't it?",22
-fomc-corpus,1977,"What I'm really saying is, I think it's entirely possible that, while the psychology will probably offset the increased interest rates that you project, particularly the psychology of inflation in house prices--the consumer will not be as sensitive to increases in interest rates--I believe that the capacity to pay, despite the ratios of debt and so forth, are beginning to influence that, and it looks like the actual sales experience will be sensitive. I wouldn't be surprised if we [saw] an earlier tightening, if not a slight downturn, in new houses under construction--or total value.",114
-fomc-corpus,1977,"Well, we don't have a very bullish housing market.",11
-fomc-corpus,1977,"I know you don't have a bullish housing market, but I--",13
-fomc-corpus,1977,Close to 2 million--,6
-fomc-corpus,1977,--I'm wondering whether even the slight increase you show might be in more doubt.,16
-fomc-corpus,1977,"We are not disturbed yet by those indicators, but they run in the direction that you pointed. And [with] the sales of new houses being down, along with the stock of unsold houses or completed new homes rising quite sharply in the last few months, it looks like there is something happening that's quite different than what prevailed over the last year or so. On the auto market, I think only two key comments that relate to your question. One is, we do assume increasing price competitiveness of domestic models relative to foreign models. One [factor] is the exchange rate impacts in price increases that have gone into our thinking; in addition, we understand that the sales of foreign models have been sustained recently by a profit squeeze on foreign car dealers--that they have been trying to keep down the price effects that they have been absorbing--and over time, domestic models become more competitive. Secondly, we, as you know, assume that the continued strong demand for autos overall can be related to the fact that replacement demand during 1974-75 was very low. The average age of the auto stock is higher than we think is the equilibrium, so this replacement demand that was postponed during the earlier downturn will help sustain auto sales. And those are the two key features.",253
-fomc-corpus,1977,"All right, Mr. Eastburn now, please.",11
-fomc-corpus,1977,"Mr. Chairman, my own view of the economic outlook would support the staff view that, if anything, the factors have become less strong than they had been before. This is partly a function of the situation in our own area, which, as the Redbook has indicated, is probably less ebullient than it is elsewhere. It is also partly a function of the fact that, in our staff estimates, we have made fewer judgmental adjustments to the model as the results come off the computer. Which leads me to a question. Last time, I asked the extent to which you were making judgmental changes and how the judgment compared with the model. My understanding is that generally the experience is that forecasts that are judgmental, well, that judgmental changes of computer printouts are better than a straight model result. Is this the case for the projections that we have had here in the Greenbook over the years? Have you tested the model results compared with the judgmental adjustments to the model?",200
-fomc-corpus,1977,"I don't know the answer to that question. Jerry, perhaps you are aware of something we have done. I think it's a good question. It certainly hasn't been done recently, and we can do that and provide you with the information without any difficulty. But I just can't answer it at this point.",60
-fomc-corpus,1977,"President Eastburn, on the face of it, unless you ignore the money demand, it depends on how you ask your question. The money demand function in the model cumulatively has been off $40 billion, so it's going to, I am sure, give very different GNP results for the Committee's money supply than our judgment. But of course that could be tested. The other way to run the model is to ignore the money demand function and just put in the interest rates. And so it really depends in part how you ask your question as to what kind of answer you are going to get from this exercise.",124
-fomc-corpus,1977,"Well, the main thrust of my question has to do with comparing our results as against the Greenbook results, because we have made fewer judgmental adjustments than I presume you have. As a result, our projections are less optimistic.",46
-fomc-corpus,1977,That's right. That's what the model is currently showing--,11
-fomc-corpus,1977,"Well, what is the answer to your own question in terms of the operation of your shop? How good are the model projections, how good have they been?",32
-fomc-corpus,1977,"Well, I think they've had the same kinds of errors that models have, and we have not--",20
-fomc-corpus,1977,"Well, have you gotten good predictions from your model, taking it as itself--",16
-fomc-corpus,1977,"It's essentially the [Federal Reserve] System, not a [Federal Reserve] Board--",17
-fomc-corpus,1977,You haven't got good projections if it's a Board model.,11
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,Because it has been off for years.,8
-fomc-corpus,1977,"Well, this might answer the question, then--",10
-fomc-corpus,1977,Not quite.,3
-fomc-corpus,1977,"--under the circumstances, since we all are using essentially the same model.",15
-fomc-corpus,1977,"We'll try to run some very specific comparison, although it is rather difficult since you do have to introduce various assumptions. But we will see what we can come up with. Generally, what we do is evaluate individual sectors rather than the model as a whole, because they involve assumptions--an individual sector--which differ between the judgmental approach and the econometric. But we will do what we can to provide an answer.",84
-fomc-corpus,1977,"All right. Mr. Winn, please.",9
-fomc-corpus,1977,My question has been answered.,6
-fomc-corpus,1977,"I didn't know that any questions were answered today. Mr. Black, please.",16
-fomc-corpus,1977,"Mr. Chairman, I held up my hand back when Mr. Baughman raised his question. I was just going to point out the availability of this constant-dollar inventory-sales ratio figure, so I have nothing more to add.",46
-fomc-corpus,1977,"Thank you. Mr. Coldwell, please.",10
-fomc-corpus,1977,"Jim, on the projection of net exports of goods and services, you're showing a shift from a negative 6 [to a] positive 2.1 between the first and fourth quarter, and then back to a negative 6 in the third quarter of '78. Would you give me a little of your rationale for getting there?",67
-fomc-corpus,1977,"I'd like to pass that question to Ted Truman, who is more familiar with this portion of the projection than I am.",24
-fomc-corpus,1977,"Well, basically, as is often the case in the international area, that is an oil-related phenomenon.",21
-fomc-corpus,1977,That is what?,4
-fomc-corpus,1977,"An oil-related phenomenon. You had a big buildup in oil imports in the first quarter. A combination between that buildup, which was weather related, and Alaskan oil coming in, which damps down our rate of growth in imports--in fact, reduces it. It's largely what gives you that swing between the first and fourth quarter.",67
-fomc-corpus,1977,What brings you back up then?,7
-fomc-corpus,1977,"What brings you back is the end of a sort of honeymoon with Alaskan oil, where the marginal supply, as the economy grows, starts coming from imports again. Plus, the [oil] stockpile program. The government stockpile program will add $3 billion to oil imports currently estimated for 1978.",63
-fomc-corpus,1977,So you are saying that the entire swing in net exports is an oil-related phenomenon.,17
-fomc-corpus,1977,"Yes, most of it. Most of it is a swing in the irregularity of it, if I can put it that way. Yes.",29
-fomc-corpus,1977,"Any other questions or comment. I find myself in a listless mood today. I have not helped this discussion any. I have no clear impression of what we have done or what we have accomplished, if anything, in this morning's discussion. The staff has presented a pretty optimistic picture of the state of the economy and where we seem to be going in the months immediately ahead, and I think the basic question that we ought to be clear about is whether we as a Committee subscribe to that economic projection or do not. Now, is there a significant departure from that line of thinking by anyone? If so, we ought to hear from members of the Committee. On the other hand, we ought to have an endorsement of the staff's basic view, if that is the thinking. I'm concerned not only about the latter part of our discussion but also what our Secretary is going to report, you see, concerning the thinking of the Committee. On the basis of what I have heard so far, our staff would be in great difficulty. So members of the Committee ought to express themselves on the general economic outlook. Mr. Volcker.",226
-fomc-corpus,1977,"I was about to make an observation on this point. As a preliminary, I continue to find, in the contacts I have with the business community, that there seems to be quite a discrepancy between their mood and what the figures seem to show. We are coming off of a very rapid growth period, but a very distinct mood of caution seems to be prevailing in most of the business community, as nearly as I can see. I think it does bear partly upon the inventory situation, which has been touched upon. You commented that we might be in the beginning stages of a mini inventory adjustment.",118
-fomc-corpus,1977,I think we have been for about 2 to 2-1/2 months.,18
-fomc-corpus,1977,Two months. I don't know. The last figure went up quite rapidly in inventories. That was--,20
-fomc-corpus,1977,"Yes, but look at the adjustment that has taken place in prices, and it has been taking place in production and employment [in] nondurable goods. You had a run-up in inventories. Retail trade leveled off at a very high level, so the trend is still very strongly upward. The prompt adjustment on the part of the business community [was] reflected partly in prices, reflected partly in production and employment in the nondurable goods sector.",90
-fomc-corpus,1977,"I agree. The last inventory figure we have still shows a rapid increase, but I would expect some decline--",22
-fomc-corpus,1977,What was this--,4
-fomc-corpus,1977,"They're responding to that increase, that's right, that's right.",12
-fomc-corpus,1977,"You had the response, I think, or you are having a response in the sphere of production and employment.",22
-fomc-corpus,1977,"And in that connection, the staff did moderate their projection, I think, with an offset on monetary stimulus or less restraint, however one wants to word it. I think that's in the right direction. I don't think their figures reflect this kind of prospective inventory development that perhaps you have been suggesting and [that] I think is possible. So, therefore, I just want to record, I would think the odds are--while they have a reasonable-looking projection--there is more chance of falling short of that than exceeding it in the near-term future, and I wouldn't be surprised to see a slower rate of growth in the latter part of this year. I'm not sure that's unhealthy, so long as it doesn't go too far. But I find myself psychologically prepared, anyway, for a somewhat slower rate of growth than what the staff has projected. A more minor fact, following on Governor Jackson--I'm not sure I see quite as much momentum in the residential construction area as they have continuing through the first quarter of '78.",204
-fomc-corpus,1977,"All right, thank you, Mr. Volcker. Mr. Wallich now, please.",19
-fomc-corpus,1977,"Well, I would like to note first that I believe our staff forecast is relatively high compared to forecasts made by other professional forecasters. Is that right?",31
-fomc-corpus,1977,"In general, that's right. We are on the high side of the outside forecasts we have looked at.",21
-fomc-corpus,1977,"At the same time, as I look at the details, I'm puzzled why the forecasts are all so relatively low, tapering off toward mid '78. Here we go into a late period of expansion with a very high budget deficit; there's a lot of capital investment to be made up; we're approaching capacity ceilings; and so it puzzles me why the economy shouldn't be accelerating dangerously. However, there seems to be a general consensus of forecasters that the trend is the other way, and I have no particular quarrel with that. If that is the trend, I think it's the right direction to go. And perhaps what the Committee might want to do is ask itself how--not in just the next half-year or even year, but two years--how we want to accomplish the phasing-in to a full-employment growth path. I don't think we are all that far away from it--as it would seem, from the 7 percent unemployment figure, we think that full employment is somewhere between 5.5 and 6 percent. We might be able to get to something like that in a year and a half or two years, and at that time we ought to be moving at something like 3-1/2 percent if we don't want to hit into the capacity ceiling. Well, that means a gradual phasing down, and in that sense the trend that is projected here of getting to 4.5 percent in late '78 is, I think, a reasonable one. That is the gradual slowdown that we have to have if we want to have a soft landing.",319
-fomc-corpus,1977,"All right, thank you, Mr. Wallich. Mr. Coldwell next, please.",19
-fomc-corpus,1977,"Mr. Chairman, I find myself differing in pattern and perhaps in some of the details of the forecast. I have a feeling the second quarter is going to show a higher figure than the staff is showing. I hope the third and fourth quarters show lower figures, because I think we get a more sustainable pattern if you slow this thing down in the latter part of the year. And I think we will slow it down partly by what you have been saying, and I've been saying, for some time. We will have an inventory correction here in the summer and early fall of the year. If so, the third quarter could be considerably less than what is shown in the real rate of growth. I think it doesn't worry me at all. In fact, I would applaud it because we get a more sustainable pattern if we get a slower rate in the fall of this year. I am also concerned about that net export pattern you are showing. I just don't quite believe it, that's all. I think we are going to show higher deficits, and I'm concerned about the rate at which we are contributing in this deficit package. And while I hear what you are saying in terms of the oil change, I have also done some looking about the relative change in our export-import patterns from a year ago, and oil is not the sole change by any means. In fact, it's only about a third to a half--a little less than that for the total change in the export-import pattern. So if we are going to continue to support a good share of the world with our net import position, this has got some important implications to me in the rate of growth which we aim for in this country.",338
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Partee now.",14
-fomc-corpus,1977,"Well, as I look at the projection of quite regular increases in real GNP, I guess I have something of the same feeling that Governor Coldwell does, that the patterns may differ considerably from what's been projected. And I'm reminded, as I often am, of Governor Shepardson's complaint that the lines on the right-hand side of the chart when showing projections are very steady, and on the left-hand side of the chart they are very jiggly. And I think there is some truth to that, that this pattern is undoubtedly not going to materialize over the next six quarters. But when you look at the average, which is a 5.4 [percent rate of growth] on real GNP over the next year, and a I guess a little less if you put in the last two quarters of '78, I don't find myself able to come up with a figure that I think is a lot more responsible than that. I think the staff correctly has pointed to state and local spending as a source of growing strength in the economy. That has been almost totally neglected by the private forecasters, and I think that is something that will have a real impact in this period to come. I am rather in agreement with Governor Jackson that car sales probably won't hold up. But on the other hand, the staff already has a saving rate rising to around 6 percent, and it seems to me that's a reasonable kind of projection. So all that lower car sales would mean in that context perhaps is less car sales and more soft goods sales, restoring some balance, as often has happened, to the market that is greatly affected when people go out and buy hard goods. And I also think that the outlook for plant and equipment spending is probably one of sustained strength, though how high the figure will go is very difficult to say. There are some sources of real concern to me in the outlook. I'm concerned about insufficient capacity as we move ahead because I don't believe that a 6-1/4 percent unemployment rate is a satisfactory target. And I think we need to get more capacity on stream, [but] I'm afraid that it's just not going to get there in time. I'm also very bothered by the international picture. I can't quite put my finger on how it's going to affect the U.S., but I feel that the economies around the world are tending to slip, rather than improve. And I think that's going to have some effect on the United States before we are done. The exact path that it will take, I can't be certain of. The traditional path would be that we would import more and export less and thus have a worse balance of trade. In addition, there could be a path that runs through financial relationships that would result from poor business activity abroad. And I'm not sure about that. So I think there are problems in the outlook farther ahead. But for the moment I'm not concerned about the leveling off of retail sales, about the tendencies, perhaps, to a pause that we are going to have in the economy. I think the basic thrust is still upward, and it's reasonably well based. So I guess that's a long story to say that I guess, on average, I would support the staff's projection.",649
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Mayo.",12
-fomc-corpus,1977,"Chuck has said what I have in mind very well. I think we are still in a strong recovery, even though it is slowing and we see these various evidences and various problems for which we have no solutions at the moment. I would merely add one other observation on the capital spending thing from one of our principal capital goods [firms]. This is a [firm] that has decided to expand, but they can't get the people who actually let the contracts to go ahead and do it because not only do they feel restricted by government regulations, environmental and others, but they are also afraid to spend the money that the top management is now authorizing them to spend because they are afraid that the measurement of their success and their productivity will be adversely affected. They have lost a lot of their willingness to take risk in the present environment. It's nothing new, but it's got a cumulative, pervasive effect that could be worrisome.",186
-fomc-corpus,1977,"Thanks, Mr. Mayo. Yes, Mr. Roos.",13
-fomc-corpus,1977,"Mr. Chairman, I find myself puzzled somewhat by our process. Having participated in these meetings for about a year and a half, I have been unable to really define, or have defined for me, the objectives in terms of how we actually quantify what we think to be a satisfactory rate of growth in output. At each of these meetings, to the extent of my recollection, there has always been a great sense of uncertainty even when the recovery was proceeding at a faster level than maybe it is or will be in the immediate future. There [were] expressions of concern, or there were at that time, that the recovery was proceeding too quickly. Then I hear expressions of concern that it's not going to continue at the pace that it was during the earlier phases of the recovery. And what frustrates me, and I may have totally misunderstood, is that we are trying to carry out our responsibilities of setting monetary policy without having any agreed-upon specific targets that we are trying to achieve in terms of the growth targets. I mean, would we be happy if we saw a rate of growth of output persist forever and a day at 6 percent even if it meant increased inflation? It seems to me we are trying to steer the ship--and I say this not in a critical matter, but I am confused by it--without actually having agreed what we think the rate of growth of output should be. Or at least what we are seeking in that regard as an acceptable rate of increase in prices and these other fundamental factors. I think we peck away at it, we express uncertainties each month, but do we have some real guidepost that we're shooting toward? Or am I terribly off base in not understanding exactly where we are going?",348
-fomc-corpus,1977,"Well, I can't say you are off base. But I should say that I think of the world rather differently. Now I have been at this for a good many years, and I have found that I can make pretty fair judgments about the direction of the economy and even recognize turns. But as far as magnitudes are concerned, I don't know how to do it. And I have yet to be convinced that anybody in the economics profession knows how to do it. A lot of people are doing it. Generating numbers. But to do it reliably . . . I think one of our problems is we meet too often. Now it's nice to meet socially, but we meet and then we start worrying. We're like a bunch of hypochondriacs. That's our society now, the world we live in. We follow these little wrinkles in the economic curves. We worry, we get excited, we interpret, and we overinterpret, and we don't learn from our own mistakes. Now what I find most constructive is that, first, the private-enterprise economy has put out a remarkable performance here in the past two years or a little longer. Since March of 1975 we have added 6-1/2 million jobs in our economy. These jobs have not been created by government; they have been created by private enterprise. It's an extraordinary performance in terms of the past. Or, viewed currently, since October we've generated something like three million jobs. The trend has been superlatively good. We are in the midst of a social revolution in our country, with women and, to a lesser degree, teenagers finding their way into the labor force. The inflation that we have been having is intensifying the changing role of women in our society, and therefore the unemployment rate remains high. Private enterprise is adapting. And part-time jobs of various kinds are being generated by our business firms but not at a rate that as yet matches at all satisfactorily the rate at which women and teenagers have been entering the work force. Now businessmen have plenty to complain about. They are paid to complain, they are highly paid men. But watch their actions. Look at this chart--you see, the business capital expenditure which has been lagging is taking hold. Look at what is happening to commercial and industrial construction this year. It's moved to a higher level. The formation of new business is not shown on this chart. A strong upward trend. You know, if we put the little wrinkles aside and look at the major trend, I feel good about the economy. Where are the imbalances? There is, yes, in the housing field, too much speculation in residential properties. An imbalance in inventory, very small, in process of correction. The one thing to watch is, the cost of business enterprise has been rising of late faster than prices and profit margins are in the process of narrowing. Now, that can go on for a couple of years before you get a turn in the economy. We only have the beginning of that, so I think we have an expansion going. And how fast the economy will expand, I don't know, our staff doesn't know, no one knows, but we are doing pretty well. I'm quite optimistic about the future. But I share Chuck Partee's concern about Europe and Japan. There are trends abroad in the economy and politically that I find very troublesome; and what to do about it, and what we can do, if anything--it's almost a hopeless situation. And what about our own economy? We are doing quite well. Now, I am not satisfied with what the Congress is doing--the recent trend with regard to the minimum wage. There is a protectionist wave in our country. Now, let's not fool ourselves. We talk a lot about free trade. You know, there's a quota system--voluntary, we call it--for shoes and now TV sets. Incidentally, Mr. Truman, I would like to have a full report on the trade restrictions that we put into effect in the last five years, which are still in effect. I think the list is disturbingly large. The government announced an anti-inflation policy. What's happening to it. Where is it? Where is it going? The only agency in government, I believe, that has been doing anything about inflation is the Federal Reserve. And in my judgment, we haven't done enough, though I must say, in the environment that we live in, perhaps we have done as much as we reasonably could, but that's certainly a debatable point. Well, that is my little speech for the day. Who else would like to speak now?",934
-fomc-corpus,1977,"Mr. Chairman, my speech is brief. I don't see any basis for challenging the staff forecast at this point in time. I feel as Paul Volcker does that if there are errors in the forecast for the next few quarters, the reality is more likely to come out on the low side than the high side. And I think that our ability to forecast in this inflationary environment is less than it was before. It seems to me that the implication of that is that this summer we've got to keep very close watch on the numbers and be willing to revise, I think, and to adjust. For this reason, I disagree with you that we meet too often. I think there are meetings, such as today's, when the caliber of the conversation suggests that we really don't have an awful lot to talk about. But the problem is, we don't know when those months are going to be, Mr. Chairman.",182
-fomc-corpus,1977,"What I really meant about that is--look, I certainly didn't mean to suggest that we change our practice, and I spoke cryptically. I meant the economy doesn't change that much over the period of a month. I think it is more a matter of the character of our discussion than the frequency of our meetings. I think we pay too much attention to the last little wrinkle in economic curves, which contain a fair margin of error. And one is tempted into that kind of discourse through frequent meetings unless--you see, I think I ought to do my job better and raise certain general questions for discussion so that we get at underlying trends a little more thoroughly, and spend less time in interpreting the latest wiggle of our curves, and working ourselves into either a state of euphoria or a state of depression. No, we ought not to meet less frequently.",172
-fomc-corpus,1977,We have the same problem as the market does in interpreting us--what's a wiggle and what is a trend?,24
-fomc-corpus,1977,"Mr. Lilly, please.",6
-fomc-corpus,1977,"Well, I can't disagree with the staff. I think they're somewhat on the bullish side, but you ask if there are any significant differences. I don't have any significant differences. I do have something that I want to underscore that you mentioned a couple of times--the fact that we may be working very hard here to create the conditions that will lead to increased employment. But whatever we do here can be more than offset by the passage of the minimum wage law with the indexing feature, which is in it for the first time. I think that, in terms of the minority groups in this country and the teenagers, this could be one of the most catastrophic things that could happen.",135
-fomc-corpus,1977,"That's the 50 percent. What is it, 50 percent of half--",16
-fomc-corpus,1977,"Starts there, but it gradually moves up.",9
-fomc-corpus,1977,"Does it, beyond 50? What it is now, around 46 or 47?",19
-fomc-corpus,1977,"Close to the increase, slightly under 50.",10
-fomc-corpus,1977,"It moves up to 53 percent by 1980, 1 percentage point a year.",19
-fomc-corpus,1977,"Oh boy. Well, with the minimum wage, if you leave it alone in an inflationary environment, its bite, you see, will be progressively reduced. But under this kind of legislation, there will be no let-up. There will be cumulative force asserted on the wage structure.",57
-fomc-corpus,1977,It's certainly counterproductive to correct the situation--,9
-fomc-corpus,1977,"You know, I remember very vividly, one day I got off the plane in New York and--oh, this was some 20 years ago. [David] Dubinsky, who was then head of the [International] Ladies' Garment Workers' [Union]: ""Arthur, can I give you a ride?"" ""Oh sure, into the city."" So I stepped into Dubinsky's Cadillac, and we had a nice conversation. And he said, ""You know, you're a professor, you don't really understand the minimum wage."" I said, ""Well, I probably don't, you know. I'd like to listen to you."" He said, ""You might think that we're just interested in the low-income workers."" He said, ""Yes, we're socially minded. Fundamentally, we're practical people, we're concerned about ourselves, our own employees. Raise the middle and the whole wage structure gets lifted."" I've heard that from dozens of them since then. That's what they are after. And, you know, all this is explained to the public in moralistic terms.",215
-fomc-corpus,1977,"And there are more things heard than that, Mr. Chairman. It's really a defense of the mature and more highly experienced worker against competition from the young, who might otherwise undermine his pay and his job, and also a defense of the stronger Northern unions against the South.",54
-fomc-corpus,1977,It's akin to the bar examinations.,7
-fomc-corpus,1977,"See, we defend them against competition from the young, we defend them against competition from abroad.",19
-fomc-corpus,1977,"The South, mostly, in our country.",9
-fomc-corpus,1977,"Well, gentlemen, I think we'll take our coffee break now, and then when we get back, we'll start on long-term targets.",27
-fomc-corpus,1977,"We will return to our deliberations. We want to turn now to the discussion of the longer-term ranges for our monetary aggregates. I will have to testify on that subject next week. The date was originally set for July 26, but there's been a change, and the testimony will be given on July 29. On July 26, the Committee [on Banking, Finance, and Urban Affairs] will hear testimony from us on the Federal Reserve Reform Act introduced by [committee] chairman [Henry] Reuss. Now let me make a few remarks by way of introduction. The formal exercise of looking one year ahead was started in March 1975. We've met every three months to discuss our longer-range targets. We've enunciated a policy and repeated it on every occasion, namely, that we will gradually move our longer-range targets down so that, several years from now, the monetary basis for general price stability may be restored. We've been proceeding slowly, perhaps too slowly, but that is a debatable point. If we proceed no faster than we have been going, [unintelligible] in the future, it would take us perhaps 10 years to return the [growth rate of the] monetary aggregates to a [pace] that is reasonably consistent with general price stability. Now, the performance under these targets has not matched the targets at all closely. While the targets have moved down, [but] in the case of M1, the actual growth rate, if we take the moving 12-month period, has gone up. In the initial 12-month period running from March 1975 to March 1976, the growth was 4.9 percent. For the 12-month period just ended, that is, between the second quarter of 1976 and the second quarter of 1977, the rate of growth was 6 percent. A somewhat similar development has occurred in the case of M2. A gradual increase over successive moving 12-month intervals. In the case of M3, on the other hand, we've had virtual stability; no trend has developed. In the case of M4, the trend once again has been upward. Likewise in the case of M5. M4, you may recall, is simply M2 plus the large-denomination CDs, and M5 is simply M3 plus the CDs. In the case of M6 and M7, which are still broader monetary aggregates, there has been virtual stability. So the record is somewhat uneven, and if you attach primary significance to M1 and M2, which has been the Committee's practice, we have gradually permitted the growth rates to rise even though our monetary targets have been successively, very gradually, unevenly lowered. Now that's the record to date. And our question is, what to do today, and my recommendation to the Committee is that we make another very small move toward lowering our monetary growth ranges. I think we need to do that to maintain credibility in the Committee's intention to help restore general price stability in our country, proceeding very gradually, but still having definite goals. Now, in addition to that basic reason, we've had a significant overshoot in the second quarter, and we should take that into account, and that would argue for some reduction in the targets for M1. The inflation rate has been intensifying, and income velocity has been very rapid of late. And I don't think we ought to be deterred from making a modest move by the hesitation that we find in retail trade--actually, even that is uncertain now because, for the last four weeks, if the preliminary figures are right, there's been a significant increase in retail trade once again. That's a very preliminary figure. I would make the move very modest and simply lower the lower limit of M1 from 4-1/2 to 4 percent. Leave the upper limit where it is so that we have ample elbow room to move toward even a higher rate of growth than we've recently experienced if, in the judgment of the Committee, such a higher rate of growth is desirable. I think that M2 is moving naturally, of itself, in the right direction, and I would do nothing about that. We've made larger reductions in our target figures for M2 than for M1 in the past. An argument could be advanced for lowering the target for M3. But since that has hardly any operational significance, I would be inclined to leave that alone and do nothing about that. And my recommendation or suggestion to the Committee is very simple: to lower the lower limit of the M1 growth range by 1/2 percentage point. It's a very modest move. We'll be criticized, of course, but that is our fate, and we have to do our duty. No matter what we do, we're going to be criticized. Who would like to speak first? Mr. Coldwell, then Mr. Wallich, Mr. Black, Mr. Jackson, Mr. Mayo, Mr. Balles, Mr. Eastburn, Mr. Kimbrel, Mr. Roos, Mr. Partee, Mr. Volcker, Mr. Guffey.",1039
-fomc-corpus,1977,You have to move fast to get in.,9
-fomc-corpus,1977,Mr. Winn. I don't see anyone else.,10
-fomc-corpus,1977,To speak first--how can I--you have 14 names.,14
-fomc-corpus,1977,Oh no. You can speak at any time. Just nudge me hard.,16
-fomc-corpus,1977,All right.,3
-fomc-corpus,1977,"Mr. Coldwell, please.",7
-fomc-corpus,1977,"Mr. Chairman, I'm prepared to move more strongly than you're suggesting. I would like to see us set the M1 target at 4 to 6 percent, knocking a 1/2 percent off both sides. And the M2 target, from 6 to 9 percent. I do this because I think the recovery has moved along well enough. I'm not terribly satisfied with some of the longer-term problems of unemployment, but I'm convinced that some of those are out from under our purview. I think there's some slowing desirable to sustain this recovery, and I think a level of 6 or 6-1/2 percent rate of real growth is sustainable. We have a very large liquidity level. We have some very heavy purchases in imports as well as domestic consumption. I'm particularly concerned about the dollar's weakness and the large deficit growth. We could let the rate float down and get some help, perhaps, in getting our exports more competitive. It might reduce our import demand. But I think it's time we moved ahead a little bit on tightening monetary policy to reduce the rate of growth in the aggregates and to tighten down to reduce this pressure of higher prices. So I'm ready to take a larger step than you are in the targets--a little bit.",254
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Wallich, please.",15
-fomc-corpus,1977,"I would agree with the proposal, Mr. Chairman, that you've made, with some provisos. First, I would not want to get back on the track [that] alternative D implies, and that would be a much larger move than you've suggested. But as a matter of principle, I think we are maneuvering here somewhat. We're not hitting our targets, and we're using base drift to avoid being confronted with situations where interest rates would rise very sharply. I don't think this is the kind of expansion that can stand sharp increases in interest rates, and so I would like to see us take this action with the understanding that if we overshoot, well then, we'll take another look. We do not absolutely hold to this target. I think we should bear in mind that what we're trying to do is influence expectations where we've gotten investment in those. People have seen us bring down the aggregates. I think that's very valuable. We should continue it. I think it's wise to do it only on M1. That gives us a chance to do it again next time on M2 or M3. I think one cannot take for granted that we can steadily continue this course without [setting loose] a rise in interest rates that could be very troublesome. So at some point, one has to ask, we may be confronted with a reversal in this steady policy of bringing down the aggregates. But so long as it's possible, and I think it is possible now in the way you suggested, we can and should stick by this course.",306
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Black, please.",14
-fomc-corpus,1977,"Mr. Chairman, I find myself in complete agreement with your assessment on the economic situation. And I thought we were going to come out with exactly the same figure because you made precisely the same points in developing your suggestion for the long-term targets that I had intended to make. But I come out somewhat closer to Governor Coldwell than to the figures that you put out. I would go ahead [lowering] 1/2 point on each end of M1 to get 4 to 6. Rather than using the 6 to 9, however, that he favored on the M2, I would favor just knocking the 1/2 point off on the top end of M2 to give you 7 to 9, and a 1/2 point off the top end of M3. This would have the effect of lowering the midpoint of the M1 target by 1/2 percentage point and the midpoint of the other two targets by 1/4 percentage point. Now that may be politically pretty hard to do this time, but that's approximately where I believe we ought to move.",224
-fomc-corpus,1977,"Let's be clear about that last sentence of yours. As far as our doing something, we do what we think is right. Now, there are no political factors that make it hard to reason. To the extent that there are political factors, I think they're of another kind. We have very troublesome legislation in the Congress, and what we do and the way our testimony goes on the 29th, when these targets will be announced, may have some effect on the course of the legislation in the Congress. I think to the extent that there is a political factor here, it's really legislative--legislation involving or affecting the Federal Reserve.",127
-fomc-corpus,1977,And you can get what I want within either set. It's just a question of how wide it is.,21
-fomc-corpus,1977,I beg your pardon?,5
-fomc-corpus,1977,"I said, either set of ranges would encompass what I really want. It's just a question of how wide it is.",24
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Jackson now, please.",14
-fomc-corpus,1977,"I believe the real issue that will face the Committee will not be whether we will accommodate a lower rate of growth in M1 that's suggested by the 4 to 6-1/2, but whether we will move against the higher rates of growth. For that reason I would favor a 4 to 6 range for M1. Having done so, I think the consequences would likely be that a reduction in the M2 range would be appropriate, or logical at least. And for that reason I would favor the 7 to 9 for M2. Now, I'm embarrassed to admit that I haven't done my homework to see what rates of growth would accrue to the thrift industry as a result of a specified change in the rates of growth between M2 and M3. I haven't done my homework, but my guess is that, here again, the consequences of the first decision would be a lower rate of growth in M3. Only from the point of view of candor with the public would I then anticipate that we're likely to see an 8 to 10 or 8 to 10-1/2 range on M3.",230
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Mayo, please.",13
-fomc-corpus,1977,"Mr. Chairman, I come out with a preference for the 4 to 6 prescription for M1. I feel that, again, it would not only continue our basic policy, which you have appropriately announced over time, but this is an occasion where it fits in terms of a period where the economy is growing strongly, and yet where I think we can set an example for the whole free world in terms of our monetary goals, as they are widely publicized. At the same time, I wouldn't change M2 at all. I think it's all right just where it is. This illustrates further our concern about the development of substitutes for M1 that are in the M2 category. And if you again look at our record on M2--and I wouldn't change M3 either--we've really overshot slightly the last three annual periods for both M2 and M3, even though we've been in the target range on M1. So I would take this opportunity to get a little better realignment of Ms--1, 2, and 3--by lowering to the 4 to 6. That's my preference on M1. I wouldn't be disturbed, however, if the Committee did adopt your prescription of 4 to 6-1/2.",256
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Balles next, please.",15
-fomc-corpus,1977,"Mr. Chairman, I would thoroughly agree with the general proposition about reducing M1, and for the reasons that you mentioned. I would also mention an additional reason. About a year ago the staff did a very perceptive job in estimating the effect of financial market innovations. As I remember, the latest figure shows something like a $17 billion shift of funds into business savings deposits, NOW accounts. The staff, about a year ago, in the face of great uncertainty, estimated about $13 billion; I think it was a darn good guess or forecast. It seems to me, as I look back on it, that we didn't take that fully into account in our appropriate growth ranges for M1 in view of these financial market innovations. So I think we would have an especially good reason for lowering the M1 range at this time, and for the reason I just mentioned. Therefore, where I would come out, joining the many others who have already spoken, is an M1 range of 4 to 6 percent. And I would accept your prescription of leaving M2 and M3 unchanged at this time. But with a further proviso that, on the M2 range, we should really aim to keep that growth within the range and preferably not above the midpoint, and avoid the overshoots.",262
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Eastburn.",13
-fomc-corpus,1977,"Thank you, Mr. Chairman. My view of the economic outlook calls for essentially no change in the intent of policy. I'd be willing, however, to modify this to continue the policy of gradually nudging down as you suggested. But I think there is the question of base drift; the staff figures, incidentally--I think in the Bluebook--were most helpful in this respect. I think this was a big, big step forward in bringing that problem to light. Now it seems to me we have two alternatives on how to deal with base drift. One would be to adopt your suggestion, Mr. Chairman, and make a small move in M1 and then to work between now and the next quarterly decision time on how we're really going to deal with base drift as it occurs in the future. The other possibility is to begin to deal with it now. And that's the one I opt for, and that leads me to prefer a growth rate for M1 of 4 to 6 and for M2 of 6 to 9, and clearly to explain in the testimony that this is an attempt to deal with this recurring problem of how the base drifts back and forth, so that the [congressional] committee will understand and the public will understand that we're now coping with our problem.",262
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Kimbrel now, please.",17
-fomc-corpus,1977,"Mr. Chairman, I, too, feel that it's an appropriate time for us to make some lowering of these targets, for the reasons already suggested. There appears to be adequate liquidity in the system, a foreign exchange consideration. The economy, as certainly we read, appears to be moving rather well. I would hope that we could have that continue for some period of time, but with a very strong look at the continuing price problem. So I would feel that we could have the M1, 4 to 6; the M2, from 7 to 9; no particular change in M3. Having said that, though, I would certainly leave to others the extent to which there is a feeling that the current legislative environment would make it something less than prudent to move in quite that direction. But I would hope that this would be an opportunity; we could begin to make a visible move to restrain inflation, maybe [for] a good while.",194
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Roos, please.",16
-fomc-corpus,1977,"Mr. Chairman, I would echo what has been said by the past two or three speakers. I feel strongly that the upper range of M1 should be reduced, and I would subscribe to the 4 to 6 percent range in M1; 7 to 9 in M2. I personally do not feel that it would avoid some reduction in the rate of [economic] growth, even if we expanded these aggregates ranges, because on the basis of [unintelligible] capacity constraints, we see a reduction in the rate of growth occurring anyway. But those would be my sentiments regarding the two Ms. And if some reduction in the rate of growth were to occur, I don't think that we should ever accept the responsibility for that having occurred because of this move, if we make it. I think it would occur anyway.",168
-fomc-corpus,1977,"Thank you, Mr. Roos. Mr. Partee next, please.",16
-fomc-corpus,1977,"Well, Mr. Chairman, I didn't find the staff projection of the economy objectionable. I think the 5-1/2 percent rate of growth over the next year in real terms is about right. I wouldn't mind it drifting off a little bit as we go through the period and into the latter part of '78, and I think, indeed, that that probably is likely to occur. And in the second half of '78, the staff did have a lower rate of growth, and so I think that that's about the proper performance to seek in the economy, given the need to keep as much pressure as possible off of price inflation while achieving some further gradual reduction in the unemployment rate. And that was based on an M1 expansion expected at 5-1/2 percent, which I guess is the midpoint of what we now have. And that, also, I presume, was based on expansion in M2 and M3 of more like the figures that we now have and some other considerations. So the fact that there was an overshoot in the second quarter, it seems to me, has already been taken account of in the staff projection. However, if you do want, Dave, to consider that there was an overshoot in the second quarter, shouldn't we also consider that there was an overshoot in the first quarter? And you know, where do you stop in putting together these undershoots and overshoots? We've been perhaps fortunate. Perhaps it's the way of the instrument that we tend to have alternating periods of overshoots and undershoots, which brings me to the position I would take. If it so happened that we now have an undershoot in M1 in the third quarter, and perhaps for the remainder of the year, I wouldn't mind that in order to adjust for what happened in the second quarter. And therefore I can buy the Chairman's proposal that the lower end of the M1 range be dropped to 4 percent. But on the other hand, I think it's very dangerous to reduce the upper end of the range from 6-1/2 to 6 because it's conceivable that we will in fact be developing a good deal of pressure in the system in the period to come and a good deal of upward pressure on interest rates. So I think it would be a shame now for us to be postulating a range of M1 growth that we won't in fact be able to achieve. And that's a distinct possibility, though I can't quote the odds. There are inflationary factors in the economy. We do have an energy program. The staff does have a $3.50 per barrel tax [on oil] going on next January 1. We may wring our hands about the minimum wage increase, but the chances are that there will be a minimum wage increase in the first of the year. And these are things that monetary policy can't very well do away with by running tighter. Indeed, I think that, probably, if you try to run tighter as exogenous factors are causing upward price pressures, you'll just get more upward interest rate pressure, more strain in the system, and a lower real performance in the economy in the period to come. So I think it would be a mistake to reduce the upper end of the M1 range at this time. I also think a case can be made that M3 should be reduced; it's probably a little too high. But I dislike the idea of reducing M3 all by itself, that is, without changing M2, because that means you now are, in a way, bringing about a lower growth in the thrifts and in home mortgages. I just don't think that that's a very good thing to postulate all by itself, and I think the Chairman is right that [M3] is not operational anyhow, in any real sense of the word. So it seems to me that the cost of reducing the M3 range exceeds the benefits to be gained by the cosmetic purity of having done that. So I would accept exactly what the Chairman proposed in terms of projected growth rates, but I would be very reluctant to accept anything else.",832
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Volcker next, please.",16
-fomc-corpus,1977,"Well, I'd look at this problem in substance. I find myself, in effect, quite happy with what we did last time. And in some sense I'd like to see those numbers unchanged, but we've had this problem of base drift. What I'd really like to see--I know you explained to me, Mr. Chairman, that this is too difficult to explain--that we retain somehow the base of the first quarter and say that we don't see anything very different in the second quarter, except that we had an overshoot. But over a period of a year ahead, we hope to recover that. I understand that alternative D produces that arithmetic result a year from now, but I must say I don't like that when I see it because it sounds like a more abrupt change in policy than I really have in mind. The difference must be cosmetic, since you end up in the same place, but that way of expressing it is not very happy for me. So where I come out--assuming we have to take a new base in the second quarter--is something like what the staff has for alternative C, which only varies from your suggestion for M1 and M2, Mr. Chairman, in also reducing M2 by 1/2 percent at the lower end of the range, as I understand it. Mr. Partee has just expressed some of the concern that I would have of reducing the upper end of the ranges. I'm not sure we're going to make it, and I'm not sure we want to act vigorously enough to be sure we're going to make it in the face of what could be a slowdown in the next quarter or so. I'd like to see a little more evidence, anyway. So I'm a little between your suggestion, Mr. Chairman, and those that want to reduce the top end of the range, too. So far as M3 is concerned, I suppose the logic is to do what the staff has said in [alternative] C, but I also find myself in some agreement there with Mr. Partee, and I don't want to make it look like we're making a stronger change than I think in fact I want to. I wouldn't object to lowering that range to some degree, but I don't think I would go quite as far as alternative C. So I would pick up alternative C on M1 and M2 but moderate the change in M3, and make that only 1/2 percent, too.",489
-fomc-corpus,1977,"All right, thank you, Mr. Volcker. Mr. Guffey now, please.",20
-fomc-corpus,1977,"Mr. Chairman, our analysis of the economy is very, very similar to what the staff has already projected this morning. And as a result, we would be happy if the long-range targets were retained very much as was set last time. Further, in view of the fact that we have been missing and we've been in the upper part of our range over some longer period of time now, it would seem that maybe our moving the ranges downward isn't our problem. If you move the top side down, we may have a real [risk of missing] it; as a result, I think we'd be opposed to that. On the other hand, the cosmetic effect, if that's the right term, of continuing to move is very attractive, and as a result, I think we would opt for a solution that you have proposed on the M1 range alone, that is, moving the bottom [down by] 1/2 percent. I don't think it's very meaningful at the moment. I think we've got to begin to focus on the shorter range of getting those aggregates down, and what we do in the longer range is basically for consumption of the public and not for this Committee. So in conclusion, I guess, I would be perfectly willing to buy the cosmetic effect of moving the lower side of M1 but leaving the remainder of the aggregates where they are for the moment.",275
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Winn, please.",15
-fomc-corpus,1977,"Mr. Chairman, I'd like to emphasize the point John Balles made. In our area, the banks are actively soliciting the transfer of corporate accounts from demand deposits to the savings account. For example, a company keeping an average $80,000 demand deposit is being encouraged to shift $79,000 over to a savings account, [leaving] a $1,000 demand balance with telephone transfers back and forth to meet the need. And that's a structural change of real magnitude. They're being solicited--as they say, the NOW account is available to the corporation. It may not be available to the individual. But that's a structural change of some magnitude, and I think that that's going to continue here in the period ahead, and so I'd be in favor--[because of] both the base drift and structural change--of going 4 to 6 for the M1. And then following the C category for the M2 and M3.",193
-fomc-corpus,1977,"Thank you, Mr. Winn. Mr. Willes, please.",14
-fomc-corpus,1977,"Thank you, Mr. Chairman. In part of my attempts to educate myself on what the Committee has been doing, I took a look at the economic outlook that the Committee appeared to agree to in January of this year and then the policy that was decided at that time--the base that was associated with that. And then I compared that with the economic outlook for four quarters hence, and then again with the base that was associated with that. And it would seem that, if the Committee were to, in effect, stay even and not account for the base drift, it then in effect would be saying that it wants more real growth in GNP and a lower unemployment rate and is willing to pay a price of higher inflation to get that than was the case in January. That's a very awkward way of saying [it], I'm afraid. It seems that it will be perfectly consistent with what the Committee did last January, in the face of deteriorating inflation and somewhat stronger economic growth than the Committee foresaw at that time, to simply move down to the 4 to 6 and 6 to 9 that the majority seems to have recommended at this time. And that's certainly where I would come out.",241
-fomc-corpus,1977,"Thank you, Mr. Willes. Mr. Gardner now, please.",15
-fomc-corpus,1977,"I didn't speak to the staff projections, but I do feel that it was very valuable. And I do feel that we still have much to look forward to in this very quiet recovery, gaining ground slowly. That's good in my judgment. There are the obvious points of difficulty that have been addressed here, but on the long-range proposals, I'm entirely sympathetic with what Governor Partee said. I think he stated it too well for me to attempt to add further to his statement, and I would think in the present financial and monetary market situation in which we find ourselves, [it would be] perfectly appropriate to put out a target that is 4 to 6-1/2. And I listened to Willis Winn, and I'm very concerned with these trends, and they're occurring over time. On the other hand, we haven't really been able to codify and analyze what's happening here. And if I look at where we've been in the last six months or so, I would not feel uncomfortable in not changing M2 and M3 from the present picture. I think dropping M3 has significant difficulties with the extent of private housing that's going on today. I would come out in strong support of your proposals, Mr. Chairman. And I think we have a small luxury of adopting those proposals until we see in further meetings and further developments a more cogent set of reasons for changing. I would support the 4 to 6-1/2 and the M2 and M3 position we're in.",300
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Morris, we haven't heard from you.",17
-fomc-corpus,1977,"Mr. Chairman, I, too, come out with Governor Partee. My preferred position would be no change at this time. I don't feel that credibility requires that we change our long-range goals every quarter. But I think we are entering into a period of decelerating growth. I like the tone of the economy now. I think it is clear, at least for a couple of quarters ahead, that we're going to have decelerating growth. I think the only question is the rate of deceleration. However, I would accept your 4 percent lower level on M1, Mr. Chairman, if you feel it has symbolic value. I think, in the expansion, the number we've got to focus on most seriously is the upper end of the range. So I really--if we can buy some symbolism with lowering the lower end of the M1 range to 4, I would certainly accept that. I don't see where we have a base drift problem at this meeting. That reflects my feeling that, at this stage of the cycle, we ought to be coming out toward the upper end of the ranges. And looking at the past six months, we've had M1 growth of 6.1 [percent] and M2 of 8.8, and it seems to me that's about where I think we should have been. I would, however, be opposed to reducing the upper end of the range at this time. I fear that we would not be giving ourselves enough leeway, if we're taking these ranges seriously, and I fear that it might force us into an interest rate policy that might prematurely stifle the economy. So I would come out exactly where Governor Partee would.",342
-fomc-corpus,1977,"Thank you, Mr. Morris. Mr. Lilly now.",12
-fomc-corpus,1977,"I have nothing further to add. I think Chuck pretty well stated my feeling, and I would support your proposal.",23
-fomc-corpus,1977,"Thank you, Mr. Lilly. Mr. Baughman would say something now.",17
-fomc-corpus,1977,"Mr. Chairman, it seems my views are rather out of step with the group today. I'm rather impressed with the statement on page 6 in the Bluebook.",33
-fomc-corpus,1977,"Now wait, now wait. Your views are out of step and therefore I want to be sure--I want to hear every word. Would you speak a little more loudly please?",36
-fomc-corpus,1977,"I'm impressed that the staff concluded at page 6 in the Bluebook that alternative D maintains the picture that we've had thus far this year, in terms of long-term targets. And it seems to me that we do have a significant problem of base drift confronting us. It seems to me that that's likely to be perceived as a problem in the public arena. And it leads us to that spot characterized as caught between a rock and a hard place in undertaking to convey what our policy purpose or objective is at the present time. And if we adopt a set of numbers which are essentially unchanged from what we have, that is, the present numbers--and it seems to me we must acknowledge that our base gives us an escalation in the growth rate path of about 3/4 percent--that we are subject to the charge, and will be charged, that we have a policy of drift. In other words, if we just go along with the current--whatever the current happens to be--I see that [charge] as difficult to counter. I can well [anticipate] that, if we were to announce a set of numbers such as are presented in alternative D, [then] what I would call our first-tier critics will charge that we are making a significant tightening of policy. And it will be hard to explain that away in terms of the base drift. On balance, however, I would rather attempt that explanation than a rationalization that, notwithstanding the higher second-quarter base, we have adopted a policy of essentially no change, and that's reflected in a set of numbers which are essentially unchanged. It seems to me that it would be easier to try to get across the idea that the shift in the base is affecting the numbers, and while the numbers change, policy is not changed. So my preference actually would be for a base which moved along the midpoint of the line of the prior announced path each quarter, which would get away from the fictitious change in numbers. But this may not be the time that we want to make that particular change. So this leads me to a posture of suggesting something close to alternative D, notwithstanding--",428
-fomc-corpus,1977,Close to alternative?,4
-fomc-corpus,1977,D. The last one. The one which the staff characterizes as continuing the current policy posture.,20
-fomc-corpus,1977,"Well, thank you, Mr. Baughman. Gentlemen, we're faced with a very hard decision. Speaking personally for a moment, I wish I could join my colleagues who were inclined to move toward somewhat lower growth rates. I wish I could--temperamentally, yes; that's what I would prefer to do. But I do have an obligation to this Committee and to the System as well as to the country. I'll have to testify before the Committee, I will have to defend whatever this Committee decides. You take a range of 4 to 6, which is preferred on this first go-round by four members of the Committee; eight members prefer 4 to 6-1/2. I find it difficult to defend 4 to 6. Let me show you why: 4 to 6 reduces the midpoint to 5 percent. The staff projection for nominal GNP is approximately 12 percent. That implies a velocity figure of roughly 7 percent. I would find it very difficult to justify a 7 percent velocity figure. We may get it, particularly at a time when some people will be arguing, ""Well, the economy has leveled off, and at such a time velocity tends to fall off."" Suppose the velocity figure is lower than 7 percent. If I could argue with conviction that that would put significant downward pressure on the price level, you see, yes, I would be in good shape. But I can't. I can't argue that. It may put some downward pressure on prices, it may put some downward pressure on activity. Over the longer run, yes. I could argue with respect to the effects on the price level. Moving the lower limit down to 4 percent will subject us to attacks. I don't mind being attacked, but I want to be in a position, really, to answer the attacks in an effective manner. And I find it very difficult to do that at the present time because of the hesitation that some people are going to read into the economic events. I interpret the economy differently. Well, that will influence the thinking of some, and I am concerned about the legislation that we have before the Congress. A clear majority of the Committee, in any event, favors a range of 4 to 6-1/2 percent for M1, 7 to 9-1/2 percent for M2, and 8-1/2 to 11 for M3. As for bank credit, you have the recommendation by the staff that we do away with the proxy; that change is long overdue. And as to a figure, I think we ought to proceed as we have in our recent meetings and leave it to the staff to supply the numbers that are reasonably consistent for bank credit--consistent with the monetary magnitudes that we decide upon.",568
-fomc-corpus,1977,"I think it would be the alternative C figure, Mr. Chairman; 7 to 10.",20
-fomc-corpus,1977,"Well, I would really prefer to leave that to the staff.",13
-fomc-corpus,1977,It might be [unintelligible].,9
-fomc-corpus,1977,Why even have it?,5
-fomc-corpus,1977,What's that?,3
-fomc-corpus,1977,Why even have it?,5
-fomc-corpus,1977,Why do we have to have it?,8
-fomc-corpus,1977,"Oh, I think it's quite important to have a credit figure as well as the money figure because we don't want to go completely monetarist at this Committee.",32
-fomc-corpus,1977,"I happen to be of that persuasion, too, but I still wonder why we just create a figure that we add on to the pack.",28
-fomc-corpus,1977,"Well, I think that's a--",7
-fomc-corpus,1977,It's pure cosmetics.,4
-fomc-corpus,1977,"Well, I think sometimes, I think they are symbolic. Much of life is based on symbolism. It serves a function. Much of history is based on symbolism. I wouldn't want to ignore it. Well, I don't see any way of compromising readily here, and I think we have to take a straight vote. And I hope we will not be too far apart in the voting.",77
-fomc-corpus,1977,Could we vote to include the bank credit or not to include it?,14
-fomc-corpus,1977,"Oh no, I don't think we ought to vote on the bank credit. Leave that to our staff. But to vote on the--",27
-fomc-corpus,1977,But the implicit vote is to state an objective for bank credit.,13
-fomc-corpus,1977,"Well, let me repeat what I think we'll be voting on.",13
-fomc-corpus,1977,Because I don't think there is any indication [in] Governor Coldwell's suggestion as to whether we exclude it completely or include it and have the staff insert the figure.,34
-fomc-corpus,1977,"Well, let me indicate what I think we ought to vote on, and then we'll discuss that to the extent that there is a difference of opinion. What I'm putting to the Committee for a vote is as follows: an M1 growth range for the year ahead of 4 to 6-1/2 percent; the growth range of M2 of 7 to 9-1/2 percent; a growth range for M3, 8-1/2 to 11 percent; and a figure on bank credit, as distinguished from the bank credit proxy, to be appropriately filled in by the staff. Yes, Mr. Black.",130
-fomc-corpus,1977,"Mr. Chairman, you stated there were no grounds on which to compromise, and I see one. I don't think you probably want to consider it, but 4-1/4 to 6-1/4.",45
-fomc-corpus,1977,What's that?,3
-fomc-corpus,1977,4-1/4 to 6-1/4.,13
-fomc-corpus,1977,"Well, I thought of that, but we have avoided fourths, and I'm a little afraid that we may get to--actually, the difference between 4 to 6 and 4 to 6-1/2 is a small difference.",50
-fomc-corpus,1977,"Same midpoint, but--",5
-fomc-corpus,1977,It's a meaningful one.,5
-fomc-corpus,1977,What's that?,3
-fomc-corpus,1977,It's a meaningful one.,5
-fomc-corpus,1977,But I think in this case it really is to knock a little off the top...,17
-fomc-corpus,1977,"Meaningful one, in the sense that a good deal of meaning may be read into that.",19
-fomc-corpus,1977,It also lowers the midpoint.,6
-fomc-corpus,1977,"I believe it would give the same, wouldn't it? 4 to 6.",17
-fomc-corpus,1977,Bob's figure gives the same midpoint--,8
-fomc-corpus,1977,Your midpoint.,3
-fomc-corpus,1977,Yours [Mr. Coldwell's] would be lower.,13
-fomc-corpus,1977,"Yes, yours would, but 4-1/4 to 6-1/4 would give the same midpoint, I believe, as 4 to 6-1/2.",39
-fomc-corpus,1977,"Well, we could do that. But I think that--you know, it'd be an exercise in fine tuning that I don't fancy, but if this is what the Committee wanted to do--",38
-fomc-corpus,1977,"There's only one reason I would even suggest it, and that is that the upper limit has not really been cut down.",24
-fomc-corpus,1977,I beg your pardon?,5
-fomc-corpus,1977,The only reason I would even suggest anything that approximates fine tuning to that point is that there has been no adjustment in the upper limit.,28
-fomc-corpus,1977,"I think the compromise more practically ought to be along another line, namely, let's bear in mind that several members of the Committee think that the upper limit of 6-1/2 is too high, and, in looking at our short-term ranges, let's keep that in mind as policy unfolds in the months ahead. Mr. Roos, please.",71
-fomc-corpus,1977,"Mr. Chairman, just for clarification. I'm just speaking of M1. I am led to believe that if we maintain the upper the limit where it has been--6-1/2 percent--and if we operate from a new base as a result of this base drift, then, even with a reduction of 1/2 percent in the lower limit, this would accelerate M1 growth by approximately 1 percent. Which would have the effect, a couple of years down the road--if there is any relationship between the growth of the M1 aggregate and the price level--of probably increasing the price level predicated on that relationship by just slightly less than 1 percent. Does the reduction of the lower limit of this range from 4-1/2 to 4 obviate this acceleration of M1 growth and probable acceleration of the rate of inflation at a time when we're trying to inch these things down? I mean, isn't that essentially the scenario that we would be buying if we agree to raise the base and stick with the 6-1/2 percent upper limit?",220
-fomc-corpus,1977,"It's all a matter of interpretation. You see, the actual growth rates have diverged from the targeted growth rates significantly. And I think that the objective that you seek can be better attained by watching the short-run policy objectives and trying to prevent further upward drifting and try to get, you see, some downward drift. I think that's the operational essence of what we do. Now, to announce to the world that we are continuing the policy of moving our targets gradually downward is, I believe, a healthy thing. To announce to the world that we're moving our targets down very appreciably when in fact we permit, through our short-run decisions, the growth rate to creep up means that we are inviting trouble for ourselves and [that we] don't do for the economy what we are seeking to achieve. My own inclination, therefore, would be to stay with the more modest reduction but to pay perhaps more attention than we have to the short-run targets. That's the way in which I would seek a compromise of the views that now exist within the Committee.",209
-fomc-corpus,1977,"Is it possible, Mr. Chairman, to really convince the world--which I think looks to you, sir, as perhaps the only effective obstacle to continued acceleration of inflation--is it possible to convince them that, [while] we really aren't doing anything with our long-range targets to materially affect this situation--having left the upper part of the longer-range target where it is--that we really are going to achieve this miracle by doing it with our short-range targets? Is anybody going to believe that? Is that going to affect anything?",108
-fomc-corpus,1977,"I don't know. Well, you know, I look upon the upper limit as an insurance policy. I look upon it also as something that can help us through a difficult legislative period. I can assure you that the statement before the [congressional] committee will stress, even more than preceding statements have, the need to bring the monetary growth rates down. As some evidence of that intention, there is this further modest reduction. Well, you can argue this one, I think, one way and argue it another way. As far as the business and financial community is concerned, I'm not aware of any great dissatisfaction with the monetary policy pursued by the Federal Reserve System. The indications to me are that, by and large, the policy is approved. On the other hand, we do have many critics in the Congress and, for that matter, in a section of the American public.",177
-fomc-corpus,1977,"I might just say, Mr. Chairman--Larry [Roos], the first quarter was an undershoot. It could very well be that the third quarter would be an undershoot. If it is, a quarter from now we'll be meeting, and we'd be looking at how to evaluate an undershoot. I mean, you're basing everything on the second quarter as if that was the exactly right base number. I don't think there's that basis really.",90
-fomc-corpus,1977,"I'm really not. I'm taking a five-quarter period, first quarter of '76 to the second quarter of '77, where M1 has grown at 6-1/2 percent--the last three quarters at 6.6 percent, and the last quarter at 8.8. If that doesn't reflect a trend of acceleration, an upward trend, I can't--I'm misreading the figures.",81
-fomc-corpus,1977,"Gentlemen, I wish we were closer together. Unless there is a further comment or a further suggestion--",22
-fomc-corpus,1977,"Just to add, I think your reasoning is right on this, Mr. Chairman. I don't think we should put the emphasis on lowering an upper limit and not be serious about it, because it's going to get us in all sorts of trouble publicly. I'd put an upper limit that we mean and put our emphasis on the short-range implementation so that we don't exceed it rather than, for public purposes now, put a lower upper limit. At the same time, [it gives] us a leeway on the lower limit; if the numbers do come in weak, we don't have to react in the opposite direction. So I think, in general, that widening the range on the lower side is definitely the right way to go. I might apply that to M2, too, but I think in substance this is the right posture we want to be in.",172
-fomc-corpus,1977,What better way would there be to convey to the public our determination to operate closer to the midpoint than to reduce our maximum upper end?,27
-fomc-corpus,1977,"Well, I'm not sure we're willing to do that. It's depending on how these numbers come in. I'd be satisfied if we make sure we don't exceed that upper limit. And I think that will be the credibility. We're in danger of losing the credibility by these overshoots.",56
-fomc-corpus,1977,"Well, you know, as far as the range is concerned, let's not forget the original reason for wanting a range rather than a single figure--namely, our inability to hit the targets, number one; also, the uncertainty of our knowledge as to the relationship between the given magnitude on the monetary side and an economic activity measure one way or another. The relationship is quite loose. Now these were the two reasons we adopted a range rather than a single figure, which assumes, you see, more knowledge than we have and a greater ability to control or to reach our objective than we have.",119
-fomc-corpus,1977,"I don't want to prolong this, but I would like to give strong support to the comment you made about looking at the short-run policy in light of the longer-run policy. I think that's very important, and we haven't always done that as well as we might have. But that's something to strive for as we go.",64
-fomc-corpus,1977,"Well, that's something that Mr. Balles in particular has reminded us of repeatedly. Well, gentlemen, I think that we are probably ready for a vote now.",33
-fomc-corpus,1977,"Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell No Governor Gardner Yes President Guffey Yes Governor Jackson No Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos No Governor Wallich Yes Nine to three, Mr. Chairman.",53
-fomc-corpus,1977,"All right now, we want to turn--but I wonder about the hour, how much we can--how do you feel, would you like to continue, or take a break and go to lunch? I'll tell you, let's do this. We'll have Mr. Sternlight's report and perhaps also Mr. Axilrod's, and then we'll break for lunch. Mr. Sternlight, we're ready for you.",84
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,"Thank you for your report, Mr. Sternlight. Any questions to Mr. Sternlight?",19
-fomc-corpus,1977,"Most everybody made payment the next day, didn't they?",11
-fomc-corpus,1977,"Payments went through the next day; there's the question of what interest rate adjustments to make, if any, because of the nonday--we skipped a day.",32
-fomc-corpus,1977,"Mr. Black, please.",6
-fomc-corpus,1977,"I think Mr. Sternlight pretty well took care of my question, Mr. Chairman.",18
-fomc-corpus,1977,Mr. Wallich.,5
-fomc-corpus,1977,"Last time we had a money market directive, do you feel that this made any difference in why things went--for instance, would the funds rate be significantly different from now had we had a corresponding aggregates directive?",42
-fomc-corpus,1977,"I think there was sufficient strength in the aggregates toward the latter part of this interval so that, if you'd been operating on an aggregates directive, there might very well have been a need to firm slightly. I think we just barely avoided such a need, and one of the factors working in that direction was the fact that there was a money market directive.",70
-fomc-corpus,1977,My guess would be that the federal funds rate would be a little higher now.,16
-fomc-corpus,1977,"I would have thought so, too.",8
-fomc-corpus,1977,"Any other question? Mr. Axilrod, how many hours do you need for your report?",20
-fomc-corpus,1977,"Approximately 3-1/2 minutes, Mr. Chairman.",13
-fomc-corpus,1977,All right. You'll be timed precisely; please proceed.,11
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Well, thank you, Mr. Axilrod. I think it's a very helpful statement. Mr. Wallich.",24
-fomc-corpus,1977,"You say that there's much less relation between velocity and interest rates; is that the case also if you try to allow for the clear upward trend of velocity that we have as a result of technological changes, such as you have specified before?",47
-fomc-corpus,1977,"This is the velocity of M1, and I think you'd have to allow for more than the technological changes, and we're working on that. The next thing I'm going to say, I think you might have to allow for a large increase in corporate and state and local government holdings of very short term assets, like the federal funds and RPs [repurchase agreements]. And if you began including that in M2, then this relationship may become a little strong again. But we're still working on that, Governor Wallich.",104
-fomc-corpus,1977,"Any other questions to Mr. Axilrod? Yes, Mr. Jackson.",16
-fomc-corpus,1977,"Just one question. To what extent do these short-term projections include the possibility that, for brief periods, the wild-card maturing deposits will be deposited in the M1 demand deposit figure before they're rolled over?",42
-fomc-corpus,1977,"We did not make any specific allowance for that, Governor Jackson.",13
-fomc-corpus,1977,Do you think that would be a material factor?,10
-fomc-corpus,1977,"I think there would be some possibility. But I would believe that most of the holders, knowing the time of maturity, would probably arrange their transaction to minimize the amount going through demand deposits. I think there could be some effect if you go out of the wild card into a market security in the transaction process, but I think that would be a rather passing phase. We have assumed, in fact, that there is, under current conditions, enough scope between the ceiling rate on longer-term time certificates and current market rates for institutions to hold these deposits.",110
-fomc-corpus,1977,You don't think that [any] of [the] alternatives here would pose the likelihood of substantial disintermediation then?,25
-fomc-corpus,1977,"Well, I think alternative C might put banks a little bit closer to the margin than [it] would thrifts, so, a little more room. I don't think alternative B would pose any problem; alternative C would begin to, a little bit, for banks, but not significantly over the next four weeks.",63
-fomc-corpus,1977,Did you allow for any shift from M2 to M3 on account of the wild card?,19
-fomc-corpus,1977,"No, we did not make any specific allowance for that, Governor Partee, but as rates got higher, it would become more of a possibility.",30
-fomc-corpus,1977,"You did not make any allowance. Well, I'm not [unintelligible] that these people were great buyers, that they were shopping for the best way, if they can get a better way than this.",43
-fomc-corpus,1977,"If you got up to the ceiling rate at banks, then there would be much more of a possibility of shifting.",23
-fomc-corpus,1977,How much do you have outstanding in the wild card?,11
-fomc-corpus,1977,I believe it's $18 billion in thrifts and $8 billion in banks between about now and October.,21
-fomc-corpus,1977,"Yes, Mr. Balles.",7
-fomc-corpus,1977,"One quick question for Steve. Laying aside the possibility of nationwide NOW accounts--which, of course, is quite uncertain as we sit here--but just considering NOW accounts in the states where they are presently permitted and possible further shifts of business deposits into savings--and alluding to my earlier compliments to you and Mr. Paulus on the guess you made a year ago of what would happen to M1 as a result--what are your feelings with regard to the period ahead as to what further shifts there might be out of M1 into M2?",110
-fomc-corpus,1977,"Well, President Balles, I would really--we have not investigated that in any detail. And I would propose that we do that and report back through a memo.",34
-fomc-corpus,1977,"Fine, thank you.",5
-fomc-corpus,1977,"Well, you better get started on that because my own guess is that if we get nationwide NOW accounts, we would want either to shift entirely to M2 or give it a significantly larger weight. That's my guess.",43
-fomc-corpus,1977,"Do I interpret you right, President Balles--you are asking for our estimates of shifts to NOWs, to savings, as well as [to] these other instruments--telephone transfers--",38
-fomc-corpus,1977,Right. The whole package.,6
-fomc-corpus,1977,"And also its implications for our monetary procedures. Because, you know, we've been able to live with our present definition; well, we've made an adjustment, giving as much weight to M2 as we do, or approximately the same way as we do, to M1. But with nationwide NOW accounts, I doubt if we could retain the present procedure. Gentlemen, it's time to break for lunch, and we'll be back at--what would you prefer, 2:15 or 2:30? Let me have a show of hands for 2:15. [Lunch recess]",119
-fomc-corpus,1977,"Gentlemen, we are late in gathering once again, but there were some legislative problems that a number of us had to talk over at lunch. And we want to turn our [attention] to the directive to the Desk and our decision with regard to monetary policy in the weeks immediately ahead. I think no matter what we do today, under that head we ought to have a monetary aggregates directive, in view of the decision that we reached earlier in this meeting. My own inclination, which I will put forward to the Committee as a target to accept or reject, is to have a monetary aggregates directive, to accept the figures under alternative C for M1 and M2 on page 6 [of the Bluebook], and to accept the federal funds rate range under alternative B. Mr. Mayo.",160
-fomc-corpus,1977,"I was with you through the M1 and M2, Mr. Chairman. I think that is the right course to go. I would expand the federal funds range, however, to 5-1/4 to 6 percent on the grounds that I think we need a little bit more freedom. I think it is in line with what we have just talked about on our targets on the longer term, and that's why I also subscribe to your formula for M1 and M2, because I think that 3-1/2 to 7-1/2 effectively covers the 4 to 6-1/2 that we were just talking about, realizing that you need a wider range in the short run. So that's where I would come out. I would see us moving toward maybe 5-1/2 to 5-5/8 as the central point only if we are pushing that upper limit of 7-1/2 percent on M1.",198
-fomc-corpus,1977,"Well, I thank you, Mr. Mayo. Who would like to speak next? Mr. Coldwell.",22
-fomc-corpus,1977,"Mr. Chairman, [we're] not too far apart; actually I have gone a little step further, with M1 of 3 to 7 and M2 of 6 to 10. But the federal funds rate--if we are going the monetary aggregates route, I think we ought to return to the full 1 point, and I'd take 5 to 6 percent.",79
-fomc-corpus,1977,"All right. Thank you. Mr. Black, please.",12
-fomc-corpus,1977,"Mr. Chairman, Mr. Mayo has made all the points I'd wanted to make. I would be right with him.",24
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Eastburn.",12
-fomc-corpus,1977,I would agree with that position too.,8
-fomc-corpus,1977,Thank you. Mr.--,5
-fomc-corpus,1977,And so will I.,5
-fomc-corpus,1977,Thank you. Mr. Guffey.,9
-fomc-corpus,1977,"Contrary to what Bob Mayo said, I would rather support your proposal in the fact that, so long as the aggregates [are] performing and appear at the midpoint, we stay right where we are in terms of the fed funds rate. And only if they push up [to] the upper range do we move it. I believe this other contemplates that we will indeed move the fed funds rate a little earlier than might be under your proposal.",90
-fomc-corpus,1977,My proposal was that you didn't move the fed funds rate until you get very close to the end of your M1 range.,25
-fomc-corpus,1977,"I guess I would prefer that if we are going to have an aggregates target, if you do, we use--",23
-fomc-corpus,1977,"Gentlemen, I don't think we want to change our rule, you see. We are changing the rules of operation, Mr. Mayo. And I think we will work ourselves into trouble if we change our rules from meeting to meeting. We ought to stay with a given rule until we decide that some other rule is better. Stay with that for a while.",73
-fomc-corpus,1977,"Can I just qualify this, Mr. Chairman? Is [it] your implication that we should go above where we are now, right away, if we were at the midpoint in the aggregates? We're below the midpoint in the range you propose.",49
-fomc-corpus,1977,"Well, you know, our rule is that, when we have a monetary aggregates directive, we use the full range. The full range first. That's rule one--full range is available for use. Rule two is that there is a zone of indifference. And that zone of indifference, instead of being equal to 4 percentage points, is equal to something like 2-1/2 or a little more than that. That's our second rule. And rule three, of course, is, if we start hitting against the boundary lines, we then have the special intervention by the Manager and the Committee Chairman. Those are our basic rules.",130
-fomc-corpus,1977,But we're not at the midpoint of the federal funds range you now propose.,15
-fomc-corpus,1977,"Well, we're at 5-3/8",10
-fomc-corpus,1977,And the midpoint of the range is 5-1/2.,14
-fomc-corpus,1977,"The midpoint is 5-1/2, yes, but I don't think there ought to be an arbitrary move to 5-1/2. There ought to be a move based on some evidence concerning the aggregates. But the full range being available for us in contrast to the money market directive.",61
-fomc-corpus,1977,"But you wouldn't move right away, and there, as a practical import, you say until some aggregates evidence can then--",24
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"As a practical matter, Mr. Chairman, it seems to me what I was saying, it conforms to rules 1, 2, and 3.",32
-fomc-corpus,1977,"Well, then our discussion has been helpful. That is, the meaning that you sought to convey, which I didn't get in the first instance, has now been clarified. That's helpful. All right, then, Mr. Jackson, please.",48
-fomc-corpus,1977,"Mr. Chairman, I would support the aggregates proposed for M1 and M2. I would also support the federal funds range, while normally, I think the wider range of latitude would be desirable. In view of the unknown consequences of financial shifts as a result of the wild-card expirations that we may be experiencing, of which we don't know the ramifications, I think a narrower federal funds [rate] would be a better course of action while keeping the monetary aggregates. I would move with deliberate speed to the midpoint of the ranges. Which means 5-1/2--not instantaneously, but with deliberate speed in that direction.",128
-fomc-corpus,1977,Who would like to speak next? Mr. Gardner.,11
-fomc-corpus,1977,"I have no difficulty with the ranges of M1 and M2, but if you will forgive me for appending an additional comment on your comment this morning, I don't want a 6 percent federal funds rate without further deliberation. So I would support the narrower range in the federal funds rate because I think this would be a most significant point in all of our processes. And I see no reason to move that midpoint up, adopt a higher limit. Particularly in this--and I suppose this is always true--sensitive time. So I would support the 5-1/4--the alternative B federal funds rate range--very vigorously.",130
-fomc-corpus,1977,"Thank you, Mr. Gardner. Yes, Mr. Kimbrel?",15
-fomc-corpus,1977,"In our [Treasury] financing, if we are going to move, would we need to do this very quickly?",24
-fomc-corpus,1977,This is the question--,5
-fomc-corpus,1977,Treasury financing.,4
-fomc-corpus,1977,"I don't know what the financing schedule is, precisely.",11
-fomc-corpus,1977,"They will be announcing a week from tomorrow, Mr. Chairman, in terms of the quarterly refunding operation. So, from that standpoint, if there were any significant rule [unintelligible], the midpoint would probably be [unintelligible] making its presence in the market early. I don't know that these smaller rules that [unintelligible] are contemplating--",76
-fomc-corpus,1977,How much will the Treasury be--,7
-fomc-corpus,1977,"They are refunding just over $3 billion, and they might add $2-1/2 billion or $3 billion before or on top of that. So it's a sizable--",37
-fomc-corpus,1977,And that means that the only new information that we'll have will be Wednesday and Thursday of this week.,20
-fomc-corpus,1977,"That's correct, Mr. Chairman, but I ought to add that there is some thought that, because of the blackout in New York, the additional data that we get for the week ending the 20th may be subject to some more doubt than they usually are--the preliminary data. There may be some technical problems in interpreting and getting that data. So that what I'm saying is, the additional information we'll have Wednesday and Thursday will be subject to more doubt than it usually is.",96
-fomc-corpus,1977,When will those doubts be resolved?,7
-fomc-corpus,1977,"I would assume they would be resolved within a week afterward, when we get the final data for that period.",22
-fomc-corpus,1977,"Wait, now the final data, are you referring to the preliminary data that you normally get on the Thursday?",22
-fomc-corpus,1977,"Yes. I'm referring to the data for the week ending July 20, which we would normally get on a Thursday.",24
-fomc-corpus,1977,"Well, the data are always a bit cloudy--",10
-fomc-corpus,1977,That's right; I'm told they'll be cloudier.,10
-fomc-corpus,1977,This time they will be somewhat more cloudy?,9
-fomc-corpus,1977,"That's right, because it covers the period in which we had this power failure in New York.",19
-fomc-corpus,1977,"We'll get to this point a little later--that is, we'll have to clear that up. Yes, Mr. Kimbrel; no, you have spoken, that's right. Mr. Volcker.",41
-fomc-corpus,1977,"Well, I am at about the same place I think that Steve Gardner is. I can use the C and D aggregates projections or also go along with Mr. Coldwell, and maybe one or two others, who even went a half a point lower than that. But I agree with Governor Gardner that we should not increase the federal funds rate to 6 percent without careful further deliberation. So I also feel strongly that we ought to keep this range 5-1/4 to 5-3/4 and be prepared to use it up to 5-3/4. But I think the common sense way of expressing it, I guess, is to retain this asymmetrical midpoint so that we don't move without some further provocation or confirmation on the aggregates, which might delay us until after the financing.",164
-fomc-corpus,1977,"That was my question. Our normal procedure would be to move deliberately toward the midpoint, wouldn't it, unless you were given other instructions?",27
-fomc-corpus,1977,"I think that that would be the normal procedure, but starting from an asymmetrical midpoint there is a special question as to how fast we move. And the suggestion that I made was that we move on the basis of new information rather than move mechanically.",50
-fomc-corpus,1977,"The staff would create [unintelligible] good reason to move, then I would support your proposal.",22
-fomc-corpus,1977,"Thank you, Mr. Lilly. Who is--yes, Mr. Winn.",16
-fomc-corpus,1977,"I can [associate] myself with that, too.",11
-fomc-corpus,1977,"Thank you, Mr. Winn. Mr. Partee.",12
-fomc-corpus,1977,"Well, Mr. Chairman, I would have rather done it the other way around. That is, I think it is time to have a monetary aggregates directive because the special circumstances of early July are over. But I think there is some uncertainty about what the aggregates are doing and certainly about what aggregates tend to do. I note that we have a July projection of 7-1/2 percent, which would require, with your suggested range, a quite low August in order to stay within. I note also, [with] Governor Jackson, that we don't know quite what the wild-card experience is going to be. And so we might consider using this occasion to broaden the ranges for M1 and M2. In particular, I would have suggested 3 to 8 for M1 and 6 to 11 for M2, and then I think we could use the whole 1 point funds range, 5 to 6. I would like to see us begin to have a little wider funds rate range when we use a monetary aggregates target. The other point, the reason I reduced the lower end of both those ranges, all the way down to 3 [for M1], is that I think the sense of the Committee, as I got it this morning, was that we would welcome some weakness or some undershoot. We wouldn't really want to move as much as we would against strength on the other side.",287
-fomc-corpus,1977,"Well, then, why would you want the federal funds rate to move down to 5?",19
-fomc-corpus,1977,"Well, that's only 3/8 from where it is now, and we would only be [moving there] in the case you were validating a 3 percent M1 for July-August. And you're going in with a 7-1/2 percent estimate for July; if that were realized, what would that mean--a minus for August.",72
-fomc-corpus,1977,But a move of the federal funds rate [down] 3/8 would be regarded as a very significant easing move by the Federal Reserve,28
-fomc-corpus,1977,"But if we have a negative August--in a situation where the economy seemed to be flat or weakened, well, I just--I can live with what you proposed, but I would have thought that this might be a time to broaden those ranges.",50
-fomc-corpus,1977,"All right, thank you, Mr. Partee. Mr. Morris hasn't spoken yet.",18
-fomc-corpus,1977,"Mr. Chairman, I accept your proposal.",9
-fomc-corpus,1977,"Thank you, Mr. Morris. Mr. Roos, we haven't heard from you.",18
-fomc-corpus,1977,"Mr. Chairman, I would support the M1 and M2 ranges under C. I'd like to express support for a federal funds rate of 5-1/4 to 6.",38
-fomc-corpus,1977,"Thank you, Mr. Roos. Mr. Wallich, we haven't heard from you yet.",20
-fomc-corpus,1977,"I think we're in some danger of mixing the two directives. I think, if we want an aggregates directive, we ought to have a wide funds rate spread. The narrow spread is appropriate for the money market directive. So I would go for 5 to 5-3/4 with a midpoint of 5-3/8, and otherwise, the specifications of B",75
-fomc-corpus,1977,"All right, anyone else like to speak?",9
-fomc-corpus,1977,Mr. Chairman.,4
-fomc-corpus,1977,"Yes, Mr. Balles, and then Mr. Baughman.",15
-fomc-corpus,1977,"In the interest of brevity, Mr. Chairman, I would support your proposal, assuming the asymmetrical midpoint, in view of the sensitive conditions we have right now.",34
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Baughman.",14
-fomc-corpus,1977,"I would find your suggestions on the aggregates quite satisfactory, but on the fed funds, I'd be inclined to the 5 to 6 range.",29
-fomc-corpus,1977,"Thank you, Mr. Baughman. Anyone else? One thing is perfectly clear: the Committee is inclined to accept a monetary aggregates directive. And a clear majority favors a growth range for M1 of 3-1/2 to 7-1/2 and a growth range for M2 of 6-1/2 to 10-1/2. As for the federal funds rate, there is a distribution, a wider distribution. Six members of the Committee favor a range of 5-1/4 to 5-3/4, and--oh, something wrong. Our secretary never makes a mistake, but today he's made a mistake, and I don't know what it is. Mr. Guffey, we don't have you recorded--",156
-fomc-corpus,1977,"I am in support of your proposal, Mr. Chairman.",12
-fomc-corpus,1977,"Well, that makes for the majority, just what I've been waiting for. Any further discussion?",19
-fomc-corpus,1977,"Mr. Chairman, I have no problems with your [5-]1/4 to 3/4. The only question, I think, is the asymmetrical side. You might test to see whether the Committee wants the asymmetrical or the move to the 1/2 point [midpoint].",62
-fomc-corpus,1977,You mean the prompt move to the--,8
-fomc-corpus,1977,"Well, reasonably prompt.",5
-fomc-corpus,1977,"Well, all right, let me put the question as it was worded by Mr. Coldwell, and each member of the Committee will interpret that for himself. Members of the Committee who seek a reasonably prompt move from 5-3/8 to 5-1/2 will indicate that by raising their hands.",65
-fomc-corpus,1977,Regardless of any information we have received?,8
-fomc-corpus,1977,"Well, every member of the Committee will interpret that for himself.",13
-fomc-corpus,1977,"Three, Mr. Chairman.",6
-fomc-corpus,1977,"Well, then, I would say that the move ought to be made on the basis of new information. But we don't sit on new information, we use it. That is [what] the monetary aggregates directive always means. Well, unless there is further question, let us vote on the following: A monetary aggregates directive; an M1 range of 3-1/2 to 7-1/2; an M2 range of 6-1/2 to 10-1/2; a federal funds range of 5-1/4 to 5-3/4, with the understanding that the range is to be used depending on how the information comes in; and that a move be made to the midpoint of 5-1/2 when and as new information points in that direction. Now, some special attention will have to be given to the Treasury financing problem, and I don't quite know what should we say about that, if anything, at the present point. Mr. Holmes.",206
-fomc-corpus,1977,I think some reference to the Treasury financing might well go into the directive for a change.,18
-fomc-corpus,1977,"We've haven't had that reference for a long, long time, Mr. Chairman, and we have taken account of financial market developments, which I believe might be satisfactory. I don't know that we need to make special mention.",44
-fomc-corpus,1977,"I think if the Committee understands that we do have to keep an eye out on the financing, that's all that's needed; nothing specific is really needed.",30
-fomc-corpus,1977,"Well, I think the Committee does understand that. Well, if we are ready for the vote, let's proceed.",23
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Unanimous.,49
-fomc-corpus,1977,"What else do we have to do, Mr. Secretary?",12
-fomc-corpus,1977,Set the date for the next meeting.,8
-fomc-corpus,1977,"Yes, Mr. Baughman?",8
-fomc-corpus,1977,"[In] appendix III, page 2, in the Bluebook, [there is a] reference to the computation of the bank credit measures and [a] suggestion at the very bottom of the page that the staff could develop a monthly average series for the components of that measure as well, if desired. I assume the reference here is simply to the broad break between loans and investments, rather than the detailed loan rate?",85
-fomc-corpus,1977,"No, we could develop on a weekly average basis the same breakdown we had on the end-of-month series. We have the same lack of information in both cases.",33
-fomc-corpus,1977,"It would seem to me that it might be helpful, with the bank credit measure being brought into the picture, that we have at least some of the broad categories",32
-fomc-corpus,1977,"We are working toward that end, but it will be at least some while, and of course it will be some while further to seasonally adjust them.",31
-fomc-corpus,1977,"Mr. Baughman, I'm sorry, I haven't been attentive, but has your question been properly handled by Mr. Axilrod?",28
-fomc-corpus,1977,Taken care of as far as I'm concerned.,9
-fomc-corpus,1977,"All right, good.",5
-fomc-corpus,1977,"Mr. Chairman, can I ask the Presidents to remain?",12
-fomc-corpus,1977,"The agenda indicates an executive session, but that session will be postponed until we have concluded our monetary policy meeting. Is there, gentlemen, a move to approve the minutes [of the July 19, 1977, meeting], if that be the inclination of the Committee?",55
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,The motion has been made and seconded. No objections heard. I take it the minutes are approved. We will now hear from Mr. Pardee on foreign currency operations.,35
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you very much. I take it [that], while foreign exchange markets start boiling, our rhetoric also becomes more interesting, more exciting.",28
-fomc-corpus,1977,You bought $77 million--is that what it amounts to in the market? You got rid of the $35 [million].,26
-fomc-corpus,1977,"Yes, 35 plus 43.",8
-fomc-corpus,1977,How much had you sold earlier?,7
-fomc-corpus,1977,"Oh, well, in the total operation, it had been somewhat over $100 million between June and July. And $88 million reported last month.",30
-fomc-corpus,1977,"But you haven't quite recouped your position, I suppose.",13
-fomc-corpus,1977,"I'm building up balances very gradually, dollar averaging as the dollar rate rises. Buying marks at times when the dollar is rising particular sharply, again on the idea of avoiding disorderly conditions.",37
-fomc-corpus,1977,"Any questions or comments? Yes, Mr. Wallich.",12
-fomc-corpus,1977,"In your report for the period, you mentioned that various currencies tried to avoid getting into the lower part of the snake [intended exchange rate band] and also, I guess, wanted to avoid being at the top, and so they intervened. Is that now the standard procedure? That they will not wait and operate in their own currencies, which I understand is the rule of the snake?",79
-fomc-corpus,1977,"Yes, I think the central banks have found that, as we did in the fixed-rate world, that the last place you want to be is at the upper limit with no flexibility whatsoever, just taking in taking in currencies or handing them out. And that to maintain the flexibility of intervention, it's better to start somewhat earlier, and the central banks in the EC snake group do intervene in dollars at their own discretion and with the approval of the group prior to reaching the outer limit. And the practice in recent months has been to avoid getting to the outer limit if they can. That's when the big speculative pressures, one-way pressures, are likely to emerge.",131
-fomc-corpus,1977,Is there any evidence they're thinking of using their own currencies within the limits? I realize that there are accounting difficulties.,23
-fomc-corpus,1977,"They have from time to time, but not in transactions outside the fund, the pooling arrangement. There are all kinds of bonds that are being issued, and so forth, and currencies come into their hands. We have the odd situation where the Bank of France is now operating much more in German marks, and at one stage they were buying dollars and selling marks, trying to position the franc somewhere in between the dollar and the mark as the two currencies were moving. So there's a lot more flexibility on the part of the central banks both in and out of the snake, in dollars and other currencies.",119
-fomc-corpus,1977,"Is the morning telephone call in Europe still in action? If so, how did it work out?",20
-fomc-corpus,1977,Morning telephone--,3
-fomc-corpus,1977,"As I remember, the central banks were exchanging a morning conference call.",14
-fomc-corpus,1977,"Yes, well they have consultation calls three times a day. And that's working out fine. We, of course, receive a call--from the so-called captain of the day, after they finish their day--and get the full information. We ourselves make an early morning call, around 7, and several other [calls] during the course of the morning, and pick up the same sort of information. Now that they know that we are hooked in on the system, it's working very well.",100
-fomc-corpus,1977,I think that's full exchange.,6
-fomc-corpus,1977,"Not full exchange, but much more than there used to be. There are still some elements, particularly on some of the more delicate intervention operations, which are passed at a higher level. But we get the information we need.",45
-fomc-corpus,1977,"Any other questions or comments? Very well, a motion to approve the transactions conducted by the foreign Desk would now be in order.",26
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"The motion has been made and presumably seconded. I hear no objection, and therefore we pass to your recommendations, if any, Mr. Pardee.",31
-fomc-corpus,1977,No recommendations.,3
-fomc-corpus,1977,"Well, it's a good day. All right, let's pass quickly before recommendations emerge. Mr. Kichline, we're ready for your economic report.",30
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"I wonder how many of you may have read this morning's editorial in the Wall Street Journal. Well, we can't very well discuss that.",28
-fomc-corpus,1977,Unless you want to read it to us.,9
-fomc-corpus,1977,We might have a better discussion.,7
-fomc-corpus,1977,"Mr. Kichline has reviewed very competently the recent run of economic statistics, and these are summarized in the Greenbook and in the Supplement. I think it would be especially valuable if members of the Committee who have contacts with businessmen, and bankers, and citizens generally, in their own area, would comment on businessmen's current attitudes with regard to the economy. What are their concerns, are they experiencing improving profits, are they anticipating a continuance of the economic expansion, are they uncertain about the trend of economic events? I think a discussion or anything that members of the Committee may contribute along those lines--I, for one, would find it especially valuable. I think I have in the back of my head the statistics pretty well summed up, and not much is to be gained by going through those again. Yes, Governor Lilly.",168
-fomc-corpus,1977,"Well, Willis Winn and I, last week, had a meeting in Cleveland with a very representative cross section of the industrial world, and we gained some insights there as to what their thinking was, and I'd like to hear [Mr. Winn] summarize it. Unless you were--",56
-fomc-corpus,1977,"Was I the recording secretary? Maybe I missed my role in this setup. I'm not sure that I'm summarizing our meeting, Dave, but I have been impressed that the press sometimes influences the thinking of businessmen [more] than their own appraisal of what's happened to them. I was interested particularly--when we were sort of probing with the steel people, and they said, ""Well, business is quite good but profits aren't. But the order rate and the tonnage and other factors are really quite good."" Now I don't know how much of this is due to the fact that the ore people are out on strike and it's thought that the coal people will be out on strike, but they have--",139
-fomc-corpus,1977,But the steel companies had a poor second quarter.,10
-fomc-corpus,1977,Earningswise--,4
-fomc-corpus,1977,"Earningswise, exactly.",6
-fomc-corpus,1977,But the volume is surprisingly good.,7
-fomc-corpus,1977,"Well, what good is volume if you don't make a profit?",13
-fomc-corpus,1977,"Well, they hope to turn it around, of course. But if you don't have volume either, then you've really got problems.",26
-fomc-corpus,1977,That's the worst condition--no volume.,8
-fomc-corpus,1977,"When you sort of probe--you can't rent warehouse space, for example, across the country. And part of this is this inventory increase, but there haven't been any warehouses built for the last three years or so. And my guess is that, if sales continue to grow, you're going to see a big move in this direction. Second, there are five major buildings downtown in Cleveland that will be going on the board here in the next six to eight months. There are talks of office construction across this country in various spots. And apartment [construction] is just on the horizon. But very little available space. And with some change in rents and other factors, I think you're going to see a rather major move in the construction of multifamily homes. [To] pick up on what's happening in terms of the housing factor, I can't see growing from this level, but probably it will hold on this sort of basis. But I--",187
-fomc-corpus,1977,You said five new office buildings in Cleveland?,9
-fomc-corpus,1977,Yes. One of them is a state building; Standard Oil; the two banks; and a private development.,22
-fomc-corpus,1977,Any of these speculative? Or just institutional?,9
-fomc-corpus,1977,"Just one. And so this is really a major change in the construction outlook, in this sense of the term. They are all cautious when they talk to you in one sense of the term, but you probe about their own business and it is surprisingly good.",52
-fomc-corpus,1977,There's a great concern about the loss [on the] capital gains tax. There is a great concern about inflation and the loneliness of the Fed and it's position. They're very bullish as to the rate of capital investment expenditures.,44
-fomc-corpus,1977,"All of them are well fixed financially. They've really protected themselves against the squeeze, so you're going to get the expansion without going back into the financial market. Their positions will take care of it.",39
-fomc-corpus,1977,"Mr. Kichline, you didn't comment--or I perhaps wasn't listening carefully enough--on the trend of corporate profits.",25
-fomc-corpus,1977,"No, I did not. You're talking about the recent past, or our forecast, or both?",20
-fomc-corpus,1977,Both.,2
-fomc-corpus,1977,"Profits in the latter half of 1976 were revised down significantly with the recent revision in the GNP and national income accounts data. The first quarter is very weak. The implicit profits currently contained in the GNP data, which we'll receive next week for the second quarter, indicate an increase of around 7 percent or so. We think it's likely to be a bit stronger than that. For our forecast, I must say that we were much more optimistic about profit performance several months ago than we are today. [The difference] stems in part from a little bit weaker performance on real output as we go through this period. But importantly, it stems from a look at unit labor costs, which in our forecasts had been edging up over the past several months. And in general, corporate profits now in the forecast are sufficient to retain their share of GNP or gross corporate product but do little more than that. So, historically, they have not fully recovered and are not up to levels that we had seen back in '72, '73. So I would say that it's not a terribly bearish performance, but it certainly isn't good, particularly if you take a longer sweep of history and look at the performance of profits at a much higher level in relative terms in the '50s and part of the '60s.",265
-fomc-corpus,1977,"Thank you. Yes, Mr. Jackson.",9
-fomc-corpus,1977,"The people with whom I've discussed the situation within the last three weeks have come back to a surprising concern about inflation. This appears to be the number one issue in the minds of most people that I've visited. They think business conditions are good, they think underlying demand is good. They think the biggest single risk event that would destroy future growth is a sufficient resurgence of inflation [unintelligible] that would destroy confidence [unintelligible]. And in the minds of the people I've talked to, that's been surprisingly number one and very strong, much stronger in their views than I've heard before.",119
-fomc-corpus,1977,"Thank you. Mr. Mayo, please.",9
-fomc-corpus,1977,"I don't want to dwell too much on this, because basically, the comments we have had out of our directors are, I think, quite consistent with the staff projections. And so it gives support, I would say on the ""feel"" side, to what you might say is a more statistical approach. We have some softness in the Midwest in farm machinery and some other heavy equipment. We still have a drought situation right around Des Moines, with the corn crop being basically a failure in about seven counties in Iowa. But the rest of Iowa and the rest of the Midwest in our area is rejoicing that even subsoil moisture is beginning to build up again, and the drought is behind them. They have record crops expected in Iowa and Illinois in soybeans and corn--[for those crops] they are the two leading states in the country. The farmers, of course, are feeling poor because the prices are so low, but this is the market economy at work. It has its effect on bank credit. They are against price supports [in] principle, but they are looking forward to the benefits of new legislation that will give them two bucks for their corn instead of $1.85.",239
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Rankin, please.",14
-fomc-corpus,1977,"Thank you, Mr. Chairman. At our board meeting last Thursday [for] the Fifth District, most of our directors characterized retail sales as moderately strong. Construction of single-family housing is apparently continuing at a high level throughout the District. There are some indications that it will pick up in multiunit construction. Their comments regarding prospects for business capital spending during the second half, however, were less optimistic. There is little evidence of any sizable increase in outlays for new or expanded facilities. One director stated flatly that there is simply too much uncertainty regarding energy and regulatory policy to permit major new undertakings. And on the financial side, while consumer mortgage lending is expanding at a healthy pace, business loan demand was characterized as still flat. And interestingly, the president of one of our larger banks reported that he knew of loans that were being made below prime.",172
-fomc-corpus,1977,"Thank you, Mr. Rankin. Mr. Balles, please.",15
-fomc-corpus,1977,"Well, by and large, as I reviewed the comments of the directors at our various Branches, I get a mixed picture, which is not unusual. But I think it may be more mixed now than I have seen in a while. My general impression is that business confidence is not quite as good as the business statistics. There are elements of caution and concern that we've known about for some time, of course, about the inflation outlook, about the full implications of the energy program. And you get into companies that are in the public utility, the energy field, and they are quite upset about developments and the uncertainties. The strengths that we see on the West Coast are in such fields as aerospace, housing construction, retail sales. And, as an indirect indicator, loan demand in the so-called middle market seems to be very strong across a broad front. All kinds of loans in the medium- and small-sized banks. The weak parts of the economy in the West would be many segments of agriculture because of our terrible drought conditions. Some slowing down in the pulp, paper, and container business. As a leading indicator, according to one director, a number of lumber mills on the West Coast are in trouble because of very high, rising labor costs. In fact, we got a report last week that four lumber mills in Oregon are shutting down because of this. As I say, it's kind of a spotty picture, and a little more of a contrast type of situation than I would normally expect at this stage of the business upswing.",308
-fomc-corpus,1977,"Thank you, Mr. Balles.",8
-fomc-corpus,1977,"May I ask a question about the lumber situation? My impression is that lumber prices are closer to their peaks. They're very high, yet you talk about mills unable to operate in a relatively efficient market like that. I'm surprised.",45
-fomc-corpus,1977,"Well, they've had some whopping big wage settlements going along with the rising prices.",16
-fomc-corpus,1977,"Is this slopped over from British Columbia, where they have those massive settlements?",16
-fomc-corpus,1977,I gather that's true.,5
-fomc-corpus,1977,"Mr. Wallich now, please.",8
-fomc-corpus,1977,"I'd like to throw out a hypothesis about the investment and profits picture. I have long been puzzled: Why would capacity pressures [that are] clearly ahead--[firms] having invested less than the growth of the labor force seems to imply--[why are] we not getting any additional investment? Now, when one ties that together with a poor profit performance, then the following may not be an unlikely course of events. The present level of profits doesn't permit adequate investment, even though the capacity needs may be quite visible in many industries. What is happening then is, we're moving up closer on capacity until those pressures are really of the kind where prices begin to rise, [unintelligible] and then at that point, profits will become sufficient to justify the investment that should have been made a year or a year and a half earlier.",169
-fomc-corpus,1977,"In other words, we need a little more inflation?",11
-fomc-corpus,1977,"That is what I think is the likely course of events. There'll be price pressure upward that will get us investment at the delayed point--better late than never, but under conditions that will be somewhat inflationary. Well, that is a reasonable hypothesis. There is still ahead an element of strength in the economy from that source. At present we seem to see more weak spots in the economy than strong. I think it's partly just perhaps characteristic of shifting from a 7 percent rate of growth, such as we had in the first half, to 5-1/2, and later 5, and 4-1/2. There are bound to be more weak spots as one gets down to a little above the level of long-term growth. So, in all, it looks to me as if a somewhat choppy period [is] ahead but with this expectation that eventually profits and plant and equipment spending will come around.",188
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Morris now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I think I have some differences [with] the point of view of staff and the point of view of Mr. Winn. It seems to me that animal spirits in the [Keynesian] sense are pretty well [hid]. Governor Wallich's analysis is correct. But I think, in addition to that, you have the psychological factor of all these uncertainties generating an unwillingness to make commitments. I think it's reflected in behavior in the stock market, for example. And it's reflected, I think, in the commitments figures for new capital investment, which is really while we have an upward trend. I think it's an upward trend that is not going to be of sufficient strength in the next six months to offset the slackening that I see in the consumption sector and the housing sector. It's a surprising thing--although my own staff happens to agree with the Board's staff in their projections--I tend to think [unintelligible]. I was surprised that the ray of data coming in [during] the past month did not lead to a more significant change in the projection. Because it seems to me that the probabilities are now that--and this may be bad--the projections for this quarter and the next are going to prove to be substantially too high, and that the first half of 1978 is likely to be substantially stronger. And [it] could well be that this will be a better path, as far as maintaining control over inflation, than the path we've projected. Well, I feel very strongly that the weight of the evidence--no growth in new orders for durable goods, flattened retail sales for several months, substantial decline in basic commodity prices--right across the board [in] the indicators that tend to lead the economy, there is a base of weakness that I don't think is compatible with the modest slowdown in near-money growth rates. We would have to see quite a basic change coming up pretty quickly in these factors to justify the projection. My intuitive feeling is that we're going to be revising these numbers down.",411
-fomc-corpus,1977,"Well, as I indicated at the end, when we put this projection together, we did not have the retail sales data. It's not so much July which shows an increase, which we had been anticipating, but it's from a considerably lower level than had been indicated earlier because of the downward revision in June. So taking that, I think we've looked at this quite carefully, and we also had anticipated a bit stronger increase in industrial production in July than turned out to be the case. So that's been after this projection was prepared and went to press. For the current quarter, our thinking now would be somewhere in terms of 4/10 percent to 5/10 percent less real growth than we've indicated. So we get a little below 5 perhaps. And I think our view of the longer run does indeed differ, in the sense that we think there is a prospect of good performance for the fourth quarter. But you're quite correct about this quarter, and given the information we have, we would weaken the projection.",203
-fomc-corpus,1977,Would you care to comment on President Morris's pattern question that he talked about?,16
-fomc-corpus,1977,"Well, I think it's quite possible. I think, really, the best bet now is not to have a repeat of 1976. I'm not sure it's in the cards. I'd be reluctant to go that far, and as I read what President Morris said, it's essentially what we're talking about, but a much stronger performance going into the early part of 1978. Some other data that we didn't have at the time this Greenbook went to press dealt with some early indications of capital appropriations from the Conference Board. And their survey is not fully tabulated for the second quarter, but it has sort of a year's lead time. And it does show capital appropriations rising significantly, and I think that bodes well for '78. I think the mix on the investment side is sort of positive, but it's at the same time very hard to stake out a sizable increase. We do have good growth in business fixed investment. It's just hard at this time to see the evidence to justify substantially larger rates of increase in investment than we have in our projections.",213
-fomc-corpus,1977,"When you say significant, what percentage rates of increase over the first quarter do they think about?",19
-fomc-corpus,1977,From first [quarter] the first [quarter] in business fixed investment?,15
-fomc-corpus,1977,I was thinking from the first quarter to the second quarter.,12
-fomc-corpus,1977,"Excuse me; all right. The number they have is about 7 percent for totals. In the first quarter, it was down 2.6 percent, and if you take out petroleum refiners in the first quarter, capital appropriations rose about 1 percent. And in the second quarter, if you take out petroleum, the increase is indicated to be about 17 percent. I would indicate, that's the Alaska pipeline and associated facilities. These numbers are supposedly confidential, I believe September 1 or 2, and it's an early reading, but it is up, and it's after a very strong fourth quarter, which was about a 31 percent increase, in the fourth quarter of '76. So there seems to be a lot going on in this area that perhaps could come on stream as we get into '78. We're counting on that.",172
-fomc-corpus,1977,"All right, thank you, Mr. Morris. Mr. Baughman, please.",18
-fomc-corpus,1977,"Mr. Chairman, I hesitate to generalize from one of the strong areas of the country, but all the indications we see, of course, are suggestive of a continued, rather heavy flow of funds into new investment and continued expansion in activity. And even our retail firms represented on the board--we have three of them at the present time--who had been speaking rather bearishly about a month ago, have recently felt obliged to acknowledge that things have developed much better than they had expected during the past month and that they are now viewing the future with a little more optimism. We are seeing some commitments for large projects, and, of course, they are all energy oriented. We are also seeing indications that present capacity, in chemicals based on petroleum and natural gas products, particularly, is coming under pressure. And it has seemed to me that the sort of thing that's showing up in Cleveland is likely to show up in center after center around the country But at a minimum, the staff projection will probably pretty well characterize what develops. I would think, in so far as it may prove to be wide of the mark, it's likely to be low rather than high, both in terms of the dollar measures and the deflated measures of economic activity. I would think that managements will find that a fair amount of their existing plant may have been obsolete prematurely, in part as a result of the much more expensive fuel prices. And I think it quite understandable that that could be a disconcerting thing in terms of the timing of a decision to make additional investment. But, on balance, it seems to me that it's going to call for more investment than otherwise would take place and that we will see this coming along. Now having said all this, there is the further disconcerting aspect of the picture as you look around and see the management of a fair number of firms apparently concluding that the most profitable investment available to them is buying up their own shares. That, it seems to me, you have to weigh on the negative side of the balance sheet when you're trying to arrive at a judgment as to how businessmen are looking at the future. My inclination would be--and I'm repeating--to feel, overall, the staff projection is a good one, but insofar as it proves wide of the mark, it will probably be on the low side rather than the high side. I had a little difficulty on a specific item. And this is certainly a small detail--the rather large swing they show in private final purchases from fourth quarter this year to first quarter next year and then back to the second quarter. This apparently is heavily weighted with an expected swing in inventories. The basis of that particular aspect of the projection, I don't comprehend.",547
-fomc-corpus,1977,"That stems largely from the projection for imports, which, if you note in this projection is bouncing around a good deal [and is] related to the staff's expectation with regard to oil imports particularly. In the fourth quarter, it is anticipated that there will be a substantial stockpiling of imported oil, which drives up imports and gets carried into inventories, which go up and [then] run off in the first quarter. And the rationale for that is that the imposition of the well-head tax on January 1 coincides with the Administration's plan to eliminate the so-called entitlements program, which provides something like 75 cents a barrel to imported or foreign oil. And that will disappear January 1 according to plan. And hence it is assumed that there will be a substantial buildup in the fourth quarter. Something similar was going on in the second quarter of this year in our interpretation of the data, where oil inventories rose substantially [in] anticipation of the OPEC price increase as well as [because of] the initial announcement effect of the Administration's well-head tax and the removal of the entitlement program. So it's essentially a wash over this time period and has no lasting influence.",238
-fomc-corpus,1977,Thank you.,3
-fomc-corpus,1977,"All right, thank you, Mr. Baughman. Mr. Kimbrel now, please.",21
-fomc-corpus,1977,"Mr. Chairman, [we see] a good deal of concern in the farm area at the moment because of the extended drought and difficulties of the corn crop and the possibilities of some financing of the farmers against the difficulties of the production of corn. However, many of the others are coming along very well--peanuts, soybeans, citrus operators, and vegetable people have not done badly at all. The businessmen are still possessed of a good deal of uncertainty related to a few things that have been commented on here: energy, tax, environmental concerns, and certainly inflation. But against all of that we still detect a rather optimistic outlook for most of these businessmen. Even in the construction area, two of the large regional construction companies recently suggested that they were intentionally adding extra margins of profit simply because they had all the work they wanted to take on anytime soon. It was simply, if they took anymore work, they were going to make certain that they made an extra profit on it. Construction, sure, the housing is still very strong. Particularly on the west coast of Florida, it's almost incredible what's happening in the residential construction area and the prices that are attached to it. Industrial or commercial construction, federal building yes, but utilities, Coca Cola, Bell. Contrary to the difficulties of paper on the West Coast, new paper and pulp plants are being built in Alabama. New hotel in New Orleans. So certainly it's not doom and gloom there at the moment.",291
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Partee, please.",16
-fomc-corpus,1977,"Well, Mr. Chairman, I think I agree with Frank Morris that we're likely to have a quarter or two here of considerably less rapid growth in the economy, for much the same reasons that he gives. I think that retail sales are showing signs of sluggishness. You can't really anticipate that durable goods spending by consumers, which has been extraordinarily high, will rise. It's more likely to fall in the period to come. Consumer credit has been rising at a rapid rate, and historically, you follow periods of rapid growth in consumer credit with periods of lesser growth as you get an adjustment in people's appreciation of their debt service burden and what they can take on. And so I think, as far as the consumer surveys are concerned, it's been pretty well demonstrated that what a consumer survey represents is what people feel like now rather than what they will be doing in the future. They have not been very good forecasters of the behavior at any time that I've been aware of in recent years. So I think maybe we'll have this quarter, certainly, perhaps two quarters, Frank, of considerably slow growth. And less than the staff is projecting but more like 3 percent to 4 percent annual rate of growth. However, I don't feel badly about the business situation because I think that underlying this is the prospect of continued gains in 1978. I don't really see any evidence that recovery is going to come to an end anytime soon. I'm very impressed by Willis's comments about building in the commercial area. I think that's about to take hold. There's been a lot of indication on that in Washington, too, by the way. Washington has got quite a bit of building that's in the works, both office building and shopping center construction. And I think capital spending is going to be moving up. I don't think profits are as bad as they've been suggested to be in earlier comments here, and I don't think there is the prospect that business will be responding as they see more certainty that markets will take up the product that they might be able to produce with new plants. So capital spending will be on the run. The stock market is a puzzle to me, because that certainly does seem to suggest that '78 wouldn't be a good year, at least not a booming year, and very possibly a beginning of a recession. But I think there that we have to make an adjustment for perceptions that the capital gains tax may be changed. You mentioned that Dave and I think it's a very important thing. Anybody who has got a profit of size in a stock position, in order to play it safe, is likely to want to realize some or all of that profit in a year in which capital gains taxes are still being treated in the conventional way. And anybody who anticipates there may a push on that, that is, to [raise] the capital gains tax later this year, is going to want to move in advance of that news so that he can beat the market. And so the whole market will move in advance of a real prospect that that might occur. And I think that, by itself, is a pretty substantial reason for explaining the performance of the market in the last several months, when it's been moving pretty steadily downward. So that's a level-adjustment type thing and it doesn't really indicate anything about future profits prospects or future business activity prospects; it's simply a stock adjustment in a capital value to reflect something that may happen in the future. So as I say, Mr. Chairman, I think that there aren't serious imbalances in the economy, except perhaps a little overspending by consumers. We will have capital spending picking up as time goes on. I think government purchases, federal and state and local, which have been rather weak for the last two years, are going to be a source of considerably greater strength in the period to come. And so even though we do have in prospect a quarter or two of lesser real growth, I still think that the business recovery is alive and well and will be continued in '78 and that we ought to think in terms of that continued expansion as we try to develop policy prescriptions.",822
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Roos now, please.",16
-fomc-corpus,1977,"Mr. Chairman, I find myself, as a non-economist, somewhat confused. In looking back over the year and a half that I've had the privilege of attending these meetings, and listening to inputs such as we're presently providing, that year and a half in terms of business conditions has been a strong period. We've had basically good business, we've had strong output nationally. And yet, I think with the exception, perhaps, of one or two meetings, as we go around the table, so many of us have attempted to express concerns and doubts and rather pessimistic attitudes toward what is in our minds; we imagine [things] of a negative nature to be lurking just around the corner. And one of the things that confuses me is what seems to be somewhat of an absence of a real definition of what we would consider to be a healthy economy. I mean, we speak in relative terms so often. And if we feel that a slowdown in output from a 7 percent rate of growth to 5-1/2 is something that is really bad, that [it] should be a cause for alarm, then perhaps we have a right to feel some concern about where we're going.",240
-fomc-corpus,1977,I don't think anyone has expressed such a view.,10
-fomc-corpus,1977,"Well, sir, am I correct to assume that if our economy does better than what it has over the average of 10 or 15 years, that we're really apparently in a fairly comfortable condition? I mean, what I'm getting to, and then I'll hush up, sir, is that I think that the public generally, that the business community, tends to be overly pessimistic about what is occurring and what has occurred. I think that perhaps this is due partially to what Phil Jackson referred to, which is an almost unanimous attitude in our part of the country, that regardless of what happens, this inflationary potential is of great concern to everybody. But I wonder whether there isn't an absence, both within our own group here as well as within the leadership in the nation, of people with credibility who are expressing or stressing the positive instead of the negative. I feel that what is happening is not a subject of justifiable concern economically, in the interpretation of the economy. I can be terribly wrong in this, I'm not a professional. But I think everybody tends to look negatively on what may be happening instead of considering that, in historical perspective, the performance is and has been pretty good.",238
-fomc-corpus,1977,"Thank you, Mr. Roos. Mr. Coldwell now, please.",16
-fomc-corpus,1977,"Mr. Chairman, that's an interesting act to follow because Governor Partee has covered what I was going to say in rather considerable detail, and I don't see any point in repeating it. Except my final answer is that I'm quite happy with a slowdown in the economy in the fall of this year. In the spring and early winter of this year, as you may recall, I predicted such a thing, and I'm kind of delighted that it's occurring because I can't really see a 7 percent continuation without real pressures on the economy. So if we're getting a slowdown from 7-1/2 to 4-1/2 or something like that, I'm just delighted that it's occurring as long as we don't accumulate the baggage. I think you've got the strength of government spending which is going to come along. And maybe we'll get some clarification in the tax matters if this Administration ever gets its act put together, and if so, I think we've got a good possibility of some strength in 1978. That's the horizon I'm looking at, not this second or third or fourth quarter of '77.",219
-fomc-corpus,1977,"I agree with Governor Coldwell, by the way. I should have said that I don't think it's a bad thing--the profile that's developing.",29
-fomc-corpus,1977,"No, I feel the same way.",8
-fomc-corpus,1977,"What I was trying to get Mr. Kichline to say earlier is, the pattern might even be a better one for long-range growth in this economy--to have a little slowdown in the fall of this year.",44
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Volcker now, please.",16
-fomc-corpus,1977,"Mr. Chairman, I think I found the staff analysis quite persuasive this morning, as I guess most people did in a qualitative sense, in terms of the continuing momentum of the recovery. When my staff puts the numbers together, just following up in these comments that were just made, they get a slower rate of growth in the second half of this year, closer to 4-1/2 percent than the 5-1/2 percent, but I take it that there's no major disagreement. I don't see at this stage, nor does my staff, that we can sit here very content that it's going to take off again in '78. I think that remains to be seen. Our actual projections have a little further slowdown in '78. I'm not sure where the strength comes from in '78. I think it's just too early to say, except from the kind of analysis that Governor Wallich had. And I think there's a great deal to that. When I assess the business mood, while I haven't gotten fresh input in recent weeks, the input has generally been recently along the lines that Presidents Morris and Balles have already commented on in terms of uncertainty--more uncertainty than the production trends seem to justify--which I do think can be traced largely to the profits performance and a feeling that there's a certain amount of pressure on prices now. There is ample capacity available, they can't raise their prices yet nearly as fast as they would like to, but they hope it's coming some day. They haven't seen it, and they feel a little discouraged about their ability to raise prices, which isn't a very happy situation from my standpoint. My feeling about the inflation side, in terms of business attitudes, I'm afraid, has been more one of resignation than real concern. They certainly see it there. They don't see us--not the Federal Reserve but the United States--dealing with inflation very effectively--they don't see themselves dealing with it very effectively. They see wage demands coming up, and the level of resistance to those wage demands seems to me to be very low. I have three business directors, as everybody does. Mine have just had three wage settlements, averaging about 10 percent. They're all nationwide employers, and I must say I fail to detect the great sense of concern in any of those three directors over the size of the wage increase they just awarded. They think it's in the swing of things, that's the kind of wage increase you have these days. If you don't pay it without too much protest, you're not doing right by your own company because you may have a strike, and that's going to be much worse than paying the same wage increase that they expect all their competitors to be paying. And this kind of attitude and momentum, which I think we see in the cost figures and indirectly in the profits figures, it seems to me, continues to present the major challenge for monetary policy. Some day we're going to run into a collision. We keep reducing the growth rate targets [for the monetary aggregates], and if [money growth does come in within those] growth rate targets and there hasn't been any decline in the momentum of cost increase, some day we're going to have a problem, and I don't see yet how this works itself out. Add to that Governor Wallich's concerns, which I share to a degree. I don't know whether he expressed them as concerns; I think they are a concern in the inflationary context. We have a problem down the road. That's not being very helpful in terms of our immediate decision. I share the general feeling that we're going to have some slowdown, but the momentum is pretty good. And some slowdown is not a matter of great concern at the moment. This underlying inflationary cost momentum does concern me.",752
-fomc-corpus,1977,"Thank you, Mr. Volcker. Mr. Eastburn now, please.",16
-fomc-corpus,1977,"Well, I would second those last words Paul gave us. A couple meetings ago I reported on the sentiment of businessmen in our area, which of course is not the most vigorous area in the country, and it's one of concern and remains one of concern. I think [their sentiment] is more pessimistic than the statistics would suggest is warranted, but I think that Phil Jackson is entirely correct that inflation is a primary concern to businessmen. Along that line, one question I would have about the staff's projection is that the assumption about money growth clearly, I think, is under what we're likely to have, at least what we seem to be having now. And I presume that would be a factor on the other side--when we make revisions on the basis of current events, you would make some further revisions, I presume, for a faster rate of money growth.",173
-fomc-corpus,1977,"Well, the way we go about this is to tie it to the Bluebook path B, and we have incorporated from quarter two [1977] to quarter two '78, 5-1/4 percent [growth in] M1. So implicit in the forecast this time is, I think--Steve, is it something like 4 percent in the next three quarters?",77
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"So what we have as the offset to that, of course, is higher interest rates. So we have higher interest rates this time than last time, and it comes out that way. So we tie it really to the longer-run target and do not allow for a judgmental feel as to what may happen on the high side of the range or the low side.",73
-fomc-corpus,1977,I see.,3
-fomc-corpus,1977,"Well, thank you, Mr. Eastburn. Anyone else like to speak or speak once again? Well, if not, just to break the monotony, I'd like to say a few words. There's little doubt in my own mind that the expansion that we've been experiencing will continue for some time. I share Mr. Volcker's doubts as to whether the slowdown that is likely to occur in the second half of this year will or will not be followed by a re-acceleration of the economy. I think it would be premature to express a judgment on that with any confidence. I think that this economic expansion has been well balanced from the viewpoint of inventory control; inventory adjustments have been prompt. We've been going through such an adjustment now in the nondurable goods area. I do see some signs of potential trouble ahead. This year, unit costs of production have crept up on selling prices, and profit margins have narrowed. And if that trend were to continue, while the expansion that we are having would still have some life in it, the forces would be building up that would bring the expansion to a close. And that is something that we ought to be watching with very great care. We don't pay nearly enough attention here within the Board and possibly within the Banks to the behavior of profits. And historically, when unit costs of production begin creeping up on selling prices, within a year or two a downturn has occurred. And therefore, the distribution of income, something we don't like to talk about, is a matter to watch closely. Secondly, here I have a quarrel with our staff, and it's a long-standing quarrel that I must try to resolve. I can't agree with Mr. Kichline's judgment that the debt capacity of consumers remains favorable. I don't think that is true. That's not the evidence as I read it, but I have to sit down with Mr. Kichline and members of his staff and go through the evidence. I hope to convince them that they are wrong, but they're not easily convinced, nor should they be. I think that there are some signs of speculation in real estate, farm real estate, and in home buying generated by an effort of individuals to somehow protect themselves against inflation in the future. I think if this continues, it may become very troublesome. On the other hand, I do see business capital investment expanding, and early investment indicators, I think, point rather unanimously to a continuation of an upward trend--and I think a strengthening in the upward trend--of business capital investment. And therefore, I have considerable confidence that the expansion will continue for some time. But I'm not ready to speak about any long run, and I would very much hesitate to make a projection through the year 1978. Our staff estimates it because we require it. I don't have to make it, and I'm not going to, and I'm not going to because my vision is much too cloudy. And that is a counsel that I would urge on my colleagues. Now I do attach significance to the behavior of the stock market. It's been in the doldrums much too long. And I think the behavior of profits is one factor in the indifferent or declining behavior of the stock market. I think that there is at least, as I sense it, very great uncertainty about economic policy in the business and financial community. Now that has not been commented on at this table to any extent, and I may be getting an eccentric sampling of opinion. But that is what I hear from businessmen and financial executives repeatedly, and I must say in all honesty I share that opinion. Well, that's all that I can contribute at this point. Mr. Winn.",739
-fomc-corpus,1977,"A question and a comment, Mr. Chairman. We're finishing the third year of an automobile boom which has characteristically run in the threes. Now I don't know whether the change in the financing and the possibility that next year is the last year of the large car may help sustain that to a fourth year. But if you go back in history, at the end of the three years of successive increase--I don't know, Bob, whether you have any feeling on the automobile market, but their inventories are in pretty good shape.",106
-fomc-corpus,1977,"Yes, they are. Down to 60 days.",11
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,Was '75 an up year?,7
-fomc-corpus,1977,"Yep. [unintelligible] term '75 to '77 is the end of the three-year cycle. A comment on the [stock] market, Mr. Chairman. You've had the first boom in the early '70s; it was an individual boom. The second one was an institutional market. I have a feeling that now you've got an insider market--that explains part of this sloppiness and a very great--",87
-fomc-corpus,1977,"What does that mean, precisely?",7
-fomc-corpus,1977,"My guess is that a very much larger proportion of trading is done by people that used to be on the floor and have gone upstairs and are trading among themselves. The market itself is in very much disarray [as an] organization and you've got strange--I don't know all the answers to this, and the market is concerned about it, but they're not willing to spend the money to find out. A large part of the margin credit, I suspect, is insiders tied into the option setup, and that's a more explosive thing than I think any of us realize, what's involved in this leveraging. But a greater proportion of the trading is done by what I would call the professional trader rather than the individual or the institution.",144
-fomc-corpus,1977,"Well, statistical studies to date apparently do not support the position that the options market on calls has done anything to depress the general market. My elbow is still uneasy about this. There is a counterculture, if you want to distinguish it that formally, developing now with the evolution of puts, that will counterbalance the calls, and the market will be better again. But this is getting into real mystique. I don't think anyone really knows what he's talking about. And the effect of the options market, either puts or calls, it's very minor, except psychologically, and I would support what Willis said on the insider facet of the market. I think you are correct, Mr. Chairman, in your evaluation of the almost smothering uncertainty among businessmen or among investors, many of whom, of course, are businessmen. We also know that that is a characteristic of the [stock] market, that it goes in sheep-like fashion. I think I would give quite a bit of support to Chuck's point, though, on the further uncertainty on the capital gains side, even though much of the market is institutional, where capital gains are only a secondary factor. As long as I have the floor, one other observation on the real estate speculation. We see definite signs, Mr. Chairman, as far as farm real estate's concerned, that the wild, and I use the word advisedly, wild increases in farm real estate prices that have taken place in the last two years are leveling off. They're still increasing, but the low prices for corn and beans are catching up with us.",317
-fomc-corpus,1977,"Thank you. Mr. Jackson, please.",9
-fomc-corpus,1977,"I don't know that I'd share that judgment about the threat of the capital gains tax. It appears that the stock market has had a type of segregated action: The so-called high-growth, high-multiple corporation has had an agonizing readjustment in future expectations of their growth, or the profits that might be achieved in the market as a result of their growth, and they have come down in price; on the [other hand], many of the other small corporations that have not had as much influence on the S&P 500 and the Dow Jones have had pretty good experience. If I had to guess, I would guess that your major institutional buyers, bank trust departments, pension funds, and things of that sort have been a major factor in the reduction of the share price of these major growth companies, whereas individuals have been more inclined to go with the smaller companies. Individuals, in turn, have probably had a net increase in values, which wouldn't sustain the belief that there was any likelihood that there would be a depressed [market] as a result of the loss of capital gains. I would guess that some of this has got to be the continued shift of expectations by professional managers of major portfolios, and their expectation for profit through the stock market, and their shift to fixed-income securities--which I think would be supported by the stable long-term interest rates we've been seeing and continue to expect--and the high cash flow the life insurance companies and the pension funds have experienced and their predilection to stay in fixed-income securities to a large extent.",311
-fomc-corpus,1977,"Well, there are a lot of things going on in the market, of course, Phil. I was just referring to a new incremental factor. Now there [are] certainly many individuals that have got sizable profits in stocks like IBM, Xerox, and, you know, the high flyers of yesteryear, even though they're down from their peaks. I wouldn't think that the gains would be nearly as sharp in small companies because they've had an indifferent performance for quite a few years. But at the same time, I agree with you that the professional, the institutional investor, is tending to grow more into fixed[-income] securities so that there isn't anybody there really to buy up the individual sales in the growth stocks except the companies themselves, which may buy their [own] stocks because of the fact, as Ernie said, it's the best place they can put their money.",176
-fomc-corpus,1977,"The current fad of indexing hasn't been mentioned here, which I think supports the same analysis that's been given, as an additional factor, with people saying, I give up, I cannot--no investment manager can give me a consistent record of beating the S&P 500. Let me get an index fund that will buy the S&P 500. And they rush out of the big ones into the little ones in order to balance their portfolio, in quotes. Now this is an important marginal factor.",99
-fomc-corpus,1977,"I agree with you on that, Bob, and I think there's a lot of what they call closet indexing going on. The managers not admitting that they're indexing, but they're acting as if they were indexing, out of the same sort of desperation that made this fad go as far as it has. The actual number of overt index funds is still very small. But closet indexing is very big.",78
-fomc-corpus,1977,Why should indexing have a negative effect on the overall level of stock prices? That's what they're saying.,20
-fomc-corpus,1977,"Well, I was thinking of the Dow Jones [industrial average] in particular. The general market has performed better in the last year than the Dow Jones has. And our thrift plan has performed better than the Dow Jones has.",45
-fomc-corpus,1977,"The depressing prices of the growth stocks have overweighed in most professional portfolios, so, in order to get closer to the index, they are selling growth stocks and buying others.",36
-fomc-corpus,1977,"If I was to take $10 out of one and put it into something else, why should that change the level of the market?",27
-fomc-corpus,1977,"Because the major indexes are weighted very heavily by the growth stock, much more so than the general market. The general market has done better than the growth stocks.",32
-fomc-corpus,1977,"Gentlemen, I want to ask a question of staff and make one point. Last year, we were in the midst [of the] bicentennial and a presidential election, and the country's bicentennial [celebrations were] dispersed. I don't know how much travel occurred. Resort travel, vacation business is a very large industry in this country, and I want to ask the staff, since I don't worship at the idol of seasonal adjustment, I continue to be impressed with where we are in the calendar and I just want to ask the staff what indications they've had of Americans traveling, going to resorts, vacationing. We're concerned a little bit about the diminution in retail sales. This is a very normal year in my opinion; there's nothing terribly exciting going on. The economic factors, while they're not what we would like--let's look at the average man and what his plans are for his summertime. Jim, have we had any look at how much Americans are traveling or are away from home on vacation, spending money in resort places, rather than in their normal residences?",218
-fomc-corpus,1977,Any advice you may be able to give us on that point--,13
-fomc-corpus,1977,"Well, I just went to the local beach, so it's not a good guide. And you're just back from vacation, so I presume it's sort of hazardous for me to venture out with an answer.",40
-fomc-corpus,1977,"Well, having followed long lines of campers and recreational vehicles, and having been totally astounded by the traffic in rural Maine seaports, yes.",30
-fomc-corpus,1977,"We have [some] selected data on hotel occupancy and figures from the airline industry, but unfortunately I am just not familiar with those currently, and Jerry, too, is not up to date. So I'm afraid we can't provide a reasonable answer to question at this time. But we can prepare a memo for you on that.",65
-fomc-corpus,1977,We find New England resorts have been doing very well.,11
-fomc-corpus,1977,I think the Redbook comments would support that for our area.,13
-fomc-corpus,1977,"I understand from one of my directors, a chairman of an oil company, gasoline consumption is actually down this summer.",23
-fomc-corpus,1977,[Unintelligible].,6
-fomc-corpus,1977,Year-to-year decline.,5
-fomc-corpus,1977,"Not what [President] Carter says. The Administration is very concerned, of course, that Americans have not stopped driving and have--",26
-fomc-corpus,1977,"But there's some other indications of this, too, that travel is down this summer from last summer. One of our directors is an airline director and travels--",31
-fomc-corpus,1977,"Mr. Chairman, we have a director who is a high executive in Holiday Inn, and this came up at our meeting last week, and I regret that I don't recall the precise statistic, but the hotel and motel and travel industry has had--last year was up considerably in terms of volume from previous years--this man's a walking encyclopedia, and he can give us enough--but they have had a strong year in the industry basically.",87
-fomc-corpus,1977,"Very strong in central Michigan, northern Michigan.",9
-fomc-corpus,1977,"Well, thank you. This may not be worth a memorandum, Jim. The point I wanted to make is that, in my career in lending, banking, it seemed to me that there are two sides to this question of profit. [Unintelligible], one significant way to increase profits of course, is to make capital investment. And we know that capital investment has lagged, has been a disappointment to us. Prices can be raised, sure, if profits are inadequate, but most of my manufacturing customers were continually on a process of applying capital to the business of reducing their cost. And so, if we find American industry less likely or disposed to make major capital investment for all the good reasons and uncertainties that we're aware of, we're not getting the benefit from the profit side that one might expect and have to rely too much on pressure on prices.",172
-fomc-corpus,1977,"May I ask to what extent our industrial capacity in this country presently differs from the industrial capacity of other major industrial countries throughout the world? It is the question of, we're closer to the top than they are, and therefore future demands worldwide might be supplied [unintelligible]?",56
-fomc-corpus,1977,"I have the impression that in a number of the major countries, capacity utilization rates are somewhat below those of the U.S., and world supplies in many of the basic commodities are in quite a strong position, but I'd like to defer to Ted Truman.",50
-fomc-corpus,1977,"Well, I don't have the information with me.",10
-fomc-corpus,1977,"Just in general, your impression.",7
-fomc-corpus,1977,"Well, my general impression--",6
-fomc-corpus,1977,Does an answer exist to the question?,8
-fomc-corpus,1977,The Wharton School puts out global capacity utilization indices--,11
-fomc-corpus,1977,Oh my heavens--,4
-fomc-corpus,1977,"--but the last figures that I saw were only through the last quarter of last year. At that time, if my memory is correct, capacity utilization figures in this country were somewhat higher than abroad, but [the figures are] not up to date. The only other figures you can use [are] figures on how we perform relative to previous peaks in the other major industrial countries. In that case again--in which we need more updated information--we have gone further compared to relative previous peaks in industrial production than the other industrial countries. In fact, only one other has reached the previous peak, and on that crude measure, it's fair, I think, to generalize.",136
-fomc-corpus,1977,"I don't think we can even answer that question reliably for the United States. And the Wharton index is worthless for the purpose of answering either for the United States or foreign countries. And we just have to make up our minds. There's a great deal that we would like to know and that, in view of our responsibilities, we probably ought to know, but we simply don't know. And we travel in darkness much of the time, and that's the way the world has been, and it will remain that way for some time. And this is a statistical no man's land, really.",117
-fomc-corpus,1977,"It strikes me as that is the essential question to Governor Wallich's potential hypothesis, as to what extent will pressures from capacity utilization in this country and capital expansion be ameliorated by the capacity of other industrial nations if they increased their [exports] to the U.S., which would not enable prices in the U.S. to rise to respond to the need you describe.",75
-fomc-corpus,1977,"Of course, other countries [are] probably further away from capacity pressures than we are here. As far as our own situation is concerned, if we were to go, just in a model sense, to full employment overnight, we would not have the capacity to employ the labor force. I think that's quite clear. The Council of Economic Advisers is doing a study now--sounds somewhat ominous to me--they want to compute the optimum path by which you might move quickly to high-capacity utilization and then slow down so as to move at that continued level of capacity utilization as more capacity comes on stream. That means accelerate fast now and then taper off, a proposal that one would--you or I---view with considerable alarm. Well, tying this to the [foreign] situation, I think if anything, the international situation has weakened. The Germans are now ready to accept 4 percent GNP growth as about the most they're going to do instead of the 5 they have been talking about, and that they [unintelligible]. The Japanese seem to be of a mind to do somewhat more. But overall, the sense of a settling down that I get from our discussion here is not going to fit very happily into the international situation.",251
-fomc-corpus,1977,"I had an industrialist spring a new idea on me, at least new to me, in terms of why he wasn't building a plant. He said, ""I don't need to build a plant because if my demand overruns me, I've got several plants abroad that are at a much lower capacity utilization, and I could import to the United States if I run into capacity problems.""",76
-fomc-corpus,1977,It's interesting.,3
-fomc-corpus,1977,"You have a good proxy for this capacity abroad, in the sense, when you look at all the people that are asking for import quotas, you get a pretty good sense as to who is faced with a [capacity] overhang abroad, to wit, the steel industry being number one, and the TV people being number two.",66
-fomc-corpus,1977,"Well, gentlemen, unless there is a desire to continue the economic discussion--you know, our staff has to write a report, and I think, let's have a show of hands, simply to help the staff write its report. It's a function that we, I think, should keep in mind. The staff might have difficulty, on the basis of the discussion so far, in writing a report that would be sufficiently illuminating. Let's have a show of hands of members of the Committee who expect the expansion to continue through 1977.",107
-fomc-corpus,1977,Expansion to continue.,4
-fomc-corpus,1977,At what rate.,4
-fomc-corpus,1977,At any rate.,4
-fomc-corpus,1977,"At any rate--okay, let's have a show of hands of those who expect the expansion in the second half of this year to be significantly lower than in the first half of the year.",38
-fomc-corpus,1977,Now what are our alternatives going to be?,9
-fomc-corpus,1977,[Unintelligible].,6
-fomc-corpus,1977,Lower.,2
-fomc-corpus,1977,Significantly lower.,5
-fomc-corpus,1977,2 percent.,3
-fomc-corpus,1977,Less than the staff forecast?,6
-fomc-corpus,1977,Significantly lower.,5
-fomc-corpus,1977,Significantly lower.,5
-fomc-corpus,1977,"Eleven, Mr. Chairman.",7
-fomc-corpus,1977,"Well, now--",4
-fomc-corpus,1977,That's counting all--,4
-fomc-corpus,1977,You're not going to put these numbers in the report--,11
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,"After all, adjectives serve a function. Now, let's have a show of hands of all those who are reasonably confident that the expansion will continue through 1978.",33
-fomc-corpus,1977,What's the definition of reasonably?,6
-fomc-corpus,1977,I'm listening to the adjectives.,6
-fomc-corpus,1977,I'd like to see all the questions.,8
-fomc-corpus,1977,"Okay, let's have a show of hands of all those who expect business capital investment to rise at a faster rate than it has hitherto during the next 12 months or so.",37
-fomc-corpus,1977,Faster rate.,4
-fomc-corpus,1977,There's a pretty fast rate in the first quarter--,10
-fomc-corpus,1977,At a faster rate than the past--,8
-fomc-corpus,1977,Over the past year.,5
-fomc-corpus,1977,Over the past year.,5
-fomc-corpus,1977,I expect it to continue.,6
-fomc-corpus,1977,All but one.,4
-fomc-corpus,1977,Well--,2
-fomc-corpus,1977,"Mr. Chairman, I think your questions have produced a set of answers that may not be fully reflective of what's been going on here as conversation.",29
-fomc-corpus,1977,"You see, I wanted to supplement what has gone on in conversation, and I could just see the reports each month--which I read word-for-word, more than once--and I could see the initial report before you see it. And in the absence of the questions that I've just put to the Committee, I think we would convey to the general public a very distorted picture of the underlying thinking of members of this Committee. Don't fear that there'll be a lack of balance; and if there should be, after all of the purifying and sanitizing that goes on, you'll have an ample opportunity to set Mr. Altmann and his staff straight. Any further protest on my procedure? Let's move on to Mr. Sternlight's report on domestic open market operations.",154
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,Has the market moved to an expectation of a discount rate change?,13
-fomc-corpus,1977,"There's been a good deal of talk of the discount rate change and a fairly widespread expectation of a move of at least 1/4 [point], with some people beginning to talk of a change of as much as 1/2.",48
-fomc-corpus,1977,"Would you say that the market is adjusted to a 6 percent funds rate, or is that process still going on?",24
-fomc-corpus,1977,"I find it a little bit hard to answer. The market has moved less than I would ordinarily expect it [if it were] to accompany the move up to a 6 percent funds rate. In that sense I wondered, as this process has gone on, whether that adjustment has fully taken place, and yet when I couple this with the fact that the dealers remain in a net short position and have even deepened their short position, I come to conclude that perhaps the adjustment has pretty well occurred even to a 6 percent funds rate.",108
-fomc-corpus,1977,"Once they think the move is complete, why, they would tend to restore [unintelligible]--or at least cover their position.",29
-fomc-corpus,1977,I think they'd tend to move toward covering some of that short position.,14
-fomc-corpus,1977,What was the bill rate yesterday in the auction?,10
-fomc-corpus,1977,5.67.,4
-fomc-corpus,1977,5.67.,4
-fomc-corpus,1977,What's the 90-day futures market for bills looking like?,12
-fomc-corpus,1977,"I don't have a figure in my head on that, but it's tended to pretty well just be a measure of the difference between the three- and six-months bills.",34
-fomc-corpus,1977,"Out to June '78, I think it's almost 7 percent now.",15
-fomc-corpus,1977,"If you go out for this three-month bill on the second quarter, it's on average about 6.8 percent; I was averaging. And in the third quarter '78, its 7.1 percent, which is about the 7 Mr. Balles has mentioned.",56
-fomc-corpus,1977,"Given the dealers' net short positions, do you find any congestion in the market?",17
-fomc-corpus,1977,Any congestion in the--,5
-fomc-corpus,1977,In the bond sales?,5
-fomc-corpus,1977,"No, the Treasury's sales went very well, and dealers took down about the normal proportion they would usually take down--roughly half, a little less than half in this case, and they rather quickly sold out of that.",46
-fomc-corpus,1977,What about corporates?,5
-fomc-corpus,1977,"Corporate bonds--the calendar's been moderate, and the issues have gone fairly well, with little evidence of congestion.",23
-fomc-corpus,1977,Didn't the federal funds rate go above 6 yesterday?,11
-fomc-corpus,1977,"The effective rate on the day was just about 6--6.01. Some of the trading was above 6, and late in the day the trading was largely at 6-1/8.",42
-fomc-corpus,1977,"All right, any other question or comment? Yes, Mr. Winn.",15
-fomc-corpus,1977,"Peter, do we have any feeling as to what the foreign sellers were doing with the proceeds of sales of bills?",23
-fomc-corpus,1977,"Well, yesterday we had some very heavy foreign account selling of bills. Much of that was in order to purchase coupon issues. Yesterday was the delivery date for the Treasury's new issues. There had been some sizable foreign-account takedowns of these new issues, and that was a big chunk of the foreign sales.",63
-fomc-corpus,1977,Mr. Eastburn.,5
-fomc-corpus,1977,"Governor Coldwell asked my question, but just to make sure I understand it--Peter, is it fair to say that there would not be much adjustment in the market if the discount rate went up 1/2 percentage point?",46
-fomc-corpus,1977,I would think that the market has fully discounted 1/4 percentage point. I don't think they have fully discounted 1/2 percentage point. I think there would be some adjustment.,38
-fomc-corpus,1977,"Some adjustment, but not a great deal.",9
-fomc-corpus,1977,Any other questions?,4
-fomc-corpus,1977,I move we ratify the suggested action.,9
-fomc-corpus,1977,Second the motion.,4
-fomc-corpus,1977,"Well, the motion has been made to ratify the actions of the Desk, and I take it there's no objection. We might as well break for coffee now.",33
-fomc-corpus,1977,"Well, let's move on to your comments, Mr. Axilrod.",15
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"A rather incisive set of comments. Any questions? Yes, Mr. Coldwell.",18
-fomc-corpus,1977,"Mr. Axilrod, did I hear you say that the model had stopped overpredicting for the third quarter?",24
-fomc-corpus,1977,"Yes, in the third quarter. That's on the assumption that the rate of growth in M1 in the third quarter is about 8-1/2 percent.",33
-fomc-corpus,1977,"That's the first quarter, but it has no reflection--",11
-fomc-corpus,1977,"Well, in the second quarter it's very small. It sort of phases down. In fact, I had written out during the second and third quarters because it was very small in the second quarter, but I wanted to be absolutely precise and write in the third quarter. But it's sort of phasing down [unintelligible].",66
-fomc-corpus,1977,"My question was, how will you know? The third quarter isn't over yet. Well, even if there is no growth, it's going to be very difficult to avoid a very large growth rate in the third quarter. But essentially the second quarter has a very small overprediction, 3/10 percent on the level.",64
-fomc-corpus,1977,Does this overpredict on what basis?,8
-fomc-corpus,1977,Given the GNP and the actual interest rates.,10
-fomc-corpus,1977,"Does that involve a shortfall for some previous period, and--",13
-fomc-corpus,1977,"Oh yes, there has been a consistent shortfall. The percentage error--by the fourth quarter of '76, it was almost 12 percent off, that is, it had overpredicted--its predicted M1 is 12 percent higher than we actually attained. And by the first quarter, it was up to 13.3, and then by the second quarter it phased down to 13.6, and by the third quarter, it seems roughly to be the same, 13.6.",103
-fomc-corpus,1977,"In other words, it stabilized, but has not made up--",13
-fomc-corpus,1977,"Oh, no, no, nowhere near, and we're assuming--actually, in all projections we present to the Committee--we are assuming further shortfalls. We are nowhere near staying with this model. We assume further shortfalls.",46
-fomc-corpus,1977,"When you say prediction of M1 by the model, this is over what period? How do you define the word prediction?",25
-fomc-corpus,1977,"Well, this quarter--",5
-fomc-corpus,1977,"Where we are, or over what period?",9
-fomc-corpus,1977,"Well, this shortfall I'm measuring is from around the third quarter of '74, where we started--",21
-fomc-corpus,1977,I see.,3
-fomc-corpus,1977,--going off. It's been rather consistently going off since then.,13
-fomc-corpus,1977,"Mr. Chairman, may I ask a question? Don't we have the ability to control the growth of M1, especially if we are willing to let fed funds rates and interest rates rise? Do we predict these things, or do we control them?",50
-fomc-corpus,1977,"Well, I think, President Roos, that the Committee could, if it wished, control within plus or minus 1 percentage point, or 1-1/2, something like that, over a year or so, the rate of growth in M1 if it were willing to see whatever interest rate behavior developed, to see whatever M2 and M3 behavior developed as a result, and to take whatever economic consequences were in process. In that sense, it's controllable.",97
-fomc-corpus,1977,"Does your model tell you what would have happened, for instance, to the funds rate had you tried to hold M1 on target?",27
-fomc-corpus,1977,"In this period, oh sure. Yes, you would have to work backward, but it's essentially the bill rate that's in the equation. But the model is still saying that, for the money supply growth, it's the Committee's target. You would have a substantially higher Treasury bill rate than you see in the Bluebook. That is the data that we are presenting to the Committee, assuming shortfalls in terms of the model.",85
-fomc-corpus,1977,"May I ask one other question, Steve? You made a comment here about the implicit velocity of M1 in the fourth quarter of the year, that it would have to be [growing] 4 to 8 percent--",46
-fomc-corpus,1977,6 to 8.,5
-fomc-corpus,1977,"--6 to 8 percent, and that is grounded on an assumption of what?",17
-fomc-corpus,1977,"That assumes that if the Committee would obtain a 4 percent rate of growth in M1 in the fourth, first and second quarters, which would be consistent with obtaining the midpoint of that 4 to 6-1/2 percent, then on average the velocity would be about 7 percent, given the staff's GNP forecast for that period.",71
-fomc-corpus,1977,The assumption also includes the GNP forecast.,9
-fomc-corpus,1977,"Yes indeed. And if that, of course, is lower, then you would have much less demand for money and much less pressure on interest rates.",30
-fomc-corpus,1977,"It's true that would have followed a low-velocity quarter, the current quarter.",16
-fomc-corpus,1977,"Yes, that's right. When interest rates were up.",11
-fomc-corpus,1977,And the average for the year would be lessened.,11
-fomc-corpus,1977,"Any other questions? Yes, Mr. Wallich.",11
-fomc-corpus,1977,What are the prospects for significant disintermediation for the thrifts and for bank time and savings deposits.,22
-fomc-corpus,1977,"Well, we've been surprised two ways by the behavior of thrift flows. We were surprised that they were relatively low in April and May. We were surprised that they were relatively high in June and July. Now our data for August is suggesting, at least for banks, another slowdown in flows. You may want to keep that background in mind when I give you our appraisal: We would expect a slowdown to around a 7 percent rate of growth in flows of thrift institutions in the first half of 1978, and to about a percentage point or so more than that at commercial banks in time deposits other than large CDs, without any action on Regulation Q ceilings and with a bill rate, say, on the order of 7 percent or perhaps a little higher. This would rather clearly, I think, begin to exert pressure on the mortgage market and on loan terms and conditions at banks. As I mentioned, this doesn't assume any change in Regulation Q. As of now, there is no leeway left for banks to adjust the ceiling rates and maintain a spread over market rates in savings deposits or in shorter-term time deposits. There is a little leeway left for thrifts, and in the four-year-and-over maturity area, there's leeway for both banks and thrift institutions. So I think it's within a percentage point or so, in terms of bill rates, of real pressure on institutions.",278
-fomc-corpus,1977,This 7 percent inflow to the thrifts--compared to what? It's been coming in around 12.,24
-fomc-corpus,1977,"In the second quarter, it was running around 11, and recently it picked up, and so we are projecting a third quarter--with some little slowdown from the recent pickup--on the order of 13 percent. This would be a sharp drop. It would be a material reduction from where you are now because of this bill rate moving up. That's our assumption.",74
-fomc-corpus,1977,"As I recall, in the fourth quarter of '76 it was up in the 18 range.",20
-fomc-corpus,1977,It was very high.,5
-fomc-corpus,1977,"Mr. Guffey, please.",8
-fomc-corpus,1977,"Yes, Mr. Chairman. Steve, do you have any information of what's happening to these wild-card renewals, and are they in your projections for the rest of 1977?",37
-fomc-corpus,1977,"Well, we've taken account of them. We don't have any information that there are substantial difficulties, and of course they are in the over-four-year area, where we still have rather considerable room, and we don't expect those [to make] for much of a problem.",54
-fomc-corpus,1977,"Mr. Chairman, a question. Maybe it's better directed to Peter. Where is the commercial paper rate after this series of moves to 6 percent?",30
-fomc-corpus,1977,"Well, that has moved up not quite as much as federal funds. I think they're in about the 5-5/8, 3/4 area now. It perhaps hasn't made a full adjustment to the 6 percent federal funds rate.",50
-fomc-corpus,1977,"If there were no change in formula, would this make the change in Citibank prime?",19
-fomc-corpus,1977,"I think it would, within about another two weeks.",11
-fomc-corpus,1977,Wait a minute. In three weeks.,8
-fomc-corpus,1977,Three weeks.,3
-fomc-corpus,1977,It's got to run through the full moving average.,10
-fomc-corpus,1977,Because of a three-week moving average.,8
-fomc-corpus,1977,"Mr. Chairman, [this is a] rather detailed [point], I guess--I noticed in the recent report of weekly reporting banks that deposits of foreign banks in U.S. banks are up about $1.6 billion, $1.7 billion from a year ago. Now, is it correct that those deposits run into the money stock numbers?",71
-fomc-corpus,1977,That's correct.,3
-fomc-corpus,1977,"And is there any basis for expecting that kind of growth in that type of deposit to continue, or that what we have seen in the past year is a temporary phenomenon?",34
-fomc-corpus,1977,"Well, there was an increase in two weeks in July, and we believe that will be coming out. That was a temporary increase and not one we expect to continue. In fact, we expect it to be coming out, and the fragmentary data we have, I am told, suggest that it is coming out, and I am not exactly sure of my number, but I think that increase, if you have taken that out of M1 for July, would have reduced that growth rate on the order of 2 to 3 percentage points. We had for years kept track, [in] the series that we put in the Bluebook for M1, ""less foreign deposits"" in our money stock, and it showed every once in a while [that] it would affect the monthly growth rate a little bit, but it didn't prove significantly different to keep track of it continuously.",178
-fomc-corpus,1977,Is there any likelihood that that would be affected by a change in relative interest rates?,17
-fomc-corpus,1977,We were not able to come up with any explanation that was satisfactory of why those foreign deposits went up in that middle week of July and stayed up in the next week.,34
-fomc-corpus,1977,At least I'm not aware of a satisfactory explanation.,10
-fomc-corpus,1977,"Yes, Mr. Mayo.",6
-fomc-corpus,1977,"Mr. Chairman, I am bothered here about something else in terms of our yardsticks. We have again an illustration in July of a huge increase, way beyond what we expected. Some people may say, well there's the Fed with its seasonal adjustment factors again, and yet it's pretty obvious, in answer to that, that, well, forget seasonal adjustment, we are up 7 percent in M1 from a year ago, that washes out the seasonal adjustment factor. Which brings me back to a concern that we are dealing here in a real world where interest rates are not seasonally adjusted, thank heaven, where we are talking about flow of funds in the market that isn't seasonally adjusted. We appraised the stock market without any attempt, again thank heaven, to put in a seasonal adjustment. I'm just wondering if, in sorting out some of our own analysis, we are failing to be able to appraise except on a year-to-year basis. The difference between the unadjusted figures and this margin, which you have mentioned so many times, Mr. Chairman, of the fragility of our seasonal adjustment factors. I guess what I am saying is maybe too philosophical to be considered seriously at this meeting but--",243
-fomc-corpus,1977,Don't underestimate us.,4
-fomc-corpus,1977,"Well, what I am saying is, I am trying to maybe even take refuge in looking more at unadjusted numbers than we had before, and not that I lack any confidence in staff to do the best job they can in seasonal adjustment, but it may be that we are dealing in an area were the unadjusted numbers over a period time can be analyzed quite constructively along with the others. Now, I hesitate to say this because we've got too many numbers already. But maybe we need a substitution of numbers, not an addition of numbers. End of speech.",115
-fomc-corpus,1977,"You are indeed suggesting a revolution. I don't think we want a substitution, but I do think we want and need at least a partial addition. I find it very disconcerting--when, at times, I ask one or another member of our economic staff [about] the recent behavior of unadjusted figures, that seems to shock the individual to whom I put the question. He no longer knows the world of unadjusted figures. He knows the world in terms of seasonally adjusted figures. I think we have all gotten into the habit of living with seasonally adjusted figures, and we are overdoing it. I would like to see, well, at least now or then, unadjusted figures and try to arrive at some rough judgment as to the quality of the seasonal correction, its stability, its degree of fragility. I have a great deal of sympathy for your suggestion except for the--I don't know whether you meant it seriously--the substitute.",195
-fomc-corpus,1977,"No, I mean let's get rid of some other numbers--it sounds like a budget director--let's get rid of some other numbers that maybe aren't as valuable. I don't mean a literal substitution of unadjusted for adjusted. That would be a mistake. We are entitled to our best evaluation of the seasonal. But if I may take one more minute of the Committee's time. Thirty years ago I was in charge of doing the revenue estimating base in the Treasury. We had to get our base figures from Commerce. Obviously you do your revenue estimates not as seasonally adjusted figures; you do them unadjusted. The Department of Commerce was able to give us unadjusted figures on everything except farm and nonfarm entrepreneurial income, where they had to go to great lengths to create unadjusted figures for us to use in the Treasury. The absurdity of that has stayed with me to this day and, I guess, colors what I have to say. End of second speech.",198
-fomc-corpus,1977,"President Mayo, I think there might be a misunderstanding of how we make the projections. The projections for the period between Committee meetings--well, we have a variety of projections, and models, and what have you. But the basic judgmental projection--sometimes that's adjusted on the basis of the model results--but the basic judgmental projection is made from unadjusted weekly data.",76
-fomc-corpus,1977,"Oh, I understand that, Steve.",8
-fomc-corpus,1977,"And, in judging whether the data coming in are above or below paths that seem consistent with what the Committee finally adopts for an intermeeting period, that judgment is based on the unadjusted data that's coming in. And the seasonal factor is a constant, and that's just the transformation that transforms it into a level that is more consistent with past behavior and is more familiar to the Committee and to the public. But, essentially, tracking of the path and our development of what we propose to the Committee are based on an evaluation of expectations with regard to unadjusted data in the period.",117
-fomc-corpus,1977,"Well, I understand that, and I guess I'm just asking for a further sharing of that base so that the Committee judgment as well as staff judgment has a greater input on the unadjusted figure.",40
-fomc-corpus,1977,"Mr. Chairman, if I could piggyback on Bob's comments here. I think he has a very useful idea, as a matter of fact. He has referred to some of his experiences as budget director. I recall a time when I was responsible for establishing and maintaining a tracking and monitoring system for all kinds of loan and deposit components of a major commercial bank. And one way that the top management insisted that this be done is that--all these charts where we had the seasonally adjusted data, we have right smack on that same chart the actuals. It was of no consolation to know that deposits were rising at a seasonally adjusted basis but actually going down--that was an actual decline in funds irrespective of what the seasonal trend showed, and it meant a real need to raise money. That's a key discipline--to match, just for example, Bob, on the same chart, your unadjusted and seasonally adjusted figures. It gives it a hard-base reality, and that's one technique that we might use.",206
-fomc-corpus,1977,"Well, I think Mr. Mayo's comment on seasonal adjustments is very useful, and at the risk of complicating life, let me point out another, perhaps even more serious, difficulty. And this time I will be using seasonally adjusted figures, and this difficulty will extend equally well, I'm sure, to figures that have not been adjusted for seasonal variations. I've had the staff recompute M1, that is, make computations on the rate of growth of M1 using a modified, and yet I think reasonable, definition of M1. And the modification of our standard definition was as follows. First, we included the NOW account. Second, we included the demand deposits of mutual savings banks. Third, we excluded demand deposits due to foreign commercial banks and foreign official institutions. Fourth, we included business savings deposits. And fifth, we've included governmental savings deposits. Now, in my judgment, M1 redefined in this fashion is a better measure of transactions balances than the one that we have been relying on thus far. But whether or not you accept that judgment, I think it is somewhat startling to compare the figures given by the M1 that we rely upon and the redefined M1 which I have just described. For example, in the first quarter of 1976, our standard M1 rate of growth was 2.9 percent--Steve, is this based on quarterly averages or end-of-quarter figures?",285
-fomc-corpus,1977,"Yes, its quarterly average, I believe.",9
-fomc-corpus,1977,'76 or '77?,6
-fomc-corpus,1977,"No, '76--2.9, and the redefined M1 is 9.2. You are living in a different world. Now let me take the first quarter of 1977. The current M1 is 4.2, and the redefined M1 is 8.9. Again, a very different world. Now, for the second quarter this year, the difference is very much smaller: 8.4 for the current M1, and 8.7 for the redefined M1. But very large differences appear in other quarters, and the differences for individual months are really enormous. Now this is not too surprising. I had the calculation made because I was quite sure the differences would be large. What it does mean is that the knowledge we at times assume we have concerning the growth of the money supply, or the relation between the money supply and economic activity, or the relation between the growth of the money supply and the inflation rate is very precarious, very fragile. And I'm not quite sure what the implication of all this is. One implication may be that we ought not to be apologetic about paying a little more attention to interest rates than we do. That is not a necessary inference from anything that I have said; it's one possible implication.",261
-fomc-corpus,1977,"Excuse me, Mr. Chairman, do we have data on what happens to the calculation of velocity using the money stock as you redefined it here?",31
-fomc-corpus,1977,"Well, I don't have these calculations, but the velocity figures would be cut back very sharply.",19
-fomc-corpus,1977,So that the miracle of the inconsistencies in that area might be reduced by this redefinition.,19
-fomc-corpus,1977,"Oh, no question about it.",7
-fomc-corpus,1977,But it's mainly just a question of adding in some of the items into which substitution has occurred.,19
-fomc-corpus,1977,That's exactly--,3
-fomc-corpus,1977,You're taking 100 percent of that. People wouldn't have thought you ought to take 100 percent because there were probably also some diversions in the market into those points?,34
-fomc-corpus,1977,"Well, whatever you do in this area I think will have an arbitrary element. Take demand deposits. Demand deposits can be active or stagnant, and sometimes they'll be the one, sometimes the other. And these are difficulties that are inherent in the kind of complex monetary system that we have and human behavior being what it is. Well, Mr. Mayo's comments and perhaps also the comments that I've just made ought to make us feel very humble as we go about our task.",94
-fomc-corpus,1977,"Might I ask, Mr. Chairman, what did M1 do on an unadjusted basis in July? Do you know, Steve?",29
-fomc-corpus,1977,I don't have that.,5
-fomc-corpus,1977,That was a nasty question.,6
-fomc-corpus,1977,I thought for sure he would have the figures.,10
-fomc-corpus,1977,I bet it went up a great deal. But the question of--,14
-fomc-corpus,1977,"I think it did, too--",7
-fomc-corpus,1977,It either went up more than expected or went down less.,12
-fomc-corpus,1977,My comment is not meant that you can explain all of the difference in M1 in that one month. It's probably only a small amount. It's a question of being unable to sort out the apples and oranges. We get a bale of fruit--a box of fruit; here I'm getting all mixed up with my metaphors.,65
-fomc-corpus,1977,"Well, gentlemen, any other general observations? If not, we'd better turn to our monetary policy discussion, looking toward a new domestic policy directive to the New York Desk. I think that it would be useful if--this remark is addressed totally to the Bank Presidents at the table and their alternates--it would be useful if our Bank Presidents would comment on the desirability as they see it--speaking for themselves rather than for their directors--of an increase in the discount rate. Whether such an increase would be desirable, and if so, would it be desirable immediately or possibly two or three weeks down the road, when certain adjustments in interest rates as yet uncompleted in the marketplace would have taken place. Your views on that subject would be helpful to the [Federal Reserve] Board. Now, as far as the Bluebook is concerned, I look rather favorably on alternative B in the Bluebook, on page 6, except, you see, the lower limit of M1 is 2. Well, why should it be 2? Why shouldn't it be 0 or even negative 2? And likewise, the lower limit of M2 could be lowered. This may be a time when, in view of what has just happened to M1, we should be willing to lower the lower limit of M1 very substantially. Well, that is one suggestion the members of the Committee may want to consider. Who wants to speak first? Mr. Coldwell.",296
-fomc-corpus,1977,"Mr. Chairman, you have just destroyed my whole thesis--what I was just planning to spring on you--of lowering the lower end of the M1 and M2 ranges.",36
-fomc-corpus,1977,"Well, I haven't destroyed it. I haven't destroyed your thesis.",13
-fomc-corpus,1977,I approached it a little different.,7
-fomc-corpus,1977,"I've reinforced your thesis, reading your mind as I am capable of doing--",15
-fomc-corpus,1977,"Yes, I understand. Well, let me make a couple of comments first. From my perspective, the planning horizon for policy using the aggregates must be down the road apiece, and I look for early '78 as my target area, in that the job of the Committee today and over the next couple of periods is to position itself for what it expects is coming up. Now, if there is anything to this monetary aggregates target business we are going through, and the long-run target growth, I think we have to keep the growth [with]in those target ranges we have set for ourselves. And thus I would hope we would widen the range on the downside as we did in the longer-run target the Chairman presented to Congress recently, leaving room for restraint if further excessive growth develops but leaving ourselves some room to accommodate this lower range. I had suggested in my jotted notes here that we might go down to a 1 to 6 frame [for M1] [and] in the 3-1/2 to 8-1/2 range [for M2], but I would be willing to go to zero on the M1. I would not want to see a negative figure. As far as the funds--",249
-fomc-corpus,1977,Let me just stop you there to ask a question. I would not want to publish a negative figure. I would welcome a negative figure if it just developed naturally.,33
-fomc-corpus,1977,I'm talking about publications.,5
-fomc-corpus,1977,"Well, that's what I wanted to clarify.",9
-fomc-corpus,1977,"On the federal funds rate, I am disturbed about this concentration and limitation on the range. And I would hope if we are going to look at these widened ranges of M1 and M2 that we would also widen the range on the federal funds rate, and I would suggest to the Committee a 5-1/2 to 6-1/2 rate, which centers upon where the Desk is supposedly now, at 6 percent. One other comment, Mr. Chairman, to the general paragraphs of the directive--",105
-fomc-corpus,1977,"May I just say I don't think that that recommendation is consistent with your recommendation on lowering the limits for M1. The reason for lowering the lower limit [on money] is not to tap lower interest rates very quickly. But if you permit the lower limit [of the federal funds rate] to go down to 5-1/2, you may be forced to do that--",77
-fomc-corpus,1977,"But only if [M1] goes down below the lower limit, if we put it at 0 or into the negative range, then I would think we would.",34
-fomc-corpus,1977,"I think you are weakening your recommendation with regard to M1. Now going the other way, widening, I don't see any inconsistency there, but I think I see an inconsistency--",38
-fomc-corpus,1977,"I don't think it's inconsistent, and perhaps more philosophically I'd rather have the full percentage [point] range. In the general paragraphs on line number 8, Mr. Chairman--in the past we have published these figures in our policy directive concerning local retail sales.",53
-fomc-corpus,1977,Where are you?,4
-fomc-corpus,1977,"Line item 8 of the general paragraph. I think it would be desirable for us to cover our tracks here to say ""total retail sales according to advance estimates grew somewhat.""",35
-fomc-corpus,1977,"Why do you think that is unsatisfactory? The retail sales which rose somewhat are retail sales expressed in nominal dollars, I believe. Is that correct?",30
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Well, then, I'm not ready to say that when you have retail sales in July going up five-tenths, to 1 percent, and therefore [up at a] 6 percent annual rate, I'm not ready to say the total [real] retail sales rose at all.",58
-fomc-corpus,1977,"Well, it's certainly uncomfortable the way it's stated because of the change that we had this past month in the revision. I looked back at prior figures, or statements and policy records, and we are trapped in this advance-estimate approach.",47
-fomc-corpus,1977,"Well, I think that this is something our staff ought to watch a little more. Now one of the great difficulties with a period of inflation is that it confuses everyone. Confuses businessmen with regard to their profits, confuses economists with regard to their readings of the economy. It confuses the general public because we keep on shifting back and forth. One minute we are talking about changes in dollar figures and another minute we are talking about changes in physical magnitudes. And we all do that. I know I do, but we ought to mend our ways.",113
-fomc-corpus,1977,"I would suggest, Mr. Chairman, that we leave it to the staff to amend this.",19
-fomc-corpus,1977,Right. I think it's a useful correction.,9
-fomc-corpus,1977,"May I have one other moment, because while you directed the question to the Presidents, and I will not comment concerning my opinion on the discount rate, I do think it would be of some help to not only consider the discount rate but, in this period of seasonal expansion of required reserves, to consider the possibility of a structural adjustment of reserve requirements.",70
-fomc-corpus,1977,"Well, I--",4
-fomc-corpus,1977,I'm not prepared to make that a recommendation.,9
-fomc-corpus,1977,Look at it over the next several months.,9
-fomc-corpus,1977,"Yes, over the next several months.",8
-fomc-corpus,1977,"I think that members of this Committee should feel prepared at all times to comment on whatever is on their mind. But I do want to point out that we are engaged in a congressional enterprise at present and that sensitive legislation involving reserve requirements is now being considered on Capitol Hill. Therefore, let us keep that dimension in mind as we consider desirable changes in reserve requirements.",72
-fomc-corpus,1977,That's all I have.,5
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Eastburn now, please.",16
-fomc-corpus,1977,"Thank you, Mr. Chairman. I begin with a view that the economy is stronger than the sentiment would suggest and also with the uncomfortable feeling that we may someday look back on the current period as being a mistake, so far as monetary policy is concerned. We have a second and third quarter with M1 growing more than 8 percent. If you were to assume a fourth quarter at the same rate, this would create money growth in 1977 that would be the second fastest since 1970. The question, of course, is what to do. I think two observations that have been recently made are helpful. One is the observation that, although we've been consistently and persistently lowering our targets, that the actual growth rates have actually increased. Second was the observation made last time that it's important to make sure that we do in the short-term what we want to accomplish in the long-term. And it seems to me that this is a good test of that principle. This leads me to a position that at least the aggregates of alternative C would be desirable. I like very much your proposition of lowering the lower limit [of M1] to 0. I also would lower the upper limit to about 4 to give a range of something like 0 to 4. I am concerned, of course, with what this would mean for the federal funds rate, and I would approach that somewhat cautiously and opt for the ranges that are specified for alternative B, 5-3/4 to 6-1/4, with very close consultation between the Desk and the Committee. As far as the discount rate is concerned, I think it is time to raise the rate. I'm prepared to recommend to my board of directors an increase of 1/2. I think that, from what Peter said, the market has almost adjusted to that. It hasn't quite adjusted to it. I think maybe the additional amount might have a good announcement effect at this particular time, given the kind of growth rates that we've been having in the money supply.",411
-fomc-corpus,1977,Do you have any observation on the timing?,9
-fomc-corpus,1977,I would do it right away.,7
-fomc-corpus,1977,You would do it immediately.,6
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Rather than wait a week, or two, or three.",12
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"All right, thank you. Mr. Morris.",10
-fomc-corpus,1977,"Mr. Chairman, I am quite pleased with our performance during the past month. I think that the move we made in the funds rate was needed to maintain our credibility in the marketplace, in light of the big bulge in the aggregates. I think we could take some pleasure from the performance of the bond markets. The reaction in the long-term market has been practically nil, and in fact the long-term rates are just about where they were, when the funds rate was at 4-3/4 in March.",104
-fomc-corpus,1977,"That's correct. Yes, there was no reaction to the move we made in late April, and there's been virtually no reaction to the move we've made during the past month. Why should we take pleasure in that? I do, myself, but I sometimes get very uncomfortable with myself, because what's the purpose of an increase in interest rates? What is this exercise all about, you see. When we release forces tending to make for an increase in interest rates, why should we take pleasure when these forces do not extend to the long-term market.",108
-fomc-corpus,1977,"Well, because I think that the fact that long-term rates have been stable is an expression on the part of the bond investor that the Federal Reserve is exercising a reasonable degree of control over the money supply, and that therefore a long-term commitment makes some sense at the current level of rates.",58
-fomc-corpus,1977,"Well, I say that all the time, and I believe it, and yet I feel a little uneasy because the purpose is to slow down the rate of growth of the money supply. And do you succeed in slowing down the rate of growth of the money supply if long-term rates do not rise? So, I feel a little uncomfortable with myself and with my own rhetoric, and therefore, with your rhetoric, which is so similar to mine.",89
-fomc-corpus,1977,I think you can slow down the rate of growth in money supply without pushing long-term rates up. The long-term rates are to a large extent a function of expectations.,34
-fomc-corpus,1977,"Mr. Chairman, isn't it that we're looking to a slowdown in the rate of inflation as the net result of our policy? The net slowdown in the rate of money supply growth is secondary. It seems to me that this is very important, what Frank has said, because we're saying the real interest rate component of long-term interest rates is indeed rising, but the inflationary premium inherent in those rates is declining.",82
-fomc-corpus,1977,"It's pretty hard to argue that we've had a burst of 18 percent or whatever in the money supply, and because we acted against this, the net result is a decline in inflationary expectations. Maybe so, but--",44
-fomc-corpus,1977,"But again, the 18 percent has to be looked at in terms of our inflation rate. I consider this a ship that passes in the night, the 18 percent.",35
-fomc-corpus,1977,"Okay, you're just looking at what actually is the--",11
-fomc-corpus,1977,"Well, what I would argue, Paul, is that, if we had not responded to the extent that we did in the face of an 18 percent rise in [money], the reaction in the long-term bond market would have been very different. Well, to go on, Mr. Chairman, I think that I would support alternative B, which is essentially a stand-pat policy for the next four weeks, [as] a pretty good one. I think it takes time for the monetary aggregates to respond to a change in interest rate policy. I don't think that we have yet seen the effect of the upward adjustment in our short-term rates, and I think you won't see that until September-October.",142
-fomc-corpus,1977,Any views on the discount rate?,7
-fomc-corpus,1977,"My inclination would be to go easy on the discount rate at the moment, for two reasons. I think it could well be, in view of my feeling about the deceleration in the economy, that we might have to move short-term rates lower before the end of the year. I would like to see some confirmation in the next month or so of some resolution of what I see as the conflict between the real economy and the monetary economy right now. In other words, we've got, in the real economy, a deceleration of the rate of advance; and in the monetary economy, you've got an acceleration in the rate of advance. And these two are going to be reconciled either in terms of a stronger economy or a decline in the demand for money. And for that reason I would be inclined to go slow on raising the rate until this reconciliation happens, because I think the timing of a rise in the discount rate at a time when we're going to see more and more talk in the press about a deceleration in the economy could lead some unsophisticated observers to see a causal relationship between an increase in the discount rate and a slowdown in the economy. I would like to see a little more evidence of which way we're going before we raise the rate, and we can live--we've learned to administer the discount window with a differential between the discount rate and the market rate in the past.",280
-fomc-corpus,1977,May I ask what you mean by that. You mean that you change your criteria for loans?,19
-fomc-corpus,1977,By administration I mean that we can avoid an excessive use of the window by a bank in order to pick up the differential.,25
-fomc-corpus,1977,In what way could you avoid it?,8
-fomc-corpus,1977,By kicking them out of the window after a certain amount of time.,14
-fomc-corpus,1977,Why? On what basis would you justify such action?,11
-fomc-corpus,1977,We do anyway.,4
-fomc-corpus,1977,[Unintelligible] Regulation A.,9
-fomc-corpus,1977,Our policy is that the discount window is not a permanent source of capital.,15
-fomc-corpus,1977,"Well, the purpose of the discount window is not to enable a bank to arbitrage.",18
-fomc-corpus,1977,But I got the distinct impression you changed your policy in view of a change in monetary attitude on our part. Is that what you're saying?,28
-fomc-corpus,1977,"I don't understand what you mean, Phil.",9
-fomc-corpus,1977,I got the distinct impression that you were tougher on the banks and wouldn't allow them to get credit--on some of the banks--as a consequence of your changed attitude about monetary policy.,37
-fomc-corpus,1977,"No, I think the wider the spread you have between the discount rate and the federal funds rate, if you have the gap where the discount rate is lower, obviously it's going to be very attractive to banks to come and use the window. And therefore, in that kind of a context, we'd have to administer the window a little more rigorously than you otherwise would. I'm saying that I'd be willing to do that for another month or so until I can see which way--until I can see some resolution of the conflict between the real world and the monetary world.",113
-fomc-corpus,1977,I think Philip's got a point there.,9
-fomc-corpus,1977,But do we adjust the concept of the discount window to suit our whims or is that a constant criterion that we use at the moment.,27
-fomc-corpus,1977,"I don't think Mr. Morris was saying that. I think all that Mr. Morris meant to say was that if bankers are tempted to, as some of them will be, to borrow at the discount window because the discount rate is low relative to this or that market rate, this is something that Mr. Morris's Bank will be aware of, will watch, and this is something that in every period when such a discrepancy arises, the Federal Reserve Banks around the country do more or less well and more or less systematically. I think that's what Mr. Morris meant to say--",115
-fomc-corpus,1977,They do it on a standard of administration which would very seldom change.,14
-fomc-corpus,1977,But I didn't interpret Mr. Morris to say that the standard would change--,15
-fomc-corpus,1977,That's what I think Philip was saying.,8
-fomc-corpus,1977,"That's what I would want to get clear, that we weren't changing our standards.",16
-fomc-corpus,1977,"No, but it's just that the larger the gap between the funds rate and the discount rate, the more administration you have to do.",27
-fomc-corpus,1977,The more attractive it is to borrow.,8
-fomc-corpus,1977,"I'm not saying the standards are different. For obviously, when the discount rate is above the funds rate you don't have to do any administering at all. I think that this doesn't mean that we can't live for another month with the present discount rate, that's all, even though the gap is 3/4.",62
-fomc-corpus,1977,You get more borrowing then.,6
-fomc-corpus,1977,You would expect borrowing to go up then.,9
-fomc-corpus,1977,Sure.,2
-fomc-corpus,1977,"I understand exactly what Frank is saying. Inflection in the voice, examiners coming in early.",20
-fomc-corpus,1977,[Unintelligible].,6
-fomc-corpus,1977,The discount window is administered pretty expertly.,8
-fomc-corpus,1977,"Well, all right. Now we pass to you, Mr. Kimbrel.",17
-fomc-corpus,1977,"Mr. Chairman, operating, I guess, from a personal hunch that maybe the economy is moving along somewhat stronger than it would appear in some segments--",31
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"--I believe we are reasonably agreed that our fundamental task here is to try to bring the money growth back into the target range, and if that should [require] almost no growth in the aggregates in the near term, that translates with me as at least [a] slightly less accommodative posture. So I find comfort in the numbers you have assigned to M1. I guess I would not like to see the federal funds rate slip below the 6 percent range since they have accomplished that. I would hope that maybe we could stay somewhere in that area for the near term. Also, to see that range widened if we possibly could. I've been uncomfortable with such a narrow range for some time. Maybe even if we [lowered] the bottom [limit] of 5-3/4, I'd like to see [us raise the top limit] up to 6-3/4 if we could, to begin to widen that, not with the idea we would move immediately above the 6 percent, but certainly [strengthen] the inclination not to slip below that until we're somewhat more comfortable in what is happening with the money numbers. As to the discount rate, our directors for some time have been under the impression that, with the inflation and with the growth, a change would be appropriate. I would personally prefer to see a smaller move, 1/4 [point], but maybe the numbers now are such that the market is reasonably conditioned, and if we could not move again another 1/4 point within a month to six weeks, I would prefer to have a 1/2 percentage point and do it reasonably early.",332
-fomc-corpus,1977,By reasonably early--,4
-fomc-corpus,1977,Friday of this week.,5
-fomc-corpus,1977,"We'll now hear from you, Mr. Baughman.",12
-fomc-corpus,1977,"Mr. Chairman, I think it's already been mentioned that we have been in the process of writing a record of monetary policy which will be described as having been procyclical and that we do need to be moderating that as rapidly as possible. There was also a fair amount of conversation this morning about the lack of optimism or confidence on the part of businessmen. I think the process of moderating the rapid growth in monetary [aggregates] will tend to shore up and reinforce the confidence of businessmen in the economic situation. With respect to monetary policy prescription, I have usually felt constrained from picking one measure from one alternative and another from another alternative in the staff's representations, but today I don't feel so constrained. So I'd be inclined to take the federal funds rate from alternative B and the aggregate measures from alternative C. I'd be inclined not to widen the ranges of either the aggregates or the federal funds rate. It seems to me that that would move us in the direction we want to go, although I would not have a serious objection to a lowering of the minimum in the two aggregates. With respect to the discount rate, I've begun to see just within the past week some borrowing for--pretty clearly--rate purposes by banks who normally would get their funds from the money market. So my inclination would be, within this monetary prescription, probably to stick to the 6 percent funds rate for a week or two, and at that point then--I'm thinking about two weeks--it would be desirable to move the discount rate up by a 1/2 point. This would kind of separate the discount rate from a policy move and make it a move in response to market conditions. I think the 6 percent funds rate will in another week or so have come through clearly as a policy move, and that will have been settled. I would not be averse to seeing the discount rate move, say, in one week, but it seems to me it would be a little better if we had two weeks' experience behind us with a 6 percent funds rate. That's all I have, Mr. Chairman.",422
-fomc-corpus,1977,"Thank you, Mr. Baughman. Gentlemen, I really have been listening very attentively to what each of you has been saying, but at the same time, I've been engaging in some arithmetical calculations that are of some interest, I think. I commented on the difference earlier between the rates of growth of M1 as we now compute M1 and the rate of growth based on a revised concept of M1. Now, with very minor exceptions, for some 15 months the revised M1, month by month, showed a higher rate of growth than the standard M1. In April, the two were identical, and in the last three months, the revised M1 shows a lower rate of growth than the standard M1. Assuming the arithmetic here is right, this would suggest to me that money has moved out of temporary savings balances into transactions balances, either to carry out payments on transactions that have already been made or to provide checking deposit money for transactions to be made in the near future. In any event, the figures are much lower. Let me just read the figures for May, June, July. The first figure is the standard [M1], and the second figure is the revised M1: 0.7 for May and then 0.4; 4.5, l.8; 18.3, 12.2. Well, that's my interruption for you to use or not use and interpret as you see fit. Mr. Rankin, please. Mr. Rankin, we're very glad to welcome you to this table today.",322
-fomc-corpus,1977,"Thank you, Mr. Chairman. Well, I'll just briefly say we could accept the specifications of alternative B, but in view of the July experience, we certainly would not be concerned if growth in the aggregates came in as much as 1 or 2 percentage points below the lower limits of the alternative B tolerance range. In other words, 0 to 6 [for M1] is fine with us.",83
-fomc-corpus,1977,Any view on the discount rate?,7
-fomc-corpus,1977,"Well sir, I would not want to speak for Bob Black, but I might speak personally. I guess it would be a tough decision, and looking at what's occurred in the funds rate since April, the cumulative rise, it has been up about 1-1/4 percentage points. One could be inclined, I guess, to kind of hold steady for a while in order to get a better line on the impact of the actions that we've already taken. But I would think, if evidence isn't forthcoming within the next 10 days or two weeks, the time to increase the discount rate had arrived.",121
-fomc-corpus,1977,"Thank you, Mr. Rankin. Mr. Partee now, please.",16
-fomc-corpus,1977,"Well, Mr. Chairman, I have mixed emotions today. I'm troubled by the increase in various defined aggregates because I think that I am rather in agreement with what Dave Eastburn said, that we're in the process working on a record that's going to show growth well above our limits in the narrow money supply, and perhaps even in M2, which has been pretty strong over this most recent period. We had a surge in April, and then May and June looked nice and quiet. And we had a surge again in July, that's the second [unintelligible]--whatever Bob Mayo's analogy is. And [it] looks as if August and September are going to be quiet. But the result of it is that you get a second quarter that's large and a third quarter that's large. And so I'm troubled by it. Now your alternative definition [of M1] I think tends to show that we've had pretty accommodative growth throughout the period rather than that we had slowing more recently, [which is] why we get an adjusted money supply that is up quite sharply over the last 15 months or so. So I'm worried about it. I don't know, maybe we shouldn't have an M1 target, but we do, and the market makes quite a bit of it, and we make quite a bit of it and the need to reduce it over time, and so forth; and so there is a credibility question here. And there also is a possibility--if we use it as an index of monetary growth, imperfect as it is--that we're going to have excessive monetary growth in this period. On the other hand, I would note to the Committee that we've had a considerable increase in short-term interest rates. If you look at chart 3 in the Bluebook, you can see that the funds rate was very stable at about 4-5/8 in the early months of this year. It rose 3/4 [point] abruptly in late April and May to the 5-3/8 range, and now it's risen abruptly another 5/8 [point] in the last day or two, to 6 percent. So we've had an increase of almost 1-1/2 [percentage points], and it takes us into new high ground on this particular economic recovery. We have a bill rate that, it seems to me, if it has just a little more adjustment in it, Peter, is increasingly threatening flows to the intermediaries, and we haven't quite seen what that would be. I have a perception that the market may not yet quite have adjusted to the 6 percent funds rate, which is going to be a signal to the market, as Governor Jackson just pointed out to me, quite clearly--if not now, [then] on Friday--when the publication of the Record of Policy Actions will include the telegram and will show that the Committee adjusted its target to a high of 6 percent if there continued to be strong growth in the aggregates. So that 6 percent is certainly going to be established in the market's mind and there may be some further adjustment in rates to that. I think it's probably true, since I agree with Frank that GNP is not going to go up so fast in the second half of this year. But the demand for money will be a little less than the staff probably is projecting in this period. And so I think we won't have the pressures that I would anticipate if we use the staff's projection of the second half GNP. And therefore, I would rather like to see us pause for a bit and observe the situation. So I like the funds rate centered on 6 percent, say 5-3/4 to 6-1/4. I think that we should be tolerant of a shortfall in money growth, either in M1 or M2, if we should get one, and I would have chosen as my ranges, 0 to 5 for M1 and 3 to 8 for M2. It [would] keep a fairly high upper end, open the range a little bit, and indicate, I think clearly, that we would have some tolerance. And, unless we get unusual growth or unusual shrinkage in the monetary numbers, [it would] emphasize the stand-pat character for a few weeks here while we see what happens in the market and let the forces regroup. I would also shift to a money market directive this time.",898
-fomc-corpus,1977,"Thank you, Mr. Partee. I'm going to interrupt the flow of thought once again by reporting on what I can extract from these figures. You're going to get very strong support, Mr. Mayo. The table I have before me starts in 1976. Let's go back to April 1976; the rate of monetary growth in April was higher than in the preceding month and the following month. Now next we go to July 1976; the rate of growth in July was higher than the preceding month or in the following month. Next we go to October; the rate of growth in October was higher than in the preceding month or in the following month. Next we go to January 1977, and the rate of growth in the preceding month was higher, not lower; the rate of growth in the following month was lower. So this pattern is only partially repeated. Next we go to April 1977, and the rate of growth in the preceding month was lower; the rate of growth in the following month was also lower. Next we go to July, and the rate of growth in the preceding month was lower, and presumably our staff will testify to the rate of growth in August being lower. So you have here something approaching a repetitive movement, a quarterly seasonal pattern, except for one partial deviation. In six observations, 5-1/2 [observations] were consistent with the hypothesis of a seasonal in these seasonally adjusted figures, and half an observation was inconsistent with that interpretation. Well, I'm making life no easier for any of us--yes, Mr. Wallich.",323
-fomc-corpus,1977,"I think our question is whether we want to make a strong effort to get back on track. We've made, to all appearances, a poor record of these two very high quarters, and the question is whether we should make that effort at the cost of high interest rates and substantially lower growth of the aggregates. Now I'm going to argue against this in light of both the technical factors and the state of the economy, the international situation. Let me say why. I think these adjusted numbers as you've described them, Mr. Chairman, seem, in good part, to differ from the standard M1 numbers by the very factors that we've always had in mind as causing changes in velocity. So here we've expressed, I think very helpfully, what we used to call the change in velocity.",156
-fomc-corpus,1977,Exactly right.,3
-fomc-corpus,1977,"It's really a difference in M1 that tells us that M1 has been higher, which is plausible because we've had these high increases in velocity that we've found hard to explain. Well, given that, now I look at where we are with respect to past long-term ranges, and it's my impression that we are not all that far outside, even though we've done poorly and will have done poorly in the light of the second and third quarters of this year. Going back to the ranges announced [for] the second quarter of '76 and continuing since then, M1 is [mostly] high, but fractionally with respect to the range based on the second quarter of '76. In fact, we are inside the range--making a reasonable prediction for M1 for the end of this quarter. For M2, one can say somewhat similar things. We are high, but not disastrously high in this long sweep of our ranges. Sins that they are, sins that look bad mostly with respect to the last, the third and second quarter, and to the relatively low increases we've had just before this. So my sense of urgency to get back on track is somewhat diminished by that. My sense of urgency is further diminished by the thought that we've had these shocks clearly from the monetary side. And the old rule of thumb says that when you're shocked from the monetary side, stay with interest rates, ignore the aggregates. We're not prepared to ignore them, but I think there is, in terms of that rule of thumb, a message here because we've had monetary shocks and not shocks in the real sector. We look at the real sector. The economy is not very strong. It's shifting gears downward. If we had a very booming economy, I think there might be a better case for trying to get back on track with the aggregates. It's not clear to me that our economy could even stand a concerted effort to get on track. Interest rates have risen very substantially, as Governor Partee has pointed out, and maybe enough [unintelligible]. I would just add that, from the international point of view, we've heard that the rise in interest rates has done a good deal in getting the dollar back up. I think we could get to a point where the rise in interest rates here might present problems for other countries in terms of their own monetary policy. They are weakening; Germany still is. And rising interest rates here would make it somewhat more difficult for other countries to assume easier policies that they might want to continue. So I come down to a very moderate set of numbers. I would like a wider funds range, as I always do--5-1/2 to 6-1/2. On M1, I'd go with the alternative C in order to give it a little more leeway on the downside, 1-1/2 to 5-1/2; M2, 4 to 8; and an aggregates directive.",596
-fomc-corpus,1977,What are the monetary shocks you were referring to?,10
-fomc-corpus,1977,"A sudden change in the demand for money, which seems to be what we've had--it went up very suddenly, and that shock did not come with money [holding] constant [and] the real sector moving. It was the demand for money moving.",51
-fomc-corpus,1977,"All right, thank you, Mr. Wallich. Mr. Volcker now, please.",19
-fomc-corpus,1977,"I must say, Mr. Chairman, if one gets your periodic reports from examining your tables, and listens to Mr. Mayo, and looks at the difference between A, B, and C of 1/2 percent on the aggregates, and looks at what's been happening in ranges of errors of 15 percent, and the estimates are close to it, one has a little sense of futility in picking between A, B, and C. I ended up, just to cut through all that, exactly where Mr. Partee did. I think it's right to be tolerant of low growth in the M1 and low growth in M2, and I've written down exactly the same figures he cited, 0 to 5 and 3 to 8, to express that I think our much longer-term problem, as I alluded to earlier, is how we're going to reconcile getting these aggregates down over a period of time with the inflationary momentum built into the economy and how we achieve that without a real shock to the economy. I don't think we really face that this month. I think I join practically everybody else who's talked here in pushing interest rates up at the moment in an effort to further assure we get the aggregates down. But I wouldn't be allergic, I think, if the aggregates continue to outrun the kind of range that I just cited. I don't think that's impossible, seeing some further increase here after a little pause. I don't think I would be that sensitive to a further increase in rates, particularly against the background--I feel a little bit of the schizophrenia that you expressed--but I still think, when we can get by with it without setting too much of an impact on long-term rates, I feel a little more comfortable on balance. So I would be prepared to see some further increase in rates after a little pause. If the aggregates are exceeding this kind of number with a couple of more weeks experience, and I don't know if we can be sure that it's not--how you express that in terms of a funds rate, I don't know. I could live with the range that's under B and that you cited. I had thought in terms of 5-3/4 to 6-1/2, with a kind of a 6 percent asymmetrical midpoint expressing what I just expressed verbally, perhaps a little better. But I could live with it either way. My principle point is, if the aggregates really show further signs of exceeding where we want to go, I don't think we should be unwilling to make some--at least modest--further increase in interest rates despite the amount we've already gone. On the discount rate, I have not thought it was appropriate until now to increase it. I do, at this point, think the time has come, given the degree of divergence that exists between the market rate that we, in effect, have manipulated and the existing discount rate. As a matter of general policy, it's not compelling in any particular instance. I don't like the idea of having to engage in the kind of partly semantic, partly real, I guess, discussion that Governor Jackson had with President Morris. I would rather keep the discount rate, all things equal, somewhere near the market rate so you don't run into that kind of a problem. To the extent it has a signaling [effect] now, I'd be willing to accept it in terms of our deliberate effort to increase rates here against the background of a very large increase in aggregates. I think that President Eastburn already expressed the thought that I have in mind here, that some mild signaling effect, I don't think it would be much, is not all together undesirable. I appreciate-- and I think this is the one difficulty--that if a change in the discount rate appeared to trigger change in other administered rates, we may be in a less satisfactory position in some context than we would otherwise be. I think, on balance, Mr. Kimbrel has the timing about right on this, and maybe even Thursday's the afternoon, all things considered, partly against the danger that the longer you leave it unchanged--if we don't change to market rates--we're in an unsatisfactory gap situation. If the economy is slowing down, it looks increasingly awkward to raise the discount rate, and we're left with an unsatisfactory technical situation, it seems to me, in terms of the amount of the gap.",882
-fomc-corpus,1977,"That last I don't see. If the economy slowed down and we became concerned about the degree of retardation of the expansion that was occurring, then presumably market rates would be moving down.",37
-fomc-corpus,1977,"I agree. If it slowed down that much. If we became concerned over the degree of retardation, I agree with you. If it just kind of slowed down to the point we weren't concerned, we wanted to keep the level of market rates, I think this is a fine judgment--",58
-fomc-corpus,1977,"Not only a fine judgment, but it's a [unintelligible] very, very difficult to, given specific facts, very difficult to--",29
-fomc-corpus,1977,"I don't think this is an overwhelming case one way or the other here. But I think the presumption is, you keep the discount rate closer in line with market rates than it is at present unless you have a pretty strong reason not to. And I'm not sure we have that stronger reason at the moment.",62
-fomc-corpus,1977,"Paul, may I clarify. Now you said you would have a funds rate range of up to 6-1/2. That would technically mean that you would raise the funds rate conceivably from its present 6 to as high as 6-1/2 with a monetary growth of 5 percent in M1 and an 8 percent in M2. That is to say, you gave as your example, where the instructions were not consistent, which would call for a wire or a telephone meeting or something, but then you incorporated that within your funds rate range. Did you mean to do that?",124
-fomc-corpus,1977,"Well, I think technically you might be right. I don't think we should be very eager to change the funds rate, and I wouldn't conceivably go into 6-1/2 until it got above that 5 and 8, for a week or two anyway.",56
-fomc-corpus,1977,That's not the rule under which we function.,9
-fomc-corpus,1977,"That's not the rule, I think. Exactly.",10
-fomc-corpus,1977,Let me clarify as far as the rates are concerned. You would go up to a 1/2 percent[age point] increase or 1/4?,33
-fomc-corpus,1977,I'm still debating that in my mind. I think I probably feel a 1/2. But I don't feel very strongly about that.,28
-fomc-corpus,1977,"Well, I thank you, Mr. Volcker. Mr. Winn now, please.",18
-fomc-corpus,1977,"Mr. Chairman, I have been studying the new math here, too, this morning, and I must confess the relationship between the funds rate and ranges we have been given either have no meaning or we are in a strange posture. Because should we pick the 0 to 6 as our range for M1--that's a median point of 3, which as I understand it would really call for a [6-3/4 to 7-1/4 percent funds rate] range. It's just that if you got a 4 median, then you've got a 6. A 3-1/2 gives you 6-1/2, and then a 3 median would give you 7 as the midpoint of the range, generally.",154
-fomc-corpus,1977,Funds rate.,3
-fomc-corpus,1977,"So if we are going to be consistent at all, maybe we shouldn't be, but it seems to me that the relationship between the funds rate we are talking about and the quantities we are talking about are inconsistent with the first presentation we had here this morning.",51
-fomc-corpus,1977,"Well, President Winn, we made the effort, as you noted, to present what we think are consistent--",22
-fomc-corpus,1977,I understand.,3
-fomc-corpus,1977,Whether they turned out to be consistent in the real world--,12
-fomc-corpus,1977,I understand.,3
-fomc-corpus,1977,But we never follow a consistent pattern.,8
-fomc-corpus,1977,"And the reason there are only half-point [funds rate] differentials is because of the short run. Whatever M1 is going to be, we don't think there's hardly anything we can do to prevent it from being that in the short run, and all you can do is affect it a little bit with the variation in the funds rate.",69
-fomc-corpus,1977,"Yes. Well, that's a probably an accurate one. But I wanted to show what our consistency would be--the 0 to 6 with a midpoint of 3 would give you a much higher funds rate direction than we are showing here. My own feeling would be, stay with the B numbers and quantities, spread the fed funds rate range to 5-1/2 to 6-1/2, with the realization that we would be outside before we made our moves. I would take advantage of the market acceptance of what we've done and be prepared to move the discount rate by a half [point]. I think we shouldn't reward our sharp-pencil friends who are taking advantage of us at the moment, not extensively, but I'm not sure this is the way we ought to pass out the rewards. And I would like to see that [discount] rate moved first before we did much to tamper with the funds rate above the 6 area, and see if we get any impact from the first move. If we're wrong, I'm prepared to move it down. I think it shows great flexibility in the quantities we get. We've been very successful [with] the upward range, with a relatively [strong] market confidence being shown in it, and I'd be prepared to push that if necessary with the discount rate moving first. And I'm like Mr. Kimbrel--I would have done it last week rather than this week, but that's neither here nor there.",295
-fomc-corpus,1977,"A half, did you say?",7
-fomc-corpus,1977,"A half, that's right. And you've still got a differential there of 1/4 point. You don't really have any market impact, except for a psychological impact showing that we're resolved to continue our fighting in this direction. And I'd be prepared to move that first before I'd move the funds rate above 6, because I do think we need time to see that the impact has worked its way through. But I'd keep the funds range there if we need it, and if we go out of control again, I think you know the confidence that we built up can be lost just as quickly.",119
-fomc-corpus,1977,"All right, thank you, Mr. Winn. Mr. Guffey now, please.",19
-fomc-corpus,1977,"Thank you, Mr. Chairman. Sir, I think many of the expressions that have already been made around the table with respect to the longer-run performance of this Committee in controlling monetary policy--in the sense that the [growth rates of the] aggregates are continuing to be very high--as Mr. Volcker has expressed [it], there has to be a time when we face up to that. But I guess I would hope that we wouldn't do it all at one time simply because we are following one month [of] very high aggregates growth. There is a need, it seems to me, to let the market digest what we have done because we've taken a fairly major step in the market, and the funds rate particularly. And as a result, looking ahead, [I can see the] proposal to move the B alternative to a 0 to 5 range for M1; a 3 to 8 for M2; with a further prescription that the funds rate be broadened, but only on the up side, to 5-3/4 to 6-1/2 with an asymmetrical midpoint of 6; and a money market conditions directive hopefully to get the lower growth of the aggregates in the upcoming period, therefore maintaining a 6 percent funds rate. But if, indeed, we start getting a 5 or above figure in M1, I would be quite happy to see the funds rate move on up to the 6-1/4 to 6-1/2 area. I don't think that we can have two or three months strung together with very high aggregates growth without this Committee acting or reacting. With respect to the discount rate, I would like to see the discount rate increased 1/2 percent[age point] as of tomorrow [Wednesday] afternoon, Thursday afternoon, or Friday. This would be simply a validation of what would be published on Friday, that we are indeed at 6 percent, that we are then 3/4 of a percent out of line with the funds rate and some other shorter market rates. And I would oppose going 1/4 [point] now and maybe 1/4 a month from now, as has been suggested around the table. I think we ought to take a bite at it and do it all at one time, simply with the public statement that we are only following the rates and the movements already taken place. But also I give support to further consideration of a reduction in the reserve requirements at an appropriate time later this year.",512
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Balles, please, now.",18
-fomc-corpus,1977,"Mr. Chairman, just going back to the economy for a moment, my own views correspond pretty closely to those of the staff. But I'm not really concerned about a slowdown to, say, 5 percent real growth for the second half of the year following this extraordinary rate of almost 7 percent for the first half because, I think all of us would probably agree, that was unsustainable. Five percent is not at all bad when one looks at the long-term historical record. I am concerned about the inflationary psychology in the market today. You made reference to the Wall Street Journal today. I'd like to make reference to the lead article on the front page as to the inflation outlook, particularly seen by various parts of the government forecasting fraternity. The general thought is that we will have at least 6 percent, if not a bit higher, going into 1978. I'd also like to allude to what I thought was a very important comment that you made in your testimony on monetary policy, to the effect that, while we have reduced growth ranges in the aggregates moderately, in a slow way, the actual growth rates have in fact gone up somewhat. And unless we begin to take action here to play this game a different kind of way, I expect we will see a continuation of that. My own feeling, as one objective we ought to have, is to try to diminish inflationary expectations and also prevent long-term rates from rising significantly, even if have to have a further increase in short-term rates. I'm still concerned with the longevity of the current expansion and the extent to which a healthy pace of business capital spending; a healthy pace of capital spending by state and local governments; and a good, ongoing rate of housing construction [will continue]--all of which have somewhat tempered long-term rates. In the sense that we can keep long-term rates from rising based on inflationary expectations, I think we will have made a real contribution to stretching out this expansion. Getting down to what might be an appropriate thing to do at the moment, I think there's already been an upset, and I share the concern about overshooting our targets, whether it's over the past year or the present quarter. And as I look back on the record, I think we do have something of a history of overshooting targets materially when interest rates are rising because of a natural and understandable reluctance to push up the funds rate in the short run in small, prompt bites to keep the aggregates within our ranges. And as a result, the aggregates move up by an even bigger amount over a longer range. So in terms of the choices facing us today, I recommend starting off the aggregates with the range in alternative C, although I would certainly accept your proposal [to] consider a lower limit on M1 and M2 than [is in] alternative C. As far as the federal funds rate is concerned, I would not go as far as the alternative [C] proposal, which was 6-1/4 to 6-3/4, but I would come out, I think, for the proposed range of 5-3/4 to 6-3/4, centered on 6-1/4, not with a thought that we move up there immediately, but move up there gradually until there is solid evidence that we in fact are getting these aggregates under control. The danger continues to be an outcome which would not offset the surges in April and again in July and thus end up for a longer period outside of our ranges both on M1 and M2, which we have been over the past year and the past quarter. With regard to the discount rate, I am on the side of those that think a good solid case can be made for action, and I would prefer to see it done sooner rather than later, like this coming Thursday--that's when I would have to make recommendations on [it]. I think closing the gap partway between the funds rate and discount rate would certainly be an appropriate signal to the market that we are going to reinforce the actions we've taken in the open market with actions at the discount window to give some public signal of our attempt to keep the aggregates in the target ranges--not overshooting. I think the timing is quite crucial now because we are in a little interlude here when we just had a settlement date yesterday, as I understand it, for the recent Treasury financing, and it won't be too long in the future before we get another Treasury financing. So this would be a good time to move. As to whether it ought to be 1/4 or 1/2 [point], I'm still kind of debating that point, but I could go with either one.",949
-fomc-corpus,1977,"Very good. Thank you, Mr. Balles. Mr. Roos now, please.",19
-fomc-corpus,1977,"Mr. Chairman, I would subscribe almost verbatim to the rationale expressed by John Balles, and specifically I would prefer an M1 range of 0 to 4 percent growth; M2, 4 to 8; and fed funds range, broaden to 5-3/4 to 6-3/4. I think that anyone who views the inflationary trend as just a temporary monetary shock or something that's been very short lived--on page 5 of the Bluebook, it shows us that, for several years, there has been a continuing trend toward an acceleration of growth of the monetary aggregates: past 12 months, M1, 7.1; past 6 months, 8.3; past month, 18.3. That is certainly a disturbing trend, and I am very fearful that it isn't going to be long until people who watch these things will feel that they have reason to expect a return of severe inflationary tendencies as a result of the growth of the aggregates. So I lean toward the greatest degree of restraint possible, even if it means an increase in interest rates. In terms of the discount rate, I would subscribe to a 1/2 point increase just as quickly as it could be done.",254
-fomc-corpus,1977,"Thank you, Mr. Roos. Mr. Jackson now, please.",15
-fomc-corpus,1977,"I think the issue of rates of growth for our economy for the next six months or year are pretty clear. I think the recent rates of growth we have had are unsustainable. At the same time, I think that, unfortunately, we've overlooked the result that our rates of unemployment are still unacceptable politically or socially. And it's going to take rates of [economic] growth above 4 percent to make any net change in that percentage of unemployment, particularly given the prospects for the rates of growth in the labor force. So I think the target is rather clearly before us all, that rates above 4 percent are going to be the objective, whether they are achieved or not. Now what are the most likely [circumstances] that would cause us to fail to reach that objective? I think the most likely cause of failure, given the rest of the economy, is a collapse of sentiment and optimism on the part of our society. And there again, I think the most likely cause of such a collapse would be inflation and its ramifications, or the expectation of it. Now that sounds very simplistic to say, but I think it equates to our purposes because, unfortunately, many of our people have become four o'clock Thursday disciples. And we have a large number of people in this country--particularly those that make decisions for plant and equipment expansion and those aspects of this economy that we are required to see expand to reach our expectations--we see many of these people have become mechanical monetarists by watching money supplies, and things like that, in a very superficial way. I don't think they understand it, but they look at it. And sometimes people react based on what they see rather than what they expect. For that reason, I do think that we are going to have to be alert to significant deviations from our long-term targets in monetary aggregates more than underlying circumstances would have otherwise reasonably dictated. And I think that that will be the best tool that we can utilize to assure the type of expansion in our society that would be socially, politically acceptable to us and to the rest of the world. And when it comes to equate that right now to current action, I would advocate that we would have a 0 to 6 M1, a 3 to 8 M2. I don't share Governor Partee's judgment that going to a money market directive is appropriate at this time, with this wide range. Meaning [that the monetary aggregates directive] accomplishes the same result but clearly provides for the alternative that, if we do get continued sustained growth in monetary aggregates over the 30 days ahead of us--and we're two weeks into it now--then we would not hesitate to go ahead and move even within that range. As to the federal funds rate, I would personally favor the skewed situation of 5-3/4 to 6-1/2, using the 6 percent [as midpoint]. I do think that, given what we know for the first two weeks, and given this type of broad sentiment of the Committee for accepting the lower rate of growth, going below 5-3/4 would probably be a mistake. At the same time, if we do see strong expansion in the money supply even within the next 30 days, I think the most constructive thing this group could do for the sustained confidence of our people to go forward with our economy would be 6-1/2, if that's what it takes. And so I would be prepared to do it.",705
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Gardner now, please.",14
-fomc-corpus,1977,"We're running late. I will try not to be long. I was not around here when you got your reports of an 18 percent growth in M1. I was quite surprised when I heard about it. And it bothers me because it is an out-of-phase blip. We've spent a lot of time trying to explain our April surge, but we can't find many good reasons for the July surge, and that makes me a little uncomfortable. I think you took the right course. I think your telephonic meeting was proper; I'm glad to see that you climbed that next ridge. I would also say that, without that 18 percent change, the sensitivity that many of you have expressed about the economy ahead and the reasonable satisfaction that our growth rate, though declining, will be all right, are two points in some conflict. Therefore I come to the conclusion that the alternative B is a good idea, that the lower limit could be 0 on M1 and 3 on M2, and that the federal funds rate might well be 5-3/4 to 6-1/2. But I want to point out that--Governor Partee said it first--if you've got a 5 percent upper limit on M1, you are probably going to be very, very quickly faced with going to the 6-1/2 federal funds rate. So that's why I prefer the 0 to 6 [on M1]. I think the skewed [federal funds] rate makes pretty good sense, because the Desk has only 25 basis points to deal with at the moment, starting from where we are today in the range that's listed in alternative B. So in substance, what worries me most is the July surge, and I haven't yet grappled enough with the new math to understand or allay my fears. So I would follow that course. And as to the directive, I think the aggregates directive would be probably a better solution.",395
-fomc-corpus,1977,"Thank you, Mr. Gardner. We still haven't heard from Mr. Mayo.",16
-fomc-corpus,1977,"Mr. Chairman, first a vote of enthusiastic support for the new concept of transaction M1, M1.5, or whatever we want to give it as a nickname. I would hope that this is the beginning of a serious effort of this Committee to study carefully the implications of a reconstructed [M1] that would indeed lead to a redefinition. Perhaps it would be a redefinition for range-setting purposes in your congressional testimony. Having said that, my arguments for my position have already been stated. I will merely state the conclusions. [For the federal funds rate], 5-3/4 to 6-1/2; I agree with what Steve just said. And I guess, come to think of it, I agree of what he just said on M1 and M2--0 to 6 and 3 to 9. I would not like to see us make changes triggered by about a 5 percent increase in M1. I think that would be unfortunate. I believe in the asymmetrical philosophy on the federal funds rate of 6 percent being the center. I feel we should have a monetary aggregates directive here because I am ready to see a little more increase in fed funds, and I think the intention is properly focused on the behavior of the aggregates right how. Some of that focus is out of my control, but I think much of it is there. I want to give a word of support to Phil Coldwell's statement on reserve requirements. For the factor that you do mention, I would reserve judgment until friends under the dome at the other end of Pennsylvania Avenue go home for vacation. Regardless of what happens to legislative proposals, [and] unless I'm wrong in my estimate of when the seasonal demand is over, I think we will still have time to take some action, and it will be less controversial. And appropriate. I would do the discount rate change immediately. I think it would be essentially a confirming action. I think Roger has put it very well in his statement. If we wait more than past the end of this week, I think it would be misinterpreted as somehow a sign of further tightening rather than a confirming action. My recommendation to my board a week ago was a quarter [point]. I have seen what has happened in the interim. I expect if this were to come up again this week, my recommendation would be a half [point]. But I think doing it immediately is more important than whether it is a quarter or a half.",502
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Lilly now, please.",14
-fomc-corpus,1977,"While I was very interested in your new M1, I only wish that you had included in there the nondeposit source of funds, which I think really belong in M1. That's where all the corporate treasurers are squirreling away money today that they have raised from long-term borrowings, and it's overnight money--it's a great deal more ready to be spent than savings accounts. As far as the program presented is concerned, I favor, not terribly strongly, the 0 to 5 [for M1], the 3 to 8 [for M2], and a 5-3/4 to 6-1/4 [federal funds rate] with the money market directive. The reason for that--I think 157 basis points since April and 62 basis points [in] July deserves some stopping and waiting.",172
-fomc-corpus,1977,"Thank you very much. Mr. Van Nice, please.",12
-fomc-corpus,1977,"Mr. Chairman, I think at this point of the meeting, anything that I would have to say is going to be quite redundant. It's all been said. I came here prepared to report alternative C across the board, both aggregates and the funds rate, so we can give confidence for reasons that have already been stated--namely to get back on target. My confidence has been shaken a little bit by several developments that have come up here. First of all, the hypothetical new M1 is somewhat comforting to me at least in the last three months. Secondly, the suggestion that the downward shift in money demand is perhaps [attenuated] if not actually stopped. The third concern is that it seems that either our seasonal adjustments are wrong or every three months, by happenstance, we get a bulge in the M1 money supply. And fourth, there seems to be some doubt as to the virtue of consistency between the federal funds rate and the monetary aggregates. Nevertheless, I still vote for alternative C, although I would be willing to see the lower [limits] of both monetary ranges, M1 and M2, lowered somewhat. And in line with Mr. Kimbrel's suggestion, I think that I would like to see the federal funds range widened somewhat, perhaps dropped as low as 5-3/4, with an upper end of 6-3/4. On the discount rate, if Mark Willes were here, I know he would recommend at least a 1/4 percent[age point] increase. I think that he might go along with a 1/2 percent[age point] increase at this time. As has been said, the market is already adjusted to the expected increase. On the economy, we are somewhat more optimistic in the Ninth District than is the staff. And--although as an old discount officer I strongly dispute the idea that we change our criteria according to the phase of the business cycle--I must admit that it's a good deal easier to administer the discount window when the discount rate is close to the fed funds rate. And in order to discourage the temptation for arbitrage, I would be in favor of raising the discount rate at least 1/4 percent[age point], perhaps 1/2 percent[age point], and I would do it immediately.",468
-fomc-corpus,1977,"Well, I appreciate, really, what you say about the discount rate, but let me remind you that the discount rate went to 8 percent in 1974 at a time when the prime rate was 12, and the commercial paper rate 12-1/2, and the federal funds rate a little higher than 13. Let me remind you that the 8 percent discount rate was the highest in our nation's history. Let me remind you that the next highest, if my memory is correct, occurred in 1920, when Governor Harding was the head of the Federal Reserve System. Let me remind you, finally, that he lost his head soon after the rate moved to 7 percent. Now this is just a recital of some more or less connected historical facts.",157
-fomc-corpus,1977,Are you speaking of 12 heads? May we remind you that Chairman Burns didn't lose his head when it went to 8 percent.,27
-fomc-corpus,1977,"Well, the discount rate is a headache. Some central banks have tried to get rid of that headache by adjusting the discount rate mechanically to market interest rates. We debated that, and we have felt on balance that we would be giving up an instrument of policy that is useful at certain times. Gentlemen, we have to reach a decision. The discussion that we have had today ought to make all of us feel humble with regard to the task before us. There are differences among us. They are not really very large. No one of us can justly claim that he's glimpsed more than a part of the truth. And no one of us can claim that he's glimpsed more than a part of the future. There is a considerable sentiment for a 0 to 5 or 0 to 6 percent rate of growth for M1. There is a preponderance of sentiment in favor of a 3 to 8 range, I think, for M2. As for the federal funds rate, there is an equal division within the Committee between a range of 5-3/4 and 6-1/4 and 5-3/4 and 6-1/2. I would advise the [Committee] that we not go above 6-1/4 at this time, and if the rate of growth of the money supply comes in at the high end, I think you have found that I'm not tardy in advising the Committee by telegram as to further action. We have made a significant move, as Governor Lilly summed up quite accurately and succinctly. The economy is not so obviously strong that a further move of 1/2 percent[age point] should be lightly contemplated or readily contemplated. I would advise that we stay with 5-3/4 to 6-1/4, bearing in mind that, if the rate of growth reaches the limits of our monetary aggregates target ranges, we can confer once again and decide if the sentiment of the Committee is to go higher.",408
-fomc-corpus,1977,"May I suggest, Mr. Chairman, that we use the 5-3/4 to 6-1/4 and then the 0 to 5 [for M1], [which has a] slightly lower midpoint [than 0 to 6], which I think would accomplish the two positions.",63
-fomc-corpus,1977,"It is consistent. Well, let me suggest, then, a 0 to 5 range for M1 and a 3 to 8 range for M2, and a 5-3/4 to 6-1/4 range for the federal funds rate. Now as to the directive, I think there is a narrow range [for federal funds, which] logically would suggest a money market directive. On the other hand, if we are willing to use that range, and I think that is the sentiment of the Committee, a monetary aggregates directive--in spite of the smallness of the range--would be indicated. And I sense, having listened to all of you, that that is probably the sentiment of majority of this Committee. Yes, Mr. Guffey.",159
-fomc-corpus,1977,"Mr. Chairman, does that mean that, if you go with the monetary aggregates [directive and] you get [M1] growth that is projected to be 2-1/2 [percent] or greater, then you are going to use that other 1/4 percent [of the federal funds rate]?",64
-fomc-corpus,1977,"You see, the difference between the two is that you move much more slowly to utilize the full range with a money market directive than with a monetary aggregates directive. Is that a correct explanation, Mr. Sternlight?",43
-fomc-corpus,1977,Correct.,2
-fomc-corpus,1977,"With the money market conditions directive, you would be projecting 5 [percent] plus [in the growth of M1] before you would actually start making a move from the 6 [percent federal funds rate] under this prescription. Is that correct? That is the appropriate--",56
-fomc-corpus,1977,I think you'd want to be projecting 5 before--,11
-fomc-corpus,1977,"In other words, [reaching M1 growth] in the upper range before you would start making a move, and that's what I would prefer. If you are going to do it the other way, and that is, if you are projecting say 3 or 3-1/2 you start making a move towards your 6-1/4, I don't think I'd go along...",80
-fomc-corpus,1977,"I think its 3-1/2; [that is], 1-1/2 to 3-1/2 would be a zone of indifference, [and at] 3-1/2 to 5 you would begin to move.",54
-fomc-corpus,1977,I would think so.,5
-fomc-corpus,1977,"I would appreciate clarification--if you widen the ranges for the Ms by dropping the bottom, are we to consider them again to have symmetric midpoints or asymmetric midpoints? It would make a bit of difference in the rapidity with which we move.",50
-fomc-corpus,1977,Why not take the symmetrical midpoints?,8
-fomc-corpus,1977,"That's what I think. I would use the money market directive, Mr. Chairman. Because we are taking aggregates that are deliberately low in their range compared with what our staff is projecting.",37
-fomc-corpus,1977,"The logic says--in the box we are in with all this precedence--I think the money market directive expresses the intent of Roger and myself, I guess, even though I don't like its cosmetics. I'd rather have a sluggishly behaved aggregates directive.",50
-fomc-corpus,1977,"Gentlemen, let's have a show of hands. Those who would prefer a money market directive.",20
-fomc-corpus,1977,"Five, Mr. Chairman.",6
-fomc-corpus,1977,Those who would prefer a monetary aggregates directive.,9
-fomc-corpus,1977,"Six, Mr. Chairman.",6
-fomc-corpus,1977,"Well, gentlemen, if I may, I would suggest we vote on the following: a monetary aggregates directive; an M1 growth range of 0 to 5; an M2 growth range of 3 to 8; and a federal funds rate range of 5-3/4 to 6-1/4, with the understanding that if we get into a high growth rate area, that the Chairman, as I believe he has done consistently, will continue to do his duty. Any--",102
-fomc-corpus,1977,Do you define this to mean above 5 percent for M1?,14
-fomc-corpus,1977,"Well, I don't want to be that precise, because the figures are never that precise, you see, but I don't think I have been tardy with any frequency at either end. And I don't want to be tied down any more rigidly, or have the Desk tied down to the tenth of a decimal.",63
-fomc-corpus,1977,"I would prefer 6-1/2 [percent for the upper limit of the federal funds rate], Mr. Chairman. My count of the Committee would indicate that there was a majority in favor of that, but I guess you will find that out in a little bit.",55
-fomc-corpus,1977,"Well let me, let me. I don't think really we ought to be getting into the habit of dissenting on minutiae. I don't think it serves a constructive purpose. Let me have a show of hands, that is to say, I thought that the adjustment from 0 to 5 [for M1] was designed to accomplish what 5-3/4 to 6-1/2 [for the federal funds rate] would accomplish. I'm willing to continue this discussion, but I would counsel my colleagues to dissent only on matters of principle and not on minutiae. I don't think it helps.",124
-fomc-corpus,1977,"I expressed a preference for 5-3/4 to 6-1/2, but I am perfectly satisfied with where we are, Mr. Chairman.",33
-fomc-corpus,1977,"My 6-1/2 was related to the 0 to 6, and I'm willing to go back [to] 6-1/4 at 0 to 5.",39
-fomc-corpus,1977,So was mine.,4
-fomc-corpus,1977,"Would you want me to test sentiment any further, or--apparently not, so let's call the roll.",22
-fomc-corpus,1977,"Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Unanimous, Mr. Chairman.",53
-fomc-corpus,1977,"Well now, we will finally break for luncheon, and then we have an--yes, we have to decide--let me find out about members of the Committee. Any of you have to get away very early? Would 2:30 leave us enough room for luncheon, or would you prefer 2:45?",64
-fomc-corpus,1977,"If we say 2:30, we will start at 2:45.",17
-fomc-corpus,1977,We will reassemble at 2:30 then. [Lunch recess] [Executive session],19
-fomc-corpus,1977,"Gentlemen, this is a meeting of the Committee in executive session. And we have a Freedom of Information [Act] [FOIA] item which Mr. O'Connell will describe to the Committee. Actually, he has prepared a memorandum which sets forth the facts, I think, quite fully. But I will call on Mr. O'Connell to summarize the question that is before us and give us his own best thought on the subject from a legal point of view, certainly. And any policy guidance that Mr. O'Connell may wish to give us would also be proper. Do you want to proceed Tom?",125
-fomc-corpus,1977,"Thank you, Mr. Chairman. The Chairman has put his finger on a very critical point, namely that I believe there is at stake here a policy question that will be discussed by you as members of the Committee. The legal issue can be framed very simply. The memorandum sets forth the occurrence that has brought the matter to the table today, namely, a request under the Freedom of Information Act by an editor of the New York Times seeking access to the Committee's 1972 Memoranda of Discussion. The request was initially denied, pursuant to the rules of the Committee, by the Secretary during the appeal period. An appeal was filed by Mr. Herbers. That appeal was answered by Mr. Coldwell as the alternate for this purpose under the Committee's rules. His letter, as indicated in the attachment to the memorandum, came very close to a denial, and in a sense, of course, it was a denial, but [it] was couched in such words as to offer to Mr. Herbers the possibility that, having been advised of the Chairman's direction, this matter [would] be brought before the Committee. The Committee would give further consideration, looking for some possible altering of action to that reflected in the denial letter. That's the purpose of its being here today. The issue is access under FOIA to the Memorandum of Discussion. The alternatives presented in [my] memorandum are quite straightforward. They are four in number, the fourth having an extension to it that I think bears some note. The first of these, as presented in the memo, indicates access to the world at large. It would constitute the Committee's action in releasing the '72 Memoranda of Discussion in a published form so that all media, all public, have simultaneous access, subject to deletions that would be made for sensitive foreign entries. This would, of course, offer the benefit that it wouldn't appear that we were favoring one arm or one single element of the media such as the New York Times. The second alternative would be to give reading, or physical, access to the New York Times for whatever purpose they have in mind but not make a public release. The point I made earlier--this would be subject to the criticism that we have apparently favored one element of the media over another. But it also has the benefit that there wouldn't be wide publication of the fact that we had released the Memorandum [of Discussion] earlier than our standard five years. You know, the Committee has administered a rule of a five-year lag before release [of] the Memorandum. The third alternative is probably the most generous--to use the term--of the alternatives, namely, the Committee could decide to release the 1972 Memoranda as well as all others now being held. That would be up through 1975 in collected form, and, as the Committee knows, there are three further Memoranda--the first three months of 1976--that have yet to be put in final release form, or a form as the other memos, but [that] could be done; all of those could be released prematurely of the five-year period, if the Committee [so] decided. This has the advantage, from a regulatory point of view, that it would obviate repeated demands for one year or another of the Memoranda. It has the disadvantage, of course, that, subject to the Committee's judgment, the closer you get to 1975 and '76, you are perhaps releasing entries, deliberations, and discussions of the Committee of a highly sensitive nature, causing the problem that gave rise to the five-year lag in the first place. My mentioning the five-year lag and the problems connected with it are not to be read as an argument for or against the five-year lag. I'm merely making factual observations that I think are of service to the Committee in its consideration of the matter. With respect to alternative four, I note that there is an extension of that, and it's an extension of thought. If the Committee were, under alternative four, to decline to give any more than Governor Coldwell's letter now gives, namely, a denial of access at this time, and affirm that action, we could assume perhaps that Mr. Herbers would--his principal, the New York Times, would--litigate the matter, as [it] has a right to do under the Freedom of Information Act. At this time we have no evidence that such would take place. There is a suggestion, as a matter of fact, from conversations with Mr. Herbers, that they have no intention of suing, but the world being what it is, it's possible that an affirmation of denial by the Committee might trigger a contrary view. If litigation were instituted under the Freedom of Information Act, the Committee has 30 days within which to respond to any complaint filed--to reply or otherwise plead. In that period, it is suggested in [my] memorandum that the Committee could have the issue involved again brought to its attention. If the Committee, to avoid further litigation, wished to alter its position then taken, there would be time, I believe, to proffer the Memoranda in question to the requesting party with a simultaneous suggestion that the lawsuit be dismissed and the entire matter compromised. This is, as I say, an extension of the denial. We could anticipate this might take place. Mr. Chairman, those are the alternatives. You will note, I believe, [that] my memorandum doesn't come down on a legal recommendation, simply because I believe it is a policy consideration. I've pointed out the pros and cons of each in the memorandum, and I'd be glad to respond. I should say that Mr. Siciliano, from the Legal Division, whose name appears on the memorandum, works with the Freedom of Information Act and is present with your proper permission for purposes of this discussion. I think that's all I have at this time, Mr. Chairman.",1198
-fomc-corpus,1977,"Thank you, Mr. O'Connell. I think before we start discussing the question, I want to make a few general comments. First of all, you may be interested in knowing that during the markup of the recent Federal Reserve Reform Act by the House Banking Committee, a suggestion was made by Congressman Hannaford to the effect that we return to the Memorandum of Discussion, which we had abandoned, and that a statute be adopted by the Congress which would protect this Committee from access to such a document or such Memoranda under the Freedom of Information Act. In other words, the statute or statutes would require that we return to the Memorandum of Discussion, that we release it after an interval of five years, and that this power be ours, all other statutes to the contrary notwithstanding. Now, I wasn't present at the time of the markup. This was a new proposal. It had not been discussed previously among members of the [House] committee or with us, and the committee decided to postpone deliberations of it until members of the committee had had an opportunity to learn the Federal Reserve's view and crystallize their own thinking. I thought you ought to know about that, and I do not mean to suggest that we discuss this now. It isn't necessary to discuss it now. On the contrary, my suggestion is that we definitely not discuss it now. But I do [think] that it is [an] interesting proposal. If we had had the feeling of protection that we could go along as we had, we would not have, as a Committee, abandoned the Memorandum of Discussion. We did it only as a reaction to the judicial proceeding that has been started. So I think, before too long, we ought to discuss the Hannaford proposal. My second suggestion to the Committee would be that we deal exclusively today with the New York Times proposal and not get into the question [of] whether there should be a release of Committee deliberations in years other than 1972; that we confine our discussion to the year 1972. In making that suggestion, I realize perfectly well that what we decide to do with regard to 1972 may have some implications to some degree with regard to later years. But I'm trying to be practical, and that is, I think that if we try to discuss not only the release of 1972 Memoranda, but also the Memoranda for later years, I think we'll have a very long and drawn-out discussion, and perhaps we want to do a little more deliberating. And we could return to that a month from now if the Committee so desires. But my suggestion would be that we confine ourselves to the request of the New York Times which relates solely to 1972. Now I want to make two additional comments with regard to the request of the New York Times. I think we should recognize very explicitly that the five-year rule which the Committee adopted was not adopted in a moment of whim. It was not adopted capriciously. The rule may or may not be a good rule. It may or may not have been a good rule at the time it was adopted. It may or may not be a good rule today. But it was a rule adopted after thorough deliberation on the part of this Committee. That's point one, to keep carefully in mind. Second, the rules adopted by this Committee are not adopted for all time. These rules are subject to change. But in considering a change in the rule, I think we ought to recognize very explicitly that a political dimension attaches to the request by the New York Times. And unless we recognize that and try to think clearly about that, we may not reach the sort of decision to which we always aspire, namely, a decision that is impartial, that is objective, that is not subject to political use or political abuse. That's all I want to say on the subject at this time. And I probably will have more to say later on. But now, perhaps, before we turn to a discussion, it might be desirable to put questions to Mr. O'Connell or possibly to me in so far as I'm capable of dealing with them. Mr. Kimbrel, you had a question, I believe.",851
-fomc-corpus,1977,"Simply, Mr. Chairman, to the background environment in which this question comes. Is it one of openness and fairness or is it with some ulterior motive, or do you detect any--I guess a reading of the background from which it springs.",49
-fomc-corpus,1977,"Well, there is very little uncertainty about that. The request came originally--Joe, do you want to recite the history of that request, and then what the New York Times fellow did?",39
-fomc-corpus,1977,"The request originally came from the New York financial desk. The editors there thought it would be a good idea to find out what the status of the 1972 minutes was. He had in mind the article [that] appeared in Fortune. So he asked the Washington bureau [of the New York Times]--that simple--to find out what the status of the minutes was. The reporter that was assigned to it was Bob Hershey. He drafted the letter; first he called us to find out what the procedures were. We told him what the procedure was, so he drafted the letter, which this gentlemen, Herbers, signed only because of his position as an editor at the Washington bureau. The response went back. The request was denied originally. Hershey happened to be on vacation at the time, and when he returned, he found the denial there. He, at the time, was getting ready to transfer to London, where he is now. He was under pressure to do some kind of a column for the Times; this last week he happened to run into [former Federal Reserve] Governor Holland at church one Sunday and asked him about it, and then filed his appeal. He subsequently wrote a column on the subject, which did appear in the Times about a month or so ago, early July, and the Times seemed up to this point to have lost interest ever since that story appeared. But as Mr. O'Connell pointed out, although they indicated to me that they didn't want to pursue it any further, anything that happens could affect their decision. So it seemed to be just a perfectly legitimate inquiry which was satisfied.",328
-fomc-corpus,1977,Ball is in their court?,6
-fomc-corpus,1977,Not at the moment. I think that Governor Coldwell's letter has possibly held everything in abeyance.,22
-fomc-corpus,1977,"May I say from a perfectly legal point of view, it is in their court. They could move into court, reading that letter, if they wished, as a denial. I think it was couched so they would defer action, I think, awaiting further word from this Committee.",57
-fomc-corpus,1977,"But if it is a dead issue, if they have no desire to revive it, is there anything that is scheduled to happen, or is it in their court--if they decide not to pursue the matter, will it just die?",47
-fomc-corpus,1977,"Well, if I may, Mr. Chairman, I'd suggest [that] the language of the second denial, or the appeal denial, would constitute a ground for them, reasonably anticipating some further word perhaps from the Committee. It's quite possible it would die if another word was never said. But I think the language of that letter suggests that this Committee would be deliberating it further.",76
-fomc-corpus,1977,"I'd like to make a comment, Mr. Chairman, since I guess I'm the one who kind of moved this toward the Committee. When this was raised as to a question of denial, I had qualms about denying [release of] a five-year old document. But I didn't [see] that I had the authority to overrule the Committee's decision of a five-year rule. I talked to the Chairman and with Tom about it rather extensively, and then we drafted a letter of denial, and if I understand correctly, Mr. Siciliano, you talked with the Justice Department about the denial position.",121
-fomc-corpus,1977,That is correct.,4
-fomc-corpus,1977,And I wonder if you would mind acquainting the rest of the Committee with what Justice said to you.,21
-fomc-corpus,1977,"The reason that we speak to the Justice Department is that there is a regulation under which the Department [of Justice] indicates that it will not defend an agency under a Freedom of Information Act suit unless, prior to [the agency's] taking final action, [the Department] has been consulted with respect to the agency action. I called the appropriate individuals in the Justice Department before the final documents were presented to Governor Coldwell about continuing the denial recommendation. He basically indicated that while he agrees with our position that at least substantially all of the Memoranda are technically exempt under the Act, he feels that the Department cannot go along with the denial because denial would be inconsistent with the Department policy which dictates that an agency should release information unless disclosure would be harmful to some legitimate interest protected by the act. The Justice Department's view is that since the documents are approximately five years old, that no substantial harm would result [from] disclosure.",185
-fomc-corpus,1977,"Well, this comment from Justice reinforced my hesitancy about a flat denial, and I suggested to the Chairman that we might want to raise this matter with the Committee because, at least interpreting Justice's position, it would seem that they're viewing a flat denial as being somewhat arbitrary in this five-year lag period.",62
-fomc-corpus,1977,"May I say, Mr. Chairman, that the consequence of an adverse position by the Department doesn't impact on the Committee's legal status to proceed exactly as the letter indicates. It merely means that the Department would not appear as our counsel should a suit be brought, at least if they kept their position as now stated. The Committee would have its own representation by counsel, and we would go forth with the defense if that suit was brought here.",88
-fomc-corpus,1977,But the fact would be well apparent in court that Justice was not there to defend us.,18
-fomc-corpus,1977,Oh yes.,3
-fomc-corpus,1977,"Tom, when was the five-year rule adopted?",10
-fomc-corpus,1977,"Governor, I'd have to defer perhaps to Mr. Altmann. I'm not sure when this was.",20
-fomc-corpus,1977,1970 [maybe].,5
-fomc-corpus,1977,"It was, I believe, in the early '70s, but I'm not sure of the exact date.",22
-fomc-corpus,1977,Very close to that anyway.,6
-fomc-corpus,1977,I don't know the answer.,6
-fomc-corpus,1977,I can find that out.,6
-fomc-corpus,1977,"Well, we don't need to find out. I mean it's been adopted some years ago.",18
-fomc-corpus,1977,Some years ago.,4
-fomc-corpus,1977,"Prior to the five-year rule, what was the Board's procedure?",14
-fomc-corpus,1977,"Well, I think what we did was put out a number of them at one time.",18
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,"And it had been a six-year lag, but that made it a five-year lag. And that they've communicated with you sensibly on the various things that could be deleted and so [forth].",39
-fomc-corpus,1977,"I just would have guessed that it went back still earlier, that maybe it was just a change--six years to five.",25
-fomc-corpus,1977,"I thought so. I would have guessed '67, [because] they could be released to '62, I think.",25
-fomc-corpus,1977,I would have guessed that it was done before 1970.,13
-fomc-corpus,1977,"Mr. Chairman, just a procedural question. Does this become moot as of January 1, 1978--do we release all of the '72 minutes?",33
-fomc-corpus,1977,Under the present schedule.,5
-fomc-corpus,1977,"In other words, the December minutes of 1972, they're only really four years old, is that correct?",23
-fomc-corpus,1977,"The December of '72 are less than five [years old], but the difference between now--yes, about 4-1/2.",29
-fomc-corpus,1977,It would be exactly five by then.,8
-fomc-corpus,1977,"Then it will. As of this date, it's short of five, the December.",17
-fomc-corpus,1977,"As of right now, seven months of minutes are five years old.",14
-fomc-corpus,1977,That's correct.,3
-fomc-corpus,1977,"If you get technical about this, what is the Committee's policy? Does it say generally after five years, or does it say January after?",29
-fomc-corpus,1977,"To the best of my knowledge, we've done it on a strictly uniform basis.",16
-fomc-corpus,1977,We've always done it in January.,7
-fomc-corpus,1977,To the best of my knowledge.,7
-fomc-corpus,1977,Shortly after the next coming year.,8
-fomc-corpus,1977,The Chairman is correct. It's been done on a collected basis. The entire year's Memoranda have been gathered together--[with] the procedural aspect taking about a month--[the entire year is] thus [released in] January of the succeeding year following the five-year period.,56
-fomc-corpus,1977,Then the January minutes of 1972 are 5-1/2 years old now?,19
-fomc-corpus,1977,"By calendar date, that's correct.",7
-fomc-corpus,1977,Is it not possible then to release part of the 1972 minutes and still comply with the five-year lag?,23
-fomc-corpus,1977,"The rule is not merely the language of the rule, but how the rule has been observed in practice for a good many years now. I think that's a fair interpretation.",34
-fomc-corpus,1977,"Mr. Chairman, I guess that was pretty much the thrust of my original question. Is our relationship in this such that these people are just eager beaver to have them August 15, or are they willing to sit down and counsel a little bit with Mr. Coyne and wait for January or something--could ease off---or is there some real point they're trying to make. I guess what I'm saying is, if we want to maintain our orderly process of releasing them in January and that means something to us, can we sit down with them and say, ""Well, you're going to get them in January--can you wait?""",128
-fomc-corpus,1977,"I could be wrong, but I don't think the Times will take any further action.",17
-fomc-corpus,1977,That's what I guess I would--,7
-fomc-corpus,1977,Not likely.,3
-fomc-corpus,1977,The letter said they'll get them in January.,9
-fomc-corpus,1977,"Mr. Chairman, the ball, then, is in their court. Governor Coldwell said that he didn't have the authority unilaterally to take action without submitting it to this Committee. But does anyone know that this Committee is presently discussing this or that action is being taken? Does the New York Times know this?",64
-fomc-corpus,1977,"The last paragraph of my letter says that--""However, in light of the possibility that the Committee decision on the question of near-term release, the requested Memoranda . . .""",36
-fomc-corpus,1977,I think that Mr. Coldwell's letter must be followed up by another letter which will indicate this Committee's decision on the request.,27
-fomc-corpus,1977,"Mr. Broida discussed this matter with me when he first denied the request. The reason is, I'm another alternate for a Freedom of Information [Act] appeal. I formed an opinion at that time, a very firm opinion--after Roger discussing months, whether May [is] five years, or up from May, or for April--and the more I thought about it, the more I became convinced in my own mind that this Committee met as a body in 1972 with a general understanding that their Memoranda of Discussion would not be released and that therefore did not anticipate either the Freedom of Information Act or that the Memoranda of Discussion would be brought forward to be used for whatever purpose by media and otherwise except on a standard basis. And I think it's a disservice to the Committee, and I don't know how many of us were on that Committee. I know I wasn't in 1972. And I believe it's a disservice to that Committee to change our rule, and accordingly I'm going to vote for alternative four, Mr. O'Connell, if that's the one that you think I'm talking about.",225
-fomc-corpus,1977,"May I raise the procedural issue of the need for a formal vote? I think that a lack of a vote, or rather a consensus, might avoid an entry of an action vote on this matter, etcetera. Mr. Chairman, I'll defer to you on that.",54
-fomc-corpus,1977,"I think that Mr. O'Connell's legal opinion is perfect. I think it's a wise pronouncement, and I think we ought to strive for a consensus rather than engage in formal voting on this issue.",42
-fomc-corpus,1977,"I have to take the opposite side from Steve. I feel very strongly that we are making a great deal out of nothing. There's nothing in the Memoranda, as I understand it, that is damaging to anybody; it's all old history. And [denial] just [attributes to] us the same attitude that we're accused of--being overly secretive for no real purpose. I would be very much in favor of giving permission. We're going to look very strange in court without the Justice Department representing us.",102
-fomc-corpus,1977,"As I understand Mr. O'Connell, he's indicated that if we do deny the request by the New York Times and if the New York Times should proceed to take judicial action, something that is quite uncertain at the present time, then at such a time we could reconsider. In other words, we might deny today. The New York Times might or might not go forward with a lawsuit. The informal indications are that there will be no lawsuit, but that may turn out to be a--",98
-fomc-corpus,1977,"Why wouldn't--in other words, if we're forced right up against it, we might yield.",19
-fomc-corpus,1977,Out of court.,4
-fomc-corpus,1977,Out of court. But why do we take that position? What is there damaging about releasing this now?,21
-fomc-corpus,1977,"Mr. Chairman, I think I see one thing that's damaging. I think on the basis of the memorandum that I read before I came to the meeting, I would have shared your position, but in light of this Hannaford amendment, it seems to me that if we voluntarily change our practice, that weakens our case for getting something like the Hannaford [proposal].",76
-fomc-corpus,1977,We have already changed our facts. We are defending a practice that we no longer follow.,18
-fomc-corpus,1977,"No, no we haven't changed the five-year rule.",11
-fomc-corpus,1977,"No, but we no longer keep this kind of Memorandum, we no longer do that.",19
-fomc-corpus,1977,"I know, but the Hannaford amendment provides us with an opportunity to return to the Memorandum of Discussion if we so wished.",27
-fomc-corpus,1977,"And under that amendment, Governor, as the Chairman has indicated, there would be a provision, we hope, that precludes a suit under FOIA or demand--",33
-fomc-corpus,1977,I don't understand the purpose of the Hannaford amendment other than that it would provide more detail for some future historian.,24
-fomc-corpus,1977,"Well that is the purpose, and it's a purpose that this Committee in the past regarded very favorably.",21
-fomc-corpus,1977,"Except, Mr. Chairman, I believe there's another element to the Hannaford amendment. That is that the minutes of the Committee will be made available promptly to the committee in Congress.",37
-fomc-corpus,1977,"Well, now, Mr. Hannaford has ideas in addition to the Memorandum. He not only has an idea with regard to the Memorandum of Discussion, he has all sorts of ideas, and undoubtedly, if we wanted to go forward with Mr. Hannaford's suggestion with regard to the Memorandum of Discussion, I think we might--I'd be surprised if we would not succeed in having him confine himself to that one suggestion. But that might or might not be the case. The fact that he has more than one idea merely means he's like the rest of us. He's got all kinds of ideas in his head.",128
-fomc-corpus,1977,"We're not sure, sir, that the Times is even still worrying about this. We had a terribly lengthy meeting this morning. Wouldn't we have every reason in the world to say that we didn't get around to any decision on this. I just wonder what purpose we serve by being so totally conscientious that we act on this and get right back to them, when they might have let the whole matter drop.",81
-fomc-corpus,1977,The letter says that this will be raised at the meeting today.,13
-fomc-corpus,1977,"May I suggest, Mr. Chairman, that between the two positions is the possibility that Joe Coyne might be directed, subject to the Committee's judgment, to informally be in touch with them and visit with Mr. Herbers to indicate that a discussion by the Committee indicated a consensus to affirm the action announced in the Governor's letter, and that perhaps some future discussion would bring about a different result, but that was the general consensus now. It might then reveal what the attitude of the New York Times is, which would impel some further action by the Committee, and might put it at rest. It's an interim suggestion, Mr. Chairman.",130
-fomc-corpus,1977,"I think that's a sound position, Mr. Chairman. I would also raise two points on the Hannaford amendment. First--just a political judgment, it probably isn't worth the price that you're paying for it--but such an amendment wouldn't get anywhere or would be twisted around in a way that a few of our friends in different parts of the Congress from Wisconsin have made it apparent that they were upset that we discontinued the Memorandum of Discussion and would like to have the names mentioned and so forth, particularly going back to five years for historical purposes. As we know, the people in question wrote to all of the, as far as I had heard, living ex-members of the Board of Governors and Bank Presidents to solicit their opinion on this subject, and as far as I know they failed to get any great resounding vote of confidence in the need for the Memorandum of Discussion. So, on both of those grounds, I feel that the Hannaford amendment discussion here may not be productive of something that would be helpful to this Committee. Therefore, I would lend complete support to what Tom and Governor Gardner have suggested. Quite apart from my personal feelings that, as to the merits of [alternative] one versus [alternative] three, we can discuss that some other time.",256
-fomc-corpus,1977,"May I ask a question? First, I believe you characterize this as being politically inspired--partisan politically inspired. I'm not sure I understand what you mean by that.",34
-fomc-corpus,1977,"I don't think there's much of a mystery about this New York Times request. And the political dimension to me is perfectly obvious. The fact that you raised the question means that it's not obvious to you, and the same may be true of other members of the Committee, and perhaps, therefore, I ought to say a word about that to make at least my own meaning clear. I believe that every now and then each of us reads one or another newspaper or listens to discussions over TV. And our journalists, our news commentators, finding a need to write or finding a need to talk, and there not being sufficient news on hand, have chosen to devote some of their energy to the question of whether the present Chairman of the Federal Reserve Board will or will not be reappointed by President Carter. So this question now and then is discussed by members of the press. That's point number one. Point number two, there has been some speculation on the part of some journalists, some members of the Congress, some members of our general citizenry to the effect that in 1972, the Federal Open Market Committee, having as its Chairman a certain individual, was inclined to do what it could to promote the reelection of a certain gentlemen [named] Richard M. Nixon as President. So the political dimension here is, I think quite obvious--to get hold of the Memorandum of Discussion, to go through it and see whether that Memorandum of Discussion validates or repudiates that speculation. That is a political dimension. That was made quite clear in the article that, what's the fellow's name, Hershey--",321
-fomc-corpus,1977,Hershey.,4
-fomc-corpus,1977,"--[that] this New York Times fellow wrote for the New York Times. The article proved to be a completed dud. But it might not have been. But the political dimension goes further. Let me speak in a purely personal vein, since the political dimension happens to apply to the Committee as a whole, but primarily to me personally. As far as I'm concerned personally, my cast of mind being what it is, I don't like to live with problems, I like to solve them, and to the extent that this is troublesome to anybody of suspicious--get the thing out, and there's nothing in that record that would concern me for one moment. Now, obviously any record can be interpreted one way or interpreted another way. Well, that's life, and that's the way books are read and articles are read. But, you see, continuing in a personal vein, if the Committee decided to release these 1972 minutes, [let me say] why, quite apart from other reasons, I think it shouldn't be done. This could be interpreted as an effort on the part of the Chairman of that Committee to have that document in the open so that Mr. Carter and his henchmen in the White House will see that the Chairman's record in 1972 was an honorable record. I don't have to prove my personal honor. Now, whether I'm interested in what Mr. Carter wants to do about the Chairmanship, and what the Chairman himself wants to see happen, are things that no one in this room knows anything about. And no one is going to know until the time comes. But I would hate to see personally any such actions by the Committee interpreted as an attempt by the Chairman to throw this document into the public arena so that everyone would see that he has honorable credentials. I'm not looking for that and I don't think it's a good thing for this Committee to lend itself to what is so obviously, at least to me, a half-hearted political effort on the part of this or that individual in the New York Times. Well, that's the political dimension as I see it.",418
-fomc-corpus,1977,"Given that--and I appreciate your explanation because I wasn't aware of all the details you mentioned--but given that, should we not then consider whether or not the possibility of releasing all of the unreleased Memoranda could diminish any allegations that that was the motivation that you mentioned. In lieu of just the one you mentioned was under public discussion, release all of them.",73
-fomc-corpus,1977,"Well, this is something the Committee may or may not want to do. I think it's something we ought to deliberate on very closely. I would hate to see this Committee really change its rules in the kind of political environment that exists. Now, let's assume for the moment that the present Chairman seeks reappointment. That's an assumption. Let's make that assumption. Let's assume, next, that President Carter is concerned about the record in 1972. That's quite an assumption. There is not one ounce of evidence to indicate that. President Carter, if he wanted access to the Memoranda for 1972, if such a request came, I'd say we ought to telephone members of the Committee immediately with my recommendation that the President of the United States should have access, of course he should. Now next, as far as the appointment of the next Chairman of the Federal Reserve is concerned, that is something that the President can do today, and that is something he may not do by February 1st. After all, he hasn't yet appointed the new director of the Federal Bureau of Investigation. And therefore, if the 1972 document were of interest to the President, let us say, and for the regular performance of his duties, he could have it immediately. Oh, and he'll certainly have it on January 1st.",265
-fomc-corpus,1977,"Mr. Chairman, may I make a comment. What you've been saying is quite interesting in a theoretical vein to me, but the reason I brought this, and asked you to bring it, to the Committee has not yet been touched. And that is that times have changed, and we now have a Freedom of Information [Act] which requires the appeals officer of this Committee, whoever he may be, to rule on whether a particular document should be made available to the public. His ruling is to be not capricious or arbitrary but is to be grounded on good reasons for withholding from the public. I find myself in difficulty establishing good reasons to withhold this document after 5-1/2 years, except for the sheer decision of the Committee, which I think was an arbitrary decision in the first place--it could have been three years, it could have been six years.",177
-fomc-corpus,1977,"But it was a decision not reached capriciously, and if that rule is going to be changed, the next question is whether we have the right political environment for changing that decision right now. And as for your decision, you made your decision, you turned it down, which was within your power, and you referred it to this Committee--or rather, I referred it to the Committee, not you, following your suggestion, which I thought was a very proper one.",95
-fomc-corpus,1977,"I would say, I also am concerned about the arbitrariness of this. But let me be pragmatic, which I think Larry was trying to be earlier. If we can avoid a court suit in which we have to defend the arbitrary five years, we can avoid it. I don't really care how we avoid it. And so, if a discussion with the New York Times should lead to an indication that they would press this, fine. If they want to press it in court, I think the Committee has a fair amount to lose because this is exceedingly arbitrary. There is no telling what might flow from it in terms of court decisions.",128
-fomc-corpus,1977,"I want to say, shouldn't we wait until we find out whether they're going to sue?",18
-fomc-corpus,1977,"Well, that's what I said, that's the pragmatic way.",12
-fomc-corpus,1977,"If there is reasonable doubt, let's find out first.",11
-fomc-corpus,1977,"Well, this is a kind of delicate negotiation. It seems to me the worst of all positions is to let them take it to court and then we cave. If they take it to court, it seems to me we probably ought to fight it and see what happens, because we don't want the key to the kingdom being taken in case to court.",70
-fomc-corpus,1977,"Why don't we do what Tom suggested, Mr. Chairman, and give Joe another shot at feeling them out, in effect. Seeing whether he can get any clear indication of whether or not they intend to take it to court before we make a decision in a vacuum.",53
-fomc-corpus,1977,"I think, more likely, that will inspire them to take it to court. Gentlemen, I want to make these points. When I considered this matter first with Mr. Broida, I did not consider it in the context of what the Chairman has just described. I thought about it a good deal. I want to also try to reinforce the point I made. Those of us who sit at this Board are fully experienced in the tyranny of a recorded meeting. And our meeting discussions are inhibited. Now during those FOMC meetings in '72, '73, '74, and '75, you had no such experience. You knew perhaps that your Memorandum of Discussion would be prepared and released five years later. We sit here with a green light. I don't see it this morning--it inhibits us as a Board of Governors. We're fully subject to the [Government in the] Sunshine [Act], and my experience with the discussions that take place--and I have not reviewed those five years of minutes that will eventually become available--lead me to believe that the proper course of action is not to do a disservice to those who sat on those Committees over those years and spoke their minds with only the condition that they knew their thoughts might be fully disclosed five years later, and [so we should not] suddenly rush into court or rush into the New York Times with five years of FOMC discussion. Now--",288
-fomc-corpus,1977,Does five months' difference make--is it all that much difference?,14
-fomc-corpus,1977,"Yes, but that five months applies to the other way too. Why can't they have patience for another five months. Why? But they are going to get it by January, why can't they be patient? Why should we deviate from a rule that we've established, in a political environment that could lead to mischief as far as interpretation of this [Committee's] action is concerned.",77
-fomc-corpus,1977,"In the first place, I think, I'll pick up Phil's remarks. I think times have changed since four years [and] seven months ago. We've had two very significant pieces of legislation that both say this is no longer appropriate, this keeping things for five years.",54
-fomc-corpus,1977,"Well, now, but your statement is inaccurate.",10
-fomc-corpus,1977,"Well, we have [the] Sunshine in [the] Government [Act] and we have the Freedom of Information Act.",25
-fomc-corpus,1977,"Under the Freedom of Information Act, we've had one court decision, and according to that court decision, what the New York Times is entitled to is a fragmented document.",33
-fomc-corpus,1977,"It is my understanding that the legal opinion now is that if we went to court, we would not have a good chance of winning this case.",29
-fomc-corpus,1977,"Well, I have not heard that legal opinion.",10
-fomc-corpus,1977,"Is that correct, Tom?",6
-fomc-corpus,1977,"I believe that the Department's position could be fairly interpreted as saying that, Mr. Chairman.",19
-fomc-corpus,1977,"Well, I thought the Department's position was a matter of policy rather than a matter of law.",20
-fomc-corpus,1977,"Well, Steve can confirm this or not. I think in the discussion that took place, the Department took the position that it was likely that we would not succeed before a court of law, and it was [for] that reason they indicated they would not defend the position. Am I correct--",59
-fomc-corpus,1977,"Well, I think to clarify, the Department's position was based on a number of rather bad experiences they had in litigation. The Department accepts our view [that] we have communicated to them, that the Memoranda are substantially exempt under the technical reading of the statute. I think our chances of succeeding in litigation to an acceptable degree are substantially impaired if we go into court without the Department. It's the court [that] will have to determine which portions of the Memoranda are reasonably segregable and therefore must be disclosed, and in doing that, it will have the Department's actions in mind.",119
-fomc-corpus,1977,"It also, Mr. Chairman, in due respect, has one decision on this matter out of District, and that's Judge Waddy, who, by his last order, required that the entire Memorandum be turned over to a Plaintiff, it being implicit in that order that he couldn't find that we're in [a] defensible position, by saying that we couldn't reasonably segregate that. His order is read that way, we compromised that, reached a settlement, and never had to follow that order. His last issue said, ""Turn over the entire Memorandum, I will not go along with your segregation of facts,"" which ended up looking like Swiss cheese as we gave it to the plaintiff.",139
-fomc-corpus,1977,And that's really quite recently--,6
-fomc-corpus,1977,That was what--,4
-fomc-corpus,1977,Quite recently--,3
-fomc-corpus,1977,"Yes, that was '75.",7
-fomc-corpus,1977,"In case my remarks are misunderstood, I want to add this addendum. We are fully complying with Sunshine and Freedom of Information at this Board, but we know what the rules are, and we're living under those rules. And my position is based on the fact that the FOMC didn't know it was living under those rules five years ago. Or three years ago. Or two years ago. I'm not trying to avoid the effect of Sunshine or Freedom of Information, I'm simply pointing out that we're now dealing with a post-operative situation, a situation that occurred when the FOMC had no idea they were subject to those rules.",126
-fomc-corpus,1977,"Well, Steve, if I might, the FOMC in 1972 did not know there would be five years for sure before the Memorandum of Discussion was released. We had discussions in that period. The Chairman remembers that, and we didn't know whether five years or, well, three years; the decision was made to take five and try it awhile. There was a sense of movement, I think.",83
-fomc-corpus,1977,"Well, that I can't say. My own recollection may easily be imperfect. I believe that the five-year rule was in effect at the time I joined the System. The Memorandum of Discussion was discussed from time to time informally within the System; the only formal discussion that I can recall on the part of this Committee of the Memorandum of Discussion in [regard to] the five-year rule arose out of the lawsuit that came from this outfit in Georgetown.",94
-fomc-corpus,1977,The Merrill suit.,4
-fomc-corpus,1977,May I ask a question. We've recently had some congressional requests for Reserve Bank minutes and forecasts. Is it our counsel's judgment that a congressional request for these memoranda will be properly and successfully refused?,40
-fomc-corpus,1977,"No, sir, it is not. There is a specific provision in the Freedom of Information Act, Governor, that exempts Congress from that act, the provisions of the Freedom of Information Act, so that neither the law nor exemptions apply to any of the requests from Congress.",55
-fomc-corpus,1977,"Considering our very unhappy recent experience, is it your judgment that it's possible the Times could ask certain well-known members of Congress to request these for their own judgment if they were refused by us? I'm not trying to urge them to do so, far from it. I'm trying to uncover the realistic alternatives that might arise on how to [unintelligible] on our part. We seem to have had so many other people effectively communicating with the Congress their wishes and desires.",94
-fomc-corpus,1977,"Now, I think there can only be one answer to your question--of course that could happen. But I think that this comment of yours [should] be placed in context. We have outstanding three requests from Mr. Reuss, which as yet have not been granted. One request is that the 28 items that were deleted from the--28 out of some 500 or 600 deletions--28 items that Mr. Reuss, out of some 900, wanted us to disclose. And that request has not yet been granted. Number two, Mr. Reuss has made a request that the minutes of District Bank boards for three additional years be made available to him. That request has not yet been granted. Number three, Mr. Reuss has requested that [Federal Reserve] Board minutes for the past six years or thereabouts be made available to him, and that request has not yet been granted. Not only that, but a letter will go to Mr. Reuss indicating that these are matters that cause great difficulty and that I want to go over these problems with him once again. Now my point is that we've not acceded very lightly, at least as far as I'm concerned--protecting the System to the best of my ability and drawing on the advice of my colleagues constantly; and we're not going to accede quickly or easily. In other words, if we acceded to such a congressional request--pure fishing expedition--the next thing may be a request for all interoffice memoranda, the next would be for all incoming and outgoing correspondence with regard to the Board, with regard to the Banks, and therefore, Mr. Reuss who has abused the documents that were sent him, the minutes for the first three years, is not going to get additional documents quickly or easily. I wanted to bring out these facts in relation to your specific comment. Well, gentlemen, any additional view on this?",386
-fomc-corpus,1977,"Well, I don't know how we bring this to a conclusion, Mr. Chairman.",17
-fomc-corpus,1977,"Well, we have to seek the consensus.",9
-fomc-corpus,1977,"Well, we seem to have been going off into different directions. My own feeling, I think, is pretty close to that expressed by Mr. Lilly, that it's so close to five years that we can both defend the general five-year policy and release them in the next few months sometime--at the mutual convenience of the New York Times. But I think we have to take very seriously your own feeling and argument. I would think the interpretation could be put the other way, that we were trying to cover up something. But I can understand the interpretation you put on, and I'm not prepared to say we should push and release the thing if you feel strongly the other way.",135
-fomc-corpus,1977,"I will answer that, the other interpretation could be put on it, but as far as that other interpretation is concerned, that other interpretation involves two individuals primarily, the President and myself. And I've already covered the President's part. I'm not going to cover my own. Now, as far as my feelings are concerned, from a purely personal viewpoint, I would want to get this out of the way and let's stop the nonsense. But I think for us to permit ourselves to be driven by the winds of political controversy, for us to depart from a rule simply because of a whim on the part of this or that newspaperman, for us to change a rule in the kind of political setting that exists would be extremely unwise.",147
-fomc-corpus,1977,"Frankly, Mr. Chairman, I think my personal conclusion is that we should not release the document currently. However, I think we should give serious thought to not only releasing 1972 but all the other unreleased Memoranda in January 1978.",52
-fomc-corpus,1977,"Well, I think we ought to consider that, but I do think that there is some great force in Governor Gardner's observation. And we ought not to abandon a long standing rule lightly just because there happens to be an environment right now for disclosure of this, disclosure of that. The present environment, I think, is going to change. Because some damage is being done by the kind of suspicion that is being generated, so that people no longer trust one another the way they used to. And I think we've reached a point in our political society where there'll be a revulsion of feeling against excessive disclosure. And after all, you know, as far as we're concerned, we disclose all of our doings, but with certain lags that we think serve the purpose of uninhibited discussion and that do not affect markets to the disadvantage of this or that group in the economy. Well, gentlemen, this is your decision and--",186
-fomc-corpus,1977,"Could I ask one thing more. I would be concerned if we looked like we were trying to put this information out on a defensive basis. However, the record is very clear that we are very reluctant to put this information out and it's only after [unintelligible]. I don't think anybody could accuse us of rushing out there with the minutes to prove--",72
-fomc-corpus,1977,"Well, let's not make pronouncements about anybody accusing us or not accusing us. We live in a political world where anything at all might happen in the way of accusations.",34
-fomc-corpus,1977,"Mr. Chairman, I think the final gun has to come down on this as to whether you need to release this information under the Freedom of Information Act request. We may not like the request. We may think that it is politically motivated, but nevertheless it is a request under a law of Congress, and if we're going to stand pat, then I think we run a risk of being overturned in court. If we are overturned in court, we run greater risks.",93
-fomc-corpus,1977,"Well, there is first the uncertainty about being sued. Second, if we were to turn this down, there is the possibility of changing our view after legal proceedings are started, and that is something that is done all the time in the practical world. There is, third, the possibility of fighting this in a court of law. And the real question before us is what we decide to do today. We're not going to act on the Hannaford amendment. I think that's clear. I think it would be unwise to act on minutes or Memoranda of Discussion for years other than 1972. I think we have been focusing primarily, and I think correctly, on the request for the 1972 Memoranda. Now let's have a show of hands now whether we want to grant the New York Times request or not.",166
-fomc-corpus,1977,"I wonder if I could ask that to put that in a somewhat different context than yes or no, because there are things in between. You mentioned one just now yourself. That is, wait and see whether we're sued, and then decide whether to settle.",51
-fomc-corpus,1977,"We have to follow up the letter that Mr. Coldwell sent, and we have to indicate whether this Committee--you see, Mr. Coldwell's letter referred to the request being submitted to this Committee for action. And therefore we have to inform the New York Times whether this Committee is granting the request for the 1972 Memoranda or is denying it. In other words, whether it is confirming Mr. Coldwell's decision or is granting the request.",93
-fomc-corpus,1977,The consensus of the Committee is that we should not depart from the rule.,15
-fomc-corpus,1977,"Well, that's up to the Committee.",8
-fomc-corpus,1977,"Well, it's alternative four we're voting on here.",10
-fomc-corpus,1977,"Well, I hope we don't vote. I think we ought to arrive at a consensus.",18
-fomc-corpus,1977,It's alternative four on which we're expressing ourselves.,9
-fomc-corpus,1977,"Mr. Chairman, may I be presumptuous to suggest one further alternative, and I think you would want me to mention [it]. Governor Coldwell's letter mentioned the fact that, under the law, the seeking party is entitled to have reasonable segregable facts but that it was the judgment of the writer, Governor Coldwell, that if such were undertaken and were done, he would be given such a useless wheel-spinning document that it wouldn't serve his purpose. Mr. Chairman, there is an administrative burden involved in this; the staff, though, could accomplish this in a reasonable period of time. Is it possible that you and the Committee would want to advise the New York Times that we are willing to undertake a segregation of facts and present to you segregated facts, in the possibility the Times would say, forget the whole thing, we don't want segregated facts; which would be short of being confronted and a denial. [The Times] is entitled to that by law. We might re-offer this as a reasonable next step and have [them] be the part who say no, forget it, let's call it quits, we're finished.",231
-fomc-corpus,1977,"Well, we already offered that to him, Tom. In fact, we recognize in the letter that he was entitled to it.",26
-fomc-corpus,1977,"But we reached, really, if I may Governor, the judgment that that letter reaches the decision, and thus we've decided not to do this.",29
-fomc-corpus,1977,We said that any segregated portion of the Memoranda would be [so] fragmented as to be unintelligible and virtually useless to use.,29
-fomc-corpus,1977,That's all we said.,5
-fomc-corpus,1977,"We had a plaintiff in the Merrill suit who was told the same thing and didn't believe us and pushed us for it and finally accepted it in settlement. So it's possible that, but for the purpose of the Times, who want to do an article, presumably our description was correct. I bring that up, Mr. Chairman, only as a--",69
-fomc-corpus,1977,I think 72 facts should not be worth very much.,12
-fomc-corpus,1977,Does that letter say that he will get it in January? Does it pin it down to January?,20
-fomc-corpus,1977,"No, it says--now, let's see: ""I would note that, pursuant to the Committee to stay with scheduled public release, the Memoranda of 1972 will be available to you in January 1978."" He is already advised on that.",52
-fomc-corpus,1977,"Well, he could be advised more specifically. It will be available January 1, so that they can spend New Year's Day--we might give it to them New Year's Eve, let them celebrate New Year's Eve.",43
-fomc-corpus,1977,"If they want to use it for political mischief, Mr. Chairman, January would be an ideal time for them to have it anyway.",28
-fomc-corpus,1977,"Well, I don't really know whether they want to use it for political mischief or not. All that I know is that this fellow Hershey, who did want to use it for what I interpret--and I think that Joe will join me in that interpretation--has mischief of some sort, political or otherwise.",64
-fomc-corpus,1977,"It appears to me, Mr. Chairman, that it's my personal judgment that our best course of action would be to deny this request but at the same time advise that we will release all Memoranda in January unpublished as to now.",46
-fomc-corpus,1977,"Well, but, I think--",7
-fomc-corpus,1977,"Because I think that does two things: Number one, that does eliminate any inference that we are protecting this situation for improper purposes. But at the same time, I think it pushes this organization to the type of posture where our alleged secrecy, [unintelligible], of manipulating the strings of the world, is exploded and done away with once and for all.",73
-fomc-corpus,1977,"Well, it's a possible course of action, but I doubt that we ought to, at this late hour, reach any such decision without the most careful deliberation and without taking into account and appraising the Hannaford possibility. Now this may well be a decision that, after we spend a morning or a day on this whole question, a month from now perhaps, we may want to reach that decision. I, for one, I don't feel ready to reach the decision to release all of those and to throw away--I wouldn't want to throw away so quickly the Hannaford possibility. If that Hannaford possibility had been open to us at the time when we were debating the desirability of continuing or dropping the Memorandum of Discussion, I have little doubt as to how the Committee would have acted at that time. Some of us were--I remember you, Mr. Baughman, were very eloquent on the desirability of getting rid of it. But I didn't gauge the sentiment of the Committee as a whole being that at the time, and I think certainly the majority of the Committee would have voted for the retention of the Memorandum of Discussion if we had the Hannaford protection at that time.",246
-fomc-corpus,1977,"If we could count on it. Things have changed so much since we made that decision, and now I would [not] put that much confidence in it.",32
-fomc-corpus,1977,"Well, I think that's fair.",7
-fomc-corpus,1977,"Well, Mr. Chairman, I think we are probably ready for some kind of consensus.",18
-fomc-corpus,1977,Some kind of what?,5
-fomc-corpus,1977,Consensus motion. I think several of us have to catch airplanes.,13
-fomc-corpus,1977,"Well, will someone make a motion, whatever it may be, and we'll--",16
-fomc-corpus,1977,I made a motion earlier. I will revise that and say I urge the Committee to adopt a consensus that's generally consistent with [alternative] four--,29
-fomc-corpus,1977,"Well, without voting formally, can we have a show of hands indicating whether or not such a consensus exists.",22
-fomc-corpus,1977,Generally consistent with what?,5
-fomc-corpus,1977,[Alternative] four.,5
-fomc-corpus,1977,"Members of the Committee only, yes",7
-fomc-corpus,1977,"Seven. There are only 11 members present, Mr. Chairman.",14
-fomc-corpus,1977,"Well, I think I have to interpret that as a clear majority. I have to interpret that as the closest consensus that we could get out of this meeting. Let me just check; those who are opposed to Mr. Gardner's motion will raise their hands.",52
-fomc-corpus,1977,"Three, Mr. Chairman",5
-fomc-corpus,1977,"Three, well--",4
-fomc-corpus,1977,This is without prejudice to further consideration.,8
-fomc-corpus,1977,I'm sure not going to vote on that side if they sue us.,14
-fomc-corpus,1977,"May I presume then, Mr. Chairman, that either you or I will write a letter to Mr. [Herbers]?",25
-fomc-corpus,1977,"Well, I think I should write that letter. Anything else to come up?",16
-fomc-corpus,1977,"Yes, but you don't want to bring it up--agricultural credit, farm credit, use of the discount window.",25
-fomc-corpus,1977,"Well, the first item on the agenda is perennial--the minutes of the last meeting. Any motion to approve?",23
-fomc-corpus,1977,So move.,3
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"All right, we've had a motion to approve the minutes; no objection has been registered. We will proceed with the foreign currency operations. Yes, Alan, please proceed.",34
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"What is the total now, Alan?",8
-fomc-corpus,1977,It's something on the order of $670 million.,10
-fomc-corpus,1977,"All right, thank you. Any questions? Yes, Mr. Wallich.",16
-fomc-corpus,1977,Didn't the Bank of England operate through its own channels in the New York market when it was doing this heavy buying?,23
-fomc-corpus,1977,"Yes, quite heavily. They bought a large amount of coupon issues, and they did that through the market using a number of dealers and banks in New York.",32
-fomc-corpus,1977,Are you talking about foreign exchange?,7
-fomc-corpus,1977,I meant foreign exchange--and whatever they put it into.,12
-fomc-corpus,1977,"Yes, they do operate in the New York market.",11
-fomc-corpus,1977,Does the Desk know what they do?,8
-fomc-corpus,1977,"Yes, we call them, and they inform us if there is any extra on the next day.",20
-fomc-corpus,1977,Thank you.,3
-fomc-corpus,1977,"Any other question at this time? Very well, a motion to approve the transactions of the foreign Desk is now in order.",25
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,A motion has been made.,6
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"And seconded [unintelligible] approved. Do you have any recommendations, Mr. Holmes?",21
-fomc-corpus,1977,"No, Mr. Chairman, with our regular agreement with the Swiss, we will have some Swiss franc debt coming due, but that's automatic--no recommendation is needed.",33
-fomc-corpus,1977,"Very well. Mr. Kichline, please, we are ready for your report on the economy.",21
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Kichline. Well, we're ready for the dialogue on the state of the economy. Who would like to speak first? Good, Mr. Baughman, please.",40
-fomc-corpus,1977,"Mr. Chairman, as to the characterization of the economy, I don't have any basis for differing with what's been said. I thought I might just add a comment with respect to oil and gas activities, however. [They] continue to pick up and seem to be at about a practical capacity rate. Shortages of work crews in some areas and shortages of equipment [are] both putting upward price and cost pressures on those aspects of the picture.",89
-fomc-corpus,1977,Are you speaking of exploratory activity or production?,9
-fomc-corpus,1977,"Essentially, development of known deposits. And this is mostly low-grade stuff, in the sense that it's areas which [have] been tapped previously but [were] not economic to develop or exploit at the preexisting prices. And now they're going through the drilling wherever they have a reason to believe that, with the higher prices, they can more than cover their cost. And this is undoubtedly an important reason why, with the high level of drilling activity, we still see the figures on production and approved reserves drifting downward. It's interesting that not only are the land-drilling rigs fully utilized, but there's been a sharp pickup in the use of rigs for off-shore exploration, even including those designed for deepwater drilling. There has been an increase in the total number of these available as a result of previously placed orders, [but] still, the number of idle rigs has dropped to a fairly small level at the present time. There is an experiment going on off the coast of Texas to adapt one of the deepwater rigs to use in shallow water, and it appears that that's going to work out successfully. And there is a report from firms in the District that manufacture drilling rigs that they are getting an increase in inflow of new orders, and they expect that activity to rise. During the past week, I have come across--true, a fairly limited number, but still--several specific examples of individuals speculating in new houses. They acquire title to anywhere from three to six new houses, with the prospect of occupying only one or two themselves and the others being held for resale. A matter of maybe not direct relevance to our consideration here, but it seems to be rather interesting--in a visit to a southwest Texas ranch area in recent days, I discovered for the first time the intensity of the feeling on the part of ranchers as to the activities of people to protect wildlife. This has resulted in such a buildup in the coyote and eagle population that it has gotten to a point where it determines whether they can afford to use cattle or sheep to harvest grass. I'm advised that, at the present price relationships, they could realize more in many areas [by] using sheep to harvest the sparse growth of grass, but because of the greater exposure to the predators, they have to go with the secondary use, namely cattle. On the inflow of Mexicans, it's reported, as it has been elsewhere, that there has been a substantial pickup following the President's announced program. And I don't pick up any indication of any consensus of view as to what a workable solution to that problem might be--a great variety of views.",529
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Black, may we hear from you?",19
-fomc-corpus,1977,"I continue to be concerned about this weakness in net exports that we're projecting, and I wonder if I might ask Mr. Kichline if we are wrong in our estimates of the growth that we expect to have in Europe and Japan. Say we've underestimated it by maybe 1 percent or so--would that be enough to have any appreciable effect on that sector and GNP?",76
-fomc-corpus,1977,"I would prefer it if we could hear from Mr. Truman, who is much more familiar with the net exports. I think that is an important influence, but perhaps he has a comment.",38
-fomc-corpus,1977,"In answer to your specific question, our investigation of historical relationships would suggest that a 1 percent increase in the growth of our major industrial countries--not just western Europe and Canada [but] Japan as well--would add about $3 billion to $4 billion to our trade position.",57
-fomc-corpus,1977,"Any other comments, Mr. Black?",8
-fomc-corpus,1977,That's all I have.,5
-fomc-corpus,1977,"Thank you. Mr. Coldwell, please.",10
-fomc-corpus,1977,"Jim, let me ask three or four questions here, and comment, if you wouldn't mind. Your briefing indicated that you believe consumers still have capacity to materially add to debt. I would like to hear your rationale on that.",45
-fomc-corpus,1977,"Debt burdens as measured in a variety of ways relative to disposable personal income have gone up a good deal. And they're at reasonably high levels, cyclically. However, much of this has been attributable to mortgage debt, which is of a long-term character, and I think when we've looked at the various relationships, we've been reasonably convinced that--assuming real growth in the economy of something like 4 to 5 percent over the next year, year and a half--sufficient disposable income would be generated so that the increase in debt burdens on current levels would be only marginal. In the consumer installment area, there too, there's been some lengthening of debt burdens, particularly because of the longer contracts for autos. But since March, we've had increases in consumer installment debt that have fallen short of what was a very high March level-- down in April, down in May, down in June--and July was about the same as in June. So that, in the context of our projection, once again, we think that consumers will be less aggressive to some extent in acquiring durable goods, [and] given good growth in disposable incomes, we don't think there'd be much of an increase in the debt burden relationship on current levels. But I think an important point to stress is that those debt burden levels could deteriorate quite rapidly if income grew very slowly for any extended period of time.",277
-fomc-corpus,1977,That's not your expectation?,5
-fomc-corpus,1977,That's not our expectation.,5
-fomc-corpus,1977,"Second question is [regarding] your expectation on federal government expenditures. If I heard you correctly, you indicated some pickup in such expenditures and that the full-employment deficit would narrow significantly. Is that what you said?",44
-fomc-corpus,1977,"That's correct. In the third and fourth quarter of this year, we have a pickup in the rate of spending, and the deficit this quarter was estimated at $12 billion on a full-employment basis; [the deficit] rises to $16 billion in the fourth quarter, then declines in each quarter of 1978, [and] reaches $2 billion in the final quarter of 1978. The most recent experience is that the shortfall, depending on how one measures that, is [now] deepening. In August, federal expenditures picked up a bit--part of this relates to the CCC [Commodity Credit Corporation] purchases. But throughout the account structure, [there] appears to be some pickup in the pace of spending, and we anticipate that will carry through into the fourth quarter.",161
-fomc-corpus,1977,Presuming that there will be no new major thrust of federal expenditures flowing into 1978.,19
-fomc-corpus,1977,"That's right. Now, on an NIA [national income accounts] basis, we still have some grants to state and local governments that will be fed out. I might note that the Carter Administration budget outlays for fiscal 1978 were $463 billion; the concurrent resolution that was approved is, I think, at 459. And our outlays are about 456. So we assume some continuing shortfall in 1978, which perhaps may not materialize. But that's built into our forecasts and into the full-employment deficit numbers.",110
-fomc-corpus,1977,Full employment is still defined as around 4-1/2 percent?,15
-fomc-corpus,1977,Just checked; it's 4.86.,9
-fomc-corpus,1977,"Oh, gee.",4
-fomc-corpus,1977,Have you read Herbert Stein's recent article in the Wall Street Journal?,14
-fomc-corpus,1977,"I'm familiar with it. The argument, I guess, is that full employment is something around 6-1/2, 7 percent.",29
-fomc-corpus,1977,"He argues we're in full employment now. What's wrong with that argument, if anything?",17
-fomc-corpus,1977,"Well, I would rather turn it around and hear very clearly what the arguments are for supporting such a notion. I think that's extreme. Absolutely extreme.",30
-fomc-corpus,1977,"Well, you don't have to hear it; read that article.",13
-fomc-corpus,1977,"Well, I'm not convinced. The arguments in part relate to the demographic factors involved in the composition of the labor force, the change in welfare programs, food stamps, and other things, the upward bias associated with the numbers--a whole host of arguments. When we've looked at some of those in our own analysis, we would clearly conclude that the unemployment rate, full-employment unemployment rate, is higher today than it was several years ago. [But] in no way is it close to 7.",101
-fomc-corpus,1977,"But my point is less extreme than Herb's. Isn't 5-1/2, say, just to pick a figure, a much more reasonable figure than 4.86?",37
-fomc-corpus,1977,"That's true, and I don't think we have any difficulty with that at all.",16
-fomc-corpus,1977,And that puts quite a different complexion on the figures that you would be using. You would be far short of a full-employment surplus if you adopted that.,32
-fomc-corpus,1977,"Well, I would use the full-employment concept cautiously. I think what's much more important than the absolute size of the surplus or deficit is the movement in the deficit over time. And if you adopt a higher unemployment rate on a full-employment basis, then you have lower receipts and hence a larger deficit. But over five quarters, you would not change the movement from quarter to quarter; rather, we'd be talking about perhaps $30 billion instead of 15--moving to a $15 billion deficit as opposed to [moving from] 15 down to 2.",114
-fomc-corpus,1977,"In other words, you have done the figures on something like the 5.",16
-fomc-corpus,1977,Right.,2
-fomc-corpus,1977,That's reassuring.,3
-fomc-corpus,1977,"Jim, have you assumed a shortfall in the expenditures as estimated by the Administration in the July review? If I've interpreted the Greenbook correctly, you have an estimate of a shortfall, and I think it's around $10 billion. Is that about right?",52
-fomc-corpus,1977,That's right--you're talking about for fiscal '78?,11
-fomc-corpus,1977,Right.,2
-fomc-corpus,1977,"It's about $10 billion in expenditures, and then we have interest payments, which are about $2-1/2 billion or so higher than that of the Administration's. Net, we're about, I think, $7-1/2 billion off.",52
-fomc-corpus,1977,"I would like to make a quick comment on this, Mr. Chairman. As my staff [members] looked into the causes and the nature of these so-called shortfalls, [they] found out something that kind of surprised me. There have seldom, if ever, been shortfalls in expenditures if you start with the--say, in this case, the July--Mid-Session Review. The well-advertised shortfalls have come about during the course of the fiscal year; the Administration continues to up its forecast of what it's going to spend. So for that reason, we have some doubts as to whether there ought to be an allowance for a shortfall based on the Administration's July Mid-Session Review. In other words, we would assume that, in our particular way of looking at things, government expenditures in fiscal '78 might be as much as $10 billion higher than you've allowed, although we haven't taken into account this interest payment phenomenon.",192
-fomc-corpus,1977,"This is a difficult area [in which] to compare notes verbally, since there are many concepts of what number you take and when and what you include. We have a different impression. I only would like to note that, if we're wrong in $455 [billion], I would think that we're probably better assuming something like 459. Which was the House, Senate concurrent resolution number, which is $4 billion or so short of the Administration's proposal. And the only other catch, of course, is that there are other federal programs that may be coming along that we haven't allowed for, some of which may come along sooner than later, such as in the tax reform area; the energy program, which is uncertain; and many other things. So I'd really hesitate to argue at this juncture on that point because my suspicion is that we've made adequate allowance for a shortfall, but if we're wrong, the odds are that it will be higher rather than lower in terms of outlays for fiscal '78.",203
-fomc-corpus,1977,"I'd like to finish up one other thing, Mr. Chairman. I noticed no comment, Jim, on the impact of expectations. Have you factored this into your forecast?",35
-fomc-corpus,1977,"Well, we have, we think--importantly in the investment area, and that's where we're particularly concerned. If we look at the fundamentals in a variety of ways and dispense with expectations, we tend to [estimate] a more rapid rate of growth of business investment outlays than we have in our projections. But we think expectations there are somewhat adverse, and business confidence generally has not been reestablished sufficiently to give you an investment boom. We [also] factored in expectations on the consumer side. But I must say we're getting a bit concerned with the performance of the stock market. In our own analysis [of consumer spending], we believe that wealth plays an important role, and stock prices are not performing well, and if [this] were to persist for some time, we think [it] would damp consumption spending prospects. So we have it in mind, and implicitly in some areas it's built in.",184
-fomc-corpus,1977,"Let me ask--if you pay attention to the wealth factor, do you include in wealth the value of dwellings?",24
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,And doesn't that more than offset what has been happening in the stock market?,15
-fomc-corpus,1977,"That's right. As you can well imagine, it's difficult to have a great deal of faith in the numbers that one cranks in on real property values, although they're large. But in any event, the stock market is highly visible, and real property is not generally thought of as very highly liquid. There is some notion, too, that liquidity matters in this concept.",74
-fomc-corpus,1977,"Well, I was really thinking of a formal point only. Namely your econometric model. You did include the value of dwellings.",28
-fomc-corpus,1977,"Yes, we do.",5
-fomc-corpus,1977,Do you include the value of farm property?,9
-fomc-corpus,1977,"As far as I know, we include, yes, all of that, and debt instruments as well, and equity values.",25
-fomc-corpus,1977,"I would have expected, Jim, that you would have placed more weight on the effect of the stock market on capital spending plans than on personal consumption. Because the small man is out of the market. Granted that he has a psychological factor of watching the market go down, but I would have thought that you would have placed even more weight on the seriousness of the effect on the managers, not only of investment portfolios but also of capital spending plans [in] a deteriorating market.",96
-fomc-corpus,1977,"I perhaps didn't emphasize that enough. I did refer in my briefing to cost of capital. And what I had in mind there was both the cost of physical capital and the cost of capital implied by low equity values. I might note that there are a couple of ways in which we think that enters into the calculation. One is, as you had mentioned, in terms of expectation. Another is in terms of providing an incentive to acquire existing firms rather than reach out for new investment, and that activity has clearly been picking up this year.",107
-fomc-corpus,1977,"Well, Jim, it's a matter of interpretation and to some extent expectation, I guess. My net result, looking over the data, is a somewhat different pattern of GNP real growth than you have. I think you're over-optimistic in the fourth quarter. And [will] perhaps be surprised a little bit with a higher rate--partly by expectations, partly by government expenditures--in the first half of next year. That's all I have.",91
-fomc-corpus,1977,"All right, thank you, Mr. Coldwell. Mr. Eastburn, may we hear from you?",22
-fomc-corpus,1977,"Thank you, Mr. Chairman. I reported, I guess about three meetings ago, about a meeting that we had of businessmen which produced a very pessimistic tone. We had another meeting last week, which Governor Lilly attended. And there, I think, they were considerably less pessimistic. It wasn't actually bullish--I think this reflects the region in which we are operating--but I think indicates that despite a great deal of uncertainties, businessmen are feeling better about the outlook. As far as the projections for the economy are concerned, ours are quite similar to the Board's staff, and we feel reasonably good about the outlook, as far as we can see it. There is one difference that we have with the Board's projections. This is not a major one, but there is a difference in the assumption about the productivity increases that underlie forecasting. We're lower than you are, and we note that DRI and Wharton are closer to us than they are to you and that all three of us are closer to the recovery and the average recovery period. You might want to explain.",217
-fomc-corpus,1977,"That comes out largely as a result of what's happened to man-hours in the past two months. Particularly in August, when man-hours declined roughly 1 percent. If you discount those man-hour figures somewhat, as we have, the only way you can get something like a 4-1/2 percent rate of real growth is if you get large gains in productivity, and also better profit performance, than you would otherwise. But productivity numbers have been jumping around a good deal, and they're difficult to make sense of, so I am not surprised by having a fairly large increase, as we do this quarter. I'm more concerned about what has initiated the problem--mainly the man-hour side. And as I say, we discounted that. We did receive late yesterday a preliminary projection by the Commerce Department of the increase in GNP for the third quarter--the first number they come up with, and it's never published, is subject to substantial revision, but they have 5 percent real growth estimated--which seems to us clearly on the high side--and even larger implicit productivity gains. So they have discounted even more than we have the man-hour numbers. I suspect, though, that what our forecast hinges on importantly will be September performance, man-hours and production, and perhaps some revision of these man-hour numbers so that they are not so deeply negative.",271
-fomc-corpus,1977,"Perhaps I might comment at this time on the cloud that seems to surround our numbers. You may recall [that] last year we looked at successive quarterly figures of real GNP. The increases showed progressive diminution, and there was great concern toward the end of the year about the slowing of the economy and about the possible onset of a recession. And that of course gave rise to the expansionist program developed by the new Administration. Now what analysts at that time overlooked was the inventory adjustment that was under way in the economy. And real final sales showed continued strength. In other words, the basic movement of the economy did not show any deterioration. And apparently a similar development is under way this year. If we look at the real GNP figures for successive quarters--the first quarter, an increase at an annual rate of 7.5 percent; second quarter, 6.2 percent; third quarter 5.0 percent estimated by the Commerce Department and 4.4 percent estimated by our staff. So you have a progressive diminution of rates of increase. But once again, if you look at final sales, again in real terms, you find an opposite picture. In the first quarter, rate of increase of 3.8 percent; in the second quarter, 5.1 percent; in the third quarter, 5.3 percent according to Commerce and 5.4 percent according to our staff. And you know, one of the reasons for a dialogue such as we have is that we see the world differently. Each has his own pair of lenses; we look at different statistics. When I want to judge the underlying trend, I like to take inventory movement out of the picture. Now, of course, I don't forget about it. There is one other statistical exercise that I had the staff engage in [over] the last few days. We see the world through seasonally adjusted figures, and the art of seasonal adjustment is highly imperfect. And I've been somewhat uneasy about the seasonal adjustment factors that have been applied to our unemployment series. I asked the staff to undertake some experiments. The seasonal adjustment factor seems to be distorted by very sharp cyclical movements that we had in 1974 and '75. And if you use the seasonal that was applied in 1973, the picture on unemployment, whether you looked at insured unemployment or total unemployment as reported by the Census Bureau, changes dramatically. And the deterioration that you see in the published figures vanishes. And I haven't had a chance to follow this up sufficiently, but the member of the staff who made this calculation told me that, using another seasonal calculation--a constant seasonal that covers the past 11 years--you get precisely the same results, as I understood it, that he obtained by using the 1973 seasonal. Gentlemen, I'm not reporting the truth, I'm merely recording another way of looking at the facts in a search for truth. We'll move on to Mr. Wallich, please.",598
-fomc-corpus,1977,"Mr. Chairman, I thought your comments on final sales very well taken, because there is a difference now, and one has to bear that in mind. But overall, as I look at the change in our projection from here through the end of 1978, I am struck that for some one-year periods, mid-'77 to mid-'78, end-'77 to end-'78, there are pretty substantial reductions--in the first case, as much as 1/2 percentage point. If I look at the projections for final sales, they [increase], as you indicated, up to the third quarter; and then, however, from the fourth quarter on, with one exception, final sales are below GNP figures. So apparently they've been counting on some inventory accumulation more than would reflect the growth of inventories at the growth rate of the economy. So my impression is also that we are at the high end of the spectrum of forecasts on GNP. Certainly that was the case some time ago. It may not be, now that we've pulled down our forecast, and I don't know whether other forecasters have pulled down theirs, but there has been a general tendency, I think, to pull down 1978 forecasts. I realize that this happens usually as a function of the latest quarter's events, and one extrapolates over time instead of considering the possibility that there may be an inventory oscillation in it. I'm concerned about the very low reduction in unemployment that our projections show, even given the very modest increases in GNP over the years end-'77, end-'78--less than 1/2 percent. It looks as though Herb Stein was right--but I think, for people who are concerned about inflation to say that 7 percent unemployment is full employment is a little like people who are concerned about unemployment saying that 6 percent inflation is zero [inflation]. I am troubled by the outlook, and that is why, in my own thinking, I've concluded that we ought to move to some kind of incomes policy. This is not going to happen overnight, and so the fact that I argue for discussing it now doesn't mean that I think it would or should go into effect this year. But I do think that the data, the experience, so far show that the high unemployment doesn't bring inflation down. Our projections say that it doesn't have that effect, and I think that we could begin thinking about trying something else.",491
-fomc-corpus,1977,"All right. Mr. Morris next, please.",10
-fomc-corpus,1977,"Mr. Chairman, on this business of full employment, I tend to define where we are in terms of the unemployment rate for married men and for heads of households. And if you look at that, it suggests that we're about 1-1/2 percent from full employment, which means that full employment would be measured around Bob Mayo's 5-1/2 percent level because, with a decline of 1-1/2 percent, you'd have the unemployment rate for married men down to 2 percent and for heads of households down to 3 percent. And I think, historically, those levels have been associated with full employment. On the forecast on the outlook, we still tend to be a little more pessimistic than the staff, and I think our difference lies primarily in the consumption sector. That is, we think it's improbable that automobile sales in '78 will exceed the '77 levels, which the staff has projected. It is true that, if you look at the relationship of installment credit to income, we are still well below the peaks reached in '73. But I think the current level of installment credit relative to income is extremely high relative to any other period. If you exclude the '73 period, that relationship is already very high. And whether, starting out from that point, we can sustain a further increase in automobile sales seems questionable to me. And the other factor we're giving some weight to is the one you mentioned earlier--the wealth effect, on consumption, of the decline in the stock market. And I think that while it may be quite appropriate to weigh in other types of wealth, such as land and real estate, I think our observation is that the impact of the stock market is disproportionately [large] in its effect on consumption [relative] to real property and that sort of thing because, for the reason you mentioned, Jim, people look upon stocks as being a liquid instrument, and they typically don't look upon real property in that sense. So, for the year beginning in the fourth quarter of '77, whereas Board staff is projecting a 4.7 [percent] real growth rate, we think it would be more probable, given our outlook on consumption, to have a figure of 4 to 4-1/4. So we're marginally more pessimistic.",465
-fomc-corpus,1977,"I'd like to comment, if I may, on what Mr. Morris has just said. First, one point where I basically agree--I think consumer credit is in a dangerous area, and I don't agree with Mr. Kichline one bit. I read the evidence quite differently. Secondly, the contrast between stock exchange securities and dwellings: There, I differ with both Mr. Kichline and--well, I think they're right, but I think they're exaggerating the difference. Dwellings have become a major source of liquidity for consumers; refinancing of mortgages is taking place on a very extensive scale. Second mortgages at high interest rates are being entered into extensively, and those who've engaged in this refinancing activity or getting the second mortgage, they talk to others, so that what used to be an illiquid item of wealth is increasingly taking on a liquidity dimension. And I think we ought to keep that in mind.",185
-fomc-corpus,1977,"Let me just interject a question here, Mr. Chairman. I think it's true that the figures show mortgage outstandings going up very rapidly now, for the reasons you suggest. I'm just a little puzzled, and I don't know whether the staff would want to comment on it, as to whether this is basically a favorable or unfavorable factor? You're suggesting it may be favorable because the basic values are going up and therefore there's a lot of room to borrow.",92
-fomc-corpus,1977,"Well, favorable from one point of view, very unfavorable from another. But I wasn't commenting on that; I was merely commenting that it has taken on liquidity dimensions.",33
-fomc-corpus,1977,"I don't think there's any question about that aspect. The question that puzzles me a little bit--I just pose it in the form of a question against the background of the consumer credit picture that exists--whether this is something we look to basically as a sustaining factor to the economy through the kind of forecast period you have, or a kind of danger signal, as something [sustaining] at the moment but, over the course of the next 12 months or more, might suggest that one element of support at present will be diminishing because people will have borrowed to the extent that the borrowing figure gets too high. It may be an unanswerable question. But do you have any comment on that?",141
-fomc-corpus,1977,"Not much. I think it has mixed effects. Actually, in our forecast, we assume for 1978 that there will be less borrowing per start in given dollars than there is today, that we will be [cutting back] some of this withdrawal of equity from the housing market. In fact, that's implicit in our forecast, in a way, in which a relatively high level of starts continues to be financed even though deposit flows are shrinking, and we relied more heavily on the Federal Home Loan Banks; in part, it's a tighter posture on the part of lending institutions, squeezing out some of the refinancing. Just one other comment, though, and that is that, if you think in terms of mortgage borrowing as a source of funds for other than housing finance, which it clearly has been, it's quite costly. And one, I think, has to properly connect that idea to the turnover of houses rather than thinking in terms of refinancing a mortgage regularly, or as a source of funds, because that is a very high-cost operation. So, in connection with high sales of existing homes and purchases of new homes, I think clearly, that's where the bulk of the extra funding is coming from--rather than thinking of housing as a liquid source of funds.",252
-fomc-corpus,1977,"I do think, Jim, though, that you're running into a situation--as I recall, in the California area, [according to] one of the banks that I talked to that was active in the second mortgage area, about 28 to 32 percent of the second mortgages extended were for the purpose of refinancing existing consumer debt, to reduce either the monthly payment burden or extend maturity or something like that. So we may be in a situation where you're having consumers contract debt to purchase automobiles on short term but are refinancing it on the 15-to 20-year [mortgage] plans. Now, unfortunately, though, I think we've run into the problem where much of this debt is still recorded as consumer installment debt on our consumer installment charts that you see at the end of the room, rather than real property debt, so I'm not sure that our figures are clear as to what's really going on, as being influenced by that other type of consumer credit.",192
-fomc-corpus,1977,"Mr. Chairman, if I might just make a brief comment on this real estate situation. It seems to me that what we have going here in both the residential and the farm real estate picture is something more or less comparable to an inventory situation in the business sector. And when it's building up, it's a strong stimulative element, and it seems to me [to be] what we had in both these real estate markets in the last couple of years. And I think it's still expanding in the residential sector but probably getting ready to top out in the farm sector. But so long as people expect that those prices are going to keep going up at a faster rate than it costs to carry, your demand for the property rises, and we see it in the farm real estate market and we see it in the multiple holdings of new houses, both completed and in process. Somewhere along the way, presumably, there is going to be a diminished number of people who want to be in the situation, and at that point, the supply relative to demand in the market is going to shift, and presumably you will get a topping out of the rising price, or maybe even a decline. And I don't think it's possible to predict the length of run of that sort of development.",253
-fomc-corpus,1977,"Mr. Gardner, please.",6
-fomc-corpus,1977,"I don't know whether this will help or not, Jim, but I have some concern about your analysis that indicates that the credit demands aren't likely to show much change over the balance of the year. I'm a fugitive from the crowding out theory. And as I look at this situation, I have to try to find the perspective that said that the economic shock to consumers and businessmen which ended in '74 or early '75 is now some ways away from us. It has given people faced with tenuous employment, debt accumulations, and businesses with heavy inventories a chance to reestablish their financial positions. And I think the majority of people in businesses have had enough time to reestablish their financial positions. So I have to look now at the attitudes and the propensity of people and businesses to incur indebtedness. And if I first look at the demand side, I find strong consumer demand. I think your figures will show that. I find strong mortgage demand, and that's been commented on extensively. And I think that indicates that there will be strength in consumer spending, both in major durables and automobiles. I don't agree with you, Frank. I think there are some exciting new automobiles coming out. And we are locked into an energy crisis [that] will generally inspire people to attempt to buy cars that are not yet in the marketplace to obtain better mileage figures and prepare for the modern energy crisis. I find state and local governments having weathered one of the most serious crises in their history, beginning with a revelation that New York may go bankrupt, that Massachusetts credit may disappear in the marketplace, and so I think that offerings at the state and local level, or the needs to borrow there, may well continue. I think the demand at businesses is something we should look at very carefully. The restructuring of balance sheets has clearly had plenty of time to go on. We used to have a seasonal in this country, and I'm not talking about an adjusted seasonal but a heavier demand for bank credits into the fall and through the Christmas season. And that seasonal has largely been absent for the last couple of years as inventory positions became a burden. And people dealt with those conditions as best they knew how, including, last year, probably not having enough goods on hand to meet the Christmas demand or the year-end demand and so forth. So I think that farm credit, surely, Roger and others, is backed up, and there won't be any diminution in the demand of farmers to borrow. I think we may see a stronger use of seasonal credit by businesses returning to a pattern that's existed for two decades. I think capital expenditures, while obviously weak and obviously not being a major factor in recent years, may become more of a factor. When I look at all of the demand side from state and local government, consumers, individual businesses, and I don't--",571
-fomc-corpus,1977,Federal government--,3
-fomc-corpus,1977,"--federal government, I haven't mentioned that--I thought I was the fugitive from the crowding out theory. But nevertheless, I look at the demand side, and then I look at the supply side, and it's also true the banks are offering more competitive terms. They've had time also to deal with their internal problem. We see evidence of cap loans, we see evidence of fixed-rate loans. Now, I look at the money flowing in here from other countries, the money and competitiveness of foreign banks in the U.S. and foreign investment in the U.S. I look at the insurance companies and the pension funds and their propensity to find investments. And I find the condition in total that suggests to me, Jim, that I can't quite be comfortable with your idea that total credit demand is likely to show little net change over the balance of this year. In fact, using all of this evidence, I would come to the modest conclusion that we are going to see some expansion of credit.",200
-fomc-corpus,1977,"I think perhaps we expressed our idea incorrectly. You are quite right. In fact, total credit demands in our forecast are rising in the second half of this year compared to the first half. But that is largely associated with the substantial increase in government borrowing. In our flow of funds forecast, for example--in the first half of this year we had total private credit demands of about $244 billion; we are forecasting about $252 billion in the second half of this year, which is an increase to date. So it's not much, you are right. For the balance of this year, we don't anticipate substantial increases. That comes about largely because of a reduced demand, in the forecast, by businesses for short-term funds, reflecting our downward revision of inventory investment and a stronger profit performance this quarter than we had in our forecast before. And secondly, in our forecast we have consumer installment credit rising at about a $3 billion or $4 billion dollar annual rate less in the second half of this year than in the first half. As we go into 1978, however, our forecast calls for substantial increases in demands for credit by the private sector and a maintenance of quite high borrowing by the federal government, so you are ending this year on an upward path and going into 1978 with historically large demands for funds, and it requires that the households pick up some securities for these markets to clear. And associated with that process and in our forecast is some further increase in interest rates from current levels.",301
-fomc-corpus,1977,"All right, we will move on now to Mr. Partee. We will hear from you.",20
-fomc-corpus,1977,"Well, Mr. Chairman, I have a couple of comments. First, I'm very agreeable to your view of the current situation, that with the continued expansion in final purchases through the summer--and as far as I can see, right up to date--we don't have to be overly concerned about the signs of slowing of the economy that show in such things as output and employment. Probably a temporary thing. It might be [a] faulty seasonal or it might be that we are having, as you pointed out before, a little inventory correction of the sort that would occur repeatedly over this period. So I'm not nearly as concerned about a downturn in the economy as I was a year ago, when I think it was a more moot point, since retail sales were so weak at that time. Therefore, the current situation, I think, is adequate. I thought Jim gave a very persuasive briefing, and I have difficulty in complaining about it or quarrelling with it, but of course that's our job, I think. And so I would--",209
-fomc-corpus,1977,"Except that I quarreled only with one point, his comment on consumer credit.",17
-fomc-corpus,1977,"Well, I was going to make the point about consumption generally. As I look at possibilities of the projection being too high, it seems to me that an awful lot is being asked of the consumer. If I understood you, Jim, you said you have a projected real increase in consumption of about 4-1/4 percent above the trend.",70
-fomc-corpus,1977,No--4-1/4 percent real increase over the next five quarters.,16
-fomc-corpus,1977,And that's above the long-run trend.,8
-fomc-corpus,1977,"Well, the longer-run trend is somewhere [between] 3-1/2 and 3-3/4 percent.",26
-fomc-corpus,1977,It's a rather good performance in real consumption.,9
-fomc-corpus,1977,"Oh, yes.",4
-fomc-corpus,1977,"Excuse me, 4-1/4 percent over an annual rate or--",17
-fomc-corpus,1977,Annual rate.,3
-fomc-corpus,1977,Annual rate.,3
-fomc-corpus,1977,"Annual rate of 4-1/4. That's strikes me--as I recall [how] the last few years have been--a pretty good number following on what has been an unusual surge on durable goods purchases. I'm not so sure--I think I would be more inclined to agree with Frank than you, Steve. I think [we] probably won't repeat the current car year next year, partly because of the high level of consumer debt. Also, you have prices going up a little faster overall, and I presume for the consumer sector, so they are not only financing real purchases of goods but they are also financing larger inflation, and the saving rate is rising over the period. It seems to me an awful lot, somehow, to have more real consumption, more price inflation, and more personal saving altogether. The arithmetic, of course, checks out--that is, the income is there. But I would point out that if, of course, the consumption didn't occur, the income wouldn't be there, and the saving rate wouldn't necessarily be any higher. I'm a little troubled by the strengthening in the consumption sector. I also note that exports seem to me to be rather strong. The increase I've just calculated from third [quarter] to third [quarter] is 13 percent in exports of goods and services, and there is a 6 percent inflation there. It's a real [rate] of about 7. My perception of the international economy is more like Alan's--that is, of considerable weakness--than it is like that of the staff here. So I suggest, perhaps, the exports wouldn't do as well as we had projected here. On the other side, it seems to me that a possible area of greater strength than we foresee is business investment. Now you only have a 14 percent increase in BFI [business fixed investment] over the next year. With a considerable rate of inflation in there, it seems to me that if investment sentiment should [strengthen] as the economy improves or as people start to see the capacity limit being reached or as inflationary expectations increase, you could have more BFI than you had projected. And, finally, I think you could have more federal expenditures than you projected, particularly if the unemployment rate does as poorly as is projected here. I think there could be new programs beginning in the new Congress shortly after the first of the year that would cause a larger increase. So what I come down to, I guess, is I can see reasons why the actual might be a little lower than projected. I can also see the possibility that it might be a little higher than projected, so I don't quarrel with it greatly. I think it's a dead-centrist position. I would, however, want to echo Governor Wallich. If this projection is realized, and you have a roughly 4-1/2 percent growth rate over the next five quarters, then at the end of that period the unemployment rate is still forecasted to be 6-1/2 percent, which is not full employment unless you are in the Herb Stein school. And the capacity utilization rates, although higher, are not uncomfortably high in either total manufacturing or in materials. So it seems to me we are talking about an expansion in this forecast which, if realized, is about minimally acceptable, but not more than minimally acceptable to the society, to the government as the government now looks at things.",691
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Winn, please.",14
-fomc-corpus,1977,"Mr. Chairman, the two big uncertainties that hang over the forecast as far as I'm concerned are with respect to the energy bill and with respect to the tax bill. The unknowns in the energy bill have really held up major investments in transportation, mining, a whole series of activities that really would give a tremendous impact if they could be unleashed. The whole electric utility company construction [sector] has really kind of ground to a halt here. The bill seems to be deteriorating as it goes through. I get more questions about this in certain sectors. And then the unknowns in terms of the tax bill really are showing up in investment decisions, both financial and real, and I don't have any idea when that's going to be clarified. But those could be two major impacts to affect our projection. Some concreteness could be added to this, and I gather you haven't factored it into your fiscal projections or anything else in terms of looking ahead.",189
-fomc-corpus,1977,On the tax bill?,5
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"No, we have done nothing yet.",8
-fomc-corpus,1977,"And I haven't any idea how that's going to come out, but there's really more discussion of this in terms of the consumer sector, the capital gains area, and a stimulus for investment; and these are going to be major developments to affect the outlook. The third thing I'd mention is the status of the steel industry. Business is really better than they talk about, in terms of their physical volume. [But] the profits are terribly poor. They are facing up to fact that they have a very obsolete plant. And yet funds to provide the investment, the incentive to provide the investments, and so on--now they are focusing completely on the import situation, but I really don't think that's addressing some of the basic problems they have. The threats of really major shutdowns in Youngstown, Cleveland, and other places are very real. And as you know, there have been substantial cutbacks in employment in this area. So the fact that the picture looks as good as it does [despite] some of these negative factors, I think is really an underlying source of strength.",215
-fomc-corpus,1977,"Thank you, Mr. Winn. Mr. Willes, please.",14
-fomc-corpus,1977,"Thank you, Mr. Chairman, just one quick question and then two comments. Are you going to circulate that little analysis that was done on the seasonal adjustment of the unemployment rate?",36
-fomc-corpus,1977,"Yes, I will be glad to.",8
-fomc-corpus,1977,"I would like to see it. I don't know if anyone else would. The two brief comments I would make are, first of all, the discussion relating to using property values as a form of liquidity. One area that I think has been misunderstood rather broadly is the area of using farm land as a source of liquidity. In our part of the country, we get in the press almost every other day a story of how awful it is that farm lending is going up so rapidly. And the fact of the matter is that they really are just taking what has become the greatest increase in their net worth--the value of their land--and converting that into tractors and new homes and swimming pools and other sorts of things. And the debt-equity ratio for the farm sector as a whole has not changed one bit in spite of the tremendous increase in farm lending--the total value of farm land has gone up so much that the ratio has not changed. In fact it got to the point where, in Minnesota, they were going to have a little demonstration in favor of higher price supports, and so they went to the state capital and drove around the capitol in their tractors. And they were then going to drive to Washington, but they decided that their point might lose its value if they had a great big long string of brand new $50,000 tractors driving around the Capitol in Washington. And I think they are right. They have held up remarkably well in what's considered to be a disaster. With regard to capital spending, one of our industrial directors made the comment that if he didn't listen to anybody else he would be very optimistic about what's going on. And so to follow that up, we had the leaders of all of the large corporations in the Twin Cities area in for lunch one day, [firms] like 3-M and Honeywell and Control Data and Toro and so on. And this story was very interesting; they universally spent the first half of the lunch complaining about all of the uncertainties--energy and taxes and everything else that they could think of that was wrong. And I was about ready to conclude that they weren't spending any money on anything, so I just asked them what their capital plans were, and the lowest increase in the group was 75 percent. Most of them hovered around a 100 percent increase in capital spending for the year ahead.",473
-fomc-corpus,1977,100 percent increase from the year passed?,8
-fomc-corpus,1977,"A 100 percent increase from the year passed. Now interestingly enough, they all admitted that they were not building new physical facilities [and] that the kind of investment they were engaging in [was] new equipment, new ways of making their physical plant more productive. But they are looking at very large numbers. No, we don't have the steel and so on in Minneapolis. But we have a rather broad cross section of the rest of [industry], and I think if anything we may be pleasantly surprised by the amount of capital spending that we [will] see over the next year or 18 months.",122
-fomc-corpus,1977,"Well, you know, on a global basis, the successive surveys have been showing increases in the expected rate of increase in business capital spending. Now, the progression has had a modest upward slope, but it definitely has had the uniform upward slope. But what you say about Minnesota sounds as if Texas is going to take second place.",66
-fomc-corpus,1977,We are trying.,4
-fomc-corpus,1977,You have become converted.,5
-fomc-corpus,1977,It doesn't take long.,5
-fomc-corpus,1977,Mr. Guffey.,6
-fomc-corpus,1977,"Well, lest the euphoria about the agricultural sector get out of hand, I think it is important to note that the productive capacity of the agricultural sector has added nothing to the farmer's or the rancher's wealth--that the wealth in and of itself has come from the increase in land price. To be sure, some sales are taking place, [but] if [that increase is] real [it is] being absorbed to maintain liquidity of that sector of our economy, and [it is] really adding nothing to the wealth in terms of the new tractors as Mark has suggested [it has]. Those came two or three years ago following the Russian wheat sale. That sort of thing. The soft part in our economy in the mid part of the country is indeed these agricultural areas, where, for example, the farm implement industry is having a rather sharp turndown [because] the farmers and ranchers are not able to replace [agricultural] equipment. My point is that that can go on only so long; you can rely for your liquidity needs on the increase in land prices only so long. If you don't have some contribution from what you are raising, then this will become increasingly worse. It is showing up again, as everybody around the table knows, in the bank loans. They are relying upon this increased land value. I don't like to throw total cold water, Mark, upon how you characterize [it], but I don't think we would share totally that euphoria.",299
-fomc-corpus,1977,"You are only reflecting the differences in your crop structures. You have a very large wheat percentage in total agricultural output, whereas Mark has substantially less.",29
-fomc-corpus,1977,"No, I think that's not true.",8
-fomc-corpus,1977,"Clarifying--this discussion has also served to clarify the distinction between the capital and the income. In terms of capital, many farmers have become millionaires recently. On the other hand, as far as income is concerned, income has been on the low side and declining. I think Mr. Guffey is right that scissors move. That inequality can't last forever. At one point, either income will rise to justify the capital value or capital values will go down. But it may take a long time before that happens.",104
-fomc-corpus,1977,"Banks, though, and other sources of financial strength to the agricultural economy, could likely feel a real squeeze if things indeed did turn down in [the sense] that land value was not realized. And that, I think, is what we have more concern about.",53
-fomc-corpus,1977,"Roger, has the appreciation of land prices caused a commensurate increase in taxes on farms?",19
-fomc-corpus,1977,"I don't believe that the governmental units are quick enough to have picked it up yet, but certainly as those sales occur, then reassessments will be made, and taxes will increase. But it isn't something that's going to come tomorrow.",47
-fomc-corpus,1977,"That's another part of the squeeze, to the extent that begins to happen.",15
-fomc-corpus,1977,"These farmers that have become millionaires, I might hasten to add, it's on a before-tax basis. In Idaho, where my wife happens to have some relatives on a farming business, they are very concerned about how they are going to pass on their farm to the children after the death taxes. It appears they may have to liquidate a part of the landholding just to raise the cash to pay the taxes.",84
-fomc-corpus,1977,"That's right, but honestly, I don't know what is wrong with people. Why don't they enjoy it now? Mr. Balles, may we hear from you on your views on the economy, or any questions you may want to put to the staff.",51
-fomc-corpus,1977,"I have several comments and several questions, Mr. Chairman. I think your point on real final sales being steadier than the GNP quarterly changes is a very good one. I draw one additional conclusion from that analysis, and that's that the trend of real final sales may in fact be a better guide to policy than the quarterly changes in GNP as a whole as long as we have these mini inventory cycles. And I conclude that we are experiencing another one this year quite similar to the one we had last year--a very strong first half and then a weaker second half largely because of inventories.",119
-fomc-corpus,1977,"Incidentally, the point is now being made about the so-called $50 rebate. If that had gone through, the inventory adjustment would have been all the sharper.",33
-fomc-corpus,1977,Exactly.,2
-fomc-corpus,1977,Maybe it's a good time to start thinking about it.,11
-fomc-corpus,1977,To start thinking; not about that.,8
-fomc-corpus,1977,"Something else, maybe.",5
-fomc-corpus,1977,"As far as the outlook is concerned, our staff in San Francisco has a very similar view to that of the Board staff through, say, to the middle of '78, but as Frank Morris commented, we are somewhat less optimistic about the second half of '78 for much the same reasons that he cited--less optimistic about the strength of consumer spending and inventories in the second half. Having said that, I don't place an awful lot of faith in the accuracy of projections when we get into the second half of next year. But I do want to make one comment generally in respect to the differences that may occur within the [Federal Reserve] System, of the [Federal Reserve] Board versus the [Federal Reserve] Banks in their forecasts. For some months, I have been noticing [among] our board of directors on the West Coast a phenomenon that I'm not sure how to explain. It's clear that, by and large, our business directors are showing less confidence than the business statistics would warrant. And whether it's because of the factors cited by Mr. Winn or what, I'm not sure--that is, the concern over the energy program, tax proposals, and all that sort of thing. Whatever the cause, I think there's another element that's not yet been commented on but may be worth a question and a comment by Mr. Kichline and his staff. I assume that you monitor the forecasts of the leading private economists and their firms. Fairly recently I have noticed what is perhaps an unusual divergence of views among the private forecasters' fraternity versus the government, generally including the Federal Reserve. There are some outfits--not that I place any credence, particularly, in their views--such as Chase Econometrics or what have you--they are viewing a real stagnation if not outright recession for 1978. And I suspect that to some extent this is having an influence on the thinking of leading businessmen. This came to my attention most recently just last week, when, in San Francisco, there was the quadrennial meeting of the International Industrial Conference, with CEOs present of many leading U.S. companies--indeed, leading companies around the world. And the U.S. heads of companies were considerably less optimistic in terms of the expected pace in the U.S. economy than our staff in the System, and the chief economist for the Conference Board was considerably more pessimistic, I might add, than our staff. And I was wondering, Jim, if you pursue this matter to the point of identifying the specific factors that lead to this divergence of views. Because whether we like it or not, the private forecasting fraternity does have some influence on the thinking of the heads of these companies, and hence on, oh, their general state of confidence or lack thereof.",555
-fomc-corpus,1977,"We do look at them, not so much in terms of trying to form our own judgments but rather after the fact as a check to see where the differences occurred and what's happening. And as the point has been mentioned earlier, in the last two months or so, most private forecasters have been adjusting their forecasts downward. Our own forecast, I would judge, is at the high end of the range on real growth and at about the middle for price prospects, or perhaps a bit better than average on the price side. I have before me a selected group of the forecasters, but Chase, for example, has been very bearish for some time, and I would tend to discount that; they are talking about 1 percent real growth or so for next year. But it's quite clear that, for the end of next year, the Conference Board is around 3 percent, Argus 2 percent, DRI 3.2 percent, and so in this 2-3 percent real growth--",201
-fomc-corpus,1977,"For the year, Jim?",6
-fomc-corpus,1977,"No, in the latter half of '78. Most of the contour of the forecast in the current quarter is much weaker than we have it; fourth quarter, roughly the same.",36
-fomc-corpus,1977,"I'm going to make an extreme comment. I think these fellows ought to be ashamed of themselves, because they don't have a shred of fact to support any of this. And they are just playing a con game. I think it's a disgrace.",48
-fomc-corpus,1977,"Well, that's--any help?",7
-fomc-corpus,1977,That's just what I firmly believe.,7
-fomc-corpus,1977,"I would only say I think the major areas of difference are in personal consumption, which has been mentioned earlier, [and] inventories, [which] are projected to have accumulated at a much slower rate than we have. And I think there are policy differences which are not always clearly specified. But consumption and inventories account for the bulk of the difference.",70
-fomc-corpus,1977,"I was surprised on this point just the other day hearing [that] the New York bank economists [had] just met with our people, and apparently they were rather consistently above what I would have expected in terms of more or less optimistic talk. And they were, as I recall, all around 4-1/2 percent for next year on the average, which is pretty close to where you are.",82
-fomc-corpus,1977,"That's a good point, Paul. I think the commercial bank economists are generally more optimistic than the economists working for industrial firms.",25
-fomc-corpus,1977,"You know--I don't know, I don't know. I sometimes get discouraged. When are we going to learn that we don't know how to attach numbers to future events?",34
-fomc-corpus,1977,Isn't that the way in which we've got to work--,12
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,"We're not doing very well [at quantifying], but the direction alone isn't good enough.",18
-fomc-corpus,1977,"We can supplement an adjective with an adverb. Well, thank you, Mr. Balles. We will hear from Mr. Kimbrel, and we will break for lunch. I mean coffee--it might not be a bad idea.",49
-fomc-corpus,1977,"I promise you it's not going to take that much time, Mr. Chairman. Just expanding, though, the ideas--the consumer installment credit. I guess our people are somewhat less optimistic about the total new automobile sales over the coming year than you would project, and I recognize that these numbers, if we read them correctly, are pretty close to what General Motors is saying. But I guess we are looking at the likelihood that used cars are going to be somewhat less as a trade-in, and if indeed [unintelligible] anticipating an increase next year. I guess we are wondering how firm you feel your projections are.",126
-fomc-corpus,1977,"Well, we've been quite high for some time on auto sales and have been pretty much close to the mark relative to other forecasters. So we did reasonably well in the past. The argument that we felt was quite important was this notion of replacing the stock because of the downturn in sales in '74, '75. That effect is wearing off, clearly, as we go on. We still think there's some of that there. We also believe that we can't quantify it. But we also believe there will be some demand for fuel-efficient cars, and American producers, on average, will probably have a reasonably attractive product. So we do have a high number. For 1978, it's doubtful that it would be exceeded, and the risks are probably on the downside.",154
-fomc-corpus,1977,"Jim, the average car in the United States is six years old?",14
-fomc-corpus,1977,I don't have the foggiest idea. I'm sorry.,12
-fomc-corpus,1977,"Oh, it is.",5
-fomc-corpus,1977,I don't feel so bad about mine as I did before.,12
-fomc-corpus,1977,"Well, gentlemen, we'll break for coffee.",9
-fomc-corpus,1977,"Mr. Black, would you be good enough to lead off the second installment of our discussion of the national economy?",23
-fomc-corpus,1977,"Mr. Chairman, I'm sort of embarrassed to raise my question because the others have made such interesting observations, but I'm glad you didn't ask me to ask this question so that I would stand between us and adjournment. So I do just have a question, it's a technical question. I share your proclivities, and Mr. Balles's, for looking at final purchases and trying to assess the underlying strength of the economy. And Jim, I was just curious about your inventory changes that you're projecting. You've got a kind of zigzag projection for changes in inventories from the third quarter on through the second quarter of next year. That's probably as accurate as anybody could be, and I know I couldn't do it any better, but I was just curious, is there some particular reason for that? I can see why you have liquidation or slowing in the rate of accumulation in the third quarter and a speed-up in the fourth. But when we get to the first, is that a [unintelligible]?",202
-fomc-corpus,1977,"The major element accounting for those marginal changes is the performance of fuel imports, and if you look at the net export line, you'll find that that is bobbling around quite a bit, too, and it's the related side of the coin. Namely, in the third quarter, we are assuming a rundown of stockpiling that occurred in the second. Built into this projection in the fourth [quarter] is some enlargement of fuel imports to, if you will, beat the imposition of the well-head tax in January of '78. And then, as you get into '78, those imports, those stocks, are run down again. So it's the mirror image of what's happening on net exports.",141
-fomc-corpus,1977,"Well, thank you. I was just curious about that one.",13
-fomc-corpus,1977,"All right, thank you, Mr. Black. Mr. Volcker.",15
-fomc-corpus,1977,"Just a few comments, Mr. Chairman, mostly reiterating what other people have already said, I suppose. I do think this somewhat more restrained view of the outlook that the staff has presented this time is reasonable. We're actually a bit more restrained, but I wouldn't argue about the difference between them. As I look at the outlook, I think the favorable side is, it's very hard to see stagnation or recession in the outlook; some kind of growth ought to continue. So far as final sales are concerned, I'm not totally reassured when I see personal income rising more slowly, as it has been, which may reflect back on final demands at some point. But I certainly do not want to cast any doubt on the basic hypothesis--the economy is going to continue to expand at a moderate rate of speed, which I think is what we're all talking about. The unfavorable side has already been explored--that it doesn't do much for unemployment, doesn't seem to do much for inflation, either, if we believe all these forecasts. And you think pretty hard [about] what we can change in terms of the approach toward monetary policy to [achieve] this sort of more favorable balance. I don't think there is much which is exercising your imagination anywhere in other directions, and that's already been mentioned by several people. If I had something really constructive to say in these other directions, I'd say it, but I don't think I do at this point. In terms of the kind of risk to the economy and the uncertainty--we've already explored this debt situation. I just want to repeat from my viewpoint what has already been said by one or two others, beginning with Alan Holmes--the foreign economic situation looks distinctly less favorable. I don't think we can forever be an island of expansion [if] the rest of the world isn't expanding. I think the rest of the world may be still expanding, but it looks pretty marginal to me. I'm not quite sure [how much] foreign expansion is built into the staff's projections. Therefore, I don't know whether you fully allowed for the degree of potential weakness that I see there, which could feed back on us directly through the trade picture; and that does not look very optimistic in your projections, so I assume you've got a good part of [the] feeding-back anyway. I think there's always a danger in this situation of some exchange market unsettlement when the current account deficit gets as big as it has been. We've been pretty well shielded from that just because of the coincidence of our interest rates firming a bit, while in many European countries they've been declining. I think one of the things as we move ahead, [and] we may have to worry about it at some point--I think it's worked out fine so far--is what weight we give these interest rate relationships in terms of shading our own policy in one direction or another. I do feel we're somewhat vulnerable to what could be psychologically disturbing fluctuations in exchange rates anyway. I'm not going to predict that's going to happen, but I think we're on a little less certain ground than I would like to see when this foreign trade balance reaches the size deficit that our projections [show will] continue.",641
-fomc-corpus,1977,"Mr. Volcker, can I ask you a question, please? Do you see foreign prospects as being dim versus immediate circumstances as being flat?",29
-fomc-corpus,1977,"Well, I suppose what I see is [that] the immediate circumstances are a little flatter than I foresaw. And I wonder what that portends for the future. I don't see many sources of confident optimism about what's going on abroad. I don't have a good feel, and maybe somebody in the staff does, for the impact of the German program.",71
-fomc-corpus,1977,"I'd like to comment on the question. I think the immediate prospect has been well described by Paul and by others, but what I see happening around the world is a basic improvement. It may not express itself quickly, but a financial foundation for improvement in real economic activity, a financial foundation, has been laid. Now that's clearly true of Great Britain, it's true of France, it's true of Italy, it's true of Mexico, it may or may not be true of other countries, which I haven't been following closely. The rate of wage increase is coming down. The rate of inflation is coming down, the rate of increase in the money supply is coming down. The foreign trade balance improving, the exchange rate position improving. So I don't feel unhappy about the sluggishness of the outside economy, because I think the basis for later improvement is in the process of being laid.",174
-fomc-corpus,1977,It's true of the U.K. I don't think that was true of France.,16
-fomc-corpus,1977,"Well, it's true of the U.K. clearly. It's true to a lesser degree of Italy, but it is true of Italy, it's true to a lesser degree of France. I went over the French record very carefully the other day. I think it's true of Mexico, though the evidence there is less clear. I think we ought to keep that in mind.",73
-fomc-corpus,1977,It looks like Brazil is another major foreign borrower whose prospects are looking up.,15
-fomc-corpus,1977,I have not followed developments there. I think I'd like to have--Mr. Truman here?,19
-fomc-corpus,1977,Yes sir.,3
-fomc-corpus,1977,"I'd like to have the outside economy reviewed from the viewpoint I've just presented. What the staff has a habit of doing is looking at the real economy, that's good. But I think that the financial foundation of real economic activity--never mind whether your interpretation is the same as mine, you see--whether these countries around the world are or are not in process of straightening out their financial position. Would you be good enough to undertake a survey like that? Cover not only the obvious countries but some of the lesser?",103
-fomc-corpus,1977,"Turkey, Spain, Portugal.",6
-fomc-corpus,1977,"Well, we've got to stop somewhere. I'll leave that to the discretion of our staff.",18
-fomc-corpus,1977,Those are the countries that there are major problems in.,11
-fomc-corpus,1977,"I think the point that Governor Partee has, though, is important--an evaluation should include prospects for shock effect of a serious situation that might develop with an individual weak country.",36
-fomc-corpus,1977,That's true. But I don't think the world is going to change because of what happens in Turkey. It may change because of what happens in Italy or France. Thank you Mr. Volcker for your comments. And now Mr. Lilly.,48
-fomc-corpus,1977,"Well, I have little that I can add. I agree that business is good, but I would point out, in the practice of medicine, that after a certain time in life, doctors are more concerned with the maintenance of the patient than his growth. And I think that's a problem we're faced with for this patient, which is somewhat beyond the point where you're worried about its growth. I would agree with Henry that an incomes policy would seem to be appropriate, but I don't quite see how the [Federal] Open Market Committee can get into the incomes policy--",112
-fomc-corpus,1977,And I'm delighted.,4
-fomc-corpus,1977,"Well, I agree with that, except we have done it in the past, you know, by making recommendations. I'm not suggesting that we do that.",31
-fomc-corpus,1977,But I'm suggesting we consider it--not at this time.,12
-fomc-corpus,1977,"We consider recommending. If and when we do reach that point, and I hope we don't reach it in any near future, but if and when we do, then the recommendation would be useless unless it becomes specific. The fellows over there, you know, they're struggling with that question, you see. And they don't know how to develop an incomes policy, a specific incomes policy. They'd like to do it--a specific incomes policy that would be workable and that could have fairly wide support. This is the [unintelligible].",108
-fomc-corpus,1977,"Well, I can't think, Mr. Chairman, of anything that would put a further damper on capital spending plans.",24
-fomc-corpus,1977,At this time.,4
-fomc-corpus,1977,I can. A much higher funds rate.,9
-fomc-corpus,1977,"No, I disagree.",5
-fomc-corpus,1977,"I would hope, Mr. Chairman, if there's a serious consideration given to recommending alternatives, that addressing ourselves to market structure be on the list as a possible alternative to an incomes policy.",37
-fomc-corpus,1977,"Well, the incomes policy has so many facets. I see nothing wrong with continuing to fight the mad minimum wage proposals and some of us die-hard conservatives--they still exist--almost won a victory in the House of Representatives. The sentiment is changing. People are beginning to learn. In fact, we had a Secretary of Labor for the very first time declare publicly that an increase in the minimum wage will cause unemployment. Of course, since this is a scientific or pseudoscientific age, he had a precise number--90,000 will lose their jobs. Now the rest of his prescription is something else again. Well, I'm praising Secretary Marshall. I do that very rarely, and I'll stop at this point.",143
-fomc-corpus,1977,"You lifted that slightly out of context too, didn't you, Mr. Chairman?",16
-fomc-corpus,1977,Beg your pardon?,4
-fomc-corpus,1977,"You lifted that praise slightly out of context, too, didn't you?",14
-fomc-corpus,1977,"I did. I did. And in fairness to the truth, Mr. Marshall went on to say, the fact that the increase in the minimum wage will cause unemployment is no reason for not doing it. On the contrary, justice requires that we do it. And we being a government all powerful, having created unemployment, can set about methodically to offset the unemployment that we ourselves have caused by spending several billion dollars on the Youth Corps and whatnot. Well, I've told the whole story now.",100
-fomc-corpus,1977,"A minor clarification, Mr. Chairman. Dave, about ""maintenance of the patient""--you didn't mean that you are now seeking a zero growth rate for the economy?",33
-fomc-corpus,1977,I didn't. Maintenance of the present growth rate.,10
-fomc-corpus,1977,Maintenance of the present growth.,6
-fomc-corpus,1977,"Mr. Guffey, please.",8
-fomc-corpus,1977,"Yes, Mr. Chairman, two additional brief comments. One is that as we surveyed our directors and businessmen for this Redbook, it seemed that, for perhaps the first time, absent the agricultural sector, that businessmen were rather optimistic, [with] some evidence that they're beginning to enjoy the recovery for the first time, and in particular in the last 2-1/2 years. And I think that's a plus. Lastly--",87
-fomc-corpus,1977,"By ""enjoy"" do you mean they really believe it--",13
-fomc-corpus,1977,"Oh, yes.",4
-fomc-corpus,1977,--or do you mean more than that?,9
-fomc-corpus,1977,"They're not only willing to believe--the only drags on that kind of confidence level, it seems, are the lack of a tax policy and the lack of an energy policy. But absent those two factors, it seems generally that the businessmen in the midsection of the country are happy with what they see and are looking forward to continued good times. And that's the first--all comments previously had been more in the line of uncertainty of the future--this time they're beginning to enjoy it a little bit. The last comment that I would make is that you've heard from me and from John Balles and others about the drought situation from the Midwest on to the West. I would say that it came to the attention, particularly, of the people in Kansas City that the drought has ended as of last Monday, [when] there was a flood in our city that did an estimated $100 million in damage and some 26 lives lost. And that is true generally throughout our District up until you get to the western slope of the Rockies. They have begun now to get some moisture, but they're two years away from restoring the moisture level that they've lost over this drought period. But from the eastern edge of the Rockies on into our area, and I'm sure on to the east, the drought has ended, and, as a matter of fact, we may even have too much water now. Certainly we've had too much at one time in Kansas City.",289
-fomc-corpus,1977,Moderation.,3
-fomc-corpus,1977,"Moderation. The fact of the matter is, the loss in Kansas City is very substantial, and the loss of lives of course is something that cannot be [unintelligible].",37
-fomc-corpus,1977,How did the loss of lives occur?,8
-fomc-corpus,1977,"There is what's called Brush Creek that runs through a very fashionable area of Kansas City, that one of our politicians in the past, Mr. Pendergast, cemented the bottom of simply because he was in the ready-mix [concrete] business. When the creek comes up--it is a drainage area--it's normally a very small trickle. But when you have a very heavy rain that comes up very rapidly--this doesn't [normally] get out of its banks to cause any damage--[but] this was described as a 500- year flood. That is to say, the moisture that accumulated in that short 24-hour period was what you would expect to occur once every 500 years. It is a very unusual occurrence.",151
-fomc-corpus,1977,And that--were people drowned?,7
-fomc-corpus,1977,"People were actually swept away. They were in businesses, restaurants, other types of businesses, and the water came in as they tried to exit. It came up very quickly. As they tried to get out they were swept away, or the alternative was that they actually drove into the waters and their cars started bobbling down the stream and they were carried away. They were like lemmings going to the sea. There was no thought that they couldn't make it across a lower area that they've never seen water in before. And it occurred all over the city. There was damage that occurred, of course, where the flood waters cascaded through the plaza [Country Club Plaza shopping center] area, and on east, but also there was great damage in the outlying areas simply because the storm-sewer drains could not carry off the accumulation of water. The homes, businesses throughout the city sustained damage, and there is very little flood insurance in that area. So these are personal losses. I know there has been some concern about making available the same thing the Board did for the [July 1977 flood] situation in Johnstown [Pennsylvania]. We'll perhaps propose a push for that--",238
-fomc-corpus,1977,Did this adversely financially affect the Nichols company that owned all that area?,14
-fomc-corpus,1977,"It will, of course, because it was all owned by--the plaza area itself, and I don't want to suggest that that the damage was in the plaza area only, because it was city-wide--[but] that's the place where the greatest volume of dollar assets can be seen and where a great deal of damage did indeed occur. But that area is essentially all owned by one company, and there will be a great loss because it was all uninsured.",92
-fomc-corpus,1977,"I could add, Mr. Chairman, that as far as the Seventh District is concerned, it's rained just about every other day since the first of August, and not in the concentrated form in Kansas City, but it has basically restored a good share of the subsoil moisture lost, and the farmers are now shifting their worries to whether they can get the corn harvested because the fields are too muddy.",80
-fomc-corpus,1977,"All right, any other comment on the economy? Well, we've ended our economic discussion on a note of sadness, but I think this is one of the most interesting economic discussions we've had in recent months. Well, we'll move on with Mr. Sternlight's statement.",54
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,"Thank you, Mr. Sternlight. Mr. Black, please.",14
-fomc-corpus,1977,"Peter, as interest rates move up closer and closer to the point where we could expect some disintermediation, do you think it's likely that volume in foreign purchases, maturities selected, will give us any additional leeway toward moving the funds rate up without incurring disintermediation?",59
-fomc-corpus,1977,"I think these foreign purchases seem to be a steady force in the market. It's hard to predict what might lie ahead. A lot depends on just what the U.K.'s fortunes are. There have been other foreign buyers. Some have been going in the market. A number of them of them have been just taking amounts directly from the Treasury on new issuance. But I think there, too, it tends to relieve what could otherwise be upward rate pressures as we come to a point where disintermediation might be a factor.",106
-fomc-corpus,1977,"You would guess there would be some marginal effect, anyway?",12
-fomc-corpus,1977,"I would think so, yes.",7
-fomc-corpus,1977,"All right, thank you. Mr. Wallich now, please.",14
-fomc-corpus,1977,"A couple of points, if I may. One is, as I look at today's call, you're in one of those situations again where you are making matched sale-purchases with foreign accounts and then have to compensate by supplying funds to the rest of the market. Does that kind of situation give you any problem?",62
-fomc-corpus,1977,It has not provided a serious problem to us. We have been asking foreign accounts to hold down the volume of these repurchase agreements until we get clarification of just where we stand on this situation that was reviewed by the Committee earlier as far as the Internal Revenue [Service] is concerned.,57
-fomc-corpus,1977,"The market knows about these operations, doesn't it? So that it doesn't get a false signal?",19
-fomc-corpus,1977,That is correct.,4
-fomc-corpus,1977,"When we had that wide spread between discount and funds rate, was the increase in borrowing more or less in line with your expectations? Were you able to make a good forecast of the rise in borrowing?",40
-fomc-corpus,1977,"I would say it exceeded our expectations, and we kind of played it by ear from day to day. It was a complicating factor in the conduct of operations during that period.",36
-fomc-corpus,1977,"Of course, you would say that the expectation of a rise in the discount rate soon would intensify the borrowing, but that would be true of any such situation where a wide spread tended to develop.",40
-fomc-corpus,1977,"Yes, it did seem to proceed with particular speed this time, based on past experience. It seemed to move quicker that way.",26
-fomc-corpus,1977,Thank you.,3
-fomc-corpus,1977,"All right. Mr. Coldwell, please.",10
-fomc-corpus,1977,"Peter, in your contacts with dealers, do you get the impression that they're looking for higher rates?",20
-fomc-corpus,1977,"I think, on balance, they would expect higher money market rates, particularly. There would be more division of views as one went out on the maturity curve.",32
-fomc-corpus,1977,"Is there any significance to the change in the dealer inventory position, particularly bills?",16
-fomc-corpus,1977,"Well, the bill positions have increased in the last month, a good part of it, I think, because of the Treasury getting back into some net additions to bill supply, whereas they had been, since the earlier part of this, paying off bills or, well, since about the beginning of the summer, just holding steady on bills. And their coupon positions--they were holding net short positions in an anticipation of higher rates to come, and the size of that short position has varied as that expectation has varied.",103
-fomc-corpus,1977,"Well, that short position is almost liquidated now, isn't it?",14
-fomc-corpus,1977,"They've moved out of the short position into about a small net long [position] in early September, but now they've reestablished a moderate net short position again in the last figures we've had.",40
-fomc-corpus,1977,"You did say, Peter, that the year bill is not up at all from where it was a month--",22
-fomc-corpus,1977,I mentioned that the six-month bill remained unchanged. I think the year bill was also--,18
-fomc-corpus,1977,Six-month bill. So that it's really the very short end that has risen.,16
-fomc-corpus,1977,"Yes, that's right.",5
-fomc-corpus,1977,That's interesting.,3
-fomc-corpus,1977,"Any other questions or comments? Yes, Mr. Black.",12
-fomc-corpus,1977,"Mr. Sternlight, there are not many foreign purchases in the very short end are there?",19
-fomc-corpus,1977,There have been some. And there's also been some liquidation by some of the foreign accounts that are moving out of bills into the intermediate coupons.,28
-fomc-corpus,1977,"I would have thought that you would have responded to Governor Coldwell's question, that that very stable [unintelligible] deal would suggest that the market as a whole is not expecting rates to rise.",42
-fomc-corpus,1977,"Well, I think they're troubled by--they're trying to sort out their own analysis. I think if you polled them, they would talk about expecting some rate increases.",35
-fomc-corpus,1977,"Have you gone back to look at the shape of the yield curve in prior recoveries of this? Where are we in regard to that shape of the yield curve, the slope of it?",38
-fomc-corpus,1977,"Well, there certainly has been a flattening of the yield curve. I wouldn't want to venture, offhand, where we stand. These are the views--",32
-fomc-corpus,1977,"I happen to have some figures on that, Governor Coldwell, for the briefing I thought I was going to write, but it didn't work out too well. I discarded it. We have a much steeper yield curve now than we did in comparable stages of past recoveries. For example, the 20-year Treasury constant maturity is just about 2 percentage points above the three-month bill rate. In previous expansions that lasted this long, it was between 40 and 70 basis points above the three-month Treasury bill rate at this stage. And there are similar relationships when you compare the triple-A corporate bond rate to the four- to six-month commercial paper rates. So the yield curve is still much steeper, reflecting, I believe, the strong liquidity demands we've had in the course of this recovery.",162
-fomc-corpus,1977,"Isn't it also because interest rates didn't rise for so long, contrary to expectations?",17
-fomc-corpus,1977,"That also, but this is--I was comparing a 20-year issue to the three-month issue. Of course, if credit had been much tighter, well, short-rates would naturally rise more than longer rates just because of the economics and arithmetic of that. But I think that we've been affected by the demands for short securities by banks, thrift institutions, for a time, and corporations and by the desire to lengthen on the part of corporations, state and local governments, and others, and this has contributed to keeping the yield curve as it is. Of course, your other point is also true. If we had much tighter credit, the yield curve would have been shifting.",137
-fomc-corpus,1977,"Steve, can you jump to the conclusion that the Committee still has a considerable margin [for] tightening in the short area without impacting on that long-term yield?",32
-fomc-corpus,1977,"I think that you would have, in effect--if you tighten considerably, if short rates went up a percentage point--I believe that in that process, long rates would go up.",37
-fomc-corpus,1977,It depends on your timing.,6
-fomc-corpus,1977,You've got to watch time--,6
-fomc-corpus,1977,"That's what I was going on to say, Mr. Chairman. In the process of tightening, long rates may go up, but after that tightening is accomplished and those who have been caught with positions in the process of tightening have adjusted [to] it, then I think that the long rates would tend to drop back and be only slightly higher than current levels. That's how I think it would tend to work.",82
-fomc-corpus,1977,Do you include mortgage rates in that?,8
-fomc-corpus,1977,No. I think mortgage rates would tend more than the corporate bond yields to rise permanently because you begin somewhere to have some effects on--,27
-fomc-corpus,1977,-intermediation?,4
-fomc-corpus,1977,--intermediation. But then Regulation Q adjustments might be a factor there.,16
-fomc-corpus,1977,"But you have a timing question on the rate at which you change the short rate, too.",19
-fomc-corpus,1977,That's how I started off.,6
-fomc-corpus,1977,"Mr. Roos, please.",7
-fomc-corpus,1977,"In our efforts to hold short rates down, the present tendency of the aggregates to increase persists. Isn't it logical to expect that long-term rates will move upward in anticipation of inflation?",36
-fomc-corpus,1977,"That's one possibility, President Roos. It hasn't happened thus far.",14
-fomc-corpus,1977,Don't you think that it's partially due to the fact that the market believes that we are determined to avoid inflation?,22
-fomc-corpus,1977,"I think that's right. And if the recent rates of growth in M1, for example, continued for some months, it's quite possible you would have feedback effects on long rates. However, I ought to amend that because, if it continues at that rate, and it becomes evident to the market that this is not being associated with an acceleration of inflation or due to demand factors but the economic indicators that we get, it might be interpreted as simply a reversal of the process that has occurred over the past two or three years where people have been desiring to hold less money, that they're simply readjusting. And if that interpretation becomes prevalent, then people would not expect inflation to accelerate, [and] you would not have a reason for long rates to rise. I'm not sure exactly which interpretation would become prevalent, but the risk you point to is certainly there.",173
-fomc-corpus,1977,"Well, there is also the question of what has been happening to the monetary aggregates. If you look at M1, which I think is what you did tacitly, Mr. Roos, the story is very disconcerting from the point of many of us, certainly mine. But if you look at M2, we can take a little comfort. Let's not take too much comfort, but look at the evolution. On page 4 of the Bluebook, you have a useful summary. Look at M1 during '75 and '76; the rate of growth was 5.2 percent. For the past 12 months, 7.1 percent; past 6 months, 9.1; past 3 months, 9.5. It's a very uncomfortable record. Well, now, look at M2 at 1975 and '76, 10.4. For the past 12 months, 10.9; past 6 months, 9.9; past 3 months, 10.5. There you have a record of remarkable stability.",224
-fomc-corpus,1977,"Mr. Chairman, but isn't the monetary base expanding in an alarming fashion, 6.6, 7.9, 8.8, 9.6 [unintelligible]?",40
-fomc-corpus,1977,"Well, without accepting the ""alarmingly""--I don't get alarmed easily--it's disconcerting, but I attach more importance to monetary aggregates than I do to the monetary base. Now I may be mistaken about this, but that is the way I have become accustomed to using monetary statistics.",59
-fomc-corpus,1977,"Well, I think functionally, what's happened is that M1 is growing more rapidly, and the time deposits that are added to make M2 are growing less rapidly, and M1 has a much higher reserve requirement than M2. There's a time deposit component of M2, that's why the monetary base is growing more rapidly.",66
-fomc-corpus,1977,"May I ask one more question of the Desk? Peter, given this dialogue that Steve and several others have been having, is there strength in demand at the short end of the market which the Committee would have to resist in a rate advance?",48
-fomc-corpus,1977,Strength of demands for credit?,6
-fomc-corpus,1977,Strength of demand largely for investments is what I was thinking of.,13
-fomc-corpus,1977,I'm still not sure--do you mean the strength of demand for credit or demand for investors?,19
-fomc-corpus,1977,"Well, I'm thinking of investors demanding short-rate bills.",11
-fomc-corpus,1977,I'd say there's a good bit of demand there of liquidity and demand for a variety of instruments.,19
-fomc-corpus,1977,--which would be a resisting factor for your moving the rate up very rapidly.,16
-fomc-corpus,1977,"It could work to slow that effort, but I think the rates--as I think that we would still be able to have a--",27
-fomc-corpus,1977,"Well, I'm not saying that you couldn't do it. I'm merely saying you've got a resistance factor built into it.",23
-fomc-corpus,1977,"It's pushing, yes.",5
-fomc-corpus,1977,"I think another way of putting that, Governor Coldwell, is that that's been a factor in the course of this recovery and has kept the three-month bill rate below the federal funds rate.",38
-fomc-corpus,1977,"You could view that as giving a little more leeway to move your federal funds rate without disintermediation, too.",25
-fomc-corpus,1977,"Well, there are no further questions to Mr. Sternlight--",13
-fomc-corpus,1977,I move to ratify the Desk actions.,9
-fomc-corpus,1977,Motion to ratify what Mr. Sternlight has told us we're doing.,15
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,"That motion's approved. Then let's listen to you, Mr. Axilrod.",17
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"All right, thank you, Mr. Axilrod. Any questions?",15
-fomc-corpus,1977,"Mr. Chairman, may I ask a question of you? I find myself confused again hearing some of the explanations as to exogenous factors that may have caused the aggregates to perform as they did. We frequently explain after the fact certain things that have happened that have caused these things to fluctuate beyond our targets and our goals. Aren't we, in conducting monetary policy--and I ask this sincerely, I'm new and I really am mixed up on this--aren't we supposed to really exert some control on these events, or do we in effect react after the fact to things that have happened that we're sorry happened? In other words, is it not possible, by the adroit conduct of monetary policy, for this Committee to have a very real effect on the trend of M1 and M2 instead of explaining afterwards why they did expand beyond what we wanted--what were our targets. I don't know if I'm making my question clear, but I find myself frustrated sometimes in this regard.",196
-fomc-corpus,1977,"Let me rephrase your question, and I may run the risk of misrepresenting your thoughts, but do stop me if I do that. We set, let us say, a certain goal for ourselves for the rate of growth in M1. And if we were determined to achieve that rate of growth without regard to other factors or consequences, I think we could come very close to that. I don't have much doubt about that. Now let me turn to Mr. Axilrod. Would you dispute what I've said?",105
-fomc-corpus,1977,"I wouldn't dispute it over a three- to six-month period. I would [dispute it], Mr. Chairman, over a one-month or two-month period.",33
-fomc-corpus,1977,"I think that's a useful qualification. I think we could do it. But I don't think that we have that degree of determination with regard to a given targeted figure. And I would question whether we should. Our job is not to worship at the shrine of a specific number that we agree upon at a given time. To the extent that we are going to worship at any shrine, our shrine is the performance of the economy. And we're doing our very best, you see, by tolerating some excesses, tolerating shortcomings, using our best judgment, which may be mistaken.",116
-fomc-corpus,1977,"Mr. Chairman, I'm not--if our stated and, I assume, understood objective is to gradually inch down the rate of inflation, and this has been often repeated, don't we have some commitment to that goal even if it means some temporary dislocations of interest rate levels and things like that? I mean, in other words, isn't that part of our mission, too?",75
-fomc-corpus,1977,"I'd say it is, but there is a question as to how much dislocation you'd be willing to cause, and at what time.",27
-fomc-corpus,1977,"Well, it's just not interest rate levels either. It's output and demand and employment and profits and the whole fabric of the economy that has to be taken into account.",33
-fomc-corpus,1977,And inflation.,3
-fomc-corpus,1977,"Yes, in dealing with the inflation problem, which was your question.",14
-fomc-corpus,1977,Mr. Wallich.,5
-fomc-corpus,1977,"Well, I'd like to get some light on the nature of the shocks that money supply has recently received. The rule of thumb says that if it's a monetary shock, ignore it, and keep interest rates constant. But doesn't that imply that--",48
-fomc-corpus,1977,Now I have to stop you. What does that mean?,12
-fomc-corpus,1977,"It means that if there is a shock from the financial, monetary side--",15
-fomc-corpus,1977,"No, no I still have to stop you. What does that mean?",15
-fomc-corpus,1977,What does that mean? A rise or fall in the demand for money--technically known as the LM curve.,23
-fomc-corpus,1977,"Well, take, for example, the Penn Central crisis situation.",13
-fomc-corpus,1977,"That would be a very clear example. But I'm thinking simply of occasions where we've got a $3 billion increase in one week or a $5 billion increase in one week and don't have much of an explanation. But they bring us to very high growth rates, and if we take our long-term ranges seriously, we would have to go to very low growth rates in money supply over a year in order to make these targets. Now the rule, as I understand it, is if it comes from the monetary side, there is some change in the demand for money--don't let that affect the real sector. And the way to avoid an impact on the real sector is to keep interest rates constant because the money supply works presumably to interest rates, and that channel of transmission can be blockaded if it's not appropriate to have that transmission. But what I'm trying to get your reaction on, Steve, is, doesn't this theory imply that shocks are stochastic and random? That if we got a bounce up of $3 billion or $5 billion over time, we'll get a bounce down of that [amount]? If that doesn't happen, if we're carried to a permanently higher level of the money supply, then it may not have been a random shock. It may have been something fundamental in the economy and maybe it should not be ignored but should be allowed to have its influence on higher interest rates and the real sector.",280
-fomc-corpus,1977,"Well, Henry, I still don't know the question. You don't know which it is at any given time with any certainty--whether it's a random movement or the beginning of a new trend or a continuation of an existing trend.",45
-fomc-corpus,1977,"Well, if it were a random movement, in my opinion, it should over time be offset by some other--",23
-fomc-corpus,1977,"But what I'm saying is, if you could identify these movements as random or otherwise, our problem would be very simple. Our problem is so difficult precisely because we don't quite know how to do that.",40
-fomc-corpus,1977,"Well, I agree with that, yes.",9
-fomc-corpus,1977,"Yes, but then I don't know what your question is. I thought your question assumed that we're able to distinguish and identify properly.",26
-fomc-corpus,1977,"Well, I am trying to distinguish, and I say one of the distinguishing characteristics should be that a series of shocks in one direction upward should eventually be followed by movements in the opposite direction, indicating--",40
-fomc-corpus,1977,"If you know that they are random. But if you don't know that, that's where you have your problem.",22
-fomc-corpus,1977,"Well, if they're not random--we need to distinguish, this is right. I'm assuming when you get a shock like that, at first sight, that it is random. Now we have to examine was it or was it not. If it wasn't, then we've got to take it seriously and not ignore it.",63
-fomc-corpus,1977,"Mr. Axilrod, the baby is yours.",11
-fomc-corpus,1977,"Governor Wallich, one point I would like to make is that I think the size of the monthly disturbances we've had is a strong random element in an 18 percent and a 13 percent [move]. It may seem supernatural that many of them are occurring on the first month of the quarter, but we have not been able to think of a reason why that should occur or at least why it should account for such a large number. So I think there's a large random element in the behavior of the monthly numbers. And it's clearly in the weekly numbers. I don't think the random element--if I may use that word, it's shorthand for a number of things--is that clear if you go back to successive quarterly numbers or the development thus far in '77. To me, that indicates that the shortfall in money, so to speak, relative to the ordinary demand curve, the one that economists have been estimating year after year, that that shortfall--it's been getting less, coming close to an end. For example, and this is, again, sort of fragmentary evidence, and that's the only kind of evidence we can have, at least in the background, but our quarterly econometric model had been underpredicting M1 given GNP, given the actual short rate. The [M1 prediction of the] money demand equation of that model was always a lot higher than the actual M1. We never used it literally, but it was always a lot higher. By the second and third quarters of this year, it's no longer doing that. It's no longer underpredicting. The increment in money is about what it's been predicting. That is some fragmentary evidence that people have become willing now to hold more money relative to GNP than before. Now what I can't answer, and I don't believe anyone can, is whether this trend is simply accommodative to the growth in GNP and therefore does not imply a stronger rate of inflation ahead, or whether it, too, will prove to be somewhat transitory, and in the period ahead the public will say, well, I do have more money than I need, therefore I'm going to spend. Therefore velocity will go up, therefore GNP or prices will be higher than are otherwise being projected. That could occur. I don't know of any precise way to answer that. Monetarists have models which in effect say that. I mean, you have a long-run rate of growth, and if you go above that, you're going to get a price effect. I'm going at too much length, but the other implication is, of course, if it's purely accommodative to current GNP, it doesn't have implications for the future. Then, if the Committee doesn't permit that accommodation, interest rates will rise much more rapidly and you'll cut short the recovery. In our staff analysis, we have taken a middle course. We have assumed that interest rates will not rise quite as much as a literal reading of an econometric demand curve would suggest; and therefore, the Committee could come within its target range, maybe not the midpoint, but come within its target range and not seriously affect the economic projections that Mr. Kichline has presented.",641
-fomc-corpus,1977,"May I pursue this just one minute, Mr. Chairman? Steve, had you looked into--and [can you] give me a good explanation for--the correlation for currency increases with the precise months when M1 goes up?",46
-fomc-corpus,1977,"No. We have noticed that, of course. Currency is a small number.",16
-fomc-corpus,1977,"Well, I understand it's a small number with a huge increase, but what's the correlation in your reasoning, why currency moves up.",26
-fomc-corpus,1977,"If I could relate it all to transactions in that month, it would be an obvious correlation because currency tends to reflect transactions. You can't quite do that, so we don't really have an explanation that I know of for that, Governor Coldwell. We could try to think about it, but we simply do not. It could be just simply a reflection of a bad seasonal in the month, equally for one or the other. Again that's just--there's nothing I can defend rigorously.",98
-fomc-corpus,1977,"Well, as you look through the monthly ups and downs, I think one would have to conclude, and maybe you said this, the evidence is that the number on M1 growth is working higher.",40
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,It's a high number.,5
-fomc-corpus,1977,"I think we need to make up our mind whether this is the kind of unexpected increase which one should ignore and stay with interest rates or whether it is one that one should take as an indication of future movement, future aggregate demand, prices and output, and should act accordingly to restrain. If one thinks it--",63
-fomc-corpus,1977,"It's a question of whether to accommodate what we're now getting or is this more than needed, so there is no question [unintelligible].",29
-fomc-corpus,1977,"Henry, in either case, isn't it a permanent build in the stock or supply of money?",19
-fomc-corpus,1977,"If it is a truly random shock, I would say it would be offset by a move in the opposite direction in time.",25
-fomc-corpus,1977,It hasn't been.,4
-fomc-corpus,1977,"Right. Since it hasn't been, it raises this suspicion that it is not [random]. Now there are two possibilities. One is that people have changed their demand for money so that with a given GNP, they want more. If that's the case, we should accommodate it, because it doesn't mean anything to GNP. But if it means that--",71
-fomc-corpus,1977,"I don't know that I would accept that. The people may change their habits once again and in the process of building up too much money, that money will do its work later on without raising [unintelligible].",44
-fomc-corpus,1977,Just to a degree.,5
-fomc-corpus,1977,I was postulating the possibility that they had changed their demand function so that they wouldn't do this--,20
-fomc-corpus,1977,You mean a permanent change.,6
-fomc-corpus,1977,"--permanent change in their demand function, just as we've had a downward shift.",17
-fomc-corpus,1977,"I know, but the trouble is, in the real world these changes are short lived and we have oscillation.",23
-fomc-corpus,1977,"Well, you know, we had a downward shift of the demand curve of about $30 billion. Had we believed in that demand curve, we would have driven interest rates into the floor, trying to push the money supply on that demand curve. We didn't. We kept interest rates at reasonable levels and therefore reduced the supply of money relative to what was expected relative to GNP on a very substantial scale. Now, if we did exactly the symmetrical thing on the way up, we would then not worry about a $30 billion increase in money supply relative to expectations and relative to GNP and just avoid interest rates from going to the roof. I'm not asking for a symmetrical action, but I think we should realize that we went largely with interest rates when the money supply was falling short of expectations. And I'm now trying to think out what we should do on the upside.",174
-fomc-corpus,1977,"Governor Wallich, so I wasn't misunderstood, let's say the shortfall ended up totaling around $40 billion. There's no evidence that I can see that the public is trying to recapture that. The evidence that I see is that the shortfall may not get bigger. That is, there's no--",60
-fomc-corpus,1977,And that evidence is short lived?,7
-fomc-corpus,1977,Very short lived.,4
-fomc-corpus,1977,Evidence for six months?,5
-fomc-corpus,1977,"Two quarters, that's correct. Very transitory. It's not very [unintelligible].",19
-fomc-corpus,1977,"If they should try to recapture it, the growth rates would be staggering.",16
-fomc-corpus,1977,"Yes, oh, it can be impossible. You'd have a 15-20 percent.",19
-fomc-corpus,1977,"Mr. Chairman, is it not possible that, with our preoccupation in keeping interest rates down, we're pumping an awful lot of money into this--",30
-fomc-corpus,1977,"Well, did you say preoccupation of keeping interest rates down? I'm not aware of any such preoccupation on the part of this Committee.",28
-fomc-corpus,1977,"Well, can we have it, sir, can one have it both ways? In other words, can we have low interest rates and low rates of aggregates growth, or are these things inconsistent and doesn't one have to make a choice sometimes of not trying to have the best of both worlds?",58
-fomc-corpus,1977,"They're consistent in a recession, Larry.",8
-fomc-corpus,1977,They are?,3
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,If I may go back to Steve's--,9
-fomc-corpus,1977,"We could make a choice. When you speak of a choice, one certainly can avoid either extreme. There is some middle ground one may want to choose. And it may be the better part of wisdom. Before we're through this morning, I'm going to urge just that.",54
-fomc-corpus,1977,"If I may pursue this one moment further, Mr. Chairman, if we're back on the old demand curve at a lower level, the slope is the same but the level has been reduced by $40 billion. That would mean, then, that we would not be able to count on the same velocity gain on which we've counted so far to finance an 11 percent increase in GNP with a 5 or 6 percent increase in M1 or 9 percent increase in M2. This is the meaning of being back on the old demand curve.",111
-fomc-corpus,1977,The demand for money in relation to income in your case.,12
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"We had not assumed that we're back on that, Governor Wallich. We have not assumed that the demand curve--",23
-fomc-corpus,1977,"Well, neither has Mr. Wallich, if I understood him correctly. It was an ""if"" proposition.",23
-fomc-corpus,1977,"I meant to say we're on the same slope, not on the same path, because the path is down $40 billion from where we expected to be.",31
-fomc-corpus,1977,"And you put even that in ""if"" terms.",11
-fomc-corpus,1977,"Even that is an ""if.""",7
-fomc-corpus,1977,"Well, let's be clear. The staff has not assumed the same slope. I presume that you have a much higher interest rate in the early part of next year.",33
-fomc-corpus,1977,"Now we're getting into technical things of slopes and demand curves. One way of putting it is, I don't know whether the slope has ever changed, but you relate money to GNP as a curve, given interest rates. I assume that curve isn't shifting down. I'm assuming that the shift from money to other liquid assets is not occurring to the same extent as it occurred in the previous two or three years. Therefore, somewhat more of a money increase in relation to GNP will be revealed because whatever the increase in money in relation to GNP was before, it had been reduced by just this shifting of levels of money away.",125
-fomc-corpus,1977,"But not back to the previous relationship, I think. Henry was making the point that it would be back to the previous relationship. That is, your model, let's say, would be right on the increments from now on out. If the model were right, to get that objective of monetary growth that you have, you would have to get considerable interest rates.",72
-fomc-corpus,1977,I think the clearest answer I could give is that you're right.,14
-fomc-corpus,1977,"We talk about money, we talk about monetary growth, and implicit in all of this is acceptance of M1, whereas this Committee decided some time ago to attach equal weight to M1 and M2, which means we've moved away from M1. And there is some thinking in this Committee, which I share, that we may perhaps want to move further in the direction of M2. So let's not implicitly wed ourselves to M1 in view of the fact that we've abandoned exclusive reliance on M1.",101
-fomc-corpus,1977,"And let's pursue further, Mr. Chairman, the development you reported on last time, of the development of M1.5 or whatever we care to see.",32
-fomc-corpus,1977,"What was it in August, Mr. Chairman?",10
-fomc-corpus,1977,Mr. Black?,4
-fomc-corpus,1977,What figure do you have on that new one for August?,12
-fomc-corpus,1977,"Well, I've got that here, and I'll look it up. In the meantime, let's have Governor Jackson's comments.",24
-fomc-corpus,1977,"My question pertained to that subject, Mr. Chairman. Mr. Axilrod, to what extent do we better understand the ramifications of the Regulation Q ceiling interest rate on the growth rate of M2 and M3, and how much they may have impacted on the high side in earlier periods, and to what extent they may impact on the lower side in the period which you are projecting?",79
-fomc-corpus,1977,"Well, we are projecting somewhat higher growth rates in the time and saving deposit components of M2 and M3, beyond the next month or two, than we would have had at current interest rate levels. We're projecting a somewhat higher interest rate than now, and one of the reasons is that because of the inflation that we currently have relative to other periods, nominal income is rising faster, and there is some elasticity of these deposits. These deposits relate to income flows as well as to interest rate levels, and so the higher income flow, which we believe has sustained growth rates of these time and saving deposits at rates like 7, 8, 9 percent--rates that in the past, at least the low end of those ranges--would have been associated with crunch periods and the need to raise Regulation Q. So in a sense the flows may give a somewhat artificial feeling that all is well and good when read literally, but the other part of it to remember, I believe, is that inflation is also increasing the nominal amount of financing that will be needed with these flows. So there may become a Regulation Q kind of problem even with flows in the 7, 8, or 9 percent area. Thus far, the interest rate relationship between time deposit ceiling rates and market rates are not at the point where, in the past, the [Federal Reserve] Board has raised Regulation Q ceiling rates. We seem to be some distance from there. And we have not assumed the need to raise ceiling rates under our alternative B set of assumptions, even into the first half of '78. But I'm trying to raise the very cautionary note on that.",332
-fomc-corpus,1977,"Do you think that the implication of the Regulation Q ceiling will make the use of M2 as an operational target more imperfect, or will it be sufficiently distortive to make it worthy of reconsideration of the use of M2?",46
-fomc-corpus,1977,"All of the aggregates have problems as targets. And when you adjust the ceiling rate, or even when market rates get near the ceiling rate whether you adjust it not--both [circumstances] create the need, I believe, for special and careful interpretations of M2 and M3. That is, if you raise the ceiling rate, you have to accommodate temporarily to a large rise in M2. If we fail to raise the ceiling rate, I think you're implicitly saying that you're willing to see a much lower growth in M2 in this period when the deposits are shifting out and going into market instruments. I think that's just a judgment that the Committee makes at those times. So there can't be a mechanical, in any event, M2 or M3. There would have to be adjustments as you get around ceiling rates.",166
-fomc-corpus,1977,But you don't think you would destroy the operational effectiveness of it.,13
-fomc-corpus,1977,"It makes them more uncertain around those times because we can't be very certain as to what extent the public is or isn't going to shift deposits. We'd have to rely on historical relationships, and they're very imperfect, as you know.",45
-fomc-corpus,1977,"Mr. Black raised the question about the rate of growth of a modified M1, the one that I referred to at the last meeting, for the month of August. Now the modified M1 concept is as follows: You start with our conventional M1 magnitude, then you add to it deposits of state and local government, and then you add to it business savings deposits, and then you add NOW accounts. These three items are added and then you exclude two items--demand deposits due to foreign commercial banks and demand deposits due to foreign official institutions. That is the definition of a modified M1, or one of the modified M1s that I referred to at the last meeting. Now you may recall that the present M1 [growth] figure for June was 4.5 percent, and the modified M1 figure was 1.8. For July, our M1 figure was 18.3, and the modified M1 figure was 11.9. For August, the relationship, or the direction of the differential, is reversed. Our M1 figure is 5.5, and the modified M1 is 6.8. Gentlemen, it's approximately one o'clock. And I think it would be best to postpone our discussion of current monetary policy, what it should be. And if that is agreeable, unless there are further questions to Mr. Axilrod, let us break for lunch now. And we should reconvene at--not too late. Is two o'clock realistic or is 2:15 more realistic?",314
-fomc-corpus,1977,"A realistic 2:15, really.",9
-fomc-corpus,1977,"Let's say at two o'clock, and we'll start promptly at 2:15. [Lunch recess]",21
-fomc-corpus,1977,"Gentlemen, no matter what that clock might say, it's 2:15, and now we're ready to start our monetary policy discussion. Let me say a few words by way of getting our discussion going. The Federal Reserve is passing through a difficult time in regard to policy, and I think the country is passing through a difficult time. We're urged by the monetarist school to stick to some predetermined rate of growth of something called the money supply and to forget entirely about interest rates. At the other extreme, we're urged by the Keynesian school to freeze interest rates or keep them low or not permit them to rise significantly--the Keynesians make great assumptions about our power with regard to interest rates--and let the money supply do what it may. I don't think that we can follow one theological school's advice any more than the other school's advice. Our concern is the economy; we have to pay attention to its behavior, to our ongoing institution, and we can't become victims of any particular theology. I indicated earlier that, without arguing the case, I'm moderately optimistic about the economy. But if I were to argue the case, I would have to indicate that there are uncertainties, there are points of weakness that we should not ignore. And I would have to argue further that interest rates do matter, and that any substantial rise of interest rates, whether originating in causes independent of the Federal Reserve or originating in their own actions, should be of concern to us. I also would have to argue that the increase in the rate of growth of M1 is concerning, very troublesome--those I pointed out in the morning session. The rate of growth of M2 has been remarkably stable, and the like is true of the rate of growth of M3. Nevertheless, both M2 and M3, while their rate of growth has been stable, have been growing, I think, too rapidly. Now I think the best that we can do in the present circumstances is to find some middle ground, and that is my own thinking. I would suggest that, in working on instructions to the New York Desk, we might proceed as follows. As far as M1 is concerned, the rate of growth might be 2 to 7 percent, or 3 to 7 percent for the September-October period. We might aim at that. M2, perhaps 4 to 8 percent, and the federal funds rate might be 5-3/4 to 6-1/2 or 6 to 6-1/2. I think it would be wiser to do the latter. The federal funds rate now is 6-1/8. In view of the rapid increase in the money supply that we've had, it would probably be unwise to let it slip back to 5-3/4 even if the rate of growth of the monetary aggregates were very low in the next few weeks. I think we could live very comfortably with extremely low rates of growth in the money supply over the next few weeks. Well, that's my best thinking, [so] let's turn to the Committee. Mr. Jackson, please.",630
-fomc-corpus,1977,"I think philosophically I would agree with you that, particularly where the ramifications of our operations are so uncertain, particularly as to the mechanistic definitions of what constitutes money, and particularly as we may be entering a phase where there's a new relationship between supply and the real economy, which I would read as our goal--that to purely take either approach would be a mistake. Speaking to the issue of the ramification of two months of instructions to the Desk, in view of the fact that staff projections for the two-month period are effectively 7 percent, I do think that issuing instructions to the Desk in the 3 to 7 percent range would most likely produce instructions to increase the funds rate even though there might be only a very small divergence in the result of such. And I don't think such an overt intentional move to raise funds rates today, based on the uncertainty of our knowledge, would be appropriate. And for that reason I would suggest that, while I would be perfectly happy to see the lower end of M1 down in the 3 percent range--be perfectly happy to see that, in fact--I'd even buy zero, except it'd look foolish on the statement when we published it, and I'd admit that. I would say 3 percent would certainly be acceptable, but I would argue for an 8 percent ceiling in light of the staff's projection because we're now significantly into September; we have a pretty good insight as to what that might be. And the staff projections for October exceed 7. Another thing, I don't know how to implement this concern, but the truth is that every 90 days we've had a surge. And we've had a surge in previous Octobers. While I would be the first to hope that we don't have another one, at the same time I recognize that, given our recent experience, the prospects of having another one aren't ridiculous or remote. And therefore, seeing such a low limit in contrast to the projections, [it] strikes me [that] the result would be an intentional increase in the federal funds rate with relatively little change in the relationship between money supply and economic activity. For that same reason, I would be inclined to go 4 to 9 percent on M2. However, having made such an expansion on the top, I would be willing to see a 6 to 6-3/4 percent range for the funds range rather than a 6-1/2 top limit so that if we get another massive movement in October--",502
-fomc-corpus,1977,Then it puts it over the top range.,9
-fomc-corpus,1977,"It puts it over the top of the range, which then I think would justify a stronger move in the federal funds rate--",25
-fomc-corpus,1977,You don't need to specify that [higher federal funds rate range] because the directions would be inconsistent and there would have to be new directions issued.,29
-fomc-corpus,1977,"That's an operational question that I'm not sure I agree with, based on my understanding of the way we operate. But at any rate, I would prefer to see the 6-3/4 percent top limit so that if the Desk saw significant increases beyond the 3 to 8 percent that I'm suggesting, that we would go as high as 6-3/4.",76
-fomc-corpus,1977,"All right. I'm a little troubled, not by your prescription, but by the route that you get there. That is, I'm a little troubled by your reasoning. Let's say that the rate of growth--let's just look at M1--is 7 percent, which was my suggested upper limit. Then presumably Alan and Peter at that time would be 6-3/8, 6-1/2 perhaps, well--",88
-fomc-corpus,1977,"Excuse me, I overlooked the fact that I would propose the 6-1/4 estimate for the midpoint. It was a 6 to 6-3/4 percent range.",39
-fomc-corpus,1977,"Well, 6-1/4, they'd have to move on the federal funds rate immediately, which my suggestion would not involve, and that goes contrary to your own reasoning. You don't want to disturb the federal funds rate too much.",48
-fomc-corpus,1977,"In my own viewpoint, I wouldn't view an eighth of one percent as being a significant change.",19
-fomc-corpus,1977,"Well, I don't think any of us would quarrel with that. Mr. Partee.",19
-fomc-corpus,1977,"Well, I agree with a good deal of what Governor Jackson had to say, but when he finally got to the prescription, why, it wasn't then the same prescription I would have suggested. I think he's right that it biases the outcome too much to take a range as low as 3 to 7 [on M1] if I understood you; 4 to 8--I didn't understand what you said on M2.",87
-fomc-corpus,1977,4 to 8.,5
-fomc-corpus,1977,"4 to 8. Now given the fact that September looks as if it's developing to be rather significant, and the possibility of October--well, October could be double digit on M1, given the previous performance. And so I would rather also see a range that encompasses a somewhat higher number--I would propose 3 to 8 [and] 5 to 9 for M1 and M2. Because I don't see any harm, I don't see any great desire to see M2 significantly lower; 5 to 9 is a very reasonable range for M2, as I see it. And I would accept your second funds rate suggestion, 6 to 6-1/2 with 6-1/8 as the beginning point.",152
-fomc-corpus,1977,"Yes, I had that in mind.",8
-fomc-corpus,1977,"Now if we do get an October that is quite strong, we will undoubtedly go over the 7 percent, the 8 percent top on M1. And when we go over the top, I would assume that the Manager would report to you that the instructions were inconsistent, and then the question would be changing the instructions, considering whether to take the funds rate above 6-1/2. But if M1 came out, let's say, close to 8 percent for the two months, which is not far from the midpoint of the staff forecast, and if M2 was also relatively strong, as I understand it, we would be at 6-1/2 percent by the end of the period. That is, if the aggregates were both at the upper end of their ranges. And going beyond 6-1/2 would be a discrete decision based on overly strong performance. So I would, I guess, accept your funds rate range, but I would have a somewhat more expansive M1 and M2 range than you suggest.",211
-fomc-corpus,1977,I'm not sure I understood what you both are talking about on the funds range. You were talking about 6-1/8 and then--,29
-fomc-corpus,1977,6-1/8 is the midpoint of the 6 to 6-1/2,19
-fomc-corpus,1977,Asymmetrical.,4
-fomc-corpus,1977,"All right, thank you. And Mr. Mayo now, please.",14
-fomc-corpus,1977,"Mr. Chairman, I want to subscribe to your preamble. I must say, though, that I also come out with a slightly higher M1 upper end and M2 upper end, as Phil Jackson did. Otherwise, I find that we may be pushing ourselves up a little too soon if, indeed, we have a late September as well as an early October that gets us a little out of bounds. So I would prescribe 3 to 8 for M1, 4 to 9 for M2. This may not seem consistent, but I guess I have enough of a monetarist leaning--if I redefine a monetarist leaning to embrace what has happened to the Ms over a period of a year, which I'm trying to do here--I think I do become more sensitive to the monetarist leaning when we get over a year of over-target performance. But I would go to 6 to 6-3/4 for the federal funds range and would not find it uncomfortable if, indeed, we used the 6-3/8 midpoint, making it symmetrical. I think the time has come when we have enough evidence, if that's the word, vis-a-vis the targets that have been announced and so forth, that I would not object, let's put it that way, if the Committee's objective on federal funds were perhaps a little higher than those who have spoken thus far. But only marginally.",289
-fomc-corpus,1977,"All right, thank you, Mr. Mayo. Mr. Coldwell, please.",17
-fomc-corpus,1977,"Well, Mr. Chairman, I guess I am going to round out these various alternatives, using the same figures, but come out just slightly different from Mr. Mayo. I would be perfectly willing to accept your prescriptions in M1 and M2, putting the cap of 7 and 8 percent on the two respectively. I think there's room for a little bit more restraint here. In the short run, I think real growth [is] going to be a little lower than what staff or the others have forecast at 5 percent in the third quarter, 5 in the fourth, or 4. But I'm optimistic for the first part of '78. And the longer range, I don't think, is satisfactory, both on an unemployment and an inflation basis. I'd like a policy mix shift here, with the Federal Reserve tightening [and] fiscal policy easing. How that fiscal policy ease is achieved and the particular instruments used are matters beyond our control, at least within our range of advising somebody as to the direction it should move. I've reached a point where I think the Federal Reserve needs to limit the liquidity advances in this economy and I think we need to pay a little attention to these monetary aggregates. So I'm perfectly willing to use your cap level of 7 and 8. I would use the 6 to 6-3/4 percent as the range for federal funds, but putting the 6-1/4 as the asymmetrical midpoint. I think we've reached a point where we will come up pretty soon here to the problem of confidence if this thing doesn't turn a little bit. But I believe it's going to turn again, and I'm making a policy recommendation with the assumption it will turn. Establishing a cap on M1 and M2 is a bow in the direction of the monetary side, but looking over a long range, I really don't care if the thing does go down to zero. I'd be happy if we got a little retrenchment in the total level, and whether you want to put it in a prescription or not is immaterial. But I don't want to go down below the 6 percent range on the federal funds. So with those comments, I'm willing to stand on these particular prescriptions.",449
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Kimbrel now, please.",17
-fomc-corpus,1977,"Mr. Chairman, my reasoning is almost identical with Mr. Coldwell's. Just expressed the numbers exactly. I'm not sure [whether], on the federal funds, we would even want to enunciate the asymmetrical note, but I think I'd be much more inclined to let the market forces take the funds rate up as soon as practicable. I have the feeling that up to now, at least, the increases in short-term interest rates have had only a modest impact on the long-term rates or on the flow of mortgage funds. Considerable liquidity remains. I continue to be something less than impressed with the progress we're making on this inflation, the energy costs, and the ripple effects or [unintelligible] upward thrust, or however you want to word it. With the minimum wage possibilities forthcoming, and our lack of impressive productivity gains, I really think we still have to apply some further modest restraint and get back to, say, with your numbers, 2 to 7 [for M1], 4 to 8 [for M2], and 6 to 6-3/4 [federal funds rate].",230
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Eastburn next, please.",17
-fomc-corpus,1977,"Thank you, Mr. Chairman. I certainly agree with you that the increase in M1 is disconcerting and that the increases in the other Ms are higher than we would like to see them. I think these indicate that it's a matter of judgment, and my own judgment [is] that these are more than random shock developments and we need to deal with them. I would disagree, I think, with Governor Jackson, that no overt moves should be made by the Desk to raise the funds rate. The Bluebook points out that, to meet our longer-term goals, a substantial increase in the funds rate will be necessary and that the increase probably will be greater if it's delayed than if taken earlier. So I think the Desk should move fairly promptly to move the funds rate up, and my own preference for the range is for 6 to 6-3/4 with a 6-1/4 midpoint. But I would settle for 6-1/2 if it's understood that there would be a discussion if the aggregates were coming in exceptionally high. On the ranges for the aggregates, I would buy our 2 to 7, which you said first on M1, but I think the same kind of logic that you used last time to use the zero floor would apply this time. The only difficulty is that a 0 to 7 percent range is a very wide range. But I think in terms of our intention we should really think of a zero floor. And even though we may publish it as 2 to 7. That's my view.",316
-fomc-corpus,1977,"I would accept the last comment. Thank you, Mr. Eastburn. Mr. Volcker now, please.",23
-fomc-corpus,1977,"Well, I was going to start with the comment that Mr. Eastburn ended up with. I think it's easier to figure out what we want to do on the low side of all these things than perhaps the upside. Although the general intention is clear enough all around, I guess, to make the end as low as you can stomach for presentation purposes; and I certainly buy yours--a little lower, if people want them. And I wouldn't want to see the federal funds in this period, I think, go below 6--so that [covers] all the low ranges. I think we ought to bias the presumption of what's going to happen against the current projections in the way you've proposed initially. I can't get too excited whether the upper end of the range is 7 percent for M1 and 8 percent for M2, because the difference of 1 percent seems to be very small compared with the fluctuations we have anyway, from week to week and month to month. I certainly could accept, and I think prefer, the ranges you proposed initially. I feel comfortable with a 6 to 6-1/2 percent range; I feel comfortable with a 6-1/4 percent midpoint there, too, implying you go there relatively soon if nothing else changed. And I accept the personal corollary of that, that I feel quite comfortable with a 6-3/4 percent high end of the range at this point, given the way we biased this to go up within the range anyway, and saying we're very likely going to then hit 6-3/4 percent. I'm not all that sure I want to hit 6-3/4 percent unless we had a really big bulge, in which case we could reconsider. So I feel the upper end of that range should be 6-1/2 percent. I also am sympathetic, given what's happened in the rather erratic movements of M1, putting more weight on M2 somehow or another here.",404
-fomc-corpus,1977,"Well, that is something that I don't think we ought to try to do at this time. I have great sympathy with that suggestion. But I think that's something that your [sub]committee, Mr. Partee, should bring a recommendation on very, very soon.",54
-fomc-corpus,1977,"What, the [Sub]committee on the Directive?",11
-fomc-corpus,1977,Yes. Aren't you chairman of it?,9
-fomc-corpus,1977,"Yes, yes. But that was the subject that we had proposed to study, and we were told not to study it.",25
-fomc-corpus,1977,"Well, as the Chairman of the Committee--in view of my responsibilities, prerogatives--I speak in behalf of the entire Committee when I counsel you to get busy on that promptly.",38
-fomc-corpus,1977,I will try to have some preliminary work done for the Committee next time.,15
-fomc-corpus,1977,"My problem is, Mr. Chairman, I am not sure I would take the same view in the long run. My comment is directed for the particular short-run situation.",34
-fomc-corpus,1977,"Well, I don't think we can afford to change our procedure. We can change our goals from meeting to meeting, [but] I think we need some stability with regard to procedure. We'd be lost if we don't. As to the outcome, I'm leaning increasingly in the direction of giving more weight to M2. But I want that to be weighed by our staff, I want this to be weighed by our [sub]committee. I want the decision to be reached, and then we live with that decision for some time before changing again. Well, the Committee will do what it chooses to do. I have expressed my view. Anything else?",130
-fomc-corpus,1977,No. I think that is essentially it.,9
-fomc-corpus,1977,"Thank you very much. Mr. Morris next, please.",12
-fomc-corpus,1977,"Well, Mr. Chairman, I have been doing a lot of soul searching for this meeting. Particularly because I feel that, near term, the economy is not going to be as strong as the staff has projected. On the other hand we've got the fact that we've had two quarters of back-to-back growth rates substantially in excess of what we were shooting for. And I personally found the August numbers rather disappointing. I was hoping for a reaction from the July bulge, and it didn't happen. It seems to me that we've got to make a move at this meeting if we're going to maintain credibility in Federal Reserve policy, particularly in the light of the fact that next month we'll have to set long-term targets. I think our setting of the long-term targets next month will be very awkward if we act as if we were not terribly unhappy with the excessive rates of growth we've gotten in the last six months. So I would buy two-thirds of your prescription, Mr. Chairman, in that I'd buy the 3 to 7 and 4 to 8, although I would certainly be amenable to lowering the lower level. I'd be happy to see for that period a smaller number than 3 or 4. But the thing I'm unhappy about is the proposition that we should leave this meeting instructing the Manager to adopt a status quo policy on the funds rate until such time as he sees the numbers moving out of the range or approaching the end of the range. I just don't think that's appropriate in the light of six months of overshoot. I buy the 6 to 6-3/4 range, but with a proviso that the Manager be instructed to move to the 6-3/8 midpoint by next week to demonstrate to the market and to the business community that we are not satisfied with what's happened. I think maintaining our credibility here is very critical. And I think we're on the verge of being where the market is going to judge us pretty soon one way or the other if we show a tendency to drag our feet here.",411
-fomc-corpus,1977,"To maintain our credibility, what does that mean? First, we want the market and the country at large to take seriously our protestation, since we believe in it seriously, as we are determined to do what we can to help unwind the inflation. All right, that's essential to maintain credibility. [It] is equally essential to be alive to what is happening in the real economy; to the extent that you have elements of weakness in the economy, if we ignore those, there will be no gain in credibility for the System. Responsible people across the country will scratch their heads and say, Don't these people know what is happening in the real economy? Don't they care? So it's not a one-way street. Credibility requires that we work on both dimensions and achieve as wise a compromise, if that be the right term, take into account both factors, as we just have. I think each of us is trying to do that in his own way. But I just wanted to define the two dimensions of credibility. Thank you, Mr. Morris. Mr. Black now, please.",217
-fomc-corpus,1977,"Mr. Chairman, I've got an eclectic approach, I guess, and I wish I could give proper footnotes, but so many things have been said by so many people, I'm not sure I can. I certainly agree with the feeling of most people that M2 has been projecting a different posture of policy than M1 has been. And I think the majority feels that M2 deserves a little more emphasis, and I certainly concur in that because of the recent changes in financial technology. And regardless of how we look at it, I think, clearly, both aggregates have been moving too fast, and we certainly want to resist any acceleration there and begin moving these things down gradually to a lower growth path. And I certainly welcome the sign that M2 is decelerating some. But I wouldn't want to see that deceleration proceed too rapidly. I favor a gradual downward movement in that. So far as the lower limit of M1 is concerned, I guess I am a little different here. I don't think anybody suggested, maybe someone did, going below zero. I wouldn't mind even going below zero on the lower end of M1.",228
-fomc-corpus,1977,"I would like to say something about the Chairman's role in advising the Committee between meetings. Let's make the assumption that I will continue to think the way I feel now. And if we were at 2 or 3 [percent on M1], and let's say that the federal funds rate at that time was 6 [percent]. I would certainly advise the Committee not to go below 6 even though, you see, you've got a zero monetary growth rate or small minus.",96
-fomc-corpus,1977,I certainly concur with that.,6
-fomc-corpus,1977,"And therefore, what I think is important is the point Mr. Volcker made and one other member of the Committee--presentation [of a zero value], I think, would be unwise, since our decision on ranges are all public. To have a figure of zero or minus--we can take care of that.",64
-fomc-corpus,1977,"If we stop on the 6, there can be hardly any backup?",15
-fomc-corpus,1977,We can take care of that through the communications between meetings if it so happens we're at that point. I hope we are at that point.,28
-fomc-corpus,1977,"And I wasn't going to suggest that we publish that, either; I want to make that clear. We've been playing around with the estimates on this thing and we're probably dead wrong. I pointed out once that we didn't have the experience, but neither did we have the long record of misses that some of the others [did]--we now have two records of solid misses, so I have less confidence; we are fast approaching that. I'm sure we'll go even closer, but we think that probably M1 may come in at 5 percent, or even less than that. So I guess for the sake of symmetry more than anything else, the range I would have chosen would be 3 to 7, but I like your 2 to 7, although it doesn't have the symmetrical beauty of the 3 to 7. For the M2, I think 5 to 9 would be appropriate; [but] I have no particular problems with the 4 to 8. And for the federal funds rate, 6 to 6-1/2. As I indicated, I think a little bit earlier, I'd stay pretty much where we are regardless of what happened to M1, but if M2 should drop down below 5 percent, I think I'd be inclined to back away a little bit from the 6-1/8. I don't know what all exactly happened, but I would back down just a little bit from that. But if M1 and M2 begin to approach these ceilings, then I think we ought to move on up toward 6-1/2, and if they begin exceeding the ceiling--I guess there's certainly some possibility they will--I would hope we would be at 6-1/2 by the time of the next meeting.",362
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Balles next, please.",15
-fomc-corpus,1977,"Well, Mr. Chairman, as I listen to this discussion, it seems to me that one of the obligations that I guess we have as a Committee is to make some judgments about the business outlook. It's true that the headlines quite recently have featured a number of pieces of bad news. But it also occurred to me--as I listen to the discussion, I share the consensus view that we do expect a continuation of a fairly good rate of growth, say, around 4 percent, which looks pretty respectable in terms of our long-term capacity to grow and our own long-term history. So in that sense, I wouldn't shrink from making policy news which we decide ought to be made in any event, apart from what might be considered adverse short-term public relations aspects in the sense of getting the public to understand what we are all about. Reflecting back on your last two appearances before the [congressional] banking committees, putting the problems of monetary policy in the broader prospective; and in view of your calling attention to the fact that, even though we gradually inched down the growth ranges, it would take some 10 years to get to a point really consistent with price stability--and in the meantime we've had an actual increase in the rate of growth of the aggregates; in that kind of perspective, I am concerned along the lines that have been expressed by a number of my colleagues so far, that we need to take modest further action. We all know the growth rate over the past year--M1 over 7 percent, M2 almost 11. And as I look at the Board staff's own projections as of September 8, going out to October 5, and measure those against our own current 12-month targets, it is quite clear that M1 is well above the upper end of our 12-month range by $2 billion to $3 billion. And it is very clear that when we move into the next quarter, we'll have an upward base drift of significant amounts, maybe $3 billion. As you look at the Board staff's projections for M2, again through October 5, it's clear that M2 will continue very near the upper end of that 12-month range, so we're going to have an upward base drift of M2 as well. Now I don't place any magic significance to our ranges for 12 months ahead; they are very carefully thought about. But I do accept them as provisional targets that we ought to shoot at, [unintelligible] unless we've darn good reason to depart from them. And I haven't yet heard such reasons. And furthermore, as I study the Bluebook, especially on page 6--what we would have to do going into the second half of 1978 in order to achieve the present 12-month ranges--I'm extremely skeptical that this Committee could or would crank down the growth rates of either one, to about 2.6 percent for M1, or 6.2 percent for M2. Well, having said all of that, I think it gives strong support to the ranges that you propose for M1 and M2, say 3 to 7 and 4 to 8. I'm concerned not what the lower end of our range is, but the upper end. Because if we go up to what was proposed in some of the alternatives in the Bluebook as to the high end of the range, whether M1 or M2, we continue to move further away from what our 12-month targets are rather than taking modest steps to bring the overshoots back in the range. I think the only point on which I differ a bit from you, Mr. Chairman, is on the federal funds range. I would prefer, as several members have spoken up here so far--Messrs. Mayo and Morris, as I recall--to go with deliberate speed toward a 6-3/8 midpoint within a range of 6 to 6-3/4 based on the analysis that I have already made.",810
-fomc-corpus,1977,"Thank you, Mr. Balles. We will hear next from Mr. Wallich.",18
-fomc-corpus,1977,"Well, I tried earlier to analyze our situation in terms of where the instability in situations came from--from the monetary side or from the real side. The predominant impression seems to be that it comes from the monetary side, whether it's just a stochastic shock, or whether we're back on the old slope of the demand curve at the lower level. Either way, it seems to me to argue that we should lean more on the funds rate than on the aggregates at this time. Now when I look at the economy, which I don't see to be very strong, again it seems to me--putting it in somewhat extreme terms--a choice of going with the economy or going with the aggregates. I am inclined to go with the economy, which to me means not making a great change in the funds rate. That does mean that one allows an overshoot on the aggregates in terms of our long-run ranges, and I fully agree with what John Balles said. It would be a tremendous job to get back on track from present levels; it would be harder even if we allow a further overshoot. Nevertheless, I think, under the circumstances, I'd be prepared to accept some base drift and consequently, in the short run, an overshoot. Now also, I do have some concern for the expectational, the appearance effects of having a very high upper level to our short-run M1 range. I think that can be offset by lowering the other ends, so that we simply have a wider range. And that leads me to suggest 2 to 9 for M1. Now I would think, for M2--where, incidentally, we would also have to do a big job to get back on track because its velocity flexibility is less, precisely because it's been better numbers so far--we do need something like 3, 4, 5 percentage points growth of M2 in order to get back on track, and I doubt that we will be able to accomplish that without very high interest rates. So on M2 I'm prepared to go to 5-1/2 to 9-1/2. And I'll support this also with the idea that we ought to have consistent targets, that is to say, to set low aggregates and not set a very high funds rate to match it leaves us with the immediate problem of resolving that conflict. I don't think much is gained by that. I would rather set the key targets--interest rates, aggregates--in a consistent way, the way the staff tries to do it. I think we can compensate for a wider range on the aggregates with the narrower range on the funds rate, although I don't like narrow ranges on the funds rate. But [given] that I want to go with the interest rate anyway, I would say, yes, we can have a narrower range, and I would say 5-7/8 to 6-3/8 on the funds rate. Now that really pushes me in the direction of a money market directive rather than an aggregates directive, and I'd be prepared to go with that.",620
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Lilly next, please.",15
-fomc-corpus,1977,"Well, as I mentioned earlier, I share with Henry the view that the economy is not very strong, and the recovery is fragile, in my opinion. And I think that we are attacking a structural problem [with] a monetary shotgun, if I may create a phrase. The targets that I find at the high end, if not at the limit of my restriction and tolerance, are the 3 to 8 [M1], 5 to 9 [M2], and the 6 to 6-1/2 [federal funds rate] with the 6-1/8 asymmetrical midpoint. And I would really lean more toward Henry's prescription than that.",138
-fomc-corpus,1977,"Thank you, Mr. Lilly. Mr. Roos next, please.",15
-fomc-corpus,1977,"Mr. Chairman, I would like to make several observations about what I've heard. First of all, it seems to me that there has not been any significant deterioration of economic conditions since a month ago, when we met here and adopted an M1 range of 0 to 5 percent. I'm at a loss [as] to [how to] accept the logic of that and then see us view conditions as a reason for adjusting the range significantly up from what it was [as a result of] the action we took a month ago. I think we ought to just look for a moment and at least be aware of the consequences--if we are going to be responsible in what we are doing--of anything like a 7 percent rate of growth of M1 for the next 30 days, for the next month. And I am using the staff projections. John Balles touched upon the fact that the staff projects that for the first six months of '78, we'd have to pull M1 [growth] down to something less than 3 percent. I assume that we would be willing to do that to move this thing in the right direction. If we take the 5-1/2 percent [fourth] quarter projection of the staff, [and] if we adopt 7 percent M1 growth for the month of October, that means that in November and December we must be prepared to move down to something like 2-1/2 percent for both of those months to average out at [the staff's fourth-quarter projection of] 5-1/2 percent, which is a spectacularly remedial effort to readjust these bulges that we have been experiencing. If we are concerned that taking strong action now would precipitate an economic trauma, I think we should be aware that, somewhere along the line, unless we are going to throw in the towel in what we are trying to do and on what has been our stated objective--to inch this inflationary problem down--we are going to have to do this sooner or later. And it seems to me that history is replete with cases of what happens when you let this thing continue to drift on an upward basis and then have to pull it down a year or two hence: We will have at that time the same type of traumatic consequence to the economy that we are so fearful of today. I think that there is no question in my judgment--I'm not an economist--that if we permit a continuation of the sort of growth of the aggregates that we have experienced the last two quarters, that just as sure as we are sitting here today, two years down the road we are going to have an increase in prices, we are going to have a resumption of an upward trend in the rate of inflation. I think this matter of credibility is important. I think people are watching us. I think it is only due to the great respect, Mr. Chairman, that they have for you that the markets still believe that this Committee is serious in its attempt to do what is necessary to deal with this inflationary problem. If we let the upward drift of M1, and M2 to a lesser degree, continue, I think it's a matter of months, maybe, until they say [that] we are not really serious in what we say, we are really not as concerned about ultimate inflation as we say we are. And if we lose that credibility, I think we are going to have higher interest rates. Long-term rates are going to go up just as soon as people lose their confidence or disbelieve [in our] sincerity or our ability to do what we say we are trying to do. I think this is a very critical time. I'm sorry, I apologize for making a speech. I didn't mean to do that, but I cannot buy a top range of anything like 7 percent [for M1]. I would recommend a repetition of the 0 to 5 percent M1 range that we had last meeting. I'm not terribly concerned--I would certainly agree with your M2 targets. And I think that if I had my druthers, I would like to see a fed funds range of maybe 6 to 7 percent, at least 6 to 6-3/4 percent. I think this is a critical time, and I think we are going to have to bite the bullet ultimately, and I would like to bite it today.",895
-fomc-corpus,1977,"Thank you, Mr. Roos. We will hear from Mr. Gardner now, please.",19
-fomc-corpus,1977,"I guess you could have taken from my earlier remark today that I'm a little apprehensive about the projections we have for the demand for total credit in the economy. And clearly we have been experiencing higher growth rates than we have expected at each of these meetings. I am prepared to be quite conservative today. And I'm delighted that there is at least tacit acceptance of the fact that the economy is not going to fall apart, because there are so many other opinions expressed about appropriate lower monetary aggregates targets and letting the funds rate rise further. I think we are clearly in a period where action should begin to be taken. And [I would] reverse a statement I made many months ago that there were often periods when one need not be overly concerned. But this time I'm prepared to work overtime. I don't see any reason why, if we are at a key point in determining the continuation of the recovery and the strength of final demand and the like, we ought not to expect to make more decisions between now and our next meeting than we might normally make. Therefore, I would not want to raise the upper end of the M1 proposal that the Chairman suggested. If anything, I'd be as happy with something a little less. I'd leave M2 on a 4 to 8 as recommended. And I will be perfectly agreeable with a 6 to 6-1/2 percent funds rate because I suspect that by having this rather unsymmetrical set of specifics, we may be called on to take some action between now and the time of the next meeting in October. And it wouldn't bother me a bit because we will have more information. But I do suspect that there will be a stronger demand for money, as there has been, and certainly, from my earlier statement, I suspect that conditions are favorable for expansion of credit. I can accept your proposal, Mr. Chairman, and I expect, if we did come to that, we would probably be hearing from the Manager sometime.",396
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Winn now, please.",14
-fomc-corpus,1977,"Mr. Chairman, thank you. To try to resolve the conflicting forces that we are dealing with, and at the same time as a historian looking at our records, I had trouble getting away from last month's actions, with the economy not being that much different in outlook from what we had. And so I would recommend an M1 range of 0 to 7, indicating some change, recognizing reality. Keep a 3 to 8 or 8-1/2 on the M2 again, thinking of last month's actions. And go to 6 to 6-1/2 [federal funds rate] [with a] 6-1/4 median, with the opportunity to use that in the period if these ranges are not met.",153
-fomc-corpus,1977,"Thank you, Mr. Winn. Mr. Willes now, please.",15
-fomc-corpus,1977,"Thank you, Mr. Chairman. Just one quick comment. Almost everybody seems to agree that we need to continue to move. There may be some differences in timing, and in that regard I'd like to echo the comment that Dave Eastburn made, and that is, I am fairly persuaded by the staff report that says, in effect, if you move interest rates a little sooner, you can get by with a smaller overall increase in the rates over the course of the next year. So I would join those who have indicated that they prefer to see a relatively small but prompt move in the funds rate. And, of course, if the aggregates continue to go [unintelligible] the range that you mentioned, that they would move even further.",150
-fomc-corpus,1977,"Thank you, Mr. Willes. Mr. Guffey now, please.",17
-fomc-corpus,1977,"Thank you, Mr. Chairman. I guess my concern is shared by perhaps everybody around the table in terms of the aggregates growth. But let me say, first, that in our view the economy is healthy. It isn't as fragile as has been described today. And as a result, we perhaps should be taking some advantage of that to move our aggregates growth rate somewhat lower, which implies of course, a higher funds rate. I should also say I take some comfort in the comments you made--if we do get slow growth in the period ahead, that we will tolerate that and not go below perhaps a 6 percent funds rate. Turning attention to the [top end of the growth ranges]--with regard to M1 and M2, I think that's the important figure--I would quickly buy the 7 and 8 for the top of both of those. I would also go with your prescription for the 6 to 6-1/2 [and] the proposal that we move to the 6-1/4 [midpoint] fairly promptly after this meeting. And I guess I would maybe prophesy that we will have, as Governor Gardner has suggested, an opportunity to review it in between, because I think we would expect that the growth rates will come in fairly strong, and it wouldn't make me unhappy if this time next month we were as high as 6-3/4. I'm just suggesting, with a narrow funds range of 6 to 6-1/2, that we would have an opportunity to take a look at it.",318
-fomc-corpus,1977,"Thank you, Mr. Guffey.",9
-fomc-corpus,1977,Mr. Chairman--I'm sorry--,7
-fomc-corpus,1977,"You started this meeting, and now you are in a unique position also of ending it, or ending the formal go-round, and now we are ready for your benediction.",36
-fomc-corpus,1977,"It'll be very brief. It's in a sense belaboring the obvious to remind us all that the record we are building continues to look more and more procyclical, and also I guess to remind us that historically this has tended to move us into a position which resulted in a development which has come to be labeled a crunch. And it seems to me also that his has been going on long enough now so that--even though we can't point to the specific elements in the real sector which would explain this development--we can't really call it a random development and have a fairly firm basis for expecting that it's going to reverse itself. As to the general economic situation, I'm inclined to think that, insofar as the staff projection might be off mark, it will be off mark on the low side rather than the high side. And this is in part because of what we are seeing develop in the fiscal area and also what has already developed in the monetary area and indications that we do have substantial liquidity in the economy. It seems to me, Mr. Chairman, that your suggestion has done a real good job pulling these diverse elements together, and I would not suggest any change at all from your proposal, with the exception that I think you suggested we start from our present posture--6-1/8, more or less--as a midpoint of the 6 to 6-1/2 range, and I would share the view of those who think we should take the bona fide midpoint of 6-1/4 and move to that posture rather promptly. That's all I have to say.",322
-fomc-corpus,1977,"Thank you, Mr. Baughman. Well, gentlemen, we've expressed a range of views, but the differences among us, with one or two exceptions, are quite small. The range of 2 to 7 or 3 to 7 for M1 would be acceptable, I think, to the majority of the Committee, and a range of 4 to 8 [for M2] would be accepted as well by most of us. The range of 6 to 6-1/2 percent [for the federal funds rate] seems to be favored, though there's also significant sentiment for the range of 6 to 6-3/4. I think the main difference is with regard to the midpoint of the federal funds rate. Assuming that it were to be 6 to 6-1/2--let's just make that assumption--how many would prefer a symmetrical midpoint at 6-1/4 as over against an asymmetrical midpoint, namely 6-1/8? Let me repeat that. We will assume that the federal funds rate range is 6 to 6-1/2, making that assumption. Those who prefer the arithmetically true midpoint of 6-1/4 as over against the asymmetrical 6-1/8 will kindly raise their hands.",269
-fomc-corpus,1977,Eight.,2
-fomc-corpus,1977,"Now there was no clear indication as to preference by members of the Committee with regard to the language of the directive. Mr. Wallich commented on that, and he made an unusual announcement. Mr. Wallich generally is in favor of monetary aggregates directives, but he seemed to favor a money market directive this time. Let's have a show of hands, assuming a 6 to 6-1/2 federal funds rate for the moment--we will come back to that--how many would prefer a money market directive? I'm going to turn this around. Assuming a federal funds rate of 6 to 6-1/2, how many would prefer a monetary aggregates directive?",136
-fomc-corpus,1977,"Six, Mr. Chairman.",6
-fomc-corpus,1977,Now how many would prefer a money market directive?,10
-fomc-corpus,1977,Four.,2
-fomc-corpus,1977,"Well, it will be a monetary aggregates directive. Are there any comments that the members of the Committee would like to make at this time?",28
-fomc-corpus,1977,"My one comment is perhaps along the line which Steve Gardner already said. But where I balk with the 6-3/4 [percent federal funds rate], if that's still an open question--if you got an aggregate right on the margin of this range that we're adopting, 6-3/4 seems to me to be inappropriate. It wouldn't seem to me to be inappropriate if we had an October the way we had a July and April, and I would be prepared to go at that point. But the way we formulate these things, you can't make that distinction. It does seem to me that 6-3/4 percent is clearly too high, given the projection right at the top where the ranges--",144
-fomc-corpus,1977,"7 percent at the top. 7 percent is pretty likely, pretty likely [the] outcome.",20
-fomc-corpus,1977,You'd almost have to say you go to 6-3/4 percent right away.,19
-fomc-corpus,1977,"As it is, it seems to me what that does, Mr. Chairman, is really raise quite high odds that we will be at or close to 6-1/2. And if October [rises sharply], of course, we will have to go above. Even if it doesn't, I think the odds are very high that we'll be close to 6-1/2.",79
-fomc-corpus,1977,With a 6-1/2.,9
-fomc-corpus,1977,"I don't know anything about the odds, and I marvel at your knowledge, but--",17
-fomc-corpus,1977,I'm taking the estimate of 6.6 percent for the monthly growth rate for September as having some plausibility.,23
-fomc-corpus,1977,"That's a little softer. Gentlemen, I think the time for argument has passed; we need a decision. Let's have a show of hands now because we've had an opportunity to rethink our positions. As I indicated, there was some preference for a federal funds rate range of 6 to 6-1/2 as voiced by members of the Committee, and possibly there's been some rethinking. Those who would prefer, we've got to contrast 6 to 6-1/2 as over against 6 to 6-3/4. Those who would prefer a range of 6 to 6-1/2 will kindly raise your hands.",132
-fomc-corpus,1977,Six.,2
-fomc-corpus,1977,"Well, I'll have to make that seven. Any other questions to come up?",16
-fomc-corpus,1977,Have you settled on the midpoint?,7
-fomc-corpus,1977,I think we have.,5
-fomc-corpus,1977,6-1/4--,6
-fomc-corpus,1977,"May I ask a question, Mr. Chairman?",10
-fomc-corpus,1977,Please.,2
-fomc-corpus,1977,"If the Committee chooses to adopt the 3 to 7 percent range for M1 and a 4 to 8 for M2, and the staff's projection of approximately 7 percent increase in M1 and a comparable increase for M2 arrives, comes to fruition, to the extent that we will understand it as the period develops, could I ask Alan where you would move the federal funds rate?",81
-fomc-corpus,1977,"Well, I think if it really were at the very top of the range, we would gradually move toward that. But as you know, we get new projections each week. I wouldn't jump all the way to 6-1/2 in one week.",52
-fomc-corpus,1977,That's the reason I predicated my question on the assumption that the results are what the staff projected. Namely about a 7 percent increase.,29
-fomc-corpus,1977,"I think we would move decisively at least to the midpoint, maybe a bit beyond, and then wait for another week to see if the next week's projections kept this at 7. But not jump in one fell swoop.",46
-fomc-corpus,1977,"Did I understand your answer to be that if, say, by the third week, it still affirmed a likely projection of 7 percent, you would likely be at 6-1/2 percent?",41
-fomc-corpus,1977,Or very close to it.,6
-fomc-corpus,1977,"Well, that's what I concluded.",7
-fomc-corpus,1977,"Well, I think what Mr. Holmes is saying is that he would be following a standard procedure.",20
-fomc-corpus,1977,"Clarification, Mr. Chairman, is it 2 to 7 on M1 or 3 to 7?",24
-fomc-corpus,1977,"Well, let's have a show of hands on this. How many prefer 2 to 7 for M1 as over against 3 to 7?",31
-fomc-corpus,1977,Five.,2
-fomc-corpus,1977,How many prefer 3 to 7 as over against 2 to 7 for M1?,20
-fomc-corpus,1977,Two.,2
-fomc-corpus,1977,"Well, our arithmetic being what it is, we'll put 2 to 7 to a vote if there are no further questions or comments. Are there any further questions? Let's vote on the following: a monetary aggregates directive, a rate of growth of M1 of 2 to 7 [percent], a range of 4 to 8 for M2, a range of 6 to 6-1/2 for the federal funds rate, a true midpoint arithmetically of 6-1/4 for the federal funds rate range. That is what we will be moving on, and I hear no desire for further deliberation, so would you be good enough to call the roll.",142
-fomc-corpus,1977,"Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly No President Mayo Yes President Morris No Governor Partee No President Roos No Governor Wallich No Seven to five, Mr. Chairman.",53
-fomc-corpus,1977,"Well, let's stop and deliberate it. I think that would be a very unfortunate vote. To me, the Committee is split badly. It would mean that this would excite a great deal of discussion that would not bring honor or credit to the Committee, and therefore I think we must seek to accommodate one another. I didn't think our differences were that large. Let's try again. Does anyone have a proposal to make, one of the dissenters. Yes, Mr. Partee.",96
-fomc-corpus,1977,"Mr. Chairman, if the range for the aggregates were widened [at the upper end] to accommodate 8 for M1 and 9 for M2, I would go with it.",38
-fomc-corpus,1977,"All right, was that--",6
-fomc-corpus,1977,"I'd add one thing, and that would be an asymmetrical 6-1/8.",19
-fomc-corpus,1977,"If we're going in that direction, I'd want a 3/4 [percentage point federal funds rate] range, too.",25
-fomc-corpus,1977,"Gentlemen we can't--these differences are minor. Let us practice a little humility and accommodate one another and not be all over the lot because of minute differences. I'm perfectly willing to put Mr. Partee's suggestion to a vote. I will accept Mr. Partee's suggestion changing the limits, the ranges of M1 and M2 and the other specifications being what I previously described, that is, the M1 being 2 to 8 and M2 being 4 to 9. Let's have another vote.",106
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell No Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly No President Mayo Yes President Morris No Governor Partee Yes Governor Roos No Governor Wallich No Seven to five.,49
-fomc-corpus,1977,"Well, I think that patience is an indispensable commodity all of us are in possession of, that abundant commodity, so therefore I will entertain another suggestion.",30
-fomc-corpus,1977,"Well, let me try, Mr. Chairman, since I ruined the shift on that. Suppose we just take the M1 at 2 to 8, leave Mr. Partee's 4 to 9 on M2, use the 6 to 6-1/2 as the fed funds range, put a 1/8 asymmetrical position but with the understanding that it moves to a 1/4 if the figures confirm the staff projection.",94
-fomc-corpus,1977,"All right, I'm going to put that to a vote, Mr. Coldwell's specification: 2 to 8 for M1, 4 to 9 for M2, 6 to 6-1/2 for the federal funds rate, the midpoint to be 6-1/8, an asymmetrical midpoint, but of course depending on the evolution of the monetary aggregates figures as to when we move away from that midpoint. Would you put that to a vote please.",99
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner No President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris No Governor Partee Yes President Roos No Governor Wallich No Eight to four.,49
-fomc-corpus,1977,"Gentlemen, the original vote stands. The first vote. We're divided. I think it's unfortunate, I think it's undesirable, and I don't know what has gotten into this group. But if that's the kind of life you want to lead, you have my blessing. You're a good group, but you've gone haywire today. Now, I've shown a willingness. I have convictions in these matters. I have gone along with each alternative suggestion. Is there any other proposal?",95
-fomc-corpus,1977,"Mr. Chairman, I don't want to make a proposal, but I wonder if I might just point out, the midpoint for the 2 to 8 [range for M1] is 5 percent, if I figured that right. And this would trigger action if [M1 came] in above 5 percent. So, some of those who are worried about the 8 percent, I think, will be accommodated by triggering of the federal funds rate when that thing hits 5. And I have no problems--",105
-fomc-corpus,1977,Mr. Roos.,5
-fomc-corpus,1977,Yes sir.,3
-fomc-corpus,1977,You have been in the habit of bringing people together. Do you have a suggestion to make today?,20
-fomc-corpus,1977,"Mr. Chairman, the trend during this patience operation has gone the opposite direction. My concern--and I would like to explain, to clear the air, that St. Louis is not falling into a maverick position. I have a very honest and sincere belief that we are doing the wrong thing. It's not a matter of a few numbers. I mean, in the case of my vote, the only way, sir, I could in good conscience vote yes on this would be if there were some lowering of the upper range of the aggregates, especially in the M1 category.",117
-fomc-corpus,1977,"Let me try the original vote once again, that is to say, the original suggestion I made--we haven't improved matters much. And let's try and really show a little more humility than we have at this meeting. I suggest an M1 range of 2 to 7, an M2 range of 4 to 8, a federal funds rate range of 6 to 6-1/2 with a midpoint of 6-1/4, and a monetary aggregates directive.",99
-fomc-corpus,1977,"Before you do that, can I explore a little as to why the last proposal of Phillip Coldwell, which brought me around, picked up a vote, is not closer to the compromise than the first one?",42
-fomc-corpus,1977,"Well, I don't think it's sufficiently different, you see. That is, [votes of] seven to five, eight to four. Seven to five--that expressed, I thought, more clearly the information that I had about a broad sentiment as reported by Mr. Broida. Let's vote on that.",62
-fomc-corpus,1977,"Mr. Chairman, may I make one more observation before we vote. I came in here with the intention of departing from my usual procedure and recommending a money market directive with a feeling of 5 percent [upper limit] on M1. That, to me, is the same thing as a range from 2 to 7 on the aggregates directive because it triggers as action on the part of the Manager at that point. Similarly on the M2, you trigger action at 6 percent. I think, later, with these you mentioned 5 percent as what you thought ought to be the ceiling, but if you reach 5 percent it does trigger action.",133
-fomc-corpus,1977,I don't know that this has been the history in the last few months. The action hasn't kept this thing from being at the very top of the range.,31
-fomc-corpus,1977,"On an aggregates directive, you trigger action when it passes the midpoint; on a money market directive, you trigger action when it passes the ceiling. And I'm just trying to point out that I think this is almost equivalent to a money market directive with a ceiling of 5 percent on M1 and a ceiling of 6 percent on M2, which is a pretty hawkish position--maybe that's not helpful.",82
-fomc-corpus,1977,Let's try the voting once again.,7
-fomc-corpus,1977,"Now, this is on the first vote?",9
-fomc-corpus,1977,Yes. Shall I repeat the proposal? It's apparently understood. Would you be good enough to call the roll.,22
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly No President Mayo Yes President Morris No Governor Partee Yes President Roos No Governor Wallich No Eight to four.,49
-fomc-corpus,1977,"Well, does anyone else have a suggestion?",9
-fomc-corpus,1977,"Mr. Chairman, if I sense the thrust of the discussion that we have had, it appears to be considerable concern that the adoption of a monetary aggregates directive with midpoints expressed the way they are would result in a relatively certain move to the upper ends of the federal funds range. [And] perhaps a greater likelihood than normal that there would be a call meeting of the Committee to take action beyond that. I wonder whether there might be some sentiment for adopting the proposal made by Governor Wallich earlier, where you use a money market directive with the ranges, with the likelihood that staff projections are correct. The result would be that the aggregates would move beyond the expected ranges and action would be taken as a consequence of it, which would again give us the likely opportunity that we would have another meeting, and we would have another look, [and] perhaps greater knowledge could be brought to bear on our problem.",181
-fomc-corpus,1977,"Your suggestion, Mr. Holmes.",7
-fomc-corpus,1977,"Mr. Chairman, may I just make one comment. The Board projection really is at the top of the M1 range. I don't put this out as any solace, but the New York projection is 1-1/2 percent lower than that, or very close to the midpoint of that 2 to 7 percent. These are projections we are talking about.",74
-fomc-corpus,1977,"What about M2, Alan? What's your M2 projection?",13
-fomc-corpus,1977,We'd be on the high side.,8
-fomc-corpus,1977,"Mr. Chairman, I wonder if there is any possibility that we might resolve one or two votes. I doubt that we can resolve all of them because we have a conflicting viewpoint on both sides of the spectrum. But I wonder if it is possible to shift one or two by talking about a 6-1/8 [midpoint for the federal funds rate range] with a move to the quarter only with confirming.",84
-fomc-corpus,1977,I thought we already voted on that.,8
-fomc-corpus,1977,"No, we had 6-1/4. And if we changed that last specification to 6-1/8--",26
-fomc-corpus,1977,"That is, that M1 would remain 2 to 7. We will make another vote now: M1, 2 to 7; M2, 4 to 8; federal funds rate range 6 to 6-1/2, with the midpoint of the federal funds rate range to be asymmetrical to 6-1/8. Differing from the vote we have just taken in the specification of the midpoint. Is that clear? All right, let's vote on it.",102
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo No President Morris No Governor Partee Yes President Roos No Governor Wallich No Eight to four.,49
-fomc-corpus,1977,"Well, any other suggestions?",6
-fomc-corpus,1977,Let's stick with the original vote.,7
-fomc-corpus,1977,"Well, the original vote has been modified.",9
-fomc-corpus,1977,I agree.,3
-fomc-corpus,1977,"All right, I want to be sure now, in view of all the voting that we've done, that we know how we have come out. Now, the vote to be recorded is as follows: this is voting on 2 to 7 for M1; 4 to 8 for M2; 6 to 6-1/2 for the federal funds rate range, midpoint to be 6-1/4; and a monetary aggregates directive. Those dissenting from that are Governor Lilly, [Presidents] Morris [and] Roos, and [Governor] Wallich, the vote being 8 to 4. Okay. Gentlemen, thank you very much. We have made an honest effort to reduce our differences, and after a long struggle, we did reduce [them] just a little.",167
-fomc-corpus,1977,"Mr. Gardner is absent today. As far as possible, I would like to have the full Federal Reserve family present at a meeting where quasi-final decisions with regard to monetary policy are made. And in view of that, we can get through as much business as we can this afternoon and stop short of trying to reach any decision of monetary policy; and we have a great deal of work to do. We'll start as we always do, with the minutes of the last meeting, and I take it there is no problem.",104
-fomc-corpus,1977,I move that it be approved.,7
-fomc-corpus,1977,Second.,2
-fomc-corpus,1977,"And that's been accomplished. We will turn at once to a review of the condition of our economy, and we need to examine the condition of our economy with special care at this meeting, not only because this meeting precedes one of our quarterly hearings before the Congress but also because the state of the economy is less clear to many of us, certainly to many observers on the outside, than it was six months ago or perhaps three months ago. Mr. Kichline, would you be good enough to proceed in your own way.",106
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,[Interrupting] May I just ask a question? I'm puzzled by that first chart. The black line is below the red line with a few exceptions. What does that first chart mean?,38
-fomc-corpus,1977,"A very good point. And my first observation, it appears to me that there may have been a plotting error because one would think it would go directly through.",32
-fomc-corpus,1977,That's the way it used to be done.,9
-fomc-corpus,1977,"We've introduced some new techniques, but that's not one of them.",13
-fomc-corpus,1977,"I can see it being off part of the time, but it seems to me that it's off the line far too much. Now we have to assume that the general configuration [unintelligible].",40
-fomc-corpus,1977,"I'm wondering, though; it may be statistically possible because there is some slope to the curve. It's taking off of figures from the preceding year.",29
-fomc-corpus,1977,"One thing we can do, obviously, is to ignore the three-month moving average.",17
-fomc-corpus,1977,I think another thing we can do is to move on.,12
-fomc-corpus,1977,[Statement continues--see Appendix.],7
-fomc-corpus,1977,Do we have figures on the first third?,9
-fomc-corpus,1977,"Yes. The auto sales on domestic was a 9.1 million annual rate in the first 10 days. We don't get foreign sales, however, on a 10-day basis.",38
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,"Thank you very much Mr. Kichline and Mr. Zeisel and Mr. Truman. We are ready now for a Committee discussion of the state of the economy and the outlook for the months and quarters immediately ahead, and I think we ought to take as much time as is needed to express our views individually and to educate one another to the best of our ability. Mr. Coldwell.",79
-fomc-corpus,1977,"I'd like to [ask] one discrete question to start with, Mr. Chairman. Mr. Truman, in the material on net exports and imports, on this chart you're showing on the export side a very large increase in nonagricultural volume--I guess about a 10 percent increase in volume--if I can read it from the chart, which is terribly hard to do. What is there in the outlook that makes you think you're going to have such a dramatic increase in exports for nonagricultural?",103
-fomc-corpus,1977,"Well, on the volume side we do expect, as that first chart shows, some resumption in growth abroad, or faster growth abroad--something around the 5 percent level in contrast to the 3 percent level on average this year. So that's been generating a good deal of the volume. And the value--I think there's probably more of an optical illusion than a particularly rapid increase in the value over that period; it is about the same, maybe a little bit higher, than we had this past year.",103
-fomc-corpus,1977,"If I draw my lines over correctly, you're about $25 billion on a $100 billion base; that's 25 percent. Is that right? Start to the end of the period, now--I'm not talking about the whole forecast period.",48
-fomc-corpus,1977,"Fourth quarter over fourth quarter, we've had about a 9 percent increase in the price of nonagricultural exports.",24
-fomc-corpus,1977,"So you have a 9 percent price increase and 9 or 10 in volume increase, which would compound to be over 20 percent. Seems like a very large increase to me.",38
-fomc-corpus,1977,"Well, let there be a touch of optimism today.",11
-fomc-corpus,1977,"That does assume, as you say, that there will be some acceleration in growth abroad. Are exports pretty sensitive to rates of growth abroad?",28
-fomc-corpus,1977,"Yes. In fact, the only thing we really have to go on are the growth projections in the major industrial countries, and there, at least in the past, our equations, somewhat to my surprise, are somewhat more accurate. [Export] projections tend to be somewhat more accurate and cyclically sensitive, especially for us, than on the import side, at least as far as accuracy is concerned. Now, the other element which we try to factor in [in] the judgmental basis is the extent to which demand may pick up in other countries, particularly in the case of the United States and non-oil developing countries, where there has been a dramatic slowing and some very recent picking-up of our exports, and that is a question mark. Now, I would not say that if we got a boom, if I can call it that, in the non-oil developing countries, I would therefore then expect this to be a much more optimistic outcome. Though I haven't assumed the boom abroad in non-oil LDCs, we have assumed some rebound, especially in the Latin American countries, from the low rates of growth this last year.",230
-fomc-corpus,1977,"And you've also assumed that we will not have a repetition, as far as countries other than Japan are concerned, of what happened in Japan this year when real GNP rose but real imports diminished.",39
-fomc-corpus,1977,"They didn't grow very much, that's right.",9
-fomc-corpus,1977,"No, according to the latest report from your staff, it's been an actual diminution. I think that's reasonable. Any other questions in this area?",29
-fomc-corpus,1977,"On this point, how do you assess the competitive position and the changes therein in the past two years or so?",23
-fomc-corpus,1977,"Judging against the other industrial countries, our price competitiveness has improved somewhat over the last two years by about 2 percent; and the decline of the dollar, in this respect in dollar terms, would add another 2 percent. In the parlance of the day, that is a real exchange rate depreciation. It is not within the realm of any significance, I think, in terms of gross changes in these kinds of figures.",86
-fomc-corpus,1977,You're looking at overall indexes.,6
-fomc-corpus,1977,"Right. Did I answer your question, or did I not hear the second part?",17
-fomc-corpus,1977,"There is no question. I just commented, you're looking at overall what, wholesale price indexes?",19
-fomc-corpus,1977,"And consumer price indexes, and wholesale price indexes for manufacturers.",12
-fomc-corpus,1977,"I think what Mr. Volcker is saying is that, if your comments were based on the price behavior of items that enter foreign trade, you might reach the same conclusion or a different conclusion.",39
-fomc-corpus,1977,I don't know what conclusions you would reach on this basis.,12
-fomc-corpus,1977,"Well, with respect to Japan and Germany, which are the only places where you really get good price data, their export price data showed less of a rise than their domestic price data.",37
-fomc-corpus,1977,And ours showed more.,5
-fomc-corpus,1977,"And ours show the same to a little bit more, right, in our unit value, and then to the extent you use that [then we have less] deterioration with respect to those countries.",39
-fomc-corpus,1977,One other question. Does your agricultural forecast take in the new information concerning the drop in production estimates for Russia?,22
-fomc-corpus,1977,"Yes, I think that we have already [included] to the extent possible a fairly heavy demand from Russia and the overstock here starting the first of October. They had come in [unintelligible] and requested the upping of the ceiling to 15 million tons. Now, it is true that no one has been able to confirm the orders for that amount. One of the reasons we have a pickup in volume over the period is that we expect that it will [come from] some more demands from Russia and from parts of western Europe, where the wetness at the time of the harvest has cut into certain kinds of grain, and therefore we could stand a little bit more to gain--",141
-fomc-corpus,1977,Is that speculation about a 20 million ton demand from Russia out of the picture or is that realistic?,21
-fomc-corpus,1977,"I just don't have the information to judge. I think the 15 million probably is consistent. The piece that was in the paper, I think it was down to 205 million tons during harvest--that was, in fact, what we were using as a basis for projecting.",56
-fomc-corpus,1977,Is there any sort of a guess as to the extent to which existing U.S. import limitations and foreign countries' export restrictions imposed at our behest influence the total volume of imports?,37
-fomc-corpus,1977,"I think, on the first point, we tried to put together an estimate of how much the recent or current trade restrictions by the U.S. might affect imports, and I think an optimistic number on the high side would be $1 billion, and probably the true number is something more like $500 million.",62
-fomc-corpus,1977,I don't understand. $1 billion refers to what?,11
-fomc-corpus,1977,How much higher our imports would be in the absence of the kinds of recent--over the last year or so--measures to restrict our imports.,30
-fomc-corpus,1977,"May I ask a question of our New York Bank representative, Mr. Pardee? What is the opinion of the New York Bank's staff about the prospective value of the dollar in foreign exchange markets?",40
-fomc-corpus,1977,It depends on who you talk to within the New York Bank staff.,14
-fomc-corpus,1977,"Well, I'm talking to you now.",8
-fomc-corpus,1977,"All right. I'm not a forecaster. I think that most economists would come up with a forecast very close to what Mr. Truman has just outlined. I'm skeptical, myself, of any forecast on the trade account. In recent years we've had errors on the order of $20 billion--in '75 and '76.",65
-fomc-corpus,1977,"Well, I'm talking about the value of the dollar, not the value of our foreign trade.",19
-fomc-corpus,1977,"Yes, but the people in the exchange market are following these numbers, [and] to the extent that the trade balance does improve or weaken, this will influence thinking about the dollar.",37
-fomc-corpus,1977,"All right, any other questions or comments about our foreign trade or the prospective value of the dollar in foreign exchange markets?",24
-fomc-corpus,1977,"Mr. Truman, what element have you factored in with respect to the challenge of steel dumping? The possibility of some change being--",27
-fomc-corpus,1977,"No we had not, we had not. We have enough trouble dealing with things we think we know something about rather than that. To the extent you have this lower growth in steel, for whatever reason, and that would not have been [unintelligible]. It is true that, over the recent months, the growth has leveled off--particularly the Japanese. Whether they say it or not, it seems clear from the data that Japanese steel exports to us have been very much held down, and growth is coming from western Europe this year rather than from other countries. But we have not factored in anything.",124
-fomc-corpus,1977,"You don't have any protectionist, any explicit protectionist stuff at all.",15
-fomc-corpus,1977,"No, no new measures.",6
-fomc-corpus,1977,"Just a couple of comments on the international situation, since you asked. I rather share the feeling Governor Coldwell already expressed--these export figures look pretty optimistic against the background of the prospective growth trends abroad, as I see them, and I think that points up the probability that downward pressures on the dollar are more likely to appear than upward pressure. And I think that's part of our problem. We're living in a world in which that can be financed, and maybe fairly readily financed. But while the current account is so far in deficit, unless it shows decided signs of improvement, we're vulnerable to psychological weakness, which could be self-reinforcing until these figures turn around. And I don't think there is any clear prospect that they're going to turn around in the next 12 months.",156
-fomc-corpus,1977,"Now that, of course, Paul, would mean that it would also tend to hold down the recovery anyway.",22
-fomc-corpus,1977,"Well, I don't think it will hold it down to the same extent it has. It will tend to level off.",24
-fomc-corpus,1977,It's an algebraic subtraction.,6
-fomc-corpus,1977,"Well, to the extent that the recovery here languishes, our imports could also grow less rapidly, and therefore the outcome as far as our trade balance is concerned is quite uncertain--the trade deficit may diminish instead of increasing.",45
-fomc-corpus,1977,"The trade deficit would presumably improve if we had imports diminished, but the dollar would still be influenced probably by interest rates as well as the improved deficit, and so one really doesn't know--whether that works on the upside, too. Cannot be sure of the deterioration of the trade balance--and if interest rates rise simultaneously and inflation remains under control, may not be harmless.",74
-fomc-corpus,1977,"I think that's what's been happening, might continue--if not--",13
-fomc-corpus,1977,"You've got the trade balance, you've got the interest rate differentials, and you have the broad economic prospects for the country. You would think that the U.S., a country in which it's desirable to invest because the prospects of profits look good and improving--even with low interest rates, money will flow here.",62
-fomc-corpus,1977,"Or the consequences abroad, or the lack of growth, could produce political instability, which would produce inflows regardless of the rate.",26
-fomc-corpus,1977,"Well, all right, we've come close to a catalog of the possibilities. Now we move on to--",21
-fomc-corpus,1977,May I ask a factual question in that regard? What price in imported oil did you include in these projections?,22
-fomc-corpus,1977,We have been assuming--and there's some basis for it but not much--[that it] will rise by 5 percent over the course of 1978. So it rises approximately from the $13.44 per barrel in the fourth quarter of this year to $14.11 in the fourth quarter of next year. That is roughly in line with the rate of inflation--stays constant in real terms.,83
-fomc-corpus,1977,"All right. Mr. Mayo, may we hear from you?",13
-fomc-corpus,1977,"Thank you, Mr. Chairman. First, on the international [outlook], I spent the week before last in Japan and was faced with this very question, time and time again, as to the dollar-yen relationship, and mostly with reference to what pressures were going to be within the two governments. And my answer was the very simple-minded, ""Well, we have departed from Bretton Woods, we have a relatively free foreign exchange market, and indeed I have faith in that market determining the proper relationship between the two,"" and the yen moved from 263 [yen per dollar] to 253, and I didn't get my name in the paper. On other things, the forecast, I'm a little troubled by the staff's estimate of housing starts being, I think, too optimistic for 1978. Many of our people, not just analysts, but the economists of suppliers in the building industry, feel that we may already have topped out in terms of the new housing starts. And also, I note that the consensus, for what it is worth, for '78--at least around our area--is under 2 million, not--what's yours, 2.15 or something like that? And so our chart on housing starts would look quite different from yours. This is the only place where I find a significant departure on the analysis side, and I was wondering if there were any particular factors that gave you this optimism.",290
-fomc-corpus,1977,"Nothing outstanding. The most recent news has been on the good side. Housing starts have held up somewhat better than we had anticipated, and there seems to be a certain sense--indications of continued demand. It's true that there are some suggestions that some of the overheated aspects of housing demand in California and a few other areas have dampened, but that's not necessarily a bad thing. The commitments figures are quite high, the savings flow figures remain high, and it just appeared to us that there was enough in train to keep us moving at a reasonably good rate over the next few quarters.",118
-fomc-corpus,1977,"Well, the range that I saw, the very highest, was something like just slightly over 2 million, and the average was well under it, say 1.8 to 1.9, and your figure seems to be a little above the top of the range of quite a few economists that we've talked to.",65
-fomc-corpus,1977,Is yours a supply constraint?,6
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"That is, then starts can't stay up because there are shortages.",13
-fomc-corpus,1977,"Partly, they have no wallboard; there are all sorts of shortages that are holding things up. It was different from the shortages three years ago that held a lot of things up--for instance, you couldn't get plumbing fixtures, but you could build most of the house and put in the fixtures at the end. This type of building material shortage now means you don't get the house up to put the plumbing in in the first place and don't have walls.",92
-fomc-corpus,1977,"Insulation, I guess, is important.",9
-fomc-corpus,1977,"Insulation is a problem, wallboard is a problem, and I am not up to date on this, but I have the impression that some forms of framing lumber are in very short supply.",39
-fomc-corpus,1977,"Well, this would not necessarily slow down starts. If they slowed down completions--[increased] the length of the period under construction--thereby running up costs, and negative effects on starts stemming from that source--actually, I would not be surprised if, in the multifamily sector, experience were a little better than our staff projection. Mr. Jackson, do you have any view on that?",82
-fomc-corpus,1977,"That's my point, I don't have the facts on which to base a projection, but it appears that apartment housing and [federal] urban development multifamily programs perhaps are a little stronger than some people originally estimated it. There was a push in the fall of last year to accelerate the rate of starts temporarily. What it appears is that their programs are a little more on track and have a more rational basis of future growth than they had been for the last several years. At the same time, there have been some real rates of increase in gross rents, with oversupplies in many communities being worked off. And I believe our flow of funds would indicate that the historic group of lenders that have concentrated in the multifamily sector still have strong supplies of funds, which would tend to support that market.",160
-fomc-corpus,1977,"The strong supplies of funds, and I hear stirrings on the demand side that I didn't hear a few months ago.",24
-fomc-corpus,1977,"Well, the demand side has improved. Unfortunately, we got the opposite side of that equation. Gross rents may go up, but it takes net rents--as we keep reminding ourselves--to go up before you get any production that comes along behind. I do think that the one thing that should be the follow-up question, Bob, is that the chart on three-month Treasury bill expectations combined with the domestic private mortgage borrowing would presuppose that the continued flow into the historic mortgage institution would at least stay positive if not strong, or relatively strong.",110
-fomc-corpus,1977,"Yes, I think that's right, Phil. And furthermore, our people have come to the conclusion that, as far as the impact of disintermediation is concerned on the thrift institutions, it isn't the 6 percent breakpoint, it's a higher point than that because most of the new money has gone into CDs and a lot of it into six-year CDs, where the penalty of getting out would raise the entire breakpoint of disintermediation.",89
-fomc-corpus,1977,"I think your best news there was the most recent sales figures that we saw both in existing and in new housing. We had several months where it looked like production exceeded the sales, but there was a quick one-month catch-up in that, and it occurred during a part of the year where you normally have heavy sales. So while I don't know the actual sales figures--we see the seasonally adjusted sales figure--but I suspect the actual sales figure would be very strong. Sometimes in the winter months you can get a sales figure that looks real strong, but when you analyze the actual rather than the seasonally adjusted, it doesn't make that much difference. But when you get an August or September sales figure that looks very strong, I think it has much more meaning for the whole market tone than we would if we saw, say, a January or February sales figure that was strong.",177
-fomc-corpus,1977,"I have two other observations, if I may. This is relating--",14
-fomc-corpus,1977,Relating to what subject?,6
-fomc-corpus,1977,This is relating to agriculture.,6
-fomc-corpus,1977,"Well, let's pause for a moment. Is there any other observation on the housing market?",18
-fomc-corpus,1977,"Mr. Chairman, one interesting thing that's come to our attention lately, which seems to fly in the face of some of the things others have been saying, is a report from the vice chairman [of our Bank's board], who is involved in all sorts of wood and wood products industries. And he reports that since about Labor Day, lumber prices of all sorts--southern pine, fir, plywood, you name it--have been coming down quite rapidly. In view of the publicity given to the role of lumber prices in pushing up wholesale prices in September, this suggest that either next month you're going to feel some of these effects--they've come down about 15 percent or so on southern pine, which is pretty good--",146
-fomc-corpus,1977,That's just within the past--,6
-fomc-corpus,1977,"Starting about Labor Day, yes sir.",8
-fomc-corpus,1977,Thank you. Mr. Roos.,8
-fomc-corpus,1977,"Mr. Chairman, on last Thursday, we were in Louisville with the individual that heads up the appliance division of General Electric. And their projections are very much in terms of what they anticipate for the housing industry, and they were almost indescribably positive in their attitudes for the next year to 18 months. They were programming on very, very strong housing and setting their production schedules of major appliances accordingly.",81
-fomc-corpus,1977,"All right, Mr. Partee.",8
-fomc-corpus,1977,"Well, I might say that I talked to the economist with the National Association of Home Builders recently, following that convention. He talked to a great many builders in the course of that convention, and his impression is that single-family building is likely to come down in the year to come, but the multifamily might well go up, and it might be above, even--that is to say, the figure might not be so far from the overall figure that the staff has got here, but there might be a little less single-family and a little more in multi. And if I may, I'd like to ask Jerry the same question I asked Bob Mayo, and that is, in your projection, are supply constraints holding starts [down], or are demand constraints holding starts down, or is it money?",160
-fomc-corpus,1977,It's money and demand rather than supply.,8
-fomc-corpus,1977,Money and what?,4
-fomc-corpus,1977,And demand rather than supply.,6
-fomc-corpus,1977,Why do you say money--not much has happened to mortgage interest rates.,15
-fomc-corpus,1977,It's the projection.,4
-fomc-corpus,1977,"In the projection, Mr. Chairman.",8
-fomc-corpus,1977,It's this bill rate,4
-fomc-corpus,1977,"I see. Well, now wait, are you projecting significantly higher mortgage interest rates?",17
-fomc-corpus,1977,"Well, we have mortgage rates, for what they're worth, sort of middle of the next year in the 9-1/4 percent area, so up a quarter or half, depending on where you are in the country. But more importantly than just the rate constraint, we have implicit in our forecast what we believe to be some constraint on funds availability and that nonprice terms will probably be tightening, and that will tend to squeeze some potential borrowers out of the market.",95
-fomc-corpus,1977,"I'm a little puzzled. I would have said that, in view of the liquidity of the thrift institutions and their enormous borrowing potential from the Home Loan Banks, etcetera, I would not expect a shortage of funds, say, over the next 12 months, even if you have a significant reduction in the inflow of funds to thrift institutions.",69
-fomc-corpus,1977,"Well, we think the near-term factors are quite positive on the financial side as well as elsewhere, and hence we do have, what I think is--quite right, President Mayo--a fairly optimistic housing forecast relative, certainly, to the ones I'm familiar with. But if you look ahead, as consistent with our bill rate forecast and our financial side, we think that S&L and mutual savings bank deposit growth in the second half of next year would be something around the 7-1/2 percent annual rate. That's roughly half of what we've been experiencing now. In our flow of funds forecast, we have the thrift institutions actually liquidating liquid assets to fund their outstanding commitments in the shorter run and relying quite a bit more heavily on Home Loan Bank borrowing. But traditionally, that sort of process begins to take its toll [on] attitudes and terms on mortgages, and what we have in our forecast is a peaking out, if you will, of construction early next year and a slight trending down. It's not by any means a collapse in the housing market. I would view it as still a very strong market but one that has lost its steam, in large part from the factors induced on the financial side, but as well [from] the demand for housing, [on] which, in the single-family area, we are certainly not optimistic.",273
-fomc-corpus,1977,"Even if we get a mix, Mr. Chairman, of slightly lower rates of single-family starts or construction and slightly higher rates of multifamily, the net total constant-dollar effect of the two would be flat, or maybe even a reduction, because of the difference in the cost per unit. So you need to be very careful between looking at units figures versus total put-in-place dollars.",77
-fomc-corpus,1977,"Mr. Kimbrel, please.",8
-fomc-corpus,1977,"Mr. Chairman, we have not had a chance to pursue this to great lengths, but there have been several indications in the last two, three weeks that life insurance companies are indeed beginning to invest in our area, in single-family investments, mortgages.",50
-fomc-corpus,1977,Single-family mortgages?,4
-fomc-corpus,1977,"Single-family mortgages in our area. Now, whether that could be characterized yet as a major decision, I'm not sure, but there are known instances that that is beginning to happen.",36
-fomc-corpus,1977,"Well, the large life insurance companies are not doing that.",12
-fomc-corpus,1977,Mr. Chairman--,4
-fomc-corpus,1977,That may have opened up in the last 60 days--first time in over 15 years.,20
-fomc-corpus,1977,"Well, I asked the head of Prudential whether he had any interest, he said absolutely not. Just the other day.",25
-fomc-corpus,1977,"But his neighbor across the street is doing that, though. Equitable is, indeed. Because this happens to be one of those that we're familiar with.",31
-fomc-corpus,1977,How are they doing it? How do they assemble the mortgages?,13
-fomc-corpus,1977,"Well, now this--",5
-fomc-corpus,1977,Are their field offices doing it or do mortgage bankers?,11
-fomc-corpus,1977,I believe they're having their normal brokers.,8
-fomc-corpus,1977,"Mr. Winn, please.",6
-fomc-corpus,1977,"The last 30 days has seen a marked upturn in demands for motels, hotels, office buildings, apartment houses in the insurance industries. Demand really has gone up. A shortage, which we don't talk much about, is the fact that the union bottlenecks with respect to electricians, pipe fitters, plumbers, and that sort of thing. Before anything is started in Cleveland, they're reporting now that they're fully employed. They've had a big hiatus, a lot of people have dropped out of the unions, and you've got a big bottleneck here in the labor factor in terms of construction.",120
-fomc-corpus,1977,Could they come back in?,6
-fomc-corpus,1977,"To a degree, but it's always at a price and slow, and they've got some problems--they shifted off in different areas. Our unemployment figures are very deceptive. There's a big structural problem that's not going to be cured by pouring money in there. And then some of the other shortages--I think they're going to take time to work themselves out. In the ghetto housing area, there's real problems. We've used the mortgage device, I think, quite foolishly, and we've financed people that really shouldn't be in the private ownership of homes. And people with incomes of $300 with 5 children haven't any business with $30,000 mortgages, in my judgment. I think society is going to have to find a different way to house them, and there's problems ahead for us, I think, in that sector of the mortgage market.",168
-fomc-corpus,1977,"Mr. Baughman, please.",8
-fomc-corpus,1977,"I had reports with respect to the Houston market that, I think going back a month or two, insurance companies were a source or an outlet for single-family residential mortgages from that market. Another point I was going to make, Mr. Winn has just made--that there are significant markets in which the supply of labor is a significant limiting factor on the rate at which residential structures are going up. And this one, I hesitate to mention because I haven't checked it out, but we picked up a few comments at the end of last week that the mortgage rate in the Dallas market was having a little difficulty being maintained. Just a little whisper of softness coming into the rate.",134
-fomc-corpus,1977,"All right, thank you very much. We will return to you, now, Mr. Mayo, and you were going to comment on the agricultural area.",31
-fomc-corpus,1977,"Just briefly, Mr. Chairman, one of which is on the subject that we're all following but wasn't mentioned in the forecast. I don't think anybody tries to make a forecast of this, but it relates to the valuation of farmland, sales of farmland. We have had an astronomical increase in many of our Midwestern states in farm values. We have preliminary results, which we haven't published yet, on our own survey at the Bank on the value of farms in our five states, and we find a decline for the first time in Illinois of 8 percent, a decline of less than that in Indiana and Michigan, no decline in the other two states.",130
-fomc-corpus,1977,A decline over what period?,6
-fomc-corpus,1977,A decline over the preceding quarter. For the first time since 1960 for the District as a whole.,22
-fomc-corpus,1977,Is that an annual rate?,6
-fomc-corpus,1977,"No, there isn't really any--this is a decline in sales prices of land.",17
-fomc-corpus,1977,10 percent.,3
-fomc-corpus,1977,"8 percent in Illinois. But Illinois rose more, it rose 41 percent in '76 or--",20
-fomc-corpus,1977,What is that--through forced selling or what?,10
-fomc-corpus,1977,"This is estates selling property at auction, in part, and just the open market price, Mr. Chairman, of farmland. And this is what's in our survey, and this is the first downturn in the value of farm land in our district since 1960. Quarterly.",55
-fomc-corpus,1977,You're saying that the price of land is finally reflecting farm income?,13
-fomc-corpus,1977,"Yes, I am.",5
-fomc-corpus,1977,Not quite yet.,4
-fomc-corpus,1977,"Well, no, but a corner has been turned.",11
-fomc-corpus,1977,Got a few more percentage points.,7
-fomc-corpus,1977,"Oh sure, but a corner has been turned, and we haven't had a corner for 17 years. The second observation relates to the credit side. Many more of our banks are recording some worry about the need for a renegotiation or extension of loans that are current loans on farm operations, that the situation is growing rapidly. I'm not saying it's serious, but I'm saying that there are a lot more loans that they're just going to have to extend that are not going to be paid off this year. That's all.",104
-fomc-corpus,1977,Any other comment on agriculture? Mr. Guffey.,12
-fomc-corpus,1977,"I'd only verify what Mr. Mayo has already said, and that is in this renegotiation time on the extension of loans, which really doesn't arise in our area until November, December, January, because the farmers are out harvesting their crops now. We have seen some improvement in the ratios within the banks in those agricultural areas; to be sure, still very high. But there is a projection that, when you get into that December-January period, the banks are going to be reluctant because of some slight showing that the agricultural prices are turning down a little bit. They say that they're going to accommodate the extensions and some new credit for the upcoming year, but they're doing it more reluctantly than they have before.",143
-fomc-corpus,1977,"How do you feel, Roger, about the outlook for farm products and supplies?",16
-fomc-corpus,1977,"Well, looking at our District only, as you know, there is a very good, very big supply now unsold. It's encouraging to hear the forecast for potential exports markets, particularly in wheat. But we're looking at very favorable conditions for 1978 crops--that is to say, throughout the District it's far advanced from this time last year, and last year was almost a near record crop. So productionwise, absent some catastrophe such as insect disease, or otherwise, it looks like another good year. We have to get rid of the some of the excess.",114
-fomc-corpus,1977,That's in wheat.,4
-fomc-corpus,1977,That's in wheat and corn.,6
-fomc-corpus,1977,Any other comment on agriculture?,6
-fomc-corpus,1977,"Is agricultural land continuing to be effective for foreign investment, which would influence our discussion?",17
-fomc-corpus,1977,"Yes, in our part of the country, it is, although it's a fairly small percentage of total sales--they happen to be big block sales that you hear about, but there are not that many of them. But it is still an attractive investment, particularly for West Germans that have come into the Midwestern and Southwestern areas.",66
-fomc-corpus,1977,"I've heard less of this recently than a few months back, but that may not mean anything.",19
-fomc-corpus,1977,"All right, Mr. Black is next.",9
-fomc-corpus,1977,"Mr. Chairman, mine's related to something we have not gotten to yet. It isn't on agriculture. Do you--",24
-fomc-corpus,1977,"Well, we're ready to shift to another subject.",10
-fomc-corpus,1977,"Earlier, either Jerry or Jim, I've forgotten which, mentioned that inflation for '78 would be 1/4 percentage point lower if you assume no imposition of the well-head tax. Have you done like computations on real GNP?",48
-fomc-corpus,1977,"Well, we've done that computation on GNP for the House-passed bill, which includes all of the major features of the President's program through 1985. And in total, I think our best guess was a reduction in real GNP from the full program averaging about 4/10 percent per year. And the well-head tax alone--I know that was not viewed as the bulk of the problem. It was the tax on commercial and industrial users which caused the decline in real GNP. So I would suspect the well-head tax would be quite unimportant in the aggregate, maybe 2/10 at most, 1/10 or 2/10, which, given the errors associated with forecasting, I think would pretty much drop out. On real GNP, it's not a major factor.",164
-fomc-corpus,1977,"When you say less without the well-head tax, you mean but with the continuing control program and all? I mean, what's the alternative to the well-head tax?",33
-fomc-corpus,1977,The existing situation.,4
-fomc-corpus,1977,"Have you seen this Rand Corporation study that I've read about in the press, which suggested that the current market price of oil products in the United States, excluding taxes, is about the same as in Europe. And therefore the implication is that the control of oil prices at the producer level, which was designed to average--to bring us halfway between [the United States and Europe] on consumer prices of oil, is not working. Have you been able to analyze that?",93
-fomc-corpus,1977,"I am not personally familiar with the details of that. We have had it analyzed within the staff in our international division. And the staff views on this entire energy program, I must admit, are quite split. But one portion of the staff, in effect, suggests what the Rand Corporation study came to, which was that, if you impose a tax, it would do nothing in terms of the average level of retail prices; that, in effect, refiners are now paying the world price for oil, on average, and if approved, the well-head tax would do nothing. I guess I can't comment more than that, except that I'd be delighted to send around for your information the staff analysis of this particular argument. We can do that promptly.",150
-fomc-corpus,1977,I'd like to see it.,6
-fomc-corpus,1977,"Any other question, Mr. Black?",8
-fomc-corpus,1977,"I had just one minor one, Mr. Chairman, the question of the meaning of a chart back here on international [developments]; it's very minor. This second chart in international shows the ratio of foreign real GNP to U.S. real GNP. What is included in that foreign? What is included in that chart?",66
-fomc-corpus,1977,"The six big, the big six countries, Germany and--",12
-fomc-corpus,1977,That's what I assumed.,5
-fomc-corpus,1977,We've used this trade weighted.,6
-fomc-corpus,1977,All right. Mr. Winn.,7
-fomc-corpus,1977,"Mr. Chairman, just one comment on the consumer area. In the tire business, the shift to radial tires led expansion of capacity. It's also led to a rather high-priced tire. Now the tire industry today is faced with big demand for tires both for new cars and for replacements. And the replacement demand has shifted rather dramatically toward the old bias tire, and they're now on allocation while your radials are evident. You see this, if you look at Sears and Roebuck advertising and their failure to sell a high-priced radial. You see it with a major tire company in terms of their sales here in the last two months. Now does this represent a shift in consumer preference towards lower prices, or [a decision that] a [used] car that only goes 20,000 more miles doesn't really need a 50,000-mile tire? But it's a strange market.",177
-fomc-corpus,1977,"I think it's a failure of the radial tires to achieve their 40,000 miles guarantee in most instances.",22
-fomc-corpus,1977,"Any observation on the consumer market more broadly? Yes, Mr. Baughman.",17
-fomc-corpus,1977,"[Some of] our directors are in the retail business, and we happen to have a rather broad representation there at the present time. General merchandise retailing. They've been inclined to feel that the strength of the auto market has had a negative effect on their sales during this past year. And so they in fact are looking forward with some optimism to a leveling or some moderate weakening of the demand for automobiles, and this shows through in their projections and plans for next spring. They talk largely in terms of next spring. So they're talking in terms of about a 5-1/2 percent increase in sales in real terms, and this is general merchandise. In the consumer credit side of the picture, the question is raised--I can't say they're forecasting it--as to whether, with the strong rise in housing starts, we may not have a strong surge in credit demand for furniture and other household durables. And so total consumer credit might not slow down even if we do get some slowing in the automobile sector. In fact, it seems to me that, as one looks at the prospects for wages and employment, unless there is to be a substantial rise in the consumer saving rate, that we [are almost assured of having a] pretty strong consumer expenditure picture ahead of us for next year. This doesn't necessarily lead anywhere, Mr. Chairman.",269
-fomc-corpus,1977,"It does lead into something I was curious about, Jim. If you take a look at the real personal consumption expenditure chart and then you go back to the retail sales chart--and admitting that it's difficult to do this because one's on a seasonally adjusted annual rate basis on a real term and the other one's on billions of dollars--there seems to be a difference of perspective, at least in my mind. Adding to that the consumer attitude surveys, there seems to be a kind of a flattening of the retail sales picture in at least the pictures we have here. But then a sharp upward tilt to the real personal consumption expenditure picture. Now is services going to do all of this for us?",139
-fomc-corpus,1977,"I'm not sure it's going to do all of it, but we're planning on a good deal. I think the major difference between the sales and the personal consumption expenditures chart is indeed the component of services in personal consumption expenditures.",44
-fomc-corpus,1977,"Yes, but I think there is another factor, purely statistical. Your retail sales figures run currently through September; your real personal consumption expenditure chart appears to run through the second quarter only, and the rest is sheer projection. I don't know why you don't have a third-quarter figure plotted.",57
-fomc-corpus,1977,"We will get the Commerce Department figure on Wednesday, but we're running right now with our own estimate of the third quarter.",24
-fomc-corpus,1977,"So that the retail sales is a more current look, you mean?",14
-fomc-corpus,1977,"Yes, that's it; does the third quarter show an acceleration?",13
-fomc-corpus,1977,"It shows an acceleration from the second quarter rate of increase, although not an extremely strong rate of growth in real personal consumption outlays.",27
-fomc-corpus,1977,"This chart shows the retardation through the second quarter, and then some acceleration starting with the third quarter.",21
-fomc-corpus,1977,"That's right in terms of our projection. These are quarterly numbers, as you know, in the real personal consumption expenditures chart; the other numbers are plotted monthly. But indeed, on average in the third quarter, we anticipate that they will be higher. But I might note that the recent retail sales data for September, as Jerry mentioned, and the downward revisions for August were not available when we made the forecast, so that if we were to do it today with the information now available, we would have a lower third quarter.",105
-fomc-corpus,1977,"Yes, that's what I would think.",8
-fomc-corpus,1977,"The second quarter was extremely weak, Mr. Chairman, and in real terms, personal consumption expenditures rose by less than 2 percent at an annual rate, and even with a reduced estimate for the third quarter, we probably may see a gain. I certainly hope so.",54
-fomc-corpus,1977,You mean you're pinning that advance on the basis of real disposable personal income?,16
-fomc-corpus,1977,"That is the projection, yes, Governor. We have the rate of growth in the real personal consumption expenditures at a rate of somewhat under 4 percent during the period. It's not very rapid, and that's manifested, of course, in the tendency for the saving rate to rise, at least over the next couple of quarters. But the major factor supporting our projection in personal consumption expenditures is our projection of real disposable income.",84
-fomc-corpus,1977,"Yet there is some circularity there, isn't there.",11
-fomc-corpus,1977,Absolutely.,2
-fomc-corpus,1977,"And Ernie was saying earlier, with the income and employment that was being projected, you have to have very strong consumption; but on the other hand, if you don't have the consumption, you might not have any income.",45
-fomc-corpus,1977,You're absolutely correct.,4
-fomc-corpus,1977,"This raises a related question, if I might inject, Mr. Chairman, as to whether we are anticipating anything unusual in terms of labor strife. It seems to me that that could be a factor in the picture. We have a substantial strike going on in Houston at the present time, where the union has unequivocally rejected a 40 percent proposed increase over three years [as] being inadequate.",81
-fomc-corpus,1977,Union of what?,4
-fomc-corpus,1977,"Hughes Tool employees, Hughes Tool Company.",10
-fomc-corpus,1977,"Any broad observations on the prospects for retail trade and consumer markets? All right, then let's move on, then. Mr. Winn, do you have anything else?",33
-fomc-corpus,1977,"A comment, Mr. Chairman. In terms of all the projections, you really haven't factored anything in with respect to the so-called tax revision law, or what have you, in terms of--",40
-fomc-corpus,1977,"No, we have not. We would not know what to put in there. I think a dose of uncertainty in terms of our thinking about business fixed investment has implicitly crept into the forecast. Other than that, we don't have an explicit assumption.",50
-fomc-corpus,1977,All right.,3
-fomc-corpus,1977,"One more comment. Several of our major companies in the area have at long last released their string on capital expenditures after running overtime and a very tight ship and all other means to avoid making the expenditures. But their demand has been so strong that they are now planning rather major capital expenditures, and this is a change in the last 10 days.",69
-fomc-corpus,1977,"These are capacity pressures, Willis, in which industry?",11
-fomc-corpus,1977,These are a couple of our major firms.,9
-fomc-corpus,1977,Which industry?,3
-fomc-corpus,1977,"Well, they're electronic equipment and machine tools, this general area, auto parts business.",17
-fomc-corpus,1977,"These expenditures that are being projected now, are they large?",12
-fomc-corpus,1977,"Yes, these are going to be plant expansions. They've done everything with respect to improving tooling and that sort of thing to increase capacity, and they're just faced with market demand that they can't meet without breaking water.",42
-fomc-corpus,1977,Do you happen to know how long it would take to bring that into operation?,16
-fomc-corpus,1977,Probably several years.,4
-fomc-corpus,1977,"All right. Mr. Morris now, please.",10
-fomc-corpus,1977,"Mr. Chairman, I'd like to pursue something that we started talking about a little earlier, and that is the vulnerability of the thrifts in this cycle. We made a survey of the Boston savings banks this morning, trying to find out how they have been doing in October. Now in the past, the Boston savings banks have been very sensitive--their deposit flow has been very sensitive to interest rates. And in the past, at a time when the federal funds rate was at 6-1/2, they were howling and screaming, [as] I recall. Today, the results of the survey showed that, while they didn't think they would do as well as they [did] last October, they were really doing pretty well. It seems to me that--and I suppose this is reflected in your projections here--the thrift institutions are in a different position than they were in the last period when we were tightening the rates, and this is suggested by the fact that you're projecting the Treasury bill rate to rise toward 8 percent, while, at the same time, you're not projecting anything but a modest decline in housing starts after the second quarter of next year. I suppose in part this is due to the fact that a lot of the interest-sensitive money that was sitting there in ordinary savings accounts is now structured out [in time deposits] and is not likely to leave until the maturities come due. But my question--one thing this Committee needs to know is--from the present level of rates, how much room do we have with the thrift institutions as far as putting them in a position where they're likely to suffer net outflows of funds? How far away are we? Do you have any comment?",344
-fomc-corpus,1977,"Well, if I may interrupt, I heard Phil Jackson say the other day that we've never had a net outflow; that all that we ever have is changes in the degree of intermediation, and we've never had any disintermediation. And I asked you, Mr. Axilrod, to look into that for me.",68
-fomc-corpus,1977,"Well, we did.",5
-fomc-corpus,1977,"Checking up on my colleague, Mr. Jackson.",10
-fomc-corpus,1977,"On a seasonally adjusted basis, there appears to be a very small net decline in deposits, that is, a net outflow, at S&Ls in January and February of 1970, and there was a similar--very small, 1 percent annual rate--decline in August 1966.",63
-fomc-corpus,1977,"Well, it's very rare then, on a seasonally adjusted. Is it--well, now wait, before seasonal adjustment--",25
-fomc-corpus,1977,"I don't have those figures here, but I'm sure there are some more.",15
-fomc-corpus,1977,Don't be sure; you've got to take a look.,11
-fomc-corpus,1977,"I take that back, sir.",7
-fomc-corpus,1977,"Mr. Chairman, I think the aggregates figures cover up a great diversity of experience. But the Boston savings banks, for example, [in] '73 and '74, had net outflows in every month for 18 consecutive months, while at the same time, the savings banks outside of Boston were recording net inflows every month. I think there is such a thing as disintermediation.",81
-fomc-corpus,1977,"There is disintermediation for individual institutions and regions, yes, but for the country as a whole, apparently it's an extremely rare and minuscule phenomenon. And the right term ought to be, not disintermediation, but reduction in the degree of intermediation.",57
-fomc-corpus,1977,"Isn't October one of your taxpaying months, also?",13
-fomc-corpus,1977,"Yes, it is.",5
-fomc-corpus,1977,"So, therefore, if your people had a good month this month, at least a reasonable month, it would be an even stronger month than you might expect.",32
-fomc-corpus,1977,"Yes, but they were comparing this October to last October, and they expected some outflow for tax reasons. But by and large, they're not terribly unhappy.",32
-fomc-corpus,1977,"Usually, in a taxpaying month you go negative in Boston, as I recall.",18
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,"Frank, does your survey show where the funds are coming in? Are they coming in the long areas, where you wouldn't have incentive for disintermediation that you would have in some of the shorter areas?",42
-fomc-corpus,1977,"Well, we didn't make it a very extensive survey--just trying to find out if they were beginning to get alarmed yet or not. I thought it was a little surprising.",36
-fomc-corpus,1977,You were beginning to ask a question.,8
-fomc-corpus,1977,How much room do we have?,7
-fomc-corpus,1977,I was interested in the answer to the question.,10
-fomc-corpus,1977,I think he was going to give him another month to get it.,14
-fomc-corpus,1977,"Well, let me indicate what we have in our forecasts. We have an annual rate of growth for S&Ls and mutual savings banks in the second half of 1978 that averages a 7-1/2 percent annual rate. At the same time, we have a bill rate there that's 7-3/4 percent. Now there, a couple of cautionary notes that I'd like to throw in: One is, probably at least 6 percent of the 7-1/2 is interest crediting; it's sort of internally generated--obviously available for use, but it's not as though you're getting direct new inflows. Secondly, about a third of total deposits at S&Ls now is lodged in four-year accounts, which obviously is quite important since they began in July 1973; they were rather small during the 1973-74 episode, nonexistent for '66, the '69-'70 period. Now we're just beginning to get the first maturities of those four-year accounts. So, institutions may feel a little comfortable now, [but] depending on what happens to yield spreads in this four- and six-year area, next year is where the withdrawals at maturity begin. And it's very difficult to estimate, but our own thinking right now would be that the bill rate probably has to get near the 8 percent before you'd be talking about a situation comparable to '73-'74, in terms of disintermediation, if you like that phrase.",300
-fomc-corpus,1977,"Mr. Chairman, I wonder if I could break in here and pursue the same point that Frank has been talking about, because it's a question I wanted to raise myself. Last week, I happened to be up in Seattle on business; I asked all the banks that I visited whether they'd seen any signs as yet of savings flows decreasing, and the answer was almost entirely no. In fact, all the banks up there are paying 4-1/2 percent on passbook except one bank that's paying only 4. And strangely enough, all of the banks have a very relaxed view about their savings picture at the moment, at least for the immediate period ahead, because they are convinced that if there were interest-sensitive money in their passbook accounts, [it] long ago would have left. That is to say that savings and loans, and especially a very large mutual savings bank in the State of Washington, have been aggressive over the years in going after savings accounts. So the banks, at least in the Seattle area where I had a chance to quiz them, were not worried. I did get a chance to talk to the head of the Federal Home Loan Bank in Seattle at a luncheon meeting that we put on, and he reported to me in just general terms that they were beginning to see some slowdowns now, some observable ones, in the S&Ls in his particular district. In terms of the question Frank asked, that's a very difficult one. I have asked my own staff to do some work on what the experience was on the West Coast in the last crunch. Which, of course, may or may not be applicable at all to 1978, as we all recognize, studying the experience in the West Coast, we do have some giant S&Ls that do go after very interest-sensitive money from all around the country--as you know, a number of multibillion dollar S&Ls in California, for example. The past experience would indicate, for what it's worth, that a three-month Treasury bill rate of 150 to 200 basis points over the S&L passbook rate appears to be a zone or a trigger point that very sharply reduces the inflow of savings to the S&Ls. If that experience were to prevail in the future--it may not--that would indicate a T-bill rate of somewhere between 6-3/4 and 7-1/4 percent as a zone where they really begin to feel something. Now, offsetting that, of course, is the fact that they've got a somewhat longer average structure of maturities than they did three or four years ago. But nevertheless, all things considered, I would simply want to observe that our own staff, for example, is a little less optimistic than the Board's staff on housing starts. We're looking--not that our forecasts are any better than yours--at about 1.8 million units in '78 versus 1.9 this year. Your forecast is 1.97 this year and totaling up next year to 2.14. I did examine a very recent set of forecasts among leading private forecasters published in Euromoney for the last month--oh, 30 or so [forecasters]--and I think the average of those came out to about 1.83 million units in 1978. In general, I would gather that the private sector of forecasters are less optimistic than you are here at the Board on this matter of what the level of interest rates may do to savings and also to housing starts.",716
-fomc-corpus,1977,I think that's fair; probably in most cases they are assuming lower interest rates and getting somewhat lower housing starts.,22
-fomc-corpus,1977,"Gentlemen, I think the time has come to state what views we have with respect to the outlook for the overall economy. And I think it's particularly important that members of the Committee indicate whether they agree substantially with the broad projections made by the staff, putting details aside, or whether there are sharp, significant differences. And it's these that we want to articulate. And who would like to comment at this time? Mr. Willes.",88
-fomc-corpus,1977,"Mr. Chairman, we agree with the optimism of the Board staff, even though it is somewhat more optimistic than many others that we read. And even though we had the snow in October, in fact we're slightly more optimistic than the Board's staff. We think that there's a little tendency on the part of many observers, as they see a particular economic statistic come out, to read more into that than perhaps is warranted.",84
-fomc-corpus,1977,I think we'd like to hear you argue the case for greater optimism.,14
-fomc-corpus,1977,"Well, we find, for example, that in each of the areas that we have been talking about so far today, consumer spending, housing starts, and so on--while a particular number may be low for a month or two, the feedback we keep hearing from our retailers, from our businessmen who are making their plans for capital spending, and so on--very much like Willis Winn reported--we just see things continually coming on line out there that almost seem to belie the general pessimistic statements that we seem to hear from professional forecasters.",109
-fomc-corpus,1977,"Yes, but are you commenting on the economy of your own region or on the national economy?",19
-fomc-corpus,1977,"No, we're getting this feedback from around the country. And precisely because of our geographic peculiarities, we have asked our own staff as well as our directors to reach out elsewhere to make sure we weren't being overly influenced by the things in our District. I do have one question that we find a little difficult to deal with. And I don't know whether you or the staff would care to comment. We would like to know what the best guesses are as to whether there will be additional protectionist measures over the next 12 to 18 months and how significant they will be, because that will have a rather significant impact both on output and prices.",129
-fomc-corpus,1977,"My guess would be, or my judgment--we will not have any significant protectionist measures in this country over the next year. Do you have a different view, Mr. Truman?",37
-fomc-corpus,1977,"No, I, it's only a guess. Yours may be a judgment, mine's a guess. I'll agree that you're not going to see much--",30
-fomc-corpus,1977,"Well, I'd like to pursue your comment. Mr. Willes has indicated that he feels that, if anything, the staff forecast understates prospects of the economy. Are there others within the Committee who take a similar view--who feel more optimistic than the staff apparently does? Mr. Roos, first, and then Mr. Winn.",68
-fomc-corpus,1977,"Whether I feel more optimistic or equally optimistic, we have met with businessmen in our District, some of whom have national and international operations, in the last couple of weeks. And literally none of them cite any weaknesses or any significant weaknesses. By and large, most of them are optimistic, most of them report having inventories well under control. Loan demand in our area is strong, and basically, I would share in readings we get, which are both Midwest--Eighth District--as well as national reflections. Nothing that would make me other than reasonably optimistic.",111
-fomc-corpus,1977,"All right, thank you. Mr. Winn and then Mr. Kimbrel.",17
-fomc-corpus,1977,"Mr. Chairman, I think my optimism is in part based on the hope that some of the psychological malaise may be lifted. It's a kind of a commentary on our times when last week a New York Stock Exchange seat sold for $35,000, and a taxi medallion in New York sold for $52,000. So our out-of-work brokers can't even buy a cab. But I have a feeling that the current market malaise is in part psychologically affecting attitudes in a whole range of areas, and somehow I think that both the Washington scene and the New York scene may be clarified before the year is out. And with those two lifted, I see greater strength than has been indicated in some of these numbers. Now, if I'm wrong, they may pull down a greater segment of consumer expenditures in some of these other areas and factor them into our forecasts.",175
-fomc-corpus,1977,Okay. Mr. Kimbrel.,8
-fomc-corpus,1977,"Mr. Chairman, I guess I should [say that] the negative features that relate to us are entirely, at this moment, apparently strike related. Lockheed, of course, yesterday voted to strike in the Atlanta area, which is a significant employer. On the other side, the New Orleans dock workers apparently have voted reluctantly for going back to work and eliminate some of that bottleneck there. The concern also is about the activities of coal miners in Alabama, Tennessee, and they work a day [on] and a day off, so at least those are clouds. But east Tennessee barely remembers that there's been any change because their employment there is full speed ahead. The west coast of Florida is experiencing the same sort of rebound that is difficult to comprehend in the real estate, housing area. The Louisiana and south Alabama oil exploration people are almost uncontained. They just can't get enough rigs and enough people to work. They are as excited about their future as [unintelligible]. Even in the Atlanta area, the feeling is one of optimism. So, Mr. Chairman, we just simply must come out in our area with a feeling that things do not look blue over the next few quarters.",240
-fomc-corpus,1977,"All right, in the interest of orderly discussion, before I call on other members of the Committee, I would like to have a show of hands on the part of those members of our family who believe that the outlook for the general economy is less favorable than our staff has suggested.",56
-fomc-corpus,1977,Over the full projection period?,6
-fomc-corpus,1977,"Well, define that as you may. All right, then, we'll hear from some members of that--",21
-fomc-corpus,1977,"[Unintelligible] count five, Mr. Chairman.",13
-fomc-corpus,1977,"Well, no, I wasn't ready to count. I wanted the individuals rather than a count of the numbers. Mr. Partee, let's hear from you now.",33
-fomc-corpus,1977,"Well, Mr. Chairman, I guess I would veer in the direction, I think, in the probabilities of a somewhat lower increase than the staff has. And I do this with some temerity because I think it's awfully hard to know what's likely to occur. And I do it also with a clear understanding that I don't anticipate an actual recession in the period, at least not until the very end of the period that we're forecasting. But it seems to me that, in area after area that has been discussed here this afternoon, the staff has been inclined to take a figure a little on the high side. Now in some of these cases, the figure will probably work out, but in other cases it seems to me that a lower figure is probable. For example, we've mentioned net exports--it seems to me that chances are that net exports will be weaker than are being projected, rather than stronger than have been projected, and that will weaken, to a degree, the size of domestic output related to that aspect. We mentioned housing starts, and I think maybe a 2.14 million rate is a pretty high rate for the year. Even if you get 2.14, I want to agree with my associate, Governor Jackson, that it's likely to be more in multifamily and thus involve less spending than would be the case in the staff mix. I see that we still have automobile sales next year of 11.4 million units, up from this year. And it seems to me still unlikely that that will be the case. In general, I wonder whether personal consumption will be that strong. In the area of plant and equipment expenditure, well, it may well be that the staff will be right. They have a 13.6 percent increase indicated in business fixed [investment], but I would remind you that the surveys we've seen to date are a good deal below that. Now, it's often said, and I've heard it said just today, that the surveys tend to underestimate spending during the periods of expansion. But I want to point out to you that that has a certain amount of circularity in it. If this in fact does not turn out to be a period of high expansion, I think the surveys indicate that they usually overestimate rather than underestimate. So that there is a presumption that you're thinking about, that you're reading from, when you say that it's likely to be more than the surveys. That's not a tremendous difference, but it is on the order of 3-1/2 percentage points in that area. Perhaps there could be more of an increase in inventory than is being projected. But business seems to be very conservative with regard to inventory, and I haven't seen as yet what I would call speculative exuberance in acquiring inventory. Therefore, if business is conservative with regard to inventory practices and we do get a larger rise, that would be a sign of weakness for the immediately following period rather than a sign of strength. So, I wouldn't want to say each one of these areas will be weaker than the projection, but I think there's enough of a prospect that some will be that I think we'll come out on the low side of this. I will point out to you that what we're projecting is a real GNP, the rise in which is tending to diminish from a 5 percent rate to 4-1/2 percent rate over the projection period. Thus, a lower number would get us down into an area of danger and an unemployment rate that is dropping very little from where it has been--to 6.6, I guess, at the end of the projection period--which is also much less progress than has been planned in that area over the coming year. As far as prices are concerned, I am inclined to think they're going to come in a little better than the staff has projected. And I think I'm inclined to do that partly because I believe that food prices will continue weak in the projection period, relatively weak, and also because there's not going to be enough worldwide demand for industrial raw materials to drive those prices up very much. So I think those two somewhat exogenous elements in our price determination picture will tend to give us lower increases rather than larger. I don't really dispute the idea that the basic underlying rate of inflation marked in terms of unit labor costs will remain 6 percent or slightly above.",877
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Volcker now, please.",16
-fomc-corpus,1977,"Well, Mr. Partee has pretty much made my speech at this point. Let me say that I think the staff forecast doesn't seem at all unreasonable to me. But it is higher than what my people have been forecasting in New York by about 1 percent[age point] for calendar year 1978. And while I think it could reach the staff's projection here, I think there are grounds for being more cautious. And let me just state pretty much what Governor Partee just did in a slightly different way. Consumption is most of the GNP. Everybody pretty much anticipates that the saving rate is going to go up, and the staff knows, as we do, that it has been pretty low. You've got to generate income at a faster rate of speed and consumption to keep this thing going. If that's correct, are all these other sectors going to generate the income that's necessary to reach that consumption figure? When you look down at the items that are crucial, you come up with the same ones that have just been questioned. We're particularly lower on housing, although I think a good defense has been made of the housing projections here. That's the biggest single difference we have. But we are lower in all these other things, marginally, right along the line. The investment thing, it seems to me, is being affected at the moment by about as sour a business climate in relation to the political scene as I remember in a long while. And that may not last--I think it's being overdone. But I certainly get a strong feeling of discouragement reflected by the businessmen that I talked to about what they think they see going on in Washington, and exaggerated or not, I'm beginning to think it's had some impact in what they're saying they're going to do about capital spending next year. I still hope that that will evaporate, but the stock market thing complicates the situation too. It doesn't make anybody feel happy, and I think both those situations may have to improve to get as good a business investment picture next year as the staff has projected. You already mentioned net exports, but in the short run I do think the key is inventory. The thing there is a little more mixed than I thought it was a while ago, in the sense that you can read the retail figures at least as being a little high, mainly because the retail trade has leveled off--not drastically so. The rest of the inventory picture looks pretty good to me, but I think we are counting, even in our projection, even more so in the staff's projection, on a pretty prompt turnaround in the inventory picture here, and we haven't seen it yet, and before I get too optimistic, I want to see it take place. That, combined with the settling down of this political thing, may bring us around to the staff's view pretty promptly. But we're not there yet. I might tell Mr. Winn that the medallion price wouldn't be so good if the taxi industry was regulated by the SEC [Securities and Exchange Commission], I suspect, and they thought the [unintelligible] was going to go out of business.",631
-fomc-corpus,1977,"Mr. Balles now, please.",8
-fomc-corpus,1977,"Well, our staff forecast is very close to that of the Board in broad terms up through about the middle of next year. We're considerably less optimistic for the second half of the year. And largely because of the reason I alluded to earlier, we expect a downturn in housing to occur, principally in the single family--[unintelligible] apart by what will go on in the multifamily. But nevertheless the total picture on housing is likely to feed back on purchases on household durables and also on inventories, and that's why our staff has, for the second half of next year, a real GNP increase averaging less than 3 percent. I admit that the farther you get out of this forecast horizon, the greater becomes the margin of error, but that's just the way we happened to come out.",163
-fomc-corpus,1977,"Thank you Mr. [Balles]. Mr. Wallich, please.",15
-fomc-corpus,1977,"Well, this is of course a contingent forecast based on there being no further action on the policies that are in the pipeline so far. I would also say that it is not a very high forecast--4.3 percent in the fourth quarter is not very much, and final sales of 3.8 in the fourth quarter is really quite modest. Also, I'm making the case for the downside here, and I'm starting off by saying that even the staff is not very high. Nevertheless, the staff is higher than most forecasters, particularly toward the end of 1978. There are some [forecasts] for early '78 that are above us. But [for] late '78, I'm afraid, we're at the peak. It may be that economists typically see things that are strong petering out. There's always a good reason for that, like housing. It's difficult sometimes to see things strengthening, and that's what lends a bias to these forecasts beyond the area of visibility. Now, I think if one wanted to make the realistic assessment of the situation, it is that we may very well get a stimulus from the Administration during the course of the year. The Administration talks about a 5 percent rate of growth during 1978--that is well above what we think. They say that action would be taken if we fell below that, but what that action would be, how effective it would be, how long it would take to get it enacted, and how soon it would become effective is all very uncertain. I would guess that the evolution of the numbers that we have here in the staff [forecast] might trigger quite early pressure from the Administration for some kind of fiscal action. If one factors in that probability, one--",348
-fomc-corpus,1977,And assumes great wisdom.,5
-fomc-corpus,1977,"--assumes great wisdom--I was going to say this raises other risks. It raises risks of acceleration of inflation; it reduces, I think, the chances of a downturn. So all that I wanted to say is that, in the absence of new action, I think that the staff is more on the high side than I would be.",69
-fomc-corpus,1977,"Gentlemen, I scheduled this meeting for a two-hour period, and the two-hour period is at an end. I wish we could carry on; I hate to interrupt the flow of thought. But I've got to go to another meeting, and I believe the Bank Presidents have scheduled a meeting to start at 5:00. So we will resume our discussion of the economy tomorrow morning, and those that haven't yet spoken will be afforded the time; and I will want to make a statement or two regarding the condition of the economy and our economic prospects as I see them.",116
-fomc-corpus,1977,Is this the meeting of the Sunshine [law] now?,12
-fomc-corpus,1977,"Yes, this is Government in the Sunshine. October 18, 1977",16
-fomc-corpus,1977,"We had, I think, a reasonably thorough discussion of the economy, the way in which we do it, individually, but several members of the Board did not express their views. And we decided at the end of yesterday's meeting to continue our economic discussion--at least for a little while. We'll start with Mr. Coldwell, and then I'll call on Mr. Lilly, and then on Mr. Jackson, and on any others who want to speak. Mr. Coldwell, please.",99
-fomc-corpus,1977,"Thank you, Mr. Chairman. We were talking yesterday, as you may recall, about any questions of difference on the projection period. And I don't find myself, on balance, over the period to mid-'78 on a net basis a whole lot different than the Board staff, although I think they're a bit optimistic. But my pattern of projections seems to be fairly different from theirs. The third quarter, fourth quarter shift--I think they're overly optimistic for the fourth quarter of '77, and I'd say a little bit less optimistic than I am for early '78. But then in later '78, I have a pattern which fades and perhaps fades more rapidly than theirs. It seems to me that early '78 could show some strength in the inventory, government spending, and some personal consumption elements of the economy, countered to some extent by net export weakness and sluggishness in the construction area. For the latter part of '78, I think we're going to get additional sluggishness or weakness out of some inventory cutback and possibly also further construction weakness. So I guess what I have to say to the Committee is that, looking down the path, my little scenario runs to weakness in '77 with more early strength in early '78. And it's a balancing act. As I said, I come out on net balance not much different than the Board staff, forecasting through the summer of '78.",281
-fomc-corpus,1977,"All right, thank you. Mr. Lilly now, please.",13
-fomc-corpus,1977,"Well, last month, as you remember, I was nervous about the economy, and I'm a little more nervous this month. I think the growth of the economy is dependent on consumer expenditures, housing markets, and an increasing rate of capital expenditure, and I haven't seen any of those factors improve somewhat. In fact, I think it's going the other way, if anything. Beyond that I'm very much concerned about the life of its own of the structural inflation [unintelligible]. Every time I pick up the paper, I hear of something else that has been done to add to these hard-core inflation pressures--7.05 government pay increase, some of the wage settlements that are coming through, the minimum wage action, the protective trade quota noises that I hear--all giving me great concern, and I'm wondering if monetary policy--well, I'm getting a little ahead of myself at this point.",179
-fomc-corpus,1977,"All right, thank you, Mr. Lilly. Mr. Jackson now, please.",17
-fomc-corpus,1977,"I think the staff's projection is a very rational, thoughtful, and appropriate effort about the expectations for the economy. Unfortunately, though, at this stage of the economic recovery of the United States, at least, I think we are entering an area where it's not what is or what is expected to be but the reaction to these events that may be the determinant of change. For example, if the expectation comes forward, I would judge that there would be a substantial segment of our country that would consider the rate of progress grossly unsatisfactory and would advocate all sorts of governmental or other efforts to make radical changes in the rates of growth as a result of the unemployment situation having effectively stagnated at about its present level. And so the public perception of our economy may well be deteriorating as a consequence of political rhetoric and those other members of our society that don't view it as being satisfactory. I think that the same thing is unfortunately true in the business community about action of government. It appears that we are about to embark on a very serious series of discussions--energy being the first of them, the tax, other aspects of the business community. [These] will be the subject of intense government discussion, much of which is very likely to lead to a sense of discouragement on the part of the public. Our staff illustrated the consumer confidence series, and things of that sort. In short, I think the proposal is a rational one, and one that is most likely to be achieved. I do think, however, that the risks are definitely on the downside rather than the upside as a result of the deterioration in general public confidence and the economic prospects that we have--led on, unfortunately, by many people who will give an emotional reaction to a series of facts or a philosophical reaction to a series of facts that will distort the real event, which will in turn erode confidence to the extent that you'll have real changes on the downside. I think, therefore, that to that extent our responsibility on this whole equation will be even more sensitive--to do our best, not only to do the right thing but to try to ensure that it is understood in the right way--to that extent we have a more than normal responsibility to contribute toward the recovery, not only in real terms but in emotional and psychological terms.",462
-fomc-corpus,1977,"All right, thank you, Mr. Jackson. Anyone else?",13
-fomc-corpus,1977,"May I inquire, Mr. Chairman?",8
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Are we relating our projections, our opinions as to future economic activity on the premise that was used in the staff projections of 5-1/4 percent M1 growth from the third quarter of 1977? My question is, it would seem to me that monetary policy decisions should have some effect on any economic projection, and are we assuming in this exercise that we're buying, for purposes of our opinion, the staff [forecast] based upon 5-1/4 percent M1 growth, which is considerably below what we've had? Is that the rules of the game, Mr. Chairman?",120
-fomc-corpus,1977,"Well, the staff projection is based on that assumption of the 5-1/4 percent rate of growth. I think it would be fair to say that many economists who have arrived at similar projections of the economy have done so without taking that restrictive or that explicit monetary assumption. In other words, while the staff believes they have arrived at their projection by using that assumption, I am not ready to say that that projection necessarily rests on that assumption. So much for the staff; as for members of the Committee, each one would have to speak for themselves. Is that a fair answer, Mr. Kichline?",124
-fomc-corpus,1977,I think so.,4
-fomc-corpus,1977,"He said with a little sigh. Any further comments? Well, if not, let me say just a few words about the condition of the economy as I see it, and I'm not going to take much time because we want to move on, and I will have more than a little to say about monetary policy later on. I think the staff projection is reasonable, but I think that a larger margin of error attaches to the staff's projection today than it did to the staff's projection three months ago or six months ago. Would you agree with that, Mr. Kichline?",117
-fomc-corpus,1977,Very much so.,4
-fomc-corpus,1977,"As I see it, we have a depression in some major branches of our national agriculture. We have a significant recession in the metal-producing industries. On the other hand, we have considerable strength--we had a long discussion of that yesterday, and I diverged a little from the thinking that was expressed around the table--I think we have considerable vigor in the housing sector. I think we are having something of a revival in large-scale industrial and commercial construction that started only recently in the first quarter. I think that machinery trades continue to be strong. But certainly retail trade in the past few months has followed a horizontal trend, even in dollar terms, and a somewhat declining tendency in physical units. There is a very considerable uneasiness in the business and financial community, and I think it's reflected in the stock market. I found businessmen in a very uneasy mind during the recent meeting of the Business Council which I attended. I think that the economy could have a marvelous recovery or reacceleration if economic policy made by the Administration, particularly the new tax proposals, were sensible, realistic, well designed to foster capital investment in our country. I think that there is great vitality in the private economic sector. The fact that we've added nearly 7 million jobs in our country since the spring of 1975 attests to the dynamism of private enterprise in our land. New business are being formed at a rapidly increasing rate. But I think that a series of actions and inactions of the governmental sector and the rather indifferent performance of profits is gradually sapping [the] vigor of optimism, [and] I think [that condition] has come to characterize businessmen around the country. Now, if I felt confident that the Administration would come forward with a sensible, practical set of tax proposals, I would say to you that I look forward to a rapid and sustained increase for economic activity. But I don't have that optimism at the present time. And on the basis of what I know about Administration plans--they're still in process of being shaped up and not yet final--I cannot be very optimistic. And I think that puts a burden on us and a certain responsibility on us, to which all of us are sensitive. Well, I take it, unless someone else would like to speak about the economy, its general conditions and prospects, I think we're ready to move on. And we haven't yet heard from Mr. Pardee on foreign currency operations. I hope you bring good news today, Mr. Pardee. The markets didn't behave too badly today. Why don't you express the good news while it lasts for an hour or two.",526
-fomc-corpus,1977,"We're about where we closed last night, but the dollar was lower earlier today and other central banks [unintelligible]. [Secretary's note: This statement was not found in Committee records.]",39
-fomc-corpus,1977,[Interrupting] Did Secretary Blumenthal make the latter statement?,14
-fomc-corpus,1977,"It was taken out of context. This was a press conference on other matters, and someone asked him [paraphrasing], ""Well, what do you think about the rise in the Japanese yen lately?"" And he said, ""Well, there hasn't been much rise, has there?"" And they said, ""Oh yes, it's gone up such and such,"" and got into a discussion of the appreciation, which has been only about 1 or 2 percent. He said, ""Well, that's not very much. If you really want to have an effect on the trade balance, you need a very large appreciation.""",125
-fomc-corpus,1977,Did he say the latter? Are you sure?,10
-fomc-corpus,1977,"Yes. It was in an ""if"" clause, however, rather than a--",17
-fomc-corpus,1977,I didn't see that.,5
-fomc-corpus,1977,He didn't say he wanted a large appreciation--,9
-fomc-corpus,1977,"He said ""if.""",5
-fomc-corpus,1977,--but that's the way it was interpreted.,9
-fomc-corpus,1977,"That's right, but it's the way it was interpreted, and it was yanked right out of context. It's like any--",25
-fomc-corpus,1977,He says if you want a large effect you need a large change.,14
-fomc-corpus,1977,He was making an analytic point and got interpreted as a policy position.,14
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,"And on the basis of what little I knew, I thought it was misinterpreted.",18
-fomc-corpus,1977,"Well, he was making an analytic point, that, if you're going to have an effect on the trade account, you're going to need an awfully large change in the exchange rate under the current circumstances. But he wasn't advocating that, it's just the point he was making. But the Reuters people, who weren't there at the time, went over the transcript and yanked these two or three sentences out of the transcript. Everything else that he said disappeared--was not used by the press. And it came at a particular time when the market was quiet. You have this tendency of the press to use these things. [Secretary's note: This statement was not found in Committee records.]",137
-fomc-corpus,1977,[Interrupting] Would you tell us about the good news that has been ignored by the market?,20
-fomc-corpus,1977,"I have a brief bit later on. The economy is not performing that badly; we have growth here. Other countries don't have much growth. Our rate of inflation is lower than in most other countries. We've had currencies that are rising--their rates of inflation are 10, 12, 15 percent. The market has lost perspective on many of the fundamentals with this exaggerated focus on the trade deficit and what the United States government is going to do about the trade deficit.",95
-fomc-corpus,1977,Rise in interest rates--,5
-fomc-corpus,1977,And interest rates have risen. [Secretary's note: This statement was not found in Committee records.],20
-fomc-corpus,1977,Thank you. Mr. Black.,7
-fomc-corpus,1977,"Scott, I gather from what you said about the market's tendency to ignore any good news, that your assessment of the positive effects of, say, an increase in the discount rate or moving the federal funds rate up still further would not make much difference.",51
-fomc-corpus,1977,"At the moment, the market is not focusing too much on interest rates. At the moment. But if some of these other fears were calm, then they would be focusing on interest rates. The general feeling, perhaps, is that there might be further firming of interest rates here, but I don't think people expect much further rise.",67
-fomc-corpus,1977,"Any other comments? Mr. Wallich, please.",11
-fomc-corpus,1977,"And what's been the response to our recent interventions? Do central banks abroad feel that we've done our share of the job, or do you still get pressure to do more?",34
-fomc-corpus,1977,"Well, at the Desk we haven't had any pressures to do more. We've been working very closely, of course, with the Bundesbank, the Swiss National Bank, but there have been some rumblings from the Swiss, particularly, that the U.S. ought to do more. But that's again in the context that the Bundesbank had done $900 million and the Swiss $1 billion, and they still haven't really resolved the problem they face in the market. The Swiss have a particular problem because their currency is rising against everyone, once again; it moved above parity with the German mark just today. So they're more concerned. But I think in this episode we have less pressure on us now from the others than we have had with earlier episodes. But at the same time, we're on a spot, since it is U.S. policy which is in question, and a number of times the market participants have called us and said we're glad to see you in the market today.",195
-fomc-corpus,1977,"Can you tell from their reactions whether this enormous amount of intervention, I think on the order of $20 billion supporting the dollar, whether they're disappointed in that it hasn't had more of a stabilizing effect?",41
-fomc-corpus,1977,"Oh, yes, disappointed.",6
-fomc-corpus,1977,Shouldn't you say they spent $20 billion on holding down their own currencies?,16
-fomc-corpus,1977,"Well, I just want to bring out the fact that $20 billion was spent and was not enough to hold the dollar.",25
-fomc-corpus,1977,"No, I'm just referring to the phrase ""supporting the dollar."" I don't think that was their motive. Their motive was to hold down their own currency.",32
-fomc-corpus,1977,"Oh, yes, I think that is probably so. But if you thought of it--suppose we had done this, nobody else supported the dollar; we had, let us say, very large reserves of some sort and had to spend $20 billion in support of our currency, it would not have been sufficient to prevent this decline. And that impresses me very much, whether things were going back to a stable system, what kind of reserves would be needed in order to maintain stable rates.",100
-fomc-corpus,1977,There is some indication that stable rates really aren't a viable permanent system.,14
-fomc-corpus,1977,"Under present inflationary conditions I would say, not otherwise.",12
-fomc-corpus,1977,"Well, when you have intervention on such a scale, that means to me that a number of countries in the world are conducting their affairs in a way suggesting that they believe they are or should be in the fixed-rate system. And of course, they're doing it in the interest of protecting their foreign trade, and that's why Scott is not having many complaints from the countries that have been intervening on such a great scale. They're appreciative of the minor intervention that we make because we're helping them to protect their foreign trade. That's the way they look at it. Scott is wondering whether I'm right.",118
-fomc-corpus,1977,"At base, this is one of the elements, but I think as central bankers, we're all more concerned with the financial flows and the relative stability of our market. To have these vast amounts of money moving across the market is a problem for any central banker. I think, though, in response to Governor Wallich's point, that if the market felt that we would be prepared to do $20 billion, then that amount of intervention would not be needed by anybody. And it's a part of the question whether we are prepared to support, defend--whatever word you want to use--our own currency. And any indication coming out of Washington or anywhere else that the U.S. wants to see a particular result starts a new wave of selling the dollar.",151
-fomc-corpus,1977,You're saying that effect of intervention depends to some extent on who does it?,15
-fomc-corpus,1977,"Right. The British, if they buy another dollar today, it'll just go right into their reserves and into our bond market. If we were to buy another dollar today it would have more effect on market psychology. This is what we're facing--psychological markets.",52
-fomc-corpus,1977,"Is there any change in the psychological attitude of foreign official institutions that are a major holder of the dollar reserves, other than these major trading people?",29
-fomc-corpus,1977,"Well, it's hard to measure. At the request of the Chairman a few months ago, we have been watching very carefully for any concrete indications of shifts of funds by the OPEC central banks, in particular, and it's very hard to trace this because they are very sophisticated in the manner in which they carry out their transactions. I had a feeling, [during] this last go-round of big payments to some of the OPEC [countries] at mid-month, that more of the funds were converted out of dollars into marks and Swiss francs than we've had in recent months. But this was more from comments we heard from the market and the reaction we had when we went into the market ourselves--that it took more intervention on our part to quiet the market on a particular day than we would have otherwise.",161
-fomc-corpus,1977,"Well, had you asked the central banks and the leading OPEC countries what they may be doing?",20
-fomc-corpus,1977,"Yes, and we don't get very concrete answers either. But they do point out that they are concerned about the dollar and point out the scenario that, if the dollar continues to decline, then they have no other choice but to continue to diversify to Swiss francs, marks, and other currencies, yen, in order to maintain the value of their international reserve.",71
-fomc-corpus,1977,You say continue to diversify. How far has this moved?,12
-fomc-corpus,1977,It varies with the country.,6
-fomc-corpus,1977,Or do you know?,5
-fomc-corpus,1977,"But in some cases I think they're just not telling us the [truth]--they say they're still in dollars, investing in dollars, and so forth, and yet we hear from the market that they've been buying other currencies. Since they operate in the Eurocurrency markets, no one can see them very well, even the others.",66
-fomc-corpus,1977,"So your impression is, this is more than a threat, then?",14
-fomc-corpus,1977,It's a process. It's a management process. These people are all studying and have advice from consultants in the U.S. and London on how to manage their reserves. And you're talking about portfolio management.,40
-fomc-corpus,1977,"That's not what they tell me. What they tell me is that the dollar becomes weak and that will put great pressure on the price of oil, and they accent that development rather than going out of dollars into other currencies.",44
-fomc-corpus,1977,"Well, this is what the policymakers are saying. I'm talking more about the ones who are managing the portfolios, or funds, whoever deals in that area. Sometimes it's the same person, but we're talking about two different questions.",45
-fomc-corpus,1977,"But if there were such a move, we would have to be able to observe an increased proportion of Eurocurrency loans made in D-marks and yen, and that's the Eurocurrency, and so on. Somebody's got to create assets if he's going to assume liabilities in those currencies. I'm not aware that one sees that, actually.",67
-fomc-corpus,1977,"That's one of the manifestations, I think.",9
-fomc-corpus,1977,"To what extent could these shifts in currencies be a reflection of the change in the currencies in which they're buying their imports? For example, that trade with Japan and Germany has picked up relative to that in the U.S.?",44
-fomc-corpus,1977,"Yes. This is part of the reason why it's so difficult for us to say categorically that, at one given week or one given month or quarter, there's more purchases of D-marks by OPEC central banks then at other periods. We don't have a link to the direct transactions picture. The problem in the market is that there are certain banks that operate for these fellows. Any time those banks appear as heavy buyers of Swiss francs or marks, everybody rides on the back of us and says okay, here we go, the dollar's going to decline again because we've got OPEC in the market. And so we do have the psychological reaction to something, whether it's real or not.",138
-fomc-corpus,1977,"Yes, Mr. Black.",6
-fomc-corpus,1977,Could I ask Scott one more question?,8
-fomc-corpus,1977,Certainly.,2
-fomc-corpus,1977,"Scott, has this diversification by the OPEC countries out of dollars accounted to any significant degree for the movement in the dollar?",25
-fomc-corpus,1977,"It's perhaps a contributory factor, but I would not call it a major factor.",17
-fomc-corpus,1977,[Unintelligible.],6
-fomc-corpus,1977,"To the extent that we have seen, there is some, perhaps some increase, it is a factor. We're not calling it a significant factor. I'd rather place the policy concern on these other matters that I outlined.",43
-fomc-corpus,1977,"Well, that was my guess. I just wasn't--",11
-fomc-corpus,1977,"But the fear of this--we're dealing with market fears. We're not dealing with facts, we're dealing with fear. People worry about all of these things to the extent that these fears [arise], some of them confirmed, then the market jumps. At this stage, the market is jumping to sell dollars at any opportunity, at any event that somehow can be interpreted as a negative for the dollar.",81
-fomc-corpus,1977,So a good part of that could stem from fear of [unintelligible] past week or so?,22
-fomc-corpus,1977,May I make one more comment?,7
-fomc-corpus,1977,"Yes, please.",4
-fomc-corpus,1977,"At the risk of taking too much time, I'm disturbed by Scott's comment that if we intervened on a very large scale, this would have a different effect from others doing it. I suspect, if that is true, it is true for a reason that we might not want to accept, namely that all our other policies would be bent toward maintaining the dollar. In other words, if we got into such a situation where we were trying to support the dollar by operations of the market, if that is to be successful, the market has to be put in a frame of mind where they think we're going to raise interest rates, tighten the budget, maybe do other things, in order to support the dollar. And we might find that we would be putting ourselves into a difficult box in order to assure the effectiveness of that kind of operation.",168
-fomc-corpus,1977,"I'm not sure, Henry, that's the only interpretation the market places upon our intervention. I think there's also the simpler interpretation--that we in the Federal Reserve think the market has gone too far, and we don't think there's a lot of risk involved in increasing our level of intervention.",56
-fomc-corpus,1977,It's just a matter of erasing the market's worst fears rather than turning upside down all the rest of our policy. The market needs reassurance in this.,31
-fomc-corpus,1977,Because you think the market thinks we want it down positively.,12
-fomc-corpus,1977,"Well, they're afraid that we want it.",9
-fomc-corpus,1977,"Where ""we"" means what?",7
-fomc-corpus,1977,"Well, this is more the U.S. Treasury than the Federal Reserve.",15
-fomc-corpus,1977,"Well, you can't erase the trade deficit, which is growing by leaps and bounds. That certainly would seem to indicate the direction for the dollar, other things equal. And for us to try to resist that in volume--I mean, at first it might seem that we know something that they don't, but later it might just seem that we're being foolish.",71
-fomc-corpus,1977,"Well, we can't devalue against the Saudi currency or the [unintelligible] currency or [against] all these other countries that we're having a deficit with. The Japanese [unintelligible]. We have a surplus with Western Europe. And you get into the argument as to whether a devaluation at this stage would help us. The Treasury's thinking at this stage is that it won't. And this was the point Secretary Blumenthal was trying to make, but the press twisted it and made it sound as if he was talking about the dollar.",113
-fomc-corpus,1977,"I would endorse the comment made by Mr. Pardee. I think that if Secretary Blumenthal had not said one word, the market would behave in much the same way. Of course it is. And I don't think that we can correct that to any appreciable degree by raising interest rates in this country. After all, take a look at where interest rates were in Britain, where they were in Italy and various Latin American countries, and what happened to their foreign exchange rate. I do think that there are certain actions that can be taken, that I hope will be taken, outside the Federal Reserve, action of a constructive kind that would improve matters at least for a few months. And if in the meantime the outside economy began moving up, that would certainly release forces that would help to bring down our foreign trade deficit. And if we also got an energy policy that meant something, well, that would have not only a large psychological influence on the part of the exchange markets, but it would improve the underlying situation significantly. Gentlemen, I think we're ready to move on the transactions that have been made by the Desk during the past month. Is there a motion to approve these foreign transactions?",240
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,"The motion has been made and seconded. I hear no objections. Do you have any recommendations to the Committee, Mr. Pardee?",28
-fomc-corpus,1977,"I have no formal recommendations, but I would briefly note the situations which could lead to requests for swap drawings by other central banks. [Situations noted by Pardee not recorded.]",36
-fomc-corpus,1977,"All right, thank you. I think we're ready to move on. Mr. Sternlight, may we have your report now on the domestic Desk?",30
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"All right, thank you, Mr. Sternlight. Any questions? Any comments? Yes, Mr. Wallich.",24
-fomc-corpus,1977,"Well, as you saw these aggregates coming toward you, Peter, were you--I'm trying to get a sense of your timing. Evidently you have to make decisions--whether today, tomorrow--how soon you move with the rate. Were you comfortable with the way things worked out, and was the directive as given helpful, capable of being executed properly?",71
-fomc-corpus,1977,"I think so, Governor Wallich. Well, both the directive and the sense of the discussion at the meeting gave us what we thought was a course of normal procedure to move in a gradual fashion. The strength was apparent, as I said, just within a day or two after the meeting, and we just about immediately moved from 6-1/8 to the 6-1/4 midpoint, and then, as we had that initial strength confirmed and then got further indications that we were not just at the top but slightly over the top of the ranges, then we moved up in a measured way to the top of the funds rate [range] that the Committee had specified.",138
-fomc-corpus,1977,"When New York and the Board don't have exactly the same estimates, how do you proceed?",18
-fomc-corpus,1977,"We give primary weight to the Board's estimates. We look at the New York estimates just as a kind of measure of, well, it's just kind of a reminder that these, after all, are projections, and not necessarily the final word on the subject.",52
-fomc-corpus,1977,"Peter, as you say, you were coming to the upper limit on your ranges almost right away, which is not surprising, because the Committee biased the ranges downward last time. And then as I look at the Bluebook, why, of course, the latest estimates are well above the upper end of the range for M1 and somewhat above M2. Can I ask you, at what point would you notify the Chairman when you thought the instructions were inconsistent ordinarily? I mean how would the process go?",101
-fomc-corpus,1977,"Well, I think there's a continual communication with the Chairman that includes discussion with senior staff members as we go along.",23
-fomc-corpus,1977,"You didn't regard this as being obviously inconsistent, at least until right toward the very end of the period. Is that right?",25
-fomc-corpus,1977,"It was really only in the aggregates--by October 6--that we were really above the range, and at that point we were aiming for the 6-1/2 percent top of the funds rate, and this was--as these steps are taken as we go along, there's a consultative process in which we are in touch with senior staff of the Committee here.",76
-fomc-corpus,1977,Mr. Chairman?,4
-fomc-corpus,1977,"Yes, Mr. Roos.",7
-fomc-corpus,1977,"Following that same line, and maybe this is too hypothetical for you to answer. What degree of increase in the aggregates would cause you to cease the--",30
-fomc-corpus,1977,I didn't hear the question.,6
-fomc-corpus,1977,I said what--how far would the aggregates have to go before Peter pressed the panic button--,19
-fomc-corpus,1977,"I think that if we were 1 or 2 percentage points above the tops of the ranges, this clearly raises a question that should be brought to the Chairman's attention.",35
-fomc-corpus,1977,"The Chairman, let me say, is really not asleep. And I think that the Committee, the entire Committee, should take very seriously Mr. Sternlight's very accurate description. There is a constant consultation and communication between my office and Mr. Sternlight. And therefore there's no need to press any panic button, because we are pretty much on the same wavelength as the period unfolds and as the aggregates march toward us or away from us. And very clearly, the aggregates were at or a little above the maxima. That became pretty clear last Thursday but didn't seem worthwhile in my judgment--didn't seem worthwhile. If the excess had been very large, I might have communicated with the Committee even on Thursday. But that was not the case, and since the Committee was to meet on the following Tuesday, there seemed to be no point, really, in any such communication. Mr. Baughman.",180
-fomc-corpus,1977,"Mr. Chairman, can I address a question to Peter and possibly also Scott? Do you see any rather direct or more or less mechanical relationship between the accelerated growth in holding domestic balances and what has just been described with respect to the pressures on the dollar internationally?",52
-fomc-corpus,1977,I'm not sure what domestic balances you mean?,9
-fomc-corpus,1977,I was thinking of the money stock.,8
-fomc-corpus,1977,"Yes. I'm not sure I do see any direct connection there. There tends to be a reaction in the exchange markets to our money supply figures, which Scott had commented on, though I gather this very last time there was less reaction than there had been on other occasions when we would have to show a big increase in the aggregates--the dollar tends to strengthen, but not so much this last occasion, I believe.",83
-fomc-corpus,1977,"May I add a word here? It seems to me Mr. Baughman's comment would be very appropriate in any other country in any other circumstances than those of rapidly rising interest rates. You create more money. There's an implication that money will flow out of the country, and under floating rates that means there'll be pressure on the exchange rate. The puzzling thing is that this happened in the context where evidently there was a strong demand for money because interest rates were rising, and so you wouldn't expect this effect, you know, of pouring water into a glass and having it spill over, which is the typical sequence of events in most other countries when you increase the money supply.",136
-fomc-corpus,1977,"But in an exchange market, there's no direct relationship between the money supply and what are demands for dollars. At 4:00 on Thursday afternoon, everybody's making a bet on what the numbers are going to be. It's just like betting on football games on Sunday. And then, when the numbers come through, they jump one way or the other. Now the reaction has been, definitely, the aggregates coming in strong, and this would have the implication Governor Wallich suggested, that interest rates sooner or later will rise, therefore the dollar would be stronger. But what I'm afraid of now, however, is that some market participants say that if [the monetary aggregates] continue to come in strong, then you have an adverse reaction that the dollar will be lower on the kind of considerations Governor Wallich mentioned.",162
-fomc-corpus,1977,"Yes, Mr. Balles.",7
-fomc-corpus,1977,"Mr. Chairman, I was just wondering if Peter or perhaps later Steve might be covering this, as to whether the staff has any insight on that very large surge of the aggregates for the past period. What I'm getting at is, there seems to be a suspiciously strange pattern developing on quarterly dates with the big surge in April, July, and October, and this suggests all sorts of statistical problems, including the seasonals. Is this an appropriate time to raise that question?",95
-fomc-corpus,1977,"Well, the answer can and will be very short.",11
-fomc-corpus,1977,"I have no special--there has been, as you pointed out, this phenomenon, and it may very well be that our weekly seasonals are bad. To a lesser degree, our monthly seasonals might be bad because they'll revise somewhat. We don't have any special reason, but I would point out that these surges have tended to disappear. So it's not misleading in the sense you're getting an increase which is right away disappearing the next week. But I don't have any reason to explain why we had $4.6 billion rather than 2.5, which is what we were originally projecting.",120
-fomc-corpus,1977,"I'm glad to hear you're as frustrated as I am in terms of explaining it. I'm not really glad; I wish you had an explanation, which I don't.",32
-fomc-corpus,1977,Any other questions? Very well. Is there a motion now to approve the operations of the Desk during the past month?,24
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"The motion has been made and seconded; I hear no objection. Let's turn very briefly to the lending authority under which we function, the lending authority to the Treasury. Mr. Broida, would you be good enough to say a few words on this subject?",54
-fomc-corpus,1977,"Mr. Chairman, we've distributed a memorandum to the Committee noting that--now that the need for the $3 billion limit has passed--you recommend that the Committee return to the $2 billion limit specified in paragraph 2 of the Authorization.",48
-fomc-corpus,1977,"I'd like to add just one word. The reason for that reference for the particular recommendation is that I hope it can be adopted without discussion. There's no great logic attaching to it, and I could go with $3 billion and I could go with $5 billion, but if I open up the question, we might have an extended discussion. We could function quite well under the present rule, and therefore my recommendation is that we stay with the present rule.",91
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,And there's no logic to support it.,8
-fomc-corpus,1977,They don't hardly ever use it.,7
-fomc-corpus,1977,"And when they do, we can change the rules.",11
-fomc-corpus,1977,I second it.,4
-fomc-corpus,1977,"The motion has been made and seconded, and we stay with the present illogical rule. Very well now, I think we'll move to the consideration of the longer-term ranges for the monetary aggregates and then have a few words by Governor Partee, who will tell us something about [unintelligible] the [Sub]committee on the Directive. And then we'll hear very briefly from Mr. Axilrod, and finally we'll make our decisions on short-term monetary policy. That's our agenda. Now I'd like to introduce the subject of long-term ranges. We will be testifying on our longer-range targets on November 9. And we'll strive to arrive at a certain decision. There is a possibility, in view of the lapse of time, that we may want to reconsider the judgment we reach today. We did that once before when a long interval elapsed between Committee consideration and the date of formal testimony, and we may or may not want to do that again. I think that option should be held open. Now let me make some introductory remarks to the difficult question that we face today. In studying longer-range targets--I permit myself to use the term ""targets"" here; I never use it in public pronouncements--but in setting longer-range targets, we should be clear about our objectives. I think we should have certain very specific objectives. First, to indicate to the Congress and to the general public that we at the Federal Reserve are as determined as ever to gradually bring down the rate of growth of the monetary aggregates so that they would once again be consistent with the maintenance of general price stability. I think we should have that objective clearly in mind. The second objective that we should have clearly in mind is that we need to assure the Congress and the general public that the monetary aggregates, to the extent that we can control them, will grow sufficiently to facilitate orderly expansion of our national economy. And our third objective in setting these targets, I think, should be to advise the Congress and the general public that satisfactory performance of our economy is the basic goal before us and that we do not have the slightest intention to sacrifice or compromise this goal or objective in the interest of attaining or approximating the particular long-range projection that we set. Now next, in setting long-range targets, we should keep in mind the following facts, among others. First, that this year, M1 has exceeded by a sizable margin the upper limit of the growth range that we set a year ago, whereas on previous occasions, functioning under the concurrent resolution, M1 has fallen short of the target range or has fallen within it. A second fact that we should keep in mind is that the growth range that we set a year ago has been exceeded not only in the case of M1 but also in the case of M2 and M3. The third fact to keep in mind is that this is the first time that, I believe, functioning under the concurrent resolution--I have not checked these statements with any care, I didn't have time--all three growth rates have been exceeded. Check these statements of mine, Mr. Axilrod, as I go along.",632
-fomc-corpus,1977,That's correct.,3
-fomc-corpus,1977,"The fourth fact is that, whereas M1 has been growing this year much faster than during 1976, both M2 and M3 have been growing more slowly this year than they did during 1976. The fifth fact to keep in mind is that the excessive growth of M1 has been confined to the past two quarters. Sixth fact to keep in mind is that, since the beginning of the year, short-term market interest rates have risen about 200 basis points. Seventh point to keep in mind is that long-term interest rates have remained substantially stable this year. Eighth point to keep in mind is that the stock market has been signaling all year that investors are uneasy about the profitability of our corporations or about the direction of the national economy. The ninth factor to keep in mind is that the economic outlook is less clear than it was three months ago or six months ago. The tenth fact to keep in mind is that, while the advance of prices has diminished somewhat in recent months, the underlying rate of inflation has remained stuck at about 6 percent, or a little higher, per year. The eleventh point to keep in mind is that the anti-inflation policy announced earlier in the year by the Administration has, I believe, not been carried out and, in my judgment at least, is a shambles. And the twelfth point to keep in mind is that, in view of what I've just said about the Administration's anti-inflation policy or what has happened to it thus far, we at the Federal Reserve continue to have a very heavy responsibility in making our influence felt on the inflation front. This statement of objectives and this recital of facts do not point uniquely to one or another decision with regard to the longer-range targets. But I do think these facts and objectives do narrow our choices. I think, more specifically, that a good case--in fact, an excellent case--can be made for lowering the ranges of M2 and M3. Doing that would help to indicate that we are continuing on course as far as gradual reduction of our monetary targets goes in the interest of helping to restore these monetary aggregates to levels that will once again be consistent with reasonable price stability. Certainly short-term market interest rates have risen materially this year. They may rise further, and since market rates of interest are in process of becoming more attractive than interest on savings or time deposits, it is very reasonable to expect that the growth of M2 and M3 will be somewhat lower in the year ahead. I think that the proper target range for M1 is more difficult to determine. And much will depend, among other things, on our judgment of the reasons for the spurt here in the past six months in M1 growth. I believe that two factors were mainly at work. First, changes in financial technology--such as the growth of passbook savings by business firms or resort to passbook savings by business firms, growth of NOW accounts, etcetera, which served to diminish the growth of M1 last year by perhaps 1-1/2 percentage points--these changes in financial technology have become recently less powerful. Hence M1 is again feeling more of the effect of the increasing demand for transactions balances. But I believe another significant factor has been at work. At a time of growing economic uncertainty such as we've been passing through, some piling up of cash is virtually bound to occur. The unexpectedly rapid growth of M1 thus also reflects, in my judgment, the uncertainties that have accumulated in recent months about the job market, about securities prices, about foreign exchange rates, and other factors in our economy. Now I'd like to make a third observation. The exceptionally rapid growth that has occurred in M1 is partly responsible for the slowdown of income velocity during the third quarter, but this slowdown of income velocity reflects more fundamentally the recent sluggishness of the economy. And if the economy should start moving rapidly once again, and that possibility is by no means excluded, we in this Committee could be quite sure that velocity will rise once again, and rise very sharply. Now if the analysis that I've just gone through is broadly accepted, and if we keep our basic objectives in mind, our recent monetary history in mind, I think this Committee could reasonably reach any of three decisions about M1. We could leave the range of M1 unchanged; we could lower the upper limit of M1 by, let us say, 1/2 percentage point; and third, we could lower the lower limit of M1 and simultaneously raise the upper limit. I think a significant argument could be made for maintaining the present M1 range. And of the various factors that could be cited, I think the most important is that economic activity has recently appeared sluggish. The rate of growth of the economy is visibly diminishing, and until it becomes clear that this process will not go far, it would be prudent, wise, not to adjust monetary growth ranges in a way that would be widely construed as a tightening direction. And one might make the further point that the rate of growth of M1 has not diminished during the past two years, 2-1/2 years--that has not been the trend--while the ranges adopted by the FOMC have been gradually lowered, and a further lowering of the range for M1 in the face of this performance may lead some members of the public to believe that the Federal Reserve is not taking growth ranges at all seriously. As for the second reasonable possibility, lowering the upper range of M1 by 1/2 percentage point, let us say--making the range 4 to 6 percent--I think that again is in the zone of reasonable, responsible behavior. In view of the magnitude of recent overshoots in the growth of M1, one could argue cogently that the credibility of the System's intention to clear up inflation would be damaged unless that range is reduced. And a reduction of the upper limit would underscore the System's determination to work toward--gradually, imperfectly, by bits and starts, perhaps--toward a lower rate of expansion of M1, and such an assurance may indeed have a positive effect on economic activity by tending to encourage business and consumer spending. And this observation could be reinforced by the consideration that the rapid advance of M1 over the past two quarters represents trouble that is stored up for the future unless slower growth follows in the months ahead. Now to turn to the third possibility, that of widening the range by lowering the lower limit of M1 or raising the upper limit--possibly going to a range of 3 to 7 or something like that--I think such a possibility or such a move would be logical in view of the greater uncertainty about the behavior of M1 that exists at the present time. There's greater uncertainty today in our own minds than existed 6 to 9 or 12 months ago. However, I would strongly urge this Committee not to confuse logic with that which is reasonable and wise. If we were to raise the upper limit of M1 at this time, I think this would be interpreted by many observers to mean that the Federal Reserve has either given up the fight against inflation or that its determination to do so has weakened. And also, if we lowered the lower limit, I doubt that many people who follow monetary events would find such a reduction credible; and those who did believe it might be frightened by what the Federal Reserve was up to in the sphere of monetary policy. So, in conclusion, my suggestion to the Committee is that we lower the upper limit of M2 and M3 by 1/2 percentage point, which means that in the case of M2, we would move from a range of 7 to 9-1/2 percent to a range of 7 to 9 percent; in the case of M3, we would move from a range of 8-1/2 to 11 percent, which is the present range, to a range of 8-1/2 to 10-1/2 percent. As to M1, I, for one, could be reasonably comfortable either with maintaining the present range or lowering the upper limit of M1 by 1/2 percentage point. Gentlemen, the hour is 11:00, and Mr. Broida informs me that coffee is ready, and I think it would be well to take a break now and resume in 10 to 15 minutes and continue what I hope will be--expect will be--a constructive discussion of our longer-range targets.",1723
-fomc-corpus,1977,"We should be returning to our duties. I introduced the subject of longer-term ranges, and now we're ready for what I trust will be a thorough discussion by the Committee. Who wants to be first? Mr. Mayo, Mr. Morris, then Mr. Wallace.",53
-fomc-corpus,1977,"Mr. Chairman, I think you have given at least all of the reasons for various alternatives that I have thought of. I think your narrowing of them to the two is quite appropriate. I find myself strongly in favor of leaving the M1 range unchanged. I believe that the achievement of our basic objective of lowering the monetary aggregates ranges can be best achieved by a reduction, perhaps even more than you have suggested, on M2 and M3 and let that stand as our monument, if you please, to our dedication to a reduction over a period of time of our monetary ranges.",116
-fomc-corpus,1977,We're not ready for monuments.,6
-fomc-corpus,1977,"Well, monument isn't the right word. Okay. I accept that, Mr. Chairman--let's say as the illustration of our dedication to principle here, and the principle is, I think, very important. I would find that to change M1--in my book, at the moment--runs significant risks of misinterpretation without any compensating substantive value. To reduce M1 in the light of our experience over the last two quarters, I think, would be widely interpreted--whether properly or not may be beside the point--as an exercise in, well, maybe even stubbornness in view of our failure in the eyes of many people to achieve performance that matches our ranges. I would not feel it appropriate either--as apparently you have concluded in your disposition of the third alternative--I don't think that widening the range on M1 really buys us anything but trouble--misinterpretation of both the reduction of the lower [end] and great puzzlement or even giving up on inflation on any rise on the upper end. So I come down fairly strongly, Mr. Chairman, for holding the line on M1; as showing, again, our dedication to a monetary range--which, I think, for M1 alone is an adequate representation of our determination--to keep the rate of M1 growth, with all of its frailties--at least the midpoint--roughly equivalent to the real economic growth, with only a small accommodation for inflationary factors. But I would reduce M2 and M3 perhaps as low as suggested in alternative B, 6 to 8-1/2 percent for M2, 7-1/2 to 10 for M3. Thank you.",343
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Morris next, please.",14
-fomc-corpus,1977,"Mr. Chairman, I come out in the same place that, although I would find alternative C acceptable, I think alternative B, in which we retain the present range for M1 and adjust M2 and M3, is preferable. I think that we have a prima facie case over the past seven months that perhaps we may be returning to the relationships between money and GNP that existed prior to 1975, and if that is the case, I think that we may well be hard pressed to stay within the 6-1/2 percent upper limit. So I think on balance that I would prefer that solution, although, again, I wouldn't object to move to alternative C. I don't think that they're all that much different.",149
-fomc-corpus,1977,"Thank you, Mr. Morris. Mr. Wallich next, please.",15
-fomc-corpus,1977,"Well, I was heartened by your emphasis, Mr. Chairman, on pointing at the economy rather than at the aggregates, because the two seem to have parted company, and also pointing to the overshoots. I think that reduces our credibility problem. I think we have some credibility problem no matter what we do. The best thing is to lay it on the table and explain the facts. I don't think anybody would believe that we've given up fighting inflation. Now--",94
-fomc-corpus,1977,I wish that were true.,6
-fomc-corpus,1977,"At any rate, I don't think we're going to maintain that belief by setting low ranges, then allowing the base to drift up and overshooting them. That, I think, doesn't help us, nor does it help us really to have unrealistic targets that people don't think we can attain. I do think we need to see what has happened. These are not just numbers that are changing around. Our research people tell us that, for the time being, the shift in the demand curve for money on which we've lived for two years has ended. It may resume again; if it doesn't resume, that still doesn't mean that velocity instantly has to return to its old rate of growth of about 2 percent at constant interest rates but with a lag. The demand curve continues to shift, and there is some reason to think that it will, somewhat, in any event, if not as fast as in the past; then we will get somewhat higher velocity gains. But I do think we have to take into account the possibility that the period of high velocity gains of 4-5-6 percent is over. Now, I think in terms of a concept of effective money growth, which is the usual money growth plus that increase in velocity that you would get at constant interest rates--we're not forcing velocity by higher interest rates, and in the long run, I find it hard to believe that 5-1/4 plus velocity gains will finance an 11 percent GNP increase. It just asks too much of velocity, and we ought to prepare for that eventuality, which may be upon us now. That brings me to my choice among your proposals. I think pulling down the M2 and M3 upper limits is a reasonable action. I think in the statement that might be made, greater stress could be placed on M2--assuming we recognize that in subsequent discussion also. On the M1, I do feel that we ought to take into account what has been happening to velocity. We don't know what will happen hereafter, but I am reluctant to rely on higher velocity gains as a matter of certainty, so I prefer your proposal of a 3 to 7 percent widened range, even though it lowers the midpoint growth of M1 slightly from 5-1/4 to 5. One could point to that as a small move in the direction of greater restraint.",477
-fomc-corpus,1977,"Thank you, Mr. Wallich. We will hear next from Mr. Black, please.",19
-fomc-corpus,1977,"Mr. Chairman, in considering our new longer-run targets this time, we took a little more careful look than we ordinarily do at the recent behavior of aggregates and continue to be quite puzzled by this behavior in M1. It just is very perplexing. It's almost never that you have anyone moving at the same sort of rate as M2 as we've had, as shown for the last three months and the last six months, for example, on the Bluebook. The only time you get to this kind of thing is in a period of pretty substantial disintermediation, when M2 has dropped down to the M1 rate, so it's very unusual. We puzzled about it, and I'm inclined to agree with the staff that it's due, to some extent, to the strengthening in the underlying demand for money. And I think the point you made about the flight in money because of uncertainty has a good role in that, certainly, but nevertheless I don't think the full answer has yet been found. And this being the case, we've been focusing most of our attention on the behavior of M2, and I frankly think that behavior is pretty good now. [I] welcome this slowing that we've had, and I believe that we will have slowing in the future. And in accordance with your suggestion, I think it would be wise to reduce the ranges on M2 and M3. I would go a little further, however, than you suggested, by cutting the ranges of both of those a full 1/2 percentage point. And I would prefer to leave the rate on M1 at 4 to 6-1/2 percent. I think cutting that would represent a little bit too much deceleration, although if you win on the other point, I guess I would prefer then to go 4 to 6.",367
-fomc-corpus,1977,"Thanks, Mr. Black. Mr. Coldwell.",11
-fomc-corpus,1977,"Mr. Chairman, it's a very difficult decision because we're looking at an interpretation of what we come out with. My interpretation is slightly different from yours. I think we have a question of credibility in practice versus policy prescription that we put forth to the general public. And I don't believe that lowering the range at the present time is going to give anybody a whole lot of comfort, in view of what's gone on in the past six months. It seems to me that we are better off, given the uncertainty of the data which is before us and the uncertainties which we clearly have seen in our projections of these aggregates, to widen the ranges which we put before the Congress. We have had a history, I believe, in this Committee [of] 2 and 3 percent range widths on the long-term objectives, and I would prefer to move toward that upper limit and perhaps even exceed it. I would be perfectly willing to accept a 4 percent lower [limit on M1] and widen that up to a 7; and then on M2 to widen again, and here I would prefer to go to a 6 to 9-1/2, and the 7 to 10-1/2 [on M3]. I do this largely because I don't believe in what I'm hearing. I don't think we're going to be able to outguess these aggregates over the coming three months, and I don't think we really want to be in the position of being caught out on a limb again. But on the other hand, I don't really have that much attachment to aggregates anyway. It seems to me that our interest rate position is going to have to be taken into account, not only in terms of a longer-range picture but more importantly the short-range area. So it would be my preference, Mr. Chairman, to widen these ranges and give us a little more leeway so we do not have to move in much of an interest rate pattern in the next three months.",398
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Baughman.",14
-fomc-corpus,1977,"Mr. Chairman, I don't know whether it's because I hold a little more optimistic view of the general business climate than some that have been expressed around here and whether I am possibly more impressed than some with the tremendous surge in the growth of these aggregates in recent months. But I was inclined to move toward alternative D as listed in the [Blue]book and to take into consideration the rate of growth that we've had in these aggregates recently or, as an alternative to that, just a reduction of, say, about 1/2 to 1 percent in all of the measures of the current range, which comes very close to your preferred suggestion, Governor, but differs in some respects. I may say that, on Saturday and Sunday before coming down here, in view of the fact that the American Bankers [Association] is meeting in the 11th District, I went to Houston and wandered around there and visited with bankers from all around the country, and first thing raised in the conversation was, are you fellows going to do your job or are you going to throw in the towel. Everyone seemed to be fully aware of the difficulty of the problems confronting us, and with only two exceptions, everyone that I talked to seemed to be concerned that we would not give some indication that we will resist what they see as an indication of an accelerated inflationary development. So I would think it's quite important that our records show and that your testimony show some reduction in these growth rates, and it seems to me it would be desirable to give some acknowledgement to the higher base from which the growth rate targets are postulated. So as a minimum, I would hope that the Committee would come out along the line of your suggestion, and I personally would feel better if it came out with a somewhat lower growth rate than your suggestion.",363
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Guffey.",15
-fomc-corpus,1977,"Yes, Mr. Chairman, it seems to me that we're running into a potential credibility problem if we do indeed lower, particularly, M1 again. If we haven't been able to hit the current target ranges, then to lower even further implies much more, I think, than maybe we want to imply at this point. As a result, your suggestion to retain M1 at its present level seems to me to be a very good one. With respect to M2 and M3, however, I believe your suggestion was to lower only the upper limit of that, thereby narrowing the ranges of those two targets. And as a result, it would be my preference to lower both the upper and the lower ends of those ranges to maintain the historic spread that we have had. And I believe, as it's already been expressed, that we have a real chance, maybe, of hitting M2 and M3 within those ranges in the period ahead and restoring a little bit of credibility without doing great damage with a sledge hammer instead of some other means.",209
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Willes now.",15
-fomc-corpus,1977,"Thank you, Mr. Chairman. I find your arguments for both cases very persuasive; wish I'd made them myself. You indicated that on M1 you had an open mind, and to the extent I can, I'd like to nudge you in the direction of the 6 rather than the 6-1/2. I found the argument that you gave for that particular alternative very compelling. The question has been raised about credibility. I guess I just assume, if we drop it down to 6, we're going to do, to the extent we can, what we need to do to get money down so that we will have credibility. So I don't give that argument as much weight as perhaps some of my colleagues. I am disturbed by the comment that Ernie made at the end of his remarks. And that is that, over the last three quarters, with the growth in the aggregates, the base [for M1]has moved [up] about 1-1/4 percentage points. And if we don't continue to move down the range for M1 as well as the others, by not doing that, in fact, policy will be moving in a more accommodating direction than I think this Committee has wanted. Now I know that's a difficult point to make and have understood by the public, but nevertheless, I would feel more comfortable, if in addition to moving the upper ranges for M2 and M3 down, if we also made that modest move that you suggested on M1.",301
-fomc-corpus,1977,"Thank you, Mr. Willes. Mr. Jackson now, please.",15
-fomc-corpus,1977,"Well, gentlemen, they say a little humble crow is one of the most therapeutic medicines that any individual can have. Having led the argument for reducing the ranges three months ago, I'll have to eat a little of my own medicine and say that I don't share that judgment today. Why? First, I recognize that we have got this problem about this so-called overshoot in M1, and I think it does run the genuine risk at this stage of the growth of the economy, where, as we said yesterday, we see capacity pressures beginning to show up. And if we built this potential inflationary pressure into the economy, that we accept and don't do anything about, we are running the risk on the upside of inflation, and we have to recognize that. I also recognize that if we don't do something about it, there are certain of our critics who will enjoy criticizing us and questioning the validity of our commitment toward reducing inflation. Nonetheless, it is my judgment that alternative B would be the appropriate course of action. Why? First, I do think we have to recognize that if we look at our rates of growth since the third quarter of 1975 for M1, they have been gradually up almost quarter-by- quarter in most of the periods that we've had. So I do think that we have to recognize that there is a real potential that changes in velocity that we talked about have taken place. I think that if we adopt the 4 to 6-1/2 percent for M1 under alternative B, that it should not be misunderstood. The likely consequences, in my judgment, are that this is going to be a relatively restrictive monetary policy on our part--not an expansionary monetary policy, but a relatively restrictive monetary policy. If these changes in money demands have in fact taken place, that may be a very restrictive monetary policy, and the base drift would be only a very modest change in how restrictive it would be. Next, I think that, to reduce the ranges in M2 and M3 recognizes that there are many things that we as a body, in our regulatory function, could do to achieve arbitrary targets for any one of these Ms. Let's face it, we can take some regulatory changes in the Board of Governors today that would make M1 come out about 4 percent, and all it would do would be to transfer the concept of time and savings deposits and let them be [for] transactional use. And we could produce any sort of artificial thing like that we wanted by regulatory changes, but that's not the business we're in. Our business is to try to conduct the monetary affairs of this country so that the real economy will operate properly. For that reason, I think that our credibility is better stated by addressing ourselves to the broader ranges, which encompass all these potential regulatory changes and encompass, to a certain extent even some of these artificial price mechanisms we call Regulation Q. I recognize that even M3 does not take that into consideration. However, I think a reduction in those will state not only to the country, but to the world, our commitment to long-term price stability. I think that raises a valid question, what will the consequences of such reductions of a full percent[age point] be to those sectors of the economy that are most sensitive to the flow of funds into the thrift industry and into the time and savings deposits at commercial banks? I realize that any staff projections have to be mechanistic and use arbitrary assumptions about various components of measures of money. But I asked the Board's staff what the consequences would be of using the midpoints of currency and demand deposits growth under M1 and then the consequences for actual thrift industry growth [if we have] time and savings deposit growth in commercial banks. And it was their judgment that if that were assumed and the alternative B were assumed, it would still allow the thrift industry to grow at a 10.3 percent rate for the coming year, from third quarter to third quarter, and the time and savings component to grow at 9 percent, which I believe would be consonant with maintenance of real economic activity in those sectors of the economy which [are] so dependent [on] such types of money. Mr. Chairman, in short, I would advocate alternative B just like it's stated.",859
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Kimbrel now.",14
-fomc-corpus,1977,"Mr. Chairman, in our visits and contacts, we seem to be encountering about as many people who think that we, the Federal Reserve System, are going to fail in our mission of trying to maintain some inflation control as there are those who think that we may overdo. So with that, I guess, I personally then become regretful that the visibility of these money numbers has attained such a stature and that we toy with them so. But having gotten there, then I think we have to maybe share what you commented on earlier--that our major emphasis should be on facilitating the orderly expansion of the economy. In that vein, I guess I personally feel that we ought to, at this juncture, reaffirm our determination to accomplish some slow growth in these monetary aggregates. Consequently, I'd like to see us with alternative B pretty much as they appear, with a single exception of M1, and that to 4 to 6. And the basis for that extra 1/2 percentage [point] reduction there would be, as has already been mentioned, that we're going to be [starting] from a higher monetary [base], [so] it would be helpful if we also indicate there that we are contemplating some restraint.",246
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Gardner, please.",15
-fomc-corpus,1977,"I'll be very brief. The procedures that we have set for ourselves are to determine the long-range proper course of action followed by monthly deliberations to achieve those targets. It seems to me entirely appropriate to reinforce our dedication to the principle of moderate growth consistent with the expected performance of the economy, and I think as a layman, philosophically I would not quite understand the Fed widening its range on M1, the Fed severely lowering its range on M1 for the next four quarters. The Fed has not been able to manage M1 within the accepted long-run targets for some time this year. Therefore a rededication to that principle seems to me entirely wise, and to couple that with a modest lowering of the M2 target [and] M3 target seems entirely appropriate. I'll have more to say when we get to the directive to the Desk for the period immediately ahead, but I also say all of this in recognition of the fact that we have two great imponderables today: the usual one, the economy--fortunately we have to go through the fourth quarter of '77 before we get to '78, so we'll know a little more--and secondly, what's happening to the velocity at which M1 is moving through the economy. I would strongly support a hanging commitment on M1, and because of the difference in performance of the aggregates, a modest lowering in M2 and M3--the upper end of the range.",288
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Balles next.",13
-fomc-corpus,1977,"Mr. Chairman, as a lot of others around the table, I have found your 12 points very persuasive, especially with regard to the real economy being our ultimate goal and also how we have to maintain credibility with the public. And I think you have been wise in your testimony to follow the strategy of gradually lowering the growth ranges, indicating that that is our long-term game plan to a point that is consistent with economic stability. As we've all noticed, these ranges that we have, the 12-month ranges, are getting more attention now, and especially when we overshoot them, as we've been doing recently--as we've seen in the recent criticism coming out of two sources in the House Banking Committee, I guess it was Mr. Reuss and Mr. Mitchell, [and it was] especially ironic that on the other side of the coin the Joint Economic Committee has criticized us in effect for starving the economy for money. One of those two schools of thought has obviously got to be wrong. Or maybe both. But in terms of my own view, I am leaning increasingly toward the belief that there is little if any real tradeoff between inflation and unemployment, based on some work that has been done by various sources, including our own staff. But any stimulus one gets from the supply side of the economy, in view of expectations of inflation, gets quickly undone by reactions on the demand side, with consumers saving more as a percent of their income when unanticipated inflation occurs, spending relatively less, and that feeding back on orders and production and business incentives to spend on plant and equipment. So all things considered, in view of the significant overshoots that have already occurred, say, in the third quarter, or even for the past year, [and] that our new ranges will be occurring from a higher base for both M1 and M2, I would come out net net for the specifications of alternative B. But as in the case of Mr. Kimbrel, I think I'd go a little step further as a preference to lower the upper end of the M1 range to 6 percent instead of the present 6-1/2.",432
-fomc-corpus,1977,"Thank you, Mr. [Balles]. Mr. Partee.",14
-fomc-corpus,1977,"Well, Mr. Chairman, I'm in a real quandary today. I look at the economy and I wonder whether it's the kind of an economy in which we want to have a substantial rise in interest rates, a substantial shift in the flow of funds away from the thrifts and the banks into the market, and the characteristics of a tightening in the old terms, a tightening financial environment. On the other hand, I look at the aggregates and I see that we've clearly been over, and way over in M1, for a couple of quarters. I guess this is the time, or very close to it, when you really have to test [people's] confidence in the guides by which they run, and I have to admit to you that my confidence in the aggregates is very badly shaken. And if I had my preference, I would not specify aggregates because I'm afraid we've gotten ourselves into a trap. I'm particularly concerned, as Governor Wallich is, that what's going to happen, regardless of what we specify in the way of aggregates, is that the demand function for money has shifted. And if we're going to continue to have a fairly rapid--although not as rapid as it has been here over the summer--increase in M1, and I dearly hope that President Willes is wrong, and then we wouldn't, in an environment like that, seek to get down within the target range for M1 regardless of the consequences for the economy. Because the economy simply, in my view, is not strong enough to support a substantial rise in interest rates. I sit here right across from the chart on selected monetary indicators. I find that the third quarter saw an increase of about 150 basis points in Treasury bills, from about 4-1/2 or maybe slightly more, to something over 6 percent. It is true that long-term rates haven't moved much this year on balance, but they have moved since the last meeting. They are tending up a little.",395
-fomc-corpus,1977,"Very little, and they still compare favorably with where they were at the beginning of the year or April.",22
-fomc-corpus,1977,"Yes, I understand that. I've done all those calculations, and I have them from the lows and for what they've done this year and so forth, but I'm afraid that we may be at a point where markets, with another 150 basis point rise in bills, would move and would move considerably. Now the question is of strategy. I suppose that, if one looks at the real economy, the conclusion that Governor Jackson reached is probably most appropriate. There are a few bottlenecks, a few tightnesses in the market. They tend to be in the housing sector. They are in materials and in some places in labor, partly for structural reasons such as Willis mentioned yesterday. And so it might not be unreasonable to tighten up a little bit on the flow of funds that we would logically expect to be going into housing. And that would call for--quite aside from the question of interest rate relationships--a little bit of restraint in the growth of M2 and M3. I think I prefer Bob Black's idea that we should reduce both the top and the bottom end of [M2 and M3] by 1/2 point rather than just the top, and maintain the 2-1/2 point spread, because we have no reason to think that we've become better in predicting what is likely on M2 and M3. And we are at the point [in the interest rate relationship where] we're more likely to be wrong, and the exposure to error grows as these market rates become quite competitive with Regulation Q ceilings. So I think I would prefer 6-1/2 to 9 for M2 and 8 to 10-1/2 for M3 for the year ahead, and that's considerably below where we have been going this year. I believe Peter said that the two-year issue was expected to go up to 7-1/4. I think we're probably about at the point where we begin the impact on that rate of inflow. That's a very sensitive rate, that two-year rate; 7-1/4 is fairly competitive, 7-1/2 is quite competitive; [at] 7-3/4, we really would begin to have an impact, an effect on the thrifts. That leaves M1. I think there's a lot of logic to Governor Wallich's proposal that the range be broadened. Because we really don't know what's going on in M1, and we don't know what the demand function may do in the period to come. The trouble with that is that, if we were to give a broadened range for M1, we would indicate, I think, by so doing, a degree of knowledge about what's going on that we don't possess. One could say, why, you take a 3 percent low end in case there has been some kind of a surge in money demand, and it now relents, and we can get this 3 percent, we would accept it. But I don't know, it's quite low to maintain that for the whole year, and it really suggests to me that what we would be doing is moving into a recession, and we wouldn't be comfortable at 3 percent in a recession environment. We could take 7 as the top, but on the other hand, our recent experience, Henry, is that 7 isn't enough. And if that demand function stays where it has been over the last two quarters on average, [it] will require more than a 7 percent increase in M1. And I think we would look particularly bad if we were to specify a higher top and then not live up to it, and therefore I'm inclined to say that we ought to stay just exactly where we were at 4 to 6-1/2, but with the caveat to the [congressional] committee in our pronouncement that we're not certain about what's going on here. Now the Chairman really said that last time. I reviewed his testimony because I had to testify before [Representative] Parren Mitchell's committee, and he said that, with regard to the third quarter, that is, the specifications a quarter ago, that we were expecting a continued more-than-normal increase in velocity, and that assumption was built into those numbers. We haven't had it. And it seems to me that he could very naturally follow up on that previous testimony by saying we haven't had it, we don't know why, but we haven't had that increase in velocity quite recently. Secondly, he made the point that our concern, as I think [he] always has done in these things, that our concern is the behavior of the economy, not the behavior of the aggregates, and that we would be alert to changes in the economy and would be quick to change what we were prepared to accommodate, depending on what the economy required. And I think that could be repeated again. So I know it's unsatisfactory, very dissatisfying, but I think our very best position, given the degree of uncertainty we have, would be to stay right with the same range on M1 that we had before and to reduce slightly the M2 and M3. Mainly, I wouldn't give so much the [reason] that we want to cut back on housing, but mainly on the basis of interest rate relationships and past behavior and to say we would continue to watch the situation quite carefully. As far as the overrun is concerned, I know it's very substantial. We've had previously offsetting quarters of overshoot and undershoot, and now we've had two quarters of consecutive overshoot, and that's what makes it look as bad as it does, Mark. It's partly that this pattern was broken, but I think we simply have to accept it on the grounds that to do otherwise would just be too debilitating to the near-term prospects of the economy.",1176
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Winn next, please.",15
-fomc-corpus,1977,"Mr. Chairman, I'd like to note to the Committee that this is the period in our discussion when time is standing still. I'd like to follow Chuck's comments--",33
-fomc-corpus,1977,"Let me just interrupt. Now, somebody on earth or in Heaven, is, I think, sensing the mood of the Committee and controlling the clock.",30
-fomc-corpus,1977,We are now a legislative body; they do this all the time.,14
-fomc-corpus,1977,"Strange things have happened in this room. Now, Mr. Lilly, you got this room cooled off.",22
-fomc-corpus,1977,You want the time to march forward now. We've got this one back here--we can put the chimes on it.,25
-fomc-corpus,1977,"Time stands still for a little while, but not indefinitely. Yes, Mr. Winn.",18
-fomc-corpus,1977,"I'd like to join Chuck a little bit in looking backward, in the sense that we are now making projections on assumed relationships, and yet we really haven't accepted these relationships in terms of the overshoot, in terms of any kind of future economic or price behavior that I saw in terms of our projections that we talked about last night. And I think that raises some questions for us. In view, however, of the process we're going through, I'd like to urge us to take a real thorough look at what's gone wrong in our activities--that is, a reexamination of our estimation procedures. I think we ought to take another look at our lagged reserve procedures, and I don't attribute a great deal to this, but maybe this is part of our problem here in terms of control. Take a look again at our federal funds spread that we prescribe. Velocity has impressed me as a rationalization for what happened, but I don't find it a very satisfactory device for estimating the future because I don't really understand it in the sense of the term. So I think we need to take a thorough look in this area. And in view of all the emphasis that's placed on the quantities, and in view of our overshoot, I think we owe it to ourselves to take a real thorough look as to what's happened, and I don't feel we've done that. With the uncertainty with which we have factored in comments about our overshoots with respect to future activity--whether it's economic activity or prices, what have you--it seems to me that we're really focusing on the real issue as to whether perpetuating this is the right way to go. But since we're sort of hung with this at the moment, I would accept your recommendations on M2 and M3. I would like to see a little recognition of the overshoot in the sense of a small change in M1, just to indicate that we are cognizant of it. We're really not changing; we're staying with what we were--all the uncertainties, but recognizing the overshoot.",409
-fomc-corpus,1977,"Thank you, Mr. Winn. Mr. Volcker now.",13
-fomc-corpus,1977,"We obviously face the most difficult dilemma that we've had for a couple of years in deciding what to do here. I must confess, as I look back just a little bit, not understanding everything that's been going on, I am not unhappy with the actions we took over the past three or four months. If, in effect, we have to compromise between two kinds of consideration, and that it was, in the end, correct to compromise between them, and we get criticized from both sides, as Mr. Kimbrel suggested--I don't think that's assurance that we took the right path, but it's not inconsistent with that notion. In terms of where we go, I think my principal point would be that we should not reduce the upper end of M1 in these particular circumstances. I think if we did it, and we didn't meet it, we do have a credibility problem. If we did it, that really symbolizes--and we're really only talking about a symbol, I guess, when we're talking about a 1/2 percent[age point] difference--but given what's happened, seems to me if we reduce it, it implies a very aggressive action in the short run in terms of a new commitment to meet that lowered upper limit. Unless we're prepared to take it, I don't think we ought to reduce the upper limit. And I would not reduce the upper limit [because], pretty much paralleling Governor Partee's reasoning, we don't know too well what's going on; our best position may be to leave it unchanged. I would reduce somewhat the M2 and M3 ranges, and there seems to be a consensus on that, and I suppose I can express my feeling that anything down to the B alternative here is all right with me. What you suggested, Mr. Chairman, is also all right at the other end, with a very modest change. I find myself, preferably I guess, right in the middle. I put down the same numbers as Governor Partee's just recited--6-1/2 to 9 and 8 to 10-1/2. I thought Governor Coldwell and Governor Wallich--particularly Governor Coldwell, I guess--had an interesting argument on widening these ranges, and I would accept his numbers, too. And I guess I'm happy any place in that area between the change that you recommended and the B alternative.",478
-fomc-corpus,1977,"All right, thank you, Mr. Volcker. Mr. Roos next, please.",19
-fomc-corpus,1977,"Mr. Chairman I would prefer ranges roughly similar to alternative C, with a 4 to 6 percent for the M1 target and M2 and M3 reduced to either the alternative C proportions or others that have been mentioned. I would support a reduction of M2 and M3, and a maintenance of our current M1 range. I could not support a widening of the M1 ranges or an increase in the upper level of the current M1 range. My rationale is as follows: First of all, I see emerging in this discussion today two issues--the attention we should pay to the real economy on one hand and the issue of credibility on the other. I really find difficulty in separating those issues because it seems to me that the credibility of the Federal Reserve, or the interpretation by the public of the extent to which we are determined to control inflation, will probably have as big an impact as anything possibly can on the course of the real economy. We have met with many industrialists in our District, and at the very top of their priority concerns, which they say have a very real impact on their economic planning, their investment decisions, is the question of where is inflation going to go, and this is what they inevitably say: ""Are you really going to do what you say you're going to do? Are you going to come to grips with this, or are you going to equivocate?"" I believe, and I'm not nearly as experienced as the rest of you, that monetary policy, the decisions we make around this table, can in a real way affect the growth of the aggregates. I cannot accept what I've heard frequently today, that we're not able to manage the aggregates. I would support what I think was Chuck's allusion and Willis Winn's suggestion; I really think, if we find that we can't control the aggregates, or that we can't control the aggregates and at the same time control the fed funds range as we'd like to control it, then I think--not today--but I think we should give serious consideration to withdrawing from targeting aggregates. Because I think one of the most destructive aspects of our activities as far as credibility is concerned--and I repeat that our credibility is the only hope the real economy has of seeing business commit itself to future economic growth--I think that we harm our credibility terribly by setting these targets and either not doing everything we could do to achieve them--I'm talking about the aggregates targets--or in a very purposeful way setting these targets and really not doing everything we can to achieve those targets. So with that pontification, which is probably not terribly impressive, I would say that alternative C would be the best in my judgment. That the maintenance of the current M1 rate, reduction of M2 and M3 would be acceptable. I would think that we'd be laughed out of the ball park if we do anything to raise the upper rate of M1 under these circumstances.",586
-fomc-corpus,1977,"Thank you, Mr. Roos. Mr. Lilly now, please.",15
-fomc-corpus,1977,"Well, I think that one thing that's come out quite clear in the discussion today, is that we really don't know what's going on in M1. And until we do know, it seems to me ill advised to be making any changes whatsoever in our longer-range projections. And I agree with Phil Jackson in the sense that I think we should [unintelligible] on M2, which I think is more indicative of what's going on in the aggregates at the present time. And I feel quite comfortable in your 7 to 9 on M2 and your 8-1/2 to 10-1/2 for M3 because, given historical velocity rates, I think that that's only slightly restrictive. I wouldn't change M1, simply because I don't know what we're doing.",159
-fomc-corpus,1977,"Thank you, Mr. Lilly. Mr. Smoot, it's only proper that you could have the last word for this.",25
-fomc-corpus,1977,"I've learned two things in sitting here for the first time. One is that my perspective is different here than it is back there; and secondly that there is some advantages of going earlier in the process. We considered the arguments relating to the credibility of the Federal Reserve, and we think that there's some merit in that argument. We agree, I think, somewhat with Mr. Roos that credibility will come when we vigorously pursue the aggregates targets that we set. We considered the issue of base drift, and frankly, in looking at the kinds of adjustments that might be required, and also taking into consideration the uncertainty in the economy, we don't think that this is the time to attempt to make up too much. Putting all that together, and taking into consideration the arguments that have been made here, I think we came down on a position of favoring alternative B. We think that's a middle course, one which we can be satisfied with. We certainly go along with the narrowing of the M2 and the M3 ranges, and we would go along with a 1 point reduction on the top.",219
-fomc-corpus,1977,"Thank you, Mr. Smoot. It's pretty clear that there is a strong consensus in favor of retaining the present range for M1. It's pretty clear also that there is a strong consensus in favor of reducing one way or another the upper limit, or both the upper and lower limit, of both M2 and M3. Now the range of views expressed about M2 and M3 is fairly wide, but I think it narrows down pretty much to a choice between two possible actions. One is to lower the upper limit of M2 and M3 by 1/2 percentage point. Let me call that alternative A, lower the upper limit of M2 and M3 by 1/2 percentage point. And alternative B would be to lower both the lower and the upper limit of M2 and M3 by 1/2 percentage point. Now, I think that is the zone within which this Committee can reach a definite consensus. And if I've made the choice between A and B clear--have I defined A precisely, clearly? Likewise with B? Then let me have a show of hands on the part of members of the Committee, how many of you would prefer alternative A?",241
-fomc-corpus,1977,Four.,2
-fomc-corpus,1977,How many of you would prefer alternative B?,9
-fomc-corpus,1977,Seven.,2
-fomc-corpus,1977,"Well, I think that's pretty clear. Now we're ready for a vote unless one or another member of the Committee would like to make a comment.",29
-fomc-corpus,1977,I take it that bank credit would be plugged in at 7 to 10?,17
-fomc-corpus,1977,I beg your pardon?,5
-fomc-corpus,1977,Bank credit would be plugged in at 7 to 10?,13
-fomc-corpus,1977,"Bank credit would be--I'll comment on that at the present. We'll be voting as follows: On a projected rate of expansion of M1 between the third quarter of this year and the third quarter of 1978, the range of 4 to 6-1/2 percent; and a range of 6-1/2 to 9 percent for M2; a range of 8 to 10-1/2 percent for M3; and a range of bank credit to be determined appropriately by our staff. And if that is clear, are there any questions? Very well, would you be good enough to call the roll, Mr. Broida.",137
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich No Eleven to one.,49
-fomc-corpus,1977,"Very good. We'll move on now. A very brief comment, I think, is all that is needed at this time, Mr. Partee, on the work of your Subcommittee on the Directive. The work is not completed. You submitted a memorandum; the memorandum has been read, studied, and thought about by the Committee, and a very brief comment from you, a minimum of discussion at this stage, I think, would serve our purpose.",91
-fomc-corpus,1977,"I think, Mr. Chairman, that all we have is worth only a very brief comment. I believe the memorandum is clear and [properly] brief, and I assume you've all read it. What it amounts to is that we haven't been able to determine as yet with the assistance of the staff whether it is a desirable thing to change the approximately equal weights we give to M1 and M2, because we haven't been able to come close enough to approximating in the real world what we have done. What the staff has done, as a matter of fact, indicates that it rather argues against it. But I have some problems with the very rigid assumptions made in the way that that work was done. As a more or less pragmatic view, though, we do think that it's not unreasonable to say that there could be a wider range in M1 and M2, reflecting the obviously greater noise and unpredictability that we've seen in that--increasingly with the passage of time. In the memo, the comment I think comes down to that on page 4, where it says, from 1974 to date, the average absolute error, without regard to sign, in the staff's forecast of two-month growth rates for M1 was 1 percentage point more than for M2, averaging 2.8 as compared with 1.8. And in 1977, the average absolute error for M1 has increased further, to 3.3, whereas M2 has been only 1.7. Now, it could be argued that, well, the staff's inability to predict is a reflection of something going on in the economy. And over a long span of time, that may well be the case. But this year, it seems to me that our difficulty has been that there is just so much noise that we haven't been able really to take a great deal of confidence in the numbers that we were given and the numbers that we were looking at. Essentially that's what we were just talking about, although we were talking about it in connection with the long-range targets. So I would have to also say, since he's not here, that I don't think President Eastburn feels quite as confident in this proposal as the rest of us, but I believe the [sub]committee does come up with the view--well, what [the FOMC] did last time [for the two-month specifications], more or less out of desperation, was not a bad thing, that is to increase M1 to a 5 point range and to leave M2 somewhere narrower, the 4 point range.",527
-fomc-corpus,1977,We anticipated the results of your deliberations.,9
-fomc-corpus,1977,"Yes, that's right. Either that or [the FOMC] took guidance from what the [sub]committee had already done. But that's all I have to say. This is a very important issue, and we're going to be exploring it methodically and in a concentrated way over the next several months. But at this point, this is all the advice we can give. I don't know whether President Volcker, Mr. Gardner, have additional comments they'd like to make.",96
-fomc-corpus,1977,I do not.,4
-fomc-corpus,1977,That's it.,3
-fomc-corpus,1977,"Well, the only comment I have is to urge you to push along with these studies, and to insure that you do that, we will give you as a minimum one minute, as a maximum whatever time you need, to report at the very next meeting. All right, would anyone else like to comment? Mr. Balles, please.",69
-fomc-corpus,1977,"Just a question to Chuck. One of the things that was very revealing about your report, and I'm afraid too many of us have overlooked, is that when we give this equal weight to M1 and M2, that in effect M1 really accounts for 70 percent of the total. I haven't had a chance, Chuck, to do the arithmetic, but maybe your [sub]committee can do this for us in one of the options to consider: What sort of weighting would we have to give to M1 and M2 so that in reality the time deposit portion of M2 was given equal weight with the demand deposit portion?",127
-fomc-corpus,1977,"Well it's about 2 to 1. But I'm not sure that that's the right thing to do, you see.",24
-fomc-corpus,1977,"Well, I'm not sure either, but if we were to go that direction, what we would have to do is to give M2 2/3 weight, you see.",36
-fomc-corpus,1977,That's about right.,4
-fomc-corpus,1977,Okay.,2
-fomc-corpus,1977,"Well, gentlemen, I think we're ready to turn to our shorter-term targets. There are various possibilities, by no means exhaustive, set forth on page 7 of the Bluebook. Mr. Axilrod can help us on interpreting what is in the Bluebook, and his help will be at a maximum and he will be brief.",68
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Axilrod. Any questions? Yes, Mr. Morris.",18
-fomc-corpus,1977,"Mr. Chairman, in thinking back on past periods when we've had bulges in monetary growth, if you look back historically in those events, say, last half of '68, last half of '72--it has been typical that the staff has been projecting for the months immediately ahead of us a marked slowing in monetary growth. And I think that the Committee has very often leaned excessively on these projections and have been disappointed when the bulge kept going. So I think it's important that we get from Steve some probability evaluation of this slowdown in the months immediately ahead of us.",115
-fomc-corpus,1977,"President Morris, I'd like to respond to that, and make two comments. In the first place, following each of the bulges, there has been a marked slowing in money growth. In April, M1--the latest numbers--grew 19.4 percent, in May it grew 0.7, and in June 4-1/2. In July, M1 grew 18.3 percent, in August 5-1/2, and in September 7.7. For October, at the last Committee meeting, we of course were projecting around a 7 percent rate of growth. In the policy period just ending, the Committee adopted a range with a midpoint that was considerably lower--around 5-1/2 percent. And the growth that has developed has been about a 1-1/2 above our midpoint, I think well within--better than the normal range of error, as Governor Partee's subcommittee's figures point out. So I don't believe that the staff has mislead the Committee in any way in this past year [on] what's likely to happen following these bulges. The underlying growth rate of M1 over the past six months, I believe, has been somewhat stronger than we had anticipated.",256
-fomc-corpus,1977,A good deal stronger.,5
-fomc-corpus,1977,"That's right. It had been stronger than we had anticipated, and I have not gone back six Bluebooks ago to see what interest rate that we were projecting you would have to have had in the third and fourth quarters to hit your target. I suspect we're not very far off those interest rates right now, but I simply don't have those facts at hand. On the other question, to assess the probability, I would be very cautious myself because this range here assumes that November is very low and that it is around 1-1/2 percent, and I think that that is our best estimate. If I were being uneasy, I would be uneasy, of course, that it would come in a little higher because of the strength in the aggregates that we've had very recently.",155
-fomc-corpus,1977,"You still do feel, don't you, Steve--staff still feels that there's a lagged response to interest rate increases? I think, if it's so, why, we ought to keep in mind that we are talking about a considerably different level of rates than we were three months ago.",57
-fomc-corpus,1977,"That's the basis for our analysis, that growth will slow down in November and December; indeed, even in January we have slower growth. On our money market models, you're beginning to get an effect of 50 or 60 percent in the third and fourth month and you begin to wear out your effect entirely by the sixth or seventh month. That's the analytic basis for this expectation. Also, I do happen to believe that there has been a lot of cash going out for one reason or another that is not permanent; but that's not going to be held there, and I think some of that will be unwound over the succeeding weeks. But if we were going to err, given very recent experience, it's possible that we would be erring by underestimating. Our average error in 1977 is an underestimating error--the average error in 1977 is an underestimate, just like the average error in '75 was an overestimate.",191
-fomc-corpus,1977,"Well, I think the only point I was trying to make is to caution the Committee that we shouldn't necessarily assume that the bulge is over, and on the basis of similar past experiences, where the Committee has acted on that assumption, we had made wrong decisions.",53
-fomc-corpus,1977,"All right, any other question or comment? Well, if not, I think that the Committee now has a decision to make. We can break for luncheon right now, or if we're in the mood to move speedily, we can get through with our business and still not be famished.",59
-fomc-corpus,1977,We've all had a cookie.,6
-fomc-corpus,1977,"What's the sentiment of the Committee? Do you want to work ahead toward--to help that process, let me suggest to the Committee that the ranges for October-November specified under alternative B look quite reasonable to me. I think I would prefer, a little, a money market directive; but the monetary aggregates directive would also be satisfactory, though less logical. And that is all that I care to suggest to the Committee at this time. Who would like to pursue? Mr. Lilly.",97
-fomc-corpus,1977,"Well, in view of the uncertainty of the market and our trying to find out where we're at and whether these bulges are [so out of hand], I certainly like alternative B, but I'd like very much the money market directive.",47
-fomc-corpus,1977,"All right, thank you. Mr. Coldwell.",11
-fomc-corpus,1977,Same thing.,3
-fomc-corpus,1977,Thank you. Mr. Morris.,7
-fomc-corpus,1977,"Well, Mr. Chairman, I can't buy the federal funds range specification of alternative B. I think we have to make a decision today whether to stand on the status quo, which I think is what alternative B is, or whether we ought to move toward more restraint. I come out--",58
-fomc-corpus,1977,"Alternative B does permit a little additional restraint. And if your feelings about the bulge that you expressed earlier were justified, that's the way we would be moving.",32
-fomc-corpus,1977,"Except that, given the record of the past seven months, to constrain us to a move of a 1/4 [point] I think is inadequate. I don't think the evidence suggests that we've hit a level of the funds rate which is conducive to getting the growth in the aggregates under control. So I would suggest a federal funds range of 6-1/2 to 7, with the Manager instructed to move to 6-3/4 next week. Now I grant you, this decision would be a lot easier if the economy were booming.",113
-fomc-corpus,1977,It not only would be easier; I think you'd have to show of hands in that direction.,19
-fomc-corpus,1977,"But I've been asking myself the question, can the economy--is it strong enough to tolerate the prescription I've made? I think it is, in part because I think the thrift institutions are somewhat less sensitive to movements in short-term rates than they were in '73 and '69. But looking back to common earlier periods when we had these bulges, I find some common characteristics, Mr. Chairman. I'm taking advantage of my nine years sitting around this table, and these are the common characteristics. First, the Committee never understood why the bulge happened. The staff did not forecast it. However, the staff did forecast that in subsequent months the bulge would be eliminated; if not eliminated, at least we'd return to a lower rate of growth. Second common characteristic was the fact that the Committee agreed that the economy was not too strong, that we had a lot of slack in the System. And in fact, looking back to '68, the Committee was concerned about overkill, as you recall, the 10 percent surcharge and so on. We have that common characteristic. We're convinced that the economy is not too strong, certainly. Third, the Committee comforted itself during these bulge periods with the degree to which it had moved interest rates. You know, I think Mr. Partee has taken comfort in the move we've made recently. We did move interest rates sharply in '68, and we moved them sharply in '72. You see, the problem was that we didn't move them fast enough. The fourth characteristic of these bulges is that, a year later, the Committee agrees that [our slow reaction to] the bulge was a mistake, that we should have moved more promptly. Now this may conceivably be the exception, that this bulge is one that we won't regret, that this bulge may, as Steve suggests, be over. I find those comforting thoughts, but on the basis of past experience, I don't feel capable of giving them a high degree of probability. So I think this Committee has to continue to move on interest rate policy until we reach a level--when we have some actual evidence--that will bring rates of growth that we all believe are excessive under control. And that's why I think the federal funds prescription of B is inadequate at the moment.",462
-fomc-corpus,1977,"Well, while I disagree with you today, I might agree with you next month, depending on how the economic information comes in. But I do want to say that you've made a very effective argument for your case, one that should be taken seriously. I'm not supposed to editorialize, but I speak from the heart, you see. Mr. Willis now, please.",74
-fomc-corpus,1977,"Thank you, Mr. Chairman. I agree very much with what President Morris said. I would add this one thought. There seems to be a rather substantial difference of view in the Committee as to what is most likely to jeopardize real economic activity. There is a cogent concern that a further increase in interest rates will do that, and I think if you accept that point of view, then the policy that falls from that is a perfect and natural consequence. We feel, and I think it's very much along the lines of what you mentioned in one of your points earlier, that it's the public's uncertainty and concern for inflation that is responsible for the building up of money balances, that is responsible for much of the concern that we see. And as a result, our feeling is that almost the best way to guarantee a slower rate of growth in the economy than we would like to see, a higher rate of unemployment than we would like to see, is to have the public feel that we really aren't going to control the aggregates and, therefore, inflation. As a result of that, I would much prefer the aggregates numbers given under alternative C, although I am not sure that I wouldn't be happy with Frank's suggestion for the federal funds rate, which would be 6-1/2 to 7 rather than 6-3/4 to 7-1/4.",277
-fomc-corpus,1977,"Thank you, Mr. Willis. Mr. Kimbrel is next.",15
-fomc-corpus,1977,"Mr. Chairman, I come out very close to that [position] just enunciated. Earlier we had indicated that we feel slightly more optimistic than the staff had projected, and we remain hopeful, of course, that the money demands will ease off, but we are continuing to be anxious about the concern for inflation. I think we would accordingly prefer numbers associated with C, but we could accept B with the feeling that we would very much hate to see at this juncture the federal funds rate sink below 6-1/2. So for that reason, I think we'd like, maybe, alternative B numbers associated with the 6-1/2 to 7 percent federal funds.",139
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Partee.",14
-fomc-corpus,1977,"Well, I was going to be very brief, but I must say, Frank, you've challenged me, then, to speak a little more [unintelligible]. I've been in this room for a good many years also, and I find marked differences between this and the previous occasions where there have been surges. The first one is that we have a utilization rate much lower than it was either in 1968 or in 1972 in the latter part of the year. Indeed, it's a rather low utilization rate both for plant and for labor, except in just a very few industries such as paperboard and insulation and petroleum. Secondly, most of these earlier major surges you're talking about were times when there was speculative enthusiasm. In '68 there was a great deal of gunslinging in the stock market; you remember, in 1972, we were treated to a rising stock market, a great deal of speculative exuberance. The Japanese were buying inventories two years in advance, and there was a worldwide boom in process of development in that spirit; we don't have that now. And then I would say, also, this is getting to be a rather old cycle. In '72, one couldn't have said that, and in '68 it depends on how you date it; if you consider that the Vietnam War sort of started a new cycle, it was still a relatively new cycle at that time. To me this is more like the fall of '62 than any other of the past occasions I can remember. You remember, in '62 the stock market dropped sharply during the spring and summer because of the confrontation on steel. You remember, in the fall of '62 there was great discomfort and lack of confidence in the federal government, and confidence was being very badly affected. Well, you might say there's a lot more money growth than there was in 1962, but if I look, I find that in this cycle to date we've had an increase in the money supply--narrow money supply--of 6.2 percent, annual average. I find also that we've had an increase in the fixed-weight price deflator, private price deflator, of 5.9. If you subtract and I don't mean to fall into the JEC [Joint Economic Committee] error here, but if you subtract the difference in the rate of inflation and the difference in money supply growth, we are having a slower money growth, relatively, than we were then, and so I don't think it's that kind of a situation at all. Now, based on what I said about the long-term aggregates, Mr. Chairman, it's clear that I prefer a money market directive, because I don't think we really understand what the aggregates are telling us. I agree with Monroe [Kimbrel]. I don't think it would be a good thing to see the funds rate go down at this time. But rather than moving it from 6-1/2 to 7, I would suggest that it's quite consistent with a money market directive to have a range of 6-1/2 to 6-3/4; and that's where I would put it, and I would take the aggregates of the alternative B specification that you suggested.",652
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Guffey next.",15
-fomc-corpus,1977,"Thank you, Mr. Chairman. With all the recital of what has happened back in 1962, in these various eras, I feel a little bit inadequate, but I would like to associate myself with some of the comments that Frank Morris has [made] with regard to the ultimate prescription. I don't think I'd be quite as bold as he has been, in the sense that the only real problem that I have with alternative B is the federal funds rate. And I think I would prefer to see either one of two things: a 6-1/4 to a 7 percent, which gives you a 6-5/8 midpoint, or in the alternative--I share some of the concern mentioned by President Kimbrel with respect to going below the 6-1/2--a federal funds range of 6-1/2 to 7 percent with an asymmetrical midpoint of 6-5/8. I would like to see the Desk move promptly to the 6-5/8 within the upcoming week and before the Treasury financing that is going to inhibit us, perhaps--sometimes two weeks, three weeks, and before this Committee meets again.",238
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Volcker next, please.",17
-fomc-corpus,1977,"I expressed some happiness earlier about [our having] compromised pretty well between different considerations. I am a little fearful, as some other people have suggested, that alternative B, taken straight out a little bit, ceases compromising and doesn't give enough weight to the risk that the aggregates are going to be high and a sufficient response to that. So I found myself preferring the aggregates numbers in B, as other people have said, the expectation being that we are more likely to be in the upper side of that than the lower side. The New York forecasts, for some reason, are quite a bit above the Board's forecasts. I am not going to attribute any more weight to them, but they are at least consistent with the suspicion that has been expressed around the table. I had thought of combining that, maybe going to a kind of peculiar exchange here, to a 6-1/2 to 7 funds rate as other people have suggested. [Unintelligible.] I'd put the midpoint firmly at 6-1/2 percent [unintelligible] at the extreme. But I would still use the aggregates suggested because, if interest rates do go up, we're in effect putting the onus on the aggregates. That's the reason we're raising it, and you can convey that message a little better with an aggregates directive, but I don't think that's crucial. And I differ from what President Guffey just said only in not going off to 6-5/8 immediately; 6-1/4 to 7 percent [also] looks all right to me, and I'd still leave the midpoint at 6-1/2. If you really put the funds rate as in the B alternative, then I'd put the aggregates ranges lower and bias it that way and kind of go for the C aggregates and the B funds rate. I could salve my conscience in the sense of biasing a little bit in that direction that way. But I basically think the 6-1/2 to 7 or 6-1/4 to 7, understood to be about the same [unintelligible] is the right way to do it. I am not very anxious to see [the funds rate] get to 7, but I could imagine these aggregates being high enough so that we might want to do even that during this period. It's a pretty high aggregate.",483
-fomc-corpus,1977,"Of course, if the aggregates were high enough, we would communicate with one another before the next meeting. Mr. Black now, please.",28
-fomc-corpus,1977,"Mr. Chairman, I guess my position is sort of a cross between that of Mr. Guffey and Mr. Volcker. I had recently intended to suggest a lower range of M1 and leave M2 as shown in alternative B, but I guess really the thing that controls me most would be the adoption of a money market directive at this time, since the trigger point would involve either approaching or moving beyond those upper ranges. So I would feel rather strongly, in view of the uncertainty of the aggregates, [that] we don't have an aggregates directive this time; and Mr. Guffey's range of 6-1/4 to 7 with 6-5/8 as midpoint seems most appropriate.",146
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Balles, please.",14
-fomc-corpus,1977,"Mr. Chairman, in view of our deliberations today on the long-term ranges, and reflecting back over the past couple of years on why we have overshot those ranges, and in view of my own judgment that, probably as a net result we have provided too much monetary stimulus, I am concerned about continuing to exceed in the future the 12-month ranges that were agreed on today, because I fear that the greatest threat to longevity in the economy would be a resurgence of inflationary expectations that would drive long-term interest rates up, which I think would be far more serious than what has occurred in the short-term interest rate area in the last several months. I say that because of what I view to be the greater sensitivity of housing expenditures, and to some extent plant and equipment expenditures, if inflationary expectations should push up long-term rates significantly. And I have been concerned for some time, and I make this point from time to time--the Committee doesn't seem to have any systematic way of getting from here to there in terms of the 2-month range versus the 12-month range. And that's why I guess I'm unhappy about all of the upper limits specified in alternatives A, B, and C with regard to the present time because, [in] all of them, the upper limits would go beyond our 12-month ranges. I'll grant that [in] any 2-month period there can be fluctuations up and down that are more or less erratic and unpredictable, but when we get into a cumulative pattern of exceeding the upper end of our long-term ranges, we get into, after the fact, more monetary stimulus than some of us think is healthy from the standpoint of preventing a resurgence of inflation. So I would make a plea for lowering the upper end of the ranges of both M1 and M2, especially on M1, to make sure that we don't get into a pattern within successive two-month periods of overshooting what we had agreed on would be appropriate long-term ranges, given the need of the real economy. And for that reason--and I think the fundamental issue is to what extent the Committee is prepared to see some further inching up of short-term rates to head off that future possible overshoot--I would prefer to see an upper limit on M1 and M2 of, say, 6-1/2 and 9, respectively, and a federal funds rate of 6-1/2 to 7.",493
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Jackson.",12
-fomc-corpus,1977,"I think I would prefer, to get to the point, to leave the aggregates as indicated in alternative B, but I would prefer a money market directive with the federal funds range from 6-1/4 to 7 percent. The reason for that is, I think, while I would share the judgment that going below 6-1/2 would probably be a mistake, my limited understanding of the way all these figures are kept is, in order to get below 3 percent on M1, for example, we'd have to have a reduction in the money supply in the neighborhood of 4 percent for November, which I think is most unlikely. From what I can see of the way the estimates for October are developing, there is some risk that even the present projections for October may be low. To the extent that we do run into estimates exceeding 8 percent, I would not hesitate to go all the way to a 7 percent federal funds rate in response to that, and that's the reason I prefer the money market directive. Once we see it's clearly moving out beyond that range, I think we ought to get pretty good movement.",230
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Mayo next, please.",14
-fomc-corpus,1977,"I'm not far apart from Governor Jackson. I think I would prefer 6-1/4 to 7 with a 6-1/2 asymmetrical midpoint. I don't share John's concern about the relationship of the upper ends of the short-term range vis-a-vis the long-term range because I think the same argument can be made on the lower ends, that we are below the ranges that we just suggested, so I don't think that I'm particularly worried about that. For M1, 3 to 8 is fine with me, or I don't mind the shading [of] 1/2 percent[age point], and M2 the same way. Either B or C ranges on M1 and M2 are, I think, satisfactory in these circumstances.",154
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Winn, please.",13
-fomc-corpus,1977,"Mr. Chairman, I am perhaps out of order, but I am concerned about the behavior of interest rates in the period ahead and the implications of that, and yet I think we have to react to what's happened in the aggregates area in the past as well as our concern about what the future projections would be. And I'd like to urge consideration of the use of this discount rate as a way of buying some time, without basically changing the rate structure, [to get] a better feel as to what some of these magnitudes would be down the road. Specifically, I would take the B suggestions; I think I would prefer the [federal funds] rate span of 6-1/4 to 7, with action on the discount rate first as a way of trying to temper this until we get a better fix with an aggregates directive.",170
-fomc-corpus,1977,Thank you [unintelligible].,8
-fomc-corpus,1977,"Gentlemen, I listened carefully to Frank's description of our frailties, and I was pleased with Chuck's response, because he took into [account] the environments surrounding the conditions in the past. I have no memory of those conditions at this table. It seems to me we're dealing with a curious change in velocity. Aggregates are responding to something other than heavy demands for credit in the economy. We're really dealing with a reasonably technical and structural change. Now most of you are a little apprehensive about the future of the economy, but you're also willing to accept the fact that the economy may indeed improve and that you're not in a pause and not in a recession. I think we bear a very heavy responsibility, because there is a technical factor pushing the growth of the aggregates which we can neither understand fully nor explain to our own satisfaction. There are ample supplies of credit in the economy; the inflation numbers published by the various agencies haven't shocked anybody recently; unemployment--the country has lived with it for some time; they just passed a jobs bill in the House; there's an ample supply of energy available for this winter, although we have long-range energy problems, as we've always had; and Congress is about to adjourn. Putting all those things together, I'd say our posture is to better understand our analysis of the aggregates. I would accept B very strongly for a very specific reason. I don't want the Federal Reserve to tip the scales in this matter. When I listen to the public world, I hear more concern about rising interest rates than I do about inflation. Now we don't have 220 million monetarists in this country. And until I know a little more, I don't want to vote for a 7 percent funds rate, which will continue the recent basis point rise in the path. I think there's some merit for us at this stage--and I listened carefully to what Willis Winn has to say, too--to accept B. I strongly think that, in accepting B, I am prepared to come back to the table anytime in the next 30 days to decide that something else has happened and that we must take some further action or have the Chairman call the Committee again. But if we tip the scales, if we keep pushing because of the structural change in M1, we can bear very heavy responsibility. And I'm willing to bear that, but I just don't think the economy is bubbling like that, that we have to bear it at this time. Maybe, in my own view, the rest of the fourth quarter is rather positive. I mentioned the congressional adjournment, which will remove some of the business uncertainty in the near term. I think the automobiles have been delayed this year, and I think they're going to be pretty good. And we are facing a Christmas season; building activity; commercial is now even beginning to move after a boom in residential. Net supplies of credit in the economy are ample right now. I don't want to go for a 7 percent ceiling at this time on the funds rate. So I would support B.",615
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Wallich next.",13
-fomc-corpus,1977,"I lean toward a money market directive because the aggregates seem to be hard to interpret at this time. I would go for the aggregates with B. On the funds rate, even if we have a money market directive that argues for a relatively narrow range, I would prefer to widen it a little. I think the arguments in favor of having a limit on the low side that doesn't permit much of a drop are not as strong this time as they are ordinarily. When we see that there may be an [upward] trend in the rate over time, then it makes sense not to backtrack with the rate. I don't necessarily feel that that is our present prospect. So I'd like to keep the lower end at 6-1/4. In case the aggregates do continue to bulge, I'm willing to go a little higher than 6-3/4 or come out at 6-1/4 to 7 percent; and I would stay at [the midpoint of] 6-5/8 initially until the aggregates begin to break out, if they do.",217
-fomc-corpus,1977,You are in favor of an immediate rise?,9
-fomc-corpus,1977,"I would be in favor of an immediate rise. Well, we're really within that range, you know, 6-1/2 to 6-5/8.",35
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,"We have been over quite a few times, not with the weekly rate, but it's moved up to there. I would say 6-5/8.",32
-fomc-corpus,1977,"Thank you, Mr. Wallich. [Unintelligible.]",14
-fomc-corpus,1977,"Mr. Chairman, it's been very difficult for me to visualize circumstances in which I would favor a money market directive. But it seems to me the unusual combination of circumstances has arrived. It seems to me that what might be a feasible, workable arrangement at this time would be a funds rate with a midpoint of 6-3/4; and I don't feel too strongly about the range. But with the idea that between now and this [next] meeting, unless something unexpected develops, we'd gradually move to that new midpoint. If you've got to put some numbers on them, I'd take those from alternative B. But I think the key thing would be the fed funds rate.",135
-fomc-corpus,1977,Mr. Roos next.,6
-fomc-corpus,1977,"I would suggest alternative B or C for M1 and M2, fed funds rate 6-1/2 to 7, and an aggregates directive.",32
-fomc-corpus,1977,"Thank you, Mr. Roos.",8
-fomc-corpus,1977,"Yes, I would like to lend support to alternative B in regard to the aggregates; I share the view, first expressed by President Guffey, that the range on the fed funds rate should be 6-1/4 to 7, and I'd like to move [the midpoint to] 6-5/8.",67
-fomc-corpus,1977,"There's a very strong consensus in favor of the ranges for M1 and M2, and there are minor differences with regard to the federal funds rate. There is a certain preponderance in favor of a money market directive, though not everyone has expressed his views. Now, I see a good majority in favor of a midpoint of 6-1/2 percent, and that includes those who favor a symmetrical range and those who favor an asymmetrical range extending beyond 6-3/4. But we are pretty closely bunched. I'm somewhat at loss as to what to propose to the Committee. I do think it would be a mistake to contemplate a possible increase in the federal funds rate of as much as 50 basis points just on the basis of mechanical rules. I could see the Committee going to 7 percent. I could visualize the Committee going even beyond 7 percent, depending on the flow of new information. But to commit ourselves to a possible increase of 50 basis points on the basis of mechanical rules, when our ability to predict the growth of M1 is so very limited--I think that would be a mistake. I counsel against it. I don't know whether the Committee will support me in that or not; I hope they do. The range of 6-1/4--let me have a show of hands, really. And this may involve a little shift on the part of this or that member of the Committee. We don't have the benefit of pronouncements from Mt. Sinai here, and these are shadings of 1/8 percentage point, 1/4 percentage point. Let me have a show of hands on the 6-1/4 to 6-3/4 percent range, whether that would be, while not preferred by some members of the Committee, more or less acceptable.",372
-fomc-corpus,1977,Eight.,2
-fomc-corpus,1977,"I understand the sensitivity [unintelligible] because in some ways I share it myself. But it would make me more comfortable, and I believe it would make some other people more comfortable, recognizing that everybody's first preference is for the [alternative] B--almost everybody's--for the [alternative] B M1 and M2 ranges; it would make me more comfortable with that federal funds rate to shade down the aggregates ranges and get a little bias in that direction while maintaining a 6-3/4 percent [federal funds rate] limit. Mostly symbolic, I suppose, but a little shading in that direction.",127
-fomc-corpus,1977,"And go to alternative C figures? I find that entirely agreeable, and I hope others do. The difference between the B and C monetary ranges is so small.",32
-fomc-corpus,1977,"Yes, I do.",5
-fomc-corpus,1977,I think it depends in part on whether you have a monetary aggregates or money market directive.,18
-fomc-corpus,1977,"Well, there seems to be a preponderance of views in favor of a money market directive--those who indicated. Several members of the Committee did not express a view on that, but they may wish to do that now. Mr. Guffey.",52
-fomc-corpus,1977,"To follow up Bob's question, I would be closer to feeling comfortable with the 6-1/4 to 6-3/4 that you proposed, and took a vote on, if we went to a monetary aggregates directive, which would indeed permit--",53
-fomc-corpus,1977,"I see. Well, again, we're either being so reasonable or I am setting an example of reasonableness, that is, in the direction of conciliating such minor differences as this. What that means is, if we have a monetary aggregates directive, that we will be quite willing to accept 6-3/4. With a money market directive, we move toward that very reluctantly. That is correct, isn't it Peter?",87
-fomc-corpus,1977,"Yes, that's right.",5
-fomc-corpus,1977,The other possibility is to take Paul's suggestion but leave the money market directive.,15
-fomc-corpus,1977,We'll get that straight. We'll test the Committee's thinking in a moment.,15
-fomc-corpus,1977,"If strong credit demands push that fed funds rate up quite abruptly, then it can always be reconsidered. Is that the thought?",26
-fomc-corpus,1977,"No question about it. If the monetary aggregates came in very strongly, unless the news from the real economy was very unhappy, I think we might well want to consider--and I might in all probability recommend to the Committee--that we push the upper limit up a notch. Well, gentlemen, one possibility is to have a range of 6-1/4 to 6-3/4 with a monetary aggregates directive. That's one possibility. Another is to--What was yours, Paul, precisely?",102
-fomc-corpus,1977,"I will make it a little more complete on the basis of this discussion: 6-1/4 to 6-3/4 with the C aggregates, and the money market directive if that makes more people happy.",45
-fomc-corpus,1977,"Just a minute now. Okay. Two packages now. And gentlemen, the differences between these, you would need a Solomon with all of his wisdom to be able to define the difference. I'll call these packages, respectively, A and B. Package A would accept the specifications of alternative B and a monetary aggregates directive. That is package A. Is that clear? Package B would accept the monetary ranges under C, a federal funds rate of 6-1/4 to 6-3/4, and a money market directive. Is that clear? Or shall I repeat the definition of these two packages A and B? No request for repetition.",130
-fomc-corpus,1977,"No, but could I have just a little more clarification of what you said to Peter, that, under the money market directive, we hold the midpoint where we are now unless things really start moving out of the picture, as opposed to the other one, where we start moving the funds rate gradually.",60
-fomc-corpus,1977,"Peter, well, let Peter define it. You have a given range, just for purposes of illustration; the range is 6-1/4 to 6-3/4 and either a money market directive or a monetary aggregates directive, and you are being requested to specify the difference between the two.",62
-fomc-corpus,1977,"Well, as I see it Mr. Chairman--maybe this is making it too mechanical. I think there's a zone of indifference in either case, but there's a wider zone of indifference with a money market directive, and if you want to try to roughly put a number on it, as I conceive--",62
-fomc-corpus,1977,"No, don't. I think that's in different language but substantially the same thought that I expressed.",19
-fomc-corpus,1977,I think Peter is saying that he would probably be moving even on the money market directive if you were at the extremes.,24
-fomc-corpus,1977,If you got very close to the extremes.,9
-fomc-corpus,1977,"With [unintelligible] modification. SPEAKER(?) Wording says, if you approach--",20
-fomc-corpus,1977,"Shall I redefine the packages A and B? All right, those in favor of Package A--",20
-fomc-corpus,1977,"Four, Mr. Chairman.",6
-fomc-corpus,1977,Those in favor of package B?,7
-fomc-corpus,1977,Six.,2
-fomc-corpus,1977,Let's have another show of hands. Those in favor of Package A?,14
-fomc-corpus,1977,Four.,2
-fomc-corpus,1977,Those in favor of Package B?,7
-fomc-corpus,1977,"Six, and one abstention.",7
-fomc-corpus,1977,"Well, I'll accept--",5
-fomc-corpus,1977,"I'm not abstaining. I'm willing to vote, but I wouldn't vote for A or B.",19
-fomc-corpus,1977,"Gentlemen, these are very, very close, and I think the differences that separate us are pretty insignificant, considering.",25
-fomc-corpus,1977,"How do you vote when you are in favor of either one? The point is, the differences are small, and I'm not going to complain about package B even though I voted for A. If you put in the record somewhere that it was seven to four--",52
-fomc-corpus,1977,This is not part of the record. This is simply an informal device for gauging the Committee's sentiment in preparing for a vote.,27
-fomc-corpus,1977,"May I ask, Mr. Chairman--Governor Wallich, you indicated a preference for A, although when we were having our discussion you indicated a preference for a money market directive.",36
-fomc-corpus,1977,"My choice, which is very marginal between the two, was that I did rely quite heavily on the aggregates specifications of being able to go up to 8 on M1.",35
-fomc-corpus,1977,"I, as a matter of fact, had a preference for B with a money market directive.",19
-fomc-corpus,1977,"Oh, well, we'll give you that option. We have alternative B with a money market directive. How many would feel comfortable with alternative B specifications and money market directive?",34
-fomc-corpus,1977,Eight.,2
-fomc-corpus,1977,That's the largest number yet.,6
-fomc-corpus,1977,"We've reached the point where I think we will run rapidly into diminishing returns. We've reached the apex of understanding now. Let's stay there for awhile. But these are very fine shadings, and I suggest we vote on the range for M1 of 3 to 8, a range for M2 of 5-1/2 to 9-1/2, a range for the federal funds rate of 6-1/4 to 6-3/4 on the money market directive. Unless there is a desire for further discussion, Mr. Broida will call the roll.",122
-fomc-corpus,1977,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris No Governor Partee Yes President Roos Yes Governor Wallich Yes Eleven to one.,49
-fomc-corpus,1977,"To the best of my understanding, we have reached the hour of one.",15
-fomc-corpus,1977,"Well, thank you very much. Let me ask you a question or two. Let's assume that the order by the Court of Appeals is effective as of today, you see. All right, we hold our meeting and we reach a decision, and that decision is to be published, or one of the options is to publish it, in the Federal Register.",71
-fomc-corpus,1977,Yes sir.,3
-fomc-corpus,1977,"All right now, then, when would it be published at the earliest in the Federal Register?",19
-fomc-corpus,1977,"There is almost a certainty of a three-day delay for transmission. Totally, I think, outside time, five days is the most you can expect in the way of delay, possibly four, Mr. Chairman, from the time it leaves this building forward.",51
-fomc-corpus,1977,"I see. All right, that helps me.",10
-fomc-corpus,1977,"Mr. Chairman, I might add that while it might be five days until it appears in the Register, as soon as they receive the document at the Federal Register office, they place it on public file, so anyone can see them.",47
-fomc-corpus,1977,I see. And how soon would that have to be done?,13
-fomc-corpus,1977,"I would say that, on Art's point, that that might make it available--I think it's still a three-day interim from the time of the Committee's action forward.",35
-fomc-corpus,1977,"Well, so one can catch one's breath, at least.",12
-fomc-corpus,1977,Yes sir.,3
-fomc-corpus,1977,"Now my mind went blank momentarily as you were speaking, Tom, and would you--you spoke of two days as being critical. The December 1 date--that I understand. But then you also spoke of January 1 under certain conditions as becoming the critical date. Would you be good enough to repeat that for me?",66
-fomc-corpus,1977,"Yes sir, I will. The December 1 date?",12
-fomc-corpus,1977,"Now, I understand that. The January 1 date.",12
-fomc-corpus,1977,"All right. If the Committee, as I urge, perhaps might express a no-objection--if, on behalf of the Committee, there were filed a request for a stay of mandate with the suggestion that we would be seeking a writ of certiorari to the Supreme Court, the Court of Appeals can act upon that and grant a maximum 30-day extension of the December 1 effective date, which would take it to January 1 if the Court of Appeals granted our stay request.",98
-fomc-corpus,1977,All right. Now isn't it clear that that is something we definitely ought to do today?,18
-fomc-corpus,1977,I believe it is Mr. Chairman. I would recommend that.,13
-fomc-corpus,1977,Is this discretionary on the court's part?,9
-fomc-corpus,1977,Yes it is.,4
-fomc-corpus,1977,Give us the rationale for directing that? I'm not sure that's clear.,14
-fomc-corpus,1977,"Otherwise we would have to release our decision on December 1. Because these other actions that are possible, such as going to the Supreme Court or seeking legislation, all of that will take time.",39
-fomc-corpus,1977,"Well, I think, Mr. Chairman, we ought to view this as part of a general strategy. If, at the end of the whole thing, we would have to publish anyway, we might have given away some benefits in terms of public posture by first having vainly tried to protest it in the courts. I'm trying to understand better, for instance, how normal it is to make such an appeal. Is that the quite usual course of events, or is that a major decision?",98
-fomc-corpus,1977,"I believe that over a period of time it will be found that a request of the Court of Appeals for this 30-day extension--and under the rules, the court has within its discretion a granting of a shorter or, under exigent circumstances, a longer period, but 30 is cited in the statute--is usually accompanied by a suggestion that the party seeking the extension intends to file a petition for certiorari with the Supreme Court. I don't know of any instance in which the court would view a petition for extension and later [find] that the suggestion of petition was merely a fraud or a [unintelligible] to get this 30-day action time. So, Mr. Chairman, my point is that I think the Committee should seriously consider the legitimacy of seeking from the Solicitor General a merit judgment that we will seek petition for certiorari and at the same time ask that there be requested the 30-day extension of the time within which we must act on this mandate. I spoke to the Department of Justice yesterday and asked [if] they were aware of any instance in which an agency asked for the 30-day extension on the stated premise that, as in this case, the court in its opinion suggested congressional relief [and] the agency needed this much time to address this matter to an appropriate congressional source. He said he was aware of no such time or action with respect to a petition for 30-day extension, that it usually accompanied almost automatically the petition for certiorari.",304
-fomc-corpus,1977,"Well, I think that unless members of the Committee are ready to abandon our approximate 30-day rule, I think the action recommended by Mr. O'Connell is something we ought to do and do forthwith. I think Mr. O'Connell's recommendation is thoroughly sound.",56
-fomc-corpus,1977,"That is, attempt to go to the Supreme Court. Is that correct?",15
-fomc-corpus,1977,"He can--well, to do two things. [To] take it to the Supreme Court and in the meantime start inquiries with members of the Congress, seeking congressional relief. As a matter of fact, I've already started that, but I haven't gotten very far.",53
-fomc-corpus,1977,"Mr. Chairman, I just throw this out for a thought. Concurrently with taking the legal steps that Mr. O'Connell suggests, concurrently with feeling out members of the Congress for statutory relief, what would happen if just in this one instance we did what the appellate court suggests--for example, at the end of today's meeting, made this public and tested the market reaction. If the market reaction were as we anticipated it to be and [strengthened] our concern about not having the 30-day delay, wouldn't that strengthen and--in other words, if something of an undesirable nature occurred, if we made this announcement immediately, then wouldn't that strengthen our case with the Congress and possibly with the courts? Is that a totally unrealistic--I'm just throwing it out? What if we let it all occur on a one- shot basis?",168
-fomc-corpus,1977,"Let me make two observations. First, we would not have to publish our decision until December 1. And therefore this--the test that you suggest would be an imperfect test. Second, I don't want to anticipate the results of today's meeting. But it's entirely possible--perhaps even probable--that today's meeting will not provide a good test. Mr. Morris.",72
-fomc-corpus,1977,I just wanted to ask Tom if you had any feedback from the Solicitor General as to his willingness to press our case.,25
-fomc-corpus,1977,"President Morris, I have feedback only at the staff level. The head of the appellate section [of the Justice Department]--who, I believe, has a leg up on the attitude of the Solicitor General because they work together daily in these matters--is not too affirmative with respect to his judgment of success in getting the Solicitor General to seek the petition for certiorari. I must say, though, that on the appeal from the District Court, his attitude was somewhat the same. It took two visits to the [Justice] Department and a discussion on each occasion to satisfy the appellate section that there was merit in our anticipation of consequence should this be prematurely disclosed. So I can't be too affirmative in my anticipation, but the question, and my response now given, I think bears on President Roos's inquiry and the Chairman's comment. May I say that, should we move ahead and maybe release pursuant to the court order, and [should] it not have any market reaction whatsoever, it does [make] a little bit difficult, then, the premising of our original points of appeal on a writ of certiorari to the Supreme Court. It makes that argument much more difficult.",241
-fomc-corpus,1977,"May I ask a question, Mr. Chairman? Tom, if I heard you correctly, you not only have the possibility of a request for a 30-day extension; you also have an outside emergency type for a longer extension?",46
-fomc-corpus,1977,"The Court of Appeals rule provides that a petition for an extension may be filed very quickly. Under the rule for a stay of mandate--if I may, Governor, ""a stay of the mandate pending application to the Supreme Court for a writ of certiorari may be granted upon motion, a reasonable notice of which is given to all parties. A stay shall not exceed 30 days unless""--and then this is the provision to which I referred--""the period is extended for cause shown,"" and, by practice, that has been proven to be one of necessitous circumstances or very deep concern.",121
-fomc-corpus,1977,So you don't go in asking for longer than 30 days to start off with.,17
-fomc-corpus,1977,"No sir, you don't.",6
-fomc-corpus,1977,I see.,3
-fomc-corpus,1977,"Could it be possible, Tom, to outline the maximum stalling tactic--and I don't mean that in a negative sense, but just a factual sense--that we are likely to accomplish under either of these [scenarios], considering that the Supreme Court either would not grant certiorari or else would grant it but then decide against us in this decision? My question is related to this fact--if our delay is not going to be sufficient in duration to enable the Congress with great expectations to act, then the question, [it] strikes me, that [we] should address [is]--would our ultimate best interest be served by having the effect on the court order earlier in the day or later in the day from a congressional relief point of view? And my question really relates [to the following]: Is there a practical prospect that we could sufficiently delay the effect of the court order as to give practical impact on congressional resort?",187
-fomc-corpus,1977,"If I may, some of the terms of this rule that I was reading for Governor Coldwell are applicable to your question, Governor. If I may, ""If during the period of stay""--and this is the 30-day stay provided in the rule--""if during the period of stay there is filed in the clerk of the Court of Appeals a notice from the clerk of the Supreme Court that the party who has obtained the stay has filed a petition for writ in that court, stay shall continue until final disposition by the Supreme Court."" And as a matter of practical judgment, that could be one to two years' time. ""Upon the finding of a copy of an order of the Supreme Court denying the petition for writ of certiorari, the mandate,""--that is, the effective date--""shall issue immediately."" And then it has provision for a bond to be posted, so that a finding of a request for the 30-day extension accompanied by a petition for certiorari would certainly achieve, I believe, the 30-day extension to January 1. Beyond that time, it would take favorable action by the Supreme Court granting a writ to further delay the effective impact date of this.",242
-fomc-corpus,1977,"In other words, the Supreme Court would normally grant or fail to grant certiorari within that period?",21
-fomc-corpus,1977,"In that time period. If it hadn't [decided whether to grant], we would then take steps to extend the stay pending decision of the Supreme Court.",31
-fomc-corpus,1977,"It's the Supreme Court's custom, then, to either grant or fail to grant certiorari within the 30-day period?.",26
-fomc-corpus,1977,"To the best of my knowledge, that's correct.",10
-fomc-corpus,1977,"If the Solicitor General would not take on our case, are we still entitled to the 30 days?",22
-fomc-corpus,1977,"Well, we would know. Assuming my earlier statement, Governor, that the two petitions are filed simultaneously--namely, the petition for writ and the 30 day--we would have known the Solicitor General's attitude. It presumes that the SG would let us know within that time frame whether or not he will support a petition for certiorari. If he [says] no, then I think that practically [negates] any findings in a petition for a 30-day extension.",101
-fomc-corpus,1977,All right. Governor Lilly.,6
-fomc-corpus,1977,"Well, following up on Henry's earlier question, just from a pragmatic point of view, what, in your view, Tom, is the likelihood of the Supreme Court overturning this appellate court?",39
-fomc-corpus,1977,"Governor, I think the likelihood is not too great, for this reason, very quickly stated. The Department of Justice under the current Administration issued, in the fall of last year, guidelines to accompany the Freedom of Information Act. And the civil division of that department now has promulgated its own suggested guidelines, pursuant to the Attorney General's directive, really [advancing] a very liberal attitude about the provisions of this act, all to the end that, as much disclosure affirmatively and promptly made as is possible is the rule of the day. That being true, I think the Courts of Appeals and the Supreme Court are thus similarly interpreting the Freedom of Information Act. I think this opinion sets aside any imperative argument that we put on the nature of the document and treats, for instance, the directive as another piece of paper under the Freedom of Information Act and just deals with the statute parallel to earlier decisions of other Courts of Appeals. And I believe the Supreme Court would look at it in exactly the same view. So I honestly believe that the likelihood of overturning--unless we had an extremely strong brief and for some reason we're able to retrench our position-- not too great.",236
-fomc-corpus,1977,"Given that situation, what are the probabilities of a congressional action occurring?",14
-fomc-corpus,1977,"Well, that's very difficult for me to appraise at the moment. I would not rate the probabilities high, nor would I rate them low, as of now. I want to suspend judgment on that. I think we have a fair chance to get congressional action, but--",55
-fomc-corpus,1977,But not before this court's directive becomes operative? Given the Supreme Court denial?,16
-fomc-corpus,1977,"Well, you don't mean--that is, Supreme Court refusing to take on the case--well, I would not want to express an opinion on that, either. I think one would have to test the waters, and I've only started that. I'm neither, to repeat, pessimistic nor optimistic as yet.",62
-fomc-corpus,1977,"Mr. Chairman, shouldn't we examine the alternatives, the problem of releasing this? How would we operate if we had to release it? Would it really be so damaging? Given that this is a very unpopular thing we are promoting--this secrecy--what would be the damage to us [with] the public, central banks, academics? Wouldn't we be better off trying first to see if we can live with it?",84
-fomc-corpus,1977,"Well, that's a possibility. Yes, Governor Gardner.",11
-fomc-corpus,1977,"Gentlemen, the core of this discussion is whether or not our instructions to the Desk should be immediately released for the next 30 day of its activities. Do we need any more evidence that the policies of this [Committee] over the last 30 years have been appropriate? The last three weeks clearly indicated the impact of our activities on financial markets. We're enmeshed in [these] splendid intricacies of the law, and I firmly believe that we have a responsibility to pursue that course. Appeal to the Supreme Court is a perfectly normal procedure. You need suffer no embarrassment whatsoever by proposing that your position be appealed to the Supreme Court. That's what the intricacies of the law require us to do at this stage if we don't agree with the Court of Appeals decision. I've had decisions appealed to the Supreme Court. We're discussing the court's interpretation of congressional intent. I think clearly we should exhaust, and we have the responsibility to exhaust, all the normal courses of action. I don't look on this as an effort by the Federal Reserve to continue to hide its operations [under] a blanket of secrecy. We're talking about something we've all agreed in the past is an extremely sensitive issue in the matter of the stability of financial markets. So I have no reservation whatsoever about exhausting the normal, absolutely common legal proceedings. In fact, whatever else we do in strategy, I believe personally that we're required to exhaust the courses of action that are open to us at the moment.",294
-fomc-corpus,1977,"I would endorse that completely, unless of course, members of the Committee have changed their minds, and I doubt if that is the case. But if that should be case, we'll learn about that within a very few minutes. Mr. Coldwell.",50
-fomc-corpus,1977,"Mr. Chairman, I don't have any problems with Governor Gardner's idea that we go ahead with appeal on this. But I do think it might be well for the Committee to take a look at what Governor Wallich suggested, however. If Tom's appraisal of this matter bears any relation to where we come out, we may find ourselves [with] a December 1 release date if the Solicitor General refuses to take our case. In which case, we have a release problem immediately upon us.",100
-fomc-corpus,1977,That seems to me the most likely single course of events.,12
-fomc-corpus,1977,"No, I would not say that. I think the chances are that we'll get a 30-day stay, but in case we don't, I don't see there's anything to discuss. If we don't, we have to observe the law as laid down by the Court of Appeals.",55
-fomc-corpus,1977,"Mr. Chairman, I do think that there are two possibilities, as I see it, [forcing] early release. One is that the Solicitor General will not take the case, and the other is that the Supreme Court won't take the case, which they often do not.",56
-fomc-corpus,1977,"No, but we won't know that immediately.",9
-fomc-corpus,1977,"No, but it would be--apparently they do it within the 30-day period. Is that correct, Tom?",25
-fomc-corpus,1977,To the best of my knowledge.,7
-fomc-corpus,1977,"So it would mean that, sometime between December 1 and January 1, we might have another possible report date, and it seems to me that, just as a matter of defensive strategy, we might want to eliminate reference to a funds rate range in the current directive.",55
-fomc-corpus,1977,"We should examine, I think, how we could live under this. What are the techniques by which we could do this?",25
-fomc-corpus,1977,I think we need a staff study--,8
-fomc-corpus,1977,--recommend that we do--,6
-fomc-corpus,1977,--and it might also be desirable to change this one. Since this one might be--,18
-fomc-corpus,1977,"Well, it might be, and there are other defensive devices, but I think what we ought to decide at this meeting is, I think we ought to accept--that's my strong recommendation to the Committee--what Tom O'Connell has suggested. And then depending on how events unfold, we ought to discuss--that is, if they go favorably, well, that's that. If they don't, we ought to get together over the telephone, possibly even have a special meeting, and then decide on what course of action to take. But I don't think we ought to try to do that this morning. The problem may not arise.",127
-fomc-corpus,1977,Second.,2
-fomc-corpus,1977,Shouldn't there be some contingency planning in the interim here as to--?,15
-fomc-corpus,1977,"Yes, but let's not do it at this table.",11
-fomc-corpus,1977,"Mr. Chairman, it seems to me that there are two parts here. I'm emphatically supportive of what Steve has said on the procedure on the legal side. I think we have an obligation to ourselves, if to no one else, in that regard. But I'm sensitive to Henry's point, too. But it seems to me this is a proper [project], of how we frame our directive at this table today--with an eye that maybe we will have to release it on December 1 and frame our directive accordingly. And that I think would--",111
-fomc-corpus,1977,I'm a little concerned about that. I'm a little concerned about that. Changing the rules of the game--,21
-fomc-corpus,1977,"No, I don't mean that, Mr. Chairman. What I mean is, the selection of a money market directive versus a monetary aggregates directive to me has some significance here with reference to this point of release on December 1. Whether we determine a midpoint in the directive or just state a range has significance, if we're going to get stuck, let us say, on December 1. I don't think that's changing any rules of the game.",89
-fomc-corpus,1977,"Well, I do think that staying within our rules and avoiding excessive specificity would certainly be wise.",19
-fomc-corpus,1977,That's what I mean.,5
-fomc-corpus,1977,I take it that was what you had in mind.,11
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,And I think that is certainly a very reasonable and wise precaution.,13
-fomc-corpus,1977,But I would let that appear in our discussion of the directive today rather than having it necessarily done as part of the discussion as to whether we appeal or not.,32
-fomc-corpus,1977,"I think, Bob, even if you had the monetary aggregates formulation, that it would still specify the funds rate range.",24
-fomc-corpus,1977,"Oh, it will--a range.",8
-fomc-corpus,1977,"What you could very well do is--now this would be some change in procedure. You could instruct the Manager--the last phrase of the directive could read, ""The operational objective for the federal funds rate shall be modified in an orderly fashion from the prevailing rate of about 6-1/2 per cent.""",63
-fomc-corpus,1977,Sure.,2
-fomc-corpus,1977,I think that's quite possible.,6
-fomc-corpus,1977,"And there could be, you know, the Manager has--",12
-fomc-corpus,1977,"That's what I have in mind, Chuck, exactly.",11
-fomc-corpus,1977,"Well, that isn't the way it's stated. Now it has a range--",15
-fomc-corpus,1977,You mean omit the range.,6
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,"Well, omit the funds rate range, yes.",10
-fomc-corpus,1977,Or you could omit the funds range.,8
-fomc-corpus,1977,[Unintelligible.],6
-fomc-corpus,1977,"Yes, you could, approximately.",7
-fomc-corpus,1977,"The market has a range in mind that, you know, we've been on a 1/2 percent range of late, and they'll assume that that continues.",32
-fomc-corpus,1977,"Gentlemen, I don't think we ought to do that. Or, if we do it, let's do it only after very thorough reflection. I don't like playing games with the law. Now, I think we ought to stay within our procedure. I think we ought to avoid as much specificity as we can, such as defining the midpoints, etcetera, the thought that Mr. Mayo has in mind. We may even want to drop the range later on. But at today's meeting, I think we ought not to do that. I think we ought to examine the thing far more thoroughly before we reach any such decision. And we'll have a little time to explore the matter among ourselves and have the staff examine our alternative possibilities. We could communicate with one another. And no difficulty may arise; things may go well on December 1.",169
-fomc-corpus,1977,"Mr. Chairman, if we [chose not to pursue] an appeal to the Supreme Court, but then immediately responded to this mandate by that slight change in our directive, it seems to me we wouldn't be playing games with the law. We would be--",52
-fomc-corpus,1977,"If I were a congressman, I would whip you over the coals on the basis of such evidence.",22
-fomc-corpus,1977,"I don't think you would call that a slight change in the directive, Henry. I think that is a very major change.",25
-fomc-corpus,1977,"But this is a very reasonable thing to do. We respond to the court without going to a last ditch fight, so we are cooperative, and we do what we would probably have to do under the new mandate, namely, write the directive that doesn't give insiders a special advantage.",56
-fomc-corpus,1977,"There is another thought that I have, but I'm not ready to put it forward, and that is, I want to explore the precise, well [unintelligible] explore the implications, and that is, we could instead of issuing a directive to the New York Desk, we could make a suggestion to the New York Desk. And in actual practice, it isn't going to make much difference, or at least [it] isn't going to make much difference in the near future. Now, in time, something else might happen. We could do that, but I'm not ready to suggest that.",120
-fomc-corpus,1977,"I'm not really concerned about--this is a 15-day period we've got. Well, it's going to be 15 days from this event before this directive will be released, if we lose. I don't think that that is a terrible state of affairs. But what I'm concerned about is that, on the first of December, we have contingency plans, [and] that we're all in thorough agreement that, if we lose on that date, we'll follow [those plans]. That's what's bothering me--that we wait until the first of December before we decide what our contingency plans would be.",117
-fomc-corpus,1977,"No, that was not my suggestion. My suggestion was first a negative one, that we not try to decide at this table this morning. Second, that contingency plans get under way immediately, and that we communicate with one another.",46
-fomc-corpus,1977,"That's fine, Mr. Chairman, but with the one exception that you are going to write a directive out of today's meeting.",25
-fomc-corpus,1977,Today's meeting.,3
-fomc-corpus,1977,That's the one that would have to be released if we lost everything.,14
-fomc-corpus,1977,"All right. I say, number one, that we ought to proceed in a normal fashion but be aware, fully aware, of Mr. Mayo's word of warning.",34
-fomc-corpus,1977,"But I think, Mr. Chairman, that everyone's right that, since it will be 15 days, that this can't have much market effect. That is, whatever formulation that we have, what I was thinking of more, I must admit, is that we're going to lose this. Now I hate to be that negative, but I think there's a high probability that we're going to lose at some stage here. And I suspect that where we're going to lose is, the Supreme Court won't take the case. And [it] would be nice to have had in place a somewhat different directive before we were forced to release what would be the December directive, probably. It would have to be released at the very end of the year. And having had the precedent with a somewhat different November directive, there wouldn't be such a sharp break with a December directive. That was my point.",175
-fomc-corpus,1977,"Chuck, wouldn't the market, wouldn't observers generally very quickly note the fact that we had changed the content of the directive, and [so] we might well be subject to an accusation of deviousness--we have changed our procedures so as not to disclose as much as we had probably decided internally. I can see a bad reaction to that.",69
-fomc-corpus,1977,"Well, I think you may be right. But on the other hand, I think the Committee has the freedom to change its directive.",27
-fomc-corpus,1977,It seems to me it has. We've changed it many times.,13
-fomc-corpus,1977,"And if you say, you know, if they were expecting the aggregates within a particular range, and you're starting off on a funds rate, and the Manager ought to shade--moving above that rate or below that rate depending on how those aggregates come up--well, that's not too harmful.",58
-fomc-corpus,1977,"Well, I think what is being suggested here is very dangerous. We could be inviting a condemnation by members of the Congress, and some of them are very quick to jump. And worse than that, we could be inviting condemnation by the court, and that's far more serious than condemnation by Henry Reuss or another such character.",65
-fomc-corpus,1977,"Mr. Chairman, let me make my point a little clearer here. I really don't subscribe to the idea of getting rid of the ranges. I think that would cause great attention right away. But we have used subtleties of words in widening of ranges in a statement of asymmetrical midpoints and zones of indifference so many times, I don't see that there's anything wrong, for instance, if we should decide today. I'm not proposing it. Supposing we decide that we want a full 1 percent spread in the federal funds range. Is that something that would [get] the court's attention or the Congress's attention? No. And this is the sort of thing that I have in mind, that is completely within our prerogative and can be established traditionally in our practices, [and] that we just keep this in mind as we go through our debate later today.",178
-fomc-corpus,1977,"Perhaps in the interest of speeding this--now my inclination is very similar to yours in changing the directive. It seems to me, in any event, the kind of subtleties that Mr. Mayo is talking about, we can only determine in the light of what substantive decision we make here today--",60
-fomc-corpus,1977,Right.,2
-fomc-corpus,1977,--and I propose that this be deferred until we arrive at our decision and look and see how we want to word the directive.,26
-fomc-corpus,1977,"Well, I think this more basic [than] that. I'm surprised to hear that we seem to be so married to this particular directive that, if circumstances change entirely, namely, we tip off the market where previously we had relied on not tipping them off, we are compelled to continue doing just what we did. It seems to me, when circumstances change, namely, we [are about to] inform the market immediately, it does not have to be exactly the same kind of information that goes out.",101
-fomc-corpus,1977,"But the particular circumstance here is a decision by the Court of Appeals, and I don't think we ought to put ourselves in the position of being charged [with] circumventing the law and playing games with the law. I can't think of anything that could be more damaging to our future.",57
-fomc-corpus,1977,"Mr. Chairman, may I ask Tom a very firm question on this? What is the court's attitude with respect to the spirit and the letter of this question? Because I think that's pertinent to this issue here.",43
-fomc-corpus,1977,"The court gave, I think, a creditable review of the historical import [of] the Freedom of Information Act, President Eastburn, [and] found that the Committee's position--that the exemption 5 language covered the document in question here--to be without merit. It cast aside our position that the legislative history indicated a congressional intent to protect [an agency that has] this type of information flow that might imperil, as we had argued, imperil the market, etcetera. The court disagreed with this and stated, ""we note that the Committee releases this information at and immediately following its next meeting."" Using that as a premise for saying [in effect], ""so we can't see anything quite as sensitive as the Committee urged."" In sum, I think the Court of Appeals opinion is to be read as purporting to have examined the legislative history, the wording of the statute, and the decisional basis, and rejected the Committee's position of the right of exemption under number 5.",204
-fomc-corpus,1977,How strictly would the court hold us to sticking to our present procedures?,14
-fomc-corpus,1977,"That issue wasn't in any sense either expressly or implicitly addressed in this opinion. My judgment is, the implicit change as suggested by President Mayo, that is, that the Committee's use of language to reflect its actions taken--somewhat changing the previous format of that language--would not contravene any sense or direction of the court. I'm now alluding to President Mayo's last statement of position, to which I think the Chairman agreed--",88
-fomc-corpus,1977,"All right, thank you. Mr. Kimbrel, we haven't heard from you, and then we'll hear from Mr. Willes, and then Mr. Roos.",35
-fomc-corpus,1977,"Mr. Chairman, I would very strongly also follow the recommendations of Mr. O'Connell. It seems to me that we might very well anticipate many, many things that can come along, but I rather think that it would be wise to take these in a logical order; and to attempt this, we still are able to get together to discuss these subsequently. I rather think it would be wise for us to kind of forgo trying to anticipate too much for the future and accept the recommendations that he made.",102
-fomc-corpus,1977,"All right, thank you, Mr. Kimbrel. Mr. Willes now, please.",20
-fomc-corpus,1977,"Mr. Chairman, when this whole business started I was a very strong supporter of the System point of view. But experiences of the last couple of years, especially as I see what uncertainty does to the way people make decisions, kind of makes me wonder if there's anybody besides me who would like to reconsider our basic position. It's not as clear to me as it once was that things might not be, in fact, better if we stated fairly clearly and fairly explicitly what we were trying to accomplish rather than having, as we now do, a lot of people trying to guess--and sometimes they guess right and sometimes they guess wrong, and we get a fair amount of churning and other things in that process. So I just wonder if I'm way out in left field, or whether there's anyone who would like to examine the basic--",166
-fomc-corpus,1977,"Well, we'll have a show of hands. Is Mr. Willes out in left field or not? Those who think he is will raise their hands.",31
-fomc-corpus,1977,He's moving in that direction.,6
-fomc-corpus,1977,"He's left of center field. He's still in the ball park, let me put it that way.",20
-fomc-corpus,1977,"More seriously, how many would support Mr. Willes's position.",14
-fomc-corpus,1977,"Well, with modifications in the directive.",8
-fomc-corpus,1977,I think there is a directive that we could put out--,12
-fomc-corpus,1977,"How many would support Mr. Willes's position? Well, it's not a majority, so we'll put that aside without further discussion. Now, Mr. Roos, you--",36
-fomc-corpus,1977,"Mr. Chairman, I agree totally with the position that you've stated, appealing it, and doing everything we can with Congress. But in considering contingencies, is it not possible for us to review, in line with what Mark Willes says, whether our strategy should be based automatically on an assumption that we're doing the best for ourselves and for the world by attempting to resist what the court has mandated to the extent that we can? Or couldn't there be some effort quickly to at least test those who are in the market--traders and others--to see whether our basic strategy of playing the game as you have all of these years is sound? In other words, is it possible in developing contingency plans to at least take just a short look at the basic strategy of conducting ourselves with the uncertainty that Mark Willes refers to. I'm not trying to just belabor the point that he made, but I'm not sure that the sky will fall in if we change our policies, and that's--",197
-fomc-corpus,1977,"Well, we could discuss that at length. I think your suggestion is one--I see no reason why we shouldn't follow it up, but I think that is only a small part of the story, and in my universe, the less important part. But I see no reason why your suggestion shouldn't be followed up by the staff in the course of our planning. And Mr. Holmes, why don't you do precisely that. All right. Mr. Black, please.",93
-fomc-corpus,1977,"Mr. Chairman, along the lines of what Mr. Mayo suggested a while ago, I would think as a practical modus operandi in the interim that, when in doubt, we would tend to lean more towards an aggregates directive than a money market directive. For example, in today's meeting, I think a money market directive is appropriate, but if I thought this was going to be released within three to five days, I think I would want to expand the range a little bit more and the range of the aggregates a little bit more and make it an aggregates directive. And similarly, if we're forced to make these directives available immediately, I think that strengthens the case for looking further into the possibility of using a reserves target rather than a federal funds target, so that the interest rate movements in the federal funds market will not have this significance that they now do. With, perhaps, a proviso to limit the fluctuations beyond certain ranges.",186
-fomc-corpus,1977,"Yes. I understand your first. The second troubles me, not because I have any intellectual difficulty with it, but rather because I don't think we ought to change our procedure without thorough discussion, and I doubt that we'll be ready to--",47
-fomc-corpus,1977,I didn't mean to suggest that we do it now. I just mean over the future. I think it does strengthen the argument.,26
-fomc-corpus,1977,"Well, even your first point bothers me, Bob, because if you change to a money market directive because you have a lack of confidence in what the short-run aggregates numbers are telling us, and then you say well, since this court decision, we'd better go back to the aggregates directive, you really are going against something you would otherwise do on rational economic or financial statistical grounds.",76
-fomc-corpus,1977,"Gentlemen, you know, really, let's make the least favorable assumption, namely, that we have to issue a directive on December 1. We have 15 days, which is something quite different from issuing the directive immediately. If not, it's not a clean case. That's the least fortunate assumption, but it's not a maximum misfortune, even if you feel the way some of us do that this is a very undesirable action. We have a 15-day lag. So let's not exaggerate the difficulty of the least favorable outcome. My own feeling is that, except for Mr. Mayo's word of wise advice, we ought to proceed today just as we normally do. In any case, several members of the Committee have not yet spoken, and we'll hear from Messrs. Baughman, Guffey, Morris, and then also from Mr. Jackson.",176
-fomc-corpus,1977,"Mr. Chairman, a question to Mr. O'Connell. I, of course read the court's statement strictly as a layman, but it seems to me they have said, if you want relief, it must be through the legislative channel. I found no reference there to the appeal process. They apparently felt they were rendering a final judgment on an interpretation of present law. Why does not their suggestion to us, that if we want to seek relief that it be through the legislative channel--",99
-fomc-corpus,1977,"Well, why not follow both routes, which is the present plan suggested by Mr. O'Connell?",21
-fomc-corpus,1977,"Well, why does not that [suggestion by the court] open to us an avenue of request to [the court] and give us adequate time to pursue the legislative process as compared with the time which apparently is built into the legal proceedings, if we choose to go through the legal appeal process and question their legal judgment?",65
-fomc-corpus,1977,"President Baughman, the language in the Court of Appeals, I think, should be read much like in a parental circumstance, where mother says, ""Ask your father."" It doesn't necessarily mean that mother anticipates father's going to give any different answer or relief, but it's a way of mother being finished with the problem. The Court of Appeals, when it suggests you address it to the Congress, is mindful of the fact that there's nothing in its rule that states specifically ""and you may come to us and ask for all the timing you need to seek this of Congress."" The court is aware that its time frame addresses itself only to the certiorari petition of the Supreme Court. I don't know, and I haven't had an opportunity to examine the possibility, that the court wouldn't consider a petition for extended time premised solely on the congressional approach. I will make inquiry in that regard. The rules don't contemplate it, nor was I able to find a previous instance in which the Court of Appeals granted extensions or continued extensions beyond the 30 days premised solely on the attempt to address the Congress.",220
-fomc-corpus,1977,But it is a foregone conclusion that they will blindly follow rules and not consider other things.,19
-fomc-corpus,1977,"No sir. Nor is their opinion to be read as a statement on their part that they know that they were absolutely right and that we won't pursue a petition to the Supreme Court, as I think we should.",42
-fomc-corpus,1977,"All right, Mr. Baughman. Mr. Guffey, we haven't heard from you yet.",22
-fomc-corpus,1977,"Yes, Mr. Chairman, it seems to me that we have really only one issue that we should decide here this morning, and it's one that Tom has presented--that is, whether we appeal or not. And to pick up on what Steve Gardner's already very well stated, I think we have an obligation to do it. There isn't, I think, anything that attaches to you for pursuing your legal remedies. I think we have to. As to what we should do with the directive today, if anything has been suggested, that isn't of great concern to me at the moment, I guess, because in listening to Tom's statement as to what time we have, the nearest being December 1, I'd rather suggest that we will go all the way through this upcoming period until the next meeting. Quite likely, the odds are very high, that we will not have to release before our December meeting, which means we'll then release this statement immediately following that. So I don't think what we do today makes a great deal of difference, and I wouldn't fool around with our directive. Lastly, and equally as important, I got this on Sunday night and read it. It isn't clear to me what we can do to that directive, and there may be a lot of things that we can do that will permit us to release it today after the meeting or the day of the meeting. And I'd like to have more time and would suggest that we have the [Sub]committee on the Directive set about the [task] very quickly of deciding what the alternatives are. And prior to the December meeting, that we do indeed consider whether or not we change the form of the directive, how we state--whether we state ranges at all, or whether we broaden the ranges, or whether we do something else.",360
-fomc-corpus,1977,"Well, I think that's a very, very reasonable suggestion. Any other positions you may have? Very well, Mr. Partee, your committee's charged with the responsibility promptly. Thank you very much, Mr. Guffey. Mr. Morris now, please.",54
-fomc-corpus,1977,"Mr. Chairman, I just want to say I support your position entirely. I'm very much concerned about changing the directive [in a way] that would eliminate the funds range, because this would require that this Committee no longer have an interest rate policy, that we have given the Manager carte blanche to move rates as he sees fit, and I don't think that in fact will ever be the case. I think that this Committee will always have an interest rate policy. We have always constrained the Manager, and I think if we fail to publish those constraints, we are really violating the order of the court. I think the directive committee ought to take this into consideration.",132
-fomc-corpus,1977,"Well, I agree with you. As a matter of fact, it can go into the opposite direction [of] what we intended to do. We'll have to see. Offhand, I can't think of a solution.",44
-fomc-corpus,1977,"Well, we have contemplated a nonborrowed reserves target, and it's perfectly possible, over a period of time--whether one would do that with or without interest rate constraints [is a] question that has to be solved on empirical grounds, to see what would have happened had one not done so.",60
-fomc-corpus,1977,"Could I ask a procedural question? Because, as I understand this, the [Sub]committee on the Directive is trying to work on a new procedure to be followed in the event that the courts do not allow our case--",45
-fomc-corpus,1977,We're going to present a report at the next meeting that the Committee--,14
-fomc-corpus,1977,Which could quite possibly be--it may possibly be--that no new procedure is advocated.,18
-fomc-corpus,1977,And we will talk about the pros and cons and possible alternatives.,13
-fomc-corpus,1977,"But will a decision have been made by this Committee by December 1 as to what it's going to do if the court throws it out, or the Solicitor General--",34
-fomc-corpus,1977,"Well, I don't think we ought to try to prejudge them. Let's see how our own thinking develops. My own at the moment is that if we have to publish on December 1, it's not really terrible. It would have been a lag of 15 days. It's not a case of immediate publication.",63
-fomc-corpus,1977,"Well, the answer is we will have to publish what [we do] today. But we will still have the option of molding what we do at the December meeting.",34
-fomc-corpus,1977,"Well, we also will have the option of a supplementary instruction. Now, between meetings, we at times have changed our instructions, and we'll have that option.",32
-fomc-corpus,1977,"Well, that's one of the problems. I suppose, Tom, a supplementary instruction--of the kind that we have had sometimes in the past--will have to be communicated immediately under this same court decision. Is that right?",45
-fomc-corpus,1977,"I believe that the court's opinion contemplates that to constitute a substantive action of the Committee, amending its earlier directive, and must require it to be published.",33
-fomc-corpus,1977,"It's not usually a case where you're moving in one direction and then another; why, that really is more sensitive, in a way, than the meeting itself.",32
-fomc-corpus,1977,In that regard--,4
-fomc-corpus,1977,I don't think we want to prejudge what we're going to do just a little before December 1. We don't know how to do it today.,30
-fomc-corpus,1977,We've got 20 days after December 1 to decide what you're going to do at the next meeting.,21
-fomc-corpus,1977,Well--,2
-fomc-corpus,1977,All I'm driving for is that there be in train some very tough contingency planning for the December 20 meeting.,22
-fomc-corpus,1977,"Well, that is the instruction that we have just given to Mr. Partee as chairman of the [Sub]committee on the Directive.",28
-fomc-corpus,1977,"All right. Well, that clarifies my question. We will have alternatives in case we lose.",20
-fomc-corpus,1977,Not necessarily; not necessarily tough alternatives.,8
-fomc-corpus,1977,We will give you a range of possibilities.,9
-fomc-corpus,1977,One of the alternatives the court suggested to us was legislative relief.,13
-fomc-corpus,1977,"Well, I'm not waiting even one day on that. By that I mean I started conversations that I'm going to continue. Now, my problem is to test the waters, you see.",37
-fomc-corpus,1977,"I think the assignment to the [sub]committee to be an operational assignment--that is, assuming that you publish, what are your options, what kind of directive changes might be desirable or appropriate--rather than a legislative matter or even the matter of a court strategy.",54
-fomc-corpus,1977,"One more procedural question or legal question. Tom, is our instruction by the court to publish the directive? It isn't to publish the entire Record of [Policy] Actions?",34
-fomc-corpus,1977,"No. I interpret the court's move to immediately require publication of actions of the Committee, particularly, and it addressed itself to the directive and the targets. As I earlier noted, I believe that the balance of the policy record--constituting, as it does, adoption within 30 days--is not contemplated within this immediate--",66
-fomc-corpus,1977,Okay. Thank you.,5
-fomc-corpus,1977,"Mr. Chairman, would the Chairman request Mr. Holmes that he communicate with the [Sub]committee on the Directive any possible conclusions that he might reach in terms of the basic advantages and/or disadvantages of changing our whole basic strategy? So that the [Sub]committee on the Directive does not do its work totally on the assumption that we want to change the directive to accommodate our present strategy, should Mr. Holmes come up with a different solution.",89
-fomc-corpus,1977,"Well, I think Mr. Holmes and others of the New York staff--just as Mr. Axilrod and others of our Board staff--will certainly be working, as a matter of course, with Mr. Partee's committee. Mr. Jackson now, please.",55
-fomc-corpus,1977,"Mr. Chairman, I think we need to appeal [the court's ruling], which is quite obvious, and at the same time I think the consequences are that we will be, prior to legislative actions, releasing our policies. I think those are the most likely prospects. I think that in the present state of the economy, we are unlikely to get a little test--this month, maybe even next month--of the consequences. However, I believe we're moving in the right direction. Do not change now, because I think that if the worst events occurred, it would be unlikely to damage the real economy of the United States and the world. If that inconveniences the Federal Reserve, we've been inconvenienced before. If that inconveniences the money markets and the Treasury, the Congress will address itself to that issue in due course. It's been inconvenienced before. I hope we don't create dragons that are just fictions in our minds. Yes, it will probably be a disadvantage to us. Yes, we will make adjustments. Yes, the market will make adjustments. Yes, the Congress will probably ultimately do this, and these things will come out. But I would hope that in the process of all this, we don't create the impression that the Federal Reserve is a devious organization trying to circumvent what has become the national will, that government be done in as much sunshine as possible, as inconvenient as that might be. So as the Committee goes forward, I would hope that we wouldn't do foolish things by adjusting our actual decisions on monetary policy to the market ramifications. The one thing I hope I've learned in this experience in this Committee is that markets are amazingly resilient. And as soon as we make one change, they will make another. And I believe we will get the job done. So please let's don't do the foolish thing like making sudden adjustments to avoid a court order or the practicality of a court order as we go forward.",386
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Balles, please.",14
-fomc-corpus,1977,"Mr. Chairman, I think all the points that I had in mind have already been said. I fully support using all avenues of appeal and certainly urge the [Sub]committee on the Directive to put this out on the front burner, hoping we can have a full-scale discussion of it, preceded by some staff papers, for our December meeting.",69
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Winn now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I concur in the feeling--explore the alternatives available to us here to postpone our decision. But I join with Mark [in] a feeling that conditions have changed. We ought to think through more than just the directive problem, if this requires release, but the implication. I have a feeling that the public interest in what we do goes far beyond the directive. And to the extent that we make that immediately available, then the whole discussion is going to be required. And then the political activities involved in our deliberations, I think, will be highly intensified as a result of this move. And we ought to think through what are the other implications, not only just the directive aspect of what we release, but what this does to us in terms of the economic anticipations behind this, and to what extent, then, you get greater and greater focus on our activities from other groups as a result of this.",187
-fomc-corpus,1977,"Thank you, Mr. Winn. Any other comment? If not, let me try to summarize what I think is the broad consensus. And if I'm mistaken, please correct me. First, I think that there is general support for a thorough reexamination of our procedure with regard to the directive by Mr. Partee's committee and [for] such a report to be made at the time of our next meeting. And we may want to devote a good deal of time to it. Perhaps meet a couple of hours on Monday before our regular meeting in December. Second, I think that there is general support for the legal recommendation made by Mr. O'Connell. Third, I believe that there is no objection to my probing the legislative opinion on this issue. And finally, I think that it may turn out to be wise to hold a special meeting or a meeting by telephone through the conference device before December 1. Any objection to these decisions or conclusions? Well, if not, we can--well, let's take a recess. We'll just stretch our legs for 10 minutes. And then drink coffee to celebrate the stretching of our legs. [End of executive session]",236
-fomc-corpus,1977,"Let me test the consent of the Committee before we get under way. Would you like an expedited meeting, or do you want to take as much time as we usually do? That will help me in running the meeting. I will go either way. ALL. Expedite.",55
-fomc-corpus,1977,"All right. I take it the minutes of this [the October 17-18, 1977] meeting are approved.",26
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"And we'll move to a report by Mr. Holmes, which will be brief, on current policy operations.",21
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Holmes. Any special questions for Mr. Holmes? I hear none. Mr. Holmes, do you have any recommendations?",29
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"The recommendation is that we codify our procedures, that nothing new be attempted, and that the codification, after it's been completed by our staffs, be submitted to the Subcommittee on Foreign Currency Operations for final approval and actions. Is that satisfactory to the Committee?",53
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,"Any objections? All right, I take it that is adopted. Any other recommendations?",17
-fomc-corpus,1977,That's all I have.,5
-fomc-corpus,1977,We're renewing the swap--it's implicit.,8
-fomc-corpus,1977,We are approving the actions of the Desk.,9
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Now we will have Mr. Kichline's report on the economy.",23
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,[Interrupting] Third quarter of a year ago? I thought the uptrend started the first quarter of this year.,24
-fomc-corpus,1977,"Well, the recent low for the total was in the third quarter of 1976. You may be looking at dollars. I was looking at the--",31
-fomc-corpus,1977,"No, no, I'm not looking at dollars. All right.",13
-fomc-corpus,1977,"If I'm wrong, I stand corrected and I will fess up later. [Secretary's note: This statement was not found in Committee records.]",29
-fomc-corpus,1977,"Thank you, Mr. Kichline. I suggest that we dispense with technical questions to the staff and that we confine ourselves to expressions of opinion about the economic outlook, indicating specifically whether we generally agree with the staff or are more optimistic or less optimistic with respect to economic activity and also the price level. Who'd like to speak first? Mr. Coldwell, then Mr. Wallich, then Mr. Mayo, Mr. Winn, then Mr. Volcker.",95
-fomc-corpus,1977,"Mr. Chairman, I would merely comment, in the vein you ask, that the staff seems to be moving in a direction which I had thought was probably the likely outcome, a shading of the fourth quarter '77. You have only taken 2/10 off of it this time. I was kind of hoping you would take a bit more off, but I think, in terms of the outlook, I'm a little more bearish in the earlier part and a little more bullish in the latter part of the six-month forecast area. And you get out to the latter part of '78, and I won't even attempt to guess, but I suspect there will be a shading downward.",136
-fomc-corpus,1977,"Thank you. Mr. Wallich now, please.",11
-fomc-corpus,1977,"I think the staff is about right, Mr. Chairman--has a sense of a slight sagging in the speed of the expansion, but not seriously. I do note increasing imbalances--Mr. Kichline has referred to some of them. We now are at a relatively high level of the full-employment deficit, and that, barring other government action, [is] going to take about $20 billion out of the economy over the next year or 15 months. That's counteracted, perhaps, by a decline of half that size in the state and local surplus. Then there's the continuing drop in net exports. These things, I think, begin to go beyond minor blemishes in an otherwise balanced expansion, and one begins to wonder whether some real imbalances aren't beginning to evolve. The main hope on the upside is that the underlying need for additional plant and equipment spending will finally exert itself. There is nothing in the surveys to document that, but I think the case in terms of the magnitude of the capital stock and of capacity utilization ratios is not a bad one for some acceleration if there is a gain in confidence about reasonable tax proposals.",231
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Mayo now.",13
-fomc-corpus,1977,"I generally concur with the staff projection. I think it's just about the same as my own. I would merely mention one other factor, which I dwelt on a little bit the last time, and that is that, at least in the eyes of many of our bankers in the Midwest, we do have a somewhat depressed state of agriculture in our District. We have this survey that we do quarterly on what bankers think or what their attitudes are. It's largely attitudinal, supported by some figures, but there is a higher proportion of bankers who are mentioning a deterioration in credit conditions than at any time in over a decade. Almost half of them now consider that their loan-to-deposit ratios are higher than they really desire. I mention that they are talking about figures in the 60 to 65 percent area, which may not seem high by urban standards, but they are by rural standards. I would mention also that the sale of tractors in our District is down 38 percent as against only 25-28 percent nationally in September. [The sale of] combines is off 25 percent, as against 10 percent nationally, and it's even worse in Illinois and Iowa, by the way. These are, at least, things to keep in mind. I don't suggest they are serious, but they are a little bit unnerving at the moment. Land transactions--the prices of land in Illinois and Iowa--Illinois, particularly--have gone down 8 percent since the last quarterly survey. This doesn't, in itself, worry me too much because [the prices] are still at least double what they were just a few years ago. But to the extent that this gets built into the credit analysis, I think it does unhinge some of the bankers. Most of the bankers we have talked to say that they think this trend, not only on land values but also on credit conditions, indicates some further deterioration.",384
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Winn now.",12
-fomc-corpus,1977,"Mr. Chairman I think I am a bit more optimistic than the staff with respect to the first half of next year. It seems to me the pickup in retail sales, and what we get in the field in this area with the very tight inventory controls currently in effect, gives rise to a typical kind of inventory cycle for next year to fill up the early part, together with the projected tax cut being factored into people's thinking as a prospect for keeping the consumer in our economy as a strong factor for the first half of the year. And [unintelligible] for the plant and equipment expenditures to pick up, I think is a sobering cloud, and that probably will have to be dependent on the last half of the year to have an impact. I think the first half of the year has a stronger element in it than the projection.",170
-fomc-corpus,1977,"Thank you, Mr. [Winn]. Mr. Volcker now.",15
-fomc-corpus,1977,"I continue to feel that the staff projection is not at all unreasonable, but I also think it's on the high side of the range of probabilities that I foresee--progressively so as time goes on next year. Obviously there's time to still have a lot of things happen and affect the latter part of next year, but at present I don't think we see the kinds of developments clearly in prospect in either construction or the business investment side to make me think that the staff estimate, as time passes, becomes the center of the range of probabilities. Governor Wallich already pointed out that the budgetary situation, barring any tax changes, is running against, I think, renewed vigor in the latter part of next year. So I have a somewhat more cautious view than the staff, although their figures are certainly in the ranges of probabilities that I see.",168
-fomc-corpus,1977,"Thank you, Mr. Volcker. Mr. Baughman now.",15
-fomc-corpus,1977,"Mr. Chairman, I substantially agree with the staff figures. I wouldn't offer any specific amendments in them. I would repeat what I said earlier; in so far as they may prove to be wide of the mark, my guess is that they will be low rather than high. It seems to me that I continue to see indications of some building strength in the economy and prospects for further out--for it showing up more generally. With respect to the loan-deposit [ratio] situation, that's been referred to in the country banks. We see that situation also in the Southwest, but even in the Southwest, which I think could be characterized as a very strong part of the economy geographically, the banks in the larger centers still feel that they are overly liquid and that, unless they see a strengthening in business loan demand, that even against their better judgment they will be gradually moving to lengthen their investment portfolios. That, it seems to me, suggests that the aggressive shopping for loans, the giving of more favorable terms in addition to just lower discounting from the prime rate, is going to continue, and it seems to me that that's a supportive element in the prospects for the economy. With respect to the commercial type of construction activity, there are reports of heavy inflows of foreign funds into these projects, again on favorable terms relative to terms on which domestic money is available. And I have also had reports from [real estate agents] that they cannot fill all the orders that are available to them for purchases of existing commercial properties, both office buildings and department [store] type buildings. And I'm advised that this is gradually seeping into the picture elsewhere in the country.",333
-fomc-corpus,1977,Are you talking about Houston or a broader geographic area?,11
-fomc-corpus,1977,"Well, I am speaking primarily about the Southwest, but I am told by some of the builders who are domiciled there, but who work countrywide and even internationally, that this is gradually appearing elsewhere in the country as well. And I view that as both a favorable situation, given our balance of payments picture, and also a supporting element in our economy. I have the impression that there's a good deal of life left in this particular expansion that we're in.",92
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Black now.",14
-fomc-corpus,1977,"Mr. Chairman, I'm in pretty close agreement with the projections of the staff, assuming no significant change in the level of business confidence. But in view of what I perceive to be excesses in the economy, if we should somehow or another miraculously resolve some of these doubts we've got about energy and regulatory policy and taxation and inflation and so on, I think we could have substantially more strength than is now apparent in the forecast.",87
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Balles, please.",14
-fomc-corpus,1977,"Mr. Chairman, reflecting on the staff views on the outlook, we continue to be in general agreement, at least through the first half of next year, although a little dubious about whether we'll see as much strength in the second half of '78. But laying that aside, as I have thought about what the key weak spots in the economy are-- and we could tick off a long list--whether it's the steel industry or agriculture or less ebullient growth in capital spending than we would like to see, or whether it's the state of business confidence, it seems increasingly clear that none of these would really be fundamentally helped by an easing in monetary policy. And your speech in Spokane is an excellent illustration of that, showing the difficulties. As a matter of fact, an easing that we might engage in right now, in view of these weak spots, might in fact have a counterproductive effect in aggravating the difficulties if any easing were to generate a rise in inflationary expectations that drove up long-term interest rates. It seems to me we have been especially fortunate in that [the] approximately 200 basis point rise in short-term interest rates since spring has not carried through [to] the long-term rates. And if the long-term rates begin to rise, then I would really be concerned, in view of the impact on areas of the economy we know are especially sensitive to that, whether it be housing or whether it be capital spending by business. On the other hand, there seems to be no particular reason to tighten right now. But it seems to me that, all things considered, we're at a stage of this mature expansion where the problems that many of us are concerned about, which have been widely advertised, don't particularly lend themselves to treatment by monetary policy.",353
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Kimbrel now, please.",17
-fomc-corpus,1977,"Mr. Chairman, I think our views do not differ substantially at all from that projections of the staff. If we [saw] any weakness, it might be that we would anticipate slightly less strength in the housing starts than the staff suggests. Visiting with our businessmen reveals interesting differences--they generally expect a rather good, strong 1978, but [are] extremely uncertain--almost bordering on unhappiness--that relates to certain government policies, energy, tax reform, and minimum wage decisions. Interestingly, a group of predominately black college professors visited with us the last week at the Bank. The most outspoken part of their discourse was with their unhappiness with the minimum wage increases. It came as something of a surprise to us because they were anticipating that the black youths were going to be losing the jobs and would be creating social problems. Generally, though, I think we would come out pretty close to the staff projections and with the feeling that '78 is not going to be such a bad year.",201
-fomc-corpus,1977,"Thank you, Mr. Kimbrel. Mr. Guffey next, please.",18
-fomc-corpus,1977,"Thank you, Mr. Chairman. I think that our views also do not differ substantially from those that the staff has projected, particularly through the first half of 1978. However, as Mr. Black observed, it is, I think, a real possibility, with the right kind of a statement from the Administration, that we could have a very good year in 1978, that things are poised in such a way as '78 could likely be much better than what my staff projects--that's a personal view, I guess. With respect to another area that has been mentioned by Bob Mayo, I was interested to observe in the Redbook their comment with respect to a turndown in the agriculture sector in that District--something that has occurred in the Tenth District over a period of two years. We are more oriented toward wheat and cattle, both of which have been very depressed over the two years in which, I believe, Bob, your agricultural endeavors, [which] are more toward corn and [soy]beans and pork, have held up quite well. So what they are experiencing there we have already experienced. To the contrary, however, what has occurred now in the Tenth District seems to be some stabilization, because the wheat prices, for several reasons--not the least of which may be the Russian proposal to buy--have increased over the most recent past. Cattle prices have increased, and the prospects are looking up. And lastly, the banking situation in that area, which has been strained to meet agricultural credit demands, may have some relief. The government program--wheat subsidy program--which, it is now estimated, [will pay out] $1.2 billion in the latter part of this month and early December to wheat producers--[will send] about a half billion dollars into the Tenth District. Thus, there will be cash for liquidity relief in those agricultural banks. Lastly, I would say that the credit situation in those banks is still extreme. They are sending their customers who need liquidity to government entities such as the PCAs [Production Credit Associations] and others for their longer-term credit now, but are still quite prepared to meet the short-term needs of the agricultural community.",446
-fomc-corpus,1977,"Thank you, Mr. Guffey. Mr. Partee now, please.",17
-fomc-corpus,1977,"Well, Mr. Chairman, I have nothing special to contribute. I agree that the tone is a little better than it was a month ago. And I think the better retail sales--the retailers have been talking about it for some time, but the statistics only showed them yesterday. It's part of it. I was surprised [when I looked] at the Greensheets [the tables section of the Greenbook]--I hadn't really focused on this--I noticed that federal purchases, which is only part of this story, were up at a 23 percent annual rate in the second quarter and a 24 percent rate in the third, and the rate of increase is now projected to diminish materially. And that could be having some effects on the current situation. I have the same feeling I did a month ago--which, I guess, is just exactly the inverse of the one that Ernie expressed--that is, that the staff projection is reasonable; if it's in error, I would think it would probably be on the high side, and we might get a little lower result for the year. The increase for the year averages only 4.6 percent in the current staff projection, which is 4/10 below what I understand to be the target projection of the Administration for the year, with a 5 percent desired growth rate. The problem is in the second half, really, more than it is in the first half of the year. And there, too, I think if it continues to look as if the second half is going to tail off, well, we are going to have a problem that we're going to have to deal with in the government generally and in the Federal Reserve also. As we get closer to the date--but I am reminded that it's been characteristic of economic forecasting for some considerable number of years to project the six-month, with nine months to a year out [to show] a diminishing in the rate of economic growth. It's been a rather typical thing, and I think we have to guard against taking these figures too solidly. Now, it could happen; indeed, it could be much lower than a 4.2 or a 4.1 growth rate in the second half of next year. But I don't think we ought to bank on it at this point. And so I think it's too early to react with alarm at what appears to be the prospect of a tailing off next year. In another couple of months, why, we may be able to see it more clearly. As of now, I know Frank is very much in favor of long-term forecasting and has expressed that view, and other members have. I just don't have confidence in our ability to project out that far very well. That's all I have.",555
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Roos next, please.",16
-fomc-corpus,1977,"We basically find no substantial disagreement with the staff projections. The economy is strong in our District. We find in conversation with businessmen that their main concern is uncertainty--not only uncertainty with government actions; it also includes uncertainty about inflationary expectations. We would find a 4.1 or 4.2 [percent] rate of output growth in the latter part of 1978 to be quite satisfactory in relation to historical progression. We do have one local situation that might be of passing interest to you, and that is, in the state of Tennessee a couple of months ago, the Tennessee Supreme Court ruled that the top permissible interest rate in that state should be 10 percent. As a result of this, consumer finance companies have fled the state almost totally, and bank installment credit has dried up, and automobile sales--just to give you an example of how these things work--are off more than 20 percent in Tennessee. Any consumer financed items have shown a severe decline in volume. And that really has very little to do with national policy, but it is of interest in terms of what happens when something goes haywire in court rulings, not only as they pertain to the Federal Reserve.",241
-fomc-corpus,1977,"Thank you, Mr. Roos. Mr. Willes now, please.",16
-fomc-corpus,1977,"Thank you, Mr. Chairman. I appreciated Chuck's comments on the longer-term outlook. I guess it seems clearer and clearer to me that what actually happens depends more and more on what we and other branches of government do between now and then. I have two interesting comments that were made to me that I think are indicative of that. One is, [an executive of] a firm in our District that is an international supplier of capital goods equipment made a comment the other day that I found a little surprising. He said, if in fact there is a clarification of national economic policy, and some of the uncertainties are reduced, our biggest question is how would we [deal] with the onslaught of orders that our potential customers are talking to us about. His impression was that flood gates were just kind of there, and if anything triggered that, business would be a lot stronger than we are apparently expecting. On the other side of that, one of his colleagues, also [at] an international supplier of capital goods equipment, said, if you guys don't get those money supply numbers down so that the outlook for inflation looks better, we are going to take what is now a 100 percent increase in our capital budget and reduce it by 50 percent. So, what we do and what other parts of government do in this particular environment is going to have an awful lot to say about what the second half of next year in fact really looks like, and maybe even sooner than that.",297
-fomc-corpus,1977,"Thank you, Mr. Willes. Who'd like to be next? Mr. Gardner, please.",21
-fomc-corpus,1977,"I'm pleased that so many of you have been optimistic. I believe in a sequential analysis. And I look at the length of this recovery and recognize that, all through the recovery, we've had the troublesome question of lack of business confidence, business investment; consumer confidence has varied. I don't find that too strange in view of where we were when the recovery started and the great shocks that have occurred in the economy. And then, almost immediately, the engagement of a political campaign for the Presidency and then maybe nine months to inspect the new Administration and what their initiatives were, and they flowed quite freely. But now we find a little drawing back. I expect that the energy program will be addressed by Congress in the Joint [Economic] Committee, and then eventually we will have some energy policies finally put in place. Not as extensive as some might wish, but perhaps not as macro in some respects, as others claim is necessary. I see uncertainties clearing up. I see uncertainties about the intent of the Administration when a revised Humphrey-Hawkins agreement is reached. Now Social Security bothers me, but at least it has come out of the unknown and into the known. I look at all of this, and I see the staff slightly improve the fourth quarter, and that's exactly what I wanted to do at the last meeting. At the last meeting, I said, fortunately you have to get through the fourth quarter before you get to 1978. What I meant by that comment was simply this: I see that the propensity of people to remain in a confused, uncertain, and conservative mood has certain time limits. Life is not infinite, and I expect that if we do have this reasonably good fourth quarter--in fact, I expect it to be a little better than the staff does--but even if we do, I expect that this will have some impact on business and consumer attitudes in 1978. Now underneath all of this is a very large pent-up idea that optimism breaks through at some point--the clouds part. We haven't had the benefit of that in any part of this recovery. I totally agree with Chuck Partee that the propensity of people to reduce their forecast [according] to the length of the forecast is a natural and human characteristic. So I see some chance for not only the good '77 fourth quarter but the continuance into '78. And if I'm correct--and some of these things brighten, and some of the confusion is cleared away, and some of the fear of macrogovernment policy is reduced--gentlemen, we have an opportunity, we may not all welcome it, but we do have an opportunity to see a second phase coming into this recovery, where there is less pessimism, more realization of the gains we have achieved so far, and an opportunity, clearly an opportunity, to increase economic activity. I'm not predicting that yet. I'm just saying I think the fourth quarter will be good, and that'll influence the next year--and further, that sequentially, that will have a significant impact on our best estimates in 1978. Now this sounds like an optimist talking, but I've tried to sort out the background and reasons why I feel there is a latent opportunity for further strength in '78. That becomes part of an emotional analysis that has to do with the propensity of people to not go on [being] forever beset by confusion and fear and reluctance.",683
-fomc-corpus,1977,"Thank you, Mr. Gardner. Who'd like to speak now? Mr. Jackson.",18
-fomc-corpus,1977,"I share the sentiment that the staff has that the progress of capital investment will continue to be the real question. I think that the time lapsed since 1975 has begun to generally erode the risk aspect of the profit expectations that various enterprises will have in their minds before they commit [themselves to] long-term major projects. However, unfortunately, we are having several things that would work against that generally positive movement. Generally, I would think that, as the distance [from] the traumatic experiences of '75 [lengthens], people's memories would dim and they would get a little more optimistic and realize that, in many cases, they have neglected opportunities that have come their way in the meantime, and they'd better step forward. But unfortunately, there are some things that will influence that. First, I share the staff's concern that we are likely to get a general shock in inflationary expectations around the first quarter of next year. Which strikes me--we're less likely to get any benefits from agricultural price levels. Yes, we've gotten nightmare situations where government, instead of being the chief engine to arrest inflation, is the chief culprit; and I think this will hurt expectations and increase, potentially, long-term interest rates, which will be a very material adverse factor in this situation. Yes, nonfinancial circumstances could become more certain. But these types of influences will be difficult to offset. Unfortunately, I think we have to face the realization that social policy is going to be very difficult to interpret in the economic environment. We are rapidly getting into a two-class society in which those that have any experience and have a job will be in short supply--already probably are, in my judgment. And I guess this is a very unscientific way to do it, but I have been looking at the want ads for employment in nearly every city I go to, and I find that it looks like there is a heavy demand in nearly every case for anybody with any experience. And, except at the very lowest job-entry level--busboys, some waitresses, etcetera, there's practically no demand. And so, unfortunately, from our social policy, we are going to have a very difficult time trying to equate these two aspects of our society, and this breaks down not only racially but ethnically, and urban versus rural, and so forth and so on. I think these types of stresses will make it difficult. On balance, I think yes, we have a real opportunity with an expectation that we'll move forward, but the uncertainties will stay with us throughout the year, and therefore the course of economic progress will move haltingly forward instead of breaking into the new environment of which we have the potential. The ramifications for this organization will be that we will continue to be in the forefront of discussion, and while we have an opportunity to be put on the back burner and more or less ignored, it's unlikely to take place.",589
-fomc-corpus,1977,"Thank you, Mr. Jackson. Who would like to be next. Anyone? If not, just let me say one word. I think the members of the Committee know my views on the economic outlook. The only thing that I would add is, I talked a good deal about taxes recently, and let me add a footnote to what I've had to say. The Administration thinking is moving increasingly away from emphasis on reform and moving toward an accent on tax reduction for business and individuals. Reform is playing a diminishing role, apparently, in the Administration's thinking. Now, I think we can move ahead, since no one else would like to speak at the present time. Mr. Sternlight, we'll have your brief report now on open market operations.",150
-fomc-corpus,1977,"Thank you, Mr. Chairman. [Statement--see Appendix.] That's all I have.",18
-fomc-corpus,1977,"Thank you, Mr. Sternlight. Any basic questions to put to Mr. Sternlight?",19
-fomc-corpus,1977,"I had to defend the actions of the Desk in a couple of meetings around the country in the last week. As a matter of intelligence that I should have ascertained before, when was the last time we sold against the Treasury auction?",48
-fomc-corpus,1977,"Well, we have made moves in the funds rate during Treasury financing periods on a couple of occasions. I don't know that I can recall when we took this specific action of selling Treasury bills outright in the market during a financing operation. But I think, last spring and the spring of the previous year, we were moving up the funds rate in the midst of a financing.",74
-fomc-corpus,1977,It also was alleged that we had done the same sort of thing as little as a month or six weeks ago.,23
-fomc-corpus,1977,"If you mean by the same thing as sale of outright bills in the market, I think--",19
-fomc-corpus,1977,During the auction.,4
-fomc-corpus,1977,I can't recall the details of that.,8
-fomc-corpus,1977,"I think it would be helpful to supply an answer to Mr. Lilly's question in writing. Any other questions? Yes, Mr. Holmes?",29
-fomc-corpus,1977,"Mr. Chairman, one thing I wish you would just add for the Committee's information. We have got a favorable ruling [from] the IRS [Internal Revenue Service] on the matched sale-purchase agreement. We just got it yesterday morning, and [unintelligible] during the interval before the next committee meeting, we'll have the memorandum with a recommendation in setting out the various options that stand before the committee.",84
-fomc-corpus,1977,All right. Thank you. I move that we approve the operations of the Desk. Motion has been made. Second?,24
-fomc-corpus,1977,Seconded.,3
-fomc-corpus,1977,"Seconded. I think if there's no objection, I will have a brief report from Mr. Axilrod.",23
-fomc-corpus,1977,"Mr. Chairman, in the interest of time, I would just like to summarize the first part of my report, which was to the end of indicating that strong credit demands were a major force in picking up interest rates in the second and third quarters of this year. According to the flow of funds accounts, funds raised by nonfinancial sectors had moved up to 18 percent of GNP, in contrast to 15 to 15-1/2 percent of GNP, in early '77 and '76. Part of this represents intense financial [unintelligible] because of such things as advance funding by state and local governments on their debt, but it still is a figure which indicates the strengthening of basic credit demands. We expect credit demands to remain at their recent relatively high levels over the next few months but not to strengthen further. This itself suggests no additional pressure on interest rates. However, efforts to curb growth in deposits from their recent rate of expansion would tend to be a countervailing force exerting upward pressure on rates. This potential upward pressure may be limited in the period immediately ahead, if it appears at all, that investment by the public in market instruments--in what may have been a temporary and, over the longer run, unwanted surge of demand deposit holdings--naturally tends to hold down monetary growth at current rates. The deposit data for early November in any event suggest that growth in M1 will be very low for the month. However, a considerably more rapid growth rate has been projected for December in the expectation that underlying demand forces for money will be reasserting themselves. Thus, it seems likely that any pause in upward rate pressures may be short lived, assuming that credit demands at least remain near recent levels and do no not drop off significantly further, and deposit growth is restrained to within the FOMC's longer-run range.",374
-fomc-corpus,1977,"Thank you, Mr. Axilrod. Any questions of Mr. Axilrod? Yes, Mr. Balles.",25
-fomc-corpus,1977,"Steve, as I am sure is the case with you, one of the most frequent questions that comes to me from directors and other interested parties is, what insights do we have in this peculiar behavior of M1 during this year, with the surges on a quarterly basis not being offset by subsequent declines. I know it's a terribly difficult question. I am not really hopeful that you'll have an answer, but if you do, I hope you'll share it with us.",93
-fomc-corpus,1977,"President Balles, I think I've said in the past that it's difficult to explain the exact timing--that is, why [did we have] a strong growth in April, a strong growth in July, and a strong [growth] in October. I think it is less difficult to explain why you had something like a 9 percent rate of growth over the past six or seven months. I think there, it seems to me that part of the explanation--for the second quarter, at least--was that you did have a strong rate of growth in nominal GNP. In the third quarter, you don't have that explanation, and I think both the second and the third quarters have been affected also by what might be called sort of a structural readjustment. That is, you [have] had a sharp downward shift in the willingness to hold demand deposits, for many of the reasons that the Committee knows about, since late '74. People did not expect that to go on forever, and we seem to have had, for the past six or seven months, an ending of that downward shift--a readjustment of the public, which may have gone too far in the past, to adjusting their demand deposit holdings to what they need at current income levels. Whether this is going to be a temporary phenomenon or one that's going to be followed by further downward shifts, or even going in the opposite direction, is something that I don't have a very firm opinion on. We have assumed that this is in part a temporary phenomenon, you see, a temporary re-adaptation; that there will begin to be further downward shifts as the economy again begins to develop substitutions for money and as uncertainties that have developed in the last two or three months are being resolved.",352
-fomc-corpus,1977,Thank you.,3
-fomc-corpus,1977,"Could I piggyback on that question a bit? Again, looking at this demand for money and trying to use what evidence we could--using the demand deposit survey data, it looks like consumers have been very stable in their holdings in this [unintelligible], with the very violent swings in the financial corporation area. And you sort of scratch your head to see what is really happening on this.",81
-fomc-corpus,1977,"That's right, it is in the financial business area that there have been swings. We have not found anything in that survey to pinpoint any particular sector, and it's very difficult to find a strong, compelling reason why that particular sector did swing, is volatile. That survey has, of course, statistical problems, float isn't netted out. But we found nothing in there to pinpoint corporations or consumers.",79
-fomc-corpus,1977,That's quite right.,4
-fomc-corpus,1977,"Mr. Chairman, possibly linked to this, although I'm not sure, a conversation with some bankers, which I referred to earlier. They indicate that, as they've been waiting for the expected rise in business demand for funds, they have, in an effort to utilize funds, developed loans to financial institutions in substantial volume, in banks where they normally would not be engaging in any significant way in that type of activity. Now, whether one can move on from that, which I construe as being a partial explanation of the surge in demand deposit balance, I don't know.",113
-fomc-corpus,1977,"You would think, of all groups, financial institutions would be the most likely to utilize their cash balances promptly, putting them in overnight markets or something like that.",32
-fomc-corpus,1977,"Somewhat on the same theme, I see that the increases in velocity are projected to reach--in alternative B by third quarter '78--6.7 percent, and this is to come partly out of the normal growth of velocity and partly out of a rise in interest rates projected from 6-1/2 in the funds rate to 7-3/4. And this really assumes a pretty sizable rise in the absence of an interest rate increase, namely something of the order of 4 percent, I think. It presupposes again that we get a downward shift in the demand curve.",121
-fomc-corpus,1977,"It has two additional assumptions to those you made. One, that there is some further downward shift in the demand curve. And, in a sense, almost saying the same thing, at least my belief, that this 9 to 10 percent expansion over the past four months in M1 is in some sense going to prove unwanted. That is, it is simply going to be, for whatever reason that we got it out there, it is going to be reinvested, and that will cause an increase in velocity also. So I would just add that to this other assumption of a downward shift in the demand curve.",125
-fomc-corpus,1977,"I note that you've got a decline in velocity, an indicated decline in V1 in the third quarter; that's the first decline since the recession low in the first quarter of '75. It does seem like there would be some storing up in velocity.",50
-fomc-corpus,1977,"There could also be as we accelerate from the slack of the third quarter to the fourth quarter. But still, these numbers seem very high to me, and of course they are predicated on a 5-1/4 M1 target.",49
-fomc-corpus,1977,Midpoint of the range.,6
-fomc-corpus,1977,If we went to the upper edge of the band--6-1/2--all these velocity numbers would come down by a little more than 1 percentage point.,34
-fomc-corpus,1977,That is correct.,4
-fomc-corpus,1977,"Steve, is not a possible factor that the money was pumped in to keep short-term interest rates from rising more than they have? We don't mention that; isn't that a factor that conceivably could have caused this bulge in M1?",49
-fomc-corpus,1977,"I was assuming, President Roos, that that money would be in large part unwanted over the long run. It may have had a temporary effect, moderating interest rate pressures. To the degree that it is unwanted over the longer run, it could be either invested in money market instruments or other assets, which would put downward pressure on interest rates; or of course it could be spent [and] put upward pressure on GNP. I've been assuming in large part it will be invested, but I think to a certain degree it will support GNP expansion more directly.",114
-fomc-corpus,1977,"Gentlemen, I think we are ready for our discussion of monetary policy over the short run. Let me make just two observations. I hope that we will proceed--I would like to emphasize, I very much hope that we will proceed--in the normal fashion and that our thinking will not be distracted by the recent court decisions. Second, my suggestion to the Committee would be that alternative B looks quite reasonable. I would prefer a slight variation in the growth of the monetary aggregates: 1 to 6 [percent] or 1 to 7 for M1 and corresponding changes for M2, but the figures as given under alternative B are also acceptable to me.",135
-fomc-corpus,1977,"Mr. Chairman, what would be the figure for M2?",13
-fomc-corpus,1977,"Okay, I haven't given that.",7
-fomc-corpus,1977,Yes. Corresponding change.,6
-fomc-corpus,1977,You'd cut by a half.,7
-fomc-corpus,1977,You'd cut 1 point on each end?,10
-fomc-corpus,1977,"Perhaps, or a half.",6
-fomc-corpus,1977,"Mr. Chairman, what was the M1 figure you suggest?",13
-fomc-corpus,1977,"Well, the figure as given under alternative B is acceptable to me. I would prefer a range of 1 to 7 [percent] or 1 to 6. Who'd like to be first? Mr. Volcker, please.",49
-fomc-corpus,1977,"I continue to be quite satisfied with the compromise we struck in recent meetings. And now, with projections, at least for the money supply, a little more conservative, I see no reason to make a change. And the suggestions you made are certainly along the lines of my own thinking. I do think we ought to not move off the 6-1/2 [percent midpoint of the federal funds rate range] very readily, particularly in the downward direction. I was going to propose 1 to 7 for M1, partly to reinforce the point of not moving down very readily. Let me make a statistical point. An examination that we made recently of the range of fluctuations of M1 as compared to M2 suggests that if the 4 point range for M2 is appropriate, a 6 point range for M1 is appropriate. That gives about the same chances of running outside the range for both of them, according to recent experience, so that's kind of an additional reason for the 1 to 7, or thereabouts, proposal.",211
-fomc-corpus,1977,"Thank you, Mr. Volcker. Mr. Eastburn next, please.",16
-fomc-corpus,1977,"Thank you, Mr. Chairman. I continue to worry about the growth rates we've had in the past for M1, because I think that we're going to find, looking back, that we have followed a procyclical policy. However, the recent performance has been more satisfactory, and furthermore, I think there are uncertainties now that we haven't faced so much in the past. One is the business, the economic situation itself, and the other one has to do with this discussion we just had about the uncertainties in velocity and the demand for money. It seems to me that when you face uncertainties of that kind, you stick pretty much to what we have. I think alternative B would be satisfactory, but given my basic concern about the excesses in money that we've had, I'd like the 1 to 6. I think that would be very good.",172
-fomc-corpus,1977,"Thank you, Mr. Eastburn. Mr. Morris next, please.",15
-fomc-corpus,1977,"Mr. Chairman, last month I dissented because I thought we had no evidence that we had reached the level of the funds rate which would be consistent with beginning to attain control of the aggregates. And I think the evidence of the last two weeks shows that finally things are beginning to move our way. It's obviously not conclusive, but I think it's sufficient to me to suggest that a stand-pat policy is appropriate this month, whereas I didn't think it was last month. So I think alternative B is acceptable to me, and I would buy your and Mr. Volcker's downward shift of the lower limit of M1.",126
-fomc-corpus,1977,Thank you. Mr. Kimbrel now.,10
-fomc-corpus,1977,"Mr. Chairman, I too think that the ranges suggested in alternative B are desirable. As earlier indicated, I have been, and am, disturbed about the uncertainties that continue to haunt the financial markets. I would think that the very best we could do would be to provide some small measure of stability, and I'd like to suggest that we maintain that posture. I obviously do not want to ignore the continuing inflationary expectations or possibilities, and for that reason I would be rather reluctant to see the funds rate drop below the 6-1/2. But I still think that, at this time, maybe the range suggested there would be desirable.",129
-fomc-corpus,1977,"Mr. Coldwell next, please.",8
-fomc-corpus,1977,"Mr. Chairman, it seems to me that today is the day for some stability--no change. I like Paul Volcker's 1 to 7 [percent] range [for M1]. It gives a little more outside movement, and it doesn't threaten having to go off of our 6-1/2--I don't want to go above it unless we're forced by some pretty high figures in the aggregates. So I'd be just happy to adopt that 1 to 7 [range].",100
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Partee next, please.",16
-fomc-corpus,1977,"Well, that's agreeable to me too, Mr. Chairman. I don't quite understand how we've gotten this stability, but we do seem to have it, right at the moment, and it might be well to continue it for a while.",47
-fomc-corpus,1977,Let's enjoy it.,4
-fomc-corpus,1977,"The aggregates are very difficult to interpret, as usual. And Frank, it could be telling us something, it could be telling us that it's under control, or it could be telling us that there's been a change. We may start worrying about a low number, believe it or not, if it continues for a period. Now, a 1 percent lower [limit] on M1--assuming that November is going to turn out around 1 percent, which is a fair assumption--would mean, in December, 1 percent too, and I suspect we'd be getting a little nervous by the end of the two-month period in which we have been getting 1 percent. But I think that's all right because we've had such overshoots in recent months. And we could still have averages, for any period that can be calculated--that longer period--that would be quite satisfactory. The statistical analysis does suggest that there's some basis [for] recent deviations from projections, that there should be about a 2 point larger range in M1 than in M2, and so I'm inclined to choose the 1 to 7 [percent] for that reason also, like Paul, and also because I so well recall that December is a very difficult month. And it could be that we would have considerable problems with the month as it develops, simply because of the Christmas effect and the weather effect and all that happens to you as you get into the winter season. The funds rate at 6-1/4 to 6-3/4, centered on 6-1/2, where we are now, sounds fine to me. I think, with this wide a monetary range, that we could go back to the aggregates directive, although it's a little early to do so given the fact that we still don't [know] what's moving these figures. But with this wide a range, I think we can afford to do it.",388
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Jackson.",12
-fomc-corpus,1977,"I would agree with alternative B as stated [in the Bluebook] and would prefer that we not go down to 1 percent. The primary reason is that, while I would recognize the uncertainty of December that Governor Partee outlined, the truth is that we will have limited information on December 20, when we next meet, as to what the real ramifications of the entire month will be, and much of our December emphasis will be on projections rather than on actualities. And if our projections were to indicate that we have had the first two-month period in which the M1 aspect of our aggregates is that low, it will be the first time in--I believe since I've been here--that we've had anything close to that low, which would indicate that maybe some of our actions have had some more real substance than we understand. And if it were to result in going down a magnificent amount of 1/4 percent on the federal funds rate, I wouldn't get upset.",196
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Lilly next.",12
-fomc-corpus,1977,"Well, tranquility having been achieved, I certainly am not one to want to change the pleasant state of affairs. However, I agree with Phil Jackson, [and] I'm guessing that in the longer run you are going to look at a funds rate that's going to fluctuate more. I would say I would like to see the 2 to 7 [percent for M1], just on the basis that, maybe if the funds rate does have to go down there, it's not a bad situation. So I'm for alternative B with 2 percent [lower limit on M1].",115
-fomc-corpus,1977,"Thank you, Mr. Lilly.",7
-fomc-corpus,1977,"Mr. Chairman, I would support the Chairman's alternative B with a 1 to 6 [percent] M1 range. I would just remind the Committee that in spite of last night's football game, Mr. Chairman, we don't have the St. Louis football team in the Super Bowl. And [likewise] I'm not sure--recognizing that we had an 8.6 percent average growth in M1 over the last three quarters, even using the projected figures of the staff, accepting those--that we should feel too comfortable as a result of the last week or two that we're out of the wilderness. So I would support alternative B [with] 1 to 6, but I don't think I would want to go home and boast to my wife that I'd got the job done as yet.",163
-fomc-corpus,1977,"Thank you. Mr. Mayo next, please.",10
-fomc-corpus,1977,A 6-1/4 to 6-3/4 [percent range for the federal funds rate] is fine with me. I have a slight preference for the 1 to 7 [percent range for M1] and the M2 that goes with it.,56
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Guffey next, please.",16
-fomc-corpus,1977,"Thank you, Mr. Chairman. When coming to this table, [I was] prepared to support alternative B and thought that the only real question was what kind of a directive you liked, what to get to the Desk, and was prepared to push for a money market conditions directive to achieve the stability that everybody around the table seems to want. Broadening the range, I think, lessens my concern as to which kind of a directive it is, and I like the idea of going to the 1 to 7 [percent range] on M1, with either kind of directive.",119
-fomc-corpus,1977,"Thank you, Mr. Guffey.",9
-fomc-corpus,1977,"Well, I, like everyone else, fall into this B category. I think the question of ranges depends largely on whether you select a money market directive or an aggregates directive. If we go with a money market directive, in view of the shortfall we're expecting in November, and our staff thinks it may even be a negative number, I'd be reluctant to go as high as 7 percent [on M1] because that would entail a tremendous increase in December before you really move. So I would think maybe 0 to 5 percent would be better. I don't attach much importance to the lower limit; the upper one is the important one. And 5 to 9 sounds good to me in the M2 part of it. Since'72, we've had more stability in the time and savings deposits portion of that, as banks apparently have been actively pursuing the portion of time deposits when the savings deposits have run off. So that hasn't fluctuated as much since '72 as we've been accustomed to having, so I think it may be a little higher than we think there. And if we should go to the aggregates directive, I think that 2 to 7 [for M1], or something in that neighborhood, would be much better.",251
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Wallich next.",13
-fomc-corpus,1977,"I continue to be concerned about the shortfall that I anticipate in the achievement of the velocity that the staff expects, so I'm concerned with setting ranges that I think are on the low side. Now, since I can sense the ideas of the group, I don't want to argue very strongly; I do want to remind us that we really shifted to a permanent money market conditions directive by adopting a 1/2 percentage point spread on the funds rate. I would like to get back to [using] the aggregates [directive]. I don't despair of M1; it needs adjustments, but I don't think these adjustments are beyond our comprehension. So I would go for a funds rate of 6 to 7 instead of a narrower range, and I would up the M1 aggregate slightly. I would go for 2-1/2 percent to 7-1/2 just to make it a little higher than the staff has it. But in general, [alternative] B is acceptable to me, and the monetary aggregates [directive] is what I would like to see.",216
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Baughman.",14
-fomc-corpus,1977,"Mr. Chairman, my inclination when I came here was to move for just a slightly higher federal funds rate, in the interest of getting somewhat lower aggregates, but it's quite acceptable to me to use the other approach--lower the aggregates targets and use the existing funds rate. It seems to me you'd come out at about the same place, so I'm prepared to go with your recommendation. However, if the aggregates as stated in [alternative] B were to be accepted as targets, then it seems to me that it would be desirable to raise the funds rate a little bit along with that to be sure that you get some move. In this connection, I'd like to mention that it seems to me that, with just the beginning of a suggestion of some movement of funds between different accounts in the banks in the time area, it might be appropriate for us to consider lifting the [Regulation] Q ceilings a little bit so as to not start dictating to the banks where those funds rest in the bank deposits. And it seems to me that it would be better to make such a move before the rates come under significant pressure and before you begin to see the rates structuring the market. And it seems to me that the results would probably be salutary for the residential construction sector.",255
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Gardner.",13
-fomc-corpus,1977,"Gentlemen, I have no problems. I would like to adopt alternative B and I won't dissent if you modestly adjust it. I don't think it's time, yet, Ernie, to proceed on [Regulation] Q.",47
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Willes, please.",14
-fomc-corpus,1977,"Thank you, Mr. Chairman. I'll be very brief. We have a little bit of a credibility problem in our District--I'm speaking now just for our District. When we publicly announced growth ranges that they have indicated to me they wanted to take seriously, they keep questioning why we can't [hit] them.",62
-fomc-corpus,1977,"""They"" refers to whom?",6
-fomc-corpus,1977,"Businessmen. And I give the usual responses as to what happens and so on. What that suggests to me is that, while I would love to kind of relax and enjoy what's going on, I'd feel better if we took advantage of the opportunity to do whatever we can to get the numbers down to a more reasonable level. So I would have a strong preference for your 1 to 6, or even for the radical suggestion of Bob Black of 0 to 5. And my guess is, that could be accommodated within the federal funds range that was listed under alternative B.",117
-fomc-corpus,1977,"Thank you, Mr. Willes. Mr. Balles, please.",15
-fomc-corpus,1977,"Mr. Chairman, I liked your modification to the ranges of both M1 and M2, 1 to 6 and 4 to 8. Because, as I look at the Board staff's projections of both M1 and M2 and then average those out over the usual 13-week moving average, as I'm in favor of, it's evident that, if those forecasts should come true, we'll be above the range on M1 and only slightly below the upper end of the range on M2. For that reason, while I agree with the federal funds range staying the same as it is, I think we may continue to be faced in terms of average growth of the aggregates with being near the upper end or over the upper end of our 12-month growth ranges.",156
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Winn.",12
-fomc-corpus,1977,"Mr. Chairman, I really have nothing to add. I would be in favor of widening the [M1] range a little bit, 1 to 7--use this as an opportunity to get it expanded a little bit and stay with the aggregates objective, not a money market.",58
-fomc-corpus,1977,"Gentlemen, on the basis of the views expressed by members of the Committee, I think it would be reasonable to suggest to the Committee that we vote on the following: a range for M1 of 1 to 7 [percent], a range for M2 of 5 to 9, a range for the federal funds rate of 6-1/4 to 6-3/4. I'm uncertain, however, about the language of the directive, since not all members of the Committee have expressed their views. Let me have a show of hands on the part of the members of the Committee who prefer a money market directive, which is what we had last time.",138
-fomc-corpus,1977,Against the 6-1/4 and 6-3/4?,16
-fomc-corpus,1977,Right.,2
-fomc-corpus,1977,Governor Wallich--,4
-fomc-corpus,1977,I want an aggregates directive.,6
-fomc-corpus,1977,"Four, Mr. Chairman.",6
-fomc-corpus,1977,"No, let's test that expression. Members of the committee who prefer a monetary aggregates directive will raise their hands.",22
-fomc-corpus,1977,Four. Mr. [Gardner]? MR. [GARDNER]. Five.,17
-fomc-corpus,1977,"Now we'll try again with the first, the money market directive.",13
-fomc-corpus,1977,What's this?,3
-fomc-corpus,1977,The money market--those who prefer it.,9
-fomc-corpus,1977,Four.,2
-fomc-corpus,1977,"Well, the vote is very close. Anyone who hasn't raised his hand would like to do so?",20
-fomc-corpus,1977,"I would take either. I can see some advantage--I think honesty really does indicate, as somebody said, that we are on a permanent money market directive, and perhaps we ought to take it for that reason. On the other hand, I think the ranges are wide enough to justify an aggregates [directive], so I would take either that the Committee would prefer.",73
-fomc-corpus,1977,"Well, we are somewhat divided on the issue, as you can see, but I could take either, and I don't want to produce a tie, certainly.",32
-fomc-corpus,1977,"I could take either, too, Mr. Chairman. The only thing I would say if we run an aggregates directive, I would like it interpreted as a rather sluggish aggregates directive--that we didn't move too fast.",43
-fomc-corpus,1977,Do you see some advantage to a money market directive? Did I understand you to say that's the way you would go?,24
-fomc-corpus,1977,"I see a very, very tiny advantage, but you know, I don't believe in fine tuning, and taking these specifications altogether, one is just about equivalent to the other.",35
-fomc-corpus,1977,"Mr. Chairman, may I make an observation? If you have a money market directive and the staff is right, and you get a 1 percent expansion in M1 in November, then in order to trigger any action on that, you've got to get 15 percent in December before you begin moving the rate up.",64
-fomc-corpus,1977,"No, now we've begun moving before it gets to the top.",13
-fomc-corpus,1977,"Not too much before that. But to me, the decision [is], if you take a money market directive, you want narrower ranges; and if you take an aggregates directive, you want wider ranges.",41
-fomc-corpus,1977,"That is logically the thought of the money market directive, but in practice I don't think there is any significant difference or any difference that I can really define with any confidence. Could you define the difference with confidence, Mr. Holmes?",46
-fomc-corpus,1977,"I think, with the specification, either form of the directive is about the same.",17
-fomc-corpus,1977,"We've had a little discussion. Let's have a show of hands once again. The money market directive, those who would prefer it.",26
-fomc-corpus,1977,"Why don't you ask the question, Mr. Chairman, would anyone object to a money market, or to an aggregates--",24
-fomc-corpus,1977,"Well, I would rather not. My business is not to invite dissents.",16
-fomc-corpus,1977,Sorry about that.,4
-fomc-corpus,1977,Those who would prefer a money market directive--,9
-fomc-corpus,1977,Five.,2
-fomc-corpus,1977,Those who would prefer a monetary aggregates directive--,9
-fomc-corpus,1977,Five.,2
-fomc-corpus,1977,"Well, who has not voted.",7
-fomc-corpus,1977,I haven't. I'll go for the money market.,10
-fomc-corpus,1977,"Mr. Chairman, might I raise one point on specificity--a very good word; I can't pronounce it. Would there be any advantage in our rephrasing our statement, under either directive, to say ""at about current levels,"" rather than saying ""at about 6-1/2 percent"" when we're describing the central point of our directive? Lines 31, or 81-82, or 63-64? I would think, in view of our earlier discussion, there might be some advantage, but it's--",107
-fomc-corpus,1977,You're pointing to line 67?,7
-fomc-corpus,1977,"--63-64, where we describe the central point at 6-1/2 percent. Would it be better--I think we have as good a case as we'll ever have for doing it this time, to say ""at about current levels.""",51
-fomc-corpus,1977,"I see no difficulty myself. Does anyone see any difficulty in adopting Mr. Mayo's suggestion? There may be a slight advantage. Well, I hear no objection. Lets proceed the Mayo way. Well, let me repeat, we'll be voting on a money market directive, a range for M1 of 1 to 7, a range for M2 of 5 to 9, and a range for the federal funds [rate] of 6-1/4 to 6-3/4. Unless there is a question or comment, we are ready for a vote.",118
-fomc-corpus,1977,"Mr. Chairman, may I just call the Committee's attention to the proposed revision of the statement on retail sales in light of the new data.",29
-fomc-corpus,1977,I think that's entirely appropriate. I move that that change be incorporated.,14
-fomc-corpus,1977,Even unread?,3
-fomc-corpus,1977,I've read it.,4
-fomc-corpus,1977,"All right, is anyone in doubt about the change [in the statement on the retail sales data]? All right, that will be made. Are we ready for a vote? Apparently. Mr. Broida would you be good enough to call the roll.",52
-fomc-corpus,1977,Chairman Burns                  Yes Vice Chairman Volcker           Yes Governor Coldwell               Yes Governor Gardner                Yes President Guffey                Yes Governor Jackson                Yes Governor Lilly                  Yes President Mayo                  Yes President Morris                Yes Governor Partee                 Yes President Roos                  Yes Governor Wallich                Yes Unanimous,60
-fomc-corpus,1977,"Our meeting will get under way now. I believe all of you have been informed of the passing of [former Board Chairman] Marriner Eccles, who served us for 12 years or more--I'm not sure of the exact period--at the Federal Reserve Board. I think it would be proper if all of you joined me in standing to pay our respects to the departed member of this family, in a moment of silence. Mr. Gardner will represent the System at the funeral, which will be held on Thursday, I believe. We will get this meeting under way by calling on Mr. O'Connell to discuss the present status of the Merrill case, and where he thinks we are in the judicial realm, and where he thinks we will be going. Mr. O'Connell, please.",159
-fomc-corpus,1977,"Yes, Mr. Chairman. For the Committee's recollection, the Merrill case, of course, involves a demand that is made under the Freedom of Information Act for certain of the Committee's documents derived from two meetings of the Committee in '76. And the lower court decision, from which an appeal has been taken--the issue on appeal relating primarily and almost solely to the requirement [that] the Committee issue and make public promptly after its adoption the directive of the Committee, including the short-range targets. That was the issue on the appeal, and as you recall, Mr. Chairman, the mandate [of the] Court of Appeals, under its rule, was to be effective December 1. That is, the Committee is required to follow the order of that court. We filed with the Department of Justice on December 9 a very thoroughly researched request for the Solicitor General to take to the Supreme Court, a request for review by that body of the Court of Appeals decision. We had preceded [that] with the request that the Department [of Justice] obtain for the Committee an extension of this December 1 mandate, and they requested of the Court of Appeals an extension until January 1 [for] the Committee to comply with the mandate issued by the Court of Appeals pending the preparation of the Solicitor's position. As of noon today, in my conversations with our counsel in the [Justice] Department, the department's Civil Division position--[what] it will recommend to the Solicitor General--has not yet been forwarded to the Solicitor General. At the appellate level [of the department], the attorney to whom I spoke has recommended a position to the Assistant Attorney General in that division [the Civil Division]. He describes [that position] as, while not being as strongly supportive of certiorari as he felt our document was, in no sense was it negative, as he said.",382
-fomc-corpus,1977,What document is this now?,6
-fomc-corpus,1977,"The attorney in the Civil Division prepared an intraoffice memorandum analyzing the case for and against the certiorari petition, Mr. Chairman. He was not at liberty to tell me exactly what his recommendation was, but he merely came close to saying it wasn't as strongly supportive as the Committee's letter, but he felt it didn't have a negative cast to it. He has advised [us] of his receipt of the Treasury Department's letters supportive of our position, copies of which have been distributed to the [FOMC] members. So there has gone forth to the Assistant Attorney General of the Civil Division our letter on behalf of the Committee, the Treasury Department positions, and a memorandum position from the attorney staff level [of] the [Justice] Department. There will now go, from the Assistant Attorney General to the Solicitor General, the total recommended position of the Civil Division, a copy of which, hopefully, we will obtain when it goes forward. As yet, to my knowledge, it hasn't gone forward. Meanwhile, the Committee has until January 1, as best we know, within which to comply. Hopefully, as we get near the first of January, that date will be extended, as is necessary and if it can be obtained. Or it will automatically be extended--if the Solicitor General files on the Committee's behalf a petition for writ of certiorari, under the rules, that will automatically stay any requirement of this Committee to comply with the Court of Appeals orders until the Supreme Court has either accepted and ruled upon our position or denies it. And I will, of course, promptly advise the Committee on receipt of either of those dates. May I quickly touch on the fact that, with respect to the suit of Reuss v. Balles et al., which you recall involves allegations by Mr. Reuss that the selection method for the [Bank] President members of the FOMC is unconstitutional because it does not derive from a selection by the [U.S.] President with the advice and consent of the Senate. We won that case on motion in the District Court, the court holding Mr. Reuss didn't have standing to bring the suit. Mr. Reuss appealed that issue and that decision, and it was argued [earlier] this month, December 8, before a three-member panel of the Court of Appeals here in the District of Columbia. The argument, I think, went fairly well. Our counsel from the Department of Justice was well prepared and, I think, a pretty sharp man. He knew his case, he was able to respond to questions put to him by the court. One of the three members of the court was absent, Judge Tamm, but a recording of our arguments will be presented to him so he will have heard all arguments before he begins to deliberate on the decision. We have no idea when to expect an action by the Court of Appeals. Mr. Chairman, I think that brings my information current on both cases. If I can answer any questions, I will be pleased to do so.",614
-fomc-corpus,1977,"All right, thank you, Mr. O'Connell. Are there any questions about the status of the Merrill case? Yes, Mr. Eastburn.",31
-fomc-corpus,1977,"If the Supreme Court were to accept it, what kind of timetable do you suppose would be involved?",20
-fomc-corpus,1977,"It's hard to tell, Mr. Eastburn. From the notification of acceptance, we follow certain established procedural time limits for filing of briefs, answering briefs, oral arguments, dates, and so forth. As much as six months could be involved, even on the established calendar.",55
-fomc-corpus,1977,Any other questions?,4
-fomc-corpus,1977,"And if they don't accept it, Tom, that would make it, after the first of January rather promptly, something we would have to do on a current basis?",33
-fomc-corpus,1977,"Governor, if it is rejected as of that date, it is up to the Court of Appeals to issue a date of mandate effectiveness. But I think it would follow promptly upon the actions of the Supreme Court in the denying of writ, but we would get a date definite, and I would advise the Committee as promptly as possible.",66
-fomc-corpus,1977,Mr. Baughman.,6
-fomc-corpus,1977,Would you have an opportunity to present views to the Court of Appeals relative to an effective date?,19
-fomc-corpus,1977,"With respect to the mandate per se, no, we would not. Presumably our petition having been denied by the Supreme Court--that they will not accept the case on appeal--and a sufficient extension having been obtained to enable us to pursue that, we are pretty well bound by whatever mandate the Court of Appeals issues. It is possible--an outside possibility, Mr. Baughman--that the Court of Appeals could be addressed on the single issue of taking to the Congress a petition for congressional relief as suggested in the opinion. If that were the sole reason, [the Justice] Department questions whether the court would grant an extension solely for that, but it's a reasonable possibility, and I think we would try it to gain further administrative time under that matter.",152
-fomc-corpus,1977,Mr. Guffey?,6
-fomc-corpus,1977,"Tom, did I understand, if the Solicitor General files with the Supreme Court for a writ, then we have as much as six months before the Court rules whether they will grant the writ and hear the case or deny the writ. Is that correct?",51
-fomc-corpus,1977,"I stated, President Guffey, as a minimum, my judgment, about six months would be involved. The Supreme Court could respond to our writ promptly within a month. The scheduling of that, the briefing, would be automatic, but scheduling for the oral argument could be months, and so forth. As you know, the Court recesses and then takes up again at a later date. It's difficult to know how long we would be with respect to that calendar.",94
-fomc-corpus,1977,"But the critical part of the timing, though, is the Solicitor General's decision to file for writ?",22
-fomc-corpus,1977,"Correct. If he does so, pending the Court's answer of affirmative or not, a status is still in effect, and that is automatic once the petition has been filed. Correct.",37
-fomc-corpus,1977,"Any other questions? If not, let me say a few words about efforts directed toward legislative relief. Unless the Supreme Court decides to set aside the decision of the Court of Appeals, assuming that the case ever gets to the Supreme Court--that is quite uncertain. First, the Solicitor General has to recommend that the Supreme Court take on an appeal. And second, the Supreme Court has to decide whether to have the case appealed to it. Assuming these two hurdles are overcome, unless the Supreme Court overrules the lower court, we will need to seek legislative relief, and I think that is something we should get under way rather promptly. Now, I have had several conversations with members of the Congress on this question. One was a suggestion to Mr. Hannaford, who had introduced a bill calling for the reinstatement of the Memorandum of Discussion, and as you may recall, I testified on that piece of legislation several weeks ago. I suggested to Mr. Hannaford that he add a title to his bill that will permit us to delay the release of our directive for something like 30 days. In other words, give legislative sanction to our current practice. And he is sympathetic to that, but I don't have a definite response from him. Secondly, I have held a preliminary conversation with Congressman Parren Mitchell on this, and he's been noncommittal. Third, I had a lengthy meeting with Chairman Reuss on this question, and as you may know, in the past Chairman Reuss has indicated that he felt that the decisions reached by the FOMC should be announced promptly. And that has been his position all along, as far as I can remember. When I outlined the problem to him, indicating what I and most, if not all, of my colleagues felt about this decision of the Merrill case, he stated that yes, he had objected to the delay in making public the FOMC decisions; he had objected to that in the past, but now, it is no longer an academic issue, and he is prepared to re-examine his own position. Now in addition to these preliminary conversations, I and the staff have been giving some consideration to the possibility, or more accurately, the desirability, of seeking an amendment to the GAO [General Accounting Office] bill that is now being considered by the Government Operations Committee of the Senate. Now that is something that might possibly be useful. That is, to have an amendment added to that bill, and that is the quickest legislative medium we have for obtaining our objectives. The chances are, [the House sponsor, Rep.] Rosenthal, wouldn't much care about that particular thing one way or another, but he would be interested primarily in getting the kind of bill that was passed by the House, getting that accepted in Congress. And that is something I intend to take up, well, that's my present intention. I haven't reached a firm decision on this. I intend to take up first with the senators--Sasser is it? You testified, Governor Coldwell, on the GAO bill. That is a matter of courtesy, and I think I should start there and go to [Senators] Ribicoff and Percy, the senior members of that committee.",653
-fomc-corpus,1977,"That presumes, however, that you are going to endorse the GAO bill.",17
-fomc-corpus,1977,"No. No, it presumes that a compromise on the GAO bill may need to be reached. The kind of compromise that I have in mind is the possibility of striking the section dealing with bank examinations. In other words, not allow GAO access to bank examination reports and--",57
-fomc-corpus,1977,"Well, I guess my question is, question of strategy--you deal with it more than the rest of us, but the question is whether the GAO bill is actually going to get passed. I have not crossed that bridge in my mind.",49
-fomc-corpus,1977,"Well, that is a fair question. My own guess is that the GAO bill in some form is going to pass. And that, if the section on bank examination reports could be deleted, we could do reasonably well. Now, in saying that, I have no objection at all, needless to say, seeing the whole bill defeated. On the contrary, there is nothing I would like to see better. But I am not optimistic that that can be accomplished.",93
-fomc-corpus,1977,"I'm not totally optimistic that it can be accomplished either, Mr. Chairman. But I would like to see a little more evidence of some real interest [in] the Senate before we start a compromise of it.",42
-fomc-corpus,1977,"Well, that's fair, that's fair. That's why I have delayed any conversation there, because I like to feel my ground there. In the House, that's different.",33
-fomc-corpus,1977,That's already gone. The Senate--I'd like to see what they come back with after their vacation.,20
-fomc-corpus,1977,"Well, now, we have to be a little careful. Unless I have a conversation with Senator Sasser to begin with rather soon, there is a chance that the bill as it came from the House will be reported out favorably.",47
-fomc-corpus,1977,"Well, they haven't had a markup session yet.",10
-fomc-corpus,1977,"Well, I know, but I think I would have to hold my conversation before that. Once you reach the markup stage, well then, the fate is, practically speaking, sealed. You need to have somebody there within the committee, or more than one, to lead the fight for the elimination of the whole thing or for some sort of decent compromise. So I think testing the waters within the Senate Committee on Government Operations will become essential very soon.",90
-fomc-corpus,1977,Couldn't that be done by a person or people not particularly in favor of it--somebody who would take this as an acceptance of GAO?,29
-fomc-corpus,1977,"Well, I'd love to have someone on the Democratic side as well as on the Republican side. If you are going into a legislative battle, you ought to be armed on both sides if at all possible, and Senator Sasser--having served as chairman of the hearing--will undoubtedly speak with a measure of authority in the committee's deliberations.",69
-fomc-corpus,1977,"I think maybe we are getting too much into strategy right now, but it also opens this opportunity. If the Senate Government Operations Committee would accept such a proposal, it opens the chance that members of the Senate Banking and Currency Committee would feel that their turf has been invaded, and they might start the type of judicial arguments that would serve to delay even if not the [unintelligible].",78
-fomc-corpus,1977,"I'd have to remember more carefully than I do, but I think there is some comment about referring that GAO [bill] to Senate Banking as a courtesy referral before a final passing.",37
-fomc-corpus,1977,"Well, that I'm not acquainted with--",8
-fomc-corpus,1977,I'm pulling something out of memory that I'm not positive about. The reason I was--,17
-fomc-corpus,1977,"That, I'm not acquainted with. I wish you would look that up immediately, because if that is true, we'd have a better chance in Senate Banking for doing something than we will have in the Government Operations [Committee]. Well, that is all I can say, really, about the steps that have been taken or are presently being considered in the way of seeking the legislative solution. As for the chances of success, it is much too early to try to evaluate that. Are there any questions about the legislative approach? If not--",106
-fomc-corpus,1977,Mr. Chairman?,4
-fomc-corpus,1977,"Yes, Mr. Balles.",7
-fomc-corpus,1977,"I had hoped that we wouldn't keep this GAO bill alive because we were using it as a legislative vehicle to help solve the Merrill decision. After my session with you and subsequently with all of the Presidents, the tone that we tried to communicate to our directors on an active campaign is that [it's] possible to get the Fed exempted entirely from the GAO bill. And we kind of meet ourselves coming around the barn, I'm afraid, if we are going to use the same bill for amendment purposes to solve another problem. I'm afraid we are going to get our goals kind of mixed up here. That bothers me a little.",126
-fomc-corpus,1977,"No, we are not going to do that. I was trying to indicate something I am thinking about, and this is on the assumption that, after as good appraisals as we could make, the chances of defeating the GAO bill [in] the Senate Government Operations Committee are [found to be] negligible, are small.",67
-fomc-corpus,1977,Okay.,2
-fomc-corpus,1977,"I don't think we will have that problem. We'll guard against that. Any other questions? If not, let me call on Governor Partee, who has worked with a [sub]committee of our members on the procedures that might be followed if the court's order becomes effective. Mr. Partee, would you be good enough to make your report now?",72
-fomc-corpus,1977,"Well, Mr. Chairman, we were asked to consider on an emergency basis this contingency planning, the question of what we would do in the event that we lose the court case or have to suddenly publish the directive. The subcommittee had two meetings since the last meeting of the Committee, and the staff met and drafted a report which has been approved by the subcommittee. You all have it before you, and I see no great purpose to be served in going through it in any detail with you today, since I am sure you have read it. I would say that we considered three separate problems having to do with the directive, and they are taken up in order in the draft material. The first is what to do about specification of the short-run instructions to the Manager. The recommendations are contained on page 12 of the report. We considered quite a wide variety of alternatives in looking at this--having meetings more frequently, giving more discretion to the Manager, turning to more qualitative kinds of characterizations of the directive, having wider or narrower ranges for the aggregates or for the funds rate than we now do, meeting on a different day of the month. We had quite a variety of proposals, and in the end we decided that the best procedure would be to continue with the same kind of a specification of short-range targets as now exist in the directive, I think for two reasons, principally. The first is that that this is something that we have worked out over a considerable period of time, and it's working reasonably well. And we would be fearful that to radically change the procedure now could possibly upset policy and the carrying out of policy, which, after all, is the major purpose to be served by the directive. And the second reason is that to change significantly the procedures and the directive of the Committee could be judged in the wake of a court determination as an effort to avoid the finding of the court, which would have some disadvantage to us. Even if it weren't a substantial criticism, it could still have a cosmetic disadvantage to us. So our feeling was that, everything considered, we ought to continue to follow along with the short-run specs much as they exist now in the directive. We did, however, think that two modifications in the directive procedures and language might be considered by the Committee. First of all, we would add a sentence to the effect that the Manager should take account of emerging financial market conditions. This is a variant of a phrase that was in the directive for a long number of years, as you recall, but was taken out a couple of years back because it didn't seem to be actively used, it didn't seem to have any real bearing on operations in the ordinary course of events. Now, however, there will be two advantages to reinsert such a sentence. One is that it would, in fact, permit the Manager to take special action in the wake of the court decision, not knowing how market reactions would be to the publication of the directive. And the second purpose to be served, I think, is that it would establish a degree of looseness between the specifications and the Manager's actions, which would provide an uncertainty in the market's mind so they wouldn't think that deciding what was going to happen to rates was like shooting fish in the barrel. And, therefore, we would have that modification. The second [modification] is that, at least for awhile, we think that the Committee would be well served to keep a relatively narrow funds rate range. Now, in fact, we have had a narrow funds rate range for quite a few recent meetings, typically 1/2 point. And we think that the 1/2 point range might be continued for awhile just to reduce the exposure to large-scale changes in market expectations that the publication of the directive might bring about. That raises the hazard that there might need to be more frequent reconsideration of instructions and amendment of instructions, but it's a hazard we think that probably should be taken in the short run while we are feeling our way, at least with regard to how publication affects market behavior. So that's our recommendation with regard to the short-run specs. Now, there is also a problem having to do with the longer-range specifications of movements in the aggregates thought to be appropriate [for] the financial and economic conditions that we seek. That is the 12-month specifications. The difficulty there is that the current directive has no particular rationale for the choice of those, for the kinds of thinking that goes into choosing and updating those long-run specifications. And it seems particularly appropriate in the case of those that are mandated by the Federal Reserve Act as amended. It seems particularly appropriate for the long-range growth rates of the aggregates to be associated with a rather full explanation of the reasons why the Committee has chosen these particular growth rates. Now those reasons in recent years have been given by the Chairman in his testimony before the proper oversight committee. And rather than try to create a system of explanation over and above the directive that would be published promptly in connection with the revision of longer-run ranges, we think it best to continue to associate the announcement of the longer-run ranges with the Chairman's statements before the oversight committees. This means that the Committee could not in fact determine what the long[-run] ranges would be until just before the Chairman testifies--a date that we don't have total control over because there is a Senate or a House Committee that controls the hearings. And it frequently means that there would be a delay of a week or two weeks between the immediate predecessor meeting of the Committee and that testimony. Well, on one, perhaps two occasions in the last couple of years, the Committee has faced this problem with regard to the Chairman's appearance, and it has had a tentative discussion of the appropriate longer-range targets. I shouldn't use the word targets--longer-range aggregate growth rates--and then has had a telephone conference call to firm them up the day before the Chairman is testifying. And we see nothing wrong with that as a procedural matter. Our general counsel feels that this might, in fact, seem to be arbitrary--a way of getting around the court order. But it seems to me that the need to have the explanation of the long-range targets, and also the possibility that intervening developments might change our view on the appropriate long-range targets, make it quite reasonable to have a preliminary discussion of that sort and then a final discussion, by telephone if you wish, of the long-range targets just before they are presented to the oversight committee. So that with regard to the long-range part of the directive, that would be our recommendation. The third problem that we addressed, not very successfully because we didn't have our general counsel's views at the time of our second meeting, is the problem of dealing with the record of [affirmations and] dissents--votes for [and against] the regular short-term directive and for [and against] the long-range specifications that I have just discussed. It appears that the publication of the directive would either immediately or very soon thereafter call for a presentation of the votes on the directive and on the long-run specifications that had been decided upon by the Committee. The awkwardness there is that, as soon as the press, public generally, finds that a member of the Committee has dissented, or certain members of the Committee have dissented, there would be a desire to find out why. And although an individual could give a very quick brief reason for his dissent, that would be in the absence of an explanation of the majority point of view, which is contained in the policy record [Record of Policy Actions] entry and is not published until 30 days, I guess, after the previous meeting. And it takes quite a while to develop, as you know, the policy record, the orderly discussion of the proceedings of the Committee--the review of that material, as prepared by the Secretariat, by each member of the Committee, and changes in that, and then that policy record is adopted as a proper summary of the previous meeting at the subsequent Committee meeting. And therefore it is difficult to upset that rather full explanation of the give and take of the Committee meeting and of the reasoning behind the consensus that was reached. It would be far preferable, in our view, if the fact of dissents, the particular names of the dissenters, and the [numbers] of dissents could be held until the time we put that policy record out. Our general counsel thinks it is very unlikely that we can do that, and so, if in fact we cannot hold [the reporting of] those votes until an orderly time for putting out the Record [of Policy Actions] of the Committee, why we would simply have to hope, perhaps reach an informal understanding, that dissenters would not give an explanation of their dissents until the time that the policy record had been cleared, which would be just following the next meeting of the Committee. And so that was the third area that we discussed. There is also attached to the report of the Committee a little review of informal conversations that the Desk has had with a number of securities dealers--banks and nonbank dealers in the market--Peter, you [also] have one mutual fund listed here, and a nondealer bank--indicating what their feelings would be as to the impact of current publication of the directive. It's a mixed bag, as these things generally are. Some think that there would be a substantial effect. Some could see traps for us at particular times when policy was in the process of changing. I think it's an interesting review of informed market comment--informed in the sense that they follow the activities of the Committee; but not so informed in terms of what our particular strategies would be in this event--that Peter, I think, was mainly responsible for. And so, if there are questions about that, I am sure he would be glad to answer them. Well, that's all I have to say, Mr. Chairman. Our three recommendations, therefore, are, with minor amendments: (A) We continue to publish the current short-term specifications in a directive form just as they exist today. (B) With regard to the longer-term ranges for the aggregates, we withhold a Committee determination until just before the Chairman's periodic appearances before the oversight committees. (C) With regard to dissents on both parts of the Committee's policymaking procedures, that preferably the directive [with] the dissents be held up until the publication of the policy record [Record of Policy Actions] as a whole; if that is not possible, then the dissenters agree not to give reasons until the policy record has come. Thank you.",2145
-fomc-corpus,1977,"Well, thank you for a very constructive and also lucid report. I wonder if other members of the [sub]committee, and I know--",29
-fomc-corpus,1977,--may well have comments. Governor Gardner and President Volcker and President Eastburn.,17
-fomc-corpus,1977,"All right, Mr. Gardner, do you have a--",12
-fomc-corpus,1977,"The only thing that I didn't like was--I think Chuck did that extremely well--but I don't like his idea of characterizing as a small, unimportant addition in the first recommendation.",38
-fomc-corpus,1977,"No, no, it's just that it has a--I meant to imply that it has a precedent, you see. So that it wouldn't be so unusual to add that back in, since we had something like it earlier.",45
-fomc-corpus,1977,"I strongly support that as you know. I'm sorry I called you on this, very minor change.",20
-fomc-corpus,1977,"All right. Mr. Volcker, please.",10
-fomc-corpus,1977,"I don't think I have anything to add, Mr. Chairman.",13
-fomc-corpus,1977,Mr. Eastburn?,5
-fomc-corpus,1977,"Well, I would like to say something, Mr. Chairman. I support the thrust of the report. I happen to feel that we not only can live with the kind of solution that the report recommends, but we may find that more information may actually improve the functioning of the open market operations. I'd like to [make] a comment, however, on the last subject, having to do with the treatment of dissents. If counsel is correct that we can't withhold the names of people who have dissented on the day that the announcement is made, I am concerned about the problem of waiting for some 30 days for the explanations behind this. I think that the report explains what must be done in the context of our present practice, and therefore I do agree with that. But I'd like to see us explore a little bit the possibility of changing our procedure so that we can get a summary of our discussion out sooner than 30 days, perhaps as [early] as 3 or 4 or 5 days after the meeting. I've discussed this with Art Broida, and, of course, this is a very difficult task for the Secretariat. I happen to think that the way the present policy record is formed is excessive, so far as a lot of background information is concerned anyhow. And with an abbreviation of that, and with a relatively short and concise statement of the majority view behind the current position, together with a very short statement on behalf of the dissenters, it wouldn't be at all impossible to get a summary of this out within say 3, 4, 5 days after the meeting. I'd like to hear us discuss that.",333
-fomc-corpus,1977,"Mr. O'Connell, suppose that a request is made under the Freedom of Information Act concerning the vote of the Committee, whether it was unanimous or not. And if there were dissents, who dissented. How much time would our staff have in respect to such a request?",57
-fomc-corpus,1977,"Under the statute, Mr. Chairman, I believe a maximum of 10 days for the initial answer to such a request. The statute calls and contemplates for a period--but that's a maximum period, 10 days. That 10 days contemplates the necessary search of information and compilation of the data. With respect to the subject of your inquiry, someone asking for identification of the votes, knows as a matter of judgment that 10 days isn't required. But the agency could, if it wished, rely on that, subject to a push of this petitioned party to the court, if you will, [who would claim] that ""10 days wasn't necessary, and I have filed suit now to get an earlier response.""",146
-fomc-corpus,1977,"Well, just to explore, what might be done under the law? Suppose that at the end of 10 days the response is negative. Or to be more accurate, the response is such that, by such and such a date, the exposure will be made--it will not be made within the 10-day period, but somewhat later than that. Suppose that is the response on the 10th day.",83
-fomc-corpus,1977,I believe that would be fairly read as a denial of the request for the information sought.,18
-fomc-corpus,1977,"Well, what would be the consequences of denial?",10
-fomc-corpus,1977,"Under the Freedom of Information Act, the party petitioning has a right then to seek an appeal of that action; and that would be, under the Committee's appellate procedure, to a designated officer of the Committee, who would review the action below, namely a denial of a timely response, and there's a period of time within which that decision must come forth. Once that's delivered, if it affirms the lower action--the initial reaction--and it is still negative, then the party seeking the information could file--",103
-fomc-corpus,1977,"Well, by that time, the 30 days will have run its course.",16
-fomc-corpus,1977,You're just about there--,5
-fomc-corpus,1977,Then would they have to file an absolutely new one with the next directive?,15
-fomc-corpus,1977,"I think, were I counsel for the party that had been seeking the original information, I would revert to a lawsuit to get the court to straighten out what we consider to be some rather delaying response on the part of the Committee.",46
-fomc-corpus,1977,"I think what this discussion has indicated is that, if such a request is forthcoming, we'll have a good month, anyhow, to work out an answer if we don't have an answer earlier. Is that a fair conclusion?",44
-fomc-corpus,1977,"That, as a matter of fact, for logic, yes, it is, Mr. Chairman.",20
-fomc-corpus,1977,"Yes, but do you mean the first time, or each time?",14
-fomc-corpus,1977,I'd say the first time.,6
-fomc-corpus,1977,I'd say the first time and the last time.,10
-fomc-corpus,1977,It's the same incident.,5
-fomc-corpus,1977,"Yes, please.",4
-fomc-corpus,1977,I'd like to hear the Committee's feeling a little bit more on why you think the very narrow range of the federal funds rate is desired.,28
-fomc-corpus,1977,"Well, it's simply, in my view--and each of the Committee members can speak for themselves--that in the context, of, let's say, the publication of the directive tomorrow, the market will have two things to look at. First, it will have the funds rate range that was specified to look at. And secondly, it will have the aggregates for the two-month period to look at. And if they feel--if the betting, or the evidence, of the next couple of weeks is that those aggregates are likely to run quite high in the range specified or quite low in the range specified, the tendency will be quickly to force the funds rate to its limits. And in view of that, and in view of the fact that we don't know how bold they're going to be in projecting the current information that bears on the aggregates, or the two-month period, why, we feel that it would be desirable to continue a narrow range. Now let's assume that we set--and that 1/2 point range, by the way, is one we have used in most months this year, and so it isn't all that narrow with regard to our recent practice--now let's assume that we set a funds rate range of, well, let's say, for purposes of illustration, 6-1/4 to 6-3/4 tomorrow and that we set a range for the aggregates that turned out to be, let's say, way low. [So] the aggregates seem to be developing to exceed by appreciable margins the ranges that we have set for them. In that event, the market would immediately move the funds rate, of course, to the 6-3/4, but in addition, we would have the option, obviously--the Manager would, as in the past--to inform the Chairman that he considered that the instructions were not consistent, and the Chairman would have the option of calling for, after special consideration, another 1/8, 3/8, or 1/2 to that range, as the situation warranted. It keeps it a little more in our control, I guess I'm saying, as compared with having a wide funds range and letting the market run it in one direction or another depending on how it viewed the aggregates as coming out.",460
-fomc-corpus,1977,"Let me come back to that question on the running side. On the question of intermeeting decision, would that also, counsel, come under this immediate release?",32
-fomc-corpus,1977,"Yes, it would certainly have to. And in that event, you see, we would have announced, in effect, to the world that the aggregates are running strong enough or weak enough relative our expectations that we are changing our funds rate. But that's an explicit decision we make, and at that time we wouldn't be misleading in the market, or the market wouldn't be moving falsely into one range or into another range. We would be saying, yes, you were right, the aggregates are too strong or they are too weak, and so therefore, we are going to adjust the market. So I don't see so much harm coming from that, although there would be very pronounced announcement effects.",137
-fomc-corpus,1977,"Well, except, presumably, the second decision would come at a time when we would have otherwise changed the federal funds rate anyway, and they would have seen it in the market. Now they will see it out of our mouths as well as in the market, which changes it somewhat, but I don't think it changes it from night to day.",69
-fomc-corpus,1977,"Yes, but what I don't see is the early information on the aggregates ranges, which we are basing the decision on, before it's published in the papers. We may have a set of aggregates figures that we are looking at which strongly go beyond the market perception or beyond our released aggregates guides. And we are taking an action which then, in advance, probably a week in advance from the past, moves us beyond our limits.",86
-fomc-corpus,1977,"Where we see that we have the aggregates coming in strong or weak, I don't see anything wrong with that.",22
-fomc-corpus,1977,"You know, when we depart from the Committee's decision through a telephone meeting--or, typically, what we have done is send out a telegram--we've indicated our reasons. We spell those out in a few sentences, and presumably that procedure will continue to be followed so that our reasons for deviating from the FOMC decision would be laid before them.",73
-fomc-corpus,1977,"I guess it's a matter of perception as to whether a 1 point range in the federal funds market might give more leeway for the Committee not to have to have these special announcements, as opposed to a narrower range, [which], in at least a few instances, would almost assure that we would have an announcement to make.",66
-fomc-corpus,1977,"As I understood Mr. Partee, this is a recommendation to be followed over the next few meetings rather than to be followed permanently.",27
-fomc-corpus,1977,"Yes, and I don't think it should be a fixed rule.",13
-fomc-corpus,1977,"That might be a later decision, while we are learning how to live under this new rule, and with a view to learning what the market reactions are and with a view to minimizing the disturbance. This is not a recommendation for a new permanent procedure, is that correct?",54
-fomc-corpus,1977,"I am inclined to think, Phil, that what's going to happen is that market people, like Morgan and the bond houses, will start to focus more than they have and more publicly than they have on the two-month aggregate outlook. And they're spending more time on the weeklies now, but I think they will convert this to a two-month average, and seeing what our two-month range is. We are going to get, I think, newspaper releases saying so-and-so believes that the aggregates will run well above the specified ranges. And it does, I think--at least if that's what happens, and it may not--expose you to erratic changes in the funds rate beyond the points that the Committee would like to see them go without its having its own information on that. Perhaps Steve has a view on this. Do you, Steve?",170
-fomc-corpus,1977,"Well, I think that's essentially the way the staff came out, Governor Partee. As you know, we did consider even narrower ranges than 1/2 point, which we felt was unfavorable because it would mean the frequent Committee announcements, frequent, very frequent Committee decisions on the funds rate, and probably kind of make the decisionmaking process more complex than it need be. And we also considered wider ranges, in part what you're thinking of. And we felt, again, that it would either have adverse market effects, or, if the ranges were so wide that the Committee really didn't intend to use them, it was almost a subterfuge relative to what the court was considering as proper release of information--I think a 1 point range, 3/4 point range, clearly falls within the shadow area here where you couldn't claim that it was a subterfuge. And there, the staff felt that the Committee has been working with a 1/2 point range in this learning period. So it really came down to a judgment, at least in our view, about two ranges, one of which is only somewhat wider than the other.",233
-fomc-corpus,1977,"Gentlemen, the several members of the Committee would like to address questions and make comments, and I'm going to call on Mr. Guffey next, and then Mr. Roos, and then Mr. Winn, and then Mr. Mayo.",51
-fomc-corpus,1977,"Well, first, I think I tried to make a comment earlier with regard to the dissent. My comment, essentially, was that I would hate to see this Committee deny a request or even hold up a request for a vote, because I think it would look as if we were trying to be obstreperous and not cooperating with that court order--even one time I'd hate to see us do that. Secondly, the comments with respect to [unintelligible] all toward the side of dissent, but that does not cover the whole issue, in the sense that the reporter can call up one that they know as being part of the majority, and at that particular time what went on, why was it decided, that per se allusion, perhaps, that you would not want to create. So much for that comment. But with respect, now, the more--",176
-fomc-corpus,1977,"I missed the import of your last statement about the reporter calling a member. I'm sorry, would you be good enough to restate that point?",29
-fomc-corpus,1977,"I am only suggesting that all of the focus and the comments before were with respect to those who would have dissented at a meeting and did dissent at a meeting, but had left out everybody else. Those that voted for the majority, for the consensus view, you can exclude. The situation--a reporter calls up one that voted with a majority and asks him what went on at that meeting--actually what they're seeking is information.",86
-fomc-corpus,1977,"Yes, but I thought that our rule was not to discuss with reporters what goes on in the meeting. Therefore, if anyone of us received a call like that, we shouldn't respond.",37
-fomc-corpus,1977,"I think Roger's point is that you might get an unbalanced or not an impartial view of why the majority voted as it did, from one member.",31
-fomc-corpus,1977,"Exactly. Whether it's a majority or a dissenting member, I just wanted to [be] clear [on] that.",25
-fomc-corpus,1977,"Well, I think that's something to watch if we--certainly, I hope, no matter what happens, we are not going to get on a new course and start talking about what goes on at these meetings.",43
-fomc-corpus,1977,"My only concern was, Mr. Chairman--",9
-fomc-corpus,1977,"Therefore, the possibility of a distorted impression should never arise if we don't talk about it--there will be no possibility of a distorted impression. And I think that's been our practice all along.",38
-fomc-corpus,1977,"But you could have a reporter ask a majority opinionated member why did you vote for this. Which is the same thing Chuck was saying--why did the dissenter vote for this, or against this.",41
-fomc-corpus,1977,"Well, I think that whole question has to be reexamined, and what the specific answer may be at the moment, I'm not sure, but I am sure of one thing. And that is we have to work out a procedure whereby the amount of talking we do and the kind, the amount, of talking that we do in response to reporters' inquiries will be negligible if it takes place at all, and some kind of disciplined procedure, I think, has to be worked out.",98
-fomc-corpus,1977,"I'd like to follow up, if I may, with the most current discussion, and that is, I think, Chuck, you mentioned that there would be two figures published--that is, the range for the federal funds and then the aggregates ranges. But there is one other figure that seems to me to be important if we follow the procedures that we have followed in the past, and that is that we actually publish the federal funds range target that we are trying to hit right then.",97
-fomc-corpus,1977,You mean the current rate.,6
-fomc-corpus,1977,"The current rate, and the question is whether that is a quantified 6-1/2, for example, or whether you use the language that we used in [the] past month's directive. That seems to be the more important issue than perhaps the breadth of the federal funds range, in the sense that you're establishing--when you start moving up, and you say that you want a 6-1/2 now. But if you put the range at 6-1/2 to 7, for example, what has been important in the past has been the midpoint. I think that's the market's perception. And it may be necessary to in some way disabuse the market [of the idea] that the midpoint is an important part of the operation [for] the Manager in the month ahead--either by public statement or something in the directive that essentially says, don't worry about the midpoint, we are telling you what it's going to be now. And either we are going to be slightly higher, slightly lower, remain the same, that's our perception as of this day. But that figure will become very important to the market, it seems to me. Some way, we will have to deal with it. I don't have an answer; I'm the one raising the question.",260
-fomc-corpus,1977,"Well, the answer may be found in saying less, rather than saying more. For example, if, say, the range is 6-1/4 to 6-3/4, and if we want the asymmetrical midpoint, it is not at all clear to me that that is something that has to be made a part of the directive.",72
-fomc-corpus,1977,"Well, I think that is a very important question. Because, if we are to follow the court's decision, and if we have actually taken a vote that we want asymmetrical, I would judge that the counsel would [say] that that probably would have to be published.",56
-fomc-corpus,1977,"If we actually took the vote, yes. But we could have a general discussion which would serve as a guide to the Desk without taking a vote, and I think we've frequently done just that.",39
-fomc-corpus,1977,"I don't know why we couldn't say, Roger--now our current construction says that we think the ranges for the aggregates that we have specified are consistent with a funds rate of about [X]. And I don't see why we couldn't say about 6-1/2 percent. But the Manager may move between 6-3/8 and 6-7/8 if the aggregates seem to be deviating significantly from the midpoint of those ranges. I don't know why that wouldn't work all right--it is a skewed distribution around the midpoint, but I don't know why it isn't okay.",119
-fomc-corpus,1977,If that is something that we want to put into the directive. We may not want to put it in the directive.,24
-fomc-corpus,1977,"We have, in the past, up until last month, I believe. It is my point that that has been a published figure. It is a figure to stand--",34
-fomc-corpus,1977,"We may want to change the midpoint at the time the directive is put out. And the same range, we might say we think it's consistent with the funds rate of about 6-5/8 rather than 6-1/2, and then a range from 6-3/8 to 6-7/8.",68
-fomc-corpus,1977,Your problem might be a 6-1/2 to 7 percent.,16
-fomc-corpus,1977,"Well, that would be a problem because you get nothing on the downside.",15
-fomc-corpus,1977,"Well, yes, the range of 1/2 percentage point, I think, is likely to work quite well when you have a gradual evolution of interest rates. But now, take an extreme case and suppose that the decision were to move to a range of 6-3/4 to 7-1/4; then the purpose that you seek of preventing a jolt, or minimizing the probability of a jolt, just couldn't be served.",92
-fomc-corpus,1977,"In that case, I guess I'd have to say, Mr. Chairman, we should violate the rule of a 1/2 point in order to keep 6-1/2 percent in the directive.",42
-fomc-corpus,1977,"Well, if you do violate that rule, that is precisely the time you're going to get a whopping market response.",23
-fomc-corpus,1977,I guess you ought to be pretty sure you want it.,12
-fomc-corpus,1977,You're going to get it anyway.,7
-fomc-corpus,1977,Except you'll be telling the market a lot more than if you always had a 1 point spread. You'd be giving the market a lot more information when you move from a half point to a full point spread.,43
-fomc-corpus,1977,"Well, one way of dealing with a kind of abrupt change that I spoke of would be to divide that change, to carry out that change in two sets. One decision being made at the time of the FOMC, and a further move that completes the change a couple of weeks later, let's say, in a special meeting or telephone conference.",70
-fomc-corpus,1977,But this has--,4
-fomc-corpus,1977,"That's what I thought. In cases like that, you would move deliberately as expectations were borne out.",20
-fomc-corpus,1977,"Well, let's move on to questions now. Next to Mr. Roos, please.",18
-fomc-corpus,1977,"Mr. Chairman, I have a question, and then I'd like to briefly comment. I'd like to direct this to Governor Partee. Just who would be harmed or what are the damaging consequences, damaging to whom, if the market were to move rather abruptly 1/2 point up, and what is the advantage of our not--if I understood Frank Morris correctly--are we really in the business of trying to fool the market or to control the market? In other words, what is our fear of having a more free movement of the market? Who will be hurt? As I read these responses of some of the traders, I have the feeling that some of our more sophisticated traders might not be as comfortable as they presently are, but I'm not sure we are in the business of protecting them. What is the dangerous consequence of having a more free movement of interest rates?",175
-fomc-corpus,1977,"I think any of us could speak to this, and I hope they will. I guess my view is, Larry, that it's all right to have the 1/2 point to 3/4 point move in the market if that is the deliberate policy of the Federal Reserve because of a clear, perceived danger that it's working against. But I wouldn't want to have that kind of a move in the market that seemed to be precipitated by a Federal Reserve policy statement where it didn't really mean it, and where it was reversible. And therefore, I guess, Frank's case, where you need to move the market considerably--I have less difficulty with [that case] than [with] the idea that the rate will move as a result of being given a bad steer by us. A bad steer by us that is subsequently the reverse of that size. So I guess it just depends on how badly you want to move it. If you want to move it, you can move it a long way. Now the people that are hurt are obviously the people who didn't borrow the day before and the people that loaned the day before. Because if they had known you were going to do this, they could have done better by borrowing before or lending after the event, if it's upward.",258
-fomc-corpus,1977,"You know, Mr. Chairman, I see one salutary effect of this Merrill decision, and that is that it is forcing us--at least for the first time since I've been on this group or at least [since I have] been able to understand a little of what we're doing--I think it's forcing us to actually consider some fundamental policy questions, such as the relative weight that we place on targeting on interest rates vis a vis the weight that we give to achieving the ranges of aggregates growth. I think that it may be obvious to some of us that there is some inconsistency between our efforts to set interest rate targets and [our efforts to set] ranges for the growth of the aggregates, and I get the feeling that your [sub]committee's recommendation essentially targets in on the interest rates and says, maybe by holding up, doing this in two steps, we'll be able at least to accommodate what the reaction is in terms of aggregates movements so that we won't look as though we've missed the boat on either one of these two objectives. Are we, within our family, are we essentially choosing the interest rate route and hoping the other will fall in line?",233
-fomc-corpus,1977,"The intention was to put weight on what the Committee thinks is important now. That is, we did consider whether we should suggest a revolutionary change in procedure to the Committee--for example, run on nonborrowed reserves, which was an experiment we had some time ago. We could have considered, though we didn't explicitly, whether we have all become monetarists and didn't want to pay any attention to interest rates anymore. But our view was that the Committee, through its decisions, has got a balanced view between not wanting to see undue changes in interest [rates] and not wanting to see undue changes in the aggregates, and we didn't think we ought to upset that view. We are just trying carry out what we understand to be the purposes of the Committee.",152
-fomc-corpus,1977,"I think you've done it very well. Let me try an answer to your question, please, Larry. Our present federal funds rate range is 6-1/4 to 6-3/4. Now let's assume, just for purposes of analysis, a modest move in an upward direction, a range of 6-1/2 to 7 percent. We make that decision today, we publicize it today. All right, now then, the market is going to respond to that. The judgment of the market will be that interest rates are going up and securities prices are coming down. Now then, a week or two later, depending on how the monetary aggregates estimates unfold, we find that the aggregates are coming in at relatively low values, and we'll be then aiming at a federal funds rate of 6-1/2 percent; and possibly we'll want to go a little lower if the monetary aggregates are coming in extremely low or negative. In the meantime, the Treasury will have put out an issue, and some of our corporations will have put out issues, and they will never forgive us. [They will say,] ""Here, you've mislead us, you've rocked the market and we came in, we paid a higher interest rate, you've mislead us."" Now I think what Partee and his [sub]committee have tried to do is to smooth the adjustment as much as possible. That's my understanding.",288
-fomc-corpus,1977,"If the aggregates, sir, were to overshoot in a manner that concerned us, would we be prepared to adjust the interest rate?",27
-fomc-corpus,1977,"We'd be just as prepared to do that under the new set of rules as we have been hitherto, because no change in policy has been recommended by the Partee [sub]committee. All that the Partee [sub]committee is trying to do is to take the kind of thinking that exists within the Committee and enable us to adjust to the Merrill decision so as to minimize shocks in the market. Now that's my interpretation.",88
-fomc-corpus,1977,"I think there's a question of the interpretation here, as to whether the market would react stronger with a half point or a full point. And that, no one can tell until we try it.",39
-fomc-corpus,1977,"Then perhaps you could start off with a half, and then you can try 3/4 and see what happens, and try a [full] point and see what happened. But I guess our recommendation is the conservative recommendation--you start thinking small rather than start thinking big.",56
-fomc-corpus,1977,"Well, it's two things. You are thinking small on analytic grounds, and you're thinking in terms of a small range, because that's where we've been recently.",31
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,"Mr. Winn, please.",6
-fomc-corpus,1977,"I guess my comments are in the same direction, Mr. Chairman. But it seems to me that, with the small range, when we're forced to move it, since we tend to be reluctant to move until we are sure of the aggregates, that you're going to get your next adjustment instantaneously. And if you want to try to smooth that as a set-up, you are going to add more reserves, which adds more to your quantitative movement, and I wonder if we don't have less flexibility in terms of really meeting our objectives. I would assume that your next step would be up just another 1/4 point centered around the midpoint of where you'd reached. And you'd actually get that instantaneously because the market realized that we've really gone beyond our objectives in order to make the move. And then you're going to get that, it seems to me, almost at once unless you intervene. If you intervene again, then your quantity problems start.",189
-fomc-corpus,1977,"I might add, in consideration of that, presumably the Committee at that point is willing to see the rate effect. We were most concerned with the undesired rate movement. That is, you had a rapid rate increase and there, in order to moderate that, you would be putting out excess reserves. But if, in a consideration between meetings, presumably that the Committee is wanting to see the rate effect and you would not--",85
-fomc-corpus,1977,"Well, wouldn't you get it almost all at once this time?",13
-fomc-corpus,1977,"Oh, I assume so. If you raise the funds rate 1/4 point, you get about a 1/4 point reaction, but that's not outside of the normal mode.",38
-fomc-corpus,1977,"But just because it went that route of another publicized Committee decision, you could possibly get a bit more of a rate effect because you had to do it that way.",34
-fomc-corpus,1977,"I think there's just no getting around that; that's what's going to happen. That is, when you move and you say you are moving, you're going to get more of a prompt adjustment than you do now, and so you have to be pretty certain of your ground.",54
-fomc-corpus,1977,"Well, just a factual point. We have had a 1/2 percent[age point tolerance range in the] federal funds rate since May, and the federal funds rate has moved during that period by approximately 120 basis points. And possibly the reference point here should be the April figure rather than the May figure, in which case it would have moved about 170 basis points. In other words, with the narrow federal funds rate [range], we still have been able to achieve a significant upward thrust.",102
-fomc-corpus,1977,"Mr. Chairman, could you add to that analysis how many [times] we've had special intermeetings?",22
-fomc-corpus,1977,"Only once, I think--how many--",9
-fomc-corpus,1977,"Since the May meeting, there was one in August, following the August meeting.",16
-fomc-corpus,1977,There were a couple of them back in April.,10
-fomc-corpus,1977,There was one in April.,6
-fomc-corpus,1977,"There was one on May 6, and one on August 5. Those were the only two--",21
-fomc-corpus,1977,"Well, prior to May of this year we had a range of 3/4 percent except for one month, when we had a range of 1 percent. But I want to repeat what I think is an important part of Mr. Partee's report. Mr. Partee did not recommend that we adopt a federal funds rate [with a] 1/2 percentage point [range]. What he recommended is that we do that over the next few meetings. Is that correct?",98
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,We do it in recognition [that there] may have to be more frequent adjustments.,17
-fomc-corpus,1977,"More frequent adjustment between meetings and a recognition of perhaps the desirability of widening the range depending on what we learn about the market behavior. Mr. Mayo, please.",33
-fomc-corpus,1977,"Well, just continuing on the same theme, I think this is an excellent report, and my only question is, I guess like Phil Coldwell's, to put it a little different way, I think there is perhaps a slight violation, in the 1/2 point recommendation, [of] the basic principle that the Chairman enunciated quite well, that the Partee [sub]committee was not making policy. I think we are trying to judge this prematurely. We may come down in the February meeting to a decision that maybe a 3/4 spread is what we would like to do, and I don't see any necessity of inhibiting such a policy decision by a very more pontifical decision now that, well, 1/2 percent is probably as much as we should do. I would obey the conservative instinct here, but I wouldn't give it a quantity. I guess that's all I'm saying.",185
-fomc-corpus,1977,"Well, I--",4
-fomc-corpus,1977,Ordinarily--,3
-fomc-corpus,1977,"Ordinarily, yes, you have all the escape you need. I just come back to the Chairman's recitation of what we have been doing over the past year, we've had a 1, and a 3/4, and some halves, all of which have been justified in our minds at the time we did it. I don't see any reason to decide today that we are going to depart from that, so I feel that we are discussing this too much, I guess is what it amounts to--thereby adding to the discussion.",110
-fomc-corpus,1977,"Well, I don't feel that way. I feel that this recommendation is an important recommendation. I think this discussion is very helpful. Nevertheless, I would accept your conclusion that we need not decide today to observe a federal funds rate range of 1/2 percentage point over the next six months. I don't think we need to decide that. In fact, I don't think we should. But I do feel that the report made by Mr. Partee's [sub]committee and the sympathetic discussion, to the extent that it has taken place, is something that we ought to try to remember for the next few months and evaluate as we see fit, month by month, as we deliberate. So I accept your conclusion. Do you, Mr. Partee?",152
-fomc-corpus,1977,It just requires careful thought--,6
-fomc-corpus,1977,"Sure. Well, that's really all we are saying.",11
-fomc-corpus,1977,--when you adopt a broader range.,8
-fomc-corpus,1977,"We are starting from a half, and it's logical to consider that [as being] home base as we feel our way here. And we will be feeling our way. I had one question which was raised by the speculation earlier. Well, suppose the aggregates are coming in stronger, and we decided we do have to make a move. This may seem like a silly question--it would have been a silly question two years ago; maybe it isn't so silly now--but, honorable counsel, are we well protected in the Freedom of Information Act from somebody coming in and saying, ""Say, you are moving the federal funds kind of fast within your ranges. Do you have information that we don't have as to the behavior of the aggregates? I demand such information under the Freedom of Information Act.""",158
-fomc-corpus,1977,"Well, I would ask you to articulate exactly the document you are talking about.",16
-fomc-corpus,1977,"These are reports from all of the member [commercial] banks that Steve Axilrod gets in, and so forth. To what extent is this privileged?",31
-fomc-corpus,1977,I think the answer is easy. We publish dependable information when we have it.,16
-fomc-corpus,1977,"Oh, you are making judgments on undependable information?",12
-fomc-corpus,1977,"Yes, we are, as every statistical agency does.",11
-fomc-corpus,1977,Didn't you ever know that?,6
-fomc-corpus,1977,"I am trying to state, be a devil's advocate here, to be sure that we understand our degree of protection.",24
-fomc-corpus,1977,"Just to put it pointedly, do we have to publish our projections? Which we haven't.",19
-fomc-corpus,1977,"That's about it. Well, the preliminary information is supposed to be information as against forecast. There's a line here, today is the line. Are we protected? I hope your answer is yes. I think I'll be sorry I raised the question if it isn't.",52
-fomc-corpus,1977,"Well, I don't know how. If I may, Mr. Chairman--the requirements in the demands in the Freedom of Information Act, Mr. Mayo, relate to records of an agency. That's the broad concept of that statute. And to the extent that an agency is in possession of what I will refer to as intra-agency information, recommendations, materials that are not adopted records of the agency, the agency is protected from disclosure of such. I consider what you've been describing as the latter type of information. The Committee [possesses], of course, bundles of information that it has not itself determined to be matters that it has adopted for use of the Committee. It can reject or accept that which it chooses. And until it has done so, I would defend that it is not a record of the agency that must be subject to disclosure requirement by the FOIA.",174
-fomc-corpus,1977,"Okay, thank you.",5
-fomc-corpus,1977,"All right. Mr. Wallich, please.",10
-fomc-corpus,1977,"I have two points, Mr. Chairman. One goes somewhat in the direction of what Mr. Roos said. I think we ought to test our procedures here by how well they will allow us to control the aggregates as well as by how well they will allow us to stave off undesired effects in the money market. Now, it is certainly true that choosing a 1/2 percent[age point] range does stave off the danger of undesired effect when we have to announce immediately. In the past, we didn't announce, and when we had a wider range that we set, a year or so ago, we didn't think it was very likely the market would go there, but we made it possible. Now we have to ask ourselves if we are going to make the changes in the rate--since we are not going to allow the Manager or the market to make them frequently and easily enough--in order to control the aggregates, and I'm somewhat doubtful. If this is only going to be an interim procedure, it's not very important. But if you visualize that this may go on for a longer time--it always takes a telephone meeting to make a change beyond the 1/2 [point] range in other words, a move more than 1/4, typically. Every move becomes somewhat like a discount rate change, when one always wants to see a little more information, so we wait for next week's average aggregates, or for the week thereafter. This is the concern I have, Mr. Chairman.",305
-fomc-corpus,1977,"I think we've had not very frequent--but it hasn't been necessary very frequently--special recommendations made to the Committee in line with the evidence as it turns up, as the aggregates develop, with the recommendation to move beyond the Committee's recommendation. We have done it twice this year; we've done it, I think--",63
-fomc-corpus,1977,"Earlier, Mr. Chairman, they were very much more frequent, in '73, '74, and '75. If I can remember the count I made, it was eight, nine, and six intermeeting telegrams to change the funds rate range. In the last two years, there were only two each. I think that's a consequence of the movement of the aggregates rather than a change in procedure.",82
-fomc-corpus,1977,"Well, we can, if we steel ourselves, make these frequent changes. The fact that, of late, we have had 1/2 point spreads and the aggregates have run high are not, I think, completely unrelated, although there have been other reasons that have contributed. So we certainly have to bear in mind that we may have to move the funds rate, painful though it is. The second point I wanted to make is a question to counsel. Does this court order imply that we are stuck on a particular form of directive? I see this implied in some of the concerns expressed that some change or other might be interpreted as an evasion of the court order. I would intuitively think that a new situation having been created, we are within our rights, and maybe just doing our duty, in adapting the directive to that new situation.",170
-fomc-corpus,1977,"Governor, I read the court's decision as taking the Committee procedure and format as it was found and as described in pleadings that reached the Court of Appeals. I see nothing in that opinion that prohibits this Committee from exercising its own discretion in the format that it adopts. The allusion that I believe you refer to--evasions or subterfuge--were intended to calculate a judgment on the basis of practice as found by the Court of Appeals of what we might be doing to go around that position rather than preventing the Committee from adopting a reasonable position it reaches.",114
-fomc-corpus,1977,"Well, that is, I think any suggestion for a new type of directive will be reviewed by the Partee [sub]committee.",27
-fomc-corpus,1977,That's what I had in mind; we are not precluded from--,14
-fomc-corpus,1977,In my judgment we are not.,7
-fomc-corpus,1977,I think we would want to have an explanation when we [make] a significant change in the directive if we were on a publications schedule--,28
-fomc-corpus,1977,"Could the explanation be that, because of the conditions created by the immediate announcement, we now face a market problem that we want to cope with by changing our procedure, changing the directive.",37
-fomc-corpus,1977,"The Committee's explanation, Governor, I counsel only, should not confront any mandate of the Court of Appeals. You have already read, the court has said actions taken by the Committee as reflected in adoption by the Committee should be promptly published. It does not say that you may not change the mode of your arrival or the actions that you will take, but once done, and once adopted, you must publish. And I think no other conclusion is intended from that Court of Appeals decision.",97
-fomc-corpus,1977,"All right, let's turn to Mr. Balles now, please.",14
-fomc-corpus,1977,"Mr. Chairman, I was impressed by the thoroughness of the [Partee sub]committee's search for alternative solutions to the Merrill problem, and if the case goes against us, which we hope it won't, I think we are all going to learn a great deal. And I doubt if we are going to find another final answer to all these problems as we sit here today. But there are two things about this report which otherwise I find very thorough and convincing. I do have doubts about one of them that already have been expressed, and I won't go into any detail on that. I would simply join those, like Governor Coldwell and President Morris, who would like to retain the option of a wider federal funds range as we gain experience with market reactions, if we are forced to release our directive immediately. My concern is, in a nutshell, that the narrow range, a 1/2 point range [achieves] a minimized market reaction or announcement effect at that moment, but the announcement effects will be magnified at a later time when we do have to change the range. But my more broad point has to do with a statement on page 2 of the subcommittee report--I shall just quote [from my] recollection, it's in the middle paragraph. It says, ""we don't feel that the court order itself should be taken as reason for adopting a basically new approach to operations unless such an approach has clear economic advantage. Accordingly, the subcommittee does not believe it desirable at this point to consider such alternatives as shifting to a reserve target, a course which the FOMC has debated and experimented with and decided against in recent years."" Well, I don't have too much trouble with that phrase as long as that sentence says desirable ""at this point"" to reconsider. But given the whole history of the [Sub]committee on the Directive, and given the fact that committee number one [is] followed by committee number two, and that the players change and so do the recommendations, I would like to just go back and indicate briefly a few of the key points in here. According to my quick look at the history of committee number one, when we presented stage 1 of our report and found out that this was clear back to--",454
-fomc-corpus,1977,"Which is committee number one, is that the Mitchell committee?",12
-fomc-corpus,1977,"No, this is the Holland committee--was Holland.",11
-fomc-corpus,1977,"Well, that was really committee number three.",9
-fomc-corpus,1977,"Committee number one of my experience, Chuck. That really was committee number three, and it was Holland, Morris, Wallich, and Balles, I guess.",33
-fomc-corpus,1977,I think it was before Governor Wallich came on the Board.,13
-fomc-corpus,1977,"Dane, for awhile; Wallich. Okay, there was a time when that committee, I believe, was unanimous in the spring of 1975 in recommending two things: getting rid of RPs [repurchase agreements] and proposing nonborrowed reserves. Well, when it finally came full circle and we decided to conduct an experiment, I was very satisfied with the nature of that experiment. I thought it was inconclusive. We discussed it at some length in the final session, I think, in December 1976. What I call committee number one, when I was still on it, was inconclusive in a sense that the work of the staff indicated that we've typically been dealing with that multiplier over a two-month span, [and it] was just too uncertain and you wouldn't be really any further ahead with using nonborrowed reserves. At that time I made a suggestion, and I still think it has merit, that we ought to perhaps lengthen the period over which we try to achieve certain objectives. So, say a three-month period, and as I remember, Steve indicated the multiplier becomes a lot more predictable if you, in fact, move to a three-month span. That is one of the areas in my consideration, Chuck, that needs and desires some further exploration. To kind of wind this up, I guess what I'm really trying to say is, when the old committee--one or three, as it may have been--that I served on made its final report, and this was in December of last year, I made the point, expressing my own personal views--and I think this is clearly of a majority view around the table as a whole--that the Committee should retain a balance between interest rate stability and control of the aggregates; that there is a middle ground we should achieve. But my own judgments were that the FOMC leaned too far toward the interest rate stability goal given the experience up to the time. I formed that view, and that was one of the things that had caused us to get into base drift and considerable overshoots as well as undershoots from time to time. And I still feel that way today, that one of the inhibitions in achieving this middle ground has been excessive concentration, perhaps, with too narrow a federal funds constraint and delays in moving, even though, as you well pointed out, we have the long distance. There have been times when we've moved too slowly, in my judgment, in adjusting the federal funds rate and thereby leading to these overshoots of indexes. Well, just as a concluding point, I would urge that the subcommittee not close the door on fully reexamining the possible advantages of a reserve target in a new climate that might be created if we lose this Merrill case. One of the things, getting away from all the fine points and technicalities, that have bothered me for several years and bother me even more today is the perception among the general public, and especially the perception of the Congress, that the Fed can and does control rates. Now, as we know, we can do that only in the most short-run sense. Inflationary expectations and demands for credit are, of course, the other big elements. And I feel we are just lending credence to that perception of our ability to control rates by not uncoupling our actions [from interest rate movements], as I think one could do, by using a nonborrowed reserve target. There was a staff paper that came out of the New York Bank a month or so ago, from Dick Davis, that I found quite convincing on this subject. If we really want to get the market and the Congress and others educated to the fact that, longer run, we can't control interest rates in the sense that they perceive it, there would be real advantages to moving to a reserve target, even though I would personally hope that we always have a federal funds constraint to go along with that.",794
-fomc-corpus,1977,"You know, I follow everything you say with a great deal of sympathy until you get into the political part of the argument. If we had a reserve target, and if in the process of applying it, interest rates moved up, believe me, the Congress would respond in just the way it has been doing. And there may well be great advantage in what you suggest, but as for the politics of it, I think you're off base.",88
-fomc-corpus,1977,"Mr. Chairman, I have one other--",9
-fomc-corpus,1977,"Could be. It's a judgment, and my judgment is the other way.",15
-fomc-corpus,1977,"We are exploring these things, John. This was just a sudden assignment within the last 30 days. We are looking at the relationship within short-range, long-range targets. We're looking at the question of the different kind of [unintelligible], where I hope that we will explore the idea of going back to a money market directive with the aggregates as only an indicator for changing the money market directive.",82
-fomc-corpus,1977,"At this point, it's meant quite literally, I think, to mean at the point we're ready...",20
-fomc-corpus,1977,"You are not exploring depth, breadth, and resiliency.",12
-fomc-corpus,1977,"No, we haven't done that as yet.",9
-fomc-corpus,1977,"I have one other concern on this. I want to state this carefully. I don't have any interest in this Merrill decision. I wish it would go away someplace. But if we are actually going to be subjected to this court interpretation, then I raise questions, counsel, as to whether we can be charged with evasion of the court's activity or requirement if we do a pro forma on the long-range targets after a full discussion.",87
-fomc-corpus,1977,"May I suggest that is a question of law that I want to fight out with Mr. O'Connell, and I don't want to raise that question here and now because it would take a great deal of time. I've been troubled by that, and I suggest that, as far as today is concerned, that we not dig any more deeply into the matter until--",73
-fomc-corpus,1977,Moot until we hit the next long-range target discussion.,12
-fomc-corpus,1977,"Well, we'll have to--",6
-fomc-corpus,1977,That's next month.,4
-fomc-corpus,1977,"In the meantime, these discussions of the decision and of our directive will have taken place.",18
-fomc-corpus,1977,"Mr. Chairman, most of the points that I wanted to make have been made by various people. I started off with this point to which John Balles alluded a while ago, on page 2, where we don't think the court order ought to be, in and of itself, the reason for adopting basically a new approach. And I think that ought to be the starting point on this. I guess I felt initially, although Governor Partee has allayed a lot of my fears on this, that the 1/2 point range was unduly narrow, and I would have preferred that you say we do exactly what we have been doing, which sometimes involves a 1/2 point spread, sometimes more than that, but his intention seems to be sound and pure on that. Now he has clarified that, so my fears are alleviated, but I just feel that human beings suffer from a certain amount of inertia, and you would have unnecessary barriers to going beyond that 1/2 point if you had, in fact, set it. So I'd rather at least consider the possibility of going beyond that if, in fact, you did pass these barriers and change by raising the range, say, another 1/2 point. I think you could conceivably be accused of having tried to circumvent the intent of the court. Other points have been made, and I won't go over those, but I do endorse what Mr. Balles was saying a while ago. I think this is a significant enough change in our procedure that we really ought to go ahead, as Governor Partee indicated that we would, in reexamining our procedure still further. I think interest rates and aggregates are both important. I hope we can move on in that direction. Otherwise, I think we are exactly where we should be in this report.",371
-fomc-corpus,1977,All right. Mr. Jackson.,7
-fomc-corpus,1977,"I think Governor Coldwell has expressed the concern that I have because the question was the degree to which we would have a meeting and discuss long-range objectives without coming to a final conclusion. Because I see us constrained in two ways--to the extent we get a general consensus, or sense, or whatever you want, without formal action and then have a telephone meeting later to take formal action, you're obviously circumventing the thrust of the court. And yet on the reverse side of it, I think, is that electronic communication has reached marvelous levels but is not a substitute for collegial discussion of a serious material issue. And by the time we hear Mr. Roos say that he's got a new telephone system and he can't hear anything at all, and by the time somebody at the Board drops a microphone or something like that, I must say that the quality of substantive decisions that can be reached in that environment is modest under the most polite assessment. And so I think we are facing a difficult decision to not circumvent the court but at the same time follow our real decision, which is to collectively make the right judgment. And I think the Committee needs to work very carefully now, when, as you mentioned a second ago privately to me, maybe the answer is to try to adjust our meeting dates. But adjusting meeting dates--to meet the whims of a current Chairman who might have a speech to make that week in the Congress, you get various discussions backward and forward as to when they [in the Congress] want to hold sessions; that might be done only if you had a clear cooperative spirit on the part of those two committees; and never have anybody on the Committee die or have a birthday or something. It's not going to be easy to solve those two problems.",353
-fomc-corpus,1977,"Well, I think the solution may be found outside the recommendation of the [sub]committee. But I am not going to enter into a legal debate with Mr. O'Connell with so many people listening. We will have to do that in private. Mr. Morris now, please.",58
-fomc-corpus,1977,"Mr. Chairman, my only concern about the report, which I thought was very good, was the interest rate spread recommendation. I think it will prove to be very advantageous to us to pick a spread and stay with it. Because from now on, if we are having instantaneous release, every time you change the spread, you are going to be giving information to the market that may be misinterpreted. I think we ought to make a decision as to how wide the spread ought to be and stay with it rather than varying it from meeting to meeting, which I think is going to cause a lot of trouble. While right now I think a 1/2 point spread is fine, I don't think that, long term, we will be able to sit through a 1/2 point spread without impairing our response time to changing conditions. And it seems to me that the ideal time to establish a 1 percent spread is when you don't have expectations in the marketplace of a rapid change in interest rates to come. I don't think you have that now. And I think this is exactly the kind of time you want to get the market used to a 1 percent spread. Because whatever we pick, I think we are going to find it hard to move away from it.",257
-fomc-corpus,1977,"May I ask you a question about that? To what extent would you weigh the relative merits of a 1 percent[age point] federal funds constraint, versus a 4 percent aggregates [unintelligible]. It strikes me that you have both alternatives.",52
-fomc-corpus,1977,"Yes, but we won't be publishing anything about a zone of indifference, I don't think. This will be again, a sort of thing that we don't vote on but--",35
-fomc-corpus,1977,"No, but his point is, you can either widen the funds rate spread or you can narrow the aggregates. Precipitate action on either--",29
-fomc-corpus,1977,We have two tools and we have only focused on one; we have not discussed the other.,19
-fomc-corpus,1977,"This strikes me as the perfect example, Mr. Chairman, of [unintelligible], we may say we want to consider [unintelligible] substantive issues, but we can't avoid getting into the substantive issues. And I'm not prepared to sit here and say we always want a 1 percent[age point] spread. There may be times when I positively don't want the interest rates to go that far; therefore, I wouldn't want to get locked in permanently to that large a spread because of this publication need, which I think is why we came out the other way. We can always change a narrow spread, but you can't narrow the wider spread until the damage is done.",138
-fomc-corpus,1977,We may want the announcement effect of a change in spread sometime--it's quite conceivable.,17
-fomc-corpus,1977,In either direction.,4
-fomc-corpus,1977,"Mr. Willes now, please.",8
-fomc-corpus,1977,"Thank you, Mr. Chairman. I'll be very brief because I've heard most of the things I was going to say. I'd like to fall in line with Governor Wallich and those who expressed the concerns that they have and will just make two brief additional comments. [A point was] made in the discussion--if we follow this procedure, interest rates will move if we intend them to move, otherwise we will avoid unintended sharp movements in interest rates. I have a little difficulty with that because I'm not sure we always know what rates we really intend to have. We may think we do in the short run, but as we gather more information, often we'll come back and wish that something else had taken place. So that distinction is not as clear in my mind as it may be to some others. Second, I would simply point out that while there are announcement effects and market reactions to changes in interest rates, there can also be--and in fact, I think in recent history, have been--more frequent announcement effects and market reactions to changes in the aggregates. And so it's again not quite as clear to me that this is as conservative an approach as it may appear to be. This is [in keeping with] what we are doing. It's in that sense that I accept that. But it's not clear to me that we might not, by following this procedure, generate some market and other kinds of reactions that could, in fact, be quite sharp because there are now a large number of participants who do look at the aggregates and respond accordingly. So I think Phil's comment on what to do [with] the range in the aggregates is a very real one that we may have to confront perhaps sooner than we'd like to.",346
-fomc-corpus,1977,"All right, thank you. Mr. Kimbrel now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I find the paper to be rather helpful, and it's even approaching erudite, and I like the approach [and] share the suggested procedure. I think this discussion has been productive, and I think it certainly comes under the heading of advance planning is prudent. Having said that, I have a natural preference for a wider interest rate spread, but I think, beyond what we have done, I'd elect to wait [for] some more of the details of the Merrill decision without trying to resolve everything here, anticipating what the court's going to dictate.",115
-fomc-corpus,1977,"Well, I think that's wise. I think that the objective of this meeting, as I see it, is not to arrive at any decision but to share our thinking, and I believe it would be fair to say that most of us think that the recommendation by the Partee committee for the months immediately ahead are a good starting point for our deliberations later on; are not necessarily an articulated starting point, but one that we will retain as we deliberate in the months immediately ahead, assuming that the Merrill decision is going to stay with us. We may be lucky, and something may happen, and if the Supreme Court takes on this case, we'll have time for a legislative decision, which I can't be too optimistic about, but I would not be pessimistic about legislative relief. I think once this matter is explained to members of Congress, there will be a fair degree of sympathy with a 30-day delay such as we have practiced. Anything else we'd like to say this afternoon?",196
-fomc-corpus,1977,"Mr. Chairman, I'd like to raise a possibly heretical question. But if it were to develop with, say, a 1/2 point interest rate spread, most of the time we were operating either at the floor or the ceiling, which seems to me a fair possibility. Now, really, a two-stage question. One, would the Committee be inclined to feel a necessity to meet and reconsider its position whenever we were at the floor or the ceiling? And then, two, which picks up something the Chairman alluded to earlier--the very different world we'll be in, having announced our program, and then people conducting operations based on our [announced] program rather than on what they think it is; when people may feel that we, in effect, have a contract with them not to deviate from our program and therefore feel taken anytime we do deviate from it. And this raises a time-frame question--presumably the program is announced for the next month, but if we come in and make changes in the interim, a lot of people may feel that they are caught off base.",223
-fomc-corpus,1977,"Yes, but when we announce in our directive the quantitative specifications that we intend to live by during the coming weeks, we also indicate that there may be some inconsistencies among these specifications. We also indicate there may be some change in the Committee's thinking, and we always have a sentence in our directive that makes that clear. And all that we have to do to take care of your point is to perhaps underline that sentence so the people will pay attention to it.",93
-fomc-corpus,1977,"Well, now the heretical part. Insofar as there might be problems of this type, might we avoid them by using our general phrase and a federal funds rate point, as compared with a range, so that we would not have committed ourselves [on] how acceptable to us [it would be] to have the results [be in terms of] a deviation from a point. I seem to detect a flavor running through the discussion here, that if the data come in above or below the range that we have specified, then we might have difficulties explaining ourselves. It seems to me that [with] data coming in above or below a generalized point, say, consistent with the federal funds rate of about 6-1/2 percent, and [our] not having declared how much deviation from that is acceptable to us, [then] we might be in a better situation.",179
-fomc-corpus,1977,"I think that is a money market directive, and any time the aggregates are running strong or weak relative to expectations, it calls for a meeting or a wire to move off that rough point--you know, point plus or minus 1/8 or something like that.",54
-fomc-corpus,1977,But assume that our performance indicated that the phrase might have a connotation at some points in time of a 1/4 percent deviation and other times might have a connotation of a 1/2 percent deviation.,44
-fomc-corpus,1977,"How would we tell the Manager that? If we told the manager that, we would be giving him an instruction.",23
-fomc-corpus,1977,"Not only that, but a movement of 50 basis points is not regarded as standing approximately still in the marketplace. Not by traders, and not by our Treasury, and not by most of us.",40
-fomc-corpus,1977,"I accept your observation, and yet I am not completely persuaded.",13
-fomc-corpus,1977,"Mr. Guffey, please.",8
-fomc-corpus,1977,"Mr. Chairman, I'd like again to make the point that the Committee did not address the advantages or disadvantages of making an announcement as to what the federal funds rate precisely would be in quantitative terms from the date following the day of the meeting. That's laid against the alternative of casting it as we did last time--that the federal funds rate at about the ""prevailing"" level, or you could choose alternative language ""slightly higher or slightly lower""--and thus not be so precise, to permit the market to move to a particular federal funds level the next day providing you wanted to move it one way or the other. That was not addressed by the Committee.",132
-fomc-corpus,1977,"Well, we did, Roger, address the question of qualitative expression. We decided that that was the step backward--to talk in terms of slightly higher, slightly lower--which used to be the way the directive was put. The other, I think you're distinguishing between a money market directive, which shows [unintelligible] [and] an aggregates [directive] of the kind we had, say, two times ago, three times ago. And there, I think, our thought is that the Committee would be free to treat a money market directive or an aggregates directive depending on what it saw as the circumstances of the moment.",127
-fomc-corpus,1977,"Well, it would seem to me that if we did not express the federal funds rate in that meeting at a particular, quantitative level, that it might give the Desk some flexibility to let the market seek a level in conjunction with the Desk action, much as we are doing today. [It] might have some advantage that you do not have if you say it's going to be 6-5/8 tomorrow. In other words, I would prefer to stay away from that.",96
-fomc-corpus,1977,"Roger, could I ask you a clarifying question? On page 13 under the monetary aggregates directive, aren't you talking about the second sentence from the bottom in the Bluebook, where you say, ""In the judgment of the Committee, such growth rates are likely to be associated with a weekly average federal funds rate of about X percent""?",68
-fomc-corpus,1977,"Yes, that's right, and I'd rather not say ""X percent,"" but I'd rather use the language that apparently the Committee considered and recommends against, that is to cast it in something less than a precise figure.",42
-fomc-corpus,1977,"If that's different from what you are now operating at, it would clearly have very quick market repercussions.",20
-fomc-corpus,1977,"What if we did exactly what we're doing now, except announce immediately, and if there were a temporary disruption [then see] if that disruption would not give us grounds to seek remedial action in the Congress. In other words, we are being driven to this by people beyond our control; in [our] complying with the law, Mr. Merrill has pushed us into this. This isn't our doing, and if for 30 days there was some disarray or disruption in the markets, wouldn't this give the Chairman the best possible reason to go to the Congress and say, look, we are doing what we are forced to do--look what's happened. If it doesn't happen, then all of our discussion today is for naught. If we did have disruption because of this Merrill action, why don't we let it show? It is not our doing.",171
-fomc-corpus,1977,Congress won't get that excited about it.,8
-fomc-corpus,1977,It may not show for four months.,8
-fomc-corpus,1977,"If we are right in thinking that disruptive moves may occur, then I think it is our duty to try to prevent that rather than let the destructive movement take place and then go to the Congress and say, ""See, a destructive movement has taken place, and therefore we seek legislative relief.""",58
-fomc-corpus,1977,"Why, you are a gentleman, Mr. Chairman.",11
-fomc-corpus,1977,"[The Congress] might just say, you are a damn fool. You could have done something different--",21
-fomc-corpus,1977,"Well, anything else to be said on this subject this afternoon? If not, I think we have had a good discussion. We will start tomorrow, on time, and with our regular--[End of executive session] December 20, 1977",51
-fomc-corpus,1977,"Good morning, gentlemen. We'll get our deliberations under way. And as always, we need to act on the minutes of the last meeting. Is there a motion to approve?",36
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,"The motion has been made and, I take it, seconded, and I hear no objections. And we will move on, therefore, to the report on foreign currency operations by Mr. Pardee.",41
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,"Thank you, Mr. Pardee. Are there any questions or comments? Mr. Roos.",20
-fomc-corpus,1977,"Scott, is it the relative rate of inflation or the trend rate of inflation that affects the value of the dollar? In other words, isn't the effort expended by the various nations to control inflation and the success of that effort more of a factor than the rate of inflation in the various countries?",59
-fomc-corpus,1977,"Certainly, we have had a number of very interesting and useful studies, including the studies by the Board's staff recently, on the real rates of exchange. But at this moment, and under these conditions, the exchange market is not focusing on rates of inflation as such. There is concern, and the concern about potential rates of inflation, and I think that's more important as one of the many factors influencing the market now than any new and recent figures we might have on inflation.",95
-fomc-corpus,1977,I get the impression that the Desk would prefer greater intervention. What's your concept of intervention?,18
-fomc-corpus,1977,"Well, I'd prefer to be more forceful at the moment and hope to save overall in the amounts that I use. The problem is, now, we lack credibility. And so to the extent that we do intervene, people say, well, they're not going to do very much, so we can rake them over the coals. If we could be more forceful when we do approach the market, then we might have more effect. On the other hand, we are facing a market in which it's a gambling atmosphere here. We raise the ante, they'll raise the ante; until we have a change in one or another of these underlying conditions, it would be very difficult for us to have a major turnaround in the market simply on our own methods.",151
-fomc-corpus,1977,"Which implies then, you'd just be throwing some money down the drain if you did too much with it daily.",22
-fomc-corpus,1977,"Well, we have to live up to our responsibilities, and this is a very disorderly market. So we should be there. It's a question of how to minimize the damage to us while we're also trying to contain the disorder. It's a very difficult situation.",52
-fomc-corpus,1977,"If intervention at the levels conducted by the foreign central banks in recent weeks has been unsuccessful, what leads us to believe that anything appropriate by us could be successful?",32
-fomc-corpus,1977,"One of the concerns of the marketplace is that the U.S. government wants exchange rates down--the dollar rates down. Many statements have been made by government officials, and ourselves when we have had the opportunity, to try to dispel this impression. But it remains in the market. The fact--",60
-fomc-corpus,1977,"How much do you think we would need to commit in order to change that opinion, assuming that it really exists?",23
-fomc-corpus,1977,"I would not put a strict amount on it. I think we would have to be prepared ourselves to commit, on a given day, $100 million, $150 million.",35
-fomc-corpus,1977,How much do you think we might need to commit over a month?,14
-fomc-corpus,1977,"The thing is, it's the preparedness, not the amount. I'd say $2 billion or $3 billion and it would be meaningless. If we started and [gave] the impression to the market that we were prepared to deal effectively with the market, then we wouldn't need the big numbers that I would put on the table.",65
-fomc-corpus,1977,Mr. Volcker?,5
-fomc-corpus,1977,"I want to say a few words about the relevance of the foreign exchange situation for our general policy probably later, but it does seem to me this intervention has been something of a rear-guard action, necessary but still not very impressive in turning the market sentiment. I myself doubt that you're going to do that by intervention. You never can tell in terms of the psychology of the market at the moment, but everyone does seem to be confused about what the [unintelligible] posture of the United States is, and you've got to put this in a context. It seems to me some coherent statement of policy, not just involving the Federal Reserve, [is needed] if intervention, to the extent that's desirable and necessary, is going to have the maximum impact in reversing the psychology. There aren't a great many things that can be done, I fully recognize. I think there are some things that could be done and certainly some attitudes that could be expressed that would maximize the chances of intervention having some leverage. I don't think that has been the condition under which we have been operating in the last month, which has made it very difficult. Hopefully, that might change.",233
-fomc-corpus,1977,"Well, it seems to me, Paul, that the evidence of recent months is that there's a very, very large amount of money available to be moved from border to border in a speculative way. And this $7 billion intervention by the three other countries--it's just an indication; it's been much more than that, sometimes.",65
-fomc-corpus,1977,"Since the beginning of the year, the figure would be $32 billion, $33 billion, and that amount with interest rates higher here than in most industrial countries now. And even our own modest intervention--and in spite of that, the dollar is down perhaps 6 percent now against the G-10 countries plus Switzerland.",65
-fomc-corpus,1977,"Well, I just think that, when you get a market move of size, with the kind of depth of trading behind it that is occurring, intervention is unlikely to do very much.",37
-fomc-corpus,1977,Unless you have what Paul has indicated.,8
-fomc-corpus,1977,"I mean, well, what is the program? To have a smaller expansion domestically so that we can be like the rest of the world?",29
-fomc-corpus,1977,"No, I'll tell you what the program should be really. It isn't that. I don't think that would make much sense.",25
-fomc-corpus,1977,"Well, that would reduce the current account deficit.",10
-fomc-corpus,1977,"I realize that, but at a price that I would consider unacceptable, as you would.",18
-fomc-corpus,1977,"Well, I would, too.",7
-fomc-corpus,1977,"Nobody in the world that I know recommends that. Everybody tells us what to do, but not that.",21
-fomc-corpus,1977,That might hurt their export markets.,7
-fomc-corpus,1977,"The course of action open to us, and I think Mr. Pardee mentioned some--I think once we get a creditable energy bill which will signify, first, a conservation policy in this country, and second, the encouragement for developing new sources of supply, I think that will be very constructive to the foreign exchange market. I think, second, once we get a tax policy designed to improve the business environment, investment climate, in this country, that will help to bring dollars here, and not central bank dollars but private dollars, investment dollars in the way of direct investment, portfolio investment. I think that would be constructive. I think third, once we have a creditable anti-inflation policy on the part of the Administration, that that will be constructive. I think these are the fundamental changes that we need. I do think we'll have an energy bill, and a good energy bill, before too long. I think we'll have a good tax bill before very long. As for an anti-inflation policy, that is now being seriously considered by the Administration; as yet, nothing that is very encouraging apparently has developed in that area, but that is receiving serious thought at the present time. And therefore, by mid-January, certainly by January 19, we will have economic messages, I think, that will be constructive. In the meanwhile, there is a modest program, that I will not describe, that Mr. Blumenthal [Secretary of the Treasury] and I have put before the President, which could be helpful in reducing our trade deficit for the coming year. What the chances are of the President adopting it, I can't say. We have been over this ground with him before, and he has not responded with any enthusiasm. And that may still be his position. So I think, no, we don't want to contract our economy, holding down our rate of growth. We may have a problem in that area quite apart--we don't want deliberately to do that. We may have a problem in that area before too many months pass. I'm well aware of that possibility. But I think there are other areas where we can influence foreign exchange sentiment, and I believe we'll do so before too long. Now as for intervention, I would favor intervention on a larger scale, but only once some official action of a constructive sort occurs, and then I'll support larger intervention. Right now, I see very little point in it. I think we have been demonstrating our ineffectiveness, and if anything we will continue on the present scale or do less. And there are also--you know there is some loose talk about intervention. Suppose--make the assumption that we were willing to intervene in the amount of $5 billion, $8 billion; it's quite an assumption, but make that with me. Who abroad will support that program? Which central bank will support that program on a scale?",583
-fomc-corpus,1977,None.,2
-fomc-corpus,1977,"It couldn't be done. We couldn't carry it out. Now, then, I think central banks around the world have acquired so many dollars by now, they're not at all eager to add to their holdings of dollars. If we, therefore, wanted to borrow dollars on a large scale, we'd be frustrated. That's my opinion. Am I wrong on that, Mr. Pardee?",76
-fomc-corpus,1977,"You're right. Once they see the domestic market implications of our intervention in their currency, they would shrink from it. Even the Bundesbank is beginning to have second thoughts about how many marks have been created in recent weeks.",44
-fomc-corpus,1977,"Well, they have very serious second and third thoughts on that subject at the present time.",18
-fomc-corpus,1977,"Mr. Chairman, I would like to make a couple of points. One, I don't think one can compare our scale of intervention with what's going on abroad. It's precisely our low intervention as it's perceived abroad that generates the image of benign neglect. And intervention on a smaller scale conveying the impression that we are concerned would probably do more on our part than larger intervention in Europe. Now, it's perceived that our intervention is of limited effectiveness because we have to buy back the currency later. Now that undoes the monetary effects and reduces the concern of foreign central banks. But it also means that other countries--that the exchange rate is going to be pushed in the wrong direction again if we buy it back. Now, if we are to buy the exchange to repay the swaps directly from the foreign central bank, then the problem you point to--permanent expansion in their money supply, their dollar holdings--would occur. This is an inherent defect of the swap network. So, abroad, recommendations are made, for instance, to use gold. And I suspect that when they say use gold, they don't mean sell it in the market--they mean sell it to another central bank. This we would not do, because it would get gold back into the System instead of--like a sale to the market--get it out of the System. But there is here a resource, including gold sales to the market, which would at least have a demonstration effect. It's argued that high interest [rates], to the extent that they're consistent with a domestic expansion, could be a means. Well, it's very difficult so see increases in the interest rates of any size that would be consistent with continued expansion, and so there is a limit to that. But we shouldn't be unaware that there are a number of devices and things people think we could do. The fact that we don't do them, they regard that as an indication of the degree of importance we attribute to the dollar. Now universally, oil policy, the energy bill, is pointed to as the necessary action. I think the effect of that is exaggerated in the minds of people abroad because the effect would not come very quickly, and it wouldn't be all that spectacular as far as the trade deficit is concerned. That does seem to be the closest to a policy that would carry conviction abroad.",464
-fomc-corpus,1977,"You know, there's a lot of loose talk about oil conservation. And if we started conserving oil on a significant scale immediately, this would guarantee a business depression in this country and over the entire world. So on a moderate scale, you get it under way, build it up gradually, that's one thing. But to move in with a conservation policy of a kind that some foreigners--well, people here, too--talk so loosely about would be very destructive of our economy--therefore, the world economy, too. So, you take gold. Well, you mentioned a number of things that, yes, are under consideration--serious consideration--but there are limits there. A significant amount of gold sales at the present time could bring great troubles to France, political trouble, that we ought to think about, and trouble to Portugal. And as for selling gold to central banks, quite apart from the policy consideration, I don't know to what degree central banks around the world would be willing to buy gold. Do you have an opinion on that, Henry?",212
-fomc-corpus,1977,"I think they would do it if they thought it was a step toward turning gold back into the monetary asset. I wouldn't recommend doing that. Neither would I recommend sales in the market, exactly for the reasons that you say. But it all adds up to this--that we find a good argument against any action we can take--",66
-fomc-corpus,1977,"You know, selling perhaps a half a billion dollars of gold--all that I would say is, beyond a modest amount, would cause--well, we ought to think twice, three times before we begin to embark on it.",46
-fomc-corpus,1977,"Well, isn't it true, Henry, that the reduction in the price of the dollar should tend to narrow the trade deficit?",25
-fomc-corpus,1977,It certainly does.,4
-fomc-corpus,1977,"That is, it's a corrective in itself.",9
-fomc-corpus,1977,"That is the corrective. The reason people are worried about the deficit is not the deficit per se, but precisely that it's going to be cured by this means that they do not like.",37
-fomc-corpus,1977,"Well, I think that's only a--",8
-fomc-corpus,1977,I don't think it's so bad.,7
-fomc-corpus,1977,"I think it is a--yes, I think it's very bad. And I'll tell you why.",20
-fomc-corpus,1977,I don't think so.,5
-fomc-corpus,1977,"I think this is an analysis that applies in the abstract to individual countries around the world, and applies concretely, practically, to most countries of the world, but certainly not to the United States. First, because world trade is conducted preponderantly in terms of the dollar, and second, because the dollar is a store of value for every central bank, for every multinational corporation, for people of wealth and means around the world as well as Americans. And when the dollar depreciates, this releases dangerous forces for the world economy. To the extent that you have movement out of dollars into other currencies, the dollar will depreciate further. But then, as that happens, the people holding dollars, and they're everywhere, become troubled about their own future, the future of their company, their country. And when people become troubled and uncertain, there is a pronounced tendency to delay action; spending, investing that might have been done will be postponed. And there is a real danger of stagnation, or worse than that, spreading around the world. And beyond that, the OPEC members are meeting now, and hopefully they will decide to do nothing about the price of oil. Well, these countries have their political problems, and being paid in dollars as they are, every time the dollar depreciates, they see the price that they receive declining, and forces build up within their countries to raise the price of oil. And we haven't yet adjusted to the increase that got under way toward the end of 1973. So I don't think that the conventional theory about a depreciation of a currency leading to a restoration of a trade balance really applies to any significant degree to a country such as the United States, with its dollar responsibilities and involvements all around the world.",353
-fomc-corpus,1977,"Mr. Chairman, if I may, I agree fully with your statement about the effect of a dollar depreciation, that it is undesirable. I just wanted to make the analytical point that, if the dollar were to go down, this would have a favorable impact on the trade balance.",56
-fomc-corpus,1977,"Other things equal, which I've tried to argue will not remain equal.",14
-fomc-corpus,1977,"You have touched upon a number of the points, the most basic points, that I had in mind, Mr. Chairman. There was some reference made earlier to economic growth, and I think the feeling that this is a free ride for us or even positively helpful is not right in the current circumstances--given the level of the dollar--in large part for the reasons that you suggested, including the uncertainty about oil prices and the general economic uncertainty. But more specifically, you get an inflationary impact on the United States which, I think, is not measurable but undeniable. And partly psychologically as well as through its direct effects in terms of the trade balance, I think this has certainly reached a point where the concern in some of the other major economies, specifically Japan and Germany, may affect their investment activity and economic activity, and that may have a sharper [negative] effect on our trade balance in the short run than any [positive] effect of the change in the currency value itself. You referred to the political uncertainties and problems surrounding gold. I think the decline in the dollar itself is becoming a political problem that can't be ignored. And the volatility of the market is presenting us with some unknown risks, harking back to [the closing of the] Herstatt [bank] and all the rest, that we don't know about. But it can make one a little bit nervous when one sees the amount of speculative activity that has been spawned in recent weeks. And of course, for many U.S. companies [with] operations abroad, it has a direct impact on their profits. And it makes an already not-very-robust profit picture look worse in terms of reported profits--",337
-fomc-corpus,1977,Particularly FASB 8 [Statement No. 8 of the Financial Accounting Standards Board].,20
-fomc-corpus,1977,Have I--,3
-fomc-corpus,1977,That's an accounting rule under which the losses on foreign exchange due to foreign exchange liability must be taken directly into each quarter's profit.,26
-fomc-corpus,1977,"But the exchange rate is taken in for financial assets, and therefore they will have appreciation.",18
-fomc-corpus,1977,"They are selling dollars right now, and a lot of the transactions in the last few days have been by U.S. corporations under FASB 8 to straighten out their accounts and taking their losses--",41
-fomc-corpus,1977,Hedge.,3
-fomc-corpus,1977,"Well, then you can say they lose when the dollar goes up, and they lose when the dollar goes down.",23
-fomc-corpus,1977,"It's those that have borrowed in Swiss francs and have similar liabilities, they are particularly hit by this.",20
-fomc-corpus,1977,"I think this is not uniform. But you find a number of major companies seem to be on the side that they weren't assuming a big depreciation. They were not fully hedged, and now they get hedged and it kind of multiplies the market impact. The only other point I would make is, given all these other things, the threat of protection in these is, I think, alive in the world, not just in the United States. And I really think this degree of volatility and the degree of decline in the dollar makes this situation even more threatening than it would otherwise be. None of this adds up to a great support for domestic expansion in terms of the situation that exists. So I do indeed think it's a situation that can't be shrugged off in terms of our own policy determinations. And the considerations are not all one way, to say the least, in terms of economic growth as well as in other countries.",186
-fomc-corpus,1977,"Well, the analysis I think I've heard here is very interesting, but I have not caught what the alternative is. What is the program that we should be following?",33
-fomc-corpus,1977,We think the--,4
-fomc-corpus,1977,Other than the Chairman's.,6
-fomc-corpus,1977,We at the Federal Reserve or the U.S. government?,12
-fomc-corpus,1977,Both.,2
-fomc-corpus,1977,"I seek basic improvement along four routes, three within the control of the United States. A definite, creditable, persuasive energy policy; a tax policy that will create clearly a more hospitable environment for investment, foreign as well as domestic; and a creditable anti-inflation policy. Now these are the basic things we can do; they're small things we can do that I refer to without becoming specific. Now the fourth channel for improvement is a faster rate of growth abroad, which will mean larger imports from the U.S., and that is a province--yes, we can be helpful at the margins, perhaps, but that is something that lies outside of our power. I don't see any other route, any other basic path to improvement in the position of the dollar.",155
-fomc-corpus,1977,"Any kind of intervention that would be meaningful to us, then, is a long way down the road.",21
-fomc-corpus,1977,"Well, to my mind, larger invention, [if it is used] at a time when some official action is coming into play, to help the market along and give it an extra push--at that time it would make good sense. Short of that, I am very doubtful about larger intervention. And I haven't mentioned, and in fact I have not given much thought so far to, a congressional problem we have if we do embark on an intervention policy that differs significantly from the one that we have been pursuing.",103
-fomc-corpus,1977,"Only one facet of that bothers me, and I've listened with care about the reason we can't do this--there's a cost-benefit relationship here. And I think the deterioration of the exchange rate is building an inflationary force here, and the cost of that inflationary force might be even more than the intervention cost--if it carries too far.",70
-fomc-corpus,1977,"Well, Mr. Volcker referred to that very appropriately.",12
-fomc-corpus,1977,"Well, I think we've got another aspect of the energy policy issue as well. I would agree that dramatic increases in the cost of domestic energy could precipitate economic problems. But I think, at the same, the failure to do so is likely to precipitate economic problems that won't be as readily perceived and that won't be as directly addressed. The fundamental problem that we're having to look at in our country is that the cost of energy is going to go up. It's just a questions of how it is administered publicly. And perhaps if we were more realistic about facing the problem and facing the consequences of a decreased rate of increase in the standard of living or perhaps even a decrease in our standard of living, I think our people would be more prepared to face that issue in a rational way than to keep hiding it under things that they don't understand as readily as they do the increase in the cost of energy. They don't understand things like differentials in foreign exchange rates, and our export policy, and the ramifications of protectionism. These are problems that the American public has difficulty in understanding, even experts have difficulty in understanding them. But the American public could understand the ramifications of an energy policy that related to the value of the dollar and to their standard of living. I think they'd be more willing to address themselves to a solution if we were more direct in our attempts to find them. Until that takes place, it's my judgment that intervention on a level that's greater than we presently have embarked upon for purely short-term [management of a] disorderly [market] is foolishness. Until such time as our country is willing to at least have some significant turn of major policies, on which we could then have better foreign credibility toward our conviction of sustaining the dollar, I think we're wasting our resources and creating disorder rather than doing the opposite.",365
-fomc-corpus,1977,"Well, I have to say I was surprised by the amount of intervention that we've had. I realize we all voted this $500 million limit. I was thinking of it in gross, and I hadn't exactly thought of it in terms of being a net, but it turns out to be essentially a net when the market's running one way. And I agree there's been no day that you've had a lot of intervention, but the total $430 million strikes me as being quite a lot, quite a lot.",101
-fomc-corpus,1977,Not in the market we are dealing with now.,10
-fomc-corpus,1977,"It's quite a lot in terms of our exposure, that's what I--",14
-fomc-corpus,1977,Right. I think of that every night before I go to bed.,14
-fomc-corpus,1977,Relative to the $32 [billion] or $33 billion of the central banks around the world--,21
-fomc-corpus,1977,But they are doing it in order to protect their manufacturers from having a less favorable exchange rate.,19
-fomc-corpus,1977,"And we are doing it really to prevent the dollar, to the extent that we can, from depreciating. Now we like to talk about disorderly markets, in correcting that, and some of us may understand what that means. Others do not understand what that means. Mr. Baughman, you wanted to comment. I'm sorry I've been so late in getting to you.",76
-fomc-corpus,1977,I was simply going to raise a question as to whether the intervention thus far was viewed exclusively in connection with moving against disorderly markets or whether it was oriented to a projected time and possibly amount in which we would expect a reversal of this depreciation of the dollar against key other currencies. But the succeeding discussion has answered that to my satisfaction.,67
-fomc-corpus,1977,"Well, I'm glad of that.",7
-fomc-corpus,1977,"Well, I was going to ask Mr. Pardee. I inferred from the remarks that it was strictly a disorderly markets' attack.",28
-fomc-corpus,1977,"No. I used the terms ""contained the disorder,"" ""rear guard action,"" these are the--Mr. Volcker also even used the same terms. This is what we have at this stage. We are waiting for this opportunity which Chairman Burns has suggested, Governor Jackson suggested, when there is a possibility for a turn in market psychology from other policy changes. Then I agree with the Chairman, a more forceful approach would be more effective. At this moment, if I were to go in and offer $100 million worth of marks and try to choke the market, the market would gobble them up and say, ""Have you got any more?"" Until we have some help from other policy, we have to continue this very painful operation, which is embarrassing to me because I often advocated more forceful intervention and in bigger amounts than we had to. But the amounts out in the marketplace now are so huge that even the modest approach we've had has run up a bigger bill than I would have liked to come to the table with today.",208
-fomc-corpus,1977,But the other aspect is that we've been doing this thus far without any fairly firm time frame in mind as to when we might expect a reversal?,29
-fomc-corpus,1977,"That's the problem, and that's why I'm going day-to-day in having it.",16
-fomc-corpus,1977,"All right, we'll hear now from Mr. Winn, and then Mr. Willes.",18
-fomc-corpus,1977,"Mr. Chairman, in the energy area, I hope you'll take another look at our policy with respect to the export of reactors; that's about a $9 billion market.",34
-fomc-corpus,1977,"Well, I don't know whether this is--to me it's one of economics, [the most] massive economic stupidity of this century. Here is an industry which was pioneered--we did the scientific work, we devised the technology, we led the world--and the industry is dying in this country and beginning to flourish abroad. And why we are doing that to ourselves, I don't understand, but I'm out of touch with the environment with so many ecologists who know what is right for America, who want to purify our air, and cleanse our souls, and make us ready for Heaven immediately.",120
-fomc-corpus,1977,But they want to do it to the rest of the world as well.,15
-fomc-corpus,1977,"Well, why not.",5
-fomc-corpus,1977,But this is big for our domestic employment as well as for the balance of trade.,17
-fomc-corpus,1977,"What is it, 15,000 jobs I've heard the figure quoted--",15
-fomc-corpus,1977,"Oh, more than that.",6
-fomc-corpus,1977,"Or 115,000 jobs.",7
-fomc-corpus,1977,I think they have a much bigger figure than that.,11
-fomc-corpus,1977,"Oh, I think they got it much bigger than that.",12
-fomc-corpus,1977,And then you've got $9 billion in export trade involved.,12
-fomc-corpus,1977,"We won't permit exports, is that it?",9
-fomc-corpus,1977,That's right. That's all going to Germany and France; it's going ahead.,15
-fomc-corpus,1977,"We are just permitting that industry, or forcing it, to die.",14
-fomc-corpus,1977,We're even trying to block it from other countries.,10
-fomc-corpus,1977,"Gentlemen, we are a little outside of our own area there; these are subtle matters of foreign policy and whatnot, and we have no expertise in that area. Mr. Willes, please.",42
-fomc-corpus,1977,"I don't know how to ask this question without sounding incredibly naive, but I'll ask it anyway. I haven't had the impression as we've talked about policy in the six months that I've been here that usually, when we get to that stage, we talk very much about the international implications of policy. And yet what I've heard so far this morning would suggest that at least other countries think we ought to be doing things in terms of monetary policy that would have an effect in terms of the exchange rate. I guess my question is, what role does it play? How does it fit into our thinking, these kinds of international questions, when we talk about domestic policy operations?",132
-fomc-corpus,1977,"Well, it seems to me, anyway, a very relevant question, which maybe we should defer until we talk about the policy implications. I alluded to that earlier when I said I wanted to make a comment connecting the two. But I think in logic it's probably better when you're talking about how it affects our policy to defer it until we get to the policy.",73
-fomc-corpus,1977,"Well, if we do--",6
-fomc-corpus,1977,I guess--,3
-fomc-corpus,1977,--as opposed [to] the intervention policy.,10
-fomc-corpus,1977,"As a straightforward matter, people would say we would like to have larger interest rate differentials. And that either means their rates have to decline or ours have to go up.",35
-fomc-corpus,1977,"They're aware that their rates may have to decline, and the German reduction in the discount rate was very much angled toward that. Now, it was not unsuitable in terms of their domestic developments. But so long as they thought about it only in domestic terms or mainly, apparently they were split. But when the international implications dawned on them, they took the action. Now we can point to having had higher interest rates over the last few months, and that's a contribution, a very substantial contribution. Somebody says, ""Did you do it for that reason?"" The answer is, ""That's the wrong question. We did it for whatever reason, and we benefit internationally here."" Now probing a little deeper, should we ever do something with interest rates for purely international reasons? I think then one comes to a halt and says, basically, this is a very large country and its interests are governed by domestic concerns mainly, and not by international.",187
-fomc-corpus,1977,But we have done it for international purposes at this table.,12
-fomc-corpus,1977,I'm not so sure a distinction can be made--,10
-fomc-corpus,1977,"Well, we've tried to deal with the yield curve sometimes, but I don't know that we have tried to change the general level of interest rates.",29
-fomc-corpus,1977,"There hasn't been much, I agree.",8
-fomc-corpus,1977,Does anybody want to make a guess as to how much more depreciation we are going to have before these three policy changes are in place?,27
-fomc-corpus,1977,"Give us the answer, Dave, as to when the policies are going to change.",17
-fomc-corpus,1977,You're an optimist if you can say three policy changes are going to take place.,17
-fomc-corpus,1977,I asked the question. What is the--,9
-fomc-corpus,1977,"I think, if there is no change in the oil price this week, that will help a great deal; that's one of the matters that's terribly troubling to the market and one of the areas in which public pronouncements by government officials have been most twisted by the press in recent months. Get that out of the way and you have some benefit. If there is some agreement on the energy package before Christmas, that is another area that--at least the language, the uncertainty--will be reduced. So we can have some benefit even in the next two weeks. The more fundamental change is further down the road.",122
-fomc-corpus,1977,What about a 10 percent increase.,8
-fomc-corpus,1977,"If something's done; one of the problems is that nothing is being resolved, everybody is discussing the same thing. The press is filled up with the same stuff day after day. And if some of these issues just get off the front pages, or off the financial pages, then we'll have less to talk about and more time to think about interest rate differentials and rates of inflation and more fundamental economic issues. [Chairman Burns temporarily turns meeting over to Vice Chairman Volcker.]",96
-fomc-corpus,1977,You haven't got any specific recommendation at this point--unless there are other matters--do you?,19
-fomc-corpus,1977,"Well, I do have a recommendation that we have some six swap drawings in the amount of $136 million equivalent marks coming up for renewal by next FOMC meeting; and this is the first renewal; it's not for a formal approval.",48
-fomc-corpus,1977,You've got that specific thing which we have to act upon--,12
-fomc-corpus,1977,That means they have lasted three months already.,9
-fomc-corpus,1977,"I noticed that while the swap can be renewed up to one year, the Germans talk in terms of renewing it once, maybe twice; but apparently they would much rather see it shorter rather than run up. Is that your impression?",46
-fomc-corpus,1977,"Yes. In the swap arrangement with the Germans, it's one renewal, and then after six months, we have to repay it either out of the market or in direct deals with them. So we have to face a six-month limitation.",47
-fomc-corpus,1977,"Well, they did talk about a third quarter.",10
-fomc-corpus,1977,"That's possible, but we would have to negotiate, and I would have to bring it forth as a specific recommendation to the Committee for the Committee's authorization.",31
-fomc-corpus,1977,"I think we just have to note this, but I would conclude from the earlier discussion that nobody's talking about any drastic changes, or any changes at all, in the basic intervention approach, and we do have to approve, ratify, and confirm the last transaction; can I take it that that's done? And that we have noted this renewal with the swap business, and you are operating on the presumption that the basic approach is unchanged?",89
-fomc-corpus,1977,"Does that mean that we go the $400 million-plus next month, next month and next month waiting on these policy--",24
-fomc-corpus,1977,It opens another $500 million.,7
-fomc-corpus,1977,It opens another 300 without the subcommittee acting on it--,13
-fomc-corpus,1977,"With the subcommittee, you can have another 500.",12
-fomc-corpus,1977,Does that mean we are going down the drain more slowly?,12
-fomc-corpus,1977,"Well, I don't think we can predict the amount.",11
-fomc-corpus,1977,"Art, under the rules, does the subcommittee really have an additional 500 million between meetings?",20
-fomc-corpus,1977,"Not an additional. The subcommittee can authorize an additional 200, but the total would be 500.",22
-fomc-corpus,1977,"Yes, another 500 million.",7
-fomc-corpus,1977,"No, not another, he said on top of what we have done.",15
-fomc-corpus,1977,"Starting today, the Desk has authority to do 300 million before the next meeting. The subcommittee can make it 500.",26
-fomc-corpus,1977,So that's another 500 on top of the 430 that we've done.,15
-fomc-corpus,1977,If the subcommittee approves it.,7
-fomc-corpus,1977,We've done bigger amounts.,5
-fomc-corpus,1977,Huh?,3
-fomc-corpus,1977,We've done bigger amounts before.,6
-fomc-corpus,1977,"Well, I would like it to be known that I'm rather concerned about this, and I think we ought to make an effort to hold down the amount of intervention while still doing what the directive calls for. That is, dealing in disorderly conditions, and let's not overdo.",56
-fomc-corpus,1977,"Well, I think that's what we have been doing. I think it's a question of what's overdoing, I suppose. But given the markets as they've existed, the amount has not been very large.",40
-fomc-corpus,1977,That's what you think.,5
-fomc-corpus,1977,I can see some disagreement on that.,8
-fomc-corpus,1977,"I agree with your formulation, unless this deterioration moves more rapidly. At this point, I think I might want to reconsider that.",26
-fomc-corpus,1977,"Well, that's not purely a question of how rapidly, I think; it's where it is in absolute terms. You get down another 10 percent on the mark from where it now is, you're down to around to $1.85 or something, which raises some rather more pointed questions.",58
-fomc-corpus,1977,That's my point.,4
-fomc-corpus,1977,"Well, that would have to come to the Committee.",11
-fomc-corpus,1977,It wouldn't under--could at least spend $500 million before you get there.,16
-fomc-corpus,1977,"As the rate drops, the prospects of loss for these operations, of course, diminishes and--",20
-fomc-corpus,1977,It does?,3
-fomc-corpus,1977,"Well, the image of neglect rises as the rate goes down and we continue at the same rate of intervention. So I think there is a case for operating on a larger scale as the rate goes down.",41
-fomc-corpus,1977,"Refresh my memory, Secretary. Have we a sharing on losses on this swap?",16
-fomc-corpus,1977,With the Germans--,4
-fomc-corpus,1977,50-50 loss sharing.,6
-fomc-corpus,1977,--and profit.,4
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,"Well, I'd be surprised if you really wanted to quantify this very precisely.",15
-fomc-corpus,1977,We could make a lot of money on this.,10
-fomc-corpus,1977,"It's clear in the context that the general approach remains as it has been, which certainly has been cautious and subject to day-to-day appraisal in the market. And on that understanding I think we can go to the domestic side now. [Chairman Burns returns to the meeting.] [To Chairman Burns:] I got you up to agenda item 4.",70
-fomc-corpus,1977,"Mr. Zeisel, we are ready for you now.",12
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,[Interrupting] The increase in the third quarter--,11
-fomc-corpus,1977,--was about 4 percent.,7
-fomc-corpus,1977,Of what magnitude?,4
-fomc-corpus,1977,That was real final demand.,6
-fomc-corpus,1977,And real GNP?,5
-fomc-corpus,1977,--was 4.7.,7
-fomc-corpus,1977,"There is another revision, recently made; has that been reported--",13
-fomc-corpus,1977,There is a revision that will be coming out this afternoon that you may be aware of. I haven't seen it yet.,24
-fomc-corpus,1977,"Well, I am aware of it. It's not unfavorable; let me stop there.",17
-fomc-corpus,1977,[Secretary's note: This statement was not found in Committee records.],14
-fomc-corpus,1977,What labor force growth are you assuming for 1978?,12
-fomc-corpus,1977,"About 3-1/4 percent, as I recall.",13
-fomc-corpus,1977,"In terms of numbers what is it? Do you remember, and how does it compare with the actual number for this year?",25
-fomc-corpus,1977,"It's slightly less than this year, Mr. Chairman, about 1/2 million less, as I recall, but substantially well above the normal, that is, the increases in population and long-term trends in participation rates.",45
-fomc-corpus,1977,"Don't bother, I think you've answered my question.",10
-fomc-corpus,1977,It's 2.2 million.,7
-fomc-corpus,1977,--2.2 million. But we had a much larger increase this year. Didn't we have an increase of--,23
-fomc-corpus,1977,"Oh yes, closer to 3 million.",9
-fomc-corpus,1977,"Well, thank you very much for your report. Now I think that it would be well if purely technical questions were put aside and put to the staff after the meeting, or during the recess. And I think we as a Committee should focus our comments around the staff's projections. That is to say, whether we think they're approximately right in our judgment, or too optimistic, or not optimistic enough, so that the general thinking of the Committee with regard to the economic outlook would come through in the course of our discussion. That is important for our internal purposes--that is, in arriving at a judgment on monetary policy--and there is a public reason, because now, what happens in this Committee, you see, in the course of our deliberations, has to be summarized and made public. And unless we express our views concerning the outlook for the economy--whether we more or less agree with the staff or deviate in one direction or another--the report that our staff draws up and which is made available to the public [will] not [be] as revealing as it should be. And you know, very often we will not speak out because we tend to agree with the staff. Well, if we don't speak out, then our staff doesn't have enough of a basis for expressing the Committee's thinking. So that's the reason for my emphasis this morning. Who would like to speak first? Mr. Wallich, Mr. Black, Mr. Kimbrel, then Mr. Jackson and Mr. Baughman--well, we're started--and then Mr. Roos. Mr. Wallich, please.",325
-fomc-corpus,1977,"Well, with respect to our forecast, I think it's fair to say that, for the end of 1978 we are high among forecasters. So certainly our staff couldn't be [accused of] not stressing elements of strength. I think that very few forecasters actually have a higher end for 1978; many of them go below 4 [percent], some close to 3, or even below. I think, however, all this is relatively unrealistic because it doesn't seem to factor in a tax policy. Now we read in the paper that a tax cut is being discussed--that we've known all along. We see now that at least what has been told to the journalists is within the range of $20 billion to $30 billion. So far, I have heard mostly about $20 billion, so that one has to now begin to think about what would be the impact of a tax cut of that order--what would be its timing, would it come early, late; is it applied to the first half or only to the second. It would be apparently done partly through changes in withholding and subsequently through changes in rates. These are all matters that are very relevant to one's view of 1978 and I think would raise the forecast quite a bit above what it is now. Now, I don't know what the multiplier on a tax cut of this magnitude would be, but surely not less than 1. Probably more than 1. And if so, that's about 1 percent of GNP. This year we're going to make $2 trillion GNP, and I guess nobody celebrates because it's mostly inflation. Well, I would regard the 4.1 [percent] of our forecast as an unsatisfactory result if it weren't for the expectation that we are going to have this fiscal action. What troubles me about the fiscal action is that it's a continuation of what we've done all along: fiscal ease, combined with, I won't call it monetary tightness, but at least if there's been any restraint anywhere, it's been through monetary policy, and that has an adverse effect on investment. I can't see that monetary policy should have had any adverse effect on investment. Interest rates have been low in real terms. It is very difficult to believe that monetary policy has restrained investment. But the net effect of this combination of easy fiscal and less easy monetary has been to hurt investment, and we see it in the investment data that we get. I just wanted to lay this out because it's the result of the interaction of factors that, in part, we have no control over, and yet we ought to think about the interaction.",528
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Kimbrel now, please.",17
-fomc-corpus,1977,"Mr. Chairman, I think from our vantage point we are inclined to feel that the projections for automobiles are rather optimistic, significantly so. We have a similar view about housing. As a matter of fact, it would seem that the projections are almost at the high end of the surveys we've seen available, and I'd like to query if there's any special reason that we are not aware of that would give the staff this amount of optimism. We hope it's right, but we don't share it at the moment.",100
-fomc-corpus,1977,"Yes, we are--certainly in the housing area--at the upper range of forecasts generally being made, and we think we have a reasonable defense of that position, and Mr. Ettin is prepared to provide that. But let me make a few comments first about autos, if I may. I mentioned that we are concerned, obviously, with what appears to be a deterioration in the rate of sales of autos, and that deterioration, when one looks at a chart, suggests that it was occurring well before the introduction of the new models, which is now being blamed in part for the weakness. But a couple of points, I think, must be taken into consideration. First, in the early part of the year, the strength in auto sales was in part a rebound from the strike late last year. There was a deficit of possibly a quarter of a million cars in about the fourth quarter, which was probably made up early in the year. So that moderates somewhat the decline that appears. In terms of the underlying factors that give us some optimism, a major factor supporting auto demand is household formation. Household formations are very much on the upside these days. These demographic factors, according to our studies, suggest an increase in demand for cars of about 150 thousand a year in that factor. The second factor is the second and additional car syndrome in America, which continues, apparently unabated, as reflected in the vans and the light trucks as well as cars.",294
-fomc-corpus,1977,"Well, also, you know, I think the neglected factor in the automobile market is the increased participation of women, and to some degree teenagers, in the labor force. Now these new participants in the labor force need transportation. And with public transportation in many parts of the country neglected or poor, and with the penchant that the American public has for private automobiles, I think that this must be a significant factor on automobile sales. What do you think?",90
-fomc-corpus,1977,"I think that's a very good point, and that is reflected in part, of course, in young people establishing their own household. But it is reflected as well in women having to get to work and young people having to get to a job and expecting to have a car to get there--I think a strong support to car purchases. And just to round out, we feel that our projections of disposable income through the year are fully adequate to support the kinds of projections of auto sales that we've made based upon past performance. And we have not really projected sales rates in 1978 that are substantially higher than '77--they're about the same. They may not be quite that strong; I'm not concerned about that overall. I think we'll wait and see on that one. On housing, Mr. Ettin is prepared.",165
-fomc-corpus,1977,"Our housing projection is on the high side of most other projections, and it suggests that, while the housing starts statistics for 1978 will be very close to '77, it's about peaking even now or early in '78 and will be declining modestly. This view is supported, we believe, mainly by the funds availability at thrift institutions and other lenders. While deposit flows have been moderating sharply from the third quarter rate, that third quarter rate was a bit of an outlier as far as the whole year is concerned. Moreover, we think that those flows to thrift institutions, as the Bluebook has pointed out, will remain largely [greater than] what we would expect based on historical rate relationships alone, given changes in ceiling rates that have occurred in the past and high rates of growth of nominal incomes. Additionally, the amount of repayment of existing mortgages is producing a substantial cash flow to the thrift institutions that can supplement their deposit flows. Our projection does call for a considerable reduction in the liquidity of the thrift institutions, but their liquidity is already very, very high. It also calls for continued, relatively large support from the Federal Home Loan Banks to the S&Ls, and by FNMA [Fannie Mae] in the secondary mortgage market acquiring mortgages. But these--the degree of support--is relative to the size of the housing market in the fund flows--smaller than in past periods of rising interest rates.",287
-fomc-corpus,1977,"Well, now you've accented the supply of finance; what about the demand side?",16
-fomc-corpus,1977,"On the demand side, the most recent statistics, as Mr. Zeisel has pointed out, suggest continuing demand for housing. There is no indication that the price increases in housing have, as yet, shown much impact on housing demand. Indeed, one can argue that if the household sector continues to believe that housing is one of the best inflation hedges available, continued price increases of housing at about the past rates, we believe, should not act as a considerable dampening on housing demand. There is no indication that we've been able to discover, as yet, as to whether resource limitations--in materials, for example--will be adding any additional buildup in housing prices in 1978. So we think the demand factors are there as well, given our projections of nominal income.",156
-fomc-corpus,1977,"The opposite side of that, I think, should be mentioned. There is a school of thought that believes that much of the demand side of single family housing is a product of the collapse in production that took place in earlier years; and that the increases in equity of existing homeowners, together with this pent-up demand from the collapse in production, has been able to sustain new house production at this price level. But soon [the thinking goes], increases in nominal incomes and family formations and things like that will begin to assert their long-term effect, and this present bulge may have overstated underlying demand, and we may see ourselves unable to sustain final demand at this price level much longer.",137
-fomc-corpus,1977,"That's entirely possible, but I think there is another factor that is of increasing significance to the housing market--",21
-fomc-corpus,1977,The psychological factor as a financial asset is a major deterrent to that.,15
-fomc-corpus,1977,"the increasing awareness on the part of the American public [that] the one really effective hedge against inflation is real estate, and to the average man, that means owning a home.",36
-fomc-corpus,1977,"This even is one of the arguments made for the higher participation rate by women--that, [being] able to afford housing prices at these levels requires a two-earner household in order to be able to have any prospect [of buying a house]--which encourages women [to enter] the labor market.",62
-fomc-corpus,1977,"You know, wherever you go these days, people talk about protecting their family and doing something for themselves and their families, and then those who bought a home will recite their experience for the benefit of others. And as long as we have inflation at anything like the present rate, to say nothing of the possible higher rate, I think this will continue for some time.",74
-fomc-corpus,1977,"There should be mentioned also, if you do get your major energy program curtailing consumption of gasoline, you do have a significant impact on housing construction out in the far suburbs of major towns, because you cannot create new public transport overnight to service areas like that.",53
-fomc-corpus,1977,But the opposite side of that is rebuilding of inner cities and urban centers.,15
-fomc-corpus,1977,"All right, but not on a single-family basis.",11
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,You can do it on a condominium or high-rise apartment.,12
-fomc-corpus,1977,"All right. Mr. Roos now, please.",11
-fomc-corpus,1977,"I had a question, Mr. Chairman. When Mr. Zeisel reported, he alluded to two factors that confused me somewhat. One was the anticipated drop in real GNP from maybe a 4.7 percent rate to something in the lower 4 percent position, and you stated that this probably won't do much about unemployment. And the question that comes to me--as I understand, two of our objectives in establishing goals for monetary policy are maintaining economic growth and doing whatever realistically can be done to keep unemployment at a reasonably low level. What do we see, Mr. Chairman, as realistic goals, I mean for these two aspects of our economy? It seems to me that when we say we are not going to be able to do much about unemployment, you cited the record amount of people that are employed. Is it conceivable that we have accomplished miracles in dealing with unemployment, that we really have gotten it nearly as low, with the expanding labor force, as could be expected? And, if average annual real GNP growth in the last 30 years has been, maybe, 3-1/2 percent, is it true that real GNP growth [at] maybe something over 4, 4-1/2 percent is a pretty good batting average? The question I raise is, in making our monetary policy decisions, are we realistic in what we're trying to accomplish, or do we feel that we always are doing poorly vis a vis unemployment and that any reduction in real GNP, even though it's considerably above what has been the average economic growth factor for our nation, that these things are unsatisfactory. Do we have any feeling in that regard?",336
-fomc-corpus,1977,"Well, each of us has more or less definite views on that. As far as I am concerned, what I find so troublesome about the unemployment problem is not the overall total but its massive concentration among black people, and particularly black teenagers. I think we have an explosive factor in our society in that fact. I think the consequences of black and teenage unemployment will be with us for the next 50 or perhaps 100 years, even if that trend were arrested, but we haven't arrested that trend. Now we've had a very sizable expansion in employment, but it hasn't touched our black people or teenagers to any extent. As far as black teenagers are concerned, the unemployment rate has risen during this remarkable period of expansion of jobs.",145
-fomc-corpus,1977,"Mr. Chairman, with the minimum wage--",9
-fomc-corpus,1977,Beg pardon?,3
-fomc-corpus,1977,"With the minimum wage, isn't it likely to increase even more?",13
-fomc-corpus,1977,"Yes. I think so. I think we are on a tragic course. There is some new thinking going on. Whether it will bear fruit or not I don't know. We came closer to a youth differential [wage] in Congress this year than ever before--the youth differential lost by one vote. And that question will come up in the next session of this Congress, and there are two proposals that I think will be receiving serious attention. One is a youth differential to be effective, let us say, for a period of six months or thereabouts and then it would be eliminated. That is, for the first six months, it would be a much lower minimum wage, and then it would rise to the regular, legally established level. Another proposal--and I threw [it] out in a recent speech and after doing some checking with a slender sample of the black community--and that is to try a pilot experiment in a half-dozen cities, where you [would] have a permanent youth differential.",203
-fomc-corpus,1977,"Mr. Chairman, but aren't those sort of structural problems? In other words, if I understand the purpose of this exercise that we are involved in, [it] is to try to develop some facts from which we will make our later decision with regard to monetary policy. I doubt whether--and I don't say this in a quarrelsome way--but it's questionable whether monetary policy, per se, can solve the particularly high unemployment problems amongst blacks or--",91
-fomc-corpus,1977,"Oh, I would agree with that entirely.",9
-fomc-corpus,1977,"And so I wonder whether we don't have to be realistic in what we think we've accomplished in reducing unemployment, or cannot be accomplished; and whether we don't have to be realistic in where we are pinpointing and attempting to get real GNP growth, if we are going to relate that to a later monetary decision. What I'm saying is, should we be depressed about the present, or should we be expansionarily inclined in our monetary policy? Because real GNP [growth] is somewhere between 4 and 4-1/2 [percent] and unemployment is where it is, and I get the feeling that whenever there is any movement downward in real GNP, even though it may be at, historically, relatively satisfactory levels, we tend to feel that this is a reason why, an hour from now, we might take a more expansionary monetary policy posture.",173
-fomc-corpus,1977,"Well, I suggest that we postpone trying to answer that question until we turn to the monetary policy part of our discussion. I'm not going to try to pre-judge the trend of our thinking.",39
-fomc-corpus,1977,"May I make a quick comment, Mr. Chairman? I think the problem [of] teenagers, which is very dominant now, is in part a demographic one, which in time is going to be changed around by the decline in the birth rate. That means that we have a generation that, moving up the years, will have its problems. But the teenage problem as such, I think, will tend to diminish as a result of lower birth rates following the '50s and '60s.",100
-fomc-corpus,1977,"Well, it may work out that way, but you have counterforces, you know--white women entering the labor force in increasing numbers; unskilled, relatively uneducated black teenagers out of jobs. Now that has been going on for some time. It's complicated. I don't think we can do very much about it here except to be alive to the issue and in our individual capacities do what we can to deal with the problem. I think it's a distressing national problem with explosive potentiality. Mr. Black, please.",106
-fomc-corpus,1977,"Mr. Chairman, our sense of the business outlook has strengthened significantly in the last month or so, and I would come out about where the staff does in the overall outlook, assuming no change in tax policy, inflation policy, or regulatory policy. But if we can get some significant inroads in those areas, as you seem to think we might, then I think this can take off a great deal faster than projected.",84
-fomc-corpus,1977,"Okay. Mr. Jackson, please.",8
-fomc-corpus,1977,"I think it's unfortunate that we don't furnish the other FOMC members a table labeled 1-A in the Bluebook, which discusses the details of the time and savings component. The Board gets them, and I think they have some information that is pertinent for our policy discussion.",56
-fomc-corpus,1977,"That should be corrected in the future, Mr. Axilrod.",14
-fomc-corpus,1977,Yes. We'll provide that.,6
-fomc-corpus,1977,"The reason I bring it up is because I think it contains some information that is pertinent, in my judgment, about the immediate course of the economy. I think it would illustrate that the so-called passbook savings component [for] individuals is down significantly below its previous level. And it illustrates that our potential for sustained final personal consumption expenditures is likely to be good because people are apparently spending their savings, or failing to save it. And I hear reports from some of my friends in that industry indicating that at their branches, the lines with the people with the passbooks in their hands to draw checks out is very significant in recent weeks. And so I think our prospects for a good strong final consumption are excellent, which in turn will lead us into a good industrial production level and so forth for the early parts of 1978, maybe somewhat like we saw for '77. I also think that the prospects for capital expenditure are as good as the staff has indicated, perhaps even better. We have to recognize that one of the advantages we've gotten as a consequence of the changing of the value of the dollar is the relative attractiveness of U.S. investments by foreigners, particularly long-term investments, industrial facilities, and things of this sort. I see that that will sustain us and offer increased activity in the investment area. I also think that the change in the value of the dollar will produce a different perception as to what capacity levels might be appropriate for us in this country. Heretofore, I suspect, many of our multinational corporations have seen that their capacity levels in the United States did not need to be expanded because of the potential for foreign capacity--which has been relatively more slack than ours in my general perception--to meet this demand; and therefore U.S. capacity expansion was not as necessary. However, due to a change in rates, the cost of that foreign capacity may be significantly increased and therefore encourage people to expand domestic capacity at a rate that they hadn't previously perceived to be necessary. So I think that will be a plus in the capital expenditure side--perhaps even where we have not seen much, and that's the major new facility, the major new entity that will [provide] major increases in capacity, particularly processing and things like that. I think, unfortunately, the situation in many of these process industries, chemicals, textiles, and things of this sort is so dismal abroad [unintelligible]. In short, I would say that our economic prospects are good. Unfortunately, the ramifications for political and social policy will not be easily obtained, going back to your labor situation. It's my judgment that we may be getting close to a real tightness in skilled labor, despite the macro unemployment figures. I think we are getting very close to a tight situation in that market for labor, which will mean that, as they say, the rich will get richer and the poor will have more children. It's a situation [with] tragic social and political consequences, [and] it may pose some difficult economic choices and monetary choices for us as a consequence of this fact.",616
-fomc-corpus,1977,"Thank you, Mr. Jackson. Perhaps we cannot conclude our economic discussion before coffee break.",18
-fomc-corpus,1977,"Mr. Baughman, please. We are resuming our economic discussion.",16
-fomc-corpus,1977,"Mr. Chairman, with respect to the staff projection, I have no particular quarrel with it. I'm still inclined to the view, and as I mentioned before, it may be a reflection of the economic situation in our District, that the staff projection may well be on the low side rather than the high side. And that's notwithstanding the fact that it's currently on the high side of many other projections. But, it seems to me, there are some expansive elements in the economy, and they are likely to stay with us through a good part of 1978. Two or three bits of information that I thought I would mention--they might be of interest to the Committee. We are seeing very strong retail sales in the District, running on the order of about 20 percent above a year ago. And sales tax revenues, for example, collected in the state in October were 22 percent above a year-ago level, and that's without a change in rates. And the oil and gas drilling activity continues very strong, with all of the available equipment in use, and with a stretch out in lead times on orders for new equipment, and with capacity to produce new equipment being expanded. There is a continuing very tight labor situation in the areas where oil and gas exploration takes place, with some significant difficulties in putting together crews and moving ahead with the work. It's what I hear reported in the real estate area that leads me, in part--in addition to that gas and oil business--to [be] rather optimistic. Just an interesting fact--we see that real estate loans in the Eleventh District banks in the first 11 months of this year [were] up 32 percent compared to the first 11 months of last year. And one of our directors, who engages extensively in construction activity all around the country [and] in other countries, reports concern of sufficiently widespread activity in the office-structure [market] that he contemplates we will have a surge in stuff brought onto the market within the next one to two years, which will again put that [market] in a position of being substantially overbuilt, and [result in] a lot of unrented space around. The major reason he gives for this is that he reports that insurance companies, [as well as] some other builders and financiers, those who extend a permanent credit, are reducing the requirements [imposed on] the developer. They are willing now to enter into firm agreements to take out permanent credits for these prospective projects with a much lower amount of firm rental agreements for tenants. He sees this pretty well all around the country, and he suggests, of course, that the builders will build all that the lenders will finance, and that this is almost a certainty.",550
-fomc-corpus,1977,With 100 percent?,5
-fomc-corpus,1977,Pardon me?,4
-fomc-corpus,1977,Or 100 plus percent loans?,7
-fomc-corpus,1977,"He indicates that's another facet of the thing on which he sees ground being given. Now there's a related development there in that part of the country, and I'm not in a position to generalize elsewhere--a rather strong foreign demand for income-producing real estate. And this foreign demand is bidding up the price relative to the current flow of income on this type of real estate, and this is both multiunit residential and commercial, and even to a lesser extent industrial. And, of course, there's been some farm real estate in that picture as well. That also provides some thrust, it seems to me, to real estate development, in a sense that people who currently own this, being bought out and having liquid funds available, if they normally invest in that kind of stuff they are probably going to turn to further investment in it. Those are some things I thought might be of interest.",176
-fomc-corpus,1977,The thing to do with their teenagers is to ship them to Texas.,14
-fomc-corpus,1977,"I have names of members of this family in a certain order, but I'm going to part from what I have now, and having heard from Texas, I think we ought to hear from New England next.",41
-fomc-corpus,1977,"I think [hearing from] New York would probably have been the best thing, because New England is doing surprisingly well in this expansion, much better than the middle-Atlantic states. This is not the basis for my feeling that I'm modestly more optimistic than the staff forecast. First, for the reason Henry Wallich mentioned, that the President's tax reduction program is not yet factored into the forecast. And that even if the implementation is deferred until October, I think that once the dimensions of the program are made known, it will affect expanding decisions--",112
-fomc-corpus,1977,"You know, as a political parentheses, it's hard for me to believe that Congress would write a tax bill the effectiveness of which starts in October.",29
-fomc-corpus,1977,"That's the beginning of the fiscal year, and I think that's the reason.",15
-fomc-corpus,1977,I understand that; November follows October--,8
-fomc-corpus,1977,"It sure does, very closely.",7
-fomc-corpus,1977,And therefore the effective date will be sooner.,9
-fomc-corpus,1977,"But beyond that, Mr. Chairman, it seems to me that the numbers that have come in the past month have been considerably stronger than I had anticipated. I think the employment numbers, for example, plus the increase in the work week at the same time, was surprisingly strong. We have seen a real turn in the basic commodity prices, and the indicators in general are showing an acceleration--show the economy coming out of the little mini inventory cycle that slowed us down temporarily. So I'm not looking for a boom period, but I'm, as I say, modestly [more] optimistic than the staff.",121
-fomc-corpus,1977,"All right, now. Mr. Volcker, please. This is the time for your balancing act.",21
-fomc-corpus,1977,"That's right. There is some difference of opinion. I really should have had New York balancing Texas. I could even add northern New Jersey. However, Fairfield County [Connecticut] is booming; Stamford has more headquarters than Houston, I think. It's all moving out of New York City. But in general terms--the staff starting out by saying things look better now--I think they clearly do. In fact, I'm inclined to think the numbers will come out higher than they have projected for the next couple of quarters. So I have no disagreement with the tone of things there, maybe a little stronger. However, as you move out [further into the projection period], I guess I would still say the staff case is not proven, and we think the likelihood is slower growth. They already have growth tapering off slightly during '78, mainly because we don't share the optimism at this stage on further increases in residential construction, and we are inclined to accept the survey evidence on plant and equipment at this point. There's a possibility of a considerably sharper slowing during the course of '78. As others have pointed out, that's without the tax stimulus, and I think that that is important. It could turn out better on those grounds alone. The only point I would make in this connection, when I look at some of the discussion in the Bluebook and elsewhere, and anticipating a little bit the later discussion, looking toward higher interest rates to keep the aggregates in line, reaching as high as 7-3/4 percent--if it is at all true that the economy will show a risk of slower growth than the staff shows, as we think, and you get some fiscal stimulus on top of that and a bigger budget deficit, it may be hard to take action at that time to keep the aggregates down if the economy is both looking sluggish and you have a bigger budgetary deficit at the same time. I just note that as a possible hazard for the future [and part of our] not sharing the degree of buoyancy that the staff has as 1978 wears on. Although we agree that it's quite buoyant at the moment.",429
-fomc-corpus,1977,"Thank you, Mr. Volcker. Mr. Winn now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I associate myself with being somewhat more optimistic than the staff in terms of the outlook, with a couple of flags, one of which has been mentioned--the automobile area. The parts people and the accessories people are not as optimistic as the basic manufacturers in the outlook for automobiles, and I think that's something we need to watch. The second problem I'd mention is the inflation problem, which may be underestimated by the staff in terms of what's happening in costs--steel, coal, and a number of raw materials are starting to go the other direction. And then the basic Social Security, minimum wage, health costs. It looks to me like state taxes may be going up, too, rather substantially, because of school and other problems across the country. And I wonder if the cost-push may not hit us next year. We have been lulled a little bit by our favorable inflation experience this year, [and] this is of concern, I do believe, as we look ahead.",200
-fomc-corpus,1977,"Okay, Mr. Winn. Mr. Eastburn now, please.",14
-fomc-corpus,1977,"Thank you, Mr. Chairman. I agree essentially with the staff projections, although, as Frank indicates, I come from an area that isn't booming. But there is one development that I think will have some effect in the near term, and that is the implications of the coal strike. One of our directors is in the utility field and is very much concerned about this and makes a point that there is too much complacency about the adequacy of the stocks, that they are not well distributed, and that you can't count on anything happening until they run out. Because once you are about half-way through, then they start to put into effect rationing devices that will affect users of coal, and they will have to be making decisions as to who they will ration, and they are likely to ration the large consumers first. And we can see this showing up. Particularly since he feels that it is going to take some time for the strike to be settled--feelings are running high, and it's going to take time for the negotiators to get to the table. We could have some short-term serious effects on our output.",225
-fomc-corpus,1977,"You know, some years ago, I made a study on the effects of major strikes on the economy--an historical study taking strikes that lasted four weeks or longer in the coal industry, the railroad industry, steel industry. And if you look at the output figures of those industries, yes, the effect was very large, but in the overall economy, it was hardly noticeable. While you are living through one of these periods, it's something that people attach great importance to, but somehow these major strikes get lost.",102
-fomc-corpus,1977,That's why I stressed the near-term aspects; it seems to me [that] at the end of the year you will find it.,27
-fomc-corpus,1977,"Near-term influence on rhetoric and some influence on psychology, but not overall activity. Well, this may be different. Thank you, Mr. Eastburn. Mr. Coldwell now, please.",39
-fomc-corpus,1977,"Mr. Chairman, I am satisfied with the status of the economy today. I think we are having very good improvement. The short run, I don't see much problem through the early part of '78. But I differ from the staff when we get down into mid and late '78--not on the basis of housing or anything of that character. I can see a major run-up in inflation this coming year. Government policy, I think, has weakened very sharply in any resistance to inflation. The actions they have taken with regard to the stockpile--sugar, grains, copper--and other things which are coming down the pike. I think it's going to provide a major stimulus to raw materials and prices.",144
-fomc-corpus,1977,I haven't been aware. What's been happening in stockpiles?,13
-fomc-corpus,1977,"Well, we've got a stockpile policy now, if I understand this correctly, to rebuild the stockpile which Nixon tore down and sold off.",29
-fomc-corpus,1977,Has the staff been following this? I'm not aware of this.,13
-fomc-corpus,1977,"The staff has been following it. I'm afraid the staff that's here is not expert on that matter. We have someone following it, Mr. Chairman.",30
-fomc-corpus,1977,"Well, let's have a report, rather promptly, on what is happening here.",16
-fomc-corpus,1977,"The last I heard on this, Mr. Chairman, was a policy statement which would roughly put out $3 billion to $5 billion in raw materials, one of the major elements of which would be copper.",42
-fomc-corpus,1977,Is this for the next fiscal year?,8
-fomc-corpus,1977,"It was to be spread over the next 2-1/2, as I recall, sir.",21
-fomc-corpus,1977,"I saw something about buying copper but selling aluminum, I think, which seems to make sense in the current situation.",23
-fomc-corpus,1977,"Yes it did, but the net, I believe, Paul, was a major stockpile. Furthermore, I think the deterioration of the dollar is going to add a significant inflation stimulus over the next few months. I hope you are right that we'll get a reduction, or a correction, in these various elements you've mentioned to stop the deterioration, but I have my doubts about it over the short-run period. On balance, what I'm saying is that I think we are going to be facing a fairly significant inflationary run-up in the early part of next year, culminating, perhaps, in the summer of the year. How that culminates--whether we are in a downturn or in a roaring boom, I don't know. It's too far out for me to guess. But I think the staff may be severely underestimating the inflationary problems next year.",171
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Lilly next, please.",15
-fomc-corpus,1977,"I'm on this program by mistake. I heard you suggest we might get through early, so I volunteered not to speak, and therefore got put on the agenda. So being here, I will speak very briefly. I agree with the forecast in general. I am coming around to a tentative hypothesis that perhaps our business fixed investment forecasts are optimistic. I'm beginning to think that perhaps the manufacturing side has achieved an efficiency of investment that we haven't really gotten hold of and that capacity has been increased substantially without any new structures of significance. In addition to that, I think there has been a lot of capacity that's been displaced overseas--and I think your comments were very interesting--but nevertheless I think some of our raw materials are permanently going to be coming from overseas. We haven't had any refineries built in this country in seven years. You heard the aluminum people a few days ago tell us they hadn't any plans to build any aluminum refineries in this country. So it may well be that the staff is a little on the optimistic side on the business fixed investment, and I hope I'm wrong on that. I think we're in a kind of minor boom. We have the highest percentage of our population employed today that we have had in history as I know it, and we have added 8 million jobs, roughly, since the trough, and we are going to add 2.2 million more next year, and that's just a fantastic addition to the labor force, and it's a fantastic performance. We are still going to end up with an unemployment number that is not going to be satisfactory, and it certainly points up the need for structural programs of the kind you are talking of. If business fixed investment is not going to eventuate, we certainly are going to be dependent on the consumer, and he needs a lot of care. See what you get for putting me on?",372
-fomc-corpus,1977,"Well, thank you. Yes, Mr. Black?",11
-fomc-corpus,1977,"Mr. Chairman, I'm very intrigued by Governor Lilly's observation that he thinks we have been able to achieve more efficiency in this. Would you elucidate a little bit? I'm--",36
-fomc-corpus,1977,"Well, factories are being expanded today by the addition of new wings or rearranged to increase line productivity, rather than the selection of a new site and the construction of the new 1/2 million square foot facility. And you see some verification of this when you see that the machine tool figures are pretty good and other short-term things are good. This looks to me like some people are making do with their fixed real estate investments, and they are really squeezing out additional capacity from those facilities.",99
-fomc-corpus,1977,"I think that's true, but there seems to be a new trend emerging in industrial and commercial construction since the first quarter of the year. How far that will go--",33
-fomc-corpus,1977,Do we get a breakdown between industrial and commercial? The figures we see are just a gross of 70 thousand--,23
-fomc-corpus,1977,"Yes, I'll send you a table.",8
-fomc-corpus,1977,What does it tell us?,6
-fomc-corpus,1977,Both have been growing recently.,6
-fomc-corpus,1977,They have been growing on parallel paths?,8
-fomc-corpus,1977,"Both of them have been growing quite vigorously over the last couple of quarters, as the Chairman points out. There's an enormous variation month by month. You get a sudden decline like last month, but basically they are both on an upward slant.",49
-fomc-corpus,1977,How does warehouse get classified? As commercial or industrial?,11
-fomc-corpus,1977,Commercial.,2
-fomc-corpus,1977,It is.,3
-fomc-corpus,1977,I think that one item that doesn't fit either category is theaters. How large a factor that is--I don't know.,24
-fomc-corpus,1977,That's part of services.,5
-fomc-corpus,1977,"Well, I'd put it in commercial. You have to squeeze it in somewhere.",16
-fomc-corpus,1977,I think it's more industrial.,6
-fomc-corpus,1977,"All right. Mr. Partee now, please.",11
-fomc-corpus,1977,"Well, Mr. Chairman, I'm prepared to take the staff projections as a sort of datum against which we can compare performance in the period to come. I guess my instinct says that the very immediate outlook is stronger than the staff projection, but the longer-run outlook is weaker than the staff projection. I think we have had a little twist in retail sales here, and it looks as if the inventory numbers are adjusting downward, and now I think we can get a sizable rise in output in the next few months. That would probably mean a first-quarter GNP considerably above this number of 4.6 that the staff has. But I am concerned about [a cutback in] auto sales, and I think its impact would fall in the spring. Producers continue to produce pretty well through the winter to see whether the market comes, and if it doesn't come, why, they will make a sizable cutback in the spring--that is historically what they have done. And I would think they would do it again, that is, assuming we are only talking about a mild reduction, say, of a million units or so below the staff projection, which I do think is the prospect. And so, therefore, there could be a spring slow-up in the growth in the economy because the automobile industry's effect is very widespread as they deal with suppliers and the parts people and textiles and rubber and steel and all that. Later on, I think the prospect would depend on plant and equipment coming in, and I, too, am beginning to grow a little restive about the prospects of a sizable rise in plant and equipment. I have continued to feel that it was coming, but I must say there hasn't been--well, it just continues to look a little sluggish to me, and I'm starting to wonder whether we are going to get the large rise.",369
-fomc-corpus,1977,"When you say that, Mr. Partee, are you taking into account the probability of the sizable reduction in tax--",24
-fomc-corpus,1977,"No, no. That was my next point. I think that that's offset by the prospect, which Henry first mentioned, of the fiscal package, one aspect of which is likely to include something intended to stimulate investment. Perhaps an investment tax credit effective back to the date when the President announces it, or perhaps accelerated depreciation, or perhaps a general tax cut for corporations. And that could make a difference as we go through the year, even though the effective date of the tax bill might be June 30, or even September 30. There could be retroactive aspects to it, and there could be impacts that would occur in advance of final ultimate passage of a bill by the Congress. Now, I don't think it's going to be all that easy to get a tax cut--a package that everyone will agree to. The Administration has had great difficulty with the Congress on particularities of proposals this year, and I see no reason to think that they won't have the same kind of difficulty unless they have become much more adept next year. So I don't--it's a little bit like counting your chickens before they're hatched to start to talk about the stimulative effect of a tax cut or a fiscal initiative, because it's got quite a distance to go. But I am inclined to think that in the absence of some kind of a constructive fiscal initiative, that the economy will be weaker in the latter part of next year than the staff projection. And therefore, that will make that awfully important in our consideration of policy as we get into the new year. But for the very immediate prospect, I would expect more of a pickup than the staff has projected. I might say that one of the difficulties that I am more struck by is that people are so much affected by where they come from. Ernie is without fail bullish, and I sometimes feel that the whole state of Texas will be paved over by development down there. But it is more and more the case that the average performance of the economy contains two aspects. One, very strong growth in the South, and the other, rather weakish growth, particularly in New York and Pennsylvania and New Jersey--in that section of the Northeast--and Ohio, I would say also. And that's something I think we need to take account of when we are evaluating what the overall outlook is.",465
-fomc-corpus,1977,"I think that's true, but in such an evaluation, it's not just a matter of adding up; we must not neglect the energizing effect that the Texas economy may have on the country as a whole. That's where the pioneers and the innovators and community boosters come from, and that proves a little infectious, partly psychologically, simply by virtue of the competition that it offers to other parts of the country, which are bound to respond in order to stay alive.",91
-fomc-corpus,1977,Hopefully you won't limit those comments to Texas.,9
-fomc-corpus,1977,No.,2
-fomc-corpus,1977,They can still pave--there's a lot to pave--,12
-fomc-corpus,1977,The South and the West were settled by immigrants from New England.,13
-fomc-corpus,1977,That's right.,3
-fomc-corpus,1977,The best people left.,5
-fomc-corpus,1977,"It is interesting, I think, that in addition to the strong growth we had in the larger metropolitan areas, that many of the companies coming to Texas are putting their plants out in the smaller communities.",40
-fomc-corpus,1977,"Mr. Mayo, may we hear from you now?",11
-fomc-corpus,1977,"Your remarks on energizing, remind me, Mr. Chairman, that when I was in Japan, I had the pleasure of going through the [unintelligible] color television plant, which is, if not the largest in the world, close to the largest in the world. There were only 4 lines operating, and we asked the question, ""Well, what's going on? Is demand off?"" [They said,] ""No, demand is heavier; this plant was built to have 12 lines, we put in 8, and we are operating them. We are now making the same number of television sets on the 4 lines that we did on the 8."" So we have some encouragement from abroad to be more efficient, too. The point I wanted to make, other than my basic agreement with the staff forecast, which I think is sound--except maybe for housing starts, which may be overestimated a little--is to mention two things. First of all, on the auto side, some of our informants do give quite a bit of credence to this idea that it is discomfort, so to speak, with the downsizing of the new models; and that this is not a switch out of automobile purchases into savings--it is a switch of automobile purchases into purchases of other goods, and that it may not be affecting demand as much as some people are attributing to it. On the agricultural side, no one has mentioned it today. I have nothing really new to report, except that I think the agricultural credit situation has stabilized a little; at least it doesn't seem to have gotten worse. The farmers' strike seems to have three goals, one of which is to stop buying farm machinery. Well, they already did that before the strike started; farm machinery purchases are way down. Second is, they are going to refuse to plant crops, and nobody in the Midwest plants crops in December anyway. And the third is to get 100 percent of parity. So I think the fact that the farmers' strike hasn't even been mentioned here today is a correct interpretation. It isn't of any significance.",428
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Willes now, please.",15
-fomc-corpus,1977,"Thank you, Mr. Chairman. I would just like to pick up on the comment that Dave Lilly made with regard to expansion in capacity. As you know, I have been reporting that the businessmen in our District have had very aggressive expansion plans. At the same time, they have done exactly what you suggested, David, and had significant increases in capacity by making do with their own plants. Their interpretation of that, though, at least as they played it back to me, is that they have done that because they have been uncertain about the payoff of more permanent increases in capacity, primarily because of energy and taxes, and most importantly, in their case, inflation. And if they could resolve in their own minds any of those things, then their feeling is that the more long-life kinds of expansion to capacity would come on stream relatively quickly and in rather large amounts. Now, following that up, we have been more optimistic than the staff over the last six months. More optimistic than most people around the table. As I hear the discussion today, people seem to be moving a little bit in our direction, and as much as I hate to admit it, we are moving--not for the short term but for the longer term--back the other way. That is to say, we are less optimistic about the latter half of next year than we have been, but I think for a very important reason, and that's the one identified by Governor Coldwell. The businessmen in our area are becoming increasingly concerned about the prospects of inflation for next year. And that is causing them to re-assess what, up to this time, have been very ambitious capital spending plans. I don't know whether this is typical elsewhere in the country. And it's not to the point yet where they are changing anything. But what they are telling me is they are re-looking at some of those things, and if those current concerns continue, then it seems to me that we could start to have, at least in our area, some reductions in plans that I personally think could be quite unfortunate and quite significant.",416
-fomc-corpus,1977,What kind of labor settlements have they been making?,10
-fomc-corpus,1977,We haven't had any of those this year of any significance; I don't have any information on that.,20
-fomc-corpus,1977,"All right, thank you, Mr. Willes. Mr. Gardner now, please.",18
-fomc-corpus,1977,"Well, I have very little to say. I felt two months ago that the staff was not expecting as good a fourth quarter as I thought I saw in prospect. I said at the time, ""Fortunately, we have to go through the fourth quarter to get to 1978."" We are having a good fourth quarter, and I'm not going to abandon the staff now that they have improved their forecast for '78. I am also interested in the Redbook comments, which I take as a further expression by my colleagues that they see relatively good conditions. I refer to the automobile industry only because it's commented on as a disappointment. But I want to point out that [it is] a disappointment [that] is confined to two or possibly three of our 3-1/2 major producers. And we have evidence [of] foreign car sales and evidence of one auto company which is setting all kinds of records. Now I think that the auto companies that are not achieving this have expressed clearly their view that they have created some unpopular models. But I have great confidence that these people are flexible enough to deal with the situation if a competitor is succeeding well. I expect that they will make some adjustments in their own activity. The preliminary surveys taken some months ago on capital expenditures for 1978 seem incongruously low, and all of us are now agreeing that those surveys were perhaps biased in a most conservative way. Housing continues to be a keystone of what is going on. All in all, gentlemen, I'm quite pleased with the way '77 is ending and with the staff's forecast for '78. I'm particularly pleased that the domestic monetary markets have quieted, and this is all very helpful to me as we approach the next subject on this agenda. I'm still optimistic about the extension of this long-term recovery. I even see virtue, as has been said a number of times before in other meetings, in the fact that we haven't had full support of a strong capital spending program, and therefore there is an element that could reinforce the staff's projection for '78 and could surprise us in some respect. I don't look for this particularly, because there are too many constraints on capital spending. I just point out that we really have one way to go on capital spending.",456
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Guffey, please.",15
-fomc-corpus,1977,"Thank you, Mr. Chairman. I think, with regard to the staff projection, we would feel it is a good projection. If it would miss, it would miss on the low side. But with the mix suggested by Governor Partee, it would be a little stronger in the first half of '78, and maybe they would be about right in the second half, so they would be marginally stronger than what they are projecting. With respect to regional matters, I would like to join with Ernie and others with regard to the Tenth District, in the sense that the agricultural problem has moderated somewhat with the government subsidy payments and the increase in corn and wheat prices, cattle prices. So the farmers, ranchers are somewhat better off than they were 60 days ago. Also, with regard to the agricultural sector, I think it could be described as booming. And we are running now into a point where the unemployment level is dropping to what I think is a good level. In September, Districtwide, we are talking about an unemployment rate of 4.6 [percent], which has dropped from a 5 percent level that was registered about April and continued through the summer but now is beginning to move on down. Personal incomes have continued to be very strong in the District. And there's one note of caution, I should think, with respect to the residential housing sector. The thing that we have been facing in much of our District is an order by the Federal Power Commission and its successor, the Energy Department, which would have cut off any new hookups for much of the Tenth District as a result of limitation in the supply of gas through a major pipeline. Through court action and efforts by our congressmen and Senators, they have indeed set that order aside. The order was to prohibit any additional hookups after January 1, which meant we have had a flurry of residential building in the area simply to get those structures up so gas could be hooked up before January 1. And it was projected that the residential construction would then drop off very rapidly after the first of the year. That order has been set aside because of some political pressures, but I'm told that this is sort of an experiment; if by administrative fiat they can limit the number of gas hookups in this area, then it would spread to other parts of the country, and we can have a very serious effect upon businessmen's or others' projection for what they want to do.",493
-fomc-corpus,1977,"Thank you, Mr. Guffey. I'm not going to take any time in commenting on the economic outlook. I do want to say just one word about the automobile market. The fact that automobile sales have been a little soft recently does not disappoint me at all. I think that consumers are acting rationally in that department. I would expect some decline in auto sales, and I welcome it. I think consumers have been going into debt at an excessive rate. Automobiles are bought largely on credit, and the terms in that industry trouble me. The overall expansion of consumer credit troubles me. I think we are, if anything, at a dangerous level now. As far as the future is concerned, I look to business capital investment to drive this economy forward. I hope that consumer spending will not move up rapidly, partly for reasons that I have stated and which I will not stop to amplify. I do think that business capital investment will be in line with our staff expectations and perhaps go beyond that, but I am optimistic on a good tax bill. If that isn't forthcoming, I would have to join some of the skeptics around this table. But we will know relatively soon. If the tax bill is a simple tax reduction bill which gives adequate recognition to the needs of the business community, I think it will receive wide support in the Congress. And I'd be much more optimistic about speedy enactment than Mr. Partee was when he commented on the subject. But much will depend on the character of the bill that is sent down, and the thinking in the White House is moving in the direction that I would term constructive. But final decisions--not all of them have as yet been made. We're ready to move on. Mr. Sternlight, may we have your report on operations of the domestic Desk.",363
-fomc-corpus,1977,[Statement--see Appendix.],6
-fomc-corpus,1977,"Thank you, Mr. Sternlight. Mr. Coldwell.",13
-fomc-corpus,1977,"Peter, what can you tell us about dealer attitudes now with regard to interest rate expectations? I noticed some shifting in their [long-term] positions over the last few weeks. Is that indicative of a shift in attitude?",44
-fomc-corpus,1977,"They have tended to lighten their positions, Governor Coldwell, and I'd say that that's consistent with more of a feeling that rates are likely to rise next year. They don't see it as an immediate event, but they tend to feel that, sometime in the first quarter or first half of next year, rates are likely to move higher.",67
-fomc-corpus,1977,Any other questions?,4
-fomc-corpus,1977,Those are long term and short term?,8
-fomc-corpus,1977,"Well, I've heard it expressed--I think it extends across the board, mainly, President Roos.",21
-fomc-corpus,1977,"Mr. Eastburn, please.",7
-fomc-corpus,1977,"Peter, we have had a 6 point spread on M1 for some time now. Could you tell us what your concept of the zones of indifference are on that? For example, alternative B [in the Bluebook], this time, is 3-1/2 to 9-1/2. What point would the aggregates have to reach before the funds rate would be permitted to go up?",83
-fomc-corpus,1977,"Well, it seems to me, President Eastburn, that with a money market directive such as we have had, that one would want to be very closely approaching the outer limits of the indicated range before making any move in the funds rate.",48
-fomc-corpus,1977,Suppose it is an aggregates directive?,8
-fomc-corpus,1977,"With an aggregates directive, it would be not quite as wide a zone of indifference. I hesitate to get into the precise numbers on the thing, but at times we have thought, when you get within about 1 percent[age point], say, of the outer bounds, that, with an aggregates directive, then it's time to consider moving away from what had been the central point [of the federal funds rate range], I think.",88
-fomc-corpus,1977,You might have eased a little bit if you had an aggregates directive this time?,16
-fomc-corpus,1977,"I don't think we quite would have reached that, not much, but it would have been moving on the horizon.",23
-fomc-corpus,1977,If he knew what he knew last week in the first week--,13
-fomc-corpus,1977,"Any other questions? Very well, is there a motion to approve the transactions of the Desk?",19
-fomc-corpus,1977,So moved.,3
-fomc-corpus,1977,Second.,2
-fomc-corpus,1977,"The motion has been made and seconded, and I take it that the transactions are approved, and we thank you, Mr. Sternlight, for your report. We will move now to Mr. Axilrod, who will instruct us with his customary brevity.",54
-fomc-corpus,1977,"[Secretary's note: This statement was not found in Committee records.] Mr. Chairman, I would also like to inform the Committee of one statistical problem, if I may. As the Committee knows, we have for some years now been making quarterly revisions of the money supply related to the nonmember-bank benchmark. Since early 1976, our benchmark has been based on especially collected daily averages of seven days around the Call Report date-- collected at the time of the Call but not on the Call. We have not adjusted to the March benchmark, nor have we adjusted to the June benchmark for 1977. The last benchmark adjustment we made was in December. The reason we haven't is that we have found enormous and rather startling statistical problems in the data. In fact, the problems begin not with the March benchmark but with the December '76 benchmark, which we have already made. Without going into details before the Committee, it turns out that the FDIC [Federal Deposit Insurance Corporation], the agency responsible for this, has simply stopped editing the data starting with December 1976. The data prior to December '76, so far as we can tell, and according to them, are all right. This material is now all in their hands, and they are re-running and re-estimating, which requires them going back to nonmember banks. They tell us that normally they have to go back to around 2,000 nonmember banks each time; they're going back for the data for December '76, March '77, June '77, and they promised us that they will properly edit the September '77 data. All this should be available early next year. But that is the reason that we have not come forward with any benchmark adjustments. We have been asked by the public, and our information officer has told them that we're having statistical problems with the data.",375
-fomc-corpus,1977,"Yes, Mr. Black.",6
-fomc-corpus,1977,"Steve, do you have any clue as to whether this will raise or lower our estimates of the movement in the aggregates?",24
-fomc-corpus,1977,"Well, President Black, I properly would not have a clue because this data is simply inadequate. It's not a basis on which you can make a judgment. If I gave you my sense of the clue, there are some nontrivial odds that I would just be misleading you, and I really rather hesitate to do that.",65
-fomc-corpus,1977,I suspected that that was the case.,8
-fomc-corpus,1977,"Any other questions? Yes, Mr. Wallich.",11
-fomc-corpus,1977,"Steve, can you assess the chances of another strong blip early in the first month of the next quarter, and is your high, very wide range on the aggregates--the 6 percentage points we have had the last two times--partly a reflection of that danger?",55
-fomc-corpus,1977,"Well, we have checked which of the months and which of the two-month periods are our estimating periods. The worst month, it turns out--and they're all relatively bad--the worst month is January and the worst two-month period is December-January. It's a winner, if I may use that term, by a small margin. So I think if the Committee were going to widen the range in reflection of estimating errors, December-January would be a quite appropriate area.",95
-fomc-corpus,1977,"But, of course, that doesn't necessarily mean a blip; it could be the opposite.",19
-fomc-corpus,1977,It's not clear whether we'd miss on one side or another.,12
-fomc-corpus,1977,I think Mr. Wallich was referring to the seasonal that seems to be emerging in seasonally adjusted data.,22
-fomc-corpus,1977,"Well, as you recall, January of last year was the first month of a quarter where we did not get a large increase. So we projected about a 7 percent increase. And our experience with January really is that we've been consistently overprojecting that month, projecting a too-high rate of growth. That's been the experience of the last five years. What will happen this year, I'm really quite uncertain.",82
-fomc-corpus,1977,"But didn't you explain away that January miss in a recent document, that maybe this was covered up by some lack of seasonal reflection and changes in bank statistics? That you might have actually had a blip of significant proportion if the seasonal had been caught?",50
-fomc-corpus,1977,"January '77? Well, your memory, Governor Coldwell, is somewhat better than mine. I don't remember that particularly.",25
-fomc-corpus,1977,"Well, I saw something recently where you were trying to explain away the April or whatever months you had--",21
-fomc-corpus,1977,Not explain away--explain scientifically.,8
-fomc-corpus,1977,"All right, all right. I thought there was reference in that document to January, but maybe we actually had one in January, too, and that this would mean all four [first-month-of-]quarter months.",44
-fomc-corpus,1977,I'm not aware of that.,6
-fomc-corpus,1977,I have to look up my memory with [unintelligible].,14
-fomc-corpus,1977,"Any other question or comment? Very well, thank you, Mr. Axilrod. We are at a point now where I need guidance from the Committee as to procedure. Mr. Broida advises me that items 7 and 8 on the agenda can be postponed, and item 6, therefore, is our decisive subject matter still before us. This is something that we can try to take up before we break for luncheon, or we can break for luncheon around 1 o'clock and then come back. As far as I'm concerned, I always keep my calendar on FOMC days entirely free. My patience is infinite. I want members of the Committee to feel that each one has a full opportunity to speak his mind. And therefore, we can either rush this part of the proceedings or take whatever [time] members of the Committee feel is advisable. Mr. Balles?",179
-fomc-corpus,1977,"Mr. Chairman, just to remind the Governors, some of whom know this, others may have forgotten it, the Presidents' Conference, with the chairmanship of President Winn, is scheduled to meet this afternoon and tomorrow morning, and I suspect that from our standpoint, if we are to try to keep on schedule--at least I can speak for myself--I don't think the decision is very difficult. I hope we can finish it by 1 o'clock.",92
-fomc-corpus,1977,"Well, we don't have to make up our mind now. Our thinking about the time for ending may change in the course of our discussion. Sharp differences may emerge within the Committee that will call for a more lengthy debate. On the other hand, we might find ourselves moving toward a consensus rather speedily. So let's get our discussion of monetary policy under way. And without taking much time, let me say this. I think our monetary aggregates have quieted down. I think also that the economy is behaving quite well, but there are uncertainties surrounding the economy, and they have been duly noted at this meeting. I think it would be very unfortunate if interest rates were to drop in the weeks immediately ahead in view of the condition of the foreign exchange market. I personally would not like to see--in view of the behavior of the aggregates and the condition of the economy and some of the uncertainty surrounding the President's program--I would not like to see interest rates go up, though I'd be more concerned about a decline in interest rates than about a rise. I would suggest to the Committee as a target to shoot at or to shoot down, a federal funds rate under alternative B and an M2 rate of growth as specified under alternative B. As to M1, I would prefer 2-1/2 to 8-1/2, and that is my suggestion to the Committee, to accept or reject or modify as members of the Committee may see fit. Now, who would like to speak first?",303
-fomc-corpus,1977,"Amen, Mr. Chairman.",6
-fomc-corpus,1977,I'll buy that.,4
-fomc-corpus,1977,Mr. Guffey.,6
-fomc-corpus,1977,I would second the amen that was given over on the other side of the table.,17
-fomc-corpus,1977,Mr. Eastburn.,5
-fomc-corpus,1977,"I'd like to say a word about the general posture--I agree, I think we ought to make no change, essentially. But I'm increasingly disturbed by this 6 point spread that we have in the aggregates for M1. I'd remind the Committee that the original purpose for this was to extend on the downside at a time when we really wanted to put all our risks down there, that we were not concerned with the aggregates coming in low. It seems to me that a 6 point spread, even with an 8-1/2 percent ceiling, is a higher top than I would like to see. And I would narrow that. I would buy your 2-1/2 bottom and lower that top point to 7-1/2, to 6-1/2, or something like that.",165
-fomc-corpus,1977,"All right, thank you, Mr. Eastburn. Mr. Volcker now, please.",19
-fomc-corpus,1977,"Well, my way of ending where you are, essentially, Mr. Chairman--I guess I do want to state for the record, or otherwise, that I think we should take account of what's going on in the international markets and the need to attract capital for a long period of time to maintain confidence in that area. I can't really separate domestic and international in this situation, and I don't think it's at all antigrowth to say that we should take the international into account. Because I think it's ambiguous, at the least, as to what this exchange rate decline is doing to growth, and I think the unfavorable consequences, viewed broadly, outweigh the favorable ones. And it's always very difficult politically to put it into this context of taking account of the international, and I've had enough experience around here to know how difficult it is. But I think we ought to face up to it and be aware of what's going on there in making up our policy, and I don't think it's at all inconsistent with the domestic. And most of the noises I hear around here are more optimistic on the domestic economy than I personally feel as you get out longer. I personally feel optimistic in the short run. So I share your feeling. I'd hate to see interest rates go down here. I'm not particularly looking for them to go up, but if we got provoked by the movement of the aggregates or indeed provoked enough by the exchange markets, I think we ought to swallow that, too. So in practice I'd come out just about where you were Mr. Chairman. I would be inclined to maybe even go half a point lower--that puts me halfway with Mr. Eastburn, I guess--and make it 2 to 8 percent on the M1, but that's a marginal difference. I would urge that we do recognize the international in the directive itself. There is a sentence proposed about taking account of emerging conditions in the financial markets, and I would feel very strongly that we ought to make an overt reference to international financial markets or the exchange markets in this particular instance in amplifying that sentence. Because I think it is a relevant consideration in our policy, and we ought to recognize it.",436
-fomc-corpus,1977,"You mean to refer to both, domestic and international.",11
-fomc-corpus,1977,"Yes, domestic and international.",6
-fomc-corpus,1977,"I would strongly support that. The specific suggestion by Mr. Volcker is on lines 78 to 80, to be revised as follows: ""In the conduct of day-to-day operations, account shall be taken of emerging financial market conditions, including the unsettled conditions in foreign exchange markets."" And I think the added phrase is constructive and realistic, and it shows a sense of responsibility. Any dissent from that?",83
-fomc-corpus,1977,"Well, that would be within the [federal funds rate] range that we would select--your 6-1/4 to 6-3/4 percent?",35
-fomc-corpus,1977,"Now, there is another change that has been suggested--it's purely factual, and that is on line 18, where ""a decline of about 2-1/2 percent in the value of the dollar against major foreign currencies,"" that should read ""a decline of more than 3 percent""; that's simply a correction. The dollar has been moving; as a matter of fact, 3-1/2 percent would not be wrong, would it?",92
-fomc-corpus,1977,"Right, Mr. Chairman. As of this morning, since the last Committee meeting, the change on our weighted average is 3-1/2 percent. I think ""more than 3 percent"" captures it. It might be more than that now.",52
-fomc-corpus,1977,"""More than 3 percent"" will capture it. This is just a single day's quote, you see. No dissent from that I take it? All right, thank you, Mr. Volcker. And now, Mr. Black, please.",50
-fomc-corpus,1977,"Mr. Chairman, you opened your statement by mentioning that the aggregates had quieted down, and I share this feeling. I would simply like to add one amplification to that, and that is, if you look at the behavior of M2 in the last couple of months and subtract out the large time component on that, instead of an apparent rate of increase of 7.3 percent, that residual has increased at a rate of only 2.2 percent. And I think there's a good case for taking these into account, since they don't seem to be as closely related to transaction demands for money as the other types of time deposits. I think in view of the uncertainty and difficulty of projecting the aggregates in this particular period, we'd be well advised to adopt the money market directive, although I'll put your minds to rest to some extent by telling you that Richmond has projected about the same rate of growth in the aggregates as the Board's staff.",189
-fomc-corpus,1977,Very reassuring.,3
-fomc-corpus,1977,"I'm sure it is. Turning to the federal funds rate, I think the specifications of B are about right. I have a lot of sympathy for what Dave Eastburn was saying. [For M1], I would not even worry about bringing the floor down below the 2-1/2 percent that he specified, and I would prefer a 7 percent or so ceiling on the other end of that. If you have a 7 percent ceiling with a 5.8 percent rate of increase in December, then that would mean that, in January, you could go up as high as 8.2 percent before you acted. And I would not want M1 to go up much more than that. So far as M2 is concerned, I think 6 to 10 is perfectly appropriate, and I would support Mr. Volcker's suggestion on the modifications of wording in the directive.",181
-fomc-corpus,1977,"Thank you, Mr. Black. Mr. Coldwell now, please.",15
-fomc-corpus,1977,"Mr. Chairman, the suggestion you've raised bothers me only a little bit, the 2-1/2 to 8-1/2 percent [range for M1], because if I read these estimates for December and January, the average is 6.8 percent, which leaves you a margin of only 1-1/2 percent if the staff estimate, on an averaging basis, is anywhere near correct. Given the margin of error which Steve has already alluded to--while I don't like 9-1/2 percent, I wonder if we aren't setting ourselves up for a change in the fed funds rate by narrowing that top level down to this narrow a range against the average. I believe I would rather have taken the wider spread that Steve suggested, certainly the 6 point spread. I wouldn't be disturbed if [M1] did come in at 2-1/2 percent, but if you hold me to a 6 point spread, then I'll almost have to come up to 3-1/2 to get to a 9-1/2 or a 9. I hate to be caught in these statistical traps. And all I'm saying is, I would hate to be today making a decision which might be said to be couched in a framework of a movement in the [federal funds] rate even though I don't hear any support for much of a change in the fed funds rate over the next month. So I guess I would come out somewhere in the 3 to 9 range, Mr. Chairman.",314
-fomc-corpus,1977,"Thank you, Mr. Coldwell. Mr. Roos, please.",15
-fomc-corpus,1977,"Mr. Chairman, I'm troubled by the upper limit of the M1 range. As I calculate it, in the Bluebook projection, they project first-quarter money growth at about a 5-1/2, 5.6 percent annual rate. If we permit M1 to grow at anything like 8, 8-1/2 to 9 percent, and if it should get to the top of the range, which certainly has happened frequently during the past year, it would mean, in order to achieve anything like a 5.6 percent rate of growth for the first quarter of 1978, we would have to force M1 to grow at 0, or to remain at 0 growth in both February and March of next year. And so I think one of the problems--I could buy the 2-1/2 to 8-1/2 percent range if I firmly understood that the Desk would permit fed funds to increase if it felt that M1 growth was exceeding 6-1/2 percent. If I understood Peter correctly before, he said that under a money market directive, the trigger point, or whatever we might want to call it, of the Desk taking action on fed funds is the upper part of the top limit of the range, normally. And that under an aggregates directive, they really don't respond or react until it gets within about 1 point, if I understood what you said, of the top of the M1 range. I believe firmly that we would be making a mistake to permit M1 to grow at a faster rate than 6-1/2 percent over the next 30 days. I would be able to buy 2-1/2 to 8-1/2 percent if I were assured that we were really serious about a midpoint between the upper and lower part of those ranges. But if my interpretation of what Mr. Sternlight said is true, and if we could quite probably get to a 7-1/2 or 8-1/2 percent rate of growth before we moved on fed funds, I would have a very difficult time going along with that upper end of the range. I'd like to see the upper end of the M1 range 6-1/2 percent, or as an alternative, make certain that we agree, and that the Desk be directed, in whatever way it can be, to act before M1 could reach the upper part of this 2-1/2 to 8-1/2 or 2-1/2 to 9 percent range.",525
-fomc-corpus,1977,"Would this be a correct interpretation of your position, that you prefer a monetary aggregates directive?",18
-fomc-corpus,1977,"Yes, certainly.",4
-fomc-corpus,1977,Which would mean an earlier response by the Desk.,10
-fomc-corpus,1977,Could the response--coming to the extent that we can anticipate what might happen--does that response have to be delayed until it's within 1 percentage point? I don't--,34
-fomc-corpus,1977,I don't think we ought to change the rules under which we operate. That is something that we ought to do only after due deliberation.,28
-fomc-corpus,1977,"The trouble with that is, if they come in low you are forced to move it lower and we don't want to--",24
-fomc-corpus,1977,"By changing the habitual range for the aggregates and for the funds rate, we have really made every directive we give into a money market directive, because it used to be that the ratio was 2 to 1 between the spread in the aggregates and the spread in the funds rate. Now, it is on the order of 12 to 1, so it takes much more movement in the aggregates to produce a given change in the funds rate, 6 times as much as it used to.",99
-fomc-corpus,1977,"Well, I don't want to debate the past about whether we did or did not change the rules. If the Committee wants to change the rules, the Committee obviously is free to do so. I merely caution against doing it without due consideration, but that's up to the Committee.",55
-fomc-corpus,1977,"Well, Mr. Chairman, if I may, if we do view potential inflation late next year or early in '79 as a serious problem, if business is concerned about inflation--which certainly everything we hear in our District implies that it is--if we feel that the economy is fairly strong, and with the growth of money that has occurred over the past three or four quarters, if we do not take advantage of this opportunity in some way to at least put a top limit on money growth, which would preclude a continuation of the same rate of money growth, [that rate] could be inflationary a year hence. So I think we are missing a golden opportunity to take remedial action, and whichever way it can be accomplished, I just think to let M1 grow more than 6-1/2 percent in the next 30 days would be a terrible mistake.",177
-fomc-corpus,1977,"I don't disagree with you. What troubles me is that, you see, the monetary aggregates evolve and they evolve on the basis partly of hard data, partly on the basis of soft data, partly on the basis of no data. And therefore, the distinctions that you're making with such precision are fuzzy in my own mind in view of the kind of evolution of these figures that our staff generates.",78
-fomc-corpus,1977,"Well, Mr. Chairman, if there is this fuzziness and this uncertainty, then why don't we retreat from spending the time and effort that we do on the aggregates, and why don't we just tell the world--I don't mean this in a disrespectful way--but why don't we go the fed funds route instead of trying to imply--I think the world believes that M1 and M2 are important, that they are fairly accurate, and that we really give a great deal of attention to attempting to control M1 and M2 to some extent. If M1 and M2 are fuzzy, and if they are relatively less meaningful than the interest rate targets that we set, why don't we just tell people that that's the case and therefore--",149
-fomc-corpus,1977,"I think my statement--I didn't make my position clear. I didn't mean to say that M1 and M2 over a period of time are fuzzy. I meant to say that the Desk is responding to estimates. And therefore, the distinctions that you are making, I felt in view of the way in which the Desk operates--and it can't operate in a very different way--I thought the distinctions were not really very realistic.",86
-fomc-corpus,1977,Is there not a problem--and I would agree on the short run--is there not a problem of the accumulative effect of a lot of short run--,32
-fomc-corpus,1977,"There, there I am entirely with you. Well, I think you've made your position clear, and I think to accomplish your objective, what that requires is not so much--first of all, a monetary aggregates directive, and second, probably a lower upper limit of the M1 range, rather than some change in our procedure and special instructions to the Desk.",72
-fomc-corpus,1977,"Mr. Chairman, couldn't you also go with a money market directive and still lower upper limits?",19
-fomc-corpus,1977,"Yes, yes, that's another way of doing it.",11
-fomc-corpus,1977,"That would be my preference. I don't think we are so far apart on our objectives, but in view of uncertainties, I'd prefer that route.",29
-fomc-corpus,1977,"Well, I think we understand one another reasonably well, now. Mr. Partee, please.",20
-fomc-corpus,1977,"Well, I'm somewhat sympathetic with Phil Coldwell's point. I think that the 2-1/2 to 8-1/2 percent range will bias the result in terms of a higher funds rate when the period is over because the midpoint of the staff estimate is in the upper part of that 2-1/2 to 8-1/2 range. And I must say that, without knowing anything at all about what's going to happen given the increase in economic activity that we all see occurring right now--higher retail sales, perking up industrial production, better employment figures--I would be inclined to think that the exposure, the risk is toward a higher growth in the aggregates, not a lower growth, than the staff has projected. So I do think it biases it. I'm somewhat sympathetic with President Roos because we do have a range that we are seeking, although I think in fact we won't be able to achieve that because velocity just won't grow as much as we anticipate in the period to come. Well, I guess I'm prepared to accept your specifications, recognizing that there is probably some upward bias in the funds rate in the acceptance of that. I think in view of the fact, as Steve tells us, we have such great uncertainty at this time of year, particularly about the aggregates, that the money market directive is appropriate. I think it also appropriate because of the modification that we made for the international--the international phrase was added. So I would go for the money market directive with your specification.",307
-fomc-corpus,1977,"Thank you, Mr. Partee. Mr. Wallich now, please.",16
-fomc-corpus,1977,"I have no problem with the specifications of the funds rate in [alternative] B. I would prefer an aggregates directive. But let me explain why I said I think all our directives now are money market directives; [it is] because the range for the funds rate is very narrow and the range for the aggregates is going wide, so that it takes a very large move in the aggregates to achieve a small move in the funds rate depending on how the Desk moves with the zone or without the zone. That, I think, has been a change in our procedures, but sometime we could talk about that. Right now, I could try to salvage what flexibility we have by going for an aggregates directive. I'm concerned about conflicting difficulties. One, the situation with the dollar, the other, the danger of a blip in January and high aggregates. On balance, I think we'd better keep the aggregates low. And I would go with 2 to 8 for M1.",195
-fomc-corpus,1977,"Thank you, Mr. Wallich. Mr. Jackson now, please.",15
-fomc-corpus,1977,"I share the concern that was expressed by Governor Wallich about our spread. However, I'm afraid our reasons have been produced by different circumstances, and that is, our recent experience with the inaccuracy of the projections with which we're dealing. If I thought for a moment that our projections, which were the basis of our consideration, were a little more accurate, I'd be delighted to move to a smaller range. But unfortunately, I find that we base our policy conclusions for the short term on the projections, and the projections prove to be wrong instead of the underlying circumstances to be wrong. So if we could find a way to solve that, I'd be delighted to make a more narrow range of monetary aggregates. I do think that we're faced with considerations this time that lead me to support a money market directive. Because in addition to the risks of M1 we've faced, I think there is a substantial possibility that in the year-end period, we would see our financial institutions, and the banks that are covered by M2 in particular, issue a continued substantial volume of nonnegotiable CDs, over $100,000, which, for reasons I never have understood, are included in M2. But I think, given our decision to give equal weight to M1 and M2, we could get a high M2 as a consequence of that, which would encourage the Desk, with a miss in M1 projection, also to have an M2 projection which would be distorted as a consequence of the credit demands that we are having and the slow growth in the savings component of M2. So for that reason, I would encourage us to go to a money market directive. I would, to that extent, though, support the lower ranges preferred by the Chairman for the M1 aspect of the directive because I do think the consequences of continuing to tolerate ranges in the 9-1/2 range over a two-month period are not appropriate at this time.",391
-fomc-corpus,1977,"Thank you, Mr. Jackson. Mr. Baughman now, please.",16
-fomc-corpus,1977,"Mr. Chairman, your suggested modification of alternative B is acceptable to me. I would like to see the Committee move to give the aggregates a little more weight in policy than they've had for awhile now. And it seems to me that, at the present time, it might be all right to do that by going with an aggregates directive. I'd just like to say that I have a good deal of sympathy for the point that Mr. Eastburn has raised. Right at the moment, however, I'd be inclined to go with your recommendations.",107
-fomc-corpus,1977,"Thank you, Mr. Baughman. Mr. Gardner next, please.",16
-fomc-corpus,1977,"Mr. Chairman, I can agree with your specifications, and if we can negotiate a slightly lower top, I won't have any trouble with that. But in any event, I believe that I came into this discussion with the hopes that we would continue on as much of our present course as possible, and I would favor the money market formulation in order to do that. So I have no difficulty with your proposal.",82
-fomc-corpus,1977,"Thank you, Mr. Gardner. Mr. Balles, please.",14
-fomc-corpus,1977,"Mr. Chairman, for reasons you've set forth and which others have repeated, I think your specifications are good. If anything, I would lean a little more toward the view that Mr. Eastburn expressed, but I could accept either one. It seems to me that this is a pretty good time for us to be holding steady, and because of the great uncertainties over this year-end period, it would probably be wise to adopt the money market directive.",90
-fomc-corpus,1977,"Thank you, Mr. Balles. Mr. Winn now, please.",15
-fomc-corpus,1977,"Mr. Chairman, I'd associate myself with John's comments, that I would be happier if we could lower the range of the aggregates a little bit; but I find your suggestions acceptable. I'd like to make one point, however, that we're placing an awful lot of emphasis on the aggregates numbers. And I must confess, I get nervous when we get a decline during a period of rapidly expanding loan volume and rapidly expanding business activity. And somehow, intuition makes me wonder about our numbers even more this time. And yet I have no way of--",108
-fomc-corpus,1977,You are worried about the accuracy of our statistics?,10
-fomc-corpus,1977,"Yes, that's correct. I mean, when you see this expanding loan volume and expanding business activity, and here we are getting a negative number, which makes me--",33
-fomc-corpus,1977,Probably very temporary.,4
-fomc-corpus,1977,"I know, but it still makes me nervous.",10
-fomc-corpus,1977,"A little earlier, when the economy was--",9
-fomc-corpus,1977,"I know; it happened in reverse. That makes me nervous about those numbers, too.",18
-fomc-corpus,1977,You're just nervous.,4
-fomc-corpus,1977,"Maybe we are dealing with lag time, then.",10
-fomc-corpus,1977,I don't know.,4
-fomc-corpus,1977,"Well, I think we ought to be dealing with averaging time on the aggregates.",16
-fomc-corpus,1977,"Yes, that's right.",5
-fomc-corpus,1977,"Several members of the Committee have not yet spoken. Mr. Mayo, please.",16
-fomc-corpus,1977,"Mr. Chairman, unlike Henry, who says that all of the recent directives have looked like money market directives to him, even if they are stated in the other words, I think a good case can be made that all of our directives over the last year have been aggregates directives because we do, I think, tend to pay too much attention in our short-run specs to the aggregates. I just mention that as a balancing point to a more general statement that there isn't really tweedle dum and tweedle dee between the aggregates directive [and the money market directive]. It depends on where you want to put the ""whereas."" Having said that, I would go along with the money market directive this time. I would retain, though, the words ""current level,"" which somehow have surreptitiously disappeared from page 5 of the directive suggestion. There might be a reason for that. But I prefer that to the 6-1/2 that would normally pop up there if we didn't say anything.",205
-fomc-corpus,1977,Where is that?,4
-fomc-corpus,1977,"Well, it's page 5, the very last page, I guess it is, of the directive formulation that was circulated to us yesterday. Lines--well, it's specifically line 80.",38
-fomc-corpus,1977,"You'd have that read ""at about the current level""?",12
-fomc-corpus,1977,"Yes, I'd keep it there. That was what this Committee agreed to last time, and I see no reason to change it. Roger reminds me that we had in mind that this may get published, and I think the same reasons--",47
-fomc-corpus,1977,I don't know why that happened. I don't know why.,12
-fomc-corpus,1977,"Well, I'd like to suggest that it be put back in, the ""current level.""",18
-fomc-corpus,1977,"In the money market formulation, it would have been.",11
-fomc-corpus,1977,"We normally take out the specifications shown last time with the strike-throughs on page 5,",19
-fomc-corpus,1977,"On page 5, it's crossed out.",9
-fomc-corpus,1977,"Last time the specification [unintelligible]. And the specifications last time at that point were in the form of the words in the current level. So following our standard procedure, we struck it, but the Committee can, of course write them back in.",52
-fomc-corpus,1977,"Any difficulty in writing that in? Well, I hear none.",13
-fomc-corpus,1977,It's pretty clear what it is.,7
-fomc-corpus,1977,It's very clear this time.,6
-fomc-corpus,1977,"I'm glad you caught that, Mr. Mayo.",10
-fomc-corpus,1977,"To continue, I find alternative B quite congenial--2-1/2 to 8-1/2 is all right, and I don't worry as much as some of my associates about that 8-1/2 despite my remarks on statistics. I think we are quite capable and will be alert and the Chairman can call us in session if indeed there seems to be a quarterly aberration, as I think of it, that would otherwise cause us to make a change in the Desk action. The 2-1/2 to 8-1/2 is all right. I feel strongly enough about Governor Jackson's point that I would go 6-1/2 to 10-1/2 on M2, given our statement--that I don't propose to change--that we give equal weight to M1 and M2. I actually don't think we ought to give equal weight to M2 this time because of the point he makes on big CDs, and therefore, I would remedy that [problem] by raising the range just another notch, so that way we wouldn't pay as much attention to M2.",228
-fomc-corpus,1977,"May I respond, just briefly on--that was one reason for supporting [the] lower range for M1 that a wider range for M2 would give you.",33
-fomc-corpus,1977,"It does, but I would just go you one notch further, Phil.",15
-fomc-corpus,1977,"Thank you, Mr. Mayo. Mr. Morris now, please.",14
-fomc-corpus,1977,"Well, Mr. Chairman, things are going our way for a change, and I think your specifications are quite acceptable. I would have a slight preference for Paul Volcker's 2 to 8, but apart from that--",46
-fomc-corpus,1977,"Thank you, Mr. Morris.",7
-fomc-corpus,1977,I'm fine with your specifications.,6
-fomc-corpus,1977,"Thank you, Mr. Lilly. Anyone else who hasn't spoken and who would like to speak, or anyone who has already spoken would like to speak again?",31
-fomc-corpus,1977,"A question, Mr. Chairman.",7
-fomc-corpus,1977,Please.,2
-fomc-corpus,1977,"Am I correct in assuming that if we adopt a money market directive, that there is a greater delay in action by the Desk? In other words, that we have a greater possibility [with a money market directive] of reaching the upper level of whatever ranges we adopt [unintelligible] than if we have an aggregates directive?",67
-fomc-corpus,1977,That is how I would understand the final decision.,10
-fomc-corpus,1977,"Is it possible, Mr. Chairman, is it procedurally correct, that we take the vote on the directive prior to the range?",28
-fomc-corpus,1977,"Yes. Yes, in view of the fact that not all members of the Committee have indicated what they feel, the directive language ought to be--we'll do that. But let me just take a few seconds to see where we are.",48
-fomc-corpus,1977,"Mr. Chairman, while you are doing that, may I suggest something here. I'd like to have the staff look into the possibilities of using two-month retro and one-month forward instead of our present two-month aggregates figure. So that for today--",49
-fomc-corpus,1977,That is something for Mr. Partee's committee to look into.,14
-fomc-corpus,1977,One thing we're studying.,5
-fomc-corpus,1977,You are studying it now?,6
-fomc-corpus,1977,Yes.,2
-fomc-corpus,1977,Good.,2
-fomc-corpus,1977,"That is, using this as the midpoint of a quarter.",12
-fomc-corpus,1977,Right.,2
-fomc-corpus,1977,"That has a great deal of merit, and I hope that you will pursue that signal.",18
-fomc-corpus,1977,"That's been studied to some degree, but let's study it more intensely.",14
-fomc-corpus,1977,"Well, it reduces the amount of forecasting influence.",10
-fomc-corpus,1977,That isn't the midpoint Phil. [Unintelligible.],12
-fomc-corpus,1977,"Well, I'm talking about for today, in December, using November, December, and January.",19
-fomc-corpus,1977,"Gentlemen, let me indicate where we are. I think there is a pretty clear consensus within the Committee with regard to the several ranges. A range of 2-1/2 to 8-1/2 percent for M1, a range of 6 to 10 for M2, a range of 6-1/4 to 6-3/4 [for the federal funds rate]. And now let us have a show of hands on the language of the directive. Those who prefer a monetary aggregates directive would kindly raise their hands--members of the Committee.",119
-fomc-corpus,1977,"Three, Mr. Chairman.",6
-fomc-corpus,1977,Those who prefer a money market directive would kindly raise their hands.,13
-fomc-corpus,1977,Eight.,2
-fomc-corpus,1977,"Well, I think we are ready for a vote on this--members of the Committee who would like to raise some questions or make some supplementary comment?",30
-fomc-corpus,1977,I'd really like an aggregates directive on the upside and a money market directive on the downside. Can't have that?,22
-fomc-corpus,1977,I'd join Paul.,4
-fomc-corpus,1977,"Well, I think we are ready for a vote, Mr. Secretary.",15
-fomc-corpus,1977,"Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos No Governor Wallich Yes Eleven to one, Mr. Chairman.",53
-fomc-corpus,1977,"Well, gentlemen--",4
-fomc-corpus,1977,"I hate to interrupt, but would you care to comment just briefly on the legality problem in the discount rate area?",23
-fomc-corpus,1977,Legality problem--I don't know.,8
-fomc-corpus,1977,Let's do it at lunch.,6
-fomc-corpus,1977,"I can tell you what that is about. That's when they're putting the directors of the banks under 208, making them criminally liable--",28
-fomc-corpus,1977,"Well, I'm not acquainted with that issue. I can't comment on that. Is Tom O'Connell here? Let's talk about that at lunch, or is this something you could answer fairly promptly, Mr. O'Connell?",45
-fomc-corpus,1977,"I believe so, if I may.",8
-fomc-corpus,1977,"Why don't you do that, Mr. O'Connell. Let's have your answer now.",18
-fomc-corpus,1977,"With respect to the discount rate action itself, that is the issue of--I'm not concerned, Mr. Chairman, that there would be any problem of legality of action taken with respect to the rate itself. I have no trouble Mr. Chairman, firmly. But my judgment would be that there is no problem with respect to the action itself. I could go further into detail with respect to the reason behind it and the legality of the action, but I see no need to.",95
-fomc-corpus,1977,"Well, maybe this is something Mr. Winn is concerned about. I don't know the problem. Now I understand the section of the new bill that is perhaps troublesome. But that is perhaps something that, Tom, you might want to discuss with Mr. Winn, and possibly you might want to discuss it with the attorneys of the several Banks.",68
-fomc-corpus,1977,"If I may say, Mr. Chairman, I think not the discount rate itself but the approval of loans; but the whole thing is going to be very troublesome.",33
-fomc-corpus,1977,Approval of loans.,4
-fomc-corpus,1977,"We had a long discussion at our board meeting last week, and I think there are a great many problems here that are going to need some discussion.",30
-fomc-corpus,1977,"There are, but my response, Mr. Chairman, was with particular reference to the discount rate. There are other problems--",25
-fomc-corpus,1977,"But to the extent that our directors are disturbed, we ought to get working on these problems.",19
-fomc-corpus,1977,We are.,3
-fomc-corpus,1977,"All right, now, Tom, will you be in charge of that?",15
-fomc-corpus,1977,I will.,3
-fomc-corpus,1977,"Mr. Chairman, I think there's something very important for the Presidents to know--to the extent that there is a problem, it's not an FOMC problem. The Board of Governors--it is my understanding of the law--has the right to specifically excuse the potential conflict of interest which any of our directors may have and to specifically authorize them to participate in a policy matter in which the conflict might otherwise be apparent. In other words, members of the Board of Governors have appeal only to the President of the United States, whereas the Federal Reserve Bank directors have the right to appeal to the Board of Governors, and the Board of Governors will be meeting, and if the issue becomes obvious where we need correction, we have the power to correct it. So I don't think it's as big a problem as the directors anticipate.",164
-fomc-corpus,1977,"It has to be corrected, that's all.",9
-fomc-corpus,1977,"To the extent that is necessary, I think we have the capacity to do. That's--",18
-fomc-corpus,1977,I think this has to be clarified.,8
-fomc-corpus,1977,"Oh, I agree. But that's one reason we don't need to do it this afternoon.",18
-fomc-corpus,1977,I will be--,4
-fomc-corpus,1977,"Mr. Chairman, just one more quick question for Tom, If I may. I'm not quite sure how we came out yesterday, as to whether today's directive will or might have to be published immediately if we lose the Supreme Court appeal.",47
-fomc-corpus,1977,"My judgment is that, under the present extension on which we are operating to the Court of Appeals, this directive and the Committee's action are not subject to an immediate publication mandate for the court. We are under a pause effected by the request for extension of time. And so this month's directive, I think, operates as did the previous directive. We are not under that mandate.",76
-fomc-corpus,1977,"Okay, thank you.",5
-fomc-corpus,1977,A very Merry Christmas and a Happy New Year to all of you.,14
-fomc-corpus,1978,"Well, we've had Mr. Truman's report. Are there any questions or comments? Mr. Wallich, please.",24
-fomc-corpus,1978,"The judgment that you expressed, Ted, does that imply that there will be a cessation of or substantial reduction of official intervention from the $36 billion you mentioned and, if so, that the financing of the current account deficit would have to be partly or wholly by private capital?",55
-fomc-corpus,1978,"Well, that of course is one of the uncertainties. So far, we've seen an increase in official financing in the last three quarters or so. Certainly, one of the questions is if such official financing does cease--or ceases to be on the same scale--will private financing be available at an unchanged or a rising or falling exchange rate? Looking at the capital account transactions for the past and into the future, it does seem possible that such would be the case. But, I don't think we have any assurance that it will.",107
-fomc-corpus,1978,"I don't understand that statement. If official financing ceases, it will have to be private financing. The only question is at what exchange rate.",29
-fomc-corpus,1978,Right. I tried to insert that--,8
-fomc-corpus,1978,"Yes, but the question is: At what exchange rate?",12
-fomc-corpus,1978,"Right, I agree.",5
-fomc-corpus,1978,"And what opinion are you expressing, if any?",10
-fomc-corpus,1978,Agnosticism.,5
-fomc-corpus,1978,"Well, I'm not an agnostic. I think that if official financing ceased in the absence of some highly significant new actions on the part of this government, private financing would be available at a significantly lower dollar exchange rate. Mr. Partee.",49
-fomc-corpus,1978,"Ted, you reflected on this 7-1/2 to 10 percent, I think you said, decline in the inflation-weighted price of the dollar as perhaps indicating that [the dollar] could be undervalued relative to other currencies. But if that were the case, wouldn't you think that that would be showing up in the trade data with a reduction in imports and an increase in exports?",81
-fomc-corpus,1978,"Well, most of that improvement has come since the end of September, and that's a little too [recent].",22
-fomc-corpus,1978,What kind of lags do you have on that response?,12
-fomc-corpus,1978,"Well, the standard results that the Board staff uses suggest that in general you get a small response to the depreciation on the trade balance four quarters out. That would suggest that you'd have to wait until close to the end of this year before you would get a positive response, and you have an initial negative response, most of which would be occurring under the normal pattern in the current quarter [to] the third quarter. The price adjustment is quite quick; the quantity response is just more delayed and, therefore, the trade balance initially--",106
-fomc-corpus,1978,Tends to turn adverse.,6
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,"Yes, I understand. But, as I recall, you don't have an improvement for the year in that current account balance.",25
-fomc-corpus,1978,"No, one of the reasons why, compared with last month, the staff projection shows a flattening out of the trade deficit--but only one of the reasons--is the depreciation of the dollar that we have had over the last three or four months. But, on balance, that might subtract $1 or $2 billion from the trade deficit at the end of this year. Most of that [improvement], if it all came and if history is any guide, would come in 1979.",101
-fomc-corpus,1978,"Do you consider, Ted, that the new Japanese agreement will contribute anything toward an improvement?",18
-fomc-corpus,1978,"The trade aspects of the agreement itself--leaving aside the aggregate demand aspects, which could be substantial if they're successful, though one has some skepticism [about that]--shouldn't be too significant directly in an aggregate sense. For example, [the Japanese] promised to reduce tariffs by 10 percent on $2 billion worth of imports. That's all a volume pass-through, and you're talking about $200 million, which is not very much. On the other hand, I think there's probably more significance in the fact that there was an agreement--and some foreign producers necessarily are going to hesitate, one would think--to push rapidly further penetration of the U.S. market over the next year because they have seen what can happen.",146
-fomc-corpus,1978,"Ted, have you seen any evidence of a shift in leads and lags of commercial payments aggravating this pressure on the dollar?",26
-fomc-corpus,1978,"The data that we have on that are first of all not very good to begin with whenever we do get them, and second they're in part delayed. The evidence that we have--a little bit from the third quarter and for the first two months of the fourth quarter--suggests that in the areas where we don't have data, essentially trade, they will probably be negative in the fourth quarter. We do have data on trade and bank-reported capital flows of security transactions, so where we don't have data on those kinds of transactions--corporate financial transactions--there are reporting errors and omissions. Errors and omissions went negative in the third quarter and it appears that they will probably also be negative in the fourth quarter, which suggests that they've been running substantially positive--that there have been some [shifts in] leads and lags in pressure on the dollar. But it's [only] suggestive. MR. [WILLES]. Litton Microwave is headquartered in our District. It was interesting to me yesterday, going back to something you were talking about, Chuck, that after the TV imports were shut off by that agreement, the Japanese converted some of their TV production lines to microwave production lines. We were quite concerned about the impact that would have on trade. But the president of that [Litton] division told me yesterday that with the change in the exchange rates, in the last two months he has again become very competitive with Japanese microwaves--not so much in Japan, where it's a nonprice problem, but in this country and in other countries where the United States and Japan are both trying to put microwave ovens into those countries. So the price--at least in that one relatively small case--clearly seems to be having a very dramatic effect both on what's happening right now and on their outlook for the coming year, which is now much more positive than it was even two or three months ago.",383
-fomc-corpus,1978,"Mr. Volcker, please.",7
-fomc-corpus,1978,"Well, just a couple of observations, Mr. Chairman. I think all the evidence we have suggests that this trade balance is going to be hard to turn around in any short period of time. And all the evidence we've had since 1971 on the exchange rate changes doesn't suggest that changes come very quickly. The aggregate demand side is very important and we do have a problem of changes in the exchange rate--in some key countries anyway--possibly aggravating the prospects for expansion in those countries and [thus] having a bigger effect on the trade balance short run than the price effects of the depreciation will. But, I'd like also to look through the other end of the telescope, as it were, in connection with your observation. I think you've made a fair observation that if things aren't done right, we're not going to have private capital inflow at present exchange rates. But I would hope that the converse is also true. If people have a reasonable degree of confidence in what we're doing--and confidence has obviously been very low--and if they have some sense of stability about the exchange rate, it is possible to get a private capital inflow that would finance the current account deficit at a reasonably stable exchange rate. But it's not going to come automatically. Things have to be done to inspire the confidence that the exchange rate will indeed be stable.",269
-fomc-corpus,1978,"Exactly. Well, if I have the staff's estimates accurately in mind--and you can correct me, Mr. Truman--for 1977 we had a trade deficit of approximately $30 billion and a current account deficit of approximately $18 billion. Additions to the reserves of foreign central banks held here, excluding OPEC because OPEC operates the way private individuals or concerns do, were $28 billion. Therefore, we had a capital outflow of $10 billion. If foreign central banks refuse to add $1--this is an extreme assumption, obviously--to their holdings of dollar assets, and if we accept the staff projections for 1978, which do not deviate by more than a decimal from what was achieved during 1977, we'd have a tremendous problem of attracting sufficient private holdings of dollars or dollar assets. It could be done, but not by standing still in the realm of economic or financial policy. That is, it will be done at some exchange rate, but to do it at anything like the present exchange rate, I think will require very strong and determined financial policy by this country.",224
-fomc-corpus,1978,"One often used to hear, Mr. Chairman, about leads and lags in connection with other countries--I don't seem to have heard the term used with regard to the United States. [I think you said] that the leads and lags have gone against us over this past year.",58
-fomc-corpus,1978,"Yes, that's what I said.",7
-fomc-corpus,1978,And there's [unintelligible] of rate change that could occur that could amount to $10 or $15 billion or in that area.,29
-fomc-corpus,1978,"You know, just for the sake of one or two individuals like myself who do not understand technical terms like leads or lags, Mr. Truman, would you explain what it is that we're talking about?",41
-fomc-corpus,1978,"Well, the simplest way to explain it, I think, Mr. Chairman, is this. If you have an importer, for example, who has to make payment in foreign currency for something he has imported and he thinks that the dollar is going to decline further, he accelerates that payment. He makes it today--borrowing dollars here maybe--rather than tomorrow. It's for economic reasons. That's a lead.",83
-fomc-corpus,1978,That's a lead.,4
-fomc-corpus,1978,"There is another aspect, though, and that is with respect to [relative] interest rates. Now, you may not put that under leads and lags, but essentially as interest rates rise in the United States relative to elsewhere, people will try to finance their foreign trade in the low interest rate countries. And that again sets up a capital movement that can be very large. I was inclined to think that what Chuck had in mind was this effect.",90
-fomc-corpus,1978,"I had in mind the whole financing effect--the very short-run financing and payment effect, which I think can snap. It's sort of like an inventory change. It can algebraically amount to an awful lot from one quarter to another. I suppose it has been against us and it could go for us. So the sort of more permanent financing problem, so to speak, might not be as large as the Chairman suggests.",84
-fomc-corpus,1978,"Well, if the figures I have in front of me are correct, we had a positive errors and omissions of almost $10 billion in '76, and a minus, which includes some guessing, of $3-1/2 billion in '77. That is a swing of $12 billion or so. Most of the year, of course, had been exceptionally high positives in '76, so I don't know if we'll go back to that.",90
-fomc-corpus,1978,"Mr. Roos, please.",7
-fomc-corpus,1978,"Can I ask two questions? Perhaps they are naive and reflect my lack of knowledge in this field. First of all, if there were a further substantial decline in the exchange value of the dollar under circumstances such as you described, what are the practical problems associated with that? And the second question, if I may, [relates to] signaling to the world our determination to take actions that will in the long run reduce the inflationary trend of our economy as related to other economies involved in dollar exchange transactions. If we from a monetary policy point of view signaled in a meaningful way, in a dramatic way, corrective action in terms of reducing money growth or something like that, is that a major factor that could affect the value of the dollar? Or is that just one of many factors that are equally important in terms of establishing the dollar's value?",171
-fomc-corpus,1978,"Well, I think that an increase in interest rates would be helpful in making private citizens and business firms around the world more willing to hold dollars or dollar assets. I don't think there's any doubt about that. But in my judgment it would be only the beginnings of an answer. I think the main answer is to be found, even in the way of a bridging action, by selling Treasury securities to private holders abroad. That's something that in my judgment ought to be done and done immediately on a significant scale. And it can be done. It can be done in various ways. As for fundamental corrective actions, I can see only four paths. One is the passage of an energy bill, which would assure the world that we will be conserving oil on some scale and more important that we will be stimulating the development of new sources of energy supply. Second, I think we need an anti-inflation policy on the part of the Administration, something we don't have at the present time. Third, we need tax legislation that is designed to stimulate foreign investment in this country, business investment as well as domestic. That is, direct investment or portfolio investment. Now, these three roads to a fundamental cure are available to us; they are within our power in this country. The fourth avenue is outside of our power--namely, faster economic expansion in the economies in the rest of the world. So, there is something that the Federal Reserve can do. And I think we've taken significant steps in that direction directly and by way of stimulating the Treasury and the Administration, but I think what has happened so far is only the beginning of what needs to be done.",330
-fomc-corpus,1978,"If intervention in support of the dollar were to discontinue and there was a further substantial drop in the value of the dollar, does that have all kinds of frightening--",32
-fomc-corpus,1978,"Well, in my judgment it has. The conventional theory, which is still heard in Washington now and then, here and there, is that when the dollar depreciates, the depreciation will cause exports to expand, imports to shrink, the trade balance to narrow, employment to rise, unemployment to decline, and that is, therefore, one of the major highways to a national prosperity. Now, that conventional theory has a significant element of validity for many countries in the world, but not for the United States. That's because, first, world trade is denominated preponderantly in dollars. Secondly, and far more important, the dollar is a store of value for central banks, multi-national corporations all around the world and also individuals--people of wealth and means all around the world, not only Americans. And when the dollar depreciates, some will seek cover by acquiring other currencies, which means that the dollar will depreciate further. Most individuals and business firms will simply hold on to their dollars and squirm and wonder in anguish about the future. And when people are in that state of mind, normally they're likely to postpone, if not shelve, spending or investing decisions that they were previously on the threshold of making. And, therefore, a state of semi-paralysis could spread around the world. On top of that, as Paul Volcker very clearly stated at our previous meeting, in some major countries whose currency has appreciated dramatically in recent months, economic stagnation if not actual recession may set in because of the adverse effects of an appreciating exchange rate on export industries. And as far as the United States is concerned, the negative influence stemming from such a deterioration of this or that foreign economy may more than swamp the positive influence on our trade that may flow from the kind of influence that Mark Willes described for this or that firm before. On top of that, and third, in the kind of atmosphere that may be generated in an environment in which the world's major currency depreciates, protectionism may easily spread, here and elsewhere and thereby serve to shrink world trade and world economic development at large. Therefore, I think we're dealing with a very serious threat not only to our own prosperity but to the continuance of prosperity around the world. Mr. Partee.",454
-fomc-corpus,1978,"Well, my difficulty is--and it's the reason I asked Ted that earlier question--that I don't know what a proper exchange rate is for the dollar. I look at that chart across the way from me and it shows that the dollar is still well above the trade-weighted average value it reached in 1973 and in the first half of 1975. It's true that it has come down sharply but it went up very sharply in 1975 and early 1976. We didn't resist very strongly the rise in the dollar in '75 and early '76, and I just don't have an anchor to windward here. I don't have a notion of what the proper exchange rate is from the standpoint of long-run equilibrium in trade and current account balances. What disturbs me about the notion of defending the dollar at a particular point--this is quite aside from the question of moving in to take care of destabilizing conditions in the markets--in a massive way through higher interest rates or intervention or any other policy of that sort is that I wonder if we've picked the wrong point. If the strong basic characteristics are still tending to drive the dollar either down or up as the case may be, I wonder whether we won't lose in the end--lose a great deal--in trying to support the dollar at a point that is not its [equilibrium] point. And since I don't have any idea where the basic [equilibrium] point ought to be, I have great difficulty myself, of course.",302
-fomc-corpus,1978,We've gotten into a discussion of a stable rate; I think Paul used the term--,17
-fomc-corpus,1978,"Well, the Chairman was talking about a decline.",10
-fomc-corpus,1978,"That's contingent. It wasn't, I think, your thought that we ought to arrive at stable rates. I don't think either the discount rate action or intervention tends to stabilize a rate that for market reasons wants to move in another direction.",46
-fomc-corpus,1978,I was responding to the Chairman's comment.,9
-fomc-corpus,1978,"I don't think you have responded to my comment. I interpreted your comment--not your language but the substance of your comment--as being directed mainly to intervention. As far as that goes, I think I have as little faith in intervention as you do. I have not been in favor of massive intervention. I have tried to hold a tight rein on Mr. Pardee, an enthusiast for intervention on a dramatic scale. What can we do in the way of intervention? We can just influence markets here and there a little and it has no permanent significance. There are literally hundreds of billions of dollars against [us]. How much can we intervene with? I think total intervention so far amounts to about $1-1/4 billion. Is that correct? All right, suppose we made it $3 billion; suppose we made it $5 billion. I don't think it would make any significant difference. I believe, therefore, mainly in bridging action until permanent corrective actions can be taken.",197
-fomc-corpus,1978,"Mr. Chairman, do you see some indication on the part of government of a willingness to move to what you characterize as permanent corrective actions? Or does the problem have to get worse before [that will happen]?",42
-fomc-corpus,1978,"I think there's some indication, yes, of a willingness to move. Is there sufficient indication? No. Is there a sufficient sense of urgency? Not according to my reading. But I am an impatient man in this field.",45
-fomc-corpus,1978,"Suppose that none of these actions occurred. Suppose that there is no anti-inflationary program, that there is no energy program worthy of the name, and that the tax cut in the end turns out to be hardly at all for business and almost entirely for consumers.",55
-fomc-corpus,1978,"Well now, why don't you complete the list?",10
-fomc-corpus,1978,All right. And that Germany and Japan--,9
-fomc-corpus,1978,"No, and that there are no bridging actions of the kind that I suggested previously. Then go on.",21
-fomc-corpus,1978,"Well, I thought your fourth point was expansion abroad. I wasn't going to throw that in because I don't know what would happen.",26
-fomc-corpus,1978,"Well, expansion abroad can help enormously.",8
-fomc-corpus,1978,"It reminds me of our discussions of extending credit to New York City. That is, you're talking about bridging actions, but you don't have anything that you're bridging to if in fact those three things don't occur. In that case the dollar, I presume, if it is not competitive today, would have to decline further and we shouldn't resist it. Would you agree with that?",74
-fomc-corpus,1978,"Well, I don't think I would call it competitive. I would say that the dollar would decline further and that would be a prelude probably to an international recession and, therefore, we should definitely resist it. [As for] the assumptions of inaction that you make, we should do what we can to make those assumptions not come true.",69
-fomc-corpus,1978,I reckon.,3
-fomc-corpus,1978,You two are talking about a time problem. [There's] a short-run problem and a longer-range problem. I can't see just standing by while the dollar depreciates at a rapid pace. But neither can I see a long-range intervention policy.,49
-fomc-corpus,1978,"Well, on a long-range intervention policy, I'm with you and Chuck. I see little point in it. I would say that, yes, intervention is desirable largely to show the rest of the world that we do care. What do we achieve by it? Very little. As a matter of fact, the rest of the world has talked a great deal about intervention but its confidence in intervention is diminishing. I've talked to central bankers abroad and they're not very eager, the way they were before, to have us intervene on a large scale, even though they have a problem with their export industries and the like. That's because they are concerned about their monetary circulation, and they haven't yet devised sufficient means of offsetting the increase in the money supply that results from our intervention or for that matter from their own intervention. So, I have very little faith in the significance or the lasting value--except for very short-run psychological reasons--of intervention. Now, there is this. Take the statement that was put out regarding joint action by the Federal Reserve and the Treasury. The new element in that statement was the willingness of the Treasury to enter into swap arrangements and use the resources of the Exchange Stabilization Fund. The value of that statement was not in the fact that there would be more intervention because of Treasury participation. The value of that statement was that it gave notice to the rest of the world that all the talk about the Treasury and the Administration being in favor of a depreciating dollar --and there being some difference of opinion between the Federal Reserve and the Treasury--[was not true]. This was a clear indication to the rest of the world that the Administration and the Federal Reserve were on the same track, interested in protecting the integrity of the dollar. That's the only value in that statement.",357
-fomc-corpus,1978,You suggested the selling of U.S. bonds in European money markets. I gather you're talking about mark-denominated bonds. Or are you talking about--,30
-fomc-corpus,1978,"Oh, I think these are technical problems I would not [want to spend time discussing]. We have a little committee working on that and I hope that committee has concluded its work. I hope that committee is not going through bureaucratic exercises. By Jove, there will be thunder inside of this shop if it is.",64
-fomc-corpus,1978,"Before the thunder, could I ask another question?",10
-fomc-corpus,1978,"Yes, but we're not finished with--",8
-fomc-corpus,1978,What is the impact going to be on those money markets of a massive sale of bonds by the United States? Isn't that going to raise hell with their rates?,32
-fomc-corpus,1978,"Well, this is something that we would do only with the closest collaboration of the central banks and governments of other countries and I am assured that that collaboration will be forthcoming promptly. The device that you mentioned, selling Treasury bonds denominated in foreign currencies, is merely one way of accomplishing the objective and not necessarily the best way.",65
-fomc-corpus,1978,"Well, you'd need to get some kind of a currency guarantee.",13
-fomc-corpus,1978,"No. Take, for example, one device that the Bundesbank is thinking of. The Bundesbank gets Treasury certificates now, as I understand it, and they're very short-term. Instead, let them be two- or three-year certificates and the Bundesbank can turn around and sell those certificates to its commercial banks and thereby mop up liquidity that had been created in the process of acquiring these Treasury certificates. [But there would be] limited transferability, you see. That is, one commercial bank could transfer the bonds or sell the bonds to another commercial bank but to no one else. There would be no leakages in that case. That's another way of doing it.",134
-fomc-corpus,1978,That's right. But I still don't [fully understand]. Would the bank that's buying take an exchange risk?,21
-fomc-corpus,1978,The bank that is buying in that case would be holding a dollar security.,15
-fomc-corpus,1978,A dollar security.,4
-fomc-corpus,1978,That is not the way I visualize the operation.,10
-fomc-corpus,1978,The Emminger plan?,6
-fomc-corpus,1978,I think the idea is to sell D-mark certificates to the [unintelligible] of the government here.,23
-fomc-corpus,1978,"No, no that's the second plan. There are two different things. One is to sell a dollar security; the other is to sell a Treasury security denominated in a foreign currency.",37
-fomc-corpus,1978,"That's the Alan Holmes plan, if I may call it that. That would be a way for the Bundesbank to absorb bank liquidity. But the Treasury bill in that case--or whatever security it was--would be serving I think as the guarantee feature and not as a means of making the merchant bank take the dollar risk. [Those banks] wouldn't do that.",73
-fomc-corpus,1978,So the Bundesbank would take the dollar risk?,10
-fomc-corpus,1978,"The Bundesbank takes the dollar risk, that's right. But the Bundesbank's liability would show up in the D-mark obligation, I would think.",30
-fomc-corpus,1978,"Doesn't either one of these operations tend to put upward pressure on their rates, thereby narrowing the differential between them and us?",25
-fomc-corpus,1978,"In and of itself, yes. But the central banks in other countries are capable of taking action to ease credit conditions--not only to offset any such sales of Treasury securities but to go beyond that or independently of that.",44
-fomc-corpus,1978,"Another way of putting that, Mr. Chairman, is that it takes away the downward pressure on rates that comes with the expansion in their credit from the support operations.",33
-fomc-corpus,1978,But we're seeking a widening in spreads.,8
-fomc-corpus,1978,"Well, that seeking of a widening spread is entirely consistent with the sale of Treasury securities abroad, provided foreign central banks cooperate with us, which they are eager to do. Technical problems can be worked out.",41
-fomc-corpus,1978,"[Unintelligible] the question when you said the Germans were interested in mopping up excess liquidity in their economy, because that doesn't sound like something they would want to do if they wanted to widen the spread between the dollar markets [and those] in Germany.",54
-fomc-corpus,1978,"Well, these are not matters of black and white. My language may have misled you here. The Germans are like other people; they have two minds on every issue just as we do. On the one hand, they want to mop up liquidity. On the other hand, they want to stimulate their economy and also to curb inflation. But their thinking is moving in the direction of easing credit conditions. One reason they're thinking of moving in that direction--not the only reason--is that the Americans, thank God, are no longer quite as loud as they were in pointing an accusing finger at the Germans and telling them they must expand their economy. What we're tending to do now [is to talk in more general terms]. That certainly was the line I took in Basle. I didn't say a word to any specific country. I merely indicated that one way among others to solve the dollar problem is for the outside economy to expand faster. Which part of the outside economy or how, I had not a thought about that. And, believe me, you get a much better response out of people, and it comes spontaneously, when you talk in that vein than if you just start pointing an accusing finger at the Germans or at the Japanese. They've become so sensitive that even before that finger starts moving, they're ready to attack in return. Mr. Morris, please.",273
-fomc-corpus,1978,"Mr. Chairman, I find our intervention policy in the foreign exchange markets very troublesome. On the one hand, I'm very much aware that there are limits to what we can do in intervention. On the other hand, it seems to me that if we do decide to intervene--and if we're going to have an impact--we've got to intervene on a larger scale than we have in the past. I think the purpose of intervention is not to soak up dollars, because obviously we can't intervene on a scale sufficient to soak up the volume of dollars around. The purpose of intervention is to instill some element of psychological change in the marketplace and one doesn't do that with intervention on a very small scale. I think there is an analogy to the lender of last resort function. I think back to the Penn Central crisis, for example, where we assured the banking system that we were going to provide whatever money was needed to cool that situation off. We turned confidence around and we ended up not putting in anywhere near as much as some of the experts thought we would have to put in to turn the situation around. Our present course of intervention seems to me on a very small scale.",235
-fomc-corpus,1978,"It has been increasing, I'm sorry to say.",10
-fomc-corpus,1978,"[We're] building up some liabilities and we're not producing, on the confidence side, any really vigorous demonstration to the market that the United States thinks the dollar has come to a level that the risk in this operation is pretty small. Now Chuck says, and quite rightly, that he doesn't know where the dollar should bottom [out] and neither do the people in the marketplace. They don't have any better basis than you do for making that judgment. [If we're] intervening at all, I think it ought to be done sparingly and on a large scale instead of frequently on a small scale.",120
-fomc-corpus,1978,"At this point, let's hear from Mr. Pardee and then I think our discussion can be continued.",21
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Mr. Pardee. Mr. Morris made some interesting observations. Frank, you may be right that this is an area where it is very difficult for any one of us, certainly for me, to speak with a sense of authority or great confidence. But there is one thought, a political thought, that I think is tremendously important and ought to be kept in mind. If we were to intervene on a much larger scale such as you suggested then I am very much afraid, and don't ask me to elaborate on this, that certain thought processes and incipient actions that are now in motion within the executive establishment and within the Congress might be slowed down considerably. The feeling may be generated that intervention is taking care of the problem, and that would be a tragic mistake. Therefore, you see, it's a very difficult question. We are intervening more; we could intervene much more. But if we did, we would run the grave risk that the kinds of bridging actions and permanent corrective actions we mentioned--and there may well be others--might be postponed indefinitely. And, therefore, the problem would remain with us and the corrective process that is needed would not get under way or it might weaken. So, this is a political point of tremendous importance in my own mind--and in one way or another we should keep that in mind. It's hard to evaluate, but we cannot ignore it. Mr. Eastburn.",286
-fomc-corpus,1978,"Question to Scott. You use the terms ""orderly"" and ""disorderly"" and ""efficient"" markets. It would be very helpful to me if I had a more precise feeling about your definitions of those.",44
-fomc-corpus,1978,"Oh no, why do you ask that?",9
-fomc-corpus,1978,"Well, because it seems to me that this goes to the issue--to Chuck's issue as to what is a proper exchange rate and when do we intervene and when do we not.",37
-fomc-corpus,1978,"But, you know, these terms have never been defined, really. I don't object to precision and if Mr. Pardee can answer your question in a way that would be helpful to you, God bless him and the rest of us.",48
-fomc-corpus,1978,"Go on Scott, it's all yours.",8
-fomc-corpus,1978,"First, I want to assure everyone that we do not have a rate objective in mind. We do not know what the appropriate rate is or should be. There are no long-term equilibrium conditions. The underlying elements are changing every day, every week, every month, as changes in oil prices and changes in other fundamentals take place. So, there is no way in which we can establish the right rate or hope to establish the right rate. But there are times when the market does overdo it and moves beyond where we feel the current rates [ought to be based on a] broad element of judgment in terms of economic fundamentals, market sentiment, and policy considerations. They are exaggerated rates; they're wrong. This is the term ""erratic fluctuations"" that people have used and written into the official literature from time to time. Now, this is seen in the marketplace, and market sentiment is very important. A reading of market sentiment some say is very important in deciding whether a market is disorderly or not. And some of the elements that Chairman Burns and Mr. Volcker mentioned earlier are very important in my mind in determining whether I think the market is disorderly or not. What are people thinking? How are they reacting to the market? What is the business manager or what is the foreign exchange trader thinking at the current moment if he sees day after day that the dollar is declining, when in his better judgment he thinks it shouldn't be as low as it already is? [If] he sees when he comes in each morning that the dollar is 1 percent lower, then he is not going to buy dollars. He is going to sell dollars even though it's against his better judgment. So, one of the key elements of a ""disorderly market"" is the response of the business manager to news or rumors--we even had a rumor of a rumor a couple of weeks ago. [For example,] he overreacts to whatever adverse news or rumors come through and yet when positive news comes through, there is no reaction. We had a 6.4 percent unemployment rate [reported recently]. I went into the market afterwards trying to reinforce what I thought would be a positive reaction. It was a big intervention for naught. The market just absorbed the [news]. I got out of there as fast as I possibly could. The market didn't want to hear good news for the United States dollar. This is the kind of situation in which there is an element of only one-way risks; the trader sees that the dollar is only going to go down. He himself cannot stand up against the market. That's a disorderly market. Now, it's hard to measure. We can't [define it quantitatively]--what percent movement per day or what the width of the spreads are; these are elements in it. But it is a question of reading the judgment of the people who are the participants in the market. This is what I'm dealing with. I'm trying to persuade enough people--managers of funds, exporters, and importers--who all are moving dollars in foreign exchange that tomorrow the dollar won't be 1 or 2 percent lower; it might just as easily be 1 or 2 percent higher, or perhaps it will be about where it is now. So, they can make longer-term business judgments and not have to worry about this tugging match or football game or craps game that has been going on in the exchange market.",693
-fomc-corpus,1978,"Mr. Pardee, you've made your point. We now all know very precisely what a disorderly market means.",23
-fomc-corpus,1978,Sounds like a down market to me.,8
-fomc-corpus,1978,"Mr. Eastburn, do you want to continue?",11
-fomc-corpus,1978,"Well, as long as we're getting everything out here on the table, I think there is a further question, and that is: What are the risks of disorderliness and what are the gains of injecting order?",42
-fomc-corpus,1978,"[As for] the risks of disorderliness, I think the Chairman answered that before in terms of President Roos's question. If we back out and we have a disorderly market, then all these other things--",44
-fomc-corpus,1978,"Well, I understood Larry's question to have to do with the value of the dollar--the more permanent aspects and not the fluctuations from day to day.",31
-fomc-corpus,1978,"Well, at this stage as long as only a one-way risk is perceived--that the dollar can only decline--then we'll have the results the Chairman outlined. Until a two-way risk reemerges, which is what we're trying to establish, [that will be the case]. Once a two-way risk is seen, then we'll have better markets, and I can't forecast where the dollar will be.",80
-fomc-corpus,1978,"All right, thank you. Mr. Balles, please, then Mr. Black, and then Mr. Coldwell.",25
-fomc-corpus,1978,"Mr. Chairman, I'd like to come back to the four essential fundamental corrective measures that you talked about. I'm inclined to guess that unless we really succeed on the second of the two that you mentioned--a successful anti-inflation program by the U.S. government--the other three might not work. That is to say that as long as there are differential rates of inflation of considerable magnitude between here and other countries, it's going to be awfully difficult to get the kind of capital inflow that will offset our trade deficit. And in view of that tentative conviction that I have, I wonder if you could hold forth a bit more on what you had in mind in terms of getting a successful anti-inflation program of the U.S. government, which I think was your phrase.",158
-fomc-corpus,1978,"Well, I would be very glad to do that and I've recommended such a program. I don't think it's going to be adopted, but perhaps we might postpone that [discussion] because it will not help us, I think, in dealing with the foreign exchange problem that we're on at the present time. Mr. Black, please.",66
-fomc-corpus,1978,"I wonder if I might ask Mr. Pardee a question. Scott, would you quantify as far as you can--I realize this is a very difficult question--what portion of the movement against the dollar is in the form of multi-national corporations and others engaged in foreign business and investors in the normal course of business trying to protect themselves as compared to those who are trying to make money purely out of speculation against the dollar.",85
-fomc-corpus,1978,"Well, I think--",5
-fomc-corpus,1978,I'd like to hear the full answer. Would you like to pull over the microphone?,17
-fomc-corpus,1978,"My estimate is that the biggest portion of funds that go through the exchange market essentially comes from the corporations--the broad economic relations that we have in this country as against other countries. We did have a discussion about the role of the banks as speculators during that interim FOMC [conference call] and I'd rather not pinpoint the speculators as the problem. The speculators can go either way; if they felt that the dollar would rise, they'd be buying dollars. This is what I'm trying to persuade a few of them--that maybe the dollar will rise. I think it's more the broad [unintelligible] and not just multi-nationals either. A lot of people buy and sell dollars internationally so I can't quantify it, but I think it's easy to overplay the role of the speculator. It's easy for us to overplay it ourselves since we're dealing directly with banks and occasionally we have to deal with some of these fellows who want to move the rate and it does become a contest of wills. But I wouldn't want to overemphasize it. I think, as Paul outlined in that [conference call], we've got to persuade the whole market that we mean business.",240
-fomc-corpus,1978,"Mr. Black, I sat down in Zurich just a week ago, on Tuesday, with leading Swiss bankers and asked them that very question. Unhesitatingly each one said that everybody is in it--people from all over the world as individuals and corporations. I asked more specifically about banks, having satisfied myself that American banks are not involved. I've pursued that question with central bankers and they were quite sure that their own commercial banks are maintaining a balanced position in foreign currency; they're checking on that. The sole exception is what some subsidiaries of foreign banks may be doing in Luxembourg. That seems to be a trouble spot--an area from which a significant amount of speculation is generated. And that is something that requires international attention, particularly on the part of the Europeans.",153
-fomc-corpus,1978,"When they say ""everybody's in it,"" are they saying they are in it just to protect themselves rather than to speculate?",26
-fomc-corpus,1978,"Both, is what I was told. You know, the [dividing] line is so hard to draw.",23
-fomc-corpus,1978,One man's speculator is another man's hedger.,10
-fomc-corpus,1978,"Yes, I know it's hard to draw the distinction. But as I see it, and as I perceived what Scott said, I gather that you think there might be a little more of the speculative element than he has suggested.",45
-fomc-corpus,1978,Perhaps.,2
-fomc-corpus,1978,"I could give you all kinds of examples, but I don't want to because I'm afraid I'll be giving a misperception.",25
-fomc-corpus,1978,"The line is a very fine line. But I think most people--most laymen anyway--think of this as a massive speculative attack. Actually a substantial part of it, an overwhelming part of it, is simply people trying to protect themselves.",49
-fomc-corpus,1978,"Bob, an importer, for example, could [cover] his imports not at all or for three months or for six months or for a year. It makes a tremendous difference in the demand for the currency. And I don't know whether you call it speculation or protection.",54
-fomc-corpus,1978,"It's hard to define, and I realize that.",10
-fomc-corpus,1978,"Mr. Coldwell, please.",7
-fomc-corpus,1978,"Scott, you seem to be working on an attitudinal problem. How much progress have you made?",21
-fomc-corpus,1978,"Well, the last two days the market has been settled and we have not had to intervene. I haven't talked with the Desk in an hour and a half, but--",34
-fomc-corpus,1978,"No, I don't mean intervention. I mean in terms of attitude.",14
-fomc-corpus,1978,I think the point that the Chairman outlined has been gotten across--that the U.S. authorities are there and that this earlier credibility--,27
-fomc-corpus,1978,"I just hate to see you say that, Scott, because it's a premature judgment, I think. We must not reach conclusions on the basis of what has happened in a day or two days or a week, though I understand your attitude. Two days' peace is a close approximation to eternity.",59
-fomc-corpus,1978,"You didn't let me finish; I was going to give the qualifier. I share your view but so far, so good.",25
-fomc-corpus,1978,Up to an hour and a half ago.,9
-fomc-corpus,1978,"Any other questions or comments? Well, I think a motion to approve, with or without a sigh, the transactions of the foreign desk would now be in order.",33
-fomc-corpus,1978,I so move.,4
-fomc-corpus,1978,Second.,2
-fomc-corpus,1978,"The motion has been made and seconded. I hear no objections. Do you have any recommendations to the Committee, Mr. Pardee?",28
-fomc-corpus,1978,I would simply mention that four swap drawings on the Bundesbank in the amount of $123 million equivalent of marks are coming up for renewal between now and the next meeting. These are first renewals and need only to be noted by the Committee at this stage.,52
-fomc-corpus,1978,Any question about that?,5
-fomc-corpus,1978,When do we reach the first second renewal?,9
-fomc-corpus,1978,"April, I think.",5
-fomc-corpus,1978,Mr. Volcker has [a comment].,9
-fomc-corpus,1978,"I would note that the Committee in between meetings raised the aggregate limit on its exposure from $1 billion to $1-1/2 billion, as I recall. We're now within $275 million of that. I hope you don't need [additional leeway] if the last two days are a minor omen but when one looks at the perspective to the next meeting I raise the question of whether it would be prudent to raise that limit to give us a little more normal leeway. That limit is actually the binding limit now. We'd normally have a $500 million leeway between meetings, but this aggregate limit would not provide us with a $500 million leeway between meetings.",135
-fomc-corpus,1978,"Well, let me just understand the rules. If we did nothing today, then the Committee would have to be canvassed.",25
-fomc-corpus,1978,"It would have to be canvassed in any event with the $500 million limit [on transactions between meetings]. But this overall aggregate limit that exists ""permanently"" is at present closer than the $500 million normal intermeeting limit. My question is whether they might be brought into alignment, so to speak.",63
-fomc-corpus,1978,"Well, what is the sentiment of the Committee? I would only make one comment. In the past we have had no difficulty in getting certain types of actions by the Subcommittee and in reaching the full Committee when required; and the Desk has not really been handicapped. However, there may be an advantage in enlarging the Desk's authority so that further consideration by the Committee by telephone or by wire would not be necessary.",85
-fomc-corpus,1978,"I think I agree with President Volcker that the $500 million in transactions should be the limit. It was intended as the limiting constraint on operations without consulting the Committee. The other is sort of like the national debt limit; it is just hit because [the Desk] might run into [it in the course of executing transactions within] the $500 million which it is otherwise permitted to do with Subcommittee consultations. So I think [the limit] ought to be raised to $1.750 billion for the outstanding debt. That's about right, roughly.",111
-fomc-corpus,1978,"Any other views or any additional views? I hear no objections to Mr. Volcker's suggestion and if I interpret the silence to mean consent--and unless I hear a word I will interpret it that way--I will take it that this is the decision. All right, thank you very much. We'll move now to a report on the economy; Mr. Kichline and Mr. Zeisel will report to us. Would you be good enough to proceed in your own way, Mr. Kichline?",103
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,[Statement continued--see Appendix.],7
-fomc-corpus,1978,"Thank you very much, Mr. Kichline and Mr. Zeisel, for a very illuminating report. I think it would be desirable now for members of the Committee to focus on the broad economic projections made by our staff rather than on technical details. And it would be most helpful if we would indicate general agreement if it exists or such divergences of thought or opinion that members of the Committee may have, looking through the near-term economic future. Who would like to speak first? Mr. Coldwell, please.",104
-fomc-corpus,1978,"Mr. Chairman, I think the net result of what I am going to say is not going to be a great difference in the average for the whole year. But I see the pattern as significantly different and it perhaps connotes the beginnings of a possible recession at the end of 1978. I think [the staff's] rate of inflation is too low. I think [the projected] rate of [growth in] gross national product in the first and second quarters is too low but I think it's too high in the latter part of the year. As we move [through] the year, I think the impact of the dollar depreciation on our prices and the increased pressure on wages and the minimum wage and the CPI through indexed growth are going to cause greater inflation than [the staff] had planned. With regard to the GNP side, I can see a very sizable gain, perhaps even larger than what you are forecasting--maybe even up to 7 percent real growth in the first quarter--primarily from inventory growth and the impact of this government spending that has just been hitting us. But by the time the second, third, and fourth quarters are coming along I think inflation is going to take its toll. I suspect that housing declines are going to be sharper than [the staff is] looking at. I don't think capital spending is going to have the strength shown. So I am looking for something much weaker in the latter part of next year, Mr. Chairman.",296
-fomc-corpus,1978,"Thank you, Mr. Coldwell. Mr. Willes next, please.",16
-fomc-corpus,1978,"Could I ask Mr. Coldwell a question, Mr. Chairman?",14
-fomc-corpus,1978,Please.,2
-fomc-corpus,1978,You made reference to the beginning of a recession. Are you talking in terms of slowing growth or an actual decline?,23
-fomc-corpus,1978,I am talking in terms of a major slowing of growth.,12
-fomc-corpus,1978,But which presumably would move on into an actual decline?,11
-fomc-corpus,1978,Even with the tax cut?,6
-fomc-corpus,1978,Even with the tax cut.,6
-fomc-corpus,1978,"All right. Mr. Mark Willes, please.",11
-fomc-corpus,1978,Thank you. I have one question and then a comment. I don't have a chart on prices in [my set of charts]. Is mine just short or is there none?,35
-fomc-corpus,1978,"No, we did not discuss prices this morning.",10
-fomc-corpus,1978,You don't have prices and I can forgive that because we talk a great deal about prices. I find it more difficult to forgive the absence of the chart on profits. That we don't talk enough about and we don't think enough about.,46
-fomc-corpus,1978,"Mr. Chairman, I talked about equity prices in my final comment. I think very importantly about profits when talking about equity prices and I am sorry I didn't pull it out more explicitly. But clearly, when talking about a price earnings ratio one is talking about profits.",53
-fomc-corpus,1978,"The material in the Greenbook is consistent with the Chart Show, I take it. There is a price projection and a profits projection in the Greenbook.",31
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,"I love to hear talk about profits because I am sufficiently old fashioned to think that business profits and the prospect of profits have a great deal to do with the prospects for the economy. The tendency on the part of economists to talk about the money supply and tax changes as if these little adjustments here and there drive the economy I think is entirely mistaken. I think we still have a large private sector and I even thank God for that. What happens in the sphere of profits--and what expectations are with regard to profits--I think is still the main driving force of the economy. But you were going to make a comment in addition to the question, Mr. Willes.",134
-fomc-corpus,1978,"Well, I was, and I guess it is very similar in part to what you just said. The [issues] of prices and profits are very closely related in my mind at the moment. Since we don't have a chart on prices, let me look at the chart on the growth rate for real GNP. Governor Coldwell made, I thought, a fairly cogent argument that inflation may be stronger in the second half of next year than the staff is projecting. We have been quite optimistic about business plant and equipment spending for the last nine months, reflecting in large part the area of the country that we come from where they have been very bullish. We have had real [cause] for the concern in the last two months now and that latest survey didn't help us at all. It was lower than we were expecting.",165
-fomc-corpus,1978,The latest survey of--,5
-fomc-corpus,1978,Plant and equipment spending.,5
-fomc-corpus,1978,"Oh, yes.",4
-fomc-corpus,1978,"I had a group from the ten largest corporations in our area in for lunch yesterday and they expressed more caution than they have over the last nine months. It may be that we just have a very funny view of the world, and I wouldn't rule that out at all, but if you look at the chart for growth in real GNP it shows what I would regard as a very strong impact on real economic performance associated with the tax cut. It seems to me that there is at least a possibility that it would not have that effect--that in fact it could be neutral or even negative in terms of business spending. [That assessment stems] from the following point of view: The businessmen that are talking to me are very concerned about inflation and are becoming increasingly concerned about inflation. The statements they are making to me suggest that if they get any more reason than they already have to be even more concerned, rather than spending more they are going to spend less. Depending on how they view a tax cut, particularly if it's not skewed in their favor but is skewed in the direction away from business, you could well see real business spending that is either the same or even less in the face of a tax cut than without it. So, while we have been very optimistic, and we are trying to hang onto that as long as we can, there is a bigger question mark in our mind with regard to the second half of next year than there had been up until now because of the way expectations of inflation seem to be influencing business thinking in our area.",311
-fomc-corpus,1978,"Thank you, Mr. Willes. Mr. Mayo, please.",14
-fomc-corpus,1978,"First on the answer to Mark's question, isn't the staff's answer contained, Jim, in your memo of January 13 where you give the assumptions of 5-1/4 percent M1 [growth] and then 4 percent and 6-1/2 percent on each side? Isn't the 5-1/4 percent line consistent with these charts?",75
-fomc-corpus,1978,"Yes, it is.",5
-fomc-corpus,1978,"So, there are figures down here--",8
-fomc-corpus,1978,It is also in Part 1 of the Greenbook. We are projecting an increase averaging close to 6-1/2 percent over the next six quarters.,33
-fomc-corpus,1978,"My other comment is really in the form of a question [to] you, Mr. Chairman. There is an assumption through all the staff [materials] here, in the presentation we have just heard and the Bluebook, that indeed there will be a 1/2 percent increase in interest rate ceilings on time deposits. Would you or any other member of the Board of Governors care to comment on that? It's a preferable, good assumption. Is it a realistic assumption from the standpoint of the Board? Obviously, no official answer is expected.",109
-fomc-corpus,1978,"May I first explain, Mr. Chairman, why we felt it necessary to make that assumption? If we had not made that assumption, we believe the growth in time deposits at banks and thrift institutions would have been so low as to carry M2 and M3 to or below the ranges currently in place. Therefore, we felt in order to have a set of monetary aggregates that was consistent with the Committee's desires and to provide a basis consistent with the Committee's desires we had to make that assumption for the projections. Our alternative would have been to assume a higher M1 growth in order to get that M2 and M3 which, of course, would have eased interest rates and been a fundamentally different monetary policy.",143
-fomc-corpus,1978,I understand completely the reason for the assumption. I was just wondering if anyone would care to comment on the likelihood of action that would validate the assumption.,30
-fomc-corpus,1978,"Well, let me say just a word about it. I think it is a very reasonable assumption as far as the Federal Reserve Board is concerned. As far as other agencies of the government are concerned, perhaps Mr. Gardner and Mr. Partee who have been active in the [interagency] coordinating committee will have an opinion on that.",68
-fomc-corpus,1978,"I think it's a little hard to speculate. I don't know what Steve would say but the key role here will be played by the Home Loan Bank Board since we have to maintain a 1/4 point differential against the Home Loan Bank Board. That means they have the veto power on an increase in rates. If inflows are sufficiently poor or show clear prospects of being poor, I think the Home Loan Bank Board might conceivably agree to an increase in ceiling rates. It's one of those things that is easier said than done, Bob, but I can understand it. I think if there is a clear need for it, probably the Home Loan Bank Board, with extensive coordinating committee discussion and so forth, might agree to some limited increase in the rate ceilings.",153
-fomc-corpus,1978,"Mr. Gardner, do you want to supplement what Mr. Partee just said?",17
-fomc-corpus,1978,"Only to say that I don't disagree with his presumption that it indeed has a possibility of being enacted; it's not an ethereal sort of idea at all. The Home Loan Bank Board has [seen] the liquidity positions of the savings institutions declining, and it has been speaking about that for months. I believe, [based on those] conversations, that they are concerned about the availability of mortgage funds in the institutions.",84
-fomc-corpus,1978,Has an increase in the ceiling rate been discussed within the coordinating committee?,14
-fomc-corpus,1978,"Not to my knowledge. Not an increase. We have in effect just touched on disintermediation in their comments about their studies of the liquidity conditions of the institutions and the amount of Home Loan Bank Board borrowings that they are using. I think, Chuck, I would fully agree with you. It's certainly not out of the question that the coordinating committee would agree to consider such an issue, if events incorporated in the staff projection become facts.",89
-fomc-corpus,1978,I would make a very definite recommendation to Messrs. Gardner and Partee that conversation on that subject get under way immediately. It will take those fellows at the Home Loan Bank Board at least a half year to make up their minds. And by June or July we are likely to need something like that.,61
-fomc-corpus,1978,I believe the staff assumption is that the increase [will occur] March 1.,17
-fomc-corpus,1978,"Well, that means we're already three months late.",10
-fomc-corpus,1978,"They are also assuming a full half point, which may or may not be--",16
-fomc-corpus,1978,"Oh, I think for some category it would be a half point. A quarter point seems so small relative to the problem. But it might not be across the board; it might just be for a particular category.",43
-fomc-corpus,1978,"Chuck, what would the Home Loan Bank Board's basic objection be?",14
-fomc-corpus,1978,"Cost to the S&Ls. They probably would argue that the cost of raising the rate in terms of the drain on funds otherwise available to go into reserves would exceed the cost to the S&Ls of having some outflow of funds. That has to assume a willingness to let the home builders go, but in the last tight money period they let the home builders go.",75
-fomc-corpus,1978,Thank you.,3
-fomc-corpus,1978,"Mr. Chairman, on this point, it seems to me that it's a better strategy to move early on this sort of thing than it is to wait until it becomes a pressing issue and gets widespread publicity and you get a general acceptance of a point of view and a general trend started. Then it seems to me that it's probably impossible to stem disintermediation. In any event, it's going to run a good deal further than it would have needed to run and have more impact on housing starts and the plans and expectations of people in the housing market than if action were to be taken fairly early and before it becomes a big hot political issue.",129
-fomc-corpus,1978,Are the staffs talking about this subject?,8
-fomc-corpus,1978,"Our staff is undertaking contingency plans internally, but I'm not aware of any staff discussions among the agencies at this point.",23
-fomc-corpus,1978,The Home Loan Bank Board has just lost their economic staff. I don't know whom we'd talk to over there.,22
-fomc-corpus,1978,"I would urge very strongly [that you start]; it takes time to prepare the mind. I think staff conversation ought to get under way and the coordinating committee discussions ought to get under way. It takes time for these thought processes to mature, particularly on the part of an agency such as the Federal Home Loan Bank Board, in this area. We want to hear now from Mr. Mayo. Do you have any views on the economy you want to express?",91
-fomc-corpus,1978,"No, I would merely say that I think the projection is a reasonable one. I would not quarrel with it. Come to think of it, though, I should put in a footnote to my remarks last month on agriculture. Our latest survey on land transactions in the Seventh District, which is always thinner for the fourth quarter than for the other quarters, does indicate for a change at least a stabilization, and perhaps even a turnaround, in the decline in transactions or in the value of farms in the Midwest. So it may be that my alert of a month ago was premature.",117
-fomc-corpus,1978,"Thank you, Mr. Mayo. Mr. Kimbrel now, please.",16
-fomc-corpus,1978,"Mr. Chairman, I think we too are hearing, as President Willes suggested, more comments about inflationary expectations. The business community seems to be worrying. Maybe it's the uncertainty that exists, but we seem to be hearing more of that. I think net we would come out close to what the staff has projected [though] from our vantage point we would be somewhat less optimistic about housing developments. We don't see that quite as strong over the year as they are projecting and we're possibly even somewhat less optimistic about total automobile sales than they are suggesting. Looking though at the total revenue tax changes--revenue drag--I wonder if the staff has done any projections or incorporated a possibility of any influence from the refunds for this year that might be different from usual--if indeed they might make any contribution to possible spending.",163
-fomc-corpus,1978,"Well, on average we expect roughly the same magnitudes as last year, or somewhat larger actually, with the bulk of the increase occurring in March. But this is a projected pattern at this point and we really prefer to have some experience as January and February develop. We are expecting [refunds to be] a little bit greater in February before incorporating any very specific assumptions. If this pattern that I have here is accurate, it would indicate to me perhaps a little more money supply increase in March than we are projecting. We have not made any specific allowance yet because I think it's somewhat premature at this time.",122
-fomc-corpus,1978,"All right. Thank you, Mr. Kimbrel. Mr. Eastburn now, please.",20
-fomc-corpus,1978,"Thank you, Mr. Chairman. Well, I would have some sympathy for the view that Governor Coldwell expressed about the longer-run outlook and the possibility of recessionary developments next year. This is supported by the views that I get in Philadelphia which, of course, are biased by the very slow activity that we have there. [There is] concern about inflation and the intractable nature of it and concern about the dollar, with no light on the horizon so far as the solution to that is concerned. There is one aspect that I think might work on the other side in a small way and this is in the housing area. It occurs to me that one of the phenomena that is different this time than in the past, so far as the housing sector is concerned, is the strong tendency on the part of individuals to use [real estate] as the main way of hedging against inflation. It is clear when you talk to real estate people that families are seizing on this as the way to protect themselves. Given some sustaining flow of mortgage money, it would seem to me that housing might look better, given this strong demand factor at this time, than it may have looked in the past. Perhaps you might react to that.",248
-fomc-corpus,1978,"That's an important element in our thinking. It's one of the reasons that we believe the same mortgage rate this time around would have less impact on curtailing demand for mortgages than in the past. From the past performance of prices in that sector, I think it is quite clear that consumers are willing to take on additional mortgage debt. The proportion of mortgages relative to other debt has been running higher for some time and we would expect it to continue because of the inflation aspect. So it's one of the reasons we would assume that over the forecast period we will have perhaps higher starts than we would have thought if we were doing this back in 1973, for example.",133
-fomc-corpus,1978,"Gentlemen, I think that we can't conclude our economic discussion quickly and we shouldn't try. So I suggest we take a coffee break now. When we return, we will have a short executive session and then resume our discussion of the economy and I shall call on Messrs. Balles, Morris, and Wallich in that sequence. Now, let's take a break.",75
-fomc-corpus,1978,"Gentlemen, we will turn to consideration of a couple of items that can best be taken up in Executive Session. First, we will have a report from our General Counsel, Mr. O'Connell, on the Merrill case. Tom, would you be good enough to report to the Committee?",60
-fomc-corpus,1978,"Yes, Mr. Chairman. I believe there have been distributed to the members of the Committee, Mr. Chairman, some information sheets that were transmitted to the Solicitor General on this matter. Very briefly, the Solicitor General has until February 8 as a terminal date to make his decision as to whether to seek certiorari in the Supreme Court in this Merrill decision. At this point in time, we are scheduled--we being the Committee's staff and lawyers from the Board--to appear before the Deputy Solicitor General, Mr. Easterbook, tomorrow morning at 10 o'clock to be given the opportunity to vocalize views, exhortations, positions that had been transmitted in the form of a written letter to the Civil Division's Assistant Attorney General. That was forwarded several months ago now. By dates in latter December, as you will note, both the Chairman of the Economic Advisers as well as the Treasury Department have affirmatively supported the Committee's position in urging the Solicitor General to seek certiorari on the issue enjoined. At this time, there has been a negative recommendation forwarded by the Civil Division, which is the first body within the Department to make a recommendation to the Solicitor General. In several conversations with that office, Mr. Chairman, the feeling at the present time is that there is not a strong affirmative case to be urged before the Supreme Court, but they state that quite honestly it's still an open question. I think tomorrow [after giving] our position, within perhaps 5 to 8 days we will have a decision out of the Solicitor General. If tomorrow's meeting does not favorably impress the Deputy Solicitor, we will then be given an opportunity, I believe, to address the Solicitor General personally on this point.",356
-fomc-corpus,1978,"Well, I think I can speak a little more affirmatively on that. I've had a conversation with the Solicitor General on the subject of procedure, having first made delicate inquiries as to the propriety of talking with the Solicitor General on the issue. After receiving absolute assurance that it was entirely proper to talk with the Solicitor General, I had a telephone conversation with him. My understanding is that before he acts on this case, he and I will sit down and talk this over at length. Therefore, such a meeting will still take place.",110
-fomc-corpus,1978,"May I add, Mr. Chairman, as the Committee is also advised by materials in front of it, that action has been undertaken from the Board here to urge legislative relief of a nature suggested by the Court of Appeals in its opinion--namely, that there be an amendment to the Federal Reserve Act that would direct the withholding of the Committee's directive for a period until the next succeeding meeting. That's because under the Freedom of Information Act exemption number three requires that there be such a statutory mandate in order to enable the Committee to rely on that as a [reason for] withholding its directive. Such a letter was addressed to Mr. Proxmire, with supporting views and positions in a letter signed by the Chairman to Mr. Proxmire.",149
-fomc-corpus,1978,"Well, that letter followed a personal meeting with the Senator. I've had a similar meeting with Mr. Reuss. And copies of the letter and the accompanying memoranda sent to Mr. Proxmire will be sent to Senator Brook, Senator Power, Senator MacIntire, and likewise to the Chairman of the House Banking Committee, Mr. Reuss, to the Chairman of the Subcommittee concerned with monetary affairs, Mr. Parron Mitchell, and also to the ranking Republicans on the full Committee and on the Subcommittee. Those letters have not yet gone out, but they will be sent today. I do think that we have a fair chance of getting legislative relief but I don't think I can responsibly say more than that at this time. Anything else on the Merrill case now? Any questions to Tom on the Merrill case? All right, let me turn to the second item. The second item pertains to the procedure with regard to the longer-range targets. I want to discuss procedure and procedure only in this Executive Session. As you may know, a hearing has been scheduled for January 31. Yesterday, I learned that Mr. Reuss has cancelled that hearing. I have no letter from him. I really have a verbal communication with some accompanying gossip. I will not tell you what the gossip is; that's irrelevant. Now the next question is when [the hearing will be rescheduled]. I have to proceed by stages and I may confuse you in the process because there has been a new development just a moment ago, and I have not absorbed that fully into my own thinking, so I hope you will bear with me. This new development I will mention at the end. While I am talking about the earlier development and my reaction to it, I will simultaneously be thinking of the new development and how it fits into the picture.",366
-fomc-corpus,1978,Tell us how you do that!,7
-fomc-corpus,1978,"I'll tell you how I do that but I won't take the time right now. Let me make some assumptions which appear to me to be reasonable but, of course, there is no way of telling whether or not they will turn out to be valid. The first assumption is that Mr. Miller will assume office on February 1. My next assumption is that he will be requested to testify on monetary policy. A date may be suggested, and I think he in turn is likely to respond that he needs a little time to prepare for that. My final assumption is that he will be granted that time and, therefore, the hearing might be scheduled no sooner than, say, February 15 and possibly a little later. Now in making these assumptions, if we were to proceed today [on] a decision on longer-range targets, a month or so would elapse before they would be announced to the [Congressional] Committee. That is quite a long interval. First, there is a possibility of leaks. I feel reasonably secure in this [organization], though I have been shaken up, as the rest of you have, once or twice in recent years. A more important consideration is that in a period of a month there may be new developments of a sort that would influence our thinking and I don't think we ought to be bound for a period that long by a decision reached today. Third, I believe that Mr. Miller deserves the opportunity to participate in such a decision. For all these reasons, I'm inclined to think that the wise course would be for us to discuss the longer-range targets, to seek a consensus, but not take the vote and to regard the consensus that may shape up as having tentative value and that only. The final decision will be taken later on--possibly through a telephone hookup or possibly at the next formal meeting of the Committee. Now, that would have been my recommendation and still is, subject to a qualification stemming from a new development--by now five minutes old--on which I shall presently comment. The new development is a telephone call from a member of the staff of Mr. Reuss's Committee requesting that we, the Federal Open Market Committee, submit our long-range targets to Mr. Reuss in writing. That's the message that came to me. I indicated I would honor no such message transmitted from staff by word of mouth with an indefinite element as to date, et cetera. However, if we get a written letter--and I requested that within the hour--then the Committee will respect it. The chances are we will receive such a letter. If the letter requests that we present our decisions in writing by, say, February 1 or thereabouts, in that case--. [A note has come in for me so] we may have the answer right now. I will finish my sentence. In that case, my recommendation would be that we proceed in the normal fashion and reach a decision today. Now I will read the note. I'll read the note anyhow, but it's not the note I want to read: ""Chairman Reuss on behalf of the Committee will invite Chairman Miller to testify before House Banking pursuant to..."" and so forth and so on. ""After the next FOMC meeting in February, assuming Miller is confirmed..."" Well that's reasonable, very reasonable. ""...Chairman Reuss on behalf of the Committee also plans to invite you..."" where ""you"" is Arthur Burns ""to testify before House Banking after Miller is confirmed so that you could say goodbye to the Committee and the Committee could say goodbye to you."" SEVERAL. Hooray.",723
-fomc-corpus,1978,"Therefore, I may have the opportunity of saying goodbye and I may also have the opportunity of hearing goodbye. Gentlemen, I think that we will discuss long-run ranges. In the meantime, a letter may or may not arrive before we conclude. If a letter does not arrive, then my recommendation is that we seek a consensus, not vote, and then take it up later. In view of this, I think the time to take it up would be at the next regular meeting of the FOMC. On the other hand, if the kind of letter that Mr. Guenther has indicated Mr. Reuss will be sending does arrive while we are still in session, and if the letter is at all reasonable--and as you well know, we've learned over the years that Mr. Reuss invariably is a reasonable man who only makes reasonable requests--I think we will proceed. Or my suggestion to you is that in that event we proceed in normal fashion to reach our decision. Any question or comment?",203
-fomc-corpus,1978,"Do we now have the option, Mr. Chairman, even if the letter arrives, of replying to the letter and saying that in view of this note [indicating] that he's going to be inviting Mr. Miller [to testify] after the next meeting that we didn't want to make the decision [today on the longer-run ranges]?",67
-fomc-corpus,1978,"We have that option. But whether it--well, that raises a subtle question that I'm not going to express. But it does raise subtle questions for the Committee to decide. This time I'm going to be the traditional Chairman who will keep the peace and if he has any views, he will communicate them only to his own conscience and God. Mr. Guenther.",74
-fomc-corpus,1978,"Mr. Chairman, Paul Nelson--and forgive me for not putting it in the note--did indicate that there will not be a letter asking for the written views of the FOMC. This forthcoming request for Miller to testify is in lieu of the earlier thing that he was pushing.",57
-fomc-corpus,1978,"Oh. Well, that clears up the matter. Then my suggestion would be that we defer consideration of the longer-range targets until the next meeting of the FOMC.",34
-fomc-corpus,1978,Seconded.,3
-fomc-corpus,1978,I think that's pretty clear. What do you think?,11
-fomc-corpus,1978,"Normally, we would take it up at this meeting.",11
-fomc-corpus,1978,"Yes, but--",4
-fomc-corpus,1978,"We are getting off our schedule in considering it. There are some implications to that. Still, given the request for Miller's testimony after the next meeting, on balance I prefer to wait.",38
-fomc-corpus,1978,[We] can do it in April again.,10
-fomc-corpus,1978,We could have a two-month interval or a three-month interval from that point on.,17
-fomc-corpus,1978,"Well, I feel that in view of the imminence of a decision of some kind on Merrill, it might be very wise to put it off at this point. We'll know whether the Solicitor General is going to take the appeal to the Supreme Court.",51
-fomc-corpus,1978,That helps there.,4
-fomc-corpus,1978,That helps on that.,5
-fomc-corpus,1978,Is there anything specific in the law with respect to the timing of the appearances [of the Chairman before the Congressional Committees]?,25
-fomc-corpus,1978,"I don't believe so. I think the law is very flexible on that. As a matter of fact, as our lawyers read the law--I might test [unintelligible] of the legal profession as I join them now and then--the semi-annual hearings can even be held simultaneously, [or rather in] the morning before the Senate and the afternoon before the House. Never mind whether that's desirable or not; that would be consistent with the language of the law. My guess is that the procedure that we have followed is very agreeable to the staffs of the Committees and to the political figures involved. Well, I think we have the procedural question neatly resolved and we want to thank you, Mr. Guenther, for this time carrying communication from staff to staff. The one thing I tried to insist upon is a written communication rather than staff to staff arrangements. This is, I think, an exception to the general rule but, since it is such an agreeable outcome, the [exception] is well justified.",206
-fomc-corpus,1978,"[My] staff will now leave, Mr. Chairman.",12
-fomc-corpus,1978,"Yes, I think we are ready to resume our regular meeting.",13
-fomc-corpus,1978,"There is a button here that I press [to call in the other staff members], Mr. Chairman, and I have no evidence that it works.",30
-fomc-corpus,1978,"Mr. Chairman, is there any problem in terms of communication to the world and the press as to why we are postponing [the decision on the long-run ranges] for a month? [I wouldn't want] our friends throughout the world to say that it's our inability or our confusion [that led to the postponement]. In other words, is there a problem in terms of the market?",79
-fomc-corpus,1978,"I doubt it. I think it's simply that the hearing has been postponed and, therefore, [it is proper] to do it.",27
-fomc-corpus,1978,Will that hearing postponement be made public?,9
-fomc-corpus,1978,"I think it will be made public by the House Banking Committee. Depending on what they do, we may or may not want to put out a very simple brief statement. I think you'd better talk this over, Joe, with Ken. It may be desirable for us to put out a very simple factual statement on the assumption that what the House Banking Committee does in the way of a statement will be inadequate from our point of view. 1/ Well, we were in the process ages ago of considering [the economic outlook]. I don't know but I believe the last person we heard from was Mr. Eastburn. Is that correct? Mr. Balles, may we hear from you now?",139
-fomc-corpus,1978,"Well, I would just like to make a few comments, Mr. Chairman, about the Board's staff forecast, which I find a very plausible one. It is somewhat more optimistic with regard to the second half of this year and going into '79 than that held by my own staff and in that regard I share some of the views previously expressed by Governor Coldwell and I think by President Eastburn. Just a word as to why we are somewhat less optimistic--to the extent of expecting a real growth rate possibly under 3 percent by the second half of the year: It's simply a different view on how much effect the fiscal stimulus will have on consumer spending. That seems to be the biggest part of the whole difference. A tax cut of around $17 billion is really not all that big, even when contrasted with the $11 billion tax cut of 1964-65, which at that time amounted to 2-1/2 percent of disposable income. The currently proposed cut will amount to about 1 percent or less of disposable income even before the social security tax increase, which would reduce it by about one-third. So in short, our staff is not all that optimistic about getting as much bang--consumer spending principally--as in the view held by the Board's staff. Hence, we would be a little less optimistic about the second half of the year and the early part of '79.",283
-fomc-corpus,1978,"Thank you, Mr. Balles. Mr. Morris now, please.",15
-fomc-corpus,1978,"Mr. Chairman, we had a rather interesting discussion among my board members as to why we are getting such a sluggish upturn in capital investment in this recovery. One of my business directors by the name of Miller raised this proposition, which he feels [is true based on] his own firm and from talking to people and businessmen, that businessmen perceive investments in this climate to be considerably riskier than investments in earlier periods. And they have responded by shortening the payoff period required to authorize investments. He says the common payoff period now for investment is 4 years, whereas in the early '60s it was 8 years and in the early '70s, 6 years. I think if the business community is applying a criterion that severe--that is, a payoff period of 4 years--it's very clear that an awful lot of investment would not be able to meet that sort of criterion. So they are only going ahead with that limited body of investment in which they have confidence they can get it through in 4 years. Does that jibe with your observations, Dave?",217
-fomc-corpus,1978,"Well, yes. I was going to state it a different way. I think what is occurring is that plants are being recycled; [we're seeing] new equipment and rearrangements within plants but we're not getting new plants. You have an increase in capacity as well as an increase in productivity of some kind, but you also have a diminution in the pressure for longer-term investment. I also think that new plants by and large have been built abroad. This is only a hypothesis, but I think it's one worth exploring. It may well be that our capacity figures are not 1 / Secretary's note: At this point the Executive Session ended. accurate at all and in terms of the total industrial [complex] we may actually have a great deal more capacity than our capacity measurements indicate. I got ahead of myself.",163
-fomc-corpus,1978,"Thank you, Mr. Morris and Mr. Lilly. Anything else, Mr. Morris?",18
-fomc-corpus,1978,No.,2
-fomc-corpus,1978,"Mr. Wallich now, please.",8
-fomc-corpus,1978,"I don't find the staff's forecast unpersuasive. It's not far from the range of other forecasts. I am puzzled about how the story is going to unfold eventually. We are now in a very long-lived expansion. Nothing has happened that would lead one to think that it would end with a bang, so if it ends, it will be with a whimper. And if it ends that way, there is no real need for [the economy] to turn down. It could be a growth recession from which we could emerge. This has happened before. It bothers me that the [expansion] is being kept alive with stimulation, a tax cut, very late in the game. Monetary policy will in some form be supplying the means to finance all this. And I'm asking myself what we are building up as we go through this year and maybe through next year, with considerable government deficits in the face of an economy that ought to be righting itself and arriving at some kind of full employment equilibrium, full employment balance of the budget. Nevertheless, with all these concerns, I don't see the [economy] turning down with a tax cut ahead and a tax cut that is potentially variable; if the situation were very weak late in '78, it could be beefed up. With investment pressing increasingly on capacity limitations, forecasts now get us into the 87 percent capacity utilization range. I think there ought to be enough momentum there to carry the economy forward and that's the hypothesis on which I'd be willing to go.",304
-fomc-corpus,1978,"Thank you, Mr. Wallich. Mr. Winn, please.",14
-fomc-corpus,1978,"Mr. Chairman, I have several comments. First, I'd like to urge us not to get trapped in the traditional kinds of statistical reporting--particularly in the housing area, which has been quite crucial to developments to date, with home modernization and repair still representing a rising and major portion of the total. To the extent that new housing starts may turn down, I think it is crucial to know what is happening in modernization and repair because it's really the total expenditure in [the housing] area that determines what is happening. As you know, the figure is now $33-35 billion in [the modernization and repair] category and I think we just ought to incorporate that into our thinking about what's happening in this area. My second comment is that I haven't any quarrel with the sort of traditional kind of approach we have for an analysis but I suspect it won't happen that way. In the last two weeks, I have noted perhaps the biggest change in sentiment, if psychology means anything in terms of future behavior. I can't tell whether it's the weather, the stock market, the foreign exchange market, newsworthy developments, inflation, or concern about what's happening here in Washington, but there's a very marked change--with people who didn't think they would cut back on plans, planning to cut back at the moment. Now, to the extent that [sentiment] can swing that fast negatively, it can also change the other way. And, unlike Phil's view, my feeling is that we may not get quite as robust a first half in spite of the momentum we have. And if psychology changes as a result of the market outlook or peace in the Middle East or a thousand external events that really aren't factored into these [forecasts], you have the basis, I think, for maybe the reverse--for the second half [to be stronger] as contrasted with what the economic analysis will tell us here. I'm surprised and puzzled by the very sharp change in sentiment that Mark reflected in part in his comments, but the feelings are quite sharp and they tend to spread very quickly, as you know.",418
-fomc-corpus,1978,"Well, I want to pause at this point. I want a show of hands, particularly on the part of our Bank Presidents. How many of you have sensed or experienced a similar development in your own region among the businessmen whom you see and have contact with? [Pause] How many have sensed the opposite?",62
-fomc-corpus,1978,To a very minor degree.,6
-fomc-corpus,1978,To a very minor degree or no change.,9
-fomc-corpus,1978,I would say not to a minor degree. We have seen spectacular retail sales for this [period].,20
-fomc-corpus,1978,"Yes, but you come from a foreign country!",10
-fomc-corpus,1978,Do you use the peso down there?,8
-fomc-corpus,1978,I hear it referred to periodically!,7
-fomc-corpus,1978,"My reading of this, for what it's worth, Mr. Chairman, is that I had not recognized some of the ebullience that has been expressed earlier around this table about capital spending; it was not reflected in my business contacts by and large. I have not noticed any distinct change but, if anything, I think there is some strengthening recently in that the worst things that people expected to happen around the middle of [last] year have not happened and the economy looks a little better. [As for] capital spending, [businessmen] seem to feel a little more confident about it than they did last summer.",124
-fomc-corpus,1978,"I'd agree with that, Paul. I was comparing December to January.",14
-fomc-corpus,1978,"December and January, I find difficult--",8
-fomc-corpus,1978,"In terms of the attitudes of the businessmen in our District, they have been concerned for the past year about our ability and the economy's ability to come to grips with inflation. That is unquestionably their number one concern. Whereas their sentiment has not changed, those who have followed carefully developments in monetary policy, at least in our area, are losing some confidence in our willingness or our determination to do what they feel is necessary to come to grips with inflation in the 12, 24, or 36 months ahead. That's where some pessimism is occurring because they see the growth rate in money having persisted above our ranges for nearly 12 months or more now. And that is recognized, at least in our neck of the woods, if I can use that expression, as a harbinger of inflation. If there has been an increase in the negative attitude on the part of leaders of our larger businesses it has been [because of] concern about this inflation problem.",193
-fomc-corpus,1978,"All right, thank you. Mr. Partee now, please.",14
-fomc-corpus,1978,"Well, Mr. Chairman, I must admit that I am happy that we don't have to focus on the longer-range targets--if I may use the term--at this time, because I have some qualms about the economic situation that may be somewhat resolved in a month. On the other hand, they may not be. But within a month we'll have the specific formulation for the tax program from the Administration and will see what the Congressional response is. We will have whatever kind of anti-inflation program is going to be proposed and, again, will be able to evaluate it and see what the response is. We might even see whether momentum is possible again on getting some energy legislation, which right now we--or at least I--have really very little feel for since Congress hasn't returned to Washington at this point. First of all let me say I agree with Governor Coldwell that in the very short run the outlook is good for rising output, rising activity, simply in reaction to that stupendous surge in retail sales in the fourth quarter of the year. I do believe that production has run behind final sales and now there will be an upward adjustment in production in response to that final sales number. That may, however, [result] in rapid inventory accumulation if at the same time final sales flatten out, which they quite possibly could do. So, the concern I have has to do with the second half of the year, not the first half of the year. And there I'm a little disturbed by capital spending prospects. They haven't come along as well as I expected. I was disappointed by that plant and equipment expenditure survey, too. The stock market is very bad, really. That price earnings ratio on Jim's chart is fantastically poor; it's even below what people used to think was a conventional price earnings ratio in the '30s. And that's not a very good indication of the prospect of the kind of business confidence that would lead to rising capital spending. I'm also very concerned about the mortgage market. We have said and I've said at times that there was an awful lot of excess credit being [generated] in the mortgage market and, therefore, the mortgage market could decrease in size significantly without greatly affecting the prospects for housing. But again, the chart Jim--or maybe it was Jerry--presented this morning on the housing area gives me pause. For example, it shows that the volume of homes sold has reached 5 million units. Now, if you assume 5 million units and an average value of $40,000, which isn't too far from a [likely] average--I don't have one specifically in mind--that would be $200 billion a year. There is an association, I am sure, in the turnover of used houses to support new home sales just as there is an association in the car market with used car sales supporting new car purchases. So I'm not sure there is as much fluff in that mortgage market as we have conveniently imagined. I hope to have some work done on that in the next month to see whether that's a reasonable prospect or not. So, in fact, if you had a rather considerable drop in willingness on the part of mortgage lenders to lend, you could have a rather sizable expectational and then real impact, I think, on the new housing market. I'm also impressed by that chart on outstanding mortgage commitments at savings and loans. They have gone up like a rocket. The total outstanding commitments seem now to be about $32 or $33 billion.",703
-fomc-corpus,1978,$34 billion.,4
-fomc-corpus,1978,"$34 billion. If I were a savings and loan, and I had this many commitments outstanding and I suddenly became more concerned about my cash flow, my reaction would be to stop making new commitments. And that could have quite a pronounced effect, it would appear. I'm a little concerned. I'm just not sure how this housing area is developing. It could be on the weak side. I've said before that I was bothered by the prospect--what I consider the unlikely prospect--that there would be another year of very high car sales. The staff forecasts are pretty high for car sales, even though in that chart they had on car sales it looked like an irregular downward zig-zag movement as 1977 went on. And I was interested in the note in the Redbook, Bob, that there seems to be quite a lot of doubt about sustaining sales out there in your area, as expressed by the Detroit economists too, I believe. Then finally, I was wondering some months ago how the weakness in the foreign situation would come to affect us. It is now more obvious that it can come to affect us. Our balance of trade has not shown any improvement; that continued to deteriorate as the [past] year has gone on and apparently may deteriorate, or at least not improve, in the immediate future. The price of that has been a surplus of dollars in international markets that has caused the dollar to decline, is going to accelerate domestic inflation, is causing concern abroad, and may be the source of instability in world economies. I believe that our staff has a projection of accelerating growth abroad in the coming year--by about 1 percentage point or something like that you said yesterday, Ted. [You expect] some acceleration in growth, yet as I look at the charts we have on industrial production and employment and things like that, they're not moving anywhere. So I wonder about whether that might continue to be a very grave source of concern and maybe even an exacerbated concern as the year goes on. The final point I want to make, Mr. Chairman, is that I also think there is a rather hefty allowance for the immediate impact of a tax package in the projection. It's quite a bit considering the offsets in rising tax rates and social security and unemployment compensation and so forth. It seems to me, just judging it without having seen the work that went into it, a rather higher multiplier than we experience on average; it may well be a time when we will get a lower multiplier than average. So I guess I feel that the immediate outlook is okay. I'm not prepared to say that there is likely to be a recession by the end of the year, but I do think that there are problems in the outlook as '78 goes on. And when we get into '79 we may in fact get to that point where the growth rate is so low that the economy tends to stall.",581
-fomc-corpus,1978,"Thank you, Mr. Partee. Mr. Volcker now, please.",16
-fomc-corpus,1978,"Well, when I listened to the staff, Mr. Chairman, I was going to make a very brief comment--and I'll still keep it brief--that the overall pattern of the projection is reasonable to me. And maybe that's enough. [As for] modifications, when I heard Mr. Coldwell right off the bat, his modifications were in the direction that I would make them--with perhaps more rapid growth in the first half and slower growth in the second half. I don't come away at this point with quite the same feeling of a threat of recession or quasi recession in late '78 or early '79 that he expressed, assuming this tax cut does come on stream as the staff has projected. So, while I would in my mind modify the pattern somewhat in that direction, I think it's fair to say that the overall pattern that's projected here I don't find at all troublesome. Just a word about the stock market and profits and plant and equipment [expenditures]: It does seem to me that those price earnings ratios are so low in part because the stock market has come to realize that the profits aren't real when they are being compared there--that real profits are overstated. That is another way of referring to the profits problem, which you already referred to. And much does hinge, I think, on the outlook for plant and equipment--not so much [over most of] this year perhaps as the very end of the year and continuing into next year--[in terms of] the sustainability of the recovery on improving profits. Again, the tax program we get obviously will bear upon that. I'm assuming that that will be reasonably satisfactory [and I'm] thinking that the danger of a recession at this point is not great.",346
-fomc-corpus,1978,"Thank you, Mr. Volcker. Mr. Gardner now, please.",15
-fomc-corpus,1978,"Well, I don't want to revisit all of the discussion. I have accepted the staff's forecast and I feel reasonably comfortable with it. We've been through a long recovery, excessively long, and we've looked for ghosts almost at every meeting since it started. I have my own personal theory that in time--although there are new ghosts at this meeting--[others will join] the consumer, who demonstrated [a willingness to spend] in the last quarter of the year. And prior to that time [the recovery was] driven by consumer spending. Eventually, others will begin to sense that it's time to meet this marketplace, if consumer spending continues. And we have in prospect a fiscal action, which would put more money into the hands of consumers. Somebody suggested that the theory of a lack of confidence or confidence wearing out is a possibility. There are obviously technological changes; there are new markets and new activities. Some constraint will be put on imports; I don't know altogether how much. But if I were a businessman, I would see some opportunity and I would have a belief in a longer term for the recovery. I'm not trying to make the second half of the year more questionable, along the lines that Phil has suggested. I don't necessarily agree with that. In all, I can accept the staff forecast and I look at some point to a change in the general disposition of business confidence as well as consumer confidence. I've been waiting a long time; I may never get there. But still there's more to be heard; there's a possibility of pluses occurring in that area. So, I don't object to the staff forecast at all, and I think all told we'd better design our directive in accordance with it because we may have more demands for lending--more demands for funds as the year progresses.",357
-fomc-corpus,1978,"Thank you, Mr. Gardner. Mr. Lilly, please.",13
-fomc-corpus,1978,"Well, just to finish up what I started with in answer to Frank's question, for the reasons I gave I don't expect business fixed investment to spurt in the next year. So we are back where we've been right along and that's dependent on the consumer. I think I agree with the general comments I've heard here that the next six months are going to be reasonably good because we do have an inventory building program that's going to have to go on. But I'm very worried about the second six months and I'm going to have a great deal of interest in watching from the outside what happens here, as signals are sent out as to what [the Committee is] going to do about the economy in the second six months [of the year].",147
-fomc-corpus,1978,"I think you've paid a very high compliment to this Committee and the degree of influence that we can have. Well, thank you, Mr. Lilly. Mr. Baughman next, please.",39
-fomc-corpus,1978,"Mr. Chairman, just a couple of comments. I'm reasonably comfortable with the staff projections in general terms. I thought I might report that on the plane coming in from Dallas yesterday there were a number of Texas farmers, presumably coming to Washington to demonstrate. We have had a fair amount of demonstrations going on in Texas. But we have just summarized the January survey of agricultural lending in the District and it's not possible to find in those data any really bearish information. Now, it's not positive; it's not on the plus side. It is on the negative side insofar as there are changes, with the exception of farm real estate values where the survey reports, surprisingly enough, small increases between the fourth quarter of last year and the January survey of this year. There's some increase in the proportion of banks which say that from their point of view their loans are higher than they would like them to be [given] their deposits. There's a significant increase in the number of banks that report they are laying off loans to correspondents and to nonbank lending agencies. They're reporting increases in demand for loans to finance feeder cattle and the storage of crops and also for farm operations and reduced demand to finance farm machinery. But, these are all the kinds of adjustments that one would expect to find and they are all of fairly minor magnitude. I just wanted to report that as an indication, even though there are indications of distress in this sector, that in our particular region it still does not appear that things are falling apart.",299
-fomc-corpus,1978,"Thank you, Mr. Baughman. Mr. Guffey.",15
-fomc-corpus,1978,"Yes, Mr. Chairman. With respect to the staff's forecast, I think we have been marginally higher for the last couple of quarters than the staff in its forecast so this time maybe they have come closer to what we had believed in the past and still believe may occur in the future. One thing that does trouble us with respect to their forecast for the fourth quarter is the kick that seems to [come] from the tax decrease. Our staff does not believe the effect that might occur in the fourth quarter will be of quite the magnitude that is projected by this staff. Lastly, [let me] follow up on Ernie Baughman's comments with regard to the agricultural sector and particularly the banks that service that sector within the central part of the country. Although [their financial conditions] are tight, there isn't any great concern apparently at this time that there will be any foreclosures or in the alternative, any inability to meet the credit demands when they arise, and that would be in the spring at the planting season. So, by and large, there's no euphoria running through the agricultural sector. I don't think the strike has had any great effect nor will it. And when the snow melts and the sun comes out next spring and the sap begins to rise, I think there will be a lot of activity going on in our part of the country and the strike soon will be forgotten--not the reasons for it, but the strike itself will be forgotten.",293
-fomc-corpus,1978,"Thank you, Mr. Guffey. Mr. Black, would you like to add any comments?",21
-fomc-corpus,1978,"Mr. Chairman, every point I wanted to make has been made. I would say simply that all of us recognize that the uncertainties are greater now than at almost any time in the forecast. I wouldn't have a lot of confidence in any particular forecast now for the next six months. I wouldn't quarrel a lot with the staff's forecast. It's probably about as good as anyone could do. Like Governor Wallich, I see no excesses that I think will lead to a recession, but at the same time I have the same doubts voiced by many people about the strength of housing and plant and equipment expenditures. So, if I had to deviate any from the staff projection, I think we could have a period of somewhat less rapid growth than they're projecting toward the last part of the year. The thing that impressed me recently more than anything else was the abrupt shift in the attitude of our directors between the December meeting when they were at the height of their ebullience and the January meeting when they toned it down considerably. [They were] still fairly optimistic but it was a marked change, more than I've ever seen between two months.",228
-fomc-corpus,1978,And do you have a judgment as to the reasons for the change?,14
-fomc-corpus,1978,"Well, I think it's partly your failure to be reappointed and the absence of any definitive action on taxes or inflation. Over-regulation on the part of government, all these uncertainties, and the decline in the dollar I think played a big part. All of these things that we have all been concerned about I think are just beginning to take their toll a little more.",74
-fomc-corpus,1978,"Thank you, Mr. Black. Would anyone else like to comment on the state of the economy? If not, let me just say a few words. First, it is useful to remember that over many years now those of us who have been involved in economic forecasting have almost invariably expressed doubts about the second half of the year relative to the first half. It's just useful to keep that simple fact in mind. Second, I say without any fear of contradiction that though there have been intimations of recession--and they may turn out to be right--I don't think anyone here could make a good case for it as of today. The case may come 1, 2, 3, or 4 months later on. The case does not exist today, except as a gut feeling or an intuitive judgment. A reasonable factual case I do not think can be made as of today. Next I must say that the spurt in consumer spending which has made some people happy has disturbed me. It is being financed in very large part by credit. We're having something close to an explosion of credit in the consumer area. Installment credit and mortgage credit have been used in large part to finance consumer spending. I believe that the spurt will not continue and I certainly hope so. On home building, I'm with the staff or more optimistic than the staff. The significant point I think has been mentioned. You know, the American public, in contrast to some or many of our politicians--perhaps most of them--is very deeply concerned about inflation. People all over the country have been asking themselves the question: What can I do to protect my family? What can I do to protect my children, my family, and myself against the ravages of inflation? And gradually the thought has evolved and is spreading rapidly that, on the negative side, putting money in the bank or a savings and loan account is no protection. Buying bonds, Treasury bonds or corporate bonds, is no protection. Buying common stocks is no protection. It used to be a major protection but it no longer is. Then what is left? Well, gold or paintings. But the average man cannot invest in gold; he doesn't know how. It's not something he's accustomed to. Likewise with paintings. What will he turn to? Well, there is farm real estate, a remarkable record there. But the average man doesn't know how to buy farm real estate. He realizes that location can make an enormous difference. But there's one thing the average man is capable of doing. If he doesn't have a home, he can buy a home. If he already has a home, he can buy another. The average man is also capable of judging neighborhoods. All he has to do is get into an automobile or walk and he can locate areas where the prospect of maintaining good conditions in the neighborhood or some improvement are pretty good over the next ten years or twenty years. People can do that. And they're doing it in increasing numbers. It's surprising to me. I hear it from college professors; I hear it from young people; I hear it from my own children. The movement is spreading. And the interest rate on mortgages? Yes, what Mr. Partee has said may well turn out to be right, but I don't think people are going to be deterred by an increase in mortgage interest rates of one half of one percent or even a full one percent. And the money will be available at a somewhat higher interest rate. So, I believe that this will continue. Whether that is a cause for optimism or not is something else again. We may easily get ourselves into a condition of overbuilding in this area, such as we had in 1972-73, but in the year ahead we'll have plenty of activity in this field. As for business capital expenditures, I have learned over the years--I believe correctly--to pay far more attention to orders for business capital goods, to contracts for commercial and industrial construction, to the rate of formation of new businesses, and to appropriations for business capital expenditures. I pay far more attention to indicators of this type than I do to the surveys of the Commerce Department. Is it still Commerce and the SEC or is it solely Commerce now? It's solely Commerce now? And [those indicators] I think have been more accurate. I think the recent survey--sure, it may turn out to be right--understates the trend that is likely to develop. On balance, I think we're going to have a pretty strong economy in the months immediately ahead; how far ahead I don't know. But over the longer run, I think we ought to continue worrying about inflation; we ought to continue to worry about the kind of environment that exists for business capital spending; and we ought to worry about the unemployment of black people, particularly youngsters. And we certainly ought to worry about the position of the dollar in foreign exchange markets, which has very dangerous possibilities for our own economy and also the future of the entire international economy. Well, that's all that I would want to say. I think we ought to turn now to the [rest of our agenda]. Just a word on the longer-run targets; we're not going to take them up today. That will be deferred until the next meeting of the Committee. We still have to hear about the operations of the Desk and reach our decisions on current monetary policy and on these two special items we have to consider. Therefore, I think we simply have to return after luncheon and perhaps we can move speedily after luncheon. But, right now, before we break for luncheon, let's see if we can't dispose of items 7 and 8 on the agenda. First, there's the memorandum of discussion for 1972, and our Secretary, in accordance with the tradition, has a recommendation to make on that question. Mr. Broida.",1175
-fomc-corpus,1978,"Mr. Chairman, the staff proposes that the Committee authorize the release of the 1972 memoranda this month, which would be on the usual schedule, with the few deletions indicated in the second of the two memoranda distributed. [The deletions] were requested by the Bank of Japan.",60
-fomc-corpus,1978,"Any questions about that recommendation? The motion has been made and seconded and I take it, approved. Let's move to item 8. And Mr. Volcker, when you try you can be not only fairly lucid, but even remarkably brief, and this is the time to try for it.",60
-fomc-corpus,1978,"Well, I will be assisted by the fact that it has been long enough since some of this technical stuff came up that some of the details will recede into my unconscious instead of the conscious. I think the issues are simple enough here. We have discussed the role of the Federal Reserve and these RP agreements at some length for foreign accounts. This is a matter which is controlled by the Federal Open Market Committee, and whoever does it--the New York Bank either acting for the System account or acting for itself--needs the authority of the Open Market Committee. The issue that arose, you will recall, is that there is some doubt about their tax status. A couple of months ago we got a ruling from the IRS that the tax status was all right, assuming that the Federal Reserve is acting as principal. They call these loans consistent with their earlier tax rulings. If the loan is made with the United States and even more with the Federal Reserve in one form or another injected as principal, we fall under the exemption that says that for a government instrumentality [such] transactions are exempt from withholding tax. So, we are cleared on tax grounds and proceeding. We have had experience in doing these with the Federal Reserve Bank of New York as principal for the System Open Market Account. The earlier practice was to do these with the New York Bank as principal when the System account was not operating. When the System Account was operating in the market anyway, we'd do it through the System account. When the question arose as to the tax status, all of them were channeled through the System account and that has been the practice for the last six months or so. I would summarize by saying that after analyzing the technical side of this I don't think it makes much difference which way we do it. There are very minor advantages and disadvantages that seem to be offsetting. I don't think that's a distinction that we need to linger over, but the question does seem to me to be one of what public posture we want to take, and that is related in a sense to a legal question of what authority we think is necessary for the Committee to openly give either the Bank or the System account. We can technically operate in a satisfactory way with any of the options that are presented in the memorandum. The options, very briefly--there are four of them--consist of the following. The first option assumes that we do them all through the System account and wouldn't [involve] anything in terms of changing the directive. The directive vaguely talks about international as well as domestic matters and we don't explicitly have to say anything. We can just do what we've been doing for the past six months. The second option also assumes they'd all go through the System account but it would explicitly change the directive to give recognition to that. The third option says return to the previous practice where they would be done in the name of the New York Bank as principal--it was as agent earlier--when the System account is not operating and do it through the System account when the System account is operating. Explicit notice and authority would be given to the New York Bank to act as principal in these transactions. The System account side would not be touched. And, Mr. O'Connell, in looking at this [proposal prefers] the fourth option, which would in effect make it explicit on both sides. That is, the Committee gives authority both to the New York Bank and to the System account to operate in these repurchase agreements for foreign accounts on the assumption that we would revert to the earlier practice of the New York Bank doing it when the System account is not operating and the System account doing it when the System account is otherwise operating. The questions that I think are relevant here are: (1) Is there any substantive difference between these approaches or technical differences in the approach to the market? My answer to that is there is no significant difference between any of these. (2) Should we state the authority explicitly and in effect give public notice? My own feeling is yes--that that's the clean and open way to do it and we shouldn't hide behind this very vague directive we now have, which does vaguely refer to international developments, but I think in a different context. So, my own feeling is that we should [give] explicit notice of whatever we do. (3) Should we run it all through the System account? My own preference is to revert to the earlier practice to avoid any question ever arising that in some sense the System account is being distorted, not for pure open market operations to affect the reserve base or domestic level of interest rates or for purposes of affecting international markets in the most general sense. [Unintelligible] some question arising of whether we are distorting what's going through the System account in order to take care of this essentially procedural and operational matter for foreign central banks. So, answering the questions in that way, I do have a preference and I have recommended to the Committee that we take either option three or four. I have no very clear preference between those two. Four is a little more inclusive in that it ends any possible question about the authority of the System account itself to operate. I don't think that is necessary in the light of past history. Three just gives the authority directly to the New York Bank. In either event, I would visualize that we would operate, as I said, through the New York Bank when the System account is not otherwise engaged. When the System account is otherwise engaged and, therefore, it's a convenience for the System account also to handle these foreign transactions, it will handle the foreign transactions. So, I would recommend that as the substantive way to proceed--either option three or four does that--and it's entirely a matter of how inclusive you want to be in stating the authority. I don't know whether Mr. O'Connell wants a word on the preference between options three and four.",1183
-fomc-corpus,1978,"Just to the effect, Mr. Chairman and Mr. Volcker, that I agree with the analysis that Mr. Volcker has given us as to the placement of priorities or emphasis on the alternatives. I recommended, as reflected in attachment D, the amendment to both the functional aspects and the outstanding authorization only in the judgment that such an authorization would then make specific the authority with respect to the alternative actions, either when SOMA is involved or if the New York Bank is acting as principal in these transactions. I think it's more inclusive and perhaps from my point of view as a procedural matter is preferable. Technically, I think either alternative 3 or 4 would functionally serve Mr. Volcker's stated purposes and the purpose with respect to the Internal Revenue Service.",154
-fomc-corpus,1978,"I might just add one further point, Mr. Chairman. We had some discussion earlier when this came out about the appropriateness of charging for this service. From my point of view, we would intend to charge in the future a 2 basis point charge. The market practice--where private investment companies might do this for foreigners, including foreign central banks--seems to be to charge either nothing or something up to 5 basis points, with some obviously in between, [generally] a 1 or 2 basis point charge. A 2 basis point charge, according to our analysis, would clearly cover our cost and more than cover our cost. The remainder I would think of as perhaps a very minor charge for acting as principal in these transactions, and there is some theoretical risk. I don't think it's more than theoretical; if the dealers on the other end don't deliver the securities, we would have to make good, and that is only theoretical. The securities are there to margin the account; they do margin the account in effect, but for acting as principal I think we can justify some charge. Part of the philosophy that would lie behind the charge, which I interpreted the Committee as being in favor of earlier, is that we have no interest in competing with the private market unnecessarily and some little charge reflects that concept as well as making it clear that we would cover any costs involved.",279
-fomc-corpus,1978,You would do 2 basis points on [transactions by] both SOMA and the New York Fed?,21
-fomc-corpus,1978,Either way.,3
-fomc-corpus,1978,"Gentlemen, I want to put a question to the Committee, and I may or may not have a suggestion depending on the answer to the question. I'd like to have a show of hands--and this time [not] only including members of the Committee but also the Bank Presidents who are not technically members of the Committee--indicating whether you feel really qualified to act on this issue. Would you feel comfortable? I don't feel comfortable acting on this issue. I haven't studied it sufficiently; I don't understand it and, therefore, I want to know how many of my colleagues are in my unhappy position or are in a much happier position. So how many of you feel really qualified to reach a judgment on the question?",145
-fomc-corpus,1978,Really qualified?,3
-fomc-corpus,1978,"I'll modify it. How many of you feel reasonably qualified to reach that judgment? Well, all right, most of you feel reasonably qualified; therefore, I will not make my suggestion. What is the sentiment of the members?",45
-fomc-corpus,1978,Could I ask a question? What is the criterion for whether the System Open Market Account is operating? Is this a question of that day or that minute?,31
-fomc-corpus,1978,"Essentially that day, as [the Desk's management] plans their operations. If they're going to be withdrawing reserves, this is a way of withdrawing them anyway. This gives them an option. If they're going to be supplying reserves, they might as well supply a few more to take care of this.",61
-fomc-corpus,1978,"So a great majority of operations, then, would go through the SOMA.",16
-fomc-corpus,1978,"I think the earlier experience--if I remember correctly, Peter--was that about two-thirds went through the System account and one-third through the Bank. Now, that is partly because of the tax and loan accounts; the Treasury accounts at the Federal Reserve have been moving up and down so much. If that were steadied, that proportion might shift some, I suppose.",74
-fomc-corpus,1978,"Mr. Chairman, I would feel comfortable with either 3 or 4. I happen to have a preference for 4 because it states [the authority] more clearly.",35
-fomc-corpus,1978,"I would agree with that. I think it's very [important] to avoid [options] 1 or 2, not because of the operations that are engaged in here, but I just don't like having a precedent of using the open market account to support an activity. Because once you support this activity, you can support other activities and I think that's the reason for avoiding 1 and 2. I think 4 is probably a little better than 3.",93
-fomc-corpus,1978,"All right, any other view?",7
-fomc-corpus,1978,"Mr. Chairman, I was not clear on one point and I asked Peter Sternlight to clarify it for me earlier. It might be helpful to some in the group. In the event the New York Bank is acting as principal in matched-sale purchase agreements, it would make an equal amount of repurchase agreements in the market. I thought that's what it said, but I was not absolutely certain. He said that is what it does.",87
-fomc-corpus,1978,We're just a pass-through except that we act as principal for tax purposes this way.,17
-fomc-corpus,1978,"Gentlemen, so far I've heard a slight preference for option 4. Is that generally agreeable? I hear nothing to the contrary and that's the Committee's decision. Looking at the clock, would 2:15 be a reasonable time to reconvene or would 2:30 be better?",60
-fomc-corpus,1978,2:15.,4
-fomc-corpus,1978,[The time we will reconvene] is officially 2:15. [Lunch recess],19
-fomc-corpus,1978,"Mr. Sternlight, we are ready for your report now, please.",15
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Mr. Sternlight. Are there any questions? Mr. Baughman.",19
-fomc-corpus,1978,"What would be your impression, Peter, as to the market's impression of your funds rate target or objective at the present time?",26
-fomc-corpus,1978,"I'd say the predominant view now is that we're aiming at 6-3/4 percent, although there's a little bit of lingering uncertainty that maybe we're going to be heading toward 7 percent within a short time.",43
-fomc-corpus,1978,Thank you.,3
-fomc-corpus,1978,"Peter, it seems to me that that was an awfully large market adjustment to the news over that weekend--one of the largest I can ever recall, as a matter of fact. Do you think it was because quite a few people thought that 7 percent would be the target? And as they focus in on 6-3/4 percent, is there a chance of more of a rally in that market?",84
-fomc-corpus,1978,"I think that's possible, Governor. I think one reason it was large was that people were very much taken by surprise by the move and there was a lot of lightening of inventories that went on right away--very immediately, the first thing Monday morning. I don't know how much further improvement there might be as the idea is further instilled that 6-3/4 percent is the objective. I would think perhaps not too much.",88
-fomc-corpus,1978,It has backed down some.,6
-fomc-corpus,1978,It has backed down some.,6
-fomc-corpus,1978,I guess every bill and even the intermediates have backed down a little.,15
-fomc-corpus,1978,The bills have come down about 10 or 15 basis points from where they went initially and there has been maybe 6 or 8 basis points of improvement in other sectors. There is perhaps room for somewhat more but I wouldn't think a whole lot.,51
-fomc-corpus,1978,"Peter, if we are anticipating a Treasury financing we attempt to accommodate that. If we were to move to, say, 7 percent, how much time [would that give us]? When would the Treasury be announcing?",44
-fomc-corpus,1978,They will be announcing a week from tomorrow on their quarterly refunding operations.,15
-fomc-corpus,1978,Presumably then we have a week.,8
-fomc-corpus,1978,"I would think so. Then again it depends on what sort of financing they do. If they follow the recent pattern and have auctions, then there is a little more flexibility as to the timing of anything the Committee would consider. There's been some talk in the market of coming with a fixed price issue on this occasion, which I think could circumscribe the flexibility of adjusting the funds rate target.",79
-fomc-corpus,1978,"Mr. Kimbrel, please.",8
-fomc-corpus,1978,That was my question.,5
-fomc-corpus,1978,"All right, any other question? If not, is there a motion to approve the operations of the domestic Desk?",23
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,Seconded.,3
-fomc-corpus,1978,"A motion has been made and seconded and [hearing no objections we have] a vote to approve. Mr. Axilrod, we're ready for your comments.",34
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you Mr. Axilrod. Are there any questions? Very well, we're ready to turn to our deliberations on monetary policy. I have only one word to say in the way of a suggestion to the Committee and that is in view of the serious foreign exchange problem that we continue to face, it would be a serious mistake to entertain a reduction of interest rates at this time. I am going to call on Mr. Volcker first and then other members of the Committee, Mr. Eastburn, Mr. Morris, Mr. Coldwell, Mr. Mayo, Mr. Wallich, and Mr. Black. Paul, it's all yours.",131
-fomc-corpus,1978,"Mr. Chairman, perhaps in January it's worth a sentence or two in looking back at the previous year. Governor Gardner referred to the ghosts that we saw. Maybe some of them were more than ghosts, but I know I found myself thinking that we had produced the right compromise here repeatedly. I guess I've expressed that view in past meetings. Looking back at the year as a whole and looking at what's going on now, I must confess as a backdrop that I wish we'd been just slightly more affirmative on keeping the aggregates under control on the basis of all that we now know. Just to come up to date in looking at our recent action, which was clearly triggered by international considerations, I find myself feeling that that's not really inappropriate on domestic grounds either, against what we see as the current and at least fairly near-term six-month prospective strength in economic activity. The little boost that we see now in M1, against the earlier overshoots, [is one reason for] the concern that I have that we may face the problem of overshoots in the future. Our interest rate projections have not been good but they all go in the direction of [our] facing the probability of needing somewhat higher interest rates as we move ahead. So, against all that, I'm not unhappy even on domestic grounds with the action that was taken recently. I do think we have a general problem, which Mr. Roos I think referred to most strongly earlier, of credibility or confidence in terms of what we are doing to the aggregates. So, qualitatively, I feel pretty comfortable with one view of what we should be doing now--certainly not [move] lower as you just said in terms of interest rates in view of the international situation and I would say even the domestic situation. I do not feel that necessarily any further steps should be taken right now and I don't counsel that. But I do feel that if the aggregates show much sign of life here in the weeks ahead, we ought not to delay a move and we ought to react pretty promptly to it at least in a modest way. Now I translate that into the numbers. Boy, it's hard sometimes to get these qualitative thoughts into numbers and I have somewhat the feeling I expressed last time--that we [should] have a money market directive on the downside and an aggregate directive on the upside. But instead of proposing anything so radical as that, it seems to me that something like the ""C"" specifications on the aggregates are in the right direction and express the view that we should be slow, very slow to ease--in fact, should not ease in this period--but be alert on the upside. In fact, I would prefer on the M1, not on the M2 I think, to even go a half percent lower--make it 1-1/2 to 7-1/2 percent. On the federal funds rate, at the risk of being accused of fine-tuning, I think my qualitative view could be best expressed by saying a range of something like 6-5/8 to 7-1/8 percent would be appropriate with a 6-3/4 percent midpoint. So, in effect, I'd not give ourselves room to move down but give ourselves a little room to move up. The alternative, I suppose, would be something like 6-1/2 to 7-1/4 percent. That widens the funds rate range. It bothers me a little bit in terms of the discussion we had last month about keeping the federal funds rate range at the moment at a half [percentage point]. Also, it may connote on the high side the possibility of going higher than I really mean at this particular point in time, so I guess I would state, at the risk of a fine-tuning accusation, a range of 6-5/8 to 7-1/8 percent with the 6-3/4 midpoint. And I think an aggregates directive under those circumstances would be appropriate.",807
-fomc-corpus,1978,6.625 to 7.125.,9
-fomc-corpus,1978,If that's the correct arithmetic. I'm not sure I know how to do that!,16
-fomc-corpus,1978,I just wanted to be sure we had the third decimal point correct!,14
-fomc-corpus,1978,It takes three decimal points to go in eighths; I know that.,15
-fomc-corpus,1978,"Well, now that we've converted a fraction into a decimal--and if you're comfortable about that--we can proceed. Thank you, Mr. Volcker. Mr. Eastburn next.",37
-fomc-corpus,1978,"I think Steve [Axilrod] is right that we are going to have to be in the process of raising money rates as we move forward. However, having taken the action earlier this month that was taken, I would prefer to stay about where we are at this time with respect to the funds rate. Like last time, however, I feel that the spreads that we have on the [ranges for the] aggregates are larger than we need, particularly on the M1 measure. And as long as we stick with the money market directive, it doesn't give adequate incentive to the Desk to move the funds rate soon enough. So rather than move toward the alternative C specification, I would prefer to stick with the alternative B aggregates and reduce the upper limit of the M1 range to something like 7-1/2 percent. And I'd urge the Desk to move on the funds rate if [that limit] starts to be approached.",187
-fomc-corpus,1978,"Thank you, Mr. Eastburn. Mr. Morris now, please.",15
-fomc-corpus,1978,"Mr. Chairman, while I did not support the increase in the funds rate range, I agree with you that [given] the situation [in the foreign exchange markets] we cannot permit rates, in the short term, to decline. So I would support alternative B with the money market directive.",59
-fomc-corpus,1978,"Thank you, Mr. Morris. Mr. Kimbrel, please.",15
-fomc-corpus,1978,"Mr. Chairman, I guess I would prefer alternative C. Although Mr. Volcker has fine-tuned it, I would hate to see the funds rate moved down any, so rather than that, I think I prefer to see [a funds range of ] 6-3/4 to 7-1/4 percent, particularly after Mr. Axilrod's statement and the Bluebook's [indication] that we may very well have to move earlier than later. So I would prefer to see that composition at the moment.",109
-fomc-corpus,1978,"Thank you, Mr. Kimbrel. Mr. Coldwell now.",15
-fomc-corpus,1978,"Mr. Chairman I would like to stay where we are at 6-3/4 percent. I would put a caveat on that only [if] the aggregates appear to be growing very strongly--by that I mean even the 8-1/2 percent specification in ""B"" would be acceptable to me. I'd prefer the 6-3/4 percent midpoint and be willing to go with a 6-1/2 to 7 percent formulation or something like that. I don't really care; I just want to hold [the rate] at 6-3/4 percent.",122
-fomc-corpus,1978,"Thank you, Mr. Coldwell. Mr. Mayo now, please.",15
-fomc-corpus,1978,"Thank you Mr. Chairman, I guess I have less confidence in the January seasonal adjustment factor again than some of my associates around the table. Given that, I have some difficulty in going back to an aggregates directive. I still feel that in this environment a money market directive is quite appropriate. I would not want to see the Desk move, if the [M1 growth] rate even gets to 8 percent. I would prefer to see us get together on the phone if it does that for the period of two months. But I just don't have that confidence in the figure. I am a monetarist over a long period of time; I'm no monetarist on monthly changes. I really prefer 3 to 8 percent to the 2-1/2 to 8-1/2 percent for M1, although that may be quibbling. Perhaps as a qualification to what I just said--and I'm not being a monetarist--I think we ought to tighten up [the width of the range]; the 6 point difference is a little too big for me on the M1 with reference to the current period. I would like to see us get together on a telephone meeting if we get close to that 8 percent just to discuss the situation again. On M2, I find the lower end of that 5 to 9 percent range unacceptable. I don't think it [is] relevant at all to suggest that we might ease, giving equal weight to M1 and M2, if [M2] gets down to 5 or even 4 percent. I would use the same lower range for M2 that I use for M1 because it becomes irrelevant. The reason we would get down to 4 percent, say, for M2, would be a reason that is inconsistent with our idea of easing. It would be a response of disintermediation, which requires a different brand of aspirin. I would stick to the 6-1/2 to 7 percent [on the funds rate range] though, Mr. Chairman, with the 6-3/4 midpoint. But like last month and the month before, I would suggest that our directive not say 6-3/4 percent but say ""the current rate."" Anybody can look it up, it is true. But I think there is enough stability in the 6-3/4 percent right now that we can use ""current rate"" and not use a specific digit regardless of which type of directive we employ.",512
-fomc-corpus,1978,"Thank you, Mr. Mayo. Mr. Wallich now, please.",15
-fomc-corpus,1978,"Well, I share Bob Mayo's thought that we ought to tighten the M1 range. We've moved to a 6-point spread under conditions of always fearing an explosion. That fear for the month of January seems to have diminished considerably. So I think we could go back to a narrower range. I share the feeling that we should not allow the funds rate to go down, mainly for international reasons. And, therefore, I arrive at an asymmetrical relationship. In principle, I'd like a wide funds range, but on this occasion I think we should make the present level also the lower limit, but stay at that limit and go to as high as 7-1/4 percent if M1 [comes in strong]. I would make the M1 range 3-1/2 to 7-1/2 percent. That means really that we stay at 6-3/4 percent on the funds rate, and [if] the aggregates are very surprisingly weak, we get a chance to review our situation. I think in a difficult situation where we're trying to reconcile domestic and international factors simultaneously, it may be necessary to have more frequent communication. As far as M2 is concerned, I'm reluctant to give it as much weight now as we do. We give it equal weight and it seems to me now it is in a state of transition, so I would remove that paragraph. But I have no difficulty with the alternative B range of 5 to 9 percent.",298
-fomc-corpus,1978,"Thank you, Mr. Wallich. Mr. Black now, please.",15
-fomc-corpus,1978,"Mr. Chairman, our best guess is that with current money market conditions, we'll get a growth in M1 of something like 6 to 6-1/2 percent in January and February and a rate of growth in M2 of maybe 7 to 7-1/2 percent. As Steve Axilrod suggested, we too are becoming increasingly concerned over what we perceive to be the developing financial situation in the late winter time and early part of the spring with heavy Treasury borrowing superimposed upon heavy borrowing by state and local governments and heavy private credit demands. So we would agree with his assessment that it's very likely that we're going to have to move the federal funds rate up to resist supplying reserves necessary to support growth in the aggregates that would otherwise take place. This leads me to the conclusion that we ought to resist any movement in M1 much above 6 to 6-1/2 percent and in M2 much above 7 to 7-1/2 percent. So, I would favor narrowing the aggregates spread, as Messrs. Mayo and Wallich have suggested. My figures would be 4-1/2 to 8-1/2 percent for M1 and 5-1/2 to 9-1/2 percent for M2. And I would want to widen the federal funds range to 6-1/4 to 7-1/4 percent or--to use Governor Lilly's decimal system--to 6.250 to 7.250.",307
-fomc-corpus,1978,.25000.,4
-fomc-corpus,1978,"That's right. And I would interpret this asymmetrically, as Governor Wallich suggested, in that I would move up to 7 percent if it appears that the aggregates are moving beyond the midpoints. But from the standpoint of the international situation and also the past overshoots in M1 in particular, I would not want to move down below 6.750. And I would favor an aggregates directive and, if we can do anything about it, raising the Regulation Q ceiling by .50.",101
-fomc-corpus,1978,"Thank you, Mr. Black. Mr. Partee now, please.",15
-fomc-corpus,1978,"Well, Mr. Chairman, with a sigh, I would admit that this is no time to back the money market down--it having made this very difficult transition to a somewhat tighter condition. I think we have set in stage forces that may weaken [economic activity in] the second half of the year, particularly in the housing and mortgage area. And I would say that the rate structure is still in a very sensitive state in any event. That is, to me at this particular point and assuming there isn't a change in Regulation Q, I think the Committee needs to assume no change over the next month. There could be one, but it's a hard thing to bring about. There's quite a difference between a 6-3/4 and a 7 percent funds rate. There's a lot more difference between 6-3/4 and 7 than there is, say, between 5 and 5-3/4 or something like that because we're in such a sensitive state. I also would like to point out that some of the numbers that have been floated around indicate on the aggregates really quite a restrictive policy if in fact we have a 12 percent nominal GNP. Was it 12 percent nominal GNP, Steve? Is that what you said?",254
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"You might expect that we would get M1 growth of as much as 10 percent in the quarter. It may be less than that but the odds will be in the direction of a high number. On M2, although Paul was talking about overshooting, I find that in the fourth quarter--that is, from September to December--the annual rate of increase was under 7 percent. Now, a lot of people have identified M2 growth roughly with nominal GNP growth. That certainly wouldn't hold for a quarter, but I think if you've got nominal GNP running around 12 and M2 running around 7, say, for an extended period, that would certainly indicate future difficulty for the economy that we would be bringing about. I don't see that we are over-utilizing our resources or that the prospects for a boom are so strong that that kind of crunch policy is called for at this time. To sum it up my view would be that we ought to have a money market directive because of the great importance of the interest rate level at this particular juncture, so we might as well be forthright and say that the range is 6-3/4 percent for a bottom and I wouldn't want to go over 7 percent for the top, with a 6-3/4 ""midpoint."" And I would accept the idea that under those circumstances we could perhaps reduce the range for M1 to 5 points, to 3 to 8 percent, although [given] where we start out--at the bottom of our federal funds rate range--the lower numbers on those aggregates don't mean much because we're not going to ease unless we have a special meeting of the Committee or a wire from the Chairman or something like that. So again, I would take 6-3/4 to 7 percent, with a midpoint of 6-3/4 and a money market directive with aggregates ranges of 3 to 8 and 5 to 9 for M1 and M2 [respectively].",410
-fomc-corpus,1978,"Mr. Chairman, I too share your views about not letting interest rates drift down at this time in view of the international situation. I also share Paul Volcker's view that the uptick that we've had may not have been inappropriate in view of previous overshoots. Based on the discussion of the economy this morning and as we see the outlook, the specifications of alternative B are generally satisfactory in terms of a federal funds range, with the assumption that we would stay in the near term at 6-3/4 percent and not go up unless there's a pretty good reason in terms of threatening overshoots. Just to complete the picture, I would join those who view the 6-point spread as being too wide on M1 and I would like to see it come down perhaps to a 2 to 7 percent range, although I could live with the 5 to 9 percent on M2. And all things considered, I prefer the monetary aggregates directive this time.",197
-fomc-corpus,1978,"Thank you, Mr. Balles. Mr. Roos, please.",15
-fomc-corpus,1978,"Mr. Chairman, in my judgment the prospect of inflation remains as serious as it has ever been. M1, as we know, has grown more than 7 percent for the last 12 months. Since March of last year it has grown at an 8.4 percent rate. The problem remains that we have repeatedly said publicly that [our M1 target is lower than that]. If we intend to do something to alleviate this problem, I can't see any more favorable time to at least take initial corrective action. Unemployment has dropped somewhat and as you said earlier, Mr. Chairman, there is no real evidence other than possibly gut feelings on the part of some of any real softening of the economy. The international situation cries out for doing something about the inflationary problem and I'm just totally convinced--I could be wrong--that if we don't take some action now under these circumstances, we're going to have to take action 6 months or 12 months from now and the problem will have gotten worse. I liken what we have done in the last year sort of to the alcoholic who should do something but he takes a little drink this time and another little one and he's always going to do something down the road. Well, I don't think we have done what we might have done over the past year in terms of gradually reducing the rate of growth of money. If we put off [resolving] this inevitable problem, we're going to have to take the step in the future and I think quite conceivably we would be forced to act under less propitious circumstances, perhaps at a time when applying the brakes would really entail a much greater risk to the economy than a gradual reduction would at present. To me the problem is one of either assuring, if we took a 2-1/2 to 8-1/2 percent range for M1, that by golly we would stick to the midpoint in terms of the growth in M1--the midpoint between those two being 5-1/2 percent--or I think more realistically, we should reduce the upper [limit of the] range. We've set ranges until we're blue in the face. We've exceeded those ranges for such a long time that we're just deluding ourselves if we think that we are really doing anything to correct the excessive growth in the money supply. So, with that, I would urge at the most an upper limit on the M1 range of 7 percent, with perhaps 2 or 2-1/2 being the lower limit of the range. I could certainly go with the M2 range under alternative B. I would prefer a 6-3/4 to 7-1/4 percent range for the fed funds rate and I would prefer an aggregates directive to a money market directive.",565
-fomc-corpus,1978,"Thank you, Mr. Roos. Mr. Winn now, please.",15
-fomc-corpus,1978,"Mr. Chairman, in attempting to follow what's going on, I got lost over the year-end. Was there any change in the way we calculate these numbers?",32
-fomc-corpus,1978,You mean the way we calculate the money supply?,10
-fomc-corpus,1978,You mean the base?,5
-fomc-corpus,1978,"Yes, the money supply.",6
-fomc-corpus,1978,"No, there's been no change.",7
-fomc-corpus,1978,"I didn't know whether we lost part of the year-end in January or it came back to December or what. I wondered what happened there. This was probably my ignorance, Mr. Chairman.",38
-fomc-corpus,1978,"We have not received any benchmark numbers, if that's what you're asking.",14
-fomc-corpus,1978,"Yes, maybe. I am concerned about the disintermediation as an adjustment factor here ahead, so I think I'd be inclined to go with ""B,""--3 to 8 and 5 to 9 percent [for the aggregates ranges ] and 6-1/2 to 7 percent [for the funds rate] this month, with an aggregates emphasis.",75
-fomc-corpus,1978,"Thank you, Mr. Winn. Mr. Guffey now, please.",16
-fomc-corpus,1978,"Let me say first of all that I am delighted with what occurred in moving to this 6-3/4 percent [funds rate], maybe for different reasons. I think domestically we're at the point where we should be at the moment. Because of the events that are ahead of us, I think that's probably where we should be. That is to say, I would like to associate myself with Governor Partee, Governor Coldwell, and perhaps others who would structure the directive so that we would not move from the 6-3/4 percent [funds rate] unless the aggregates begin coming in at a fairly rapid rate. As a result, I would suggest alternative B and would also narrow the ranges on the top side down to 7 or 7-1/2. But I'd structure the directive in the money market conditions [formulation], with it being a good bet to stay at 6-3/4 percent unless the aggregates begin to grow very rapidly.",199
-fomc-corpus,1978,"Thank you, Mr. Guffey. Mr. Lilly next, please.",16
-fomc-corpus,1978,"Well, as one of the troika who voted not to increase the [funds] rate last time, I thoroughly agree that the last thing we should do is try to retreat to that old rate. I would say, however, that I am very much concerned about the state of all of these markets. The money market has certainly been going through some real gyrations; the international market has certainly been going through a lot. And the stock market is reflecting some uneasiness--all of which says to me that now is the time to pause and hold our breath and wait for things to cool off a little. I particularly feel this way because we are so close to a substantial disintermediation point. So I'd come down for alternative B with a money market directive and a 6.75 to 7 percent range, with 6.75 being the middle. I'm not quite sure how that works! What I'm saying is don't move from that 6.75 percent until you just really have to.",204
-fomc-corpus,1978,"Thank you, Mr. Lilly. Mr. Baughman next, please.",16
-fomc-corpus,1978,"Oh, I left a zero out on that!",10
-fomc-corpus,1978,We can add zeros all over.,7
-fomc-corpus,1978,"Mr. Chairman, I find alternative B generally acceptable, but I like the suggestion that we use 6-3/4 percent as the bottom--or the ""midpoint,"" or whatever you want to call it. It does seem to me that the tops of the ranges there are high for the current circumstances, so I would prefer a directive with lower tops on the ranges by as much as, say, 1 percentage point for both M1 and M2. And it seems to me that we probably should have a monetary aggregates directive as well.",111
-fomc-corpus,1978,"Thank you, Mr. Baughman. Mr. Willes, please.",16
-fomc-corpus,1978,"Thank you Mr. Chairman. I guess I remain convinced that the best way we have of unraveling the very strong expansion that we have is to fail to deal as aggressively as we can with inflation. Everything inside me says now is a great time to pause. But I am persuaded by Mr. Roos's comment that we are not likely to have a better time than right now, given both the international situation and people's perceptions of the unemployment rate and so on. I think if nothing else it would be desirable to limit it and reduce the upper range for M1 so that we would have a little better chance to in fact get within the long-run targets where we want to be. The 2 to 7 percent I think goes in that direction. On the federal funds rate, the argument on the bottom I think is correct. The way I'd prefer to see the Committee deal with that would be to [adopt] 6-3/4 to 7-1/4 percent.",200
-fomc-corpus,1978,"Thank you, Mr. Willes. Mr. Gardner, please.",14
-fomc-corpus,1978,"Well, I haven't much to add to all that's been said. I would like to see the ranges brought down a little. I can accept the 1-1/2 to 7-1/2 percent President Volcker suggested and the 5 to 9 percent or even some modest shaving of the top there. But I'm curious about this 6-5/8 to 7-1/8 percent, using fractions [of eighths on the funds rate range]. I don't quite know how to handle that. The other idea is to bring the [intermeeting] funds rate span to an even narrower range; several have suggested 6-3/4 percent as the lower end. When we get through with this we are going to be down to one rate; we're not going to have a range. Therefore, I'm confused. But I would add 1/4 to the 7 percent [top]. If that requires you, for orderly discussion, to bring the 6-1/2 up to 6-5/8 percent, okay. Otherwise, I would add a 1/4 to the 7 and go with the lower range for M1 as Paul suggested.",243
-fomc-corpus,1978,Well--,2
-fomc-corpus,1978,"If there is any confusion about what I meant by 6-5/8 to 7-1/8 percent, Mr. Chairman--",29
-fomc-corpus,1978,"Oh, be careful.",5
-fomc-corpus,1978,What I mean is Mr. Partee's 6-3/4 to 7 percent.,20
-fomc-corpus,1978,"Gentlemen, I need a little time and I ask you all to relax because the fractions could become so minute, so delicate, so varied. [Pause] Gentlemen, I have a suggestion to make here and please don't question me too closely because if you do, you will find that I have quickly run out of knowledge. The numbers are before me. They're not easy to summarize and I am not going to try to summarize them. Therefore, I make a suggestion that we vote on the following: an M1 range of 3 to 8 percent, an M2 range of 5 to 9 percent, a federal funds rate range of 6-1/2 to 7 percent, but with a strong inclination not to go below 6-3/4 percent, and a money market directive. Now, that is my best effort to extract a consensus on the variety of numbers and nuances attached to the numbers that I have heard around this table. Are there any questions, gentlemen?",203
-fomc-corpus,1978,"Mr. Chairman, in my deepest affection for one of the most effective Federal Reserve Chairmen, I won't ask for a recount, but, sir, is there any possibility of shaving that upper limit down a little bit below 8 percent on M1? It would be a shame--you know, I don't want to be a troublemaker at this meeting--",72
-fomc-corpus,1978,"Well then, let's have a show of hands on the upper limit of 7-1/2 percent. Is that reasonable? I tried to give some recognition to a suggestion made by several members of the Committee that the range be narrowed somewhat. But going from a range of 6 points to 5 points I think would be adequate for one meeting. Let me repeat then the suggestion to the Committee. We can vote on the following: an M1 range of 2-1/2 to 7-1/2, an M2 range of 5 to 9, a federal funds range of 6-1/2 to 7, but with a strong tendency not to go below 6-3/4, and with a money market directive.",156
-fomc-corpus,1978,Could I ask a question? What is the operational interpretation of a strong tendency or strong inclination not to go below 6-3/4 percent? You have made this more important now by lowering the lower end of that M1 range.,48
-fomc-corpus,1978,"Well, Mr. Sternlight, you will have to live with that, but why don't you attempt an interpretation of that and if you need help, we'll try to supply it.",36
-fomc-corpus,1978,Can Mr. Sternlight assume in that interpretation that we leave a phrase about the international situation in the directive?,22
-fomc-corpus,1978,That definitely ought to be in there.,8
-fomc-corpus,1978,"Well, I assume that this would mean not moving below 6-3/4 percent--not even considering a move below 6-3/4 percent--unless we were down at the low end of the ranges. And if we were down at that low end, we would want to be in touch with the Committee.",66
-fomc-corpus,1978,"Well, that's perhaps a little stronger than I intended.",11
-fomc-corpus,1978,"Yes, I like that.",6
-fomc-corpus,1978,Nobody even heard my comment.,6
-fomc-corpus,1978,That's a low end on average.,7
-fomc-corpus,1978,"Mr. Broida, I think is following a suggestion that we use ""at about the current level"" rather than 6-3/4 percent. All right, since there are no further comments, will the Secretary call the roll, please?",51
-fomc-corpus,1978,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Unanimous.,46
-fomc-corpus,1978,"This may be the last--well, it will be the last meeting that I'll be presiding over. I want to say just one word. I don't think I've said it before. I am very pleased that at this last meeting of mine the Committee was unanimous. Thank you very much.",58
-fomc-corpus,1978,"Mr. Chairman, if I may have a point of personal privilege, as Vice Chairman of this Committee. I remember when I was first elected. When I arrived here you told me--indeed you announced to the Committee--that the job wasn't going to be very onerous. And I think that prediction, as many others, was borne out. I did get the minutes accepted a couple of times, I think. I may even have gotten some transactions that were already completed accepted once or twice. It wasn't more than twice, I'm sure. But you know in another way, I felt this was a very onerous job, Mr. Chairman, psychologically. Every time one thought one was prepared to make a brilliant or even sensible point, the Chairman would make it more eloquently and state it more effectively. He always anticipates you. He's always better prepared. And he brought an enormous experience in analyses of business cycles and a judgment that I think is clearly matched by no one else around the table or outside this table. In a way, that was psychologically onerous but it certainly made all our jobs much easier. And I have the feeling, if this indeed is your last meeting, Mr. Chairman, that we all are going to find it a bit more difficult in the future. We are going to have to carry a little more weight on our own--not just in analysis but in backbone. I can't think of any greater tribute for this Vice Chairman to give the Chairman of the Committee. I also might say, judging from some newspaper reports I have seen, that I have always appreciated a Chairman who smokes a pipe. But we will miss you very deeply, Mr. Chairman, and I am sure I can speak for every member of this Committee. [Applause]",358
-fomc-corpus,1978,"Gentlemen, I'm very grateful to all of you and to you, Paul. You have my warmest thanks and very best wishes for a bright future that you personally and other members deserve. Thank you very much.",44
-fomc-corpus,1978,"Gentlemen, we will start our meeting. I am glad to see all of you once again but I had hoped, as I know all of you did, that this meeting would be chaired by Mr. Miller. He is testifying this morning and he has had his difficulties, but I am reasonably confident that they may be cleared up this morning. We all have our duty and we will perform it. It has been a somewhat difficult period for all of us and some mistakes have been made, and I=m responsible for two mistakes. Well, I don=t know how many I=m responsible for, but I=m responsible at least for two that I can think of immediately involving this Committee. The first was to advise you not to take up the long-range targets at the January meeting. That was a mistake. The second was postponing our regular meeting a week. That was the second mistake. I think that, under the circumstances, these mistakes are understandable; I hope they are. Nevertheless, they were errors as things have turned out; they were hurried suggestions. From now on, no matter what happens, we will proceed according to our regular rules--not deviating to the left nor deviating to the right one inch. A motion to act on the minutes would now be in order.",260
-fomc-corpus,1978,I move [that the minutes be] approved.,10
-fomc-corpus,1978,Second.,2
-fomc-corpus,1978,Approval has been moved and seconded. And I take it there is no difficulty. We had a report of the Examination of our System Open Market Account. Is there any desire for discussion of that report?,41
-fomc-corpus,1978,I move acceptance.,4
-fomc-corpus,1978,Mr. Balles.,5
-fomc-corpus,1978,"Just a comment, Mr. Chairman. I guess it=s from the Board=s annual report that the press picks up this news--that it looked like a $100 million loss last year in foreign exchange operations. When I had my staff look into this, it turns out that much of that goes back to the middle of 1971 or whatever, but we=re still amortizing some of the losses from that point in the foreign exchange operations. I=m informed by my staff--and I checked here [at the Board]--that there=s actually been a small profit in each of the last several years. The only reason I make this comment is that it might be a little misleading the way the thing is reported. Whatever the basic source of the information is, it leads to some misunderstanding among the public and the press. I don=t know what if anything can be done about that, but I simply raise it as something that might be looked into a bit.",193
-fomc-corpus,1978,"Well, I don=t know what we can do about the report, but this question will come up in Congressional hearings and then we ought to make not only the points that you have just made but the additional point that we held onto our gold, and that=s why we got into this loss. Gold then was worth $35 an ounce and, if I remember the current quotation correctly it is something like $181.",83
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,"If you take that into account, as you should, and if profits in terms of inflated dollars mean anything, we=ve made an enormous profit.",30
-fomc-corpus,1978,"Good point. It simply came to my attention because Table II of Bill Wallace=s report had a line showing losses from foreign exchange in 1978, and I think the figure was close to $100 million.",42
-fomc-corpus,1978,"Yes, and I have seen figures of this sort cited by distinguished columnists.",16
-fomc-corpus,1978,"Governor Wallich covered that in his testimony recently, Mr. Chairman.",14
-fomc-corpus,1978,I did refer to this when they complained about the heavy foreign [exchange] losses and I made the point that we retained gold.,26
-fomc-corpus,1978,"While we=re on that subject, we sure are hoarding that gold as if it were there never to be used. Well, we may possibly have further comments on that when we come to item 3 on the agenda, and we=ll be there soon.",53
-fomc-corpus,1978,"Mr. Chairman, may I make a comment in light of Mr. Balles=s comment on the losses in the foreign currency transactions? I was going to bring it up [under agenda item 3] but it bears on the System portfolio. The System portfolio is enormously profitable and it is well managed, but there are computations you can make by which you can establish putative gains and losses that would have been realized in certain conditions if maybe sales had been made to realize them. Take our coupon portfolio of only between $60 and $70 billion. At the end of 1976 it had an unrealized capital gain on it of $2.1 billion; at the end of 1977, it had an unrealized loss on it of minus $1/2 billion. So it was a swing from an unrealized gain to an unrealized loss of approximately $2.6 billion, but it was not realized. That doesn=t mean that we are not receiving an appropriate interest on the portfolio. But it is a very sizable loss [if one makes] another calculation, which is really an estimate and can be challenged in many ways.",230
-fomc-corpus,1978,"Well, the first figure could be challenged too, but go on.",14
-fomc-corpus,1978,"Well, you can say that the average maturity of the portfolio is on the order of 3 years. What has happened to a 3-year note in the market? It has gone down. If the portfolio were to consist all of 3-year notes, which of course it does not, we would have had a loss on the order of $4 billion from this. Again, as I say, this is a purely theoretical computation, but I mention this because I anticipate that it will be pointed out that there are losses on the foreign currency operations. And it needs to be remembered that in proper economics there are unrealized losses on the portfolio that are much larger.",134
-fomc-corpus,1978,"I hope that if and when or as this is debated in the Congress, this will never be pointed out because that would only add to the confusion. After all, we could, by pumping reserves into our commercial banks, add enormously to the security holdings of the System and run up our profits to--well, let me say to any conceivable figure. Well, a motion to accept the examination report has been made. Is there any--",87
-fomc-corpus,1978,"Let me just say for the record, Mr. Chairman, if I may, that there was a reference in the examination report to some custody control standards in the acceptance division, which is a fairly small part of the operation. There were some differences of opinion, if that=s the right [term], about the standards that had been followed there for some years, and some changes are being made. I think it=s incorrect to leave the suggestion that there was some sense of weakness, at least on our part. There may be a difference in the way this can be controlled, and changes are being made in response to the examination report. But there should not be any implication that something weakened during the year there. The procedures had been followed for many years. The new ones may or may not be better; they=re different, anyway. I just didn=t want to leave an implication that something had weakened during this period in that area.",187
-fomc-corpus,1978,"Was such an implication intended, Mr. Wallace?",10
-fomc-corpus,1978,"No, Mr. Chairman, it really wasn=t. Conversations between our staff and members of the New York Bank staff indicate that changes are being made to correct the difficulties that we pointed out. I believe Miss Young from our staff, who did this examination, and Mr. Ozog at New York have worked out whatever these differences were. So I think Mr. Volcker=s comment is correct.",79
-fomc-corpus,1978,"Thank you very much. Any other comment on the examination report? If not, a motion to accept the report was already [made]; if seconded we can move on.",35
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,"I think that it has been seconded. Again, [I hear] no objections, so we=ll turn now to Mr. Pardee for his report on foreign currency operations.",37
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Mr. Pardee. Are there any questions or comments?",15
-fomc-corpus,1978,"Mr. Chairman, this was the first time I was aware that the limitations we place on the Manager are limitations on gross transactions. It seems to me that the procedure has some question marks. The objective of the limitations is to assure the Committee that our net exposure will not exceed a given amount. And it seems to me that the limitations for the future ought to be placed in terms of a net change, not the gross transactions; they don=t carry nearly the same meaning.",95
-fomc-corpus,1978,I think that=s a fair question. Mr. Wallich.,13
-fomc-corpus,1978,"We have [limitations on] both. The principal one that is stated in the Authorization, which is the basic document, is in terms of the net exposure. And the exposure limits were not overrun. [The Desk] was well within those. What was overrun was the [limit on] gross transactions. The reason for having that is not that it=s more important than the overall exposure limit but that a lot of things can happen in an unchanging net exposure. For instance, you can go from plus to minus a billion in a day and it shows no change in the net exposure. You=re still exposed a billion, only you switched the position the other way. And that was the reason why a gross transaction limit was [imposed]. That doesn=t mean that it can=t be lifted very easily, but this Committee should be aware of what=s going on and the Subcommittee should be more aware.",184
-fomc-corpus,1978,Mr. Coldwell.,5
-fomc-corpus,1978,"I think there was another reason too, if I recall correctly, for the establishment of the gross limits--to achieve some balance in the Desk=s operations in foreign currency transactions. [The goal was] that we not be intervening constantly in the market, but intervene with a balanced approach without heavy, massive intervention. A net limit, as you pointed out, would perhaps reveal nothing.",77
-fomc-corpus,1978,Mr. Jackson.,4
-fomc-corpus,1978,To what extent do you try to unwind our position in periods of relative calm?,16
-fomc-corpus,1978,"I=m sorry, but we haven=t had a period of relative calm in which we could really begin to unwind our positions.",25
-fomc-corpus,1978,I misunderstood. I thought you said there was relative calm for an extended period of--,17
-fomc-corpus,1978,"That=s right, but it was a very, very tenuous one. During that period, as I say, the same issues that everybody else was worried about were still there. And if we were seen as a buyer of [marks] in that period, we could have had a bigger problem on our hands. We had discussions on several occasions with the Bundesbank on the possibility of their picking up some marks for us and on a couple of days we might have ended up with some if the market had turned in our favor. We also carry at this stage a rather substantial accounting loss on the operations we have engaged in up to this point; and when the turn comes, we should be in a position to take a profit. I=m rather reluctant to start unwinding this early, both because of the sensitivities of the market and this profitability question in the back of my mind.",177
-fomc-corpus,1978,Do you perceive our function to be to make a profit [and not] a loss or to counter a disorderly market?,25
-fomc-corpus,1978,"The first function is related to the conditions of the marketplace. And, as I say, we did discuss actively with the Bundesbank this [issue of] when they might pick up some marks for us but the conditions were not right. The second consideration--I=ll say it because it was discussed earlier on--is this question of relative profits and losses. But that is not the first objective.",80
-fomc-corpus,1978,"As of noon, or whenever it was on Friday, we had picked up quite a few marks. The market was having a rally. Unfortunately, the market turned again during the afternoon, but that was the specific instance when you got up to $85 million, I think.",55
-fomc-corpus,1978,"The two-way approach does provide us with marks. And once the market turns in our favor, then we will be net buyers of marks without the market necessarily paying much attention to it. But if we go into the market flat out and simply start buying ourselves marks, it would be a matter of a day or two before they=ll say, ""Aha! The Federal Reserve is covering its debt; that means the upside risk of the dollar is limited."" Already the operation with the Bundesbank, which has a serious liquidity problem as a result of the international [situation] in reabsorbing some of that, is seen in the market as putting a damper on the dollar rate. It=s a very sensitive situation.",146
-fomc-corpus,1978,"Mr. Partee, please.",7
-fomc-corpus,1978,"Well, I think there are two questions here and they=re really aspects of the same question. The one that was raised by Frank Morris about the Desk exceeding its limit is whether there needs to be an intra-day limit on gross transactions. I think perhaps there does, but I do think as a matter of strategy it is desirable sometimes to show your presence and then to offset it later in the day. And I believe that is exactly what happened on Friday. You had a large gross but the net wasn=t very big for the day. You apparently sold in the morning and bought in the afternoon and largely offset [the sale]. And I think that kind of thing is to be encouraged where it can be, particularly with the market as volatile as it is between Europe and New York. As the day progresses, that offsetting of gross sales--to the extent it can be accommodated--I think is desirable; it reduces the net exposure on the day. Then extending that thought to Governor Jackson=s [question], I think over time you also want to be looking for opportunities where you can reduce the net exposure position. I=m sympathetic, I believe, with the idea of relenting on the daily gross limit but I don=t think I would do away with it entirely because I imagine we could get very, very large gross figures. We might even have a very large gross figure that you expect to offset later in the day and you can=t offset it. So it can lead in a way to an exposure that=s unanticipated. But given the kind of markets we have, I think a $100 million limit on gross [transactions] is probably too low.",331
-fomc-corpus,1978,"Well, I think this is a fair question, but one that I think we can postpone until the next meeting when I believe the rules under which we operate are to be reexamined by the Committee. In the meantime, I think we ought to have some discussion, perhaps some studies by our staff and by some interested members of the Committee. Perhaps before this meeting is over, we shall want to formalize that. Any other question or comments on foreign currency operations or the dollar problem as it now exists? Very well, if not, a motion to ratify the transactions since the previous meeting would be in order.",124
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,Seconded.,3
-fomc-corpus,1978,A motion to ratify has been made and seconded. I hear no objections. We will pass on to Mr. Holmes=s recommendations.,28
-fomc-corpus,1978,"Mr. Chairman, in March the System has 17 swap drawings, totaling $541 million, maturing. It seems unlikely, although it=s not completely inconceivable, that we will be able to acquire that amount in the market. I recommend that the Committee approve the rollover of these swaps on maturity for 3 months. In all cases, these are first renewals; they=ve only been outstanding for 3 months.",87
-fomc-corpus,1978,The recommendation is clear. Is it acceptable to the Committee?,12
-fomc-corpus,1978,I don=t believe we have an alternative.,9
-fomc-corpus,1978,We could just pay it back.,7
-fomc-corpus,1978,Take it out of your left pocket!,8
-fomc-corpus,1978,Any objections to Mr. Holmes=s recommendation? I hear none. I take it that it is acceptable to the Committee. Any other recommendations?,28
-fomc-corpus,1978,"Well, Mr. Chairman, in April we have a little different situation. We have six swaps totaling about $136 million that will mature. As they mature, they will have been outstanding for 6 months--the maximum called for in our swap arrangement without a special agreement between the Bundesbank and ourselves. I really think it is premature to make a recommendation concerning these drawings at the present time, but I would like to have preliminary discussions with the Bundesbank, which they are also very anxious to have, either at the Basle meeting in March or slightly before that. While I have no recommendations, I think it might be worthwhile to point out to the Committee the options it has before these swaps mature. First, they could be repaid. If we are lucky, we can buy the German marks in the market, conditions permitting, or directly from the Bundesbank. This is one very clear option.",181
-fomc-corpus,1978,"In the latter case, we need not be lucky; we just do it.",16
-fomc-corpus,1978,"That=s right. I should point out, however, that from an immediate profit and loss point of view, for those people who are interested in that, these swaps are the most expensive drawings that the System could repay. This arises obviously from the fact that the drawings were made at rates of about 43-1/2 to 44 [cents] per mark, compared with a rate on our last drawing of about 49-1/2 [cents] per mark, representing the 13 percent appreciation of the mark since last October. Now, I remain confident, along with Scott and I think many others, about the chances of [eventually] unwinding the swaps at a profit or at least without a loss. In fact, the dollar would only have to regain about half of its losses against the D-mark since last October to reach the break-even point. And I think that=s obtainable. Consequently, I personally would not be overly concerned about showing a loss on the repayment of any individual drawing. I think we should, however, consider whether it would be preferable to pay down other drawings, minimizing our losses and the Bundesbank=s losses. We have other drawings at different rates that we could pay down, perhaps even showing a bit of profit. I think that=s something we ought to consider and I have no recommendation at this time.",273
-fomc-corpus,1978,"But what difference does it make, Alan? If we take a loss on this one, we get a profit on something else.",26
-fomc-corpus,1978,"That=s right in the long run; but in the short run we show a big loss. That doesn=t bother me, but I just want to point out that if we repay those we maximize our book losses.",43
-fomc-corpus,1978,"You say you maximize them. You say that there are many who agree with your judgment [about the dollar]. I=m sure that is right, but there are many more, judging from the behavior of the market, who seem to disagree with your judgment. I think it is that kind of a question.",61
-fomc-corpus,1978,That=s right. I think we ought to consider it and I have no recommendation right now. We can wait until we get closer to the [time the drawings mature] for a firm recommendation.,39
-fomc-corpus,1978,"Also bearing in mind that profit and loss, while a significant consideration, may well be swamped by other factors such as the extent of our exposure as far as members of the Congress and perhaps the market both are concerned.",44
-fomc-corpus,1978,"Mr. Chairman, another option that the Committee has is that we could request the Bundesbank to routinely roll over the maturing swaps for 3 additional months with a possibility of another renewal. In many ways, this is the very simplest approach that we might follow. It would not, for example, raise the issue of our 50-50 loss-sharing arrangement with the Germans as a request by us to the Bundesbank for a direct sale of German marks might do. Again, this is something to be explored. I have no recommendation. I want to point out that this is another option that the Committee has.",123
-fomc-corpus,1978,You mean go beyond a 6-month period or 9-month period?,15
-fomc-corpus,1978,"That=s right. It is provided for by mutual agreement between two parties in our swap agreement. But it takes a special agreement to do that. Another possibility, and it=s only a possibility, is that other sources of D-marks might become available to the System--should, for example, the Treasury decide to sell SDRs, borrow foreign currency, or draw on the IMF. Now, this is not [beyond] the realm of possibility, but it=s a very remote possibility--though one that may be available to us before the problem arises. I think there is another approach the System could take. That is, we could request a special swap facility of a longer maturity--say, two years--with prepayment options, of course. Such an arrangement would be roughly similar to our special Swiss franc arrangement and could be useful if in early April concern about the System=s acquisition of German marks to repay the swaps or fear that the System is running out of D-mark resources are putting great pressures on the market. That=s something you can=t judge now but that=s another possibility. I think there are a number of possibilities and the final choice can only reflect market conditions as they exist in early April in light of whatever actions, if any, may be undertaken by the Administration or the Treasury in the international area.",265
-fomc-corpus,1978,"If I hear you right, Alan, you are talking about doing some of this negotiation in what--March or April?",24
-fomc-corpus,1978,I would like to have preliminary talks with the Bundesbank and be clear about exactly how they feel. They know the same possibilities that I listed here. But I would like to be able to feel free to talk to them quite frankly about the possibilities and get their thinking on this. They=re anxious to do that.,63
-fomc-corpus,1978,"I think we have to bear in mind that the Bundesbank has some particular interest in this matter. One is their concern about the expansion of their monetary base and their money supply, which would be triggered if we were to repay by drawing on the Bundesbank. The second concern they have is that they are uneasy about the 50-50 [loss-sharing], which suggests that we should not do something that provides an opportunity for re-raising that issue. I think those are the two principal concerns that might come up.",104
-fomc-corpus,1978,"Would the latter come up, particularly with this 2-year thing?",14
-fomc-corpus,1978,It could; it could indeed. That=s why I think preliminary negotiations or talk about this would be useful.,22
-fomc-corpus,1978,May I ask a factual question?,7
-fomc-corpus,1978,Please.,2
-fomc-corpus,1978,"As you acquire marks in your day-to-day trading, are they put into the System=s account or are they used to repay [swaps]?",29
-fomc-corpus,1978,"Well, they would go into the System account until we accumulate enough to make a decent repayment. We wouldn=t do that with every million that we buy.",31
-fomc-corpus,1978,What would you consider a decent repayment?,8
-fomc-corpus,1978,$10 or $20 million. It can be very flexible.,13
-fomc-corpus,1978,Which priced drawing would you apply the proceeds to when you make such a repayment?,16
-fomc-corpus,1978,"Well, I think that=s what you have to decide. Do you pay off using a first-in/first-out approach? Or do you try to pick one where the rate is comparable to what you paid? MR. [PARDEE]. In the past we have done both, but we mainly look to the earliest maturities if we don=t face this problem with the second renewal. Usually, in the cycles that we get into, those are also the most expensive swaps, so we do take our losses early in the repayment cycle and the profits later on. But following the normal approach, if we were to acquire marks over the next couple of weeks, we would repay first those swaps that are coming up in April and take the substantial losses, reducing our average rate as time goes on. We also have--",162
-fomc-corpus,1978,"This is a policy question that should be addressed as we [review] these issues at the next meeting, so that we will know what the policy of the Committee is toward the swap agreement. MR. [PARDEE]. We also have a substantial negotiation with the Treasury because they are in debt, too. And sometimes we have to make accommodations for our part in the operation.",75
-fomc-corpus,1978,"Also, I don=t think that this is a policy we could arrive at unilaterally. The Germans will have their views as well as the Treasury and I do think we have to leave considerable room for flexibility to those who operate the Desk in dealing with that issue. Let me return if I may to the question we considered previously on net versus gross exposure, or possibly retaining both but changing the limits perhaps along the lines that Mr. Partee had in mind. I think this should be examined not only by the staff but also by a subcommittee of this family. I=m going to ask Mr. Wallich to serve as Chairman of such a subcommittee and include on it Governor Coldwell, Mr. Volcker, and Mr. Black. And that subcommittee could also consider the question of the repayment and what recommendation if any to make to this Committee. But I don=t think we would want to lay down a rigid policy; others are involved, as I noted. Yes.",199
-fomc-corpus,1978,"Just a comment on this loss question. I think this certainly should be secondary to [the Desk's] objectives. But my recollection is that whatever we do with the German swap is going to be swamped by the continuing repayment on the Swiss swap. So, for any relevant reporting period, we are going to show a loss whatever we do and, therefore, it=s not going to appear as something special in terms of the overall reporting result.",90
-fomc-corpus,1978,Did you comment on the Swiss transactions in the past month?,12
-fomc-corpus,1978,"I just mentioned them; I didn=t go into a description. If you wish, I can describe the reasons behind them.",25
-fomc-corpus,1978,Some criticism has been made of our being involved in the Swiss transactions. What was your defense for it?,21
-fomc-corpus,1978,"Well, the thing is that we have operated exclusively in German marks since 1975, but that=s not the only currency that is the source of the disorder or unsettlement in the exchange market. Occasionally the Swiss franc clearly is. This very morning we have a higher Swiss franc, which tends to be pulling up a number of other currencies. And I had to discuss with people at the Desk whether we should today consider operating in Swiss francs. Our view is that when the Swiss franc is the source of the unsettlement, then we should consider intervention in Swiss francs to see if by calming that market we can calm the broader markets for the dollar. But I know what the criticism is and I feel it very strongly myself. We got into a very deep hole in Swiss francs. It=s not that important a currency in the broad spectrum of international financial relations and I have been very sparing in use of this agreement that we had with the Swiss National Bank--to the extent that at the outset when we decided to go into the market, I negotiated with the Swiss National Bank that half of our operation in New York would be for our account and half for theirs. Now, the agreement is that the first $25 million that we do in New York is theirs. And from there on, we might consider whether we would intervene or not. So, on that basis, I have limited our intervention to $69 million. We have made a gesture in the Swiss franc market. On the days that we have operated, we have been reasonably effective. But we cannot get ourselves into a stampede in that particular currency, given this loss problem on our earlier debt. I would also [note that] there are times when there is a technical case and a philosophical case for intervening in other currencies. But we have avoided that because of the broader policy consideration on maintaining this operation strictly in marks, with occasional operations in Swiss francs, when I think it is absolutely defensible to the Committee and to the world at large.",403
-fomc-corpus,1978,"You say ""absolutely defensible to the Committee."" You are engaging in a bit of rhetoric now.",21
-fomc-corpus,1978,"Well, I=m hopeful it is defensible to the Committee. I have not heard any direct criticism and I=m willing to hear it.",28
-fomc-corpus,1978,Have you heard criticism from the Treasury?,8
-fomc-corpus,1978,"They have agreed at a policy level, but they have warned us to be light-fingered. And I have been.",25
-fomc-corpus,1978,Is there any intervention by the Bundesbank in Swiss francs? Is that a fair question?,18
-fomc-corpus,1978,They don=t.,4
-fomc-corpus,1978,They don=t?,4
-fomc-corpus,1978,They do very closely coordinate their operations. They=re on the phone back and forth most of the day.,21
-fomc-corpus,1978,"Mr. Chairman, may I say what Scott was saying just a trifle differently? It seems to me that there are times when intervention in the Swiss franc--if that=s the problem in the market and that=s pushing the market--makes some sense as long as it=s limited. And since it=s a small market, it usually can be quite limited. And if you can have even more of an impact on the D-mark--which is being pulled up by the Swiss franc--with a lesser amount of intervention using the Swiss franc, I think that is reasonable in the overall market context in which we operate.",123
-fomc-corpus,1978,"There are two considerations I would like to put forth, Mr. Chairman. One is that when one is trying to defend a world currency like the dollar, one ought to think of doing it in not just one other currency like the D-mark but to broaden it. After all, the Germans deal in dollars, and that means they=re dealing with the biggest thing there is. But if we deal only in D-marks, we=re trying to pull our currency up or keep it from becoming disorderly in just one direction and all the burden is put on that one currency. So there is quite a case for [operating in other currencies]. Second, we have told the market that we have $20 billion worth of swap lines and that has been frequently cited as an indication of the magnitude of our resources. I=m a bit surprised that nobody has ever said, ""Which of these currencies would you really be prepared to sell in the market in maintaining the dollar orderly?"" And, of course, the answer is very few.",205
-fomc-corpus,1978,I hope you wouldn=t give that answer too quickly.,11
-fomc-corpus,1978,"Oh no, I never would because that would have the obvious effect of making it seem that our resources are much less.",24
-fomc-corpus,1978,Or that the whole swap network is a charade.,11
-fomc-corpus,1978,"I think we do need to think of broadening the scope [of our operations]. At the same time, I=d like to suggest that we think again about the scale of operations. We went into this enterprise of raising the scale of intervention, as we had some new reasons--the President=s statement, the Treasury coming into the arrangement--to think that there might be strength for the dollar. These were special occasions which justified a somewhat stronger effort. But I think those special occasions have passed now and we ought to think whether we ought not revert to the earlier scale of operations, which was substantially smaller--always, of course, bearing in mind that the scale of intervention has to be commensurate with the scale of disorder. If the market gets very disorderly, there=s got to be more. But in relation to a given degree of disorder, I think we ought to reduce our scale of operations.",182
-fomc-corpus,1978,"Mr. Chairman, I agree with much of what Henry was saying about reducing the scale of operations, but something he said bothers me considerably and it=s something about which I wanted to check with the Desk. At least publicly we have been saying that we are intervening to counter disorderly conditions. And yet we are using the Swiss franc, in effect as Henry has been saying--obliquely anyway--as a means of achieving a higher dollar rate.",92
-fomc-corpus,1978,I did refer to disorder.,6
-fomc-corpus,1978,But is there a conflict here between using another currency as opposed to intervening only in disorderly [conditions]?,22
-fomc-corpus,1978,"Well, if that other currency is a source of disorder or rapid movement in rate, which is one measure of disorder, then I think it is justified to use that currency--if [the disorder] is localized in that area.",46
-fomc-corpus,1978,"Since 1973 we have operated in five different currencies--the German mark, Swiss franc, Belgian franc, Dutch guilder, and French franc--under conditions in which those markets were particularly disorderly. This is the one occasion where we have limited ourselves strictly to the mark and the Swiss franc. The question of having a rate objective is a delicate one. The market thinks and wants us to have a rate objective quite often. As I mentioned, the market is pushing us to these benchmark numbers, but we are trying desperately to adhere to the floating rate principle of not having a rate objective and avoiding the kind of box that other central banks have moved into when they were actively intervening. The Bank of England did, as does the Bank of Japan regularly. They tend to fix on a rate--peg a rate and then have to back away. And that=s when your scale of operations has to grow very big and then you have to have a disorderly retreat. Well, we have had to retreat but we tried to limit the disorder in those periods of retreat. It=s a difficult gap to fill, but I think our main emphasis is avoiding pegging the rate.",235
-fomc-corpus,1978,Would you or Alan like to comment on the scale of operations point that Henry made? Would you say that the scale of operations has increased over time relative to the scale of disorder?,36
-fomc-corpus,1978,I think they have been [comparable].,9
-fomc-corpus,1978,"We will [get] absolutely nowhere, because nobody knows what disorder means, including those who operate the Desk. Yes, we=re using words to justify what we=re doing. Actually we=re in there under the umbrella of disorder, though there is a thought in the minds of practically all concerned to stop or check the deterioration in the value of the dollar in the foreign exchange markets. We might just as well speak very honestly and openly in this room. If we don=t do that, we=re in trouble. Gentlemen, I don=t like the language of disorder; there is an element of disingenuousness about it--not intended, but I believe it=s there. Having said that, and if you still want to pursue this question--",150
-fomc-corpus,1978,"Well, I question that, Mr. Chairman. Do you [at the Desk] think that you=re defending, say, 2.04 more strongly than you defended 2.07? I put it in your terms, I think.",49
-fomc-corpus,1978,"I=ll say ""no"" to that right now, Chuck.",14
-fomc-corpus,1978,"The reason I asked the question was that I didn=t have the same impression that Henry had. It was, as Scott said, a very quiet period for the most part since the last meeting and it was only with this new wave of selling of the dollar that our operations have picked up again. So I was a little surprised at your comment, Henry.",71
-fomc-corpus,1978,"Well, I have some data here, though they are approximate only. They show that in January the Treasury and the System in combined operations, both averaged on the days on which we did operate--there were 10 days--something close to $90 million. In February we've operated on a fewer number of days, so far, and we had $70 million on average per day.",77
-fomc-corpus,1978,This is on the days we operated?,8
-fomc-corpus,1978,"On the days we operated. This is well above the amounts we had in October, November, and December.",22
-fomc-corpus,1978,"Oh, yes, but the 70 is less than the 90.",15
-fomc-corpus,1978,"Henry, you implied that we=re in a new period in which the ""presence"" pronouncement of the joint Treasury-Federal Reserve [statement] somehow no longer has the weight it had before, and I=d like to understand why you feel that way.",51
-fomc-corpus,1978,"Well, we had a chance to change the perception in the market, technically to shift the demand curve. It may have had some such effect, but that effect has been established and absorbed now and we=re back in the old game of meeting pressure on the dollar. I think we should not now, because we moved to this higher scale, go on spending more money than we originally [had in mind] to do. We entered into a new ballgame as far as magnitude is concerned and I think it was justified; it was a campaign. Now I think the time has come to review the results of the campaign and in my opinion beat an orderly retreat.",132
-fomc-corpus,1978,"I think this is also a matter that your subcommittee may want to make a recommendation on. The frame of reference originally was procedural only. But I don=t think you need restrict yourself to that. Any thought on this subject now, I think, would be helpful. Mr. Willes.",59
-fomc-corpus,1978,I was going to change the subject.,8
-fomc-corpus,1978,"Could I go back to Governor Partee=s question for just a moment? He asked if you defended 2.04 the same as you defended 2.06 or something like that. You said ""no.""",43
-fomc-corpus,1978,"I said, ""Did you defend it [more strongly]?""",13
-fomc-corpus,1978,All right. I think the question is not that but would you defend against a quarter percent reduction or deterioration in the exchange rate harder now than you did before?,32
-fomc-corpus,1978,I don=t think there is any discernable difference in our--,13
-fomc-corpus,1978,"It=s a question of the trigger point in the scale in which we are prepared to operate at the moment. In the early operations back in October, November, and December, we were prepared to allow a quarter of a percent or a half percent drop in the dollar rate before we went into the market. And at that moment we would offer 20 million marks perhaps, and then back away. We backed away repeatedly as one or two or three banks each saw us there and said, ""Aha! They are not willing to do 50 million marks"" and they blew us out of the market repeatedly. We came in and we reported to you big operations, big increases in swap debt--$600 million in December, I think it was--and we were not being effective in the job we were trying to do. One of the important shifts for us on this active approach was the ability to stay in there when we did go in and take these fellows out of the market. Sure, on the days that we are operating we will operate on a bigger scale, but we=ve also been out of the market. There was a period of nearly four weeks in which we were completely out of the market except for some modest operations.",248
-fomc-corpus,1978,But when do you go into the market? That=s the question.,14
-fomc-corpus,1978,"This is not so much on a quarter percent or a half percent. Yesterday I let the dollar drop a whole percent before we made a gesture to the market, which was sufficient at that stage. People saw us, [said] ""Okay, fine"" and then they went back about their business and the dollar rebounded. It=s that kind of credibility that we need; then we don=t have to operate on a big scale. As soon as the market recognizes that the Federal Reserve is [in the market they say], ""Fine, we can buy dollars now."" But it is when the market turns to us and says, ""Where are you fellows?"" that we then have to do the big amounts. That=s the scale of disorder that we=ve had.",154
-fomc-corpus,1978,"I do expect that this will be the last meeting at which I=ll be presiding. In view of that, I=ll make a comment now which previously, under normal conditions, I would have delayed making. But in making this comment, I must advise the Committee once again that everything that is said in this room at all times must be treated on an absolutely confidential basis. There are differences within the government about steps that can and should be taken to deal with the dollar problem. The more active our intervention is, the more excuse others within this government have for not taking some of the more fundamental steps that need to be taken to restore the integrity of the dollar in foreign exchange markets. That is a political consideration of the very greatest importance and one that I think we should very much keep in mind. And I would strongly support Governor Wallich=s recommendations about the scale of our activity, not only for the reason that he stated, or even mainly for the reason that he stated or implied, but primarily for the political reasons that I indicated. Namely, [we should do so] to maintain a certain element of pressure on others in the government to the effect that this intervention activity is of ephemeral, transitory significance and that other steps that can be taken should be taken without further delay.",260
-fomc-corpus,1978,"I think I understood the reports to suggest that when the Swiss announced their new posture, which in a couple of respects presumably makes it more difficult for people to acquire Swiss francs, the dollar responded favorably. It would seem to me that that should simply divert speculative funds from the Swiss franc to the German mark and have a negative effect on the mark-dollar relationship. Why is my view erroneous in that respect?",81
-fomc-corpus,1978,There were some sales in Swiss francs going into marks but the basic unit for dealing [in the market] is the dollar. The dollar rate moved generally across the board against other currencies. There will be some movements in and out of these other currencies and between these other currencies.,55
-fomc-corpus,1978,"It=s a bit like trading in bills, I think--the old argument. You=re supplying, I guess, much needed or much desired foreign currencies through your swaps and there will be arbitrage between the currencies. And the question is: Do you get more by trading in a range of currencies or in only one currency and assuming the market will make the arbitrage? It's a lot like the bills only--",82
-fomc-corpus,1978,Less so in the spot market than the forward market.,11
-fomc-corpus,1978,I assume it would be erroneous to take the next step and say that if the Germans also had done something similar to what the Swiss did that that likewise would have had a favorable effect on the mark-dollar relationship.,42
-fomc-corpus,1978,"Oh, yes.",4
-fomc-corpus,1978,"Well, we=re finally ready for your question, Mr. Willes.",15
-fomc-corpus,1978,"The second question: Is the probability that the government will take the kind of fundamental steps that you talked about going up, going down, or staying where it was?",33
-fomc-corpus,1978,"If anything, it's probably going down. On the other hand, the probability of certain bridging actions short of fundamental actions has gone up some.",28
-fomc-corpus,1978,"Could you explain, Mr. Chairman, for my benefit at least, what bridging actions are?",19
-fomc-corpus,1978,"Bridging actions would include the sale of gold into the private market, the sale of SDRs to central banks, or the executive taking certain action on the energy problem such as imposing a ceiling on imports or imposing a special tariff. The President can certainly do the latter and I believe he can do the former. I would consider these bridging actions. The most important bridging action we=ve made no headway with, namely the sale of Treasury securities denominated in foreign currencies. But I personally have not given up on that because I think that=s by far the most important and by far the most effective bridging action that can be taken at this time. Yes, Mr. Roos.",138
-fomc-corpus,1978,Would you include in your bridging actions or your fundamental actions a clear signal that we are determined to decelerate monetary growth relative to the rate of monetary growth of other nations involved? Would a clear signal by either this group or by the government that we are determined to come to grips with that not have an immediate beneficial effect in regard to this? Isn=t our rate of acceleration of monetary growth relative to these others a very real and very specific factor in the [difficult situation] we find ourselves in?,101
-fomc-corpus,1978,I think that is a question that we can best consider a little later in this meeting when we turn to the longer-range targets.,26
-fomc-corpus,1978,"That=s correct, Mr. Chairman. I don=t want to leave the impression that our monetary growth has accelerated relative to the Germans, in particular. I think in fact it=s the opposite.",39
-fomc-corpus,1978,"Excuse me, sir, but from the graphs I=ve seen the trend in the direction of our monetary growth relative to the direction of monetary growth in many of these other nations I think is a negative factor. Certainly, inflation in Germany is higher than it is here, but the trend--",59
-fomc-corpus,1978,It was lower.,4
-fomc-corpus,1978,The rate of growth of inflation is lower?,9
-fomc-corpus,1978,"The rate of money growth [in their] M3 is higher than in our M1, but not higher than our M3, which is really a different number.",34
-fomc-corpus,1978,Their M1 is higher than our--,8
-fomc-corpus,1978,The direction of the trend--,6
-fomc-corpus,1978,I think that Mr. Roos is fundamentally correct if he=s thinking of periods of a year or longer. There has been a deceleration in monetary growth rates and of inflation rates around the world in contrast to the United States.,46
-fomc-corpus,1978,In inflation rates.,4
-fomc-corpus,1978,"I believe in monetary growth rates as well. Well, it depends on the period. If you take longer periods--I=m not sure about this--I think as a broad generalization that would stand up.",42
-fomc-corpus,1978,"I think, Mr. Chairman, that you=re right. Though in particular in the German case, as Governor Wallich was commenting, I think the deceleration, if any, is imperceptible relative to the United States. But for most of the weaker countries, there has been a sharp deceleration in their rates of monetary expansion.",68
-fomc-corpus,1978,"Gentlemen, perhaps the time has come to move along in our agenda. Oh, I=m advised that Mr. Holmes has still another recommendation.",30
-fomc-corpus,1978,"Mr. Chairman, regrettably, I do have one final recommendation. As you know, the Committee has authorized an open position of $1.75 billion in foreign currencies. At the present time, we have a leeway of exactly $106 million, which is not very large relative to potential [operations]. Hopefully, we won=t have to [breach] that. In between Committee meetings under the procedural instructions, our leeway would go up to around $2.15 billion; it would go up $500 million from where we started at the beginning of the Committee [meeting] until the next meeting of the Committee. There=s no necessary reason why the authorization has to be exactly what is permitted in the procedural instructions, but obviously the authorization is the important [rule]; that=s what rules us. So I would certainly recommend that the Committee at this meeting, since this has to be an action of the full Committee, increase the limit on the open position to $2 billion, which happens to be the limit on our German mark swaps.",210
-fomc-corpus,1978,"Let me ask you a question, a procedural question. You say this has to be an action of the full Committee. Could the full Committee delegate this power to its Foreign Currency Subcommittee?",38
-fomc-corpus,1978,"I believe it could, but I leave it to a parliamentarian.",14
-fomc-corpus,1978,"All right, we have Mr. Holmes=s recommendation.",11
-fomc-corpus,1978,That would give you about $350 million in leeway if we went to $2 billion?,19
-fomc-corpus,1978,"Yes, about $376 million.",7
-fomc-corpus,1978,Didn=t you say [the open position limit is] $1.75 billion right now?,20
-fomc-corpus,1978,"Yes, but they=re $100 million under that now.",12
-fomc-corpus,1978,I beg your pardon?,5
-fomc-corpus,1978,We have $100 million of leeway and an additional $250 million would make it roughly $350 million.,22
-fomc-corpus,1978,I personally would prefer to have that power delegated to the Subcommittee rather than have an enlargement at this time. But this is something for the Committee to decide.,32
-fomc-corpus,1978,What=s the purpose of that? I don=t understand your reasoning for the delegation.,17
-fomc-corpus,1978,"The reason for the delegation has been stated indirectly by Governor Wallich, who wants to keep a tighter rein on the scale of operations at the Desk.",30
-fomc-corpus,1978,"Mr. Chairman, I would prefer, I think, not to do it through that device. We have a $300 million limit on the Desk before the Subcommittee, as I understand, needs to approve an increase, and I would rather see us reduce that $300 million. But I think this [issue] of overall exposure is properly a full Committee responsibility and I think the full Committee ought to discuss whether it wants to have an exposure of as high as $2 billion, rather than leaving it to the Subcommittee. I would be agreeable to the $2 billion.",115
-fomc-corpus,1978,You're agreeable to $2 billion?,7
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,Leaving it at $2 billion or enlarging it?,11
-fomc-corpus,1978,"Well, it=s $1,750 million now, as I understand it, and the proposal is to raise it to $2 billion, which would give the Desk in practical terms $350 million leeway. That leeway, however, could be constrained by the Subcommittee.",56
-fomc-corpus,1978,It is constrained by the Subcommittee.,8
-fomc-corpus,1978,"And I think $2 billion is suitable. I hope you don=t use it, but as a matter of protection, I think we need to give you that [leeway].",36
-fomc-corpus,1978,I would second that.,5
-fomc-corpus,1978,No action would mean you=d have what?,9
-fomc-corpus,1978,"A [limit on the] total of $1,750 million, which would give us a leeway of about $100 million.",27
-fomc-corpus,1978,About $100 million?,5
-fomc-corpus,1978,"Right, a little over $100 million.",9
-fomc-corpus,1978,You could go over that on a really bad day.,11
-fomc-corpus,1978,"Mr. Chairman, my reason is thoroughly defensible. We can hit an emergency and while we can get to the Subcommittee reasonably promptly--",28
-fomc-corpus,1978,You say reasonably promptly. I would say promptly.,10
-fomc-corpus,1978,"Sometimes, Mr. Chairman, we can=t find people; it sometimes takes time. I would like to have something authorized by the Committee that would protect us in case we do run into an emergency situation because getting to the full Committee is much more difficult than getting to the Subcommittee or to you.",60
-fomc-corpus,1978,"Well, the recommendation is certainly a reasonable one. What is the consensus of the Committee?",18
-fomc-corpus,1978,"It seems logical to me to go to the $2 billion, which is the size of the German swap. We might have to use that whole swap.",31
-fomc-corpus,1978,Any objection? I hear none. That recommendation is accepted. Let=s move on to Mr. Kichline=s report on the economy.,28
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Mr. Kichline. We=re now ready for a discussion of the economic outlook. Let us keep in mind that the economic discussion will bear critically on our consideration of the longer-term ranges for the monetary aggregates. Partly for that reason and partly also because of time constraints, I think it would be best not to raise purely technical questions at this time. Those questions can be addressed to the staff later on. Let=s turn to the outlook for the coming year, indicating in particular the degree of agreement or disagreement [with the staff projection] or any special point of view that you may have with regard to the economy, or agreement or disagreement with the analysis--I think, very able analysis--upon [which the staff projection is based]. Mr. Partee, please.",159
-fomc-corpus,1978,"Well, Mr. Chairman, I'll start today by saying that I agree with the staff projection. I think it presents a very reasonable configuration. I had felt earlier that the car sales and housing starts figures were a little high and I think now they're very much in accord with my expectations of the most probable [outcome] for the economy as the year goes on. [The staff projection] does call for only about a 4-1/2 percent rate of growth on a fourth-quarter-to-fourth-quarter basis, which is very close to the CEA projection contained in the Economic Report--maybe a trifle lower, but just a very trifle lower than the CEA. I think we can take that to be, in the absence of anything else, an indication of Administration desires as well as the projection of the Council [of Economic Advisers]. I do think that there are some uncertainties in the situation that lead me to say that there is also a chance that the economy will be weaker than projected. Jim did not mention the stock market. The stock market continues to bother me quite a bit. There has been a fairly [large] decline in the six weeks since the last Committee meeting and I think it indicates a continuing lack of confidence about the prospect for business and the prospect for business profits that can be undermining in effect. I agree with the thrust of Jim=s comment that we ought to have a sharp recovery from what seems to have been a weather-induced and an energy-induced shortfall here earlier this year, but I=m not quite as sanguine as he was. Sometimes strange things happen in the course of the dynamics of a slowdown that can affect the subsequent recovery. In particular, what bothers me is the fact that incomes are also being negatively [affected]. And an income loss, even temporary in the first instance--if it feeds through to demand and smaller sales--can have the beginnings of a change [or of a] groundswell in the economy. So I do think there are some questions. I also continue to be bothered very much by the world outlook, which hasn=t been touched on. That=s not so much the declining value of the dollar which is, I think, inflationary in its character for the United States. But I still don=t see clear signs of a [foreign] recovery of the sort that is anticipated and underlies the trade deficit estimates and so forth in the Greenbook. So I think there are some questions about the economy that we=ll have to look at very carefully as the weeks pass. But I agree that the most probable course is that there will be a quite moderate, continuing expansion, barely enough to reduce the unemployment rate over the next year or so.",546
-fomc-corpus,1978,"Thank you, Mr. Partee. Mr. Baughman, please.",16
-fomc-corpus,1978,"Mr. Chairman, I have no particular differences with the general forecast. I think it=s a reasonable one. I think there is a reason for being concerned about the prospect for accelerating inflation, which is recognized there, but I think it=s recognized appropriately. The main thing I wanted to comment on is that, as I look over the scene in the Southwest, I don=t see any indication of any easing in the boom that is going there. In fact, it seems to be strengthening rather than weakening. It seems to me that the prospect is that it=s going to tend to spread and influence other areas--that it=s going to contribute strength rather than weakness to the general economic picture. I might mention a few little things that possibly have somewhat broader interest. One of the things that we have inherited from the demonstrations utilizing farm equipment--in connection with the agricultural situation--is that some farm equipment loans now have a restrictive clause that this equipment may not be used in any public demonstrations. A couple of bankers have told me recently that they are carefully reworking their bond portfolios. This is apparently in the anticipation that credit markets will tighten up somewhat and that any weak bonds will look rather bad in their portfolios; so they are undertaking to move them out at the present time.",254
-fomc-corpus,1978,Does this refer to municipals?,7
-fomc-corpus,1978,"Municipals were mentioned specifically in this connection, but I have the impression that it=s not exclusively municipals. In the Greenbook or the Bluebook it was noted specifically that this does not show up yet--whether or not it will eventually--in the yield spreads. But it=s something I wanted to mention in case other people are hearing similar [comments] so that it might be appropriate for us to know it. We=re seeing what I would characterize as really a rather spectacular rebound in cattle prices. It=s quite possible that that=s being overdone. And we have reports that the snow birds of the north are flocking to the south, apparently in their pickup trucks, in such numbers--into a rather [snowy] south I must say--that they=re interfering with the ability of the day-to-day activity that is being carried on in some of the so-called valley cities. They=re fairly small cities we=re talking about and they=re just so jammed with people that you can=t get into the banks, get through the streets, and [so forth]. That=s all I have to say.",224
-fomc-corpus,1978,Mr. Eastburn.,5
-fomc-corpus,1978,"Thank you, Mr. Chairman. I=d like to take some issue with the snapback scenario that seems to be quite prevalent. We=ve been doing some research on the question of uncertainty and this research suggests that there is some connection between the level of uncertainty about inflation and the effect that that has on unemployment. Apparently there is a connection. And the relevance of that for the current situation is, I think, that we have been experiencing external shocks to the economy in the form of the weather and the coal strike, and it may be not appropriate to think of this as simply temporary, as it was last year. The reason is that the declines that we have been experiencing have been larger than they were last year. If you look at industrial production, retail sales, durables, housing starts, and so on, the declines have been larger than they were a year ago. Another reason is this fundamental change in the automobile sector, which was strong last year and is weak now. And, finally, on the demand side there's the overhang of the rapid money growth we=ve had in past months, suggesting that this will increase relative demand as compared with a year ago. So the shocks affect the supply side and the demand pressures affect the demand side, possibly accelerating expectations and [increasing] uncertainty about inflation. As we see data coming in, like the consumer price index figures released recently, I think we will be seeing uncertainty about the inflationary outlook. And if our research is right, this will be showing itself in real output and unemployment later on. On balance, I do have some concern, as I gather Chuck does, with [what is] perhaps an undue readiness to think that these are simply temporary phenomena that will pass, as they did [after the first] three months last year. I guess this [makes] me a little more pessimistic than the Greenbook.",379
-fomc-corpus,1978,"Thank you, Mr. Eastburn. Mr. Mayo now, please.",15
-fomc-corpus,1978,"Yes, Mr. Chairman, thank you. I find I am a little more in agreement with the forecast in the Greenbook than perhaps Dave is. Like Chuck, I=m glad to see the housing starts figure move down to what I think is now a completely reasonable estimate. I think it was high for several months. At our Board meeting last Thursday we had quite a discussion on the outlook, with particular reference to housing and to automobiles. And I found a little more strength of confidence in our directors= discussions on both of these areas. [As] I expected, in both areas they feel that financing is adequate and that there will not be any particular problems of crowding out. They find their suppliers to be in reasonably good shape, and indeed they are looking quite confidently to the rest of the year and would not characterize the outlook for either housing or automobiles as weak--perhaps not quite as heady as last year, but still a strong outlook. I would also mention--although, again, one swallow doesn=t make the summer--that I get a little more of an impression of improvement abroad than was implicit in Chuck=s remarks. We have seen some industrial production increases in October and November and in the figures that are available for December for some of our friends abroad. And I am hoping--maybe it=s only a hope but this does give us quite a bit of encouragement--that indeed this solution, which is obviously the preferred solution, of better business abroad rather than poorer business at [home], will help significantly in rectifying our own balance of payments problem and, in [turn], have some effect on our sagging stock market before we get too far into the summer. I'd also note on the credit side that the flow of funds data, which I must confess I don=t always look at but I did this time, do show to me that the economy can accommodate the increases in credit in '78 without any increases in interest rates that are in excess of what=s in the Bluebook. I assume those projections are, of course, consistent. So I come to the conclusion that higher interest rates are not impeding our opportunities for economic advance this year and that we are in pretty good shape. On Ernie=s point, the farmers strike and the action in Texas, I can report that approximately 30 beautiful farm vehicles, including a couple of mobile homes but mostly huge tractors with air conditioned cabs, complete with stereo and so forth, were parked outside of my window on LaSalle Street about three weeks ago as they gathered to protest to the Board of Trade in Chicago about the middle man sucking out all of the profits, et cetera. They couldn=t have made a worse impression because of the luxury of the vehicles, most of which had Texas license plates.",556
-fomc-corpus,1978,"Thank you, Mr. Mayo. Mr. Kimbrel now, please.",16
-fomc-corpus,1978,"Thank you, Mr. Chairman. I too think that the staff projections appear very reasonable this time. Like others, we too are happier with the projections for the automobile and housing numbers. As we had commented a couple of times previously, we thought they were a little ambitious; these appear more attuned to our own beliefs. It may be only in degree but we are somewhat more optimistic about the unemployment possibilities; we may be influenced by our own area but we're slightly more optimistic about the total employment picture than is projected [in the Greenbook]. We seem to be reaching, in some areas particularly, a situation that I think simply cannot be characterized as unemployment, so we feel somewhat more optimistic. On the contrary, though, we feel somewhat less sanguine and less optimistic about the prospects for inflation, influenced maybe by the continuing high Federal deficit and the trade deficit. We are impressed also by the fallout of the coal strike, both its determination of increased utility rates and also the likelihood that the final settlement will be somewhat higher than we anticipated and may well contribute to other larger labor negotiation increases. Continued comment by the Administration about voluntary wage and price [restraint] is almost a red flag as far as our business people are concerned. It generates what we would characterize as a self-serving expectation of inflation that may very well be somewhat higher than the staff projects. But other than that, we think the [staff's] numbers are very reasonable.",288
-fomc-corpus,1978,"Thank you, Mr. Kimbrel. Mr. Morris.",13
-fomc-corpus,1978,"Mr. Chairman, we are somewhat more pessimistic than the staff forecast. Whereas the staff has a 4-1/2 percent real rate of growth from the fourth quarter of '77 to the fourth quarter of '78, we would be inclined to think more in terms of 4 percent. The housing sector is one area where we differ. We think that the projected housing [starts] are still on the high side. It=s difficult for us, if we accept the staff's Bluebook numbers of an 8 percent federal funds rate in the last half of this year, to have that associated with only a very modest rate of decline in housing as the staff has projected. On the other hand, while we=re more pessimistic, we=re not entirely unhappy about our projection in the sense that, given all of the inflationary forces and the position of the dollar and so forth, perhaps a 4 percent real growth rate will not be a bad result for this year.",197
-fomc-corpus,1978,"Thank you, Mr. Morris. Mr. Coldwell.",12
-fomc-corpus,1978,"Mr. Morris just made my speech, Mr. Chairman. I=m pleased that the staff is moving back down the pike a bit from where they were last time. They have a bit left to go to reach what I think is likely for the rest of this year. I still believe that we=re going to have a snapback from the cold weather and the coal situation. It=s hard to tell whether it will hit the last month of the first quarter or the first two months of the second quarter. Even if it were not for the coal and cold weather problems, I think we have an inventory rebuilding problem on our hands which is likely to boost activity considerably in the first half of this year. But beyond that, I see problems looming on the construction side, higher prices and maybe some impacts on buying, capital spending reductions, and certainly a problem in our international relations. All of these [factors] say to me that we=re going to get lower rates of real growth in the latter part of the year and higher rates of inflation. And I don=t think [the economy] is going to be growing fast enough to [produce] any measurable reduction in unemployment in the latter part of the year.",243
-fomc-corpus,1978,"Thank you, Mr. Coldwell. Mr. Wallich, please.",15
-fomc-corpus,1978,"I=d like to look at the situation with a point of view that is perhaps a little more broadly [focused] than just the present forecast. Being where we are in the evolution of this cycle, I think we have to look for a soft landing--that is, phasing into a long-term rate of growth that is sustainable at somewhere around 3-1/2 percent or so. In those terms, moving down from an expectation of 4-1/2 to closer to 4 percent growth is not an unreasonable thing. I think we=re sort of getting ready for that soft landing. Nevertheless, we=re developing a number of imbalances that raise questions about the sustainability of the position ultimately reached. One very large imbalance is the net export deficit; we have a big hole on the foreign trade side. We have a moderate-sized hole on the side of business fixed investment being partly remedied. And the Administration keeps saying that we have a hole on the side of expenditures by state and local governments, citing their large surpluses, which usually include their pension funds. If you eliminate the pension funds--and I see no reason for including them as part of the state and local surplus because they are really private-type pension funds, tax demands probably ""financed""--there still remains a sizable state and local surplus. So those are the things that are reducing purchasing power. And that is matched by an enormous federal deficit, which threatens to remain even as we get to full employment. In other words, we've worked the economy now to a point where the private sector apparently can't give us full employment without the aid of a federal deficit. This, I think, is a very ominous situation. Even so, it=s the job of fiscal and monetary policy to try to keep this expansion going as best we can, but some things could happen along the way that would throw a roadblock into it. Suppose the rate of inflation should accelerate significantly; and some of the things that have been said here suggest that that could happen. Is that the kind of signal then that historically has called for central bank action to slow down the economy and maybe significantly reduce the rate of growth? Central banks typically are supposed to act when the economy gets to booming. But without getting it at all booming, it could get more inflationary. And the question is, what will we do then? Likewise, even without it getting more inflationary in a visible way, the aggregates might accelerate, indicating that there=s inflation ahead somewhere down the road. Then again, what is the function of monetary policy, if an expansion can be nursed along only by tolerating more inflation or accepting the prospect of more inflation into the future? These are the difficulties I see, possibly along the way to a soft landing.",558
-fomc-corpus,1978,"Thank you, Mr. Wallich. Mr. Volcker now, please.",16
-fomc-corpus,1978,"I=ll be very brief, Mr. Chairman. I thought initially that Mr. Partee made four-fifths of my statement for me, and I think Mr. Wallich just made the other one-fifth. Maybe the proportions are wrong, but I generally do think that the forecast is very reasonable, with all the qualifications that Governor Partee mentioned earlier. I am struck particularly by the continuing lack of buoyancy in plant and equipment where we had some hopes that the earlier forecast might be raised. I don=t see any signs [of that] in talking as I do with businessmen and otherwise it=s very unrealistic to think that the survey numbers are going to be missed on the upside. The trade deficit remains a very large problem. I=m not as optimistic about that as the staff is--and they're not terribly optimistic, but they do have some reduction in the forecast for the deficit. I think that is going to be very hard to achieve against the background of what I see going on abroad. [The latter] has been already mentioned and that=s a pretty big sector in the economy that we sometimes overlook and deemphasize, apart from all the problems that it implies for managing the dollar in the year ahead. I think by far the most important [issue] is the one that Governor Wallich just ended up with--inflation and the risk that it will accelerate during this year. I think this may create a severe dilemma for monetary policy. I myself do not think it=s something that monetary policy can very adequately handle by itself, unaided by new policies elsewhere in the government. I know all the difficulties of that, which leaves me with a little tinge of pessimism about how we can make this soft landing that Governor Wallich referred to. While the expansion doesn=t show gross signs of imbalances and excesses, it is getting older; and maintaining a forward momentum against the possibility of an increasing rate of inflation may prove increasingly difficult as 1978 wears on. I=m not expecting a downturn during the course of this year--or a recession or real curtailment of growth out of line with the forecast. But one can see problems mounting on the inflationary side as the year proceeds, raising questions about 1979. And I think it is going to create a very difficult problem on how to manage monetary policy should the inflation rate accelerate at this point mainly due, as I see it, to cost pressures.",491
-fomc-corpus,1978,"Thank you, Mr. Volcker. Mr. Winn now, please.",15
-fomc-corpus,1978,"Mr. Chairman, living in an environment in which it has been difficult to get one's feet on the ground for the last three months, it=s hard to get a perspective on the economic scene that is not influenced by the environment. I don=t have any really basic quarrel with the projection of the staff, but I would like to raise two or three questions. First, with respect to structural changes in the financial area that impact on [the economy], to what extent has your automobile outlook factored in the very sharp transition that has taken place [on the] terms of automobile credit and the normal kinds of rollover? What is happening as some of these [terms are extended] and what does this do to debt and so forth? Second, what is the reality with respect to real estate financing? Is it for real estate, or are [people] using this device now because of [more favorable] terms to finance an expansion of consumer [expenditures] other than in the real estate area--for automobiles, living expenses, and other things? And third, on the aggregate analysis on the impact of consumer credit, it doesn=t look too bad, but I am wondering if this area isn=t one where we should know more about the individual incidences of these [types of financing] because this is likely to affect our behavior down the road. In some places, the aggregate debt of the consumer--if you add real estate plus the consumer debt in certain family situations--really looks horrendous. What does this means for us? The fourth financial item I=d mention is that, while we project an increase in Regulation Q ceilings in the future, I would hope that would occur before we reach the active disintermediation stage. We=re having the horrible development of the so-called ""honor bond"" in the Midwest. That troubles me a great deal and I would like to see that stopped by more legitimate kinds of channeling savings rather than this device. I think this is going to rebound unfavorably on the banks and I am really concerned about this device.",416
-fomc-corpus,1978,Can you explain what that is?,7
-fomc-corpus,1978,"The banks are issuing bearer certificates from $25 up to $10,000 or $20,000 and [that's where] the honor bond comes in. [You are on] your honor to report it to the IRS. They are being sold as a way of avoiding income tax and I think this is a very bad kind of development on the part of banks.",73
-fomc-corpus,1978,"Mr. Kichline, have you been following this development?",13
-fomc-corpus,1978,Honor bonds? I never heard of them before now.,11
-fomc-corpus,1978,"In Pennsylvania, the banking secretary has ruled against [the honor bond] as being unsound.",19
-fomc-corpus,1978,"It is featured thus far in Ohio; however, the interest [in it] is expanding nationwide at a rapid rate.",24
-fomc-corpus,1978,"I heard [about it] just yesterday, incidentally. I had an inquiry from the homebuilders. They want to object to the use of this thing because it is diverting funds from the thrifts to the banks, presumably on the presumption that people won=t pay the taxes.",58
-fomc-corpus,1978,It=s a disintermediation reaction.,9
-fomc-corpus,1978,This is purely at banks?,6
-fomc-corpus,1978,"Banks have gone into it. They call them freedom bonds--freedom from taxes--or honor bonds. I think it is a very unfortunate development, which is really a reaction to the disintermediation problem. Some of [the banks] said they are competing--",54
-fomc-corpus,1978,"It may be a taxpayer's revolt, but it=s taking an unwholesome direction. I=m in favor of a taxpayer's revolt within the law. Well, Mr. Kichline, you ought to start following this.",47
-fomc-corpus,1978,Are they sold at yields higher than [Regulation] Q ceilings?,14
-fomc-corpus,1978,"On the [ones with] longer terms, they are. And they=re advertising that you can use them as cash. It=s very bad advertising.",30
-fomc-corpus,1978,You mean the bank is violating--,7
-fomc-corpus,1978,"No, on their longer terms, I don=t think there is a violation. But the rates are what--7-1/2 percent? And they sell them up to--",36
-fomc-corpus,1978,It=s not a Q ceiling problem; it=s a different kind of problem.,16
-fomc-corpus,1978,"No, but it=s a reaction because of disintermediation.",14
-fomc-corpus,1978,Why don=t the banks report the earnings--the interest they pay on these--to the IRS?,20
-fomc-corpus,1978,"They say [to customers]: ""We don=t require your social security number.""",16
-fomc-corpus,1978,How do they get away with that?,8
-fomc-corpus,1978,I thought this problem came up years ago and I thought they did have to report [unintelligible].,22
-fomc-corpus,1978,"[Let me mention] three other quick items, Mr. Chairman. First, the price developments are troublesome, at least in our area, with the very rapid rise in utility rates both [because] of a very cold winter and the rapid increase in rates with changes in fuel sources--adding that [directly] to the fuel bill. And increases in the telephone rates and other utility rates are accelerating very rapidly. Second, a positive thing: The machine tool people are reporting quite expanded interest in their activity. How much of this is the automobile changeover that=s still down the road for us, I=m not quite [sure], but they=re having a really good year and good interest is being shown in [terms of] future orders. And finally, school financing in the Midwest is really in serious trouble and this may be partly a local situation.",171
-fomc-corpus,1978,What does that mean--school bonds are not selling or what?,13
-fomc-corpus,1978,"Because of tax limits and because of the inner city problem, practically all the major cities in Ohio are faced with school closings due to the finance limitations that have been placed on them. Local schools are $40 or $50 million in debt and they--",51
-fomc-corpus,1978,School closings rather than cutting down on expenditures?,10
-fomc-corpus,1978,"Well, some of them are going to have to close because of dates by which [the local entities] can get approval for increased taxes. They got in a mess with the local banks on short-term borrowings, and it=s a very, very messy situation, overlain in part by integration efforts mandated by the courts. It's the [total] school picture--school financing and higher education financing. It is a very serious problem and hopefully the surplus can be diverted in this area.",97
-fomc-corpus,1978,Is this essentially [because of] restrictive provisions in Ohio law?,13
-fomc-corpus,1978,"I think part of it is that, Bob.",10
-fomc-corpus,1978,"Thank you, Mr. Winn. Mr. Guffey now, please.",16
-fomc-corpus,1978,"Yes, Mr. Chairman, thank you. We join those who take some comfort in the staff=s projection this time. I have a couple of comments about particular sectors. With regard to housing starts, which have been revised downward somewhat, we think that [projection is] reasonable. There is a development that apparently is prevalent in our area at least that involves the construction people, and that is that there is more residential construction going on now under contract as opposed to speculative construction. If they=re under contract, [home building] will continue on through perhaps a good part of this year at a fairly high level. A second aspect of that seems to be the consensus that rates will not be a constraining factor in this inflationary period--on residential construction at least. Most people perceive the fact that if they invest today in residential construction, it will be the best investment they will have made and, therefore, what they pay for the money to build a new home or to get into another home is not much of a constraining factor. One other point that has not been mentioned around this table: We=re finding rather universally throughout our District that the unemployment rate is much lower than the national average. It's probably down around 5 percent or even below 5 percent in most of the central and high plains areas. As a result, we may get some price-wage pressures as we go along this year.",281
-fomc-corpus,1978,"Thank you, Mr. Guffey. Mr. Jackson.",13
-fomc-corpus,1978,"I generally concur with the thrust of the staff analysis. If it could be faulted, it would probably be on the inflation side. I would guess that as the year unfolds, the translation of certain changes in food prices, which have been good news for the Agricultural Belt, will become especially bad news to the consumer. Likewise, if the analysis of the slowdown in single-family housing starts is accurate--and I happen to feel it is on target--the consequences will be further increased pressures on housing costs, probably based on increased rents. Therefore, with a sluggish increase in the supply of rental properties, you=re likely to see very significant increases in gross rents, which will show up in the CPI--or whatever the new word is. I haven=t caught on to the new concepts of inflation yet--that if we don=t like the old one it looks like we think of a new word to describe it. At any rate, if you look at those two sectors of the consumer price question, I think we=re in for some tougher periods ahead which, in turn, will impact on the general spirit of confidence. I don=t think the fundamentals underneath the whole picture are that bad, though, and for that reason I think the overall real GNP forecast is probably about on target. I=m not as pessimistic about the automobile [sector] and other aspects [of the projection] because I do concur with the [view] that, thus far, the consuming public seems willing to take on more debt and has a reasonable degree of confidence. I=m afraid that our concept of employment is distorted by the aggregate figures. It seems to me that what we have is a relatively tight labor market among the trained in certain geographical locations combined with nightmare situations of severe unemployment in other geographical locations and other sectors of the society so that, in the aggregate, we=re seeing [the situation] as being worse than [it is] from an economic point of view. As a consequence, I think those people who are employed and are consuming probably have a greater degree of confidence than we are giving them credit for having, despite the increasing levels of debt. So I would say net on that score that we will probably see a continued expansion. I do think the issue of inflation, and particularly the dollar, should begin to have an impact on capital spending in this country, and for that reason I don=t think we=re likely to be surprised by an expansion in that sector. We would all like to be surprised, I suspect, but I don=t think we=re likely to see it.",515
-fomc-corpus,1978,"Thank you, Mr. Jackson. Mr. Balles now, please.",15
-fomc-corpus,1978,"Turning back to the general business outlook, Mr. Chairman, I can be fairly brief. Messrs. Morris and Coldwell have pretty well expressed the view that we have. Even with this fairly recent somewhat lower [projection] the Board=s staff now sees, we still remain a little less optimistic about the second half of the year in particular, especially because we see a less ebullient picture in autos and housing, even [relative to] the revised forecast that Mr. Kichline talked about. In autos, I think he said [the forecast was revised] down 150,000 to 10.5 million or thereabouts [unintelligible] several months, something no better than 10.4 million of auto sales. On housing starts, we=re still somewhat lower than the Board=s staff forecast. I think the differences come up principally in the second half of the year. We would expect real GNP growth fourth-quarter-to-fourth-quarter of 4 percent, close to what Mr. Morris talked about, which implies in the second half of the year a real growth rate of less than 4 percent. I have been interested in some research that our people have been doing lately on what constitutes the full employment unemployment rate. We know the CEA has come out with about 4.9 percent and [in light of] some of the work we=ve been doing reexamining some of those assumptions, we would think that the figure is somewhat higher--perhaps 5-1/2 to 6 percent or perhaps above 6 percent. Having seen a 10 percent increase in employment since the start of this expansion, and with about 58 percent of the working age population now at work, it seems to us that there=s a considerably large excess in the labor markets of usable types of labor skills in the economy. I don=t know whether ""usable labor"" is a viable term, but you get constraints on capacity showing up in a number of lines now, at least in the West; certainly the aluminum industry is one of those. I think this provides a real constraint on [the economy's] ability to grow at somewhat above normal rates than would have [been the case] in the past few years. In short, several members around the table have mentioned that we probably will be facing a dilemma that may show up especially in the second half of the year, with the economy going to shambles and signs of a marked slowing in real growth and an acceleration of inflation on the other hand. That's a first-class dilemma for monetary policy.",518
-fomc-corpus,1978,"Thank you, Mr. Balles. Mr. Roos, please.",15
-fomc-corpus,1978,"Mr. Chairman, I=ll be brief. We have just concluded an extensive series of meetings with businessmen throughout our District and there is nothing we heard that would lead us to question or to be more pessimistic than the staff [forecast]. There is moderate optimism, depending on the elimination of many of these uncertainties that disturb business people. I would subscribe, and I won=t elaborate on it, to John Balles=s concept of what realistic goals for a reduction of unemployment should be; we don=t think they=re as low as others seems to think they are. I would subscribe wholeheartedly to Governor Wallich=s concept of a realistic target for a soft landing and I think that we should not be panicked by a gradual reduction in real growth to what we=re talking about--4 to 4-1/2 percent. I am perplexed about two things that I=ve heard, and it's not only what I=ve heard this morning. One is the chronic tendency to be pessimistic about what might happen just over the horizon. I think if we had verbatim transcripts of every meeting we=ve had in the last two years--and I can=t speak with experience prior to that--[they would show] the same sort of expressions of concern, namely that out yonder later this year or later [next] year, problems are going to arise. Some day I assume those problems will occur, but we always seem to be somewhat pessimistic. Maybe that=s a way those of you who are much more skilled in the science of economics than I hedge your bets. But what really perplexes me, Mr. Chairman--and I don=t say this to be critical--is the fact that so many sitting here today can recognize, apparently all of a sudden, that one of the big problems we face is inflation and one of the big inhibiting factors that is stopping businessmen from engaging in capital formation projects is their concern about and their uncertainty with regard to inflation and that somehow, maybe somewhere along the line, monetary policy ought to concern itself with inflation. If that is literally something that is only occurring to us currently, Mr. Chairman, I don=t understand the rules of this game because we=ve all been talking about it for some time. I apologize for those remarks, but those are my observations.",465
-fomc-corpus,1978,"Thank you for your remarks, Mr. Roos. Mr.Willes now.",16
-fomc-corpus,1978,"Thank you, Mr. Chairman. It=s interesting to me in the meeting today to hear a number of people express feelings about inflation in stronger terms than I think they have in some recent meetings. That has been typical of my experience with people outside of this Committee. [Inflation] does seem to be a concern that more of our people have, and for that reason the major difference we have with the staff forecast is on their expectation of inflation. They might be right; we hope they are right. [But] inflation could well be higher than they have projected and I guess the point I want to emphasize is the one that Dave first made--that it=s perfectly consistent to be increasingly pessimistic about inflation and, at the same time, to be increasingly pessimistic about the real economy. [That's] because, given the state of expectations people have, based on what has gone before, additional inflation does create additional uncertainty, both from the point of view of what that means for the kinds of positive calculations [they] have made and for what that implies in terms of what they think government policy might be. All of those things added together raise real questions as to how viable plant and equipment spending projects might be, whether it really pays to invest in a new automobile and all kinds of things. So it=s perfectly consistent to become increasingly pessimistic on inflation and on the real [economy] at the same time. The policy dilemma, of course, is that you may then reach the opposite conclusion in the current environment [than] you have in previous years in trying to respond to that. But that=s a discussion for the next part [of our meeting].",334
-fomc-corpus,1978,"Anyone else want to speak, or speak again? At this time, let me make a few comments. I have no quarrel with the staff forecast. I want to say only that if I had been giving the report, I would have emphasized the degree of uncertainty that attaches to the forecast somewhat more than Mr. Kichline did. I think uncertainty with regard to economic prospects has been increasing. The evidence is all around us. I think also that the typical view that there are no serious imbalances is a mistaken one. I think there are serious imbalances. We have an imbalance in the realm of foreign trade. Our imports are certainly out of balance with the world economy. We have an imbalance in the sphere of business capital investment; that is certainly out of balance with the growth of our nation=s overall production. I think consumer credit is out of balance with personal income. I think wages are out of balance not only with productivity but also with the level of unemployment. I think the profits are out of balance with personal income and also with the cost of production. I think the stock market is out of balance with corporate profits. I think the state of general confidence is out of balance with the performance of the economy. I think our governmental deficit is badly out of balance with the behavior of the rest of the economy. I want to make one additional comment connected with the last [point]. I think our federal budget is in a very sorry state. It is a budget that is built on the assumption of nothing better than a lucky performance of the economy. And we may indeed be lucky. But make the arbitrary assumption that we get into a recession and then the presently projected deficit--which is in the neighborhood of $75 billion, counting off-budget outlays as we should--could easily go to $120 or $125 billion this year or next year. If it did, would we ever in our lifetime--and I refer to the younger men around here who are the great majority--get back to something like financial stability? I think, as we turn to the next question, our longer-range targets in the years ahead, members of this Committee will have to keep asking themselves a question each time and I think they should: Who will fight inflation if the Federal Reserve does not? We probably ought to break for coffee and return.",468
-fomc-corpus,1978,We are turning now to consideration of the longer-term ranges for the monetary aggregates. There is an arithmetical point that Mr. Axilrod wishes to bring to the Committee=s attention before we [proceed].,44
-fomc-corpus,1978,"Thank you, Mr. Chairman. We are almost finished with our revision of the money supply series, which this year includes not only the benchmark and seasonal [revisions], but we=re also considering some of the changes the Bach Committee has recommended with regard to certain techniques of measurement. [Those involve] relatively minor conceptual problems. I can report to the Committee the results of the benchmark; we have now the revised data from the FDIC and have worked it into the series. [The benchmark revision] would imply for the year 1977 an increase in the rate of growth for M1 of 0.4 of a percentage point over what it would be unbenchmarked. The increase is all in the first half where [the benchmark] increases M1 growth on the order of 1 percentage point and there is virtually no change in M1 growth relative to what it would be unbenchmarked in the second half. The effect of the benchmark on M2 is to increase its growth rate for the year 1977 by 0.2 of a percentage point. I just wanted to report that to the Committee, Mr. Chairman, before its discussion of the long-run ranges.",238
-fomc-corpus,1978,"All right, thank you. I=d like to make just a few brief remarks to introduce the subject. Let me address in particular the M1 growth rate. In general, if we are to do what we can to reduce the rate of inflation over the longer run, I think we in this Committee will need to adjust downward our monetary growth rates. I think we all recognize that and we don=t want to lose sight of that. Secondly, we should recognize, and I think we do, that M1 grew more rapidly than we intended last year and that a reasonable case, therefore, can be made for a compensating downward adjustment at this time. But that, I=m afraid, is only the beginning of a true analysis of where we are and where we ought to try to go, insofar as we can arrive at a judgment at this time. If we lower the range for M1 growth at this time, I=m afraid that such a lowering would appear to lack credibility in view of the actual performance [of M1 relative to its range] during the past year. The opposite side of that coin is that if we sought to lift the range, I think we would run a risk of strengthening inflationary expectations, which are already in the process of intensifying. And I think that such a decision on the part of this Committee could have an extremely adverse influence on the foreign exchange value of the dollar at this time. I=m inclined to think, taking things all in all, that we ought to leave the range where it is at present, bearing in mind the desirability of lowering it in the future. And if we do succeed in keeping actual growth within the current range, that in itself would mean an appreciable decline in M1 growth this year relative to the past year. And I think that the uncertainty that I and others have pointed to with regard to the economy perhaps also argues for keeping the range where it is at the present time. As for the higher Ms, in view of the likelihood that the inflow of funds to thrift institutions will be on the low side this year--I think all the evidence is pointing in that direction--it would be realistic, I think, to lower the M3 range somewhat, as suggested under alternative B on page 5 of the Bluebook. Or possibly, instead of lowering both the upper and the lower limits by a full percentage point, we might want to lower them by 1/2 percentage point. But I think some lowering would only be realistic and it would be honest. Well, that=s all I have to say at this time. Who would like to speak first? Mr. Kimbrel.",537
-fomc-corpus,1978,"Just a question, Mr. Chairman. That means you would leave M2 unchanged?",17
-fomc-corpus,1978,"I think I would leave M2, since the problem is clearly one of the thrift institutions rather than of the commercial banks. But some of the influences and thinking on thrift institutions with regard to savings deposits [and] time deposits will also influence commercial banks.",51
-fomc-corpus,1978,Just to proceed. I followed you very carefully and [was] right with you all the way. I do think our credibility is involved. And I think it=s becoming maybe more important to hit the targets than it is to set them. I guess my only possible variation would be on M2. I might lean to reducing the upper end of that 1/2 point also. But otherwise I share completely your views.,85
-fomc-corpus,1978,"Thank you, Mr. Kimbrel. Mr. Roos now, please.",17
-fomc-corpus,1978,"Mr. Chairman, may I throw out a suggestion that I don=t think represents any significant departure from the philosophy you have just enunciated? It might enable us, however, to signal that we=re trying to do something about the problem of inflation and we=re also concerned about anything that might have a negative effect on real growth. [My suggestion is] that we might consider reducing the upper end of the M1 range from 6-1/2 to 6 percent and raising the lower end of the range from 4 to 4-1/2 percent. The rationale would be that at 6 percent we would not really be doing anything to reduce the rate of inflation--assuming there=s a relationship between this aggregate and inflation--below what it currently is, although we would be signaling to the world that we=re at least adjusting the upper limit slightly downward, and I think this might have a beneficial effect on the dollar situation At the same time those people who would feel that we=re not concerned about any possible softening in the economy would be reassured by the fact that we have raised the lower limit from 4 to 4-1/2 percent. That does narrow the range somewhat, but I think psychologically it could have a salutary effect from both points of view.",261
-fomc-corpus,1978,"Well, I think this could be a suggestion the Committee may wish to consider. In view of the uncertainty that now exists--and I think we all, in varying degrees, are aware of that--it strikes me as being questionable whether this is the right time to narrow the range. Also, once we narrow it, we may be stuck with a narrow range; the Congressional Committees have been trying to push us in this direction. Some members of this Committee have thought all along that the range should be narrower. The question raised, I think, is a very fair one. I personally wouldn=t do it at this time. Mr. Jackson, please.",132
-fomc-corpus,1978,"Before I start, may I ask Mr. Axilrod a question? In your relative analysis of M2, do you consider the present definition, which includes non-negotiable large CDs, to be potentially subject to a substantial error because of the expansion of large non-negotiable CDs?",59
-fomc-corpus,1978,"Well, of course, the reason that we have not lowered [the range for] M2, whereas we lowered [that for] M3, is because the CDs have relatively more weight in M2; they=re in both M2 and M3, but they have relatively more weight in M2. The CDs are quite volatile, but I would hesitate to say that the estimate of that particular component is subject to more error than our estimate of deposits that are subject to ceilings. I don=t have a basis for saying that that=s subject to more error than the others.",116
-fomc-corpus,1978,"I bring that up, Mr. Chairman, because as we talk about narrowing these ranges as we go through this exercise, I think the uncertainties of our present definitional imperfections, as I call them, is a subject we need to bear in mind significantly. I would endorse the proposal that we stick with the [current] 4 to 6-1/2 for M1 and the 6-1/2 to 9 for M2 under the circumstances. I think a half point reduction in M3, given the type of potential problem is more realistic than a full one percent. I can perceive, frankly, a prospect that the thrift industry will be an active participant in the CD market--perhaps to the degree we have not previously [seen]. And it's for that reason that I=m not sure M3 will degenerate to the extent that we are proposing.",175
-fomc-corpus,1978,I should add that we have not assumed that the thrifts become active in that market.,18
-fomc-corpus,1978,Are you thinking of large CDs?,7
-fomc-corpus,1978,"Over $100,000.",6
-fomc-corpus,1978,Is there any clear sign of that developing?,9
-fomc-corpus,1978,"Not yet. But if we get pressures on rates of growth in the thrift industry, I can [conceive], particularly if the level of outstanding commitments stays large and the inflow [of funds] is restrained, that [thrifts] may turn to this as a way to raise funds as an alternative to borrowing from the Federal Home Loan Bank System. That would, of course, impact on [the M3 growth] rate. I think it=s important, as we communicate this to the world and to our Congress in particular, that this not be perceived as a weakening of our resolve on the inflationary front. But on the contrary, with the changes that we=ve seen in velocity and financial technology and so forth, and particularly as the pressures of increased inflation are upon us, it is entirely possible that by maintaining the present ranges we will have a very responsible monetary policy in light of these conditions rather than irresponsible.",185
-fomc-corpus,1978,"Thank you, Mr. Jackson. Mr. Mayo now, please.",14
-fomc-corpus,1978,First a question to Steve. I think I=m correct in interpreting what you=ve been saying here and in the Bluebook that what the staff has set up for M2 and M3 does assume on the various dates an increase in Regulation Q ceilings.,51
-fomc-corpus,1978,"Yes, of 50 basis points on time deposits.",11
-fomc-corpus,1978,"I find that a difficult assumption to make right now in our consideration of the targets for M2 and M3. If it were completely in the hands of the Board of Governors, I wouldn=t make this point, but I have a very definite opinion that the Federal Home Loan Bank Board may have something to say about this and that there will be considerable opposition in various quarters to a raising of Regulation Q. If I am correct or even partially correct on that, I think we might be ill-advised to continue in our M2 and M3 targets for growth or our growth range statement here an assumption that would encompass an increase in Regulation Q. I would, therefore, wholeheartedly support what the Chairman has said [with regard to] a beginning of the eventual need to lower the targets, particularly for M1. I would wholeheartedly support the idea that our credibility [and] our determination as to whether we do believe in a 6-1/2 percent top on M1 is being tested right now in the public eye. Until we get the performance record well under 7 percent, I wouldn=t want to change that 6-1/2, so I would subscribe to the Chairman=s status quo recommendation on M1 without reservation. I would, however, suggest that we go to alternative C on both M2 and M3 and lower the M2 target by 1/2 percentage point from where it is now and the M3 target by either a full point or, as in the case of alternative C, by 1-1/2 percentage points.",315
-fomc-corpus,1978,"Thank you, Mr. Mayo. Mr. Wallich now, please.",15
-fomc-corpus,1978,"Well, on the previous occasion when we discussed the long-term ranges, I would have preferred raising the upper limit of M1 to 7 percent. I=ve changed my mind about that for two reasons. One, we=ve overshot that M1 ceiling anyway, and the Committee does not seem to be [of a mind] to get on a track that would substantially lower the growth rate of M1. Second, we have the problem with the dollar to contend with; and as the Chairman=s pointed out, this could be a very dangerous signal. Nevertheless, I think we ought to watch very carefully what the implications of what we=re doing are for velocity and interest rates. The velocity projections seem to be that, with a rise in the Regulation Q ceiling of 1/2 percentage point and with interest rates rising the way they are supposed to rise under the alternatives--by maybe 125 basis points on the funds rate over a year for alternative B--we=ll get a velocity gain of 5.6 percent. Now, that=s a large gain. But given that interest rates are rising, that=s of course not unobtainable. The rise in interest rates in itself presumably is factored into the projection, so that that 125 basis points on the funds rate is not going to have any additional adverse effects on housing beyond those already built into the forecast. If we can take this as a rough basis for what we expect about velocity, I think it is not impossible that it might materialize and that does not imply impossible interest rate assumptions. My own inclination would be to stay at the high end of that 4 to 6-1/2 percent range and if we overshoot a little, not to do anything about it as we have done in the past. As far as M2 and M3 are concerned, I concur with the Chairman. I would leave M2 as it is in alternative B, pulling down the upper margin of that perhaps the next time around to continue this tradition of pulling the aggregates down. M3 allows a certainty to pull down [at least one of] the aggregates and maintain that tradition on the present occasion.",437
-fomc-corpus,1978,"Thank you, Mr. Wallich. Mr. Partee, please.",15
-fomc-corpus,1978,"Well, Mr. Chairman, I thought long and hard about this, too. I=m bothered by the same kinds of arithmetic that bothered Governor Wallich, and I really don=t know what to do about it because I think psychologically it would be a bad time to increase the upper limit of the M1 range. But the arithmetic is that we should anticipate here in the next four quarters a rise of certainly 11 or maybe 11-1/2 percent in nominal GNP. The comment around the table today was that the staff=s inflation rate may be understating what will occur. We certainly know that there=s a built-in inflation rate of some considerable size resulting from the cost increases [in] the labor contracts that have been negotiated and will pay off regardless in this period to come. It calls for a very large rise in velocity to be able to be within the 4 to 6-1/2 percent range and to be able to accommodate an 11 to 11-1/2 percent [growth in] nominal GNP. And yet not to do so--not to accommodate for that--certainly means rising interest rates and a change in the whole economic outlook. That is a rise of size in interest rates and a change in the whole economic outlook that will unfortunately affect real activity as well as prices. In fact, every [study] that=s ever been done suggests that the immediate short-run effect will be more on real activity than prices. I wish it were not so, but that=s what every bit of analysis indicates. So, although I also feel that we will have difficulty keeping M1 within the 4 to 6-1/2 percent range, I guess I=d rather continue with it for the time being, and if necessary err a little on the high side as time goes on. I really don=t see any other short- to intermediate-run strategy that the Committee can follow. I wouldn=t narrow that range. If anything, I would widen the range if I were making a change because I think so much depends on assumptions on institutional changes and on velocity and so forth that we can=t with any conscientiousness say that we understand what, within a couple of points, is the right money supply increase for the economy to have. On M2, I would make the same point that Governor Jackson did. You have to remember that a large part of [M2], an increasing part of that, is not subject to Regulation Q ceilings. And we=ve seen some very large increases in large non-negotiable CD sales at the banks and indeed, you remember, it even includes negotiable CDs if they=re issued by other than the 350 largest banks. So I think there is more room for expansion there than traditional analysis may suggest on the basis of interest rate relationships. Therefore, I think we=re safe enough to leave that at 6-1/2 to 9. I would leave it in any event because of this tendency for a good many rather simple analysts to draw an identity between M2 and GNP growth. I think they would become really quite agitated at a reduction in the M2 range so that the top, and thus the implied increase in nominal GNP, is below 9 percent.",657
-fomc-corpus,1978,You were doing beautifully up to this point. Stop worrying about those fellows!,15
-fomc-corpus,1978,"Well, there are a lot of them in the Street and among the monetarists and even in academic circles. On M3, I would be sympathetic with Bob Mayo=s point of view, except that I don=t really believe that the House Banking Committee is the group to tell that growth will be a lot less unless we can get an increase in Regulation Q ceilings. I think it would just cause trouble for the House Banking Committee, whereas the person that has to be told that sits in an office in another building in town. And there the problem is to convince them rather than just to assert it. So I guess I=m being a coward today, but I think I would just cut the M3 range by 1/2 point as the Chairman has suggested, realizing that that may be high because it does probably require an increase in some sensitive area of Regulation Q ceilings by midyear. There, too, though, I think there might be a tendency to be overly affected by the very poor savings inflow figures that generally are inherent for February. They seem to me too radically lowered to reflect only interest rate differentials. There must be something else going on there, but it=s probably an aberration and I think we=ll probably get some recovery in thrift institutions in the period yet to come. So, for all those longish reasons, Mr. Chairman, I support exactly, I believe, what you proposed. But for M3, I would only cut the range by 1/2 point--that is, to 7-1/2 to 10 percent, simply because I think it would cause more trouble than it=s worth to cut it a full point at this stage.",342
-fomc-corpus,1978,"Thank you, Mr. Partee. Mr. Coldwell now.",14
-fomc-corpus,1978,"Mr. Chairman, Mr. Partee gave [many] of the same reasons that I would to support your package. I think there are two or three other points. First, if I understand the ballgame here, and I am not sure I do, if we go back to our normal [schedule for] reconsideration [of our long-run ranges] we=ll be back to this subject very soon. And I really don=t want to be launching into a whole new ballgame with [another review of these ranges] coming up within a month or two. Secondly, I would strongly resist the idea of narrowing the [M1] range, which flaunts the track record we=ve had on this. We can=t even meet the upper [end of the] range the way it is now. If we narrow it even more, I think it would be a mistake. Third, on the M3 point, while it=s a good theoretical exercise and we can speculate about what will happen to the savings and loans and their thrift record, in practical terms I don=t find the Desk paying much attention to M3 in the day-to-day transactions. In fact, [while] M1 and M2 have some relevance, M1 seems to be the principal point of contact. So I guess M3 is a gratuitous type of figure to use--one that we ought to pay attention to, but not one that somebody else is paying a whole lot of attention to yet. And they=re likely to as the economics change. If I thought we were really going to do something and use these ranges in a practical sense of setting policy, then I think my preference would be something like a 4-1/2 to 7-1/2 percent M1 range, which I think is probably more practical than what we have in front of us. But I=ll take the coward=s way out and stay with the status quo.",392
-fomc-corpus,1978,"Thank you, Mr. Coldwell. Mr. Morris now, please.",15
-fomc-corpus,1978,"Mr. Chairman, I think I come out in exactly the same position as Governor Partee.",19
-fomc-corpus,1978,"But I think the time has come to say that there are no cowards in this room, period. I don=t want to hear remarks like that.",31
-fomc-corpus,1978,We=re all realists.,6
-fomc-corpus,1978,"I only feel cowardly on M3, I think.",12
-fomc-corpus,1978,I don=t feel cowardly; I just want to exercise prudence.,15
-fomc-corpus,1978,"Prudence came from New England, didn=t she?",12
-fomc-corpus,1978,How do you know the difference?,7
-fomc-corpus,1978,"If he did it, it would be prudence; if you did it, it would be cowardice!",22
-fomc-corpus,1978,So I would accept your specifications with the Partee/Jackson proviso of only cutting the range for M3 by 1/2 percentage point.,30
-fomc-corpus,1978,"Thank you, Mr. Morris. Mr. Eastburn now, please.",15
-fomc-corpus,1978,"Well, I join the ranks of prudent men, too. The only question I have is that M2 ceiling. Really, this turns into a factual question more than anything else. In the short-term ranges, it=s expected for the next two months that the large denomination time deposits will grow enough to offset the slow growth in time deposits subject to Regulation Q. I wonder if that assumption is true, however, when you=re going a year out and whether, with Regulation Q ceilings biting into those smaller denomination time deposits, the relative weights of those would tend to shift in that time period. Making a guess that that might be true, my inclination would be to cut 1/2 point off of that M2 ceiling.",145
-fomc-corpus,1978,"Thank you, Mr. Eastburn. Mr. Volcker now, please.",16
-fomc-corpus,1978,"Well, it seems to me that the most important number here, in operative terms, is probably the upper limit on M1. And in terms of the mind of the market, and I suspect my own mind, as to whether we really mean it and whether we will attain it, I don=t think we can afford to lower that at this point against our past record. I think 6-1/2 percent against the outlook that we have is not unreasonable. I don=t feel so casual about missing it, as some of the comments earlier imply. And that gives me a little concern about what we do about M2 and M3. I recognize the difficulties of reducing those numbers, psychologically and in terms of the audience of the Banking Committee in particular. I=m a little afraid if we put in a high number there not on the feeling that it=s prudent--if that=s the right word--to lower the number but in the expectation that we will probably come in on the low side of that range, we may be kidding ourselves. I could foresee a warm glow of satisfaction later on when we miss M1 on the upside and we say we came in on the low side on the other ones, which we sort of expect anyway. So we congratulate ourselves that among all the targets, we haven=t done so badly in terms of our objectives. I suspect there=s a little trap there. So I would prefer, I guess, to be a little imprudent in the immediate presentational sense and do a little something about M2, like a 1/2 percentage point [reduction], and stay with the 1 [point reduction] on the M3 range.",338
-fomc-corpus,1978,"Thank you, Mr. Volcker. Mr. Black now, please.",15
-fomc-corpus,1978,"Mr. Chairman, in your statement a while ago [you said that] if we don=t fight inflation, who will, [and that] I think provides a pretty good backdrop for this. I share what I think [are the views of] everyone else here on GNP and inflation and inflationary expectations and that the accompanying low level of confidence probably poses the biggest threat to the continuation of expansion. So I think it=s important that we give some kind of reassurance to the business and financial community here and abroad that we have some intention of trying to prevent any escalation of inflationary pressures. I think it=s particularly important as the year develops, of course, that we avoid a repetition of what I now think in retrospect has been an overly rapid expansion in all three of the aggregates. Getting down to the brass tacks, I would knock a percentage point off both ends of the range for M3 and 1/2 percentage point off the top end of the M2 range. My economic sense tells me that we probably ought to knock 1/2 point off the top of M1, but my sense of prudence tells me it=s probably best to just leave that where it is.",241
-fomc-corpus,1978,"Thank you, Mr. Black. Mr. Willes, please.",14
-fomc-corpus,1978,"Thank you, Mr. Chairman. I won=t make any comments on the numbers. I=d just like to indicate that there seem to be two points of view expressed. One is that we don=t need to do anything about M1 because it=s nowhere near where we are anyway, so it=s kind of irrelevant. The other point of view is, I think, the one you expressed initially--that we ought to leave it so that we can close the gap between where we are and where we say we=d like to be so that we increase [our] credibility. And I=d just like to align myself very strongly with the notion that we ought to take these long-run targets very seriously. We ought to make sure that in the short run we do what we can to get [monetary growth] in line with these targets and it=s on the basis of that assumption that I think your proposal is the right way to go at this meeting.",192
-fomc-corpus,1978,"Thank you, Mr. Willes. Mr. Balles now, please.",16
-fomc-corpus,1978,"Well, I share the view expressed by some others already that the announcement effects of these ranges are very, very considerable. And with inflationary concerns in the air both at home and abroad, not to reduce the ranges--I think we all agree--would have some very adverse effect on inflation expectations. Now, having said that, I think I=d agree with Mr. Kimbrel=s remark a little while ago that, at this point, it may be more important to hit the ranges than to reduce them, in order to reestablish our credibility. In terms of the specific numbers, I would agree with your proposal, Mr. Chairman, to leave M1 where it is. I agree that M3 should be cut. I guess I would join the so-called prudent crowd and cut only 1/2 point from both the lower and the upper limits. On the M2 range, I would go one step beyond what you are proposing and shave that down by 1/2 point to a 6-1/2 to 8-1/2 percent range. We=ve all got our variations on the same general theme here of getting some kind of reduction and maintaining our credibility. We haven=t failed to shave the range on at least one of the three Ms, I don't think, every quarter since we first started. But one question I=m a little uncertain about is what will happen if the [proposal to allow] automatic transfers from savings to checking is implemented.",299
-fomc-corpus,1978,It=s a new ballgame.,7
-fomc-corpus,1978,We=ll have to address that at the time? Is that your point?,16
-fomc-corpus,1978,"Yes, it=s a new ballgame, and I think the consequences for the monetary growth rates should be taken into account beforehand by the Board. It should be considered very carefully by the Board before making a final decision on that regulation, which--",49
-fomc-corpus,1978,It wouldn=t be for a long time anyhow.,10
-fomc-corpus,1978,"Well, I just assumed that at that point we might have to readjust our view of what=s feasible in terms of the ranges.",27
-fomc-corpus,1978,"Oh, if that regulation is adopted by the Board, it=s a new ballgame and it would be a most confusing ballgame for quite a while. I think the Board will have to think very carefully before reaching its decision. And if its decision is to go ahead, then I think that our work in this Committee will be cut out for us.",71
-fomc-corpus,1978,What is a normal time frame for the Board=s consideration of an issue like this one?,18
-fomc-corpus,1978,"Well, I think that a significant period needs to be allowed, first for study of the proposal. And second, if the Board decides to go ahead with the proposal, I think we need to give the Congress reasonable time to legislate against us if that should be the inclination of the Congress. I think it would be unwise for us to put any such regulation into effect immediately. So first we have to weigh the regulation. If we decide in favor of it, we ought not to put it into effect immediately because of our Congressional problems. I think decency and good relations with the Congress require that members of the Congress have a reasonable amount of time to legislate against us, if that should be their wish. There is a great deal of interest in the Congress on this issue. And, as you know, the savings and loans are carrying on an extensive campaign. Mr. Guffey now, please.",184
-fomc-corpus,1978,"Yes, Mr. Chairman. I would join what appears to be a consensus with respect to retaining the M1 range. I=d like to specifically align myself, however, with Governor Partee=s and Governor Wallich=s comments with regard to probably hitting the upper [area] of that [4] to 6-1/2 percent, given the velocity projections by the staff, which we believe to be somewhat high. Secondly, I'd do nothing with the M2 range, but with respect to the range for M3 I'd join your recommendation--I believe it was your recommendation--to cut it 1/2 percentage point.",127
-fomc-corpus,1978,My recommendation was neutral with regard to a half or a full point.,14
-fomc-corpus,1978,"We would prefer cutting 1/2 point off M3, recognizing that we quite likely could come in toward the lower end of that range. But I would also suggest to you that you might take some comfort from the fact that we have missed the M3 targets since, I believe, the fourth quarter of 1975--always on the high side. So [if] we come in either in the lower part of those targets or even miss them on the low side, that wouldn=t be of great concern.",104
-fomc-corpus,1978,"Thank you, Mr. Guffey. Mr. Baughman.",15
-fomc-corpus,1978,"Mr. Chairman, it seems to me that the staff estimate that alternative B is consistent with the general economic forecast might well be given substantial weight at this particular juncture. It does give us no change with respect to M1 and M2. It gives us some significant change with respect to M3, but the conversation around [the table] seems to suggest that it=s realistic. So I would be inclined to take alternative B all the way through, recognizing that this doesn=t, based on our best estimates, indicate that we=re making any additional move against inflation and that the projection contemplates some acceleration of inflation. But all things considered, it seems to me that that might be an appropriate place to stay at the present time.",147
-fomc-corpus,1978,"Thank you, Mr. Baughman. Mr. Winn, would you be good enough to advise us?",22
-fomc-corpus,1978,"I vote for prudence under the circumstances. And I really haven=t any quarrel with this [recommendation]. I think we ought to recognize just a little bit that our shifting base problem is happening to us in all this, however.",48
-fomc-corpus,1978,"All right, thank you, Mr. Winn. The Committee is unanimous on retaining the present range for M1, except for Mr. Roos who also agrees with the Committee on the midpoint of that range. As for M2, the majority of the Committee is inclined to leave the range where it is presently. And as for M3, the majority is inclined to lower both limits by 1/2 percentage point. Any further discussion? If not, I think our rules, as we now practice them, require a vote by the Committee.",110
-fomc-corpus,1978,"Mr. Chairman, do we have to consider the aggregate versus the [money market] directive, or is that--",23
-fomc-corpus,1978,"No, that comes later in connection with the short-run ranges. We=ll vote on growth ranges from the fourth quarter of '77 to the fourth quarter of '78 of 4 to 6-1/2 percent for M1, 6-1/2 to 9 percent for M2, and 7-1/2 to 10 percent for M3. And if the Committee will bear with me, we shall leave it to the staff to adopt an appropriate number for bank credit, which is what we=ve done in a good many--I think most--of our meetings.",123
-fomc-corpus,1978,I=m not sure why we adopt that number.,10
-fomc-corpus,1978,"There are very good reasons in dealing with the Congress, and also in our own thinking, to pay some attention to the credit side and not only to the money side.",34
-fomc-corpus,1978,May I make only a comment with [regard to] setting bank credit? I think it=s not such a very good strategy to be raising the bank credit range at the same time we cut the M3 range.,44
-fomc-corpus,1978,Let us so advise the staff unambiguously.,10
-fomc-corpus,1978,Just so they find it compatible.,7
-fomc-corpus,1978,"That=s a very useful reminder. Well, we=re ready for the vote, unless members of the Committee would like further deliberation. Would you be good enough to call the roll?",37
-fomc-corpus,1978,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes President Guffey Yes Governor Jackson Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes,39
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Mr. Sternlight. Are there any questions or comments?",15
-fomc-corpus,1978,"One question, Mr. Chairman.",7
-fomc-corpus,1978,"Yes, Mr. Jackson.",6
-fomc-corpus,1978,This weather has produced such a substantial volume of float that our capacity for issuing currency has been potentially impaired. Has any thought been given to substituting agency securities for Treasuries so that we would still have additional leeway for the issuance of currency?,50
-fomc-corpus,1978,It=s not legal.,5
-fomc-corpus,1978,You could have a change in the law.,9
-fomc-corpus,1978,"Excuse me, did I say the wrong thing? I meant where we=d sell our agencies and buy the Treasuries. Did I say the wrong thing? I apologize.",36
-fomc-corpus,1978,I think it would be difficult for the market to absorb big sales of agency issues on short notice.,20
-fomc-corpus,1978,Has some consideration been given to some careful but nonetheless deliberate shift in policy because of these restraints?,19
-fomc-corpus,1978,I=m not aware of such consideration.,8
-fomc-corpus,1978,The Desk is allergic to any such activities. Isn=t that true?,14
-fomc-corpus,1978,I think it would be hard for the market to absorb sales.,13
-fomc-corpus,1978,Hard for the market to absorb even sales of insignificant volume?,12
-fomc-corpus,1978,Small sales? We have allowed some runoff to occur in agency issues as these reach maturity. That=s just a runoff.,24
-fomc-corpus,1978,"That does seem a very relevant question to me, Mr. Chairman. At the very least, it seems to be an indication that if the law isn=t changed, policy somehow isn=t changed in another respect. I think it does take a change in law; we have at the very least a very big yellow light on purchases of agencies--the net increase in agency holdings. I think we probably ought to be going in the other direction.",88
-fomc-corpus,1978,"I think it would be a good idea for the Desk to become--I=ll use the word ""courageous"" today--or to become prudent or more prudent and to exercise its greater prudence by one of these days making a sale of an insignificant volume of agency issues.",57
-fomc-corpus,1978,"In light of our earlier conversation, I=d say they have been prudent. And now you think they ought to be courageous?",25
-fomc-corpus,1978,I think the Committee really ought to reach a decision on this--perhaps it=s too late--and instruct the Desk to be somewhat flexible in that direction.,31
-fomc-corpus,1978,We never sell agencies?,5
-fomc-corpus,1978,"And while we=re on that, there is an age-old practice that I would like to see changed, but I don=t want to spend more than ten seconds on the point. And that is when we formally vote, we vote to approve, ratify, and confirm the transactions [of the Desk]. I think it would be more accurate, and really more proper, simply to ratify them. It would serve every purpose. But since time immemorial, from a formal viewpoint we have approved, ratified, and confirmed. Those who support me in simplifying our procedure are being very radical today. On confining the vote to ratification, may I have a show of hands?",138
-fomc-corpus,1978,Mr. O=Connell isn=t here to defend himself.,12
-fomc-corpus,1978,"Well, he=d have to defend all his predecessors, too.",13
-fomc-corpus,1978,"It=s going to cause quite a stir in the market when we first start selling agencies. It seems to me that it=s incumbent upon us at that time to explain to the market why we are doing it because the stir on the first occasion is going to be pretty substantial, I would think.",59
-fomc-corpus,1978,"You=re going to have to do more explaining to Congress probably, in spite of its wisdom.",19
-fomc-corpus,1978,"Peter, could we sell to the Federal Financing Bank?",11
-fomc-corpus,1978,"I think the explaining we will have to do, if any, is why we haven=t done it in the past--not why we are doing it now.",32
-fomc-corpus,1978,I don=t see why we can=t do it as part of a general sale when we=re selling other things rather than doing it alone.,28
-fomc-corpus,1978,"We did undertake in the past, on two occasions, sales of relatively short maturities of agencies. On one occasion it went quite smoothly; on another occasion, it was rather upsetting.",37
-fomc-corpus,1978,Upsetting? [Selling] small amounts was upsetting?,11
-fomc-corpus,1978,"On the order of one or two hundred million, is my recollection.",15
-fomc-corpus,1978,"One or two hundred million? Well, I would not call that insignificant but, you know, I haven=t kept up with this two trillion economy of ours.",32
-fomc-corpus,1978,I think it is a policy question that the Committee would be wise to address in a definitive way.,20
-fomc-corpus,1978,"I think the Committee should address this question. And it should be on the agenda for another meeting. Mr. Axilrod, you have a genius for brevity and this is the time to demonstrate it once again.",44
-fomc-corpus,1978,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1978,"Any question? If not, I=d like to go back, if you will permit me, to the question that was raised about the inclusion of a figure for bank credit in our longer-range projections. I quickly gave a reason for doing it. And yet, the fact that we as a Committee do not deal with it is troublesome. I would like to make a suggestion to Mr. Partee, or to your committee. We have made an improvement. We used a credit proxy and that behaved in a wild fashion--from our viewpoint, at least. The bank credit measure is preferable. I think the measure we really need and one that would be more nearly symmetrical with our monetary aggregates--particularly M3, the higher monetary aggregate--would be total credit. Our flow of funds projection gives us a basis for that. And I wish your committee would ponder the wisdom and the desirability of substituting total credit for bank credit in our longer-run projections.",191
-fomc-corpus,1978,"We can do that, Mr. Chairman--or perhaps [consider] institutional credit, which is quite [unintelligible] to M3.",30
-fomc-corpus,1978,"Maybe. I wish you=d think about that pretty carefully and then at a later time make a recommendation. Perhaps in the future, with a wiser or more defensible measure of credit, the Committee would want to ponder it or to take it into account. Well, I=m glad you=ll undertake that study to find out. I think we=re ready now to move on to the shorter-range specifications. I find alternative B entirely acceptable. The only additional comment I would make is that in view of the position of the dollar in the foreign exchange markets--and that is something that is not likely to change quickly or dramatically--we ought to think most carefully about doing anything that would lower interest rates at this time. On the other hand, any appreciable rise in interest rates, in view of uncertainties that surround the economy, would also seem dubious. I=d be inclined to stick with alternative B and probably with a money market directive. Let=s hear from the Committee. Mr. Volcker.",199
-fomc-corpus,1978,"We=ve just talked about a little modification of alternative B, which I think is basically on the right track. I think there is a technical reason, as we discussed a few meetings ago, for keeping a range of 6 percentage points for M1 if M2 has a range of 4 points. I think statistically that just reflects the relative volatility of the two series; it is more consistent in that technical sense. But going beyond the technical, I would prefer to shade it down in the process of widening it from the 0 to 6 percent. I think our experience shows over and over that when we get into these little lulls in monetary growth--which are infrequent enough--if we don=t take advantage of them, we just compound the longer-term problem of remaining within the targets. In other words, I don=t think we should set these short-term ranges in a way that [threatens to] trigger a relaxation of the interest rate target because we will only make trouble for ourselves in the long run, even though the short run may look low relative to the longer-term targets. [So] the substantive reasons for at least shading M1 a bit make it consistent with the technical consideration. I do think the interest rate constraint is much more important, substantively. You mentioned the international reason, but for the reason I just suggested--thinking in general of the domestic side in terms of keeping on our long-range targets--we can say the same thing, namely, that we wouldn=t want to reduce [the funds rate] below where it now is. Therefore, it strikes me that the most straightforward thing we could do would be to put a lower limit of 6-3/4 percent [on the funds rate]. I wouldn=t want to move necessarily right away, so that also suggests that it be an asymmetrical midpoint. I don=t want to go up all that much, which brings me precisely to the logic I think Governor Partee had last time. And we=ve only got three weeks between meetings, so I think we are talking about a range of only 6-3/4 to 7 percent. Anything else we might say would seem to me to be a little bit misleading, depending on what other people have to say around the table. Does anybody really mean that we should go above 7 or below 6-3/4 without something very drastic happening? I=ll be interested in seeing whether anybody does, but I wouldn=t want to. So 6-3/4 to 7 percent with a 6-3/4 percent ""midpoint"" reflects pretty accurately my feelings about the situation. In that context--I don=t think really inconsistently--I'd take an aggregates directive. You can=t move very far--",563
-fomc-corpus,1978,"I just object to that. That violates every canon of the English language, really, to have a range of 1/4 of one percent and talk about a monetary aggregates directive.",37
-fomc-corpus,1978,The question is what [triggers a] move within that 1/4 of one percent.,20
-fomc-corpus,1978,"We have gotten to a point of fine-tuning that is far beyond our knowledge or understanding or even our good sense. I=ve made myself clear, I hope.",34
-fomc-corpus,1978,"I don=t think your logic is inconsistent, but the nature of the directive is not a major preoccupation of mine. The limits on the range--",30
-fomc-corpus,1978,"All right. Thank you, Mr. Volcker. Mr. Coldwell now, please.",19
-fomc-corpus,1978,"Mr. Chairman, I=d take alternative B. I have some doubts about the figures the staff is [projecting for] the rates of [monetary] growth in February and March. I have a suspicion that the March figure is going to be sharply higher than what [they're] showing. But there is some leeway in this averaging business, and as long as we are looking at a 6-1/2 to 7 percent range on federal funds, it doesn=t disturb me a whole lot. I don=t want to go down from 6-3/4 percent now that we=re there for the moment, but I don=t want to go up over 7 percent by any means until we take a good long look at it. I would even be a little reluctant to go beyond 6-7/8 percent, so if we are going to fine-tune it, a 6-3/4 to 6-7/8 percent range would be my ideal. But we might as well set a particular [rate]. We might even get to 6-11/16 but I hate those 16ths. So, as far as I=m concerned, alternative B is the best.",249
-fomc-corpus,1978,"Thank you, Mr. Coldwell. Mr. Black, please.",14
-fomc-corpus,1978,"Steve Axilrod has reminded us all that we are approaching a pretty difficult period if we=re trying to project the aggregates. And this year the [tax] refunds are expected to be larger and a larger percentage is expected to be paid in March, so I would share Governor Coldwell=s idea about the prognostication for the March growth in M1. I think it=s probably going to be right much above the 7.1 percent that the staff is now projecting. And certainly April, as Steve indicated very well, is likely to be pretty strong. If we=re going to move toward a money market directive which I think is probably the best thing to do right now, though I don=t like it in general, then I would want to pare those figures for the aggregates ranges down from what we=ve got here in alternative B. [I say that] because, if you=ve got a 6 percent upper [limit] and we don=t move the federal funds rate until we are approaching or moving beyond the limits, with M1 having declined 0.4 percent in February, you could have a 12.4 percent increase in March [before the funds rate is moved] and I think that is too fast. And with the 8-1/2 percent ceiling on M2, [its growth] would also need to be in the range of 12 percent. So I would want to pare those down to 0 to 4 and 3 to 7. If you went for the aggregates directive, I think these ranges would be perfectly acceptable and ordinarily that is what I would prefer. But these are unusual times, so once more I would go with the money market directive despite my reluctance to do so.",353
-fomc-corpus,1978,"Thank you, Mr. Black. Mr. Wallich, please.",14
-fomc-corpus,1978,"I=m concerned about the wide M1 range. If you take February as given, that means the March M1 growth can move up or down 5 percentage points from where it is without triggering the funds rate if we=re on the money market directive; it means a swing of 10 percentage points that we are allowing ourselves. What are we gaining? We think that we want to avoid triggering [a move in] the funds rate because if it goes down it hurts the dollar, and if it goes up it hurts housing; it=s in a very critical, delicate position. But we don=t really gain anything, we just postpone--",128
-fomc-corpus,1978,It depends on how much volatility there is.,9
-fomc-corpus,1978,"We can have [by] the next meeting a strong move in the aggregates one way or the other, and we are going to be confronted with that situation of moving the funds rate whether we like it or not, and we are going to have lost half a month or so. So I think we are better off doing the following: Setting a narrower range and agreeing to be more ready to have a telephone call or telegram if [the range] triggers a movement in the funds rate. Therefore, we stay more in touch with the situation because that is important. But [we ought to] have more realistic aggregates ranges, so I would argue for M1 a range of 2 to 5 percent; that wouldn=t change the midpoint. And for M2, [I'd favor] 5 to 8 percent, which also wouldn=t change the midpoint. On the funds rate, I would be willing to go a little higher and say 6-1/2 to 7-1/4 percent, but with the midpoint staying where we are right now and an aggregates directive.",218
-fomc-corpus,1978,"May I point out one thing? The next meeting will be held three weeks from today. We will have figures on monetary aggregates that will be worth paying some attention to only by Thursday of next week, which is approximately a week and half from now. If there ever was a time to try to stand still, both because of the brevity of the [intermeeting] period and because of conditions in the foreign exchange market and the economy, I would think this is just about the time. Thank you, Mr. Wallich. We=ll proceed with Mr. Kimbrel, please.",119
-fomc-corpus,1978,"Mr. Chairman, these numbers associated with alternative B are rather attractive to me. If I had a personal preference, and absent your very last comment that maybe the time does argue for no change, I guess it would be easing down M1 1/2 percentage point [on the top and bottom] to 1/2 to 5-1/2 percent, M2 as suggested [in alternative B], and the funds rate as indicated there. I sure would hate to see [the rate] go below 6-3/4 percent and yet I absolutely would not during this period want to see it go above 7, although I have a personal bias against restricting the range any more than it is. So I am prepared to accept [the numbers in ""B""] as they are with the single suggestion that, absent the timing [issue], I=d prefer to see the M1 range reduced 1/2 point.",189
-fomc-corpus,1978,"Thank you, Mr. Kimbrell. Mr. Partee, please.",16
-fomc-corpus,1978,"When we [discuss] the difficulty with the aggregates, everyone is assuming that March may be a very strong month. What if the coal strike goes on? March could be a very low month. I think there are so many uncertainties in the picture that we can=t really, within a range of 10 points, say what M1 is likely to do in the month of March. I like Paul=s suggestion because I think it is the truth. We aren=t likely to cut the funds rate below 6-3/4 percent unless something really dramatic happens--in which case undoubtedly there would be a conference call. And we aren=t likely to put the funds rate above 7 in this three-week interval, particularly since for half of it we won=t know what the coal miners are going to do. Therefore, it is a strict old-fashioned money market conditions situation and we ought to recognize it as that and have a very small range on the funds rate. I don=t really care [about the aggregates ranges]; I would be prepared not to have any aggregates ranges for this three-week interval because I just don=t think they are at all reliable. But I suppose that=s too dramatic a change, so I would take the alternative B aggregates as a good proxy for a wide range of the possible experience.",263
-fomc-corpus,1978,Taking no aggregates--without any ranges?,8
-fomc-corpus,1978,"Thank you, Mr. Partee. Mr. Morris.",12
-fomc-corpus,1978,"Well, Mr. Chairman, I=m torn. When I first came and sat at this table--not this one but the other one--we used to have directives that said ""maintain prevailing money market conditions.""",43
-fomc-corpus,1978,That=s correct.,4
-fomc-corpus,1978,"I think you could make a case for doing that for the next three weeks. On the other hand, it seems to me that if we are going to establish a range, we could make a good case for having an asymmetrical range. If we get two months back to back of no M1 growth, this suggests to me that it would make just as much sense to go back to 6-1/2 percent [on the funds rate rather] than to advance it to 7 percent in case of various outcomes of monetary growth. I may be biased in the sense that I didn=t vote for 6-3/4 to begin with, but it seems to me that if we respond on the funds rate because of a very marked slowdown in monetary growth, we ought to be able to explain that to the international financial [community] as not signifying any unwillingness to influence the money supply. So it seems to me that alternative B, as written, would be quite satisfactory. As a secondary measure, I would go back to our old 1968 [directive language] for this one occasion and say we=re going to maintain prevailing money market conditions, period.",237
-fomc-corpus,1978,"Thank you, Mr. Morris. Mr. Baughman. This is turning out to be a very interesting meeting.",24
-fomc-corpus,1978,"Mr. Chairman, I agree with the observation that this is a time to stand where we are, and I construe that as meaning primarily staying at 6-3/4 percent. I can=t visualize a development in the next three weeks that would seem [to indicate] that we should go below 6-3/4 percent on the fed funds rate. However, it does seem to me that it is possible that there might be developments that would cause us to want to go to 7 percent or possibly above that. But I would assume that such developments would call for a meeting of the Committee and, therefore, it seems to me that a range of 6-1/2 to 7 is appropriate.",146
-fomc-corpus,1978,"Thank you, Mr. Baughman. Mr. Guffey now.",16
-fomc-corpus,1978,"Mr. Chairman, alternative B with a money market directive would be my choice but with one minor adjustment. Everybody seems to have their own adjustments this morning, but I think the risks of March coming in strong quite likely are greater than it coming in weak and, as a result, I would like to see the M1 range adjusted to 0 to 5 percent with a money market directive. My thought is that if we get up to around a 10 percent projected rate for March, we ought to be taking some action. I'd also take the B alternative on the federal funds range, but I would suggest that maybe we put a proviso in that it not go below 6-3/4 percent. I think we=ve done that before and I think it is quite appropriate at this meeting.",162
-fomc-corpus,1978,"Mr. Willes, please.",7
-fomc-corpus,1978,"Mr. Chairman, I=m prepared to go along with alternative B, but I would just like to make a procedural comment or a theoretical comment or whatever kind of comment. While I understand the arguments for staying where we are, I have difficulty in my own mind knowing what it means to stay where we are. Chuck mentioned the possibility that we could get a very low March and I think that is a possibility. My understanding is that it is precisely in those periods of uncertainty of the kind that we are now moving into--and I=m talking about uncertainty in terms of the real economy, not money [growth] and that sort of thing--that we ought to pay more attention to the aggregates rather than less, because should we have made a mistake in our perception of how strong the real economy is, for example, the best hedge against that would be to keep the money supply from going very low for several months in a row. And, of course, conversely on the upper side. I=m not prepared to debate this today because it=s not the time, but I think one of the real issues we have as we go down the road is what kind of uncertainty we have regarding the real economy and where that pushes us in terms of how we define staying where we are. If we think about that, we may well find that we want to flip on their heads the kind of rationales that we=ve used today and go in exactly the opposite direction.",293
-fomc-corpus,1978,"Thank you, Mr. Willes. But I do want to remind the Committee, once again, that we are talking about an intermeeting period of just half the duration of the preceding one. Mr. Eastburn.",44
-fomc-corpus,1978,"Thank you, Mr. Chairman. As I listen to the discussion, I think this is an illustration of the danger of getting captive to our machinery here. It seems to me, given the short [intermeeting] period and the desire, as I hear it, of most people to stay where we are, that we need to tell the Desk to hold the rate where it is and watch closely and have a special meeting by wire if necessary, but it probably won=t be necessary. So I=d accept alternative B and wait for three weeks.",109
-fomc-corpus,1978,"Thanks, Mr. Eastburn. Mr. Jackson.",11
-fomc-corpus,1978,I think we ought to be aware that Mr. Holmes=s ego is probably highly inflated by the procedure with which we have endowed him the capacity to manage affairs.,32
-fomc-corpus,1978,He does very well.,5
-fomc-corpus,1978,"I know he does, but at the same time it looks like every time he does well, we want to make him do better. So I think that our focus on such an issue is not appropriate and, in view of the intermeeting period being discussed, I think we ought to take alternative B. And to me, the aggregates directive will accomplish the same result as the money market directive, because it=s highly unlikely that in ten days we will have such wide swings in people=s perceptions as to produce any difference.",104
-fomc-corpus,1978,"Thank you, Mr. Jackson. Mr. Mayo now, please.",14
-fomc-corpus,1978,"I prefer the 6-1/2 to 7 percent [fed funds range], although I agree with Paul and others that the likelihood of going below 6-3/4 percent is very, very remote. I just have a constitutional objection to that narrow a range on fed funds. I prefer a wider range in ""normal"" circumstances. I like the idea of shading downward [the ranges for] both M1 and M2; 0 to 5 and 4 to 8 are fine with me--or 4 to 9 for that matter is all right. I would prefer the money market directive. Apparently I=m playing a little game with the staff on the phrasing of the directive: Two months in a row and again this time I=ve suggested, and the Committee has bought, the idea of stating the directive in terms of a weekly average federal funds rate of about ""the current level."" Each time, the next month the Bluebook comes along and crosses out ""the current level"" and substitutes ""___ percent."" I still think it=s a good idea, when we have the opportunity, to state it in terms of the current level rather than the precision of a digit. That=s a terribly subtle thing, but I think it may serve us well if we lose the Merrill case, for instance.",268
-fomc-corpus,1978,"I would go along with Mr. Mayo. Yes, I think Mr. Mayo=s right. Any objections to that?",24
-fomc-corpus,1978,Mr. Broida wants to [comment].,10
-fomc-corpus,1978,"Yes, please.",4
-fomc-corpus,1978,"President Mayo, it is not the staff=s intention to suggest to the Committee that it not use the phrase ""the current level."" If you look at the second form of the directive, it shows the proposed changes from last time in terms of strike-throughs and caps.",54
-fomc-corpus,1978,"Well, if you agree with Mr. Mayo, that is sufficient.",14
-fomc-corpus,1978,Mr. Mayo seems to have the notion that the staff is trying to push the Committee--,18
-fomc-corpus,1978,"No, no, no. There=s no such thing.",12
-fomc-corpus,1978,"I=m amused, not annoyed.",7
-fomc-corpus,1978,We=ll move on.,6
-fomc-corpus,1978,"I might note, Mr. Chairman, that page 1 shows that over the last six weeks the Manager has deviated from plus 5 basis points to minus 3 basis points from a 6.75 percent average, so I think it=s safe enough to say about the current level.",59
-fomc-corpus,1978,"I guess I=m making the same point in a different way that Frank just made about prevailing [money market conditions] but in a 1978 environment instead of a 1968 one. Terribly minor, but I think it might have some significance.",51
-fomc-corpus,1978,That used to be cast more often in terms of net borrowed reserves instead of the federal funds rate.,20
-fomc-corpus,1978,That=s all right.,5
-fomc-corpus,1978,"Thank you, Mr. Mayo and Mr. Baughman. We move to Mr. Roos.",21
-fomc-corpus,1978,"Mr. Chairman, I am impressed with the logic of Governor Wallich=s point of view and would like to be recorded as subscribing to his proposal. But I certainly am also impressed with the short time frame and would support and vote for alternative B. I would, Mr. Chairman, if I might, take the opportunity to address one remark to my good friend, Chuck Partee. For so long a time now, I=ve had to adjust to finding my aggregates objectives bloodied and buffeted, and now the threat of having my aggregates totally amputated is a bit of a shock.",119
-fomc-corpus,1978,"I can=t believe that myself. MR. [ROOS]. Well, what concerns me is the setting of a precedent. I fear that if [Chuck's] proposal had gone [through], next time there wouldn=t be any aggregates here.",49
-fomc-corpus,1978,"Well, the aggregates are fully alive and we move on. Mr. Balles now, please.",20
-fomc-corpus,1978,"Mr. Chairman, I can=t help observing that occasional backsliding is perhaps understandable, but to backslide ten years is a little far back to go.",32
-fomc-corpus,1978,"Well, that=s what bothers me. If you just went back 8 years--! MR. [BALLES]. Governor Partee is playing out one scenario in which you may get a very low growth in M1 in March if the coal strike isn=t settled. But I=d point out another possible scenario. As I look at page 4 of the Bluebook and see the way money growth--whether it=s nonborrowed reserves, total reserves, or the monetary base--has been accelerating, I can=t help but feel, Steve, that sooner or later that=s going to catch up with us. Therefore, I share the view of some others, including Governor Coldwell and I=ve forgotten who else, who said they felt there was a good chance of March M1 coming in at higher than the projected 7 percent. It=s going to be quite interesting to see, when we get to next month=s meeting, how those figures have been revised. But, having said that, I still think there=s a great deal of logic in holding steady as we are, and for reasons that have been set forth in detail, I would go with alternative B for this 3-week period with a money market directive.",247
-fomc-corpus,1978,Would anyone else like to speak?,7
-fomc-corpus,1978,"Mr. Chairman, I have no quarrel with alternative B. I=d just like to see something in the release indicating the coal strike as one of the economic uncertainties that we face. We have only the weather [mentioned] as a cause of our problems. And second, is there any change in the status of the Merrill suit?",67
-fomc-corpus,1978,"On the Merrill suit, the Solicitor General will be recommending to the Supreme Court that the Supreme Court take on the case. That is a favorable development. Now, we=re trying to move the two Banking Committees to give us legislative relief, on the assumption that down the road the Supreme Court will either be unwilling to take on the case or, if it does, may move against us and uphold the lower courts. The bill has been introduced in the Senate. I had talked to Mr. Reuss before in a meeting, telephoned him the other day, and sent him a letter yesterday urging him to introduce the bill without committing himself to it. Whether he will or not, I don=t know. If he doesn=t, we will get another Congressman to do it. It would be best, however, if the chairman of the committee introduced the bill without necessarily committing himself to it. Well, gentlemen, I think that we=ve had a good deal of discussion, a good deal of banter, and some differences; the differences are really very minor. A very clear majority of the Committee favors alternative B. There was some uncertainty, however, in my own mind as to the directive. I think we=ll need a show of hands on that. Those who are in favor of a monetary aggregate directive, kindly indicate.",269
-fomc-corpus,1978,[It depends on the] ranges.,8
-fomc-corpus,1978,"Yes, it does.",5
-fomc-corpus,1978,It depends on the ranges.,6
-fomc-corpus,1978,Let=s say that the range is 6-1/2 to 7. MR. MAYO/,22
-fomc-corpus,1978,On the M1 range?,6
-fomc-corpus,1978,"I=m sorry. The M1 range that a majority favors is 1 to 6 percent as in alternative B. Let=s make that assumption. Of course, we could proceed another way but I think that=s the most reasonable assumption to make. The differences are not large, you know. The 0 to 6 is a difference on the midpoint of 1/2 percent; 0 to 5, yes, is a larger difference, but a majority clearly favors 1 to 6. Assuming a range of 1 to 6, would the Committee favor a monetary aggregate directive?",121
-fomc-corpus,1978,Five. There are ten [voting members] today.,12
-fomc-corpus,1978,That means I have no way of helping the Committee.,11
-fomc-corpus,1978,My interpretation of a money market directive in the context in which people have been talking is that people really are very reluctant to see [the funds rate] decline below 6-3/4 percent.,40
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,That seems to me the substance of the thing. Is that correct?,14
-fomc-corpus,1978,Or go above 7.,6
-fomc-corpus,1978,"I agree with that side, too.",8
-fomc-corpus,1978,"Well, actually, I would sum up the thinking of the Committee a little differently. If we had a range for the federal funds rate that is lower than 1/2 percentage point [in width], it wouldn=t be 6-3/4 to 7, it would be something like 6-5/8 to 6-7/8. I think that=s the thinking of the Committee at this time. A range of 6-3/4 to 7, despite the eloquence with which the case was first presented by Mr. Volcker and despite the enthusiasm with which it was endorsed by Mr. Partee, did not win any more adherents--not because the case was put poorly, but because this Committee is stiff-necked and did not want to move in that direction. How do we resolve this question of the directive language? I=m not [feeling] very Solomonic today. Let me try again. This time my question is: Will the members of the Committee who favor a money market directive kindly indicate their preference by raising their hands.",221
-fomc-corpus,1978,"Four, Mr. Chairman.",6
-fomc-corpus,1978,"Now this time I=m going to proceed a little differently. How many who prefer a monetary aggregates directive would still not feel comfortable with a money market directive, whether or not you prefer it? Let=s have a show of hands. MR. BAUGHMAN(?). Whether we will lose sleep, Mr. Chairman?",63
-fomc-corpus,1978,Seven.,2
-fomc-corpus,1978,"In fairness, I think I now have to ask the question: How many members of the Committee, whether or not you prefer a monetary aggregates directive, would feel reasonably comfortable with it?",37
-fomc-corpus,1978,With the other specifications?,5
-fomc-corpus,1978,With the other specifications.,5
-fomc-corpus,1978,Four.,2
-fomc-corpus,1978,"I don=t think I understand the vote, do you?",12
-fomc-corpus,1978,I didn=t vote.,5
-fomc-corpus,1978,I didn=t either.,5
-fomc-corpus,1978,I would like to suggest that a 0 to 5 percent [M1 range] with a money market conditions directive would be very acceptable and perhaps equal in my mind to 1 to 6 percent with an aggregates directive. MR. MAYO(?). I feel the same way.,58
-fomc-corpus,1978,"That=s a good statement, except I think your figure is a little too high. But it=s good thinking.",23
-fomc-corpus,1978,Talking about the March growth--,6
-fomc-corpus,1978,"Well, maybe I should have been less fair. Maybe I should have stopped when I asked how many, whether or not you prefer a money market directive, could be reasonably comfortable for a three-week period with it. Perhaps I should have stopped there. Let me pursue this. Mr. Guffey didn=t understand the question. Let me stay on this track of fairness, though not indefinitely. How many of you would feel reasonably comfortable with a monetary aggregates directive over a period of the next three weeks, whether or not you prefer a monetary aggregates directive?",111
-fomc-corpus,1978,Money market directive?,4
-fomc-corpus,1978,"Aggregates, he said.",6
-fomc-corpus,1978,With 1 to 6?,7
-fomc-corpus,1978,With a 1 to 6 percent [M1] range.,14
-fomc-corpus,1978,Six.,2
-fomc-corpus,1978,"Now, we have the narrowest margin on the most subtle point in favor of money market directive--not in favor of but willing to live with it for only a three-week period. Unless there is a desire for further discussion-- Yes, there is such a desire.",54
-fomc-corpus,1978,"Mr. Chairman, would it be fair for you to ask for a show of hands of those who prefer a money market directive with a 1 to 5 or 0 to 5 percent range as against those who prefer a monetary aggregates directive with the 1 to 6 range?",58
-fomc-corpus,1978,The 0 to 5 range with a money market directive as against 1 to 6 with an aggregates directive?,24
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,All right. Those who prefer the former would kindly indicate that.,13
-fomc-corpus,1978,A 0 to 5 range with a money market directive?,13
-fomc-corpus,1978,Three. MR. MAYO(?). I=ll resign!,13
-fomc-corpus,1978,So it=s 1 to 6 with an aggregates directive. That=s the alternative.,18
-fomc-corpus,1978,"No, don=t resign. Apart from missing your cheerful countenance, we might be short of a quorum. I=d be a little worried about that. MR. MAYO(?). Sorry about that.",41
-fomc-corpus,1978,"Gentlemen, I think we=re ready for a vote. The vote is on a growth range for M1 of 1 to 6 percent; a range for M2 of 4-1/2 to 8-1/2 percent; a federal funds range of 6-1/2 to 7 percent; and a money market directive. Before we do that, on line 12 of the draft of the domestic policy directive, Mr. Broida suggests that we state 1-1/2 instead of 1 percent. I assume that has been checked out by the staff and I assume that it=s [accurate]. Mr. Jackson?",137
-fomc-corpus,1978,"In our directive, we advise the Desk to take into consideration emerging money market conditions including the ""unsettled"" conditions in foreign exchange markets. While I would be the first to agree that they had been unsettled, by continuing to use that word are we in turn continuing to remind the world just how unsettled they are? Would we be wise to eliminate that word and just say ""including the conditions in foreign exchange markets""?",86
-fomc-corpus,1978,"I would eliminate the word [""unsettled"" and say] ""including conditions in foreign exchange markets.""",21
-fomc-corpus,1978,That strikes me as more prudent.,7
-fomc-corpus,1978,"I think so. Any objection to dropping the word ""unsettled""? I think it=s better form. Thank you. Are we ready for the vote now? Would you call the roll?",39
-fomc-corpus,1978,Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes President Guffey Yes Governor Jackson Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Unanimous.,43
-fomc-corpus,1978,"Well, I want to thank all of you for a very interesting meeting. I didn=t want to say this but I can say it now. If there ever was a time for this Committee to be unanimous, it was today. Now, I got a note before--this came in about twenty minutes ago and I haven=t had one subsequently--which reads as follows: As of this moment the Senate Banking Committee is now voting on waiving the 24-hour rule and will vote now on Miller. That means that Mr. Miller may be confirmed or perhaps is even likely to be confirmed by the committee today. If so, I think that would be good news for the System. I think we=ll have more information at lunchtime. We are going to take luncheon together. Or for those of you who are [available], I thought we could have luncheon together. Those of you who have made appointments, of course, feel free to keep them. I have no specific agenda, but a room is reserved. What room is it?",207
-fomc-corpus,1978,"Dining room F, which has space for 20.",11
-fomc-corpus,1978,"Well, there are how many members?",8
-fomc-corpus,1978,A total of 17 Board members and Reserve Bank Presidents.,12
-fomc-corpus,1978,"Well, if all of the Board members and Presidents come, we have room for our Secretary and for Mr. Axilrod. That makes 19 and I shall think about the 20th one.",41
-fomc-corpus,1978,"Mr. Chairman, how is Governor Gardner?",9
-fomc-corpus,1978,"I don=t know, but he=s been in the hospital since a week ago this Friday. He is continuing to undergo tests, which leaves us with a great deal of hope, but all of which does suggest that there are problems that require further explanation and may be serious. I hope not.",59
-fomc-corpus,1978,"Well, he can join us when he arrives. First, we can start on some of the procedural matters, if I can find my agenda. This is the [annual] organizational meeting, as I understand it. The first order of business, therefore, is the election of officers to serve until the election of our successors at the first meeting after February 28, 1979. Governor Wallich, you seem like the likely one [to start us off].",93
-fomc-corpus,1978,"Well, I'll be glad to put in nominations for Chairman and Vice Chairman of the Committee. I would nominate you, William Miller, head of the Board, as Chairman and Paul Volcker, President of the New York Federal Reserve Bank, as Vice Chairman.",51
-fomc-corpus,1978,Second.,2
-fomc-corpus,1978,"There's a motion and a second. Is there any dissent? That is approved. For the other officers, I would like to nominate Arthur L. Broida as Secretary and call upon Mr. Broida as Secretary to put before you the additional slate of officers.",54
-fomc-corpus,1978,"Deputy Secretary, Murray Altmann; Assistant Secretary, Normand Bernard; General Counsel, Thomas J. O'Connell; Deputy General Counsel, Edward G. Guy; Assistant General Counsel, Robert E. Mannion; Economist, Stephen H. Axilrod; Associate Economists from the Board: Edward C. Ettin, Peter M. Keir, James L. Kichline, John E. Reynolds, Edward M. Truman, and Joseph S. Zeisel; Associate Economists from the Reserve Banks: Ira Kaminow--suggested by Mr. Eastburn; Richard G. Davis--suggested by Mr. Volcker; John M. Davis--suggested by Mr. Winn; John Paulus--suggested by Mr. Willes; and Joseph Burns--suggested by Mr. Baughman.",165
-fomc-corpus,1978,"If any name has been omitted, it would be an embarrassment later. Are there any additions or corrections? May we consider this slate approved? Hearing no objection, it is approved. The next item of business is the selection of a Federal Reserve Bank to execute transactions for the System Open Market Account, and the New York Bank has volunteered. Are there any contenders for the assignment?",75
-fomc-corpus,1978,Was that with or without duress?,8
-fomc-corpus,1978,"Well, hearing no dissent we will approve that. The third item is the selection of the Manager of the System Open Market Account, the Deputy Manager for Domestic Operations and the Deputy Manager for Foreign Operations. The incumbents in the respective positions, as you know, are Alan Holmes, Peter Sternlight, and Scott Pardee. We would propose to redesignate them if that meets with the approval of the Committee. Hearing no dissent, we will consider that approved. Next is the approval of the minutes of actions taken at the FOMC meetings of February 28 and March 10, 1978. I believe these minutes have been circulated. Are there any comments, corrections, or additions? Then, Mr. Secretary, those would stand approved. The fifth item of business relates to foreign currency operations, which have been of more interest recently than in prior years. And we have Scott Pardee here to give us the report on the operations since the last Committee meeting.",194
-fomc-corpus,1978,Thank you Mr. Chairman. [Statement--see Appendix.],12
-fomc-corpus,1978,"Thank you very much, Scott. Are there any questions or comments? Henry.",16
-fomc-corpus,1978,"Scott, could you give us an opinion as to what the Treasury's views are on the scale of operations? You receive some guidance from them, don't you?",32
-fomc-corpus,1978,"During this period they have been in full agreement with what we've done. I have not had any pressure from them to do any more or any less. Their view has changed with the atmosphere, too. But currently I've had no difficulty.",47
-fomc-corpus,1978,"Does the initiation, Scott, come essentially from the Desk rather than the Treasury?",16
-fomc-corpus,1978,"Oh, yes.",4
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"Scott, you didn't buy anything at anytime during this period?",12
-fomc-corpus,1978,We bought marks from correspondents rather than--,9
-fomc-corpus,1978,"Would you anticipate, on a rising market, buying some marks?",13
-fomc-corpus,1978,"Oh, yes. If I have a rising market, I would like some marks.",17
-fomc-corpus,1978,You said there was one period in which [the dollar] went up 5 percent.,18
-fomc-corpus,1978,"If I had walked into the market on those days, I would have given the market an indication of a policy.",23
-fomc-corpus,1978,"The market was very thin, I take it.",10
-fomc-corpus,1978,It was thin. But there were policy discussions going on and [activity by the Desk] might have given a misleading statement to the market. I wanted to stay on the sideline because if I had been either a buyer or seller I would have added to the market confusion as to what official intentions were.,61
-fomc-corpus,1978,"Paul, you had strategically placed yourself in Basle for this announcement. Would you like to make any comment?",22
-fomc-corpus,1978,"Yes, just in terms of the reaction there. Some of the governors were briefed just before the announcement and the rest of them at the time of the announcement. I would say that in general they welcomed the initiative. They didn't know what the market reaction was at that point. I think it's too much to say that they were enthusiastic in terms of the content of the announcement. There was a certain degree of skepticism as to what result it would have. There was some concern expressed rather generally--concern may be too strong a word. The observation was made repeatedly that it would have been nicer to have the initiative less bilateral and more multilateral. They were somewhat satisfied by the comment in the statement at the end, which you may recall referred to multilateral forms. And most of them took the occasion to urge that, indeed, these multilateral forms be utilized. But I think, in general, the statement was welcomed. The staff tried very carefully to put this in the context of a step as part of a continuing process and not the end of all problems. And [those at the meeting in Basle] certainly viewed it in that light and welcomed that it was viewed by the United States and Germany in that light. indicated his own view that this represented some attempt at political reconciliation and, of course, that was welcomed as well. Let me make one other observation if I may, while I have the floor, Mr. Chairman, in terms of this market. I don't know what it means, but I find it interesting. This market has been very depressed in tone, very uncertain, and technically in poor shape for some time. If one looks back to early January when the U.S. announcement was made, that triggered a little different intervention at first but over the [subsequent] 2-1/2 month period the rates have changed very little. I don't know what that means, but I think it's a fact, though [the dollar] has had some ups and downs of course during this period.",407
-fomc-corpus,1978,With less intervention overall?,5
-fomc-corpus,1978,On the part of the Germans.,7
-fomc-corpus,1978,I don't know about less intervention.,7
-fomc-corpus,1978,It has been sporadic intervention.,7
-fomc-corpus,1978,It has been less in a period of time.,10
-fomc-corpus,1978,In a quantitative sense.,5
-fomc-corpus,1978,More by us--double by the United States.,10
-fomc-corpus,1978,In the previous 2-1/2 months.,11
-fomc-corpus,1978,"I might make a few comments. I would just observe that from my point of view, or from the Federal Reserve's point of view, the handling of this particular package was not ideal, and that teaches us a lesson. Premature disclosure of discussions did take the edge off the ability to present a package that could have been analyzed a little differently. The terms or the contents of the package became fairly well known before the official announcement. We anticipated in any case that the package had certain limitations--that it was not powerful. And we took a view that the Federal Reserve should have a very low profile about this package on the proposition that if you come out with a step that is not a powerful one then you certainly shouldn't look to give it a great deal of emphasis in the media. So, we were not surprised at the market reaction. I think it's a fair statement to say that we felt that we might have to marshal resources to deal with the disappointing reaction. And we might have been more fortunate [in that regard] had the announcement come as an announcement without [prior] disclosure. There were some conditions [proposed] by the FOMC at its meeting of March 10 that I'd like to mention. One was that we continue the same terms on the new $2 billion addition to our swap line with the Bundesbank with regard to rates and risk sharing and those were worked out. Alan, you worked those out very nicely. There was also a desire to maintain the participation of the Treasury, and with some backing and filling we have received the commitment of the Treasury to stay on a 50-50 basis until they exhaust their original resources from the January program and then to shift to a 60-40 ratio. We would do 60 percent and they would do 40 percent, which is what we discussed in the FOMC telephonic conversation. They have agreed to that, which means that if we continue to intervene, at some point they will run out of resources before we do. It is our view that it would be better to keep them in this in a fairly substantial way rather than trying to scale back further. After all, there are additional resources that the Treasury could call upon. One item that we were to endeavor to pursue was the repayment matter--whether we can pay the Bundesbank directly and on what terms--and that will take some time with the Germans. We have had guidance that any repayment program would certainly not be stretched beyond the year; at least that's the [indication] at the moment. Another part of [the Committee's guidance on the negotiations] was to seek a takeout from the Treasury and that is under discussion. But the Treasury has so far indicated they have, in their view, both legal problems and policy problems in responding to that in the short term. Their legal problems I cannot assure you that I understand, but they are related to whether or not they have the authority to take on new risk at this point without Congressional action or without some cleaning up of their [Exchange] Stabilization Fund position. We are going to try to find out more about that. The policy issue is their fear that assuming more currency exchange losses in the near term will bring on Congressional limitations because there are some political problems. So, we are pursuing that but we have not resolved it yet. I believe those are my comments. Henry, would you like to add anything?",685
-fomc-corpus,1978,"Could I ask Paul a question? When you got these responses in Basle that they would have wished for more multilateralism to the action, do you think they were, among other things, referring to the use of swap facility drawings on others than the Germans--maybe the Swiss?",57
-fomc-corpus,1978,"The comments were pretty general and it was the kind of reaction you would expect in a multilateral group where some of them were left out. I think in some specific cases--yes, the Swiss in particular--they would like us to be a little more active in their currency. Some of the others referred very vaguely to the point that the sale of SDRs could be spread around a little more than just selling in Germany. But it was not pressed, really. The comments were fairly general.",99
-fomc-corpus,1978,"We have viewed all these things as temporary or bridging actions and fundamental issues need to be addressed. That's why you probably read in the press some of our comments about inflation and the necessity to do something that would show more decisiveness in that area and to do something about energy. The problem with energy is something beyond our purview, but it's one that is being looked at. I don't know what the outcome will be in terms of alternative action by the President in case an energy bill acceptable to him is not passed. As you know, the statement with the Germans did reflect the willingness to take action along these lines, but that still has to be determined. On the relative rates of growth, the communique indicated that the Germans would look one quarter earlier at their rates of growth. But again, a realist will recognize that looking doesn't mean action and that they have their own internal problems about the speed of recovery of their economy in terms of their inflation and budgetary deficits and so forth. This is by no means--and it should not be viewed as such--anything that constitutes coming to grips with significant action on the substantive fundamental issues. They still remain to be resolved.",234
-fomc-corpus,1978,"Let me just report one other impression at Basle that just struck me personally, Mr. Chairman. It's not directly related to this package but it is related to the fundamentals. One European country after another is making progress now on the inflation side. They are not doing very well on the growth side but their rates of inflation are coming down quite decidedly. You can see this in the statistics but hearing [the European representatives] one after another cite the progress was rather impressive as I was sitting there. And it's at a time when we are concerned about precisely the opposite. To some extent that is affecting the exchange markets; it helps account for the present uncertainties.",131
-fomc-corpus,1978,Was there any comment about the fact that their oil now costs them less as a result of our dollar exchange rate?,23
-fomc-corpus,1978,They don't comment on it very frequently but it is clearly recognized--though maybe not enough. But that's part of the reason the Swiss talk about possibly having an actual decline in prices this year internally.,39
-fomc-corpus,1978,"Gee, if they could just export some of their deflation!",13
-fomc-corpus,1978,It's their domestic tax level. That [and the fact that their] exports are much less expensive.,20
-fomc-corpus,1978,That may mean that real wages will rise significantly.,10
-fomc-corpus,1978,Mr. Chairman.,4
-fomc-corpus,1978,"Yes, Ernie.",5
-fomc-corpus,1978,May I ask a question either of you or Paul? Have there been any suggestions emanating from other countries that we consider selling gold in this situation?,30
-fomc-corpus,1978,"Yes, from other countries. Paul can speak to that.",12
-fomc-corpus,1978,"Well, I was just talking about the setting of that meeting. I don't think anybody really pressed that point. There was a little discussion that it might be in the background and some would welcome that, I am sure, in coming weeks. There was more suggestion of the foreign currency bond idea, although that was not pressed strongly. But it was mentioned by a number of people.",76
-fomc-corpus,1978,"Was it more than mentioned, Paul, or was it embraced with any degree of enthusiasm?",18
-fomc-corpus,1978,"Well, I'm sure that several of them would embrace it with great enthusiasm if you gave them the chance. I didn't encourage this avenue and they had the statement in front of them, in effect. They knew the statement was coming out and knew it wasn't included. They didn't want to queer the atmosphere by pressing and they did not press but it was obvious that a few of them would like to see it.",81
-fomc-corpus,1978,John.,2
-fomc-corpus,1978,"Mr. Chairman, since we are on this matter of the foreign currency bond, where does the Treasury now stand on that?",25
-fomc-corpus,1978,"The Treasury has severe reservations about it. Originally, two weeks ago, they were taking the position that they would not be in favor of it--that it raised too many problems for them. Since then I think they have become a little more open minded about it. However, I think the first avenue is apt to be the sale of gold. Sales of gold were under consideration and were deferred partly because of the French elections, which are now over. So I think it's likely that the Treasury will start a program of selling gold, which I personally would favor. There are a lot of advantages in using gold because at least then we don't end up with debt and the currency risks that go with it. So I think that's an avenue that should be pursued. There has been a discussion about the level of gold sales that are possible--what the market can absorb and that sort of thing. Henry can correct me, but I believe the Treasury feels that they could sell about 300,000 ounces a month.",201
-fomc-corpus,1978,"That would be a very moderate amount--something like less than 60 million. And bear in mind that unless they can develop a means of selling the gold for foreign currency in a way that doesn't cause holders of dollars to buy that foreign currency in order to buy the gold, it could be completely counterproductive. Then there isn't going to be much of a net effect. There is some because after all we are importers of gold, which may reduce the imports of gold and may make the trade balance look a little better. There is some portfolio shift when there is gold in portfolios instead of dollars, so I wouldn't say it's without effect but there are lots of qualifications on the possible success.",138
-fomc-corpus,1978,"The nice thing about this problem is that it's surrounded by dilemmas! Everything you do has an adverse effect on something else. Nothing is ideal. I might add that we live in a situation where the market is very realistic, very factual. That's why the possibility that gold would be sold caused the gold price to drop by $5. You don't have to sell gold, you just have to breathe [that you may] one day. Dave.",89
-fomc-corpus,1978,"A question to Scott, please. One of the factors expressed in the disappointment of the market was that there was no element of exchange controls in the package. How hip is the market on this question and is it likely that nothing very constructive will be done absent some action on exchange controls?",57
-fomc-corpus,1978,"It's one reason why people were so disappointed. Nobody really wants exchange controls; it's just that people felt that this would be the next move on the German side. And the Germans have rejected controls very forcefully both publicly and with our counterparts in Basle. So, as I say, people were watching what the Swiss have done, which actually forced money out of Swiss francs. And they are afraid the Germans might have to resort to similar controls. There is a lot of talk in the market about the United States imposing controls and I think that has been firmly rejected by everyone I know on the official side. The great disappointment, I know, was more over these bonds. The German banks and Swiss bankers--I have talked to some of these fellows--said they sold dollars out of anger that they did not get the bonds they wanted. They thought [such bonds] were going to be very attractive for them to hold and to market and they were looking for those to be in the package. When they didn't see [any reference to them], then they just sold dollars.",214
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"I spoke to of the Bundesbank and he said that, sure, they'd love to sell these bonds just as you say, but I don't think he thought it would be a very helpful operation for you. That's because people with dollars would go and buy the D-mark bonds and in the end there wouldn't be much effect other than that there would be a little more D-mark bonds and fewer dollar bonds in the world, a rebalancing of portfolios.",90
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"Scott, if my arithmetic is correct, there's $50 million of Treasury money left. What happens if you hit a big day?",26
-fomc-corpus,1978,"Well, Alan was going to cover this question.",10
-fomc-corpus,1978,"Phil, do you have a question?",8
-fomc-corpus,1978,That was exactly my question.,6
-fomc-corpus,1978,"Yes. We have all these policy dilemmas we are speaking about. Relative growth rates are such that we are going to continue to have these large current account deficits. Then our choices are going to narrow down to whether we'll take a lower growth rate in our economy, because it doesn't look like we are getting the relative speedup in other economies. [A lower growth rate] is something that I think many of the economic advisers in the Administration are now willing to accept because the alternative is to continue to see the dollar under pressure, and our resources to change it are not great. And that in itself feeds inflation into our economy and creates a whole series of other [developments] that lead us down an unhappy trail. So there is at least some thinking about whether we have to have a willingness here to shade our growth rate somewhat.",167
-fomc-corpus,1978,[Accept a] lower growth rate in the domestic economy in order to keep the dollar up? Is that what you are saying?,26
-fomc-corpus,1978,"No, in order to hold down imports and to improve the--",13
-fomc-corpus,1978,I'm amazed that that would be a view in the Administration.,12
-fomc-corpus,1978,It is.,3
-fomc-corpus,1978,"I've heard this and it's influenced, of course, by the rapid decline of the unemployment rate.",19
-fomc-corpus,1978,What if it goes up again?,7
-fomc-corpus,1978,"This is the current situation. Now, unless there are more questions on that, we have to ratify the transactions of the Desk since the previous meeting. I assume this [report] has been circulated. Is that correct? Any comments or questions? [I take it] then that we approve and ratify the transactions of the Desk. The next item is the report of the ad hoc subcommittee on the subject of currency matters. Henry, I believe you are reporting on this today.",98
-fomc-corpus,1978,"I'm reporting now and Alan Holmes will have something more to say that takes off from the report of our subcommittee. I would like to remind you that this ad hoc subcommittee--which will go out of business today--must be distinguished from the Foreign Currency Subcommittee, which is a continuing body. We had three charges: [To make recommendations on] (1) revisions in the procedural instructions, which govern the limits on what the Desk can do in a day or over an intermeeting period; (2) options for the repayment or renewal of maturing swaps with the Bundesbank and, (3) the appropriate scale of System exchange market intervention. I think you all have seen the report, so let me just highlight what the subcommittee came up with on the three charges. One, we did have two suggestions for the daily and the intermeeting limits on gross transactions. Bear in mind that we have two kinds of limits. One is on gross transactions in a single currency, simply the dollar amount of [the total volume of our] trading even if it leads to no net change in the overall position. The second is on the overall open position, often referred to as the net position, which is the risk exposure. We may be long of something and short of something else, and it doesn't matter which way the exposure goes; the risk depends on the magnitude, not on whether one is long or short in a foreign currency. Now, the Desk has found that the gross transactions limit of $100 million a day is somewhat confining. If they engage in ""in and out"" trading, making a market on both sides, they may not be changing the risk exposure at all, or just very little, but they may be engaging in large transactions, and that limit may become confining. So, we have suggested that this be raised to $200 million per day and to $500 million for the intermeeting period. The Foreign Currency Subcommittee has the power to raise both limits. At present that Subcommittee can raise the $100 million to any level--in effect waive the limit if the Subcommittee doesn't want to set a new limit--and it can raise the $300 million intermeeting limit. It is now proposed that the same powers be given to the Foreign Currency Subcommittee, taking off from the proposed new limits of $200 million per day and $500 million from meeting to meeting. There's no ceiling on what the Subcommittee can do because the Subcommittee cannot cause the incurrence of a higher degree of risk by these particular transactions. There is a minor matter relating to the purchase of foreign currencies for the purpose of buying another currency with which a swap is to be repaid. That [involves] three transactions, and if you add them all up, they cut pretty heavily into the daily transaction limit. That was not the intention. It was discovered that that was indeed what would happen if, say, the Desk buys D-marks, then buys Swiss francs with the marks, and then gives [the francs] to the Swiss National Bank in repayment of a swap. As I say, the money has moved three times, but it doesn't make sense to take that out of the limit. So we are proposing to ignore these transactions for the purpose of that limit. Well, Mr. Chairman, since this would take a vote, I think I will just stop at this point and let [you proceed on that].",691
-fomc-corpus,1978,Perhaps there will be questions or discussion. Frank.,10
-fomc-corpus,1978,"Henry, it's not clear to me why the daily limits should be established on a gross basis in the first place.",23
-fomc-corpus,1978,"Well, there is an explanation of this here in the paper. There are essentially two reasons and not everybody considers them equally important. One is that, given the nature of the definition of the net exposure, it is possible for the Manager to perform a very large operation which completely reverses the existing situation but comes out with the same exposure on the other side. You can have a plus exposure that you eliminate and make it a minus exposure, and you haven't changed the net exposure at all. Yet this would be a sizable operation and, of course, policy wise, very different. While one would not expect the Manager to do that, nevertheless it seems that there's a defect in the way the net position is defined and that ought to be cured. When the subcommittee discussed this, there didn't seem to be an easy and obvious way of curing that defect. Paul Volcker suggested that he would work on trying to find a better formulation for limiting the net exposure and I'm also doing more work on this. But I have to say that we did a great deal of work some years back trying to accomplish just that and we didn't make any headway. There's a second reason, which I think the Desk weighs much more heavily, but I do not. And that is that the Desk can be going in and out in small amounts with, say, the Bank of Canada or the Bank of England. If this is done to excess, then the whole market moves into the central bank; the central bank preempts the trading that goes on with the nonbank sector, and that is not desirable from our point of view. We want to have a market with, as you remember, breadth, depth, and resiliency--to coin a phrase. And this limit tends to inhibit excessive trading of this kind. Bear in mind that the limit can be removed any time by the Committee or by whoever can be reached from the Foreign Currency Subcommittee.",386
-fomc-corpus,1978,"Well, it just occurred to me that perhaps we might be limiting the discretionary action of the Manager. If we had this kind of limit on domestic open market operations, it would have to be enormous. Is this $200 million satisfactory to the Manager?",50
-fomc-corpus,1978,"Well, President Morris, I guess I'd say we could live with it. I, too, feel that maybe a redefinition of the open position is a proper solution. Gross transactions to me are not important, although I must say that the Desk would never consider a huge move from a short position to a long position staying within a net, let's say, of a couple of hundred million. Nor would we want to take over the market and become the market for foreign currency. We may have to do that for half an hour on a very poor day, but day in and day out absolutely not. We would be very much opposed to that. But I think we can live with these limits with the provision that we can have them raised if we see the need. It's time consuming and if we are very busy with market operations, we know we have a lot of little numbers to remember on the side, and that's a little annoying. But we can live with it, I think, at this time.",201
-fomc-corpus,1978,"I must say, Mr. Chairman, that I don't find the argument for a gross limit very persuasive.",21
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"Well, I think I feel the same way. I understand, Alan, that to the extent $200 million is twice $100 million it will be less limiting than before. But it doesn't seem a very satisfactory solution to just say that the limit has stopped us so we will raise the limit. I can't understand--but I don't know all of the details--why we can't measure in algebraic terms. That is, [we could measure] from a net short to a net long or from a net long to a net short position in the course of a day and leave the limit at $100 million.",122
-fomc-corpus,1978,"Well, we are trying to find a way of accomplishing that. It means that you then say to the Manager you can reduce the exposure from $100 million to, let's say, zero exposure and that's the limit of what we allow you to do. That's not a meaningful guideline.",56
-fomc-corpus,1978,Why?,2
-fomc-corpus,1978,What you want to do is to limit the additional exposure that the Manager can create. So it's fine if the constraint limits him from going from $100 million to $200 million or above $200 million. But it seems to me that something that increases the protection of the System account ought not be constrained.,61
-fomc-corpus,1978,"Bob, you had a question.",7
-fomc-corpus,1978,"I wondered if I might ask Alan: Do you have in mind a particular change in the net open position that would do the trick, Alan? I believe we've talked about this at length and I know a lot of people have worked on a definition and encountered the difficulty that Henry described.",57
-fomc-corpus,1978,"We would have come up at the Desk with a higher number than that [proposed] but, as I say, I think for the time being we can live with the proposal and perhaps we can get around to a better definition of the net position.",51
-fomc-corpus,1978,"Well, I think it's fair to say that the Desk came up with a proposal of $300 million per day and $1 billion for the intermeeting period.",32
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,"That seems to me too large, but it's something that perhaps should be discussed.",16
-fomc-corpus,1978,"Mr. Chairman, I think it should not be called a net limit. Everybody is using ""limit"" as shorthand. It is not a net limit; it is a limit on the change in the open position. It's a measurement of the open position done exactly the way banks do it to measure their exposure. One should not, I think, confuse the gross limits that we are talking about in terms of these kinds of transactions with the open position limit, which is a question of the System's exposure. It's a quite different animal. I think that is essentially the point that you were trying to make, Governor Wallich, of why it's difficult to capture the points that you're concerned about with respect to the gross and at the same time trying to use the open position limit to control the System's exposure in transactions. Those are quite different animals.",169
-fomc-corpus,1978,"May I make a suggestion? I think we are in an area we could probably discuss all day and have different opinions. If we can live with this for a month, can we come back with another suggestion? Would that be all right with the Desk? If we can find a better way to express this in net terms and so forth, let's do it.",72
-fomc-corpus,1978,What is the difficulty of living with our present limits--we've been living with them for a year--if we are going to come back to this question?,32
-fomc-corpus,1978,It's taking a lot of time.,7
-fomc-corpus,1978,Why not live with our present ones before we change them?,12
-fomc-corpus,1978,"On days in which we are active in the exchange market we may spend up to an hour or more discussing where we stand under these various limits and it's taking up the time of the people who actually have to make the decisions and evaluate the movements in the market. And to the extent we are discussing matters with people here in Washington, we want to discuss the policy implications and not whether we have $5 million left under this limit.",86
-fomc-corpus,1978,My experience the last few times would verify that. I think the Desk has acted responsibly and I think the more time spent on substantive issues and the less on mechanics helps make the Desk work better. So I would certainly support the idea of giving them a little running room and then looking at the situation.,60
-fomc-corpus,1978,"May I make two points there? One is that it raises the question of whether the ad hoc subcommittee should be continued to work on this. Second, I'd like to emphasize that any increase we might allow now or subsequently in this particular limit shouldn't be understood as a suggestion that the scale of operations should be raised. It's simply for the convenience and better functioning of the Desk, not as a hint that they should double our operations.",86
-fomc-corpus,1978,I think that message has been [given].,9
-fomc-corpus,1978,That's what concerned me about the proposal; the inference was that we should become much more active.,19
-fomc-corpus,1978,"Well, the net position limits are not being changed.",11
-fomc-corpus,1978,"That's correct. That's why it turned out just to be practical. Well, if we're going to re-examine this, should the ad hoc committee stay in being until next meeting just for this purpose?",40
-fomc-corpus,1978,"For this purpose and there's also a minor issue in that we may wish to define the nature of ""disorder."" There's work going on in the subcommittee on that.",34
-fomc-corpus,1978,"Why don't we do that then? Let's continue it for a month. Now, what is the pleasure of the Committee as to the proposed changes in the gross transactions in the daily limit and the limit between meetings? The proposal is to change them from $100 to $200 million and from $300 to 500 million. Is that correct?",68
-fomc-corpus,1978,That's correct.,3
-fomc-corpus,1978,Is that a motion?,5
-fomc-corpus,1978,That's the proposal by the [sub]committee and I move it.,14
-fomc-corpus,1978,Would that include the reaffirmation of the other instructions that we've had? We're just changing those [limits].,21
-fomc-corpus,1978,The second motion that I'd have to make involves these purchases leading to the repayment of the swaps. That is all in paragraph 1[B] of the procedural instructions and I move that it be amended as proposed here.,43
-fomc-corpus,1978,Is everybody clear on what you're proposing? Is there a second?,13
-fomc-corpus,1978,Seconded.,3
-fomc-corpus,1978,"The motion has been seconded. If everyone is clear on what the motion is--I have it before me and I assume everyone else does, too--is there any further discussion? All of those in favor, say ""aye."" ALL. Aye.",52
-fomc-corpus,1978,"Opposed? So voted. Henry, you have other items to discuss.",15
-fomc-corpus,1978,"Yes, the second topic we dealt with--the repayment or renewal of the maturing swaps--I have no immediate final proposal to make, with one exception which Alan Holmes will talk about subsequently. Essentially there are four options: (1) to repay quickly; (2) to repay with a short rollover of 3 or 4 times for a total 9 to 12 months; (3) to renew for a total of perhaps 2 years; and (4) to use a device by which the existing swaps are consolidated into a different kind of paper which is amortized over a period of 2 or 3 years, along the lines of the Swiss model. We've done the latter with the Swiss swaps that are outstanding. We have tried to set forth here the considerations pro and con. From our point of view immediate [repayment] is, of course, in many ways best because it reduces the risk. It's true that we [realize] the loss and we forgo the chance that the dollar may appreciate and reduce the loss, but that is uncertain. All that is certain is that if we renew in any form we continue to have a risk, which is shared 50-50 with the Bundesbank--provided they go in on the 50-50 [risk-sharing agreement] on all these [drawings]. Conversely, from the point of view of the Bundesbank it is quite frustrating to have us repay immediately. The only way this can be done, practically speaking, is to draw on the Bundesbank to get the D-marks [necessary to repay]. We give them dollars, get D-marks, and then give their own D-marks back to them in payment of the swap. If the market should turn around dramatically we might still, in the course of a few months, be able to go in and buy the D-marks in the market. That's what the Germans hope and would like to see. But if we say now that we can pay when the swaps mature, namely in April after 6 months--[and some mature in] May and June after 6 months--there is very little time for a turnaround before repayment. The Bundesbank is very sensitive to our getting D-marks from them. I think it is basically a sense of frustration. They thought that they had what's in there with them and now they're getting the dollars just as if they'd bought them to begin with except that we share 50 percent of the loss during the period the swaps [exist]. But ultimately, it's just as though they had done all the intervention and are running all the future risks on dollars. Alan will explain this. So from [the Bundesbank's] point of view, they lean toward a longer arrangement, extending the swap for 2 additional years perhaps--the Swiss type slower amortization approach--because that lengthens the period, postpones the [time] when they've got to take dollars, and increases the hope that we'll be able to go into the market and unwind [this debt] without taking D-marks from them. And we'd have the additional advantage that they would not have to make permanent the monetary expansion that came when we first drew on them and they had to issue marks. If we give them dollars now, then that monetary expansion is permanent; if we buy the D-marks in the market and give them to the Bundesbank, then there is a monetary contraction at that time, which the Bundesbank would probably like although they can offset it one way or the other. Well, this needs a very detailed and thorough explanation and we didn't have the time to do that. Alan and I talked in Frankfurt and Basle, as he pointed out, and persuaded the Germans to be a little more forthcoming on the length of time we would have for these discussions. What the Bundesbank suggested in their proposal for a new $2 billion swap was that we roll over the swaps maturing in the next three months--in April, May, and June. These are all swaps that have run for 6 months and, therefore, have been renewed once. That is the limit, unless we take special action with respect to the German swaps. They propose that we renew these swaps for 3 months and our response to them was that we took note of this proposal; we didn't agree or disagree. The Committee has to decide whether as a first step in dealing with these swaps it wants to [proceed] in the proposed way The subcommittee recommends that the Committee do these 3-month renewals and give guidance for negotiations with the Bundesbank, which would lead to the formulation of a recommendation or possibly alternative solutions that could be submitted to this Committee for approval. The Bundesbank would be willing to accept that [based on our] intensive discussions in Frankfurt, Basle, and elsewhere. So, we do have a recommendation here. I wonder if I may defer now to Mr. Holmes, Mr. Chairman, so that he can make his formal recommendations.",1006
-fomc-corpus,1978,"Mr. Chairman, during the month of April, the System has sixteen maturing swap drawings on the Bundesbank, totaling $584 million, and one drawing on the Swiss National Bank of $18.9 million. Ten of these sixteen German mark drawings and the single Swiss franc drawing are first renewals. And that would create no problem under our swap agreement. As Henry has pointed out, second renewals require the mutual agreement of the Bundesbank and the Federal Reserve. Governor Wallich has indicated that his ad hoc subcommittee agrees with the Bundesbank suggestion that swaps maturing in April, May, and June be subject to a second renewal. And I recommend that the Committee approve the Bundesbank's suggestion.",142
-fomc-corpus,1978,"Any discussion, questions? Yes, Phil.",9
-fomc-corpus,1978,"Mr. Chairman, I would second that proposal but only if in the interim period we are seriously negotiating a long-range repayment procedure. I gather that was the intent of the renewal, Alan. So given that clear understanding that we will come out with some sort of repayment program within this time frame, I would be willing to support that proposal.",68
-fomc-corpus,1978,"Mr. Chairman, I should also note that this agreement for a second renewal will in no way impede earlier repayment if the market turns and we are able to acquire marks in the market--in other words, if we're lucky.",45
-fomc-corpus,1978,You have the right of prepayment.,8
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Yes, or if we make an agreement in that interim period for prompt repayment.",16
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,"Any other comments or questions? You've heard the motion, the second. All those in favor say ""aye."" ALL. Aye.",27
-fomc-corpus,1978,"Opposed? So voted. Alan, I think you have other [comments to make.]",18
-fomc-corpus,1978,"Yes. I think Henry has given a good review of the four options that the ad hoc subcommittee had in mind. While the immediate problem of the swaps maturing over the next few months is solved for the time being, as the ad hoc subcommittee report notes, and as other members of the Committee have noted, the Germans feel a need for further discussion and early resolution of the issues toward agreement on some longer-term solution. As Henry noted, I did have preliminary discussions with Bundesbank officials in Frankfurt on March 9 and 10 and then again in Basle on March 14. During these meetings, it was obvious that the Germans were very much interested in settling the outstanding swaps on a longer-term basis, as Henry said, either through a sale by the U.S. Treasury of, say, 2-year foreign currency bonds or by extending the maturity of our swap line. Should such an extension or funding be undertaken, the Bundesbank made it very clear in its proposal to increase the swap line to $4 billion that if outstanding swaps are repaid or refunded, the total line that would be open to the System would be reduced by a corresponding amount. At that time our drawings amounted to about $1.6 billion. If we had funded them, we would have had available to us $2.4 billion under a so-called regular swap line. Our discussions were, of course, very preliminary and no positions were taken. There was a useful discussion, however, of the various issues, some of which are technical and some are of a policy nature that will have to be resolved. Under technical issues, which I believe can be resolved without great difficulty, I would include: the decision as to the exact amount of outstanding drawings to be refunded; the exchange rate to be applied to the refunded swaps; the settling of losses incurred at the time of the funding; and provisions for prepayment, which we certainly should insist on in any swap arrangement. During the discussions it was obvious that the Bundesbank officials had not really given serious consideration to the possibility of direct purchases of marks from the Bundesbank by the Federal Reserve. I indicated to them that there were strong feelings among the Committee members that such a procedure was both desirable and necessary and I referred to our special arrangement with the Swiss National Bank. They promised to consider this possibility carefully, as well as their attitude toward purchases of marks in the market for repayment of outstanding drawings at times when the market impact might be considered adverse by the Germans. These are our two options--buy in the market or buy from the Bundesbank. It was my impression that they would not look very favorably on direct purchases of marks from the Bundesbank by us to repay outstanding drawings at the end of six months but would at least be prepared to consider the possibility, if a longer-term swap arrangement were to be agreed on. With such a swap arrangement, obviously there's a longer period of time over which the swap drawings might be reversed in the market. And I think they have that very much in mind. We discussed options available on profit/loss sharing should an extended swap be undertaken. The Bundesbank officials were not sure whether the present 50-50 arrangement could be carried out on a long-term swap; they agreed to consider that possibility. The other alternative would be for us to share equally any profit or loss that might exist at the time of the funding and then the System would have to agree to take the profit and loss itself from then on. I would assume that this Committee would prefer a continuation of the 50-50 arrangement. We also discussed various options in regard to repayment schedules, should an extended swap be agreed on, and I believe the Germans are prepared to be very flexible in this respect. The Bundesbank representatives agreed to consider all of these [items on our] check list, and we're quite anxious to continue exploration at, before, during, or after the next Basle meeting. I think they really would like to see us reach a conclusion as early as possible. Pending those further discussions, I think it's premature to make recommendations to the Committee. I hope, however, to be able to present a written report to the Committee prior to the April meeting. That's not much time but I would hope to be able to do so, and I certainly would appreciate any guidance members of the Committee would like to provide at this time.",880
-fomc-corpus,1978,"Gentlemen, you've heard the invitation. Any guidance? Paul.",14
-fomc-corpus,1978,"I might just comment very briefly, Mr. Chairman. Among all the options that are before us, none of which will be very happy I think from the standpoint of the Bundesbank, I would guess that the most practical one will be to follow the so-called Swiss model. That's where we would space out [the repayment period] a little and in return, I hope, we'd get the Bundesbank's agreement for direct purchases as necessary in paying this debt off. It doesn't really seem to me possible that they're going to say that they want us to pay it off with a direct transaction three months from now or six months from now. That would be my only comment. Also, looking at the other side, I would prefer the Swiss-type arrangement to a new precedent for the Committee of just extending swaps for 2 years. So, I find myself leaning in that direction.",175
-fomc-corpus,1978,"Yes, [Henry].",5
-fomc-corpus,1978,"I share Paul's view that among the various evils if we cannot get a repayment after 12 months [by] drawing on the Bundesbank, which I think would probably be preferable to the Swiss type of arrangement, then certainly the Swiss model is better than a rollover for 2 years or more. The latter would set a precedent with respect to the length of swaps and weakens our own position with countries that might borrow from us on swaps [in terms of] insisting that they have to pay them off after 1 year. There's one improvement we could do on the Swiss model and I think Alan has indicated it. The Swiss model leaves all the loss below a certain level to us; we could go 50-50 with the Bundesbank, if we can persuade them. Whatever the final loss is, the first recognition of losses when you fund the swap into another instrument is at the exchange rate of that day. Then there will be further gains or losses as time goes by. There may be a gain that eventually offsets the original loss--anything is possible--and there may be further losses. It would be good to have the Bundesbank stay with 50-50 and I think we should negotiate these things all as a package, and particularly our right to draw from the Bundesbank rather than be forced into the market or forced into an undesired rollover. We shouldn't give on one before we know what we're getting on the other.",288
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"Thank you. I think I would agree with what Paul and Henry have been saying--that the worst of the possible alternatives is nothing but continued rollovers for 3 years. I think that leaves us with a very large outstanding financing that I prefer we not take on. I would hope, though, that if we're going into a Swiss type of approach to this that we could accelerate the repayment. But my real preference is to pay these off right now.",91
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"It's my belief that we would be wise to sacrifice any other repayment terms for retention of the loss-sharing because if that is reversed, the consequences are an immediate doubling of our exposure. It strikes me that, with the level of exposure that we have now and may end up having to continue to carry, anything that effectively doubles our loss exposure in the consequence of funding it and then staying in that position is a mistake. And alternative methods of repayment are not nearly so important as that one.",97
-fomc-corpus,1978,"Governor, the only thing I'd say is that we also have a profit exposure and as you recall in '75 we were way in the hole on a billion dollars worth of German marks and came out of the [situation] with a profit. So, I remain a little optimistic.",57
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"Just a request of Alan. In your paper, Alan, I would personally find it helpful if you would go back a little bit and review the basic principles and the experience in other currencies. That would serve as a background for us.",47
-fomc-corpus,1978,"I agree that the 50-50 sharing [of losses] is quite important, because you can't tell which way it's going to go. They've been with us all the way to this point; they ought to continue with us as this is liquidated. They may well gain, as you say, as a result of it, rather than lose. I also agree with Phil Coldwell. I have the impression that that Swiss debt is being paid off in a very leisurely way. I don't really recall what the terms are. I know we pay off a little bit every week, but it seems to be with us forever. So it would be nice to be able to negotiate a shorter period of amortization than we have on the Swiss debt case. Any other comments? Alan, do you have any other technical matters you need action on?",168
-fomc-corpus,1978,"Yes, Mr. Chairman, I have another recommendation. At the last meeting of the full Committee, the Committee increased the authorization for our open position in foreign currencies to $2 billion. We now have a leeway of about $171 million under that open position. Under the procedural instructions, an increase of up to $500 million in the open position--to $2.329 billion--would be permitted without recourse to the full Committee. Since this would bring us above the authorized amount, I recommend that the Committee increase the authorized amount not to [$2.329 billion] but to a round number of $2.25 billion.",128
-fomc-corpus,1978,Any discussion? Phil.,5
-fomc-corpus,1978,"Mr. Chairman, I'm looking down the pike at this and I want to come back to the question that you asked us to defer until the Manager reached this position and that is the question of what do we do with the fact that the Treasury has only $50 million available.",56
-fomc-corpus,1978,That's my next point.,5
-fomc-corpus,1978,"Forgive me, Mr. Chairman, but I think it becomes an important point here. If we're going to authorize an additional $425 million--or whatever the figure comes out to be--for a net open position and the Treasury only has $50 million, we could be in a position where we are expending sizable amounts and have continued exposure without comparable Treasury operations.",74
-fomc-corpus,1978,Without sharing it.,4
-fomc-corpus,1978,Without sharing it.,4
-fomc-corpus,1978,"Mr. Chairman, the Treasury does have only $50 million left under its $1 [billion] swap line with the Bundesbank. But it has agreed, as we all know, to sell the equivalent of $740 million of SDRs to the Bundesbank. The Treasury would prefer to wait until the final ratification of the pending amendment to the IMF rules since it would make the SDR transaction much simpler. They're expecting that by month end. But since the Belgians are involved and we've had experience with them before, I guess there's really no guarantee. If the Treasury does not have the arrangements to sell SDRs in perfect order--and there's a period of 3 or 4 days before that can be done--it seems to me that it would be quite reasonable for the System to take whatever market intervention is needed, with the understanding that the Treasury will reimburse us for their share as soon as they draw on SDRs. They are now prepared--I believe our people are working on the technical details today--to sell SDRs even if the amendment is not put in place in time. So I think this is something that can be worked out. I would suggest that a few days, if that's all it is, where we take the whole [amount of intervention] and then get reimbursed by them in some way should also be satisfactory.",272
-fomc-corpus,1978,A period of a few days doesn't bother me; months would [bother me].,17
-fomc-corpus,1978,I would say an absolute maximum of one week. The time may run out.,16
-fomc-corpus,1978,"There are several things you should know. The Treasury proposed originally that we intervene for a period, [doing] 100 percent and then they would intervene for a period using the 60-40 [ratio]. And when they had used up 80 percent of the amount we'd done, we would come back in again. I think that's a very poor procedure. I think it is much better if we go 60-40 all along and I think the technique of having them reimburse us is much more preferable and the only one that makes sense here. I really think we shouldn't be in there alone and then leave it to the Treasury to come in later.",131
-fomc-corpus,1978,"My hesitancy on this, Mr. Chairman, is that I know how some of these things get deferred and delayed. I am concerned that the Treasury might end up actually not selling these SDRs. If I recall [the reference to selling SDRs] that was in the press release, that says ""if necessary"" or ""if desirable"" or something like that.",75
-fomc-corpus,1978,"Governor Coldwell, you've been in Washington too long; you're becoming cynical. You need some R&R. Obviously, we can count on the Secretary of the Treasury when he tells us he's going to do this. Can't we?",45
-fomc-corpus,1978,"You added ""can't we.""",6
-fomc-corpus,1978,Would this agreement be written down as we understand it? Will we have an exchange of letters or what will it be?,24
-fomc-corpus,1978,We can certainly confirm by letter what we've already agreed to verbally.,13
-fomc-corpus,1978,You can lose the Secretary of the Treasury overnight.,10
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"If we do this, I'd like it understood that when they reimburse us they reimburse us in marks so that any exchange rate fluctuations in the meantime are not against us but against them.",36
-fomc-corpus,1978,"Oh yes, that should be for their account, really. We shouldn't be taking the risk even for three days. They should just bear it with us all along.",33
-fomc-corpus,1978,I have a suspicion that the Treasury will probably prefer to go ahead and sell SDRs without the amendment rather than get into this reimbursing problem. But I really don't know that.,36
-fomc-corpus,1978,"Henry, would you just confirm it? Tony has understood this clearly and I think we just want to make sure there's no lapse here.",27
-fomc-corpus,1978,"Whether we like it [or not], an exchange of letters is a very laborious affair with the Treasury.",22
-fomc-corpus,1978,"Well, just send them a letter confirming it and [add] a place for them to [sign it and ask them to] send back a copy. Ernie.",34
-fomc-corpus,1978,Where and for what purpose do we shift from 50-50 in our dealings with the Treasury to 60-40?,25
-fomc-corpus,1978,"Their resources are shrinking in relation to ours. Therefore, when the original billion dollars runs out, [and they have] $50 million more--is that right, Alan?",35
-fomc-corpus,1978,Roughly.,4
-fomc-corpus,1978,At that point we would shift to 60 percent for the Federal Reserve and 40 percent for the Treasury because we have larger resources.,27
-fomc-corpus,1978,For the purpose of--,5
-fomc-corpus,1978,"Sharing. Remember, our swap line is 50-50 risk-sharing with the Bundesbank so all the intervention has been under an arrangement where we take 50 percent and the Treasury takes 50 percent. So we've had 25 percent of the risk. Now that will shift to where we will have 30 percent of the risk.",67
-fomc-corpus,1978,"I might say that this leaves open what is going to happen down the road. If we go 60-40, then the Treasury will run out of their SDRs before we run out of our $2 billion. Of course, we hope that we're not going to go to the limit for either of them. But if that were to happen, then the Treasury has to look for additional funds.",80
-fomc-corpus,1978,To the IMF.,4
-fomc-corpus,1978,"The IMF, for instance. Or we have to change the ratio. I would much prefer the former, but we should not be there naked and alone; we should have the Treasury with us whenever it happens.",42
-fomc-corpus,1978,"I certainly want to second that, Mr. Chairman.",11
-fomc-corpus,1978,I certainly agree.,4
-fomc-corpus,1978,I think there is real public exposure here because we're using public money without a Congressional authorization. Just as the Treasury indicated that they were concerned about that--,30
-fomc-corpus,1978,"I think we all agree on that and if we come to the point where they have no resources, I guess we'll have to face the issue of whether we end the intervention.",35
-fomc-corpus,1978,"Well, as you say, they can borrow from the IMF.",13
-fomc-corpus,1978,"They made a point in the communique that they have the resources of the IMF, and I think that means they should have a commitment to use them. Any further discussion? Yes, Bob.",39
-fomc-corpus,1978,Maybe just a gratuitous comment: The Treasury is rather concerned about possible losses and I would say that we as a central bank are subject to more criticism in terms of the amount of losses than they are because constitutionally the Administration has more responsibility in the foreign area than we do. [Unintelligible.],62
-fomc-corpus,1978,That's why we want to continue to pursue some take-out from the Treasury.,15
-fomc-corpus,1978,"In a sense, of course, our losses fall on the Treasury.",14
-fomc-corpus,1978,But our critics will not mention that at the time [they occur].,14
-fomc-corpus,1978,They're on our books.,5
-fomc-corpus,1978,"I think there's something to that politically, Mr. Chairman, but the fact is that the Treasury has a very limited capacity mechanically to take losses with--",30
-fomc-corpus,1978,But without Congressional authorization.,5
-fomc-corpus,1978,The question before the house is Alan's suggestion--I don't believe we acted on it--on the $2-1/4 billion. Is that correct?,32
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,"Is there any dissent from that change? Hearing none, we will approve that. Henry, I think you have one final item?",26
-fomc-corpus,1978,"I have a final item from the ad hoc subcommittee report, which deals with the scale of intervention. As you know, after the Treasury came in, [our] intervention was more forceful and of a technically different type also--that is, going in part to the banks directly with bids or offers. The question is how long we should continue at this higher scale of operation. The subcommittee felt that in the absence of more fundamental policy measures by the government, continuation of the recent large scale was undesirable. The subcommittee in a somewhat ad hoc form took this matter into its hands and suggested to the Manager that the Desk think in terms of a $300 million limit in the period between meetings--a limit which could not be observed. The ad hoc subcommittee, of course, is not the party that controls the intermeeting or daily limits; that is the Foreign Currency Subcommittee. And on a couple of occasions the latter Subcommittee did authorize the Desk to exceed its limits. We've been trying to grope for some kind of definition of a proper scale of intervention and cannot say that we've found something that is very satisfactory to the members of the subcommittee, or at least to me. But there seemed to be two determinants of the proper scale. One is the degree of disorder. When there's more disorder, then presumably more intervention is needed to counter that disorder. Second, however, for a given degree of disorder one can, of course, operate more or less forcefully. And the definition of that degree of force eludes us. But it's clear that when we have a limit of $100 million per day for changing the overall open exposure, that sets a scale. The Foreign Currency Subcommittee, of course, could take an action to reduce that scale if it wanted to. It's this range of questions that concerned us. There was one suggestion that to me at least seemed to give some help on this issue. And that is that when there has been a package deal or when some special unsettlement due to a very unusual event has occurred in the market, this justifies stepping up the degree of force of intervention relative to the degree of disorder. But once that has been done and an immediate short-run objective has been accomplished--whether it has created order or whether it has held the rate or not--we should wind down [our operations] quickly, within a few days. Otherwise there is a great danger of spending money limitlessly. That concludes my report.",496
-fomc-corpus,1978,Bones.,2
-fomc-corpus,1978,"Mr. Chairman, it seems to me that maybe that's an extreme effort--trying to decide the extent of disorder and the [scale of operations needed to counter] the disorder. The final statement suggests that there's going to be close consultation at all times. I guess I find some difficulty in trying to distinguish [the degree of] disorder and would be more inclined not to try to get to that point. Won't this be a difficult operation--to try to describe or distinguish the disorder as you contemplate?",100
-fomc-corpus,1978,"Well, I would hope that eventually we can get to definitions of types of disorders. You seem to imply the types of disorder are limitless. There can be wider spreads, jumpier rates, fewer participants in the market, more rapid movement in the rates--",51
-fomc-corpus,1978,That's exactly what I am talking about.,8
-fomc-corpus,1978,"Nevertheless, it ought to be possible to describe the market in those terms because essentially the Manager has to make up his mind whether that is one of the conditions of the market and whether he wants to operate. So, the decision can be made on the spur of the moment or presumably it can be made once the excitement has died down. Now, how closely can we monitor the Desk? I think our Desk is doing a fine job and we should allow the judgment of the man on the spot to prevail. But the Committee, I think, does need to maintain some kind of oversight of the operation because the amounts to which the Desk could go if it operated badly are very considerable. In three days the Desk can go through $300 million, and then they must say--unless the Foreign Currency Subcommittee raises the limit from $300 million to $500 million, which it can do--we're out of the market. That could be very damaging. And once the limit has been raised to $500 million, then again when it is used up, the FOMC is on the line and has to make up its mind whether to go out of the market or increase the limit. So, I think we do want to have some control over the approach to all these decision points.",257
-fomc-corpus,1978,Paul.,2
-fomc-corpus,1978,"Just one comment, Mr. Chairman: I do think the emphasis here should be on consultation. I don't disagree with the flavor of what this paragraph is trying to say, but in the end we can only judge these things in specific circumstances. And I think I can say--correct me if I am wrong, Mr. Holmes--that the Desk has never come close to spending $100 million in a day without consultation with the Chairman or the Committee or both, long before the $100 million was reached.",101
-fomc-corpus,1978,The consultation has been rather complete.,7
-fomc-corpus,1978,John.,2
-fomc-corpus,1978,"I'd like to ask Henry what [his subcommittee] had in mind in the first sentence of this paragraph on the scale of intervention, where it says ""in the absence of more fundamental policy by the United States."" Could you give us an illustration of what you had in mind there?",57
-fomc-corpus,1978,"Well, the most cited things would be energy legislation and action on fiscal and monetary policy and, therefore, on inflation. These are the fundamentals. Then there are bridging actions, which aren't very fundamental, but nevertheless go beyond intervention. That would be to sell SDRs, draw on the IMF, sell gold, or maybe issue foreign currency bonds.",69
-fomc-corpus,1978,"Obviously, you can do the latter a lot quicker than the former.",14
-fomc-corpus,1978,So far. Phil.,5
-fomc-corpus,1978,"Mr. Chairman, I would agree with the thrust of this. I do think, however, that we can easily get led down a primrose path month by month by month to the point where we again are using up in full-scale intervention the nearly $2 billion of additional authority. I would hope that before we move much further down this [road] of continuously intervening each month--this is the reason I'm a little resistant to going much further than we're going here--that we have a full-scale debate here in the Committee as to whether we want to go on with any further intervention or just stop it without Congressional authorization.",126
-fomc-corpus,1978,"Well, thank you. These comments are very helpful. We've spent one hour and twenty-five minutes of our valuable meeting on a subject that I hope will wither away. But I'm not very hopeful. We'll be discussing it at the next meeting and I hope to be of some [unintelligible].",61
-fomc-corpus,1978,"On that point, Mr. Chairman, this morning we've been primarily on the German mark problem. Speculators, I've observed, are quick to move in other directions. Are we prepared to use the same techniques in other areas if--",46
-fomc-corpus,1978,"The main one, of course, is the yen. And I personally am not prepared to suggest that we get involved. The Japanese are extremely upset. It's a very serious political problem with the Japanese. I'd want to send high level people [there] to try to get some similar arrangements. I don't think that we really have the resources to deal with it. And I don't think the yen in international money markets represents the same kind of problem. I think the Administration is going to have to deal with the Japanese from a foreign policy point of view; I don't think we can really deal with it. As you know, their interventions are massive and even if there were some psychological basis for us having a $2 billion swap line with them, it could be used up so quickly. It wouldn't really make good sense; it doesn't seem so to me. But it's a very serious problem in terms of international relations; in terms of realities it's something else.",190
-fomc-corpus,1978,"If I may add a comment: Even though we do now have a strong concern about the value of the dollar and the desirability, if it can be avoided, of keeping it from depreciating--short, of course, of pegging a rate--the yen is a pretty special proposition. The Japanese have such a large surplus and it is projected to continue at such a level into the future that I think here lies the exception from the thought that it is undesirable to see the dollar go down against any [currency]. Against the yen, I think it may very well have to go down.",119
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,Are there any prospects that the Canadians will want to draw [on] us?,16
-fomc-corpus,1978,"Well, as you know, they've come to our capital market and have a large Eurodollar loan. I think they would probably use those resources--",30
-fomc-corpus,1978,They're taking $750 million against--,7
-fomc-corpus,1978,I just wonder whether the next round might be with us.,12
-fomc-corpus,1978,No. I think they have still [available] in their Euro loan and they have not yet drawn on the New York line. So they've got quite a few resources. Although who can tell over time?,41
-fomc-corpus,1978,"Gentlemen, I think we better move along. Now this subject has taken an hour and a half of our time. The next subject returns us to the world that will be more familiar to some of us, and that's the economic and financial situation here at home. Jim, I think you're going to lead off our discussion of this subject.",69
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Jim. Discussion? Larry.",9
-fomc-corpus,1978,"Mr. Chairman, may I ask a question? Jim, in your analysis, you make frequent reference to the price changes and wage trends and things like that. Unless I misunderstood it, there was practically no reference in your report to past rates of monetary expansion. When you do this [analysis] relating to prices, do you give any consideration to monetary expansion in the past year or two?",78
-fomc-corpus,1978,"Well, not in the direct fashion of simply looking at the rate of growth of the aggregates and tracking it through. It does, in our view, show up in wages and costs with a lag. So, in our own judgmental approach, we pick it up in an indirect fashion. In our quarterly model, which we also use in developing our price forecast, it does have an impact, although the lags are fairly long. But it does feed through and right now the quarterly model is showing rates of price increase that are just about the same as those in our judgmental forecast; there's no major difference. So, yes, we do look at that. But I think it has a long lag phenomenon that is implicit in our own view.",150
-fomc-corpus,1978,Frank.,2
-fomc-corpus,1978,"Mr. Chairman, I think it would be well for the Committee in this context to keep a fairly open mind on the question of how strong the economy really is because I don't think we have a very good fix on the underlying strength of the economy. We're looking at numbers, some of which show great weakness, and we're dismissing them--as we probably ought to--as a function of the weather and the coal strike and so on. God knows, coming from Massachusetts, where the whole state was shut down for a week, I know that there has been an impact. Nevertheless, I would hate to see us get into a fixed feeling of certainty that the second quarter is going to be very strong. I think most of our historical experience shows that when we have temporary interruptions of this nature, the previous underlying trend picks up after the effects of the destruction are gone. But I can recall at least one incidence, in 1960, where we had a long steel strike in the last half of 1959 and we had a general expectation that as soon as the strike was over the economy was going to take off like a rocket. Business Week was featuring in its January 1st [issue] ""the sizzling '60s."" The '60s did sizzle, of course, but not in 1960. We came out of that strike and had a 6- or 8-week rebound and then the economy went into a recession. I'm not predicting this is going to happen. I don't think it is going to happen, but we ought to keep it in mind as a possibility. In looking at the very weak rates of growth in the aggregates, I think there's potentially a 10 percent chance, say, that they may be telling us that the underlying economy is a lot weaker than we're projecting.",365
-fomc-corpus,1978,Is the expected continued rapid growth in the labor force based in part on an expectation of continued strong increases in the participation rate of women or is it pretty much just a pickup in population?,37
-fomc-corpus,1978,"We have a drifting up of the participation rate, but at a slower rate than we have experienced in the last several years. Our view is that we will begin to see a somewhat slower rate of growth in the labor force compared to what we experienced the first three years into this expansion.",57
-fomc-corpus,1978,"The rate of growth in the labor force is at about 2-1/2 percent or slightly under that, as opposed to slightly over 3 percent for last year. It has moderated somewhat.",40
-fomc-corpus,1978,The large projected decline in unemployment seems rather strong given the projection of the labor force and given the prospect of some slowing in real growth.,27
-fomc-corpus,1978,"Well, that's true. I think one of the big surprises relates to the recent performance, more so than our projections. That's particularly true for the third and fourth quarters. In the latter half of last year, real growth slowed substantially and the unemployment rate came down by over 1/2 point, and that is quite unusual. One of the things we're investigating further is some of the rather strange movement on the unemployment side. There is a strong belief on the part of some of our experts on the staff that the expiration of extended benefit programs may indeed be a major contributing factor to the sluggish growth in the labor force we've seen recently and also to some of the increase in employment. The turning on and off of these benefit programs seems to be impacting importantly on the unemployment rate. So, over the future, we have a bit more optimistic view on the unemployment rate than we had a couple of months ago, in part reacting to what has happened.",189
-fomc-corpus,1978,Do you have any particular reason to be skeptical of some of the changes in the BLS data programs?,21
-fomc-corpus,1978,"I'm not aware of any. Jerry, you may be.",12
-fomc-corpus,1978,"Not particularly. They have increased recently the size of the sample for collecting labor force employment and unemployment data but that should have improved the data, if anything. They have changed the pattern slightly, but basically there seems to be no significant deterioration in the quality of those data.",54
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"Thank you, Mr. Chairman. Just a comment: I'm still thinking about the remark you made about the need to slow growth [to improve] the balance of payments [and] the dollar.",39
-fomc-corpus,1978,I'm not sure I said that. I said there was some sentiment that that may be the choice.,20
-fomc-corpus,1978,"Yes, some sentiment about the need to do it. I detected some sentiment that it goes even further than that and that it really may be necessary to have a recession and that the thing to do now is to try to choose the kind of recession we'd like to have. This gives me some concern, partly because coming from the area that I come from--",71
-fomc-corpus,1978,You never came out of the recession.,8
-fomc-corpus,1978,This gives me some concern because we haven't come out of it. We have some banks that would have a good deal more difficulty than they are having now if we had a recession.,36
-fomc-corpus,1978,"Is this a local comment, Dave?",8
-fomc-corpus,1978,"Yes, it is. It's just a comment that I think we need to emphasize inflation, as we have been, but preferably stress the point that more and more we're coming to believe that inflation does lead to recession--that there are built-in factors that lead from one to the other. So the posture that we ought to have is to work persistently on the inflation front but to indicate to the public that we're clearly going to avoid overkill in doing this.",92
-fomc-corpus,1978,Thank you. Henry.,5
-fomc-corpus,1978,"I'd like to go back to the employment data once more, if I may. About six months ago, in the September Greenbook, I think it was estimated that for the first quarter of '78 the unemployment rate would be 6.8 percent and that by the fourth quarter of '78 it would be 6.6 percent. Here we are in March and the unemployment rate is not 6.8; it's 6.2 for the quarter and it's currently 6.1. And the Greenbook estimate is 5.9 percent for the fourth quarter of '78. Granting all the uncertainties about the data, as Jerry Zeisel said, the present unemployment sample is a better and bigger one than we had in the past. So there is no strong reason to think that the data are wrong, although the rate might jump up again. The increase in payroll employment has been very strong, which confirms that there may be something to this sharp reduction in unemployment. Nobody knows why but it must be an expectation by businesses of strong activity ahead. In any event, we're now very close to what I would regard as the zone of full employment. You can say it's 5 to 6 percent or 5-1/2 to 6 percent, but I would be surprised if we could be in the 5 to 5-1/2 percent zone without generating significant wage pressures. I read in Dunn's Review that labor shortages are turning up in the Sun Belt in a number of skilled occupations. So we're beginning to have the first inkling of getting close to full employment--give or take 1/2 percentage point. I think that tells us that if we want to get ready for a soft landing, we've got to do it rather faster than I would have thought.",362
-fomc-corpus,1978,Have a speedy soft landing?,6
-fomc-corpus,1978,"Yes, a speedy soft landing. I thought we had a year or two years, but I think it's probably less. The sustainable rate of growth is something like 3-1/2 percent, I think. We need to envisage getting to that within a year or so; there would be no great damage if that were attained around that time or even a little earlier. That does mean doing things that will allow the rate of growth to diminish--not because of the dollar but because of the internal situation and the need to avoid inflation and then recession. We certainly don't need a recession but we need to avoid the inflation that will bring a recession.",130
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"I'd like to turn Frank Morris's comment to you, Henry. I think we shouldn't be too certain about what's going on in the labor force or the unemployment rate. I couldn't help but note when I looked at the Greenbook that over the last three months the civilian labor force has increased at an annual rate of 0.9 percent; over the last year it has increased at an annual rate of 2.9 percent. So I'm wondering whether the low indicated unemployment rate for the last month or two might not be a fluke. That is, to some degree I would expect a reversal. I don't think [the unemployment rate] is going to go down as far as in the staff projection. This has been a very unusual period and, as you say; the rate was totally unforecast--by everyone, I think. I'm inclined to think there are some oddities in these figures, perhaps because of the weather or some kind of seasonal aberration that has given us some difficulty there. At the same time, I'm not really concerned about the prospects for the immediate future, Frank. Again, I'm looking at the employment data. I was interested in the large figures on payroll employment; I've felt that there might be an aberration in the last couple of months or that they might reflect the government programs. So I looked at the increase in establishment employment in the last six months in the BLS series and I find that over that period the gain for the total establishment series was somewhat larger--267,000 per month--than it was in the last year. Then I looked at the private nonfarm data--to take out the state and local and the effect of these temporary employment programs--and I find that it was still larger over the last six months than it was over the last year, at an average monthly rate of 233,000 as against an average of 227,000 for 1977. Then I looked at it for manufacturing alone and I find that there, too, it has been larger over the last six months, on average, than it was over the past year. And it's larger for production workers within manufacturing. I agree with you that a lot of these indicators are no good right now. And in the absence of decent indicators, I'm inclined to think that when people hire employees they have something in mind for them because it's a big commitment. It's true that we haven't seen it in production yet, but I think that kind of sustained strength--not over a month or two but over the last six months, for the whole fall and winter period--in employment growth in what I consider to be the better BLS payroll series suggests that there ought to be good strength in the economy in the period immediately to come. So I certainly am watching, too. I very well remember that 1959-60 experience but for now I'd have to say that the outlook for the immediate term is pretty strong, even though I expect the unemployment rate to go up again.",600
-fomc-corpus,1978,Bones.,2
-fomc-corpus,1978,"Mr. Chairman, I'm sure [our view] is influenced heavily by the Sun Belt exposure but [based on] our recent swing around the District [talking] with community leaders, including ladies and consumer advocates, we are just unavoidably attached to the idea that inflation is rampant, and we are very, very much concerned. It's pretty difficult to find anything close, except their concern for an energy policy of some kind--even if it's bad as long as they know the rules. We hear this over and over: Inflation is the number one [concern], then energy, and then buildings. Sure, the Latins are very prominent in our area and are buying heavily but [it was] just announced [that] the Canadians are buying a 13,500 acre spot just south of Miami for a huge development. Employment, [in terms of finding] skilled people, is difficult so I guess we have to be very much concerned about inflation at the moment. This leads me immediately to ask Mr. Kichline how strongly he feels about the [projections for] unit labor costs. Looking at the projections for output per man hour and compensation per hour and relating them to the recent past, do you feel pretty good about those overall?",251
-fomc-corpus,1978,"Well, I don't feel good about them in the sense that I wish they would be lower but you're looking at our best point estimate. So, yes, we do feel pretty good about those numbers as our best guess. But certainly in my view the risk is on the upside--that we'll have higher unit labor costs rather than lower.",67
-fomc-corpus,1978,Mark.,2
-fomc-corpus,1978,"Thank you, Mr. Chairman. I was impressed with Jim's comment that on the price side the risk would seem to be on the upside rather than the downside in the absence of some effective Administration anti-inflation policy. I'd like to ask you or him or anybody what the chances are that we will have an effective Administration inflation policy and if we do, what that is likely to consist of.",80
-fomc-corpus,1978,"Well, confidentially, the Administration is examining what more aggressive anti-inflation program could be undertaken within the policy of moderation that has been indicated in the economic package. That action, if taken, would be both direct governmental action and would be inclined to marshal similar support in the private sector for holding down wages and prices. Whether it would be effective would depend on how much visibility is put onto it and how much real attention leadership would place upon it. In addition to that, the possibility of a very strong statement on holding [down] the budget deficit and the possibility of some action on the supply side in releasing things like timber for harvesting are being looked at. I cannot tell you whether any of this will lead to anything or whether action will be taken. On the energy side you can go around this town and find anything you want but there's very little sentiment that an energy bill will be passed soon. So that leaves the President with a choice of whether any alternate action should be taken in the way of quotas or import fees, and if it is, when and how and so forth. I can't give you the answer whether that will be done either. There's a good deal of feeling that time is short and these things need to be done--that they need to be done as a step and if they don't work then something else should be done to keep an active program going. It seems to be a rather universal feeling that inflation is the number one problem. The employment situation has behaved better than the Administration planned, and better than our expectations, which means that the time is there to pay attention to this inflation [problem]. If we don't pay attention to it soon, inevitably we're going to bring about conditions in money markets, prices, and investment that will lead to a recession. And the larger the inflation bulge, the more difficult the recession will be, so it's looked upon with some seriousness. But that doesn't mean that there [will] be action.",392
-fomc-corpus,1978,"May I just pursue that a little bit further? The businessmen that I have spoken with have read reports of most of these things that you've [mentioned] and greet them with a very high degree of skepticism. Even if the Administration tried to do them, the businessmen I speak with are very skeptical that [these programs] would have any salutary effect at all on what is happening with regard to prices. Do you share that skepticism or are you more optimistic that they might in fact work?",97
-fomc-corpus,1978,"I think they base their skepticism on experience because there have been a lot of toothless programs. I think the question is: Will people get serious enough and take real action? Is the President willing to veto legislation that breaks the budget? Is he willing to go into aggressive control of expenditures beyond the budget--asking all departments to scale down spending even below amounts that perhaps should be appropriated? Will the federal government in the face of the labor situation be willing to cut back the increase in Federal pay raises? I can't answer those questions. But if those things are done, I would be more optimistic that we could then have a case to expect the private sector to do its part. Without the government sector leading the way with real [actions] and not just rhetoric, I think we're going to get no place. But if concrete things are done then I think that, at least in the next phase, we ought to try to sell the private sector on doing their share. What is the next level of action? It's even more difficult and a little more disruptive, so I think we have to proceed as best we can.",224
-fomc-corpus,1978,"Is anybody looking at the Okun/Wallich idea of the tax-oriented incomes policy? SPEAKER(?) Yes, they're both looking at it!",29
-fomc-corpus,1978,"I would quote the father of the idea. He said of his child that it's a great idea but he wouldn't enact it into law today because it's premature. I don't think it can be a part of the action in the next few weeks. I think it can be looked at in terms of a more structural change over time, Frank. It needs to be studied. Is that a fair statement of the father?",82
-fomc-corpus,1978,"We'll have a conference on this at Brookings within a month. I have a 150-page analysis of the technicalities of it now, which says that it's bad but no worse than the income equalization tax.",43
-fomc-corpus,1978,"[Given] my knowledge of Congress, I'd say that 150 pages of technical details [translates into] about 10 years in Congress. So, I think it's going to be slow to come to that. And I think there are some reasons why we have to be cautious because there could be some effects in capital intensive industries that would have to be looked at very hard. The industries that are most in need of capital flows might be the hardest to [deal with] because they're also the ones that have the strongest unions and may not be able to resist the pressures. They might have higher wage rates plus higher taxes at the very time when we need capital formation for investments. So it is a tricky proposition and I don't think it can be implemented in the short term. As an aftermath of a series of events over ten years, it's hard to coalesce leadership in the government. It's nobody's fault, but there has been a fractionalization of leadership after all these events. Therefore, Congress doesn't stick too much to anybody's program. They all have pet ideas, which is still good in many ways but bad in terms of getting action. And the Administration has many factions pushing it in this direction and that direction. I personally think time is very short for them to take some more believable steps in fighting inflation and if it's not done, inflation is going to be left to the Federal Reserve and that's going to be bad news. I don't think we really have the capacity to avoid the consequences of the inflation. We can do some things but they inevitably are not going to work out with a scenario that any of us will like.",326
-fomc-corpus,1978,"Mr. Chairman, in terms of the difficulties of getting some kind of coordinated program which might have some appeal to the public--on the grounds that it would appear to have some chance of making an impact on inflation--would you see the major problem as getting a consensus view in the Administration or getting support from the Congress if the Administration were to bring forth such a [program]?",75
-fomc-corpus,1978,"Well, I think an anti-inflation program will [require] Presidential leadership and action. If you consult with Congress about it, you will still be consulting next October! One of the problems with taking [action] is that everybody has his parochial view. Everybody wants to say well, in my parochial view I've got to consult this, and this, and this. Well, then you never get anyplace. So somewhere along the way, if [inflation] is perceived to be serious enough, I think it's an executive action that has to be taken. My guess is that such an action--a forceful and believable action--would be not unpopular, but would be popular.",142
-fomc-corpus,1978,I would second that. I sense a real demand for it out in the country.,17
-fomc-corpus,1978,"Mr. Chairman, if I understood you correctly, I understood you to say that there are very limited things that we can do. If we were to gradually slow down money growth, as we have publicly said in the past we wanted to do, wouldn't this be a signal to the world and to this country and to everybody that the Federal Reserve is really serious about doing something [about inflation]? Don't you think that would possibly have some effect on correcting inflation?",91
-fomc-corpus,1978,"If other actions aren't taken, we would have to continue the process, which we will no doubt do. And if we do, inevitably that will lead to a slowing down in capital investment and in homebuilding and it will lead to a recession. That's why I hope that other actions can be taken, not just ours. Let me ask you again please to treat these discussions very [confidentially] because if the Administration wants to do something, I think they should be left plenty of room to do it in their own way and their own time. We shouldn't start rumors of discussions that would impede their [success]. Like the arrangements with the Germans, too much discussion in advance I think did hurt the process. Now, I have a couple of choices for you. We have a number of people who would like to speak; there are four more who have so indicated. Would you like to take a few more minutes to hear their comments and then have a break or would you like to break now and come back to their comments?",206
-fomc-corpus,1978,Why not go through with it?,7
-fomc-corpus,1978,"All right, let's take the four who are listed so far. Bob Mayo.",16
-fomc-corpus,1978,"Thanks, Mr. Chairman. I am mindful of Frank's point on the optimism and that we might get too enthusiastic about a rebound from the first quarter. I don't feel, however, that the staff projection has incorporated an overly optimistic tone on the second quarter; the staff has toned down its figures for the year in a realistic fashion, I think. We have had what has now officially been declared the worst winter in Chicago's history. We haven't done it quite as spectacularly as Boston and Providence, but we've had the worst winter in our history, both from the standpoint of cold and from the standpoint of snow. However, the coal strike has not impinged on most of our area. Illinois relies 35 percent on nuclear [power] and this has been our salvation. Michigan has bought at least that much of their needs from Ontario Hydro and that has added to our balance of payments problem, but it has been their salvation. Indiana has been hurt more than the other states. But I find that there is a thread of solid optimism that is pervasive even in Indiana and in the other states, too, as I move around the District. [People] feel that the figures are something to be taken with a grain of salt because they really don't mean anything in this particular period. Most of our retailers, although not all, are optimistic on the rebound that has already taken place. And I think there is a general feeling among those who are in the market for additional capital spending that this is coming along very, very slowly but that there will be continued growth through this year and through the end of 1979. So, I find the staff's projections very reasonable but I think we could all agree that they are inadequate if they are interpreted as goals of our policies. Certainly none of us likes to see the inflation rate move up even a couple tenths of a percent at this point. Also, I think our agricultural people feel that the Department of Agriculture estimates that agricultural prices will be up 4 to 6 percent this year are now out of date. I think there's a general consensus that retail food prices will probably be up more like 7 percent instead of 4 to 6 percent. And that, of course, is bad news for inflation, too.",455
-fomc-corpus,1978,"Thank you, Bob. Phil.",7
-fomc-corpus,1978,"Mr. Chairman, let me ask one question first. Jim, in working out your forecast for the remainder of the year--well, let me state it as an assumption. I assume you knew of the downgrading of the fourth-quarter GNP--the recent announcement--before you went into this [projection exercise].",64
-fomc-corpus,1978,"No, that became available to the staff yesterday afternoon. We had suspected a small downward revision, and on a revised basis it went from 4 percent real growth at an annual rate to 3.8 percent. But the data became available after we had prepared the projection.",55
-fomc-corpus,1978,"If you had known this, would you have shaded your figures down?",14
-fomc-corpus,1978,"No, I don't think so. We anticipated a small change in business fixed investment as one of the areas of downward revision and we cheated a little bit by trying to link our forecast to our suspicions of the way that the revisions would take place. Similarly, net exports were revised down and we had a bit of a lead on that so we really have incorporated, we think, pretty much what they've done.",82
-fomc-corpus,1978,"Mr. Chairman, I guess I'm seconding Henry's comments in a way. It seems to me that we're faced with a difficult problem here of slow growth in two consecutive quarters. One is theoretically because of the coal strike and cold weather. The other one has now become less than expected--at the 3.8 percent level [for the fourth quarter of] last year. I'm still optimistic that the second quarter is going to show a major rebound, and perhaps even more than the staff is indicating. Although I really wonder if the 3.4 percent [preliminary estimate] for real growth for the first quarter is as low as it will [turn out to be or if it will] be cut back by the events of January and February. I'm more concerned as I look in the future, however, because there is a significant rebound in the second-quarter [forecast]. And if inflation continues to move up, as I expect it to, I think we're going to be placed in a position of resistance--with higher interest rates, slower construction, and consumer buying weakening as debt increases. I would parenthetically add that I've been questioning bankers as I go in and out of these meetings here and I find more and more of them are saying now that their consumer credit delinquencies are rising and that they are starting to see evidence of excessive debt on the part of the consumers. I haven't yet gotten enough answers in that vein to call it a nationwide trend by any means. But if this were to be developing, then consumer buying would also weaken and we could face a further reduction in real growth in the latter part of the year. It doesn't mean, however, that we won't have a great inflationary problem to attack; and, unfortunately, I think it's going to be left to us to attack it.",363
-fomc-corpus,1978,I don't say thank you to that. Willis.,10
-fomc-corpus,1978,"It would be my guess that the wage settlement is really causing unrest in public service groups, [with] other people feeling that this was endorsed here and they're entitled to the same sort of [increase in wages]. Second, I think we shouldn't underestimate the amount of time that it's going to take to rebuild stocks. Inventories are really way down. Summer is a period of even greater electrical consumption and to the extent they [shift] back to coal, then the problem of rebuilding is going to take much longer. I think then people may realize that this may follow through a little longer than one would normally expect. My chief concern, however, is in the fiscal policy area, and this is where I would quarrel, I think, with the staff estimates. I would focus primarily on the state and local areas. While in the national income accounts it looks as if we have a big surplus, when you start to break that down you realize that it's largely due to the revenue sharing side; that is bringing in this big surplus. I see in the legislatures great efforts both to cut taxes at the state and local level and to increase expenditures. So it seems to me that we're likely to find much more stimulus there than is [implicit] in the projection and I'm disturbed by the stirrings in Congress about wanting to do something at this level. Once they take the bit in their teeth we may get a much greater stimulus than firm leadership on fiscal policy would dictate. That is my comment.",298
-fomc-corpus,1978,Thank you. Paul.,5
-fomc-corpus,1978,"I'll be brief with a couple of random comments, Mr. Chairman. I don't think there is a great deal of informational content, as a number of people have said, in the recent statistics so far as the future is concerned. My own presumption is that [the economy] should be fairly strong after we get through this period, recognizing the possibility that President Morris first referred to that it could be something else. [But] we have to be able to make some decisions and my presumption would still be on the side that growth is going to be stronger and that the risk of more inflation over these projections is greater than the prospect of less inflation. That is a major part of our problem and I would hope the Administration comes out with more credible programs. I would just say, after listening to this colloquy earlier, that I would rather have them take a little more time and do it right. [I'd hate to see them] get so concerned that they put out something early that is really not very credible. If they could really do something right here--something forceful--and if they are willing to take the actions within government, including on government pay, that seem to me desirable, it may be pretty useful. I was also struck, in terms of potential problems for the Federal Reserve, which have been [alluded] to in a couple of different ways by what Governor Wallich said about time for a slow landing and all this nomenclature that we have full employment someplace in the 5 to 6 percent or 5-1/2 to 6 percent area. That gets into the Humphrey-Hawkins bill. [Let's assume] we get the passage of the current congressional package on the Humphrey-Hawkins bill. If Henry is right, and there is a good deal in what he says, how does one go up there and testify how we are on the path and conducting policies toward whatever figure they have in there for Humphrey-Hawkins? [It] is not very far off. It seems to me that we are in a very awkward position. I don't know whether that bill is absolutely going to pass. It's very hard to oppose it. But the awkwardness of our position struck me, as I heard Governor Wallich speak.",459
-fomc-corpus,1978,"Well, if you believe those figures.",8
-fomc-corpus,1978,If I believe his figures?,6
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,I'm not sure I would go that far. But you don't have to [agree] totally with him to see the sizable discrepancy in that.,28
-fomc-corpus,1978,"If you contemplate what Humphrey-Hawkins implies, if anybody abroad thought this would be taken seriously, we would be disavowing all our anti-inflation effort.",35
-fomc-corpus,1978,"Well, I agree with that. But what position are we put in by this bill when we have to go up there and in effect say that our policies are--",33
-fomc-corpus,1978,We'll have to find an ingenious way to [indicate] that our policies are taking account of the other parts [of the legislation]. We also have to work toward price stability and fight inflation.,39
-fomc-corpus,1978,We'll have a division of labor.,7
-fomc-corpus,1978,"On those occasions, I will invite one of the other members to testify! John, I think we'll ask you to comment as the last speaker. Then I have an experiment I'd like to try.",39
-fomc-corpus,1978,"Well, if I can just pick up on Paul's point, I think there is an answer. If we go on the Hill vis-a-vis a Humphrey-Hawkins bill [that says] full employment is 4 percent unemployment, there's considerable evidence in my view at least--and Dave alluded to this earlier--that inflation does cause recession, and recession causes high unemployment. Therefore, if you want to avoid high unemployment, you avoid high inflation. High inflation, high interest rates, and high unemployment go together and vice versa. The latest example of that surely has to be the 1974 experience. I have listened with great interest to what might be done across a broad front here, not only on the foreign exchange value of the dollar but with respect to inflation. And when I hear phrases like one of the fundamental policies that we need is an effective U.S. government anti-inflation program and consider what that might involve and what the prospects of getting it are, I must say it's a bit discouraging. It does some good, I'm sure, in some limited sense but perhaps no more than a band-aid sense to have moral suasion and voluntary actions to slow down price increases and wage increases. But when everything else is said and done, the most effective thing the federal government could do, in my view, on the inflation front, is a counter-cyclical fiscal policy. Yet the chances of getting that seem to me darn slim, in view of the size of the budget deficits that are pretty much set in cement now. They can be changed of course to some extent. But the message that comes through, much as I hate to say it--I have to side with Phil Coldwell and maybe go one step beyond him--is in effect that if an anti-inflation policy in the United States is going to start, it's going to have to start around this table.",382
-fomc-corpus,1978,"Thank you. I'd like to try an experiment. Jim, would you give me three numbers--and I want everyone to write them down. First, what is your objective or what does the staff have in mind for the real growth in GNP '78 calendar year over '77.",57
-fomc-corpus,1978,Year over year?,4
-fomc-corpus,1978,Or fourth quarter to fourth quarter?,7
-fomc-corpus,1978,"Okay, give me fourth quarter over fourth quarter.",10
-fomc-corpus,1978,4.4 percent.,5
-fomc-corpus,1978,"Okay, write that down. Now give me your year-end unemployment rate.",15
-fomc-corpus,1978,Our fourth-quarter unemployment rate is 5.9 percent.,12
-fomc-corpus,1978,"That's the average for the fourth quarter, not year-end?",12
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,Then write down your deflator.,7
-fomc-corpus,1978,"Fourth quarter to fourth quarter, it's 6.6 percent.",13
-fomc-corpus,1978,"Now the experiment I would like to try: I will not use the data except to experiment, but during the coffee break or sometime today, would you write down individually what you think those figures would be within a range. Use a range. Do you expect GNP is going to be, you know, 4-1/4 to 4-3/4 percent or do you expect it to be 3-1/2 to 4 percent or what? On unemployment, give me exact figures or ranges. This is just for an experiment to see what this group would come up with if they had to make those personal judgments on top of the staff. I'll tell you later why. They're not to be used; this is private. Let's have a coffee break.",156
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Peter. Questions? Comments? Yes, Henry.",13
-fomc-corpus,1978,"Peter, has it ever been pointed out to our friends abroad that when they buy Treasury bills so single-mindedly, that they have reduced the interest differential and, therefore, find themselves buying more Treasury bills?",41
-fomc-corpus,1978,"We have pointed it out to them and have sought additional flexibility. Of course, they have to do something with their funds. They want to put them in some earning form and we have urged some of them to give us greater flexibility as to the maturity of bills that they can buy, stretching out to longer issues--stretching out to coupon issues and on occasion going into special Treasury issues for the time being. That has ameliorated the problem somewhat but a number of these accounts are pretty much locked in by their own internal rules to very short-term investments.",112
-fomc-corpus,1978,"They don't generally buy anything but bills or something shorter, right?",13
-fomc-corpus,1978,"No, for some of the accounts, the initial step is usually to take what dollars they have accumulated and immediately buy bills. But some of them have been on programs of funding out some of their holdings. Germany and Japan have gone a considerable way in this direction and the United Kingdom has as well.",60
-fomc-corpus,1978,We ought to encourage them.,6
-fomc-corpus,1978,We have pointed out the available range of investments to them.,12
-fomc-corpus,1978,Are they aware that at the present time this great concentration of buying is actually pushing down the bill rate a little?,23
-fomc-corpus,1978,I think they are aware of that.,8
-fomc-corpus,1978,"Yes, Phil.",4
-fomc-corpus,1978,"Peter, what's your reading of dealer attitudes these days?",11
-fomc-corpus,1978,"I'd say it's one of great caution, with no great conviction about an immediate change of policy. There's a feeling that because of the performance of the aggregates and the economy no early move toward firming is likely. They are very much aware of the international situation. I think if that cloud were not hanging over the market right now, there would probably be a strong rallying move in the market because of the way the aggregates have slowed down recently. But given the uncertainties about the dollar and the feeling that the economy could rebound, there's considerable wariness. Still, the underlying feeling is that as the year goes along we are likely to see higher rates but that probably that move is a few months off.",140
-fomc-corpus,1978,Does that reflect even their coupon holdings?,8
-fomc-corpus,1978,I would say so. Those positions are quite modest at this time.,14
-fomc-corpus,1978,And yet positive as opposed to negative a couple months ago?,12
-fomc-corpus,1978,"Slightly positive, but fairly close to even.",11
-fomc-corpus,1978,"Gentlemen, we have the question of action to ratify the transactions since the previous meeting. I believe [the Desk's reports] have been distributed. Is there a question? May I, in the absence of a dissent, record those as approved? At this point I call on Steve Axilrod for his comments.",66
-fomc-corpus,1978,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1978,"Comments or questions? Yes, Frank.",8
-fomc-corpus,1978,"Steve, I seem to recall that last July we began to get a weekly sample of deposits at non-member banks. I was hopeful that this would mean that in the future the benchmark revisions would be negligible. Is this evidence that the sample is not adequate?",51
-fomc-corpus,1978,"September will be the first benchmark date we can compare with the sample, so we want to make that comparison. We really prefer to make two comparisons before we incorporate the continuing sample into our regularly reported data. We have not done so. Also, one strata of the sample--and I don't remember exactly which one--is wrong. The reporting is wrong and we're working on correcting that. We had hoped that by around midyear we would have everything straightened out and if our tests showed that the sample was giving reasonable results--and the only test we can have is to compare with the benchmark--to incorporate it at about that time. But we are not [yet] in a position to incorporate them.",141
-fomc-corpus,1978,You haven't actually been using the sample?,8
-fomc-corpus,1978,"No, no. We have it and we've been trying to get it straightened out but we have not been incorporating it.",25
-fomc-corpus,1978,"Why don't you tell him what was wrong with the benchmarks? The FDIC just made gross errors in their calculations. They did it on the weekly samples, too.",33
-fomc-corpus,1978,For internal reasons they did not edit the benchmarks. They stopped editing in December of last year. The edit they performed was not an edit in any sense of the word.,34
-fomc-corpus,1978,"Steve, I see that the nonborrowed reserves and to a lesser extent the base rose very sharply in the last three months. Do you see any significance in that for future money growth?",38
-fomc-corpus,1978,"Well, I have never been able to see any significance of past behavior of the base in relation to future money growth. We have a lagged reserve requirements system; that is, reserves today relate to deposits yesterday so that in itself says the reserves are quite passive. Secondly, we control the federal funds rate; we do not make an effort to control reserves and, therefore, future money growth will depend on what we, in fact, will permit to happen to the federal funds rate in the future as well as on what we have permitted to happen in the past. So I don't think in that context that the reserve base past has very much significance to the reserve base future. It's [relevant] only to the extent that it may reflect rapid money growth or something like that in the past, which feeds through and affects GNP, which feeds demands for money in future. It would be that sort of indirect effect but certainly not any direct correlation.",190
-fomc-corpus,1978,Roger had his hand up.,6
-fomc-corpus,1978,"Question to Steve. You are projecting into April another blip as we experienced in 1976 and 1977. As you made your seasonal adjustments to the 1977 data, can I translate that to say that when you are looking at 9 to 10 percent growth projected for April of '78 that that would equate to another 6 percent, roughly, if you weigh it against the '77 figure--unadjusted?",89
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,I'm just trying to lay experience against experience.,9
-fomc-corpus,1978,"Yes, we have reduced the seasonal factor. April's rate rose around 6-1/2 percentage points so the 2-month growth rate would be about 3 percentage points higher if we were on the old seasonal. On the other hand, we have raised January's and February's.",59
-fomc-corpus,1978,"Another somewhat related question: The assumption in the Bluebook has been for the last couple of months that Regulation Q [ceilings] will be increased and I think it's scheduled for May. Are there discussions now going on with the other agencies and if so, is that a reality, a possibility, or what?",62
-fomc-corpus,1978,Governor Partee may wish to speak to the question of whether there are discussions with the other agencies.,20
-fomc-corpus,1978,"He can't hear you, but the answer is no.",11
-fomc-corpus,1978,That's a pretty good answer. Chuck and I like the length of it!,15
-fomc-corpus,1978,"I should add, President Guffey, that the staff has been developing its own contingency plans so that discussions, when they are ready to go, can be undertaken very promptly.",36
-fomc-corpus,1978,"Well, we are running up on that May date, which is an assumption underlying all of your projections.",21
-fomc-corpus,1978,Our staff projections are on a preliminary basis.,9
-fomc-corpus,1978,"Well, Roger, it's a little hard to do when market rates are drifting down.",17
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Mark, you had a question.",7
-fomc-corpus,1978,He asked my question.,5
-fomc-corpus,1978,Okay.,2
-fomc-corpus,1978,"Steve, one of the intriguing aspects of the disintermediation dilemma this time is that there are, of course, two parts to it. An investor is faced with a choice if he has new money to invest as to whether he goes into a thrift institution or into a government security. That's reasonably easy to figure out--at least the arithmetic is. The part that's so intriguing is that such a large percentage of existing thrift accounts are in this wave that have gone into certificates that are longer-term and the penalty aspect does enter into the situation. There is a little different evaluation required on whether a man withdraws funds from a thrift institution or leaves the funds there. Have you done any analysis that would be meaningful on this?",145
-fomc-corpus,1978,"We have been assuming that people do not withdraw--that is, that the penalty is so great. In fact, it was that assumption that really got us to assuming a somewhat stronger inflow into thrifts in the first quarter than actually developed, given the interest rates.",54
-fomc-corpus,1978,"That may be the wrong assumption, but I don't know just how to correct for it. I think there is a correcting factor that's necessary.",28
-fomc-corpus,1978,"I think that there has been more sensitivity on the part of investors to the interest rates. Greater sensitivity has developed as the years have progressed, and I think there has been a very prompt move into other securities and money market funds, at least with new money--money that would otherwise be invested. I don't have any evidence myself as to whether there have been withdrawals or whether our assumption is correct that there really haven't been many withdrawals.",86
-fomc-corpus,1978,"The penalty isn't all that large; so if the differential spreads a bit more, you could get quite a bit of follow-up.",26
-fomc-corpus,1978,We've done a good deal of work on that and it's very expensive if you've been a holder for more than one year.,24
-fomc-corpus,1978,"Oh, yes.",4
-fomc-corpus,1978,"I think one of the catches this time around is that while a larger proportion of the thrift accounts are locked into what we perceive to be very expensive penalties, it's also the fourth year since they began to take on these certificates. So we have a very high volume of maturing certificates; I think it's something like $28 billion that matures this quarter.",71
-fomc-corpus,1978,"Yes, $28 billion with original maturities of one year or more matured this quarter; over half of those have original maturities of four years or more.",32
-fomc-corpus,1978,One of the other elements in our thinking is that the past experience has been that the institutions seemed to get good rates of gross inflows but it's the withdrawal side that's very sensitive. So I think the maturing certificates are probably the most difficult area this year.,52
-fomc-corpus,1978,"That's what makes me a little leery in a sense about the next notch up because thus far there has been a reasonably competitive relationship between long-term certificates at thrifts and Treasury securities. If you got, say, 25 or 30 basis points more in the 4- to 7-year area, then it might trigger a very large movement of these maturing certificates that were originally in the 4-year area--perhaps into Treasuries.",91
-fomc-corpus,1978,"Or there may be people who would say I'll take a 90-day certificate and see what happens which, in effect, is a way out of the same situation.",33
-fomc-corpus,1978,Paul.,2
-fomc-corpus,1978,"I'd just like to make an observation and raise a question. The observation is about the size of these changes in seasonal factors alone in the revised money supply figures. It has been a long time since I've been in the business of calculating seasonal adjustments, but I don't ever remember year-to-year changes of this magnitude in seasonal factors. I think it just underscores the fragility of these statistics that we work with on a short-run basis from meeting to meeting and to which we attach a lot of importance. The question is in connection with these various substantial statistical changes. Has any further consideration been given to the thought of redefining the money supply figures--and if not, why not--in ways that would seem off hand to make great sense [given] NOW accounts and demand deposits at savings banks?",158
-fomc-corpus,1978,I missed the Board meeting on that subject.,9
-fomc-corpus,1978,"President Volcker, the staff at the moment has been giving this considerable thought and we are planning around midyear or before--I hope in late May or early June--to have a memo for discussion purposes which would propose changes in M1, M2, M3, and M4. We'd like to have discussion, of course, within the System and perhaps have it available for discussion outside the System. That's the state of our plans at the moment.",92
-fomc-corpus,1978,"It's inevitable that we will have to make changes before we proceed with the policy directive. Let me mention a couple of points. First, I'll report on your own projections for the economy. Taking the members of the FOMC--ten are present--for the ranges of growth in GNP, five would fall in the 4 to 4-1/2 percent bracket, against the 4.4 percent that was indicated by the staff, which would suggest a belief by the FOMC [as a whole] of a little lower growth rate than the staff expects. Three of the projections would fall moderately below the 4 percent; and two would be over 4-1/2 percent. So it looks like that bracket is more or less 4 to 4-1/2 percent. If we picked up the views of the seven additional Presidents who are here, three would fall below 4 percent and [the others] would go to 4-1/2, or within [the 4 to 4-1/2 percent] bracket [unintelligible], which again would indicate that the consensus is for slightly slower growth than the staff projection. On the unemployment rate, the FOMC members fall in at a 5-3/4 to 6-1/4 percent range against the 5.9 percent projection. Two would be below the 5-3/4 percent on one of their figures and two would be over, so that [six] would fall completely within the brackets. If you add the other Presidents, you pick up five on the low side and three on the high side, which would indicate that the consensus is, if anything, that the unemployment rate will perform pretty well. It leans a little even below the staff projection. On prices, the staff projects a 6.6 percent [deflator]; the FOMC [members] would be 6.6 to 7 percent, which would indicate that everyone expects inflation to be worse than in the forecast. Three would fall below the 6.6 in one of their figures, two would go over 7. If you add the other Presidents, you pick up two below and three over; again it looks like the leaning is to higher inflation than in the forecast. That is very helpful information. I would say to you that one of the reasons I wanted to experiment--we will just use this here today--is that the issue I'm facing is as follows: For some time the Congressional Committees who have oversight and who invite us and by law now require us to testify quarterly on the monetary aggregates have also been pushing for more quantitative figures on prices, on unemployment, and on GNP. Those in the System have felt, and I certainly concur, that it would be an enormous mistake to begin to provide the Congress with staff projections because that would destroy the ability of the staff to be completely independent in their views and recommendations or projections to us. They would tend to be influenced by the fact that those views would become public. The law does not require quantitative numbers; the law now requires that there be a discussion on projected or prospective production, prices, and employment, but not [quantified]. The solution that has been used is that the Chairman has been giving personal views of the quantitative figures. I feel a little uncomfortable [with that] and I'd like to have help from the Committee. If I'm going to give personal views, I would prefer to have this sort of backup or something like it--or even see if the Committee might want to develop a consensus and authorize me to use this consensus figure so that we use something that the Committee has developed, not the staff. I think to resist any kind of quantitative figures is going to be very difficult. I'm not too happy with using just the Chairman's personal estimates. Maybe that's because I'm not so well qualified to make them or maybe it's because I feel that more input would be a healthier situation. With ranges like this, I don't think it would be very bad if they were used in testimony. We don't have to face it now but at the next meeting I'll be preparing for [testimony in] April, so you all might think about this and whether you want an input into those figures or whether you want to leave it to me. Unfortunately, if it's left to the Chairman, the Senators and Congressmen and the newspapers assume it is the Federal Reserve position. That's the problem. So, I don't like the Chairman giving his personal views, which really get [incorrectly] interpreted in the press. I was speaking to a Senator last evening and his comment was, ""I didn't know those weren't the Federal Reserve's figures; I thought they were."" Of course, it has been very carefully said that they were the Chairman's figures. So, just bear that in mind because next meeting we might deal with it. If you would like to comment on it now, I would welcome it, but there's no urgency to comment at this point. Ernie.",1017
-fomc-corpus,1978,"It seems to me, Mr. Chairman, it might be easier to build a fence against demands that individual members' figures be revealed--and thereby opening access of the [Congressional] Committee chairmen to individual members of the Committee--if the presentation is retained in terms of the Chairman's view without reference to a poll of members.",67
-fomc-corpus,1978,"It could be that that's the solution. It could be that we'd do this without names and, therefore, have a blind view. Or it could be that this would merely be guidance to me to make my personal decision. It could be any combination of those. Yes, Mark.",56
-fomc-corpus,1978,"Personally I think it would be very desirable to have you use ranges of an expression of opinion on the part of the Committee because whether we like it or not various people look at what we do. They try to evaluate how well we do it and in the long run I think that's a good thing in terms of how we perform our job. That's information we use in making our policies and, therefore, it ought to be information which ultimately the public has access to in order to see why and what we did.",102
-fomc-corpus,1978,"I would feel more comfortable if I at least had some input from the Committee, and I am willing to go as far as you all would like. I'm willing to play it any way. I don't like to be trying to represent the Federal Reserve with a very crystallized view that makes me feel that I'm overstepping a little. I don't personally feel any concern about good times and bad times. I think the world has come to the point where if we are going to be responsible and responsive, we're going to have to be giving some indication of what we see ahead, whether they are personal views or whether they are consensus views. And some day we are going to have to be looking at bad times ahead and we are going to have to say so.",152
-fomc-corpus,1978,"Yes, this is partly the difficulty you get into. Do we want to project publicly a high rate of inflation now? The Federal Reserve projecting an acceleration of inflation! Or at other times do you want to project a recession before--",46
-fomc-corpus,1978,"You see, if I'm asked before the [Congressional] Committee on April 25 what my personal views on inflation are, they are going to be higher than the Administration's and that's going to be in the newspaper. Now whether we want to say we all have a view that's leaning a bit that way--is that better? Or should it be me? I can play it either way. But I don't think we can avoid answering the question; I don't think we should. I don't think I should avoid answering the question because the message that inflation is getting worse is a message to action and if we don't say it, I think we are not measuring up. I think there has been a tremendously favorable reaction to my strong statement on inflation already. It hasn't been negative. [The reaction] has been, ""My God, if that's true, let us do something.""",175
-fomc-corpus,1978,"I think there is a subtle distinction between your expressing alarm, which is entirely appropriate and very helpful and encouraging, and the Federal Reserve at some time, in its august majesty, saying this is what [inflation] is going to be.",49
-fomc-corpus,1978,Mark had his hand up first and then I think--,11
-fomc-corpus,1978,"Just to respond to that point because I think that's one of the key points to the argument on the other side, which is that we ought to be making policy looking ahead as to what's going to happen six to nine months down the road. What happens now is that it all seems patently inconsistent to the public because we appear to be tightening when there's no reason and we appear to be easing when there's no reason. I think it would be a great advantage, in terms of our ability to do our work, to have those kinds of statements out in the public domain.",114
-fomc-corpus,1978,Bob.,2
-fomc-corpus,1978,"Mr. Chairman, I think one of the things members of Congress are apt to do is to try to get us publicly at odds with one another. There are a lot of differences of opinion as to who ought to do the testifying. My feeling is that to the extent possible you ought to do it on this kind of matter. If [these Congressional Committees] end up with a lot of different opinions, they are going to ask different ones among us to come and express those opinions and they are going to play us off against one another, which I think would be a catastrophe.",118
-fomc-corpus,1978,"That's correct. If we ever move beyond [my] personal views, it should be unidentified--[and stated in terms of] consensus and ranges.",30
-fomc-corpus,1978,That's very advisable.,4
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"I'm really very concerned about the Federal Reserve predicting a rate of inflation because that works its way through immediately into interest rates, if anybody takes it seriously. I wonder whether there aren't ways of qualifying this. For instance, I found myself putting down three alternative scenarios here for these [inflation] numbers. After all, we don't control them; the outcome depends on what the Administration does and what Congress does.",81
-fomc-corpus,1978,That's what the Congress wants--clarity.,9
-fomc-corpus,1978,"Likewise, I think probabilities can be mentioned [on] fears that inflation may rise significantly, but I would be very bothered by some numbers stated cold, whether [they represent] your view or the Committee's.",43
-fomc-corpus,1978,That's really a very narrow range on inflation--[6.6] to 7 percent.,19
-fomc-corpus,1978,"Yes, it could be widened.",7
-fomc-corpus,1978,I think we'd want a wider range than that.,10
-fomc-corpus,1978,I took off the ends of it; it could be widened easily. Let's see. Bob Mayo wanted to speak.,23
-fomc-corpus,1978,"You're right, Mr. Chairman, that the Congress wants clarity but many in the Congress confuse clarity with simplicity. They would like to have a digit for everything and once they get into this game they can trap us by remembering figures that we would just as soon forget. [Laughter] No, I mean that seriously.",64
-fomc-corpus,1978,What you're saying is that you'd like the Chairman to be on the spot.,15
-fomc-corpus,1978,"No, I want to keep the Chairman off the spot by not getting him to expose figures that we would rather all forget later on. It's not that we are irresponsible but we are human beings. I'd also suggest that one of the precedents set by setting up target ranges on the monetary aggregates in the first place was, I think, to dignify those as overly simplistic definitions of what we are doing in the public's eye. And [I like] the fact that we have been able to resist thus far the projection of interest rates in particular. I agree with Henry's point that the more figures we give them the more they like figures and the more they will slant them, and we could be getting ourselves into a trap.",147
-fomc-corpus,1978,"I think perhaps we've spent enough time with this today. I would appreciate your thinking about it and perhaps coming in with some suggestions at the next meeting. Ernie Baughman has written a letter, which you've all received, suggesting that we also take a look at a longer-range view of monetary policy and the aggregates. My suggestion would be that this matter be taken up by the Subcommittee on the Directive. Chuck, that's your committee, I think. Perhaps at the next meeting you could give us some views on this. I think it's well worth examining.",112
-fomc-corpus,1978,Certainly.,2
-fomc-corpus,1978,Is that satisfactory?,4
-fomc-corpus,1978,That's quite satisfactory.,4
-fomc-corpus,1978,"Now, I think we turn to the directive itself, unless there is some order of business I'm not familiar with. You have a draft before you, which has general paragraphs. I might ask if there are any comments on the general paragraphs before we come to the operational paragraph. I have one on line 8, page 1. I think when unemployment went last time from 6.4 to 6.3 percent it edged down; but when it goes from 6.3 to 6.1 percent it might just decline. I think when it falls 0.2 of a percentage point it is doing more than edging.",129
-fomc-corpus,1978,You're right. Absolutely.,5
-fomc-corpus,1978,"How about using ""precipitous""? [Laughter]",12
-fomc-corpus,1978,"Yes, a precipitous drop in unemployment. I just think ""decline"" might be a better word. Are there any other comments on the general paragraphs? Then what is your pleasure on the operational paragraph? We have two choices, the formulation that is described as ""monetary aggregates"" and the one that is ""money market."" Anyone? Paul.",72
-fomc-corpus,1978,I don't know whether I want to address myself to that limited question at this time.,17
-fomc-corpus,1978,"Fine, address yourself to a broader view.",9
-fomc-corpus,1978,"Let me just [address] myself to where I would like to see [the funds rate] go during this period. I feel very much the way I did last month in the sense that I think it would be wrong in the foreseeable [future] to give an easing signal, for a variety of reasons, maybe most importantly the concern we've expressed about inflation around the table. And I think the international consideration is also very evident. I think both of those reasons outweigh any doubts or uncertainties we may have about the economy [given] the fact that the figures are so distorted recently. I would go beyond that and say I could conceive of circumstances in which some modest tightening move--and I would say modest certainly--might be useful during this period, although I certainly wouldn't make it now. I say that against a background that was described to us by Steve Axilrod about the outlook for the aggregates. I don't think we can attach much significance to what happens to the aggregates in the short run, particularly if they go down or remain rather sluggish during this period against the high figures we had for quite a period last year and against the outlook, uncertain as always, for the probable strength rather than weakness as we move ahead and get through the winter period and through the coal strike. What we do now isn't going to affect what happens to the aggregates in the next few weeks but it will have some significance later in the year. We ought to be thinking in terms of steady to possibly slightly up rather than any declines [in interest rates]. I think the easiest way to express this, in terms of the directive itself, would be to limit the federal funds range by putting a floor on it at [the rate] we've in effect had--6-3/4 percent. I don't really want to see the rate going up much above 7 during this period without a careful relook, so that suggests, as I proposed last time, a 6-3/4 to 7 percent range. And I still think it makes some sense to move it up if the aggregates are running high, which would point to an aggregates kind of directive.",428
-fomc-corpus,1978,But a very much constrained one.,7
-fomc-corpus,1978,"Some question was raised about this last month. So I was forced to do some thinking about it this month, and I'm prepared to argue that the best way to use an aggregates directive is to constrain the federal funds rate in this particular period. That's because I wouldn't want to see an aggregates directive and have a wide federal funds range and either have it go way up or way down. Nevertheless, I don't mind moving the rate if the aggregates are high; but I don't want to move it forever. And I guess ""forever"" I define as really above 7 percent in these circumstances, which itself would get an interesting market reaction. I wouldn't want to risk a greater one by moving it above the 7 percent area. Now if you don't like that idea, I think we ought to bias it differently and just move these aggregates ranges down, depending on whether it's [alternative] A or a B or C. I wouldn't use A at all. I would just move the aggregates ranges lower if you want a wider range [for the funds rate] and then bias it in that direction but I prefer the other. I might say in that connection that New York for some reason has a substantially lower estimate for M1 and M2 for this particular period than the Board this time. I don't attach great weight to either of them but it is true that that estimate is substantially lower this time.",278
-fomc-corpus,1978,"Gentlemen, I don't know what your procedures are but maybe I can make a couple comments on how I see the situation and maybe I can be helpful. It seems to me that any lowering of the funds rate bracket would be inconsistent with the views that I've been expressing and would, therefore, not be in the direction I would want to go. It also seems to me that going to higher targets for the federal funds rate right now might be premature in view of all the other considerations around. I am sympathetic to the idea of a steady course at 6-3/4 percent, but I think a range of 6-3/4 to 7 is a little unworkable. I would prefer to use 6-1/2 to 7 percent and administer it at 6-3/4 percent, with consultation before allowing it to go below that as we did recently when we maintained [the 6-3/4 percent rate] even though the aggregates were below the range. A second point of view is probably quite consistent with your last point, Paul. I do think that it would be healthy to have M1 at least, and maybe M2, more toward the alternative C ranges than the B ranges. So I tend to have, as I expressed it at a recent Board meeting, a B+ attitude. I would be a little more comfortable with [the ranges for the aggregates] if they were reduced some; I don't know how far. But I do like the idea of keeping the federal funds range at this point at 6-1/2 to 7 percent, but targeting the [rate at] 6-3/4 percent without some additional consultation. I don't know if that's helpful to you.",353
-fomc-corpus,1978,If I may just add one further bit of clarification. You say don't put the rate below the 6-3/4 percent without consultation; that is certainly a point I would agree with. Suppose the aggregates come in high? Do you also feel we shouldn't move it above 6-3/4?,62
-fomc-corpus,1978,"Oh, no. I think I would allow it to go above. I just wouldn't allow it to go below because of the worry that I feel about the inflation situation.",34
-fomc-corpus,1978,In practice you're precisely where I am.,8
-fomc-corpus,1978,That's what I think. I think that if we could administer it that [way] we would have a better program.,24
-fomc-corpus,1978,And you're recommending the alternative C ranges for the aggregates?,11
-fomc-corpus,1978,"Well, I'd like to hear a little discussion. I think the M1 in alternative C would be better. Whether it makes any difference in M2, I don't know. I probably would take alternative C on both M1 and M2 and alternative B on the federal funds rate. That's my viewpoint. Now, in the order people have indicated [a desire to comment], I call on Phil Coldwell.",82
-fomc-corpus,1978,"Mr. Chairman, I'm not too far away from you and Vice Chairman Volcker on this, with perhaps a slightly different twist to it. I would take Paul's 6-3/4 percent lower limit on the federal funds rate and put the top end up to 7-1/4 percent. I would take your alternative C as a guide to M1 and M2, mainly because I think we need to take advantage of any kind of window we can get toward lower aggregates growth. I think we're going to be faced with higher aggregates growth; and there's no point in getting socked in with more of these spikes if they come along after the seasonal adjustment. I don't know, Steve, whether you've ruled them out or not. But I would prefer that we take this kind of a measure now. In effect, it's a slight tightening of the posture of the Committee, [which I favor] because I see inflation as being our biggest problem over the months ahead and I'd like to get a leg up on it.",205
-fomc-corpus,1978,Phil Jackson.,3
-fomc-corpus,1978,"I differ in the judgments that have been expressed. It is my view that if we were to get the third month in a row of relatively slow growth in the aggregates this, first, would be a signal to the international exchange market about the consequences of Federal Reserve actions, which would produce a lessening pressure on the value of our dollar. Second, I would say that if we got the third month of slow growth which is anticipated in April--that's what we're really talking about--this would tend to bring in to more valid question how strong underlying economic circumstances are. Further, I think that a change of 1/4 of 1 percentage point is not a major policy change when it's sustained by aggregate facts which would be known to the public, and for that reason I would favor an aggregates directive. However, when it comes to the ranges, I would favor the alternative B lower [limit] of 4-1/2 [for M1]. It strikes me that the top figure ought to be 8 not 9. We have just seen that the staff has proposed a major shift in the seasonal adjustment for April. What was it, 5.6 percent, I think?",240
-fomc-corpus,1978,Around there.,3
-fomc-corpus,1978,"In that light, if we kept the 9 and if the 4.6 projection for March stays constant, this would mean that April could go to 13.4 percent before we'd see any change in the Desk's attitude. It strikes me that that's too high, particularly in light of the seasonal adjustment that we've already got. And while I realize bringing 9-1/2 down to 8 is still going to allow a substantial growth in April, it strikes me that that's the better course of action for that reason. I'd say 4-1/2 to 8 percent [for M1]; the 6 to 10 percent I think is probably a reasonable projection [for M2]; and I'd go with the 6-1/2 to 7 percent for the federal funds rate.",164
-fomc-corpus,1978,Henry Wallich.,4
-fomc-corpus,1978,"I feel that the good days of stable interest rates are approaching an end. We have a strong month, as far as prospects for M1 are concerned, ahead of us. Of course, this may turn out to be wrong, but I share Phil Jackson's thought that the seasonal adjustment which has already been applied in order to pull [April's growth rate] down ought to make us aware that this may be a very strong month without showing itself. And I look at the interest rates that are projected over the rest of the year in Appendix 2. Now, this calls for alternative B if things turn out that way--a 1-1/4 percentage point rise over the rest of the year. And we don't get there by sticking at a 6-3/4 percent fed funds rate indefinitely. I would wait, certainly, until the evidence is in on a strong April; but with that in mind I'd lower the M1 range to 4-1/2 to 8, which I find desirable. Anyway, I prefer narrower ranges. I'd set the funds rate range at 6-3/4 to 7-1/4, with instructions to the Manager not to go to the midpoint of that until two more weeks of data are in so that we don't make a false move by chance. But if the data develop as expected, then an upward move will be triggered after a while, and I think we have to--painful as it is--make a start on getting the funds rate up. I haven't said anything about M2; I would move that to 6 to 9 instead of 6 to 10. And I'd go with an aggregates directive, always bearing in mind that the instruction is not to move for the first couple of weeks.",360
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"You and Governor Jackson have expressed my opinion. I think the federal funds range should be 6-1/2 to 7, with the arrangements you have explained on consultation. And I've felt for some time that our ranges are too large. We moved to 6 percentage points and we're now down to 5, and I think we could take another cut. I would endorse the view that we should cut the range for M1 to 4-1/2 to 8 percent.",99
-fomc-corpus,1978,4-1/2 to 8?,9
-fomc-corpus,1978,I meant 4-1/2 to 9 percent and 6 to 9-1/2 percent. I'd cut 1/2 point off now and maybe take another cut later on.,41
-fomc-corpus,1978,Thank you. Willis.,5
-fomc-corpus,1978,"Well, I think I'd be a little stronger in my cutback on the [ranges for the] Ms in view of the adjustment factor we put in [which] makes comparison very difficult over time. I would go to 2 to 7 on the M1 range and 5 to 9 on the M2 range. We certainly don't move against forecasts, but I'd surely move if the evidence came in because as I look down the road, like Henry I think we've got to face the unpleasant task [of moving the funds rate up] and I'd rather move earlier than later [given] the magnitude of the problem. But I'd go to 2 to 7 and 5 to 9 in view of the seasonal adjustment we've put in there because the comparisons really are going to be quite extreme.",161
-fomc-corpus,1978,Bones.,2
-fomc-corpus,1978,"I, too, am very much concerned about the inflation and inflationary expectations that we've encountered, and I think we ought to take advantage of this opportunity to move--maybe not aggressively, but certainly there's the opportunity for some modest move. Playing with the numbers I guess I, too, would like to close the range some so M1 I'd maybe put at 4 to 8 percent; I have no objection to 5 to 9 on M2. For the federal funds rate, I would very much dislike seeing the rate sink below 6-3/4 percent but again, hopefully, it would not move above 7 unless we had some additional numbers [and the need to move it up] became apparent. So, I would like to see a 6-3/4 to 7-1/4 percent range, with some modest leaning upward.",175
-fomc-corpus,1978,Larry.,2
-fomc-corpus,1978,"Mr. Chairman, I would recommend an M1 range of 4-1/2 to 8 percent, an M2 range up to 8-1/2, a federal funds range of 6-1/2 to 7-1/4, and an aggregates directive. I might just say that this is the sweetest music I've heard as far as the aggregates are concerned in some time, Mr. Chairman. I think that it's vital that we are willing to be flexible in letting interest rates rise if need be in order to accomplish what we all seem to be aiming for in the aggregates. We happened to review the Bluebook of March 1977, which was just a year ago. At that time we set quite delightful aggregates targets. The Bluebook projected a growth of 5-1/2 percent in M1 for the year and, as you know, the figure has come in instead of 5-1/2 percent at 7.8 percent--and I think it's essentially because of our emphasis on keeping the lid on interest rates. What I'm pleading for, sir, is that after we set these targets for the aggregates on a sensible basis we really do what is necessary to achieve those targets in the months and years ahead.",255
-fomc-corpus,1978,Thank you. Ernie.,6
-fomc-corpus,1978,"Mr. Chairman, my preference is for the aggregates specified in alternative C and for a federal funds range of 6-3/4 to 7-1/4 percent and an aggregates directive. I could be persuaded, however, along the line of Paul's comments, to go 6-3/4 to 7 on the federal funds range if it looks like going as far as 7-1/4 would disrupt the market.",89
-fomc-corpus,1978,Frank,1
-fomc-corpus,1978,"Mr. Chairman, I like your specifications--I think they're very suitable for the situation--with a money market directive. I say that because I am uncertain as to just how strong the economy is. Therefore, I think we ought to essentially have a stand pat philosophy until we can get a better fix on it. On the other hand, if we do get a very strong rate of growth in the aggregates in April, I think this would be prima facie evidence that our projections of a strong rebound are probably right and, therefore, I wouldn't object to going up to 7 percent under those conditions. And I wouldn't mind cutting back the upper limit [of the range for M1 and M2] somewhat as long as it didn't mean that we would be moving up on a fairly small or moderate rate of growth in the money supply in April.",170
-fomc-corpus,1978,Bob Black.,3
-fomc-corpus,1978,"Mr. Chairman, my statement is distinguished only in that I've got slightly different figures.",17
-fomc-corpus,1978,That's the purpose of having big spread sheets.,9
-fomc-corpus,1978,"I can find all the figures I have in mind, but not in exactly this combination. I would lean toward an aggregates directive and I would prefer a funds range of 6-1/2 to 7-1/4. And if we do that, then I think M1 might appropriately be set at a range of 4 to 8 and M2 at a range of 5 to 9. If we settle on a money market directive, I would want to [lower] those ranges since the trigger point is somewhat different under the money market directive--that is, we don't react until we are approaching or moving beyond the upper limits. So I would want the M1 range there to be [4] points, 3 to 7 percent and 4 to 8 [on M2] with 6-1/2 to 7 on the federal funds range.",181
-fomc-corpus,1978,John.,2
-fomc-corpus,1978,"Well, I share the view that all the specifications of the aggregates are too high. In fact, by coincidence, I had put down the same numbers as Willis Winn. I'll join him in suggesting M1 in a 2 to 7 percent range and M2 in a 5 to 9 percent range. And for reasons that have been set forth in detail, and that I agree with in view of accelerating inflation, I would make the federal funds range 6-3/4 to 7-1/4.",106
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"Well, I don't take great exception to the figures that are being cited, but I certainly do to some of the language that's being used. I don't think this is a good time to take advantage and move. What have we learned? We've learned that this morning the fourth-quarter GNP has been revised downward for the second time and that the first-quarter GNP will be at best 3-1/2 percent and could well be below that. We don't know whether the coal strike is settled or not at this point. What we see, as Frank pointed out earlier, is weakness in numbers that we have on the economy at this point. And I just don't think the public would understand at all our talking about seeing this as an advantageous time to move up interest rates. Now, if we're forced to move up interest rates because the aggregates are strong, that's a different matter. But I think that's the only basis that we have right now for contemplating any kind of tightening move. I don't much like to look back and say: Well, what would growth have been with the old seasonal? If we do that, you know, we're playing a game all the time. What is the real number? Will it please stand up? If you look back at the old seasonals, you would say that February was very weak because, after all, we added 3 points to February with the revision in the seasonal factor. I do think it's possible to say that, having made corrections to the seasonal factors, we now should regard a strong month as a more serious proposition than a strong month was previously. And in that sense, a substantial burst in the money numbers in April--which is strictly a projection on the part of the staff because they don't have any data whatsoever but only the instinct that the numbers are likely to move up--would be a damaging development and one that would give us a basis for tightening a bit. And I think that's what we have to ride on. I also don't like the idea of cutting these ranges as much as has been suggested pretty generally because I don't know that we have a more stable series than we previously had. If you look at the seasonal factor adjustments for last year for M1--the seasonal factor adjustments alone without regard to sign--you'll find that the average error was over 2 points. That isn't the kind of situation in which we should significantly narrow the ranges that we're asking the Manager to look at because, as Chairman Burns used to say, 4 is really 8 in this series. And there is a lot to be said for that--4 may be 8 and 8 may be 4. I think we've just had a very fine demonstration in those seasonal factor adjustments, if in fact, they are correct. However, I would be prepared on this occasion, because we are dealing with the possibility of a large April, to reduce the range to 4 points. Since we have a relatively moderate indication for March, we have to guard against the possibility of a quite large April. It's not a question of a small number as against a large number, but of a moderate number presently projected for March and then a possibly large number for April. Also, I think perhaps a little bit of bias in the specification of the aggregates might be prudent at this time since we are so concerned about inflation and the possibility of a new upsurge in the aggregates. The ranges I put down are 4 to 8 for M1, which is the same as yours, Mr. Chairman, except that I cut a point off the top. And I think I would want the M2 range to be narrower than the M1 range. I would put that at 6 to 9, which is a reasonable rate of increase. I think our experience [suggests] that we ought to have a somewhat smaller range on M2 as a matter of convention than on M1. And 6-1/2 to 7 is okay by me on the funds rate. Even with that narrow funds range, I would recommend an aggregates directive because I think our posture--if it is true that we're into a period where we're likely to be coping with large aggregates and upward pressure on interest rates--is better with an aggregates directive than it is with a money market directive.",865
-fomc-corpus,1978,"Thank you, Chuck. Mark.",7
-fomc-corpus,1978,"Thank you, Mr. Chairman. I came to this meeting prepared to be an outlier, and I find that I am very comfortably in tune with a large number of my colleagues.",37
-fomc-corpus,1978,"Oh, this is a good group.",8
-fomc-corpus,1978,I would make just one comment. I agree with everything that has been said. I think Governor Wallich gave my speech much better than I was prepared to give it. And I find great comfort in the fact that Chuck just gave almost the same speech. And that's a rather unusual occurrence.,58
-fomc-corpus,1978,We have a lot of discipline around here.,9
-fomc-corpus,1978,"I think 8 is the top number that I'd like to see on M1. I'm really not too concerned what we make the bottom; 4 is fine with me. Frankly, I really don't care much about M2 because I'm not sure in the current environment that it means very much--or at least I don't understand what it means. I would have a preference for 6-3/4 to 7-1/4 on the funds rate with the same provision that Governor Wallich mentioned. The only additional comment I would make is that we have all expressed the hope that by taking this kind of action we can deal with the inflation problem--which we all seem to understand as the number one problem--and somehow simultaneously not aggravate the unemployment problem. My guess is that by taking this action today we may well be, if we persist, increasing the risk that unemployment will be as Chuck has suggested. I for one am willing to take that risk, but I think we should do that knowing that that's the course that we're embarked upon.",212
-fomc-corpus,1978,We haven't heard from Bob Mayo. Would you like to comment?,13
-fomc-corpus,1978,"Yes, Mr. Chairman, thank you. I thought up until this meeting that I was perhaps the greatest cynic around the table on seasonal adjustment. I think Chuck has challenged my self-established description. But I do feel that on the monetary aggregates we have a lot to learn yet on how we make seasonal adjustments when year after year, even with the adjustments that have been made recently, we still have undulation with regard to the first month of each quarter. Therefore, I feel like Governor Jackson that it would be much better to have an 8 percent top on the M1 range; whether the bottom is 3 or 4 is immaterial to me. I think we proved last month that we probably would have been better off with a zero than the 1 that we came out with, but that's neither here nor there. As far as M2 is concerned, again 5-1/2 to 9-1/2 or even 5 to 9 is all right with me. I seem to be about the only one around the table who feels that a money market directive would be the more appropriate stance at this point, although I don't feel that strongly. I think we are aiming for a continuation of 6-3/4 percent [on the funds rate] unless something really gets out of line. So, why not say it? I feel very strongly, Mr. Chairman, that your description of the 6-1/2 to 7 on the federal funds range is correct. I would not want to change that, not only for the reasons that have already been mentioned, but I have somewhat of a PR reason that may not be significant. You would be the only one probably to pass final judgment on that, but 6-1/2 to 7 is where we are. I think there is enough uncertainty as we look at the outlook today--I share some of Frank's views on this--that I would not want it changed because there may be weaknesses we're not sure of yet. You would be in better shape, in my book, going up to testify right after the minutes of this meeting are made public, if you were testifying in an environment where we had made a decision today to stick with a 6-1/2 to 7 percent federal funds range.",468
-fomc-corpus,1978,"Thank you. Roger, would you like to add any comments?",13
-fomc-corpus,1978,"Just briefly, Mr. Chairman. Thank you. I would prefer to have the alternative C aggregates--that's the 4 to 9 [for M1]--particularly if we have an aggregates directive. If I understand how that is viewed by the Desk, that would trigger an upward or a downward movement someplace within a percentage point of the outside of those ranges. So it doesn't seem to me to make much difference whether we're talking about a 4 to 8 or a 5 to 9 percent range, if in one case with a money market directive we use 4 to 8 and if with an aggregates directive we use the 4 to 9. In other words, [action by] the Desk is going to be triggered at the same point. As a result, I would prefer to stick with the C aggregates, with an aggregates directive--maintaining, however, a federal funds range of 6-1/2 to 7 percent. I share the view of Paul Volcker and many others that we should not go below the 6-3/4 present level unless there are very unusual circumstances. The thing that bothers me a little bit, remembering back to both '76 and '77 again, is that we got very strong growth in the aggregates in April of each of those years. To my knowledge there's never been a very good explanation of those. Soon thereafter the growth rates returned to much lesser levels. I guess I am concerned that with an 8 percent top, for example, and with an aggregates directive, we may be taking action that is really not appropriate. That is, the aggregates may not be telling us what we think they are because we've not been able to explain what has happened in past years. So in summary, I would go with the C aggregates, with 6-1/2 to 7 and remaining at 6-3/4 percent [on fed funds].",388
-fomc-corpus,1978,Thank you. Alan would you like to make any comments?,12
-fomc-corpus,1978,"No, I don't think so, Mr. Chairman.",11
-fomc-corpus,1978,Steve?,2
-fomc-corpus,1978,"No, I have no comment, Mr. Chairman.",11
-fomc-corpus,1978,Do you have something else?,6
-fomc-corpus,1978,You have no comment or none you would like to make?,12
-fomc-corpus,1978,I didn't know whether you were asking for an opinion on the policy.,14
-fomc-corpus,1978,I'll take an opinion.,5
-fomc-corpus,1978,"Well, Mr. Chairman, my view would be that it would be desirable to lower the top end of the M1 range just to guard against excessive growth beginning without any response on the part of the Committee. I would not in any way really want to lower the bottom of the range because I would be somewhat fearful that if we had three straight months of low growth, as I believe Governor Jackson mentioned, that would indicate either that the economy was not as strong as we expected or that Federal Reserve policy was going to restrain growth below what is desirable.",111
-fomc-corpus,1978,"Mr. Chairman, may I make one comment? It's not quite clear to me what funds range the Committee is going to pick but I gather with 6-1/2 to 7 that we don't go below 6-3/4 percent without consultation. I'm not quite so sure with 6-3/4 to 7-1/4 whether we don't go above 7 without consultation. I ask because some members have expressed some reluctance to move very much on the upside unless the aggregates were extremely strong.",106
-fomc-corpus,1978,"What is the midpoint of that higher range, Alan? What do you interpret to be the midpoint of that higher range--7 percent?",27
-fomc-corpus,1978,"No, I'd say we'd [view it as] 6-3/4 percent unless the aggregates tell us to move up. That's for the Committee to decide but that's the way I would interpret what I've heard today.",44
-fomc-corpus,1978,"May I just [review] the bidding? Did I hear any FOMC voting member ask for a money market directive? There were several who didn't speak [to that]. Phil, did you have any preference?",43
-fomc-corpus,1978,"No, I think I would stay with the monetary aggregates directive this time, Mr. Chairman.",19
-fomc-corpus,1978,Dave could you--,4
-fomc-corpus,1978,I would agree with that.,6
-fomc-corpus,1978,Mark?,2
-fomc-corpus,1978,I agree with you.,5
-fomc-corpus,1978,Willis?,3
-fomc-corpus,1978,I agree.,3
-fomc-corpus,1978,"That looks like one thing we've decided; there's a very large groundswell for the aggregates language. The next thing one might observe, looking this over, is that everybody uses [different] numbers and words and they all seem to come out to 6-3/4 percent on the federal funds rate. On the other hand, there seems to be pretty good sentiment that we should clip down some of the range on M1 and I gather on M2. Steve, I didn't quite understand your point. You said you wouldn't like to see the lower end reduced. Are you talking 4-1/2 or 4?",126
-fomc-corpus,1978,"I had in mind 4-1/2 but the difference is very small, so it's not a matter of much importance.",26
-fomc-corpus,1978,"All right, let me see. On M1, it seems to me that if one were talking 4 to 8, one would catch almost everybody's view on this. It almost looks like the 5-1/2 to 9-1/2 or 5-1/2 to 9 would catch most people on M2. But some would like to start it at 6 and there was only one person who would go up to 10. Almost everybody had 9 or 9-1/2 on the upside and 5-1/2 or 6 on the bottom side. There was one 5. Would it be appropriate to consider 4 to 8 on M1 and 5-1/2 to 9 on M2? And I really think we could live with the 6-1/2 to 7 percent [on the funds rate] with the consultation below the 6-3/4 better than we could the other [proposed ranges]. So it would be 6-3/4 and consult before taking it below that and have complete discretion to go to 7. Now, could we get a consensus on that kind of resolution? I gather that it's unanimous almost. You've got my vote [too] that we should go to the monetary aggregates, so I won't say anything [on that]. I always like to be on the winning side!",289
-fomc-corpus,1978,"Mr. Chairman, if we follow the formulation you've laid down at 6-1/2 to 7, 6-3/4 is the midpoint and you would stay at the midpoint unless--",41
-fomc-corpus,1978,We would not go below the midpoint unless there was prior consultation because of conditions.,16
-fomc-corpus,1978,"In other words, we would not be taking the flexibility down below to 6-1/2 percent.",22
-fomc-corpus,1978,No.,2
-fomc-corpus,1978,How about the upside for the 7?,9
-fomc-corpus,1978,The 7 the Desk would have [available] at its discretion.,14
-fomc-corpus,1978,If the aggregates came in on the upside.,9
-fomc-corpus,1978,"Sure, and with the regular directive.",8
-fomc-corpus,1978,"I'd buy that, Mr. Chairman, because we are in an environment in which we may have a similar posture to what we had a few weeks ago, where our aggregates may tell us one thing but circumstances beyond the aggregates may dictate a different response. I would say that this is a very responsible way to handle it.",64
-fomc-corpus,1978,So we put in 4 to 8 for M1 and 5-1/2 to 9 for M2.,26
-fomc-corpus,1978,"Mr. Chairman, we're now constraining the funds rate more than we've ever done, I think, by giving it essentially a 1/4 percentage point range to move in. We've come a long way from saying that the funds rate ought to be reasonably flexible. Reasonably flexible shouldn't be too much in the means of determining market rates and we should look to the aggregates. But here we're moving very far in the direction of a pure interest rate target, just moderately constrained by the aggregates. And it seems to make some sense in the present case; we anticipate an upshoot in the aggregates and we want to have the rate triggered in the upward direction. But in that case I think we ought to have 7-1/4 rather than 6-1/2 to 7.",159
-fomc-corpus,1978,You mean 6-1/2 to 7-1/4?,16
-fomc-corpus,1978,"Well, really 6-3/4 but I could live with 6-1/2, subject to not going there without consulting.",29
-fomc-corpus,1978,"I wouldn't be prepared to do that without talking in order to take it above 7 percent. I think we really ought to consult before we go above 7. We may need to do so. [We] biased our specs on these aggregates so that we have a greater chance of being quite high on them, and it gives us an opportunity--",70
-fomc-corpus,1978,I think there was a preponderance of members who wanted to keep a 7 percent lid on the funds rate. We still have the range; it only takes a phone call to decide that we've got to have the rates higher. I hope we could agree to do that. May we vote on that basis? Mr. Secretary.,67
-fomc-corpus,1978,"Chairman Miller I vote for my proposal. Vice Chairman Volcker I vote for that proposal, too. Mr. Baughman Yes Mr. Coldwell Yes Mr. Eastburn Yes Mr. Jackson Yes Mr. Partee Yes Mr. Wallich Yes Mr. Willes Yes Mr. Winn Yes It's unanimous.",63
-fomc-corpus,1978,"There are a few other items of business in this meeting and we may even soon [get] to lunch. I hope you all will join us. Item 9 is the review of the authority for lending securities and there has been a memorandum on the subject both from the System Account Manager and from the General Counsel. Peter is prepared to comment, but I rather think that unless there are particular questions we could get your views by voting. [Someone] moved approval. Is there a second?",98
-fomc-corpus,1978,Second.,2
-fomc-corpus,1978,"[Hearing no objection,] we will record that as approved. [Next is a] review of the Authorization for Domestic Open Market Operations. There is a copy [in the memo you received and] no changes have been proposed. However, I think Steve had a comment he wanted to call to our attention.",63
-fomc-corpus,1978,"Yes, at the last meeting there was a discussion of operations in Federal agency issues, particularly with regard to their relationship to their required coverage behind currency and the possibility of developing a two-way market including sales of agency issues. Mr. Sternlight and I are planning to have a joint memo to the Committee by the next meeting, God willing. If we fail that, certainly by May [it will be done] but we're trying for the next meeting.",90
-fomc-corpus,1978,Is a vote required on this subject?,8
-fomc-corpus,1978,No.,2
-fomc-corpus,1978,"Well, yes, on the reaffirmation of the authorization.",12
-fomc-corpus,1978,"It is required. There is a motion, second. Is there any discussion? Any dissents? We will approve that. Next is the review of the agreement to warehouse currencies for the Exchange Stabilization Fund. We have a memo and Ted Truman is prepared to comment. I'm please to say that after consultation, I find that we do not take any exchange risk on this warehousing. Therefore, I feel comfortable about doing it to accommodate the Treasury.",90
-fomc-corpus,1978,I do not.,4
-fomc-corpus,1978,"We've never done it, though.",7
-fomc-corpus,1978,"We haven't done it and I don't like the idea in our exact current environment, where we're questioning whether the Treasury is going to fulfill its responsibilities in this action, that we have a warehousing arrangement which they can push off on us.",47
-fomc-corpus,1978,Even if you have a legal opinion that they're liable for the risk?,14
-fomc-corpus,1978,"Yes, even if I have a legal opinion. [We're] not only asking for a future payback to us but also going to warehouse their foreign currencies.",32
-fomc-corpus,1978,The Treasury doesn't hold any foreign currency; it would be hard to warehouse any.,16
-fomc-corpus,1978,"No, but if they bought something, warehousing puts them over here and they'd be made whole, wouldn't they?",23
-fomc-corpus,1978,Not under risk.,4
-fomc-corpus,1978,"Not under risk, no.",6
-fomc-corpus,1978,But we would be holding their foreign currencies.,9
-fomc-corpus,1978,"Let me say, Mr. Chairman, this is quite the opposite operation from what we're talking about. This is one where the Treasury is a lender, not a borrower. Second, I really don't see any reason to believe that the Treasury will renege on an arrangement that it has made with you, even though verbally, and that we're now going to confirm in writing. And third, I don't know why we should quite needlessly--abstractly, it seems to me--irritate them by informing them that we're terminating this thing. If they've lent to Mexico, say, and we think it is a bad thing for them [to lend to] Mexico--we have not been in on the deal--and they come to us after a year and Mexico has [now repaid] they might say please warehouse [these funds]. That is the situation foreseen. We can still talk to them about it. We're not, I think, ironclad bound to make that transaction.",199
-fomc-corpus,1978,"Is this [like] the British deal, Henry? Was this done for the British?",18
-fomc-corpus,1978,Mexico.,2
-fomc-corpus,1978,Could be on [unintelligible] it was also on the British.,16
-fomc-corpus,1978,"It was reinstituted the same time we were discussing this German balance agreement. There has been a warehousing provision in the foreign currency authorization since 1963. When we cleaned up the authorization, although the power to warehouse remains in the authorization, the explicit numbers associated with the warehousing were removed. And therefore, at that time, in light of the sterling balances, an agreement was negotiated. Twelve months ago, there was this exchange of letters, but it was not intended to be anything more than a confirmation of what had been practiced now for 15 years.",114
-fomc-corpus,1978,"I would think the typical contingency--there could be all sorts of [cases] where you might want to use this--is where we wanted the Treasury to join with us in some lending. And they say we can't do it because we haven't got the money. And we would want the facility to say we can provide the money; you take the risk, we'll provide the money. It would make possible an action we want them to take rather than that they're foisting off something on us that we didn't like.",102
-fomc-corpus,1978,"Mr. Chairman, I feel very strongly about wanting the Treasury to share the burdens of operations on our part abroad. And I have been outspoken in that view. However, I don't see this proposal as being destructive of that objective. On the contrary, it strikes me that in the event the Treasury were to make a loan itself to some other country this proposal--by being able to replenish their funds with a warehousing arrangement with us--would enable them perhaps to stay in as our partners in support of our position instead of having to refuse to [join] because [the Exchange Stabilization Fund] doesn't have any money. For that reason I would support this. I don't think this is contrary to the attitude of keeping their feet to the fire over on the other side.",154
-fomc-corpus,1978,Is there a motion to approve? Is there a second? Would all those in favor raise their hands please? Opposed? One vote opposed?,29
-fomc-corpus,1978,Yes. Governor Coldwell.,6
-fomc-corpus,1978,"Item 12 is the review of the Authorization for Foreign Currency Operations, the Foreign Currency Directive, and the [Procedural Instructions]. No changes are proposed. Is this a required vote? This is moved. Is there a second? Any discussion?",49
-fomc-corpus,1978,There was a change made in the Procedural [Instructions].,12
-fomc-corpus,1978,These are the others.,5
-fomc-corpus,1978,How about the authorization that we have raised from--,10
-fomc-corpus,1978,"Oh, I see.",5
-fomc-corpus,1978,"So, is there any dissent from approval? Then we'll record it as approved. Next is confirmation of [the date of] the next meeting, which is April 18. Unless there is other business, I would suggest that we adjourn for lunch. Thank you for your patience.",57
-fomc-corpus,1978,"I do welcome all of our visitors again and we have a busy agenda. If we move along diligently, I think we can get through it in an appropriate time. I hope that the word has been passed that I would like, if it is convenient for each of you, to have the Presidents and the Governors and a few of the staff joining in for lunch upstairs as we did last time. That will be an occasion where we have a few things we just might informally bring to your attention. And if there is anything that any of you would like to bring up at that time, we would welcome that. In preparing for the meeting today, there were some items that were pending that I just want to mention. One was the report on revisions to the procedural instructions for foreign currency operations, which Governor Wallich and the ad hoc committee have been considering. I understand that that is not ready for this meeting; it might be ready for June. I just wanted everybody to know [that work] is still under way and I don't think there is any pressure to get it done today. The second matter was a possible change in policy with respect to operations in Federal agency issues. Steve Axilrod and Peter Sternlight will have something on that for us, I believe, in May. Is that right, Steve?",264
-fomc-corpus,1978,"Yes, that is correct.",6
-fomc-corpus,1978,"So that was a pending item. Another item that was pending was to report to you on possible methods of settling our swap arrangement with the Bundesbank. Again, I don't think that we have made adequate progress from the recent visits of Alan Holmes and Henry Wallich, too. We may comment on this a little but I don't think we are ready to move ahead at this meeting. The meeting [agenda], as I say, is long but I will try to keep it going. One thing I do have an obligation to tell you is that when I first took office and appeared on March 9 before the House Banking Committee, Chairman Reuss gave me a little static about the ranges on M3. He thought the dropping of the M3 ranges indicated a decision by the Federal Reserve to curtail the flow of funds into the housing market; he was concerned about that. Last Monday, a week ago, I had the second half of my appearance before that Committee. They didn't finish the first day so [Mr. Reuss] brought me back for a second day. On that occasion he again reminded me that I had an obligation to inform the FOMC of his concern about this. I am now so informing you so that you will all know he is concerned about why we want to handle M3 in that way and he wanted me to bring this to your attention with redoubled urgency. I have now done so. Now we can proceed with the agenda. The first item is approval of the minutes of actions taken at the meeting of March 21. Are there any comments or questions or changes? Hearing no dissent, we will record those as approved. On foreign currency operations, Scott Pardee will report to us on operations since the last meeting.",352
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,Any questions or comments? Phil.,7
-fomc-corpus,1978,"Our policy, as I understand it, is to counter disorder. It would appear that when the mark-dollar relationship goes adverse to the dollar, we buy $100 million. When it goes favorably to the dollar, we buy 5 or 10 million [marks]. Why the difference?",58
-fomc-corpus,1978,"Well, I haven't seen-- We had one day or two days on which the dollar rose. We do consider the disorder in the context of time. We have been discussing at the Desk--and I have discussed with members of the Committee--the possibility of our initiating a program of mark purchases. And this would be done in the context of a firming dollar. But I did not detect any evidence yesterday or Friday of a disorderly market as far as the dollar was concerned.",96
-fomc-corpus,1978,Did you buy any in the last two days?,10
-fomc-corpus,1978,"We have been buying for correspondents and in fact one of the big orders that we had where there is a question of diversification was 250 [million] marks. We put half of that into the market and kept [half of] it. There is a judgment that we can make as far as correspondent businesses are concerned whether we put it into the market or not. We have not gone out into the marketplace and bid for marks. We have considered it. I was prepared to do it yesterday if the dollar had continued to rise--again, with the disorderly market consideration. It had risen at one stage by over a half percent from the fixing range, but things quieted down in the afternoon.",141
-fomc-corpus,1978,Is there something fundamental that makes it disorderly when the dollar goes down but makes it orderly when the dollar goes up?,24
-fomc-corpus,1978,"Not in theory, but in the world that we are in right now there is a basic judgment on the part of the U.S. and German authorities that the dollar is oversold and undervalued--each individual country uses a different term--or that there has been a movement of the rate too far in one particular direction. So to the extent that the dollar rises, then this would be more consistent with underlying conditions. But I am prepared, if the dollar rise becomes too [sharp] and we have the kinds of conditions which are in the marketplace [unintelligible] I'll buy marks. We did on a number of occasions [unintelligible] but we are doing a two-way operation.",143
-fomc-corpus,1978,"Scott, it is not only that. You have $2 billion in debt to pay off.",19
-fomc-corpus,1978,"Well, I think we want to reverse these transactions when the opportunity presents itself. We have thin markets and we have to be careful and not get a little ahead of ourselves.",35
-fomc-corpus,1978,"Mr. Chairman, the paper characterized the market yesterday and on Friday as being broad. Now, perhaps the paper was incorrect. The foreign exchange market was strong and broad; there was active trading.",39
-fomc-corpus,1978,"Well, that is not disorderly.",8
-fomc-corpus,1978,"Well, I don't think we have to be very--",11
-fomc-corpus,1978,Narrowness or an absence of trading sometimes is orderly.,12
-fomc-corpus,1978,"[Given] the period that we have gone through and the amount of treasure and sweat we have expended in trying to get a more stable tone in the market, I would be very cautious about giving the market the impression that we were ready to sit on any increases in rates of the very small magnitude that have so far occurred. You might get a market on a particular day that is going up in a kind of frantic and disorderly way so that it would be appropriate to purchase some securities. I don't think that was yesterday's market, and I think it would inflate it, giving a very unfortunate signal in terms of--",125
-fomc-corpus,1978,I thought these were secret.,6
-fomc-corpus,1978,"Well, they can't be completely secret when you are going into the market openly. That is why [the Desk] bought some [marks] from correspondents.",32
-fomc-corpus,1978,I think Henry had something to say.,8
-fomc-corpus,1978,"Well, it is an old joke that disorder at the New York Desk occurs only on the way down, but I think Scott had a good point here. A broader definition of disorder means that once a currency has been going down and down, then the presumption when it jumps by some points if certain conditions occur is [unintelligible] when it recovers. I talked to the Bundesbank last night to see if they felt inclined to do any buying. They said yes, [they] could have done some; they didn't. If this recurred, [they] might. So the thought is in everybody's mind but I ought to stress Paul Volcker's point that you give a signal to the market that you are trying to hold the rate down if you appear visibly and very systematically. We would have to do it within Europe or we'd have to go through the BIS to be as invisible as possible.",184
-fomc-corpus,1978,"Bones, I think you had a--",8
-fomc-corpus,1978,Just simply a question: What is our potential for loss in this kind of operation in the current situation?,21
-fomc-corpus,1978,We're still in losses. Our average rate on our swap drawings is 2.125 and the current rate in the exchange market is 2.05. That is one of the reasons why I am reluctant to buy heavily at this stage.,48
-fomc-corpus,1978,"Our aggregate paper losses now amount to how much, Ted?",12
-fomc-corpus,1978,"Well, let's see--about $90 million.",10
-fomc-corpus,1978,"About $90 million of which half is ours, right? So you have potential losses now, Bones, of around $50 million for the Fed. Bob Mayo, you had a--",37
-fomc-corpus,1978,"Yes, I just wanted to make [a comment that is] another way of saying Paul's point. The way I interpreted it, we are dealing with a market that has been going down, and disorder there I think has a different weighting in our purchases and sales as against a market that is going in the other direction. Once a real trend is discernable in a reversal of [the dollar's] basic movement, then I would expect the Desk to operate in the opposite way. Now, maybe they won't, but that would be at least an expectation. I think they have a duty here to perceive, as best as any of us can, the underlying trend of the market and in effect roll with that--not try to offset it. And if the underlying trend is in our favor then we can make hay, so to speak.",167
-fomc-corpus,1978,"We have a situation where I think you are saying, Scott, that the dollar has behaved better because of perception rather than reality. And I think that is a very tenuous market in which to expect you to do major reversals. We hope that that perception will be clarified by performance and if so, we will be able to reverse the entire amount. That would be ideal. And we wouldn't have to have Henry negotiate how we pay [the swap debt] off.",94
-fomc-corpus,1978,"Well, I do think it is important to contemplate this market euphoria [in the context of] what the Greenbook says. The staff is very pessimistic on the outlook for the dollar, and I find it very hard to square the behavior of the market [with] that. [That] the market has thought so far ahead that it is even discounting all the Greenbook states and is now looking beyond that valley is remotely possible, but [traders] haven't been distinguished by great foresight.",102
-fomc-corpus,1978,"I didn't say euphoria; I said that they are just less pessimistic than they were before. The exchange traders are still very bearish toward the dollar. They have the same kinds of analyses that are in the Greenbook. I feel rather surprised that this demand for dollars keeps coming out of the woodwork. And as I say, it is largely the leads and lags which are being unwound, which we may not see in the actual transactions. The transactions that are done before that would not appear in the market now.",106
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"Well, I think both groups have a clear point. We would like to have some improvement to pay off [our debt]. But I think there is a fundamental policy understanding here that if we are going to counter disorder on the downside, we ought to counter disorder on the upside too. I would be a bit reluctant if we are going to apply the disorder only on the downside risk.",77
-fomc-corpus,1978,"But the upside really hasn't started yet, Phil.",10
-fomc-corpus,1978,I didn't say it had. I am merely saying that the policy of countering disorder ought to be uniformly applied.,23
-fomc-corpus,1978,"And judicially and prudently. We all agree with that. We might move on now and ask Henry Wallich if he would give us some comments. It says on my agenda ""brief comments.""",40
-fomc-corpus,1978,"Briefly, two things. In discussing the swap repayment with the Germans, we focused on what can be done to implement early repayment. We did not talk about the funding option because that exposes us to greater risk. It seems to be what they prefer. We discovered that they are quite willing to let us buy back in the market without fear of damaging what they hope will be the recovery of the dollar. And we ought to move somewhat in that direction. The ball is now in their court. They are discussing means of repayment with their directorate and will come back to us with a proposal. We have to agree in May to something in order to be able to have a proposal for the FOMC before the meeting.",145
-fomc-corpus,1978,How much comes due in May?,7
-fomc-corpus,1978,It is a relatively small amount.,7
-fomc-corpus,1978,$304 million.,4
-fomc-corpus,1978,I think we were talking about the whole $1.6 billion that was outstanding at the time of the March announcements.,24
-fomc-corpus,1978,We have rolled over through June--,7
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,The second renewals. But I have a list of first renewals that I still have to ask for here before we--,25
-fomc-corpus,1978,"One other thing, if I may. I found really a depressing degree of anti-Americanism as I have read the European press. They are very angry at us. I did not find this with the people I dealt with. And I had a number of public appearances with Emminger and Lambsdorff to show that there was no bad feeling and that we loved each other. But the press is very bitter about the United States, and this focuses largely on the dollar and what they perceive to be our hogging the supply of oil.",109
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"Scott, has the Treasury yet bought or sold any SDRs?",13
-fomc-corpus,1978,"Not yet. As I say, they came to the point where the next generation would have had to be SDRs. They began to buy some of the marks that we were picking up. So they have a cushion of $60 million worth of marks. They are not interested in making repayments at this stage but are rather eager also to start buying marks in the market. It's a first [unintelligible].",83
-fomc-corpus,1978,"Any other comments or questions of Henry? If not, the next order of business is an action to ratify the transactions since the previous meeting. I think we have had a report of those circulated. Is there any further question or is there any dissent from ratifying the transactions? Hearing [none], that is approved. The next item is consideration of the Manager's recommendations with respect to foreign currency operations. Scott.",83
-fomc-corpus,1978,"As Henry mentioned, we are awaiting specific proposals from the Bundesbank on the swap repayments, so I won't go into that. During the month of May, the System has nine maturing swap drawings on the Bundesbank totaling $304 million and four on the Swiss National Bank totaling $50 million. These are all first renewals. I recommend that the Committee approve that these swaps be renewed.",78
-fomc-corpus,1978,"Any discussion, questions? Is there any dissent? Then we will authorize the rollover. The next item is the proposal for 3-year target ranges for the monetary aggregates. We have had Ernie Baughman's letter in the past and we mentioned it at the last meeting. Since that time this has been considered by our [Subcommittee on the Directive.] Chuck, you are Chairman of that subcommittee, I understand, and I suggest perhaps that you lead off the discussion of this item, based on the report that has been circulated.",107
-fomc-corpus,1978,"All right, Mr. Chairman. We have a brief report here.",14
-fomc-corpus,1978,"Members of that subcommittee are you, Dave, and Paul.",13
-fomc-corpus,1978,"That is right. We have a brief report here and I'm sure everybody has read it, so I won't go into it in any detail except to say that, after meeting and giving a good deal of attention to the proposal from Ernie and also to the letter of endorsement from President Roos, the subcommittee still felt that it could not support the proposal mainly because of the dangers [we perceived. One was the danger] to the System in terms of a further loss of credibility if in fact we could not achieve a targeted level--presumably reductions--of growth in the aggregates. [Second was a] danger to the economy in the case where we felt that our credibility was so important that we had to succeed even in the face of economic pressures that would clearly indicate the need for more monetary growth. I just might remind the Committee that our performance with respect to the 1-year ranges has not been particularly good. So one wonders whether the markets, seeing what that performance has been, would put a great deal of faith in a 3-year projection of our plans. And this business of the markets putting faith in the projection is terribly important because [without that] there is no chance whatsoever that in fact contracts would be written with a view toward less inflation and less monetary growth [or that] inflationary pressures originating from the cost side would be diminished unless the market did feel that we were going to do that. If we had a situation in which the contracts continued to be written on the presumption of cost-push pricing and of continued inflationary forces and we continued with our attempt to get the aggregates down, it seems to me that there is an obvious clash that could cause real difficulty for the economy. So we just think that the problems are too great to go ahead with this in any kind of an announcement or any kind of a position we would take publicly. I might also mention that we are a little uncertain at this stage as to what the Humphrey-Hawkins bill will require. As it came out of the House there seems to be an inconsistency. That is, we are asked to report our 1-year targets and what those 1-year targets mean for a 5-year plan of the economic performance as issued by the Administration. In one version on the Senate side our requirement to link up with the 3rd, 4th, and 5th years of the [Administration's] plan has been dropped, but it is conceivable that it would go the other way and they would ask us also for a plan that would be consistent with the Administration's goals for a 5-year period. With the uncertainty as to what might develop in the Humphrey-Hawkins area and the obvious cosmetic character that probably will accompany much of that Humphrey-Hawkins material, we feel it might be embarrassing and dangerous also to have an independent 3-year plan that is being projected. So we can't support the Baughman proposal. We would, however, stress that there probably does need to be more attention devoted to the question of the longer-term implications of the monetary policy that we are following than the Committee has given. So our proposal is that the staff emphasize more than before the possible scenarios--problematical and indefinite as they are--that might result from different monetary postures. Jim Kichline has a memo today to the Committee that extends [the outlook] over three years in something like the old fashion, but it is somewhat expanded from what it used to be. We think that ought to be continued and perhaps other scenarios presented also to the Committee for its consideration of the possible effects over the longer run of what it is doing right now. I think that completes my report, Mr. Chairman. Perhaps President Volcker and President Eastburn would like to add their own views.",766
-fomc-corpus,1978,"Well, I have very little to add, Mr. Chairman. I agree with what the report said. I would only add that in thinking about this, I ran through the exercise in my own mind as to what kind of number you would put down if you wanted a 3-year target, and I found myself in the midst of a dilemma. If you make it too high, you are not doing much on inflationary expectations and you may be able to make it. If you make it too low, you have a real credibility problem. Therefore, my dilemma was consistent with the feeling that is expressed in the report. The possible exception is a situation in which there was a concerted long-run inflation plan on the part of the Administration that was also credible on its own terms in dealing with cost pressures and all the rest; then I could see where this might be reexamined. As it stands now, the Federal Reserve by itself, I can only second the comments that Chuck already made.",200
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"Well, I would agree with that. It seems to me that if we lived in a different kind of world, maybe this would be a good way to go. If we lived in a world where we had been able to hold to our intentions and had the kind of credibility that we would like to have and had more knowledge of the future, I think this would be a good way to go. But that is not the world we live in at the moment.",93
-fomc-corpus,1978,"Ernie, would you like to comment on this?",11
-fomc-corpus,1978,"Yes, Mr. Chairman.",6
-fomc-corpus,1978,I think you ought to have a chance to defend your proposal.,13
-fomc-corpus,1978,"Equal time, at least, Ernie.",9
-fomc-corpus,1978,"[I'd note] a couple of things, I guess. First, I had not contemplated that the Committee would unilaterally drop this on an unsuspecting world, but rather if the Committee saw some desirable feature of this approach to the problem--which I see largely as reestablishing credibility, and it seems to me that should be a very high priority for us at the present time--that there would be negotiations with the two Committees on Banking in the House and the Senate and with appropriate people in the Administration. [In those negotiations we'd say something] to the effect that it was the view of Federal Reserve officials that it was necessary in the interest of the long-term health of the economy that we move in this direction and that we felt so strongly about it that we were rather persuaded that we had to take a public position and that we were undertaking to get their concurrence and support before doing it. Also, this is a long-term approach within which there is obviously room for week-to-week and month-to-month deviations even of significant proportions. But still, the achievement of the long-term objective is a matter of high importance. I wouldn't be able to forecast what kind of support one might get for taking such a posture before in fact taking it. Now, I had not contemplated when I sent out my little note the sequence of events that would transpire from that time to this. It seems to me, however, that the events that have transpired have given us a very favorable setting within which something like this could be picked up and carried forward. It seems to me that Mr. Strauss has really the last opportunity to rescue this economy from slipping into wage and price controls in a fairly comprehensive set of arrangements. Whether he will take full advantage of the opportunity and responsibility that is laid on him, I don't know. But it would seem to me that the Federal Reserve, as a part of the negotiations which must take place within the government and between the government and the leadership of various sectors of the economy, could through its spokesman--with a consensus view from this Committee--[suggest such a program]. If in those negotiations it proved desirable or beneficial or strengthened our negotiating hand to have something like this in our hip pocket to be revealed at the appropriate time--knowing that this Committee was of that view and was prepared to back up that posture--conceivably [it] could be very useful. That could be a very useful negotiating tool. Therefore, Mr. Chairman, I would urge that the Committee not accept the report that has been circulated as the view of the Committee at this point in time on a proposal that the Federal Reserve establish some longer-term objectives in some [form]. My preference would be that the Committee go on record that it has substantial sympathy for that sort of view and that it would be prepared to support the Chairman if in the negotiations within government it seemed desirable that the Committee take such a public position. I would recommend that the proposal be referred back to the subcommittee for further study on three major points. One is that if we were to go this route, what should be the monetary or credit measures for which we would announce the longer-term objectives? Secondly, what kind of time dimensions would be hitched to it? [We'd have to decide] whether to use annual averages or year-end to year-end changes--that sort of thing. And then finally, the point that Mr. Volcker referred to, what kinds of magnitudes would be considered? It would seem to me that the only thing that is pretty much given--it is an integral part of the proposal--is that the magnitudes would have to become smaller from one year to the next if the whole process were to have any possibility of building our credibility with the public in terms of an effective anti-inflation program or attack on inflation.",771
-fomc-corpus,1978,"Ernie, if this kind of approach were taken, it seems inevitable that it would become repetitive. I don't think one can do it one time with the expectation that it would [not] be repeated; that would be my guess. How often would you see the revision? Would this be revised once a year?",63
-fomc-corpus,1978,I would see it revised on the occasion of some substantial external development.,14
-fomc-corpus,1978,"So, it would be on an irregular basis?",10
-fomc-corpus,1978,"Yes. If, for example, the Arabs were to double the price of oil, then it seems to me the thing has to be opened up and reconsidered.",33
-fomc-corpus,1978,"But one of the elements of long-range planning of most kinds is the ability to revise, based upon circumstances. So one of the problems in terms of credibility is that if you put something out for three years, the probability of being at the right place three years from now is very low. That's unlikely for most long-range planning of any kind. But if you revise often enough to take account of changes and keep shifting your horizon and you do at least have a direction in which you are heading and you create a direction more consistent with your view point, you may have a different consequence than if it is frozen for three years. Very few of us can have a crystal ball shine enough to tell us what is going to happen in a little over three years.",151
-fomc-corpus,1978,"Well, this raises a further question. I probably should have made a fourth point that needs exploration, and that would be the tone of the language in which the announcement is made--just how specific and unequivocal it should be and whether or not there would be any allusion to the circumstances under which we would contemplate that we would reconsider or revise [the target].",73
-fomc-corpus,1978,"Larry had his hand up first; then we will move to Henry Wallich, Phil Jackson, Phil Coldwell, and Frank Morris.",27
-fomc-corpus,1978,"Mr. Chairman, I would like briefly to support Ernie's point of view just as strongly as I can. I am terribly distressed at the thought that if something is worth considering we summarily reject it because we don't have confidence in our own credibility. If our credibility is that bad, it is of our own doing, I believe. Perhaps our credibility is lacking, but if our credibility is lacking it is because of the charge--if I may put it in those terms--of trying to set federal funds rate targets and aggregates targets that we know are totally incompatible and totally inconsistent with each other. It seems to me that the purpose of monetary policy is to shape economic events and not to try to put together something that we think will conform with economic shocks and events that may occur in the future. And I think [the latter] is what we have been trying to do. I don't think that this necessarily has to be cast in stone for three years. There is no reason in the world why these targets could not be adjusted whenever events [militated] such an adjustment. On the other hand, Mr. Chairman, as part of your apparent policy of being open and candid to the world about what we are doing, I think here is an excellent opportunity to announce with proper care what our monetary aggregate policy is and to attempt to stick with it. If we don't do this now, sir, I think we should take the other step and that is just omit from our deliberations the setting of any aggregates targets and admit to the world that we are targeting solely on interest rates. But if we don't have credibility, we have lost credibility because of something that I think has been somewhat of a phony charade.",344
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"Well, Ernie has made much of the point I wanted to make. I think we can say something in qualitative terms. It would be difficult to marry ourselves to a 3-year--even a variable 3-year--quantitative target. I am trying to put together some thoughts on how this Committee operates and targets things and I'll be in St. Louis giving a talk on this subject. You will hear more about it. It seems to me that the basic fact is that so long as we don't have full control, it is not very meaningful to set forth [a goal for] an instrument in the long term. That is why a money supply target or any other target can't be made to stick. You need many more controls over the economy than just that one in order to make it stick. So it will always have to be a variant.",171
-fomc-corpus,1978,Phil Jackson.,3
-fomc-corpus,1978,"Thank you, Mr. Chairman. I think the first thing we ought to recognize is that we have already done what you have proposed, [Ernie], and we have done it repeatedly. We have not done it in the way that you propose it, but we made the fundamental step and have repeatedly announced to the Congress and to the public that the policy of the Federal Open Market Committee over time is to reduce the rates of growth of all the monetary aggregates as rapidly as underlying economic conditions will permit. We have so stated. I believe I am correct, am I [not]? And we have stated that repeatedly to the Congress. Now, I recognize that ""as rapidly as the underlying economic conditions will permit"" is not in accordance with perhaps the [program] that you propose--namely, that we would state targets and stick with them perhaps through thick or thin or whatever happens. Even if we have to airlift the economy in the free world, we will do it. That might be one judgment; it happens not to be mine. But that is something that each person could make up their own mind on. Second, I do think that over time, unfolding events in the real economy as well as unfolding financial events make the establishment of long-term mathematical targets impractical. For example, if the Board decides to implement automatic transfers, obviously it would have implications for rates of growth in M1 over a 3-year period.",287
-fomc-corpus,1978,I would think that would be another circumstance in which to reconsider--,13
-fomc-corpus,1978,"It strikes me that [there is a great deal of] unfolding financial technology in the present environment--whether it be interest on demand deposits, electronic funds transfers, or changed financial powers between one type of financial institution or another. It strikes me that the only concept of liquidity in the economy that would be appropriate would be so broad as to not be specifically or psychologically meaningful for the purposes that you propose.",80
-fomc-corpus,1978,Phil Coldwell.,4
-fomc-corpus,1978,"Mr. Chairman, I think the effort has been worthwhile, and I think Ernie has raised something [important] with us. But I happen to agree with the Subcommittee on the Directive that it would not be advisable to do this in a public setting at the moment. My personal preference would be that we do this on a semi-annual basis for a while--raise our horizons and look down the road 2-1/2 to 3 years and try to keep track of where we are coming out with regard to the longer-range picture. I don't think we can afford to put this out in the public arena with the indefiniteness of it. I can see why, perhaps in the current setting, it might not be too difficult. But perhaps in a setting where down the road in 1-1/2 to 2 years we are looking at a recession, the publication of a System document indicating that a recession is on its way would be a terribly difficult thing to agree on.",202
-fomc-corpus,1978,On a one-year basis that is tough.,9
-fomc-corpus,1978,"Yes, it is tough on a one-year basis. So I think the effort here is worthwhile. I agree with the idea of going ahead and having repetitive reports. I hope we do so on a semi-annual basis because I don't think there is any point in revising a 3-year goal on a quarterly or monthly basis.",67
-fomc-corpus,1978,Frank Morris.,3
-fomc-corpus,1978,"Mr. Chairman, I support the subcommittee's view of this. I think it is just not a workable proposition. Let us say that we try to establish some ranges this morning for three years. If we assume that the economy is going to continue to expand for three years, with the present rate of wage trends, I don't think we can come out with anything very much different than the current ranges for the next three years. If we were to do that, it would have a negative public image. If we were to do something different on the assumption that Mr. Strauss is going to be able to somehow get the rate of wage advance down and we produce expectations that we can't deliver on, I think the credibility of this institution could be seriously damaged. Given the present state of our knowledge, I just don't think that we can produce a meaningful 3-year range. And to try to do it could damage our credibility.",185
-fomc-corpus,1978,Bob Black has asked to be heard and Bob Mayo is next.,13
-fomc-corpus,1978,"Mr. Chairman, I have a good deal of sympathy for what Ernie has proposed and yet at the present time, I would have to side with the Subcommittee on the Directive on this. I think what comes through on both sides is that we haven't done very well in hitting our 1-year targets. And I think that is the thing we really ought to zero in on at this particular point. My personal view is that we are never going to do that unless we widen the federal funds ranges or unless we adopt some kind of reserve operating target. I would like to see us focus more on that sort of thing and really do what we want to do. I think we were all fooled last year. We thought we were going to ease down the rate of growth in the aggregates and we got a faster rate of growth than the year before--and that year was faster than the previous year. This was a surprise to people who were genuinely trying to do something different. I just think our methods of operation really need a serious reappraisal.",210
-fomc-corpus,1978,Bob.,2
-fomc-corpus,1978,"Very simply, I would support wholeheartedly the view of the Subcommittee on the Directive. In fact, in a sense I think they have been overly polite towards Ernie's proposal as such. I have a basic agreement with Ernie on the desirability of what we are doing internally, but I find myself terribly resistant to the idea of exposing ourselves further in an area of trying to measure mechanically any goals that to me are not measurable mechanically. We can never improve our credibility in my book by succumbing to the desire to pinpoint many of these things. My fellow Chicagoan, Milton Friedman--I am sure his ears are burning at this point at the suggestion that we [adopt] a 3-year [projection]--would agree wholeheartedly if he were consulted on this. He would put us on automatic pilot. I think that is the inevitable result of this. If you go through what Paul was saying, what figures would be put down? What Frank was saying is that we will probably end up with the same targets. But I think it is unfair to suggest that this Committee targets just on the basis of interest rates. Indeed, we have such imperfect linkages in all of these things that we should be very careful that we don't get trapped further on the mechanical side. Even though, on balance, the resolution that is now law on 1-year targets has had a beneficial effect, I think there are some real negatives. [One is] trapping us to impugn our creditability in an area where we could never in the eyes of the students of monetary policy--much less the media and the general public--be credible because of factors that are completely outside of our control.",337
-fomc-corpus,1978,"Well, Ernie, it sounds like there is a consensus in favor of not moving along these lines at this time. So, since this is a democratic process, your job is to continue to revive it when you think you have more sales points to make. At this point I would suggest that--",60
-fomc-corpus,1978,"Mr. Chairman, may I add one more thing? I think the Humphrey-Hawkins issue is very relevant to this. Maybe the Subcommittee on the Directive could simply monitor developments in that field, and if it appears that we are going to be back in that business because of Humphrey-Hawkins, bring it back up.",68
-fomc-corpus,1978,I think at this point we can accept the subcommittee report and thank them and thank everyone for the discussion. No doubt we will hear again on the subject at least of establishing a philosophical base on where we all think we are going--whether it is quantitative or qualitative.,54
-fomc-corpus,1978,"Mr. Chairman, does that mean we are accepting the final page of that report indicating a quarterly setting of targets in the 3-year period?",29
-fomc-corpus,1978,"Well, I think that we are planning to have the staff do more or less what has been done at this meeting--to continue to give us a longer horizon for us to look at.",38
-fomc-corpus,1978,"I think the scenario kind of thing that I was talking about, Phil, you wouldn't want to do every quarter.",23
-fomc-corpus,1978,No I think semi-annually. But I do think more could be done in the way of developing alternative possibilities over the longer run through scenario writing than the staff has done at this time. But that shouldn't be every quarter. Would you--,48
-fomc-corpus,1978,"Mr. Chairman, would you be receptive to a report stressing the other side of this?",18
-fomc-corpus,1978,Certainly.,2
-fomc-corpus,1978,An argument in writing?,5
-fomc-corpus,1978,"It seems to me that we have an overwhelming view that we are not [going to] take the proposal to indicate mechanical devices. I think there could be qualitative as well as quantitative looks. But I think the whole process of this Committee should be a living one. It seems to me that we should be open-minded and there should be different viewpoints we should listen to. We'll move on to the economic and financial situation and outlook--what we call the crystal ball report. Jim Kichline. MESSRS. KICHLINE, ZEISEL, and TRUMAN. [Statements--see Appendix.] Mr. Zeisel will continue the presentation with a discussion of domestic economic prospects and likely price developments.",142
-fomc-corpus,1978,"That completes our presentation, Mr. Chairman.",9
-fomc-corpus,1978,"Thank you very much Jim, Jerry, and Ted. At this time I would suggest a general discussion. And in case any of you are concerned as to whether we are going to repeat the exercise of your own projections for GNP, prices, and unemployment, I would suggest that our discussion now assume there is no change in them and we will discuss that matter later in connection with a presentation of the quantitative projections to the Congressional Committee. But I think now should be just a general discussion and question period. [Willis.]",105
-fomc-corpus,1978,"Mr. Chairman, I would like to ask a question with respect to the home component of [the staff's] presentation. To what extent have you factored in the multifamily developments, which are really quite spectacular, offsetting the single-family decline? [By that I mean] the changes that have taken place in the financing area, with the pension funds and insurance companies now doing the short-term financing as well as the long-term financing and with home prices going up and even apartment rent going up faster than inflation. But the multifamily construction is really quite a sensational development in the housing area.",120
-fomc-corpus,1978,"Well, you are quite right in noting that the multifamily area is the one source of strength. The weakening that we have in prospect is essentially in the private sector--that is the single-family sector. You must note, however, that by the third or fourth quarter of this year we have multifamily starts at around 500,000, which would be down a bit from our expectation for the first half of the year. It is at about the same level as it appeared to be in the fourth quarter of [1977], so we don't have it as a growth sector. A major part of that multifamily [strength], by the way, is government supported through the Section 8 program. We have allowed, I think, something like 130,000 units in that program so we have not in the forecast assumed that this environment will continue to be conducive to a further rise in multifamily starts.",183
-fomc-corpus,1978,"The interesting thing is that with the increases in rents that are taking place, you change your calculations pretty fast. And even though there is increased cost in the multifamily area, the borrowing hasn't increased and there has been an increase in equity. I think some of these people are going to get disappointed in their returns, but it's kind of an interesting phenomenon. The second factor that I'd mention is the warehousing area; you can't rent warehousing space anywhere. And if you get a buildup in inventories and that sort of thing over a period of time you've got a real push in construction. And the center city office building is a big phenomenon, so [the outlook] may be more optimistic than [the projection] indicates.",144
-fomc-corpus,1978,"In the housing area, Jim, you might mention--in case anyone missed it--that you have assumed an increase in the ceiling rates at what, midyear?",33
-fomc-corpus,1978,At midyear an increase of about 1/2 percentage point on longer-term time deposits.,19
-fomc-corpus,1978,So that has been assumed in terms of the funds availability for housing. Bob Mayo.,17
-fomc-corpus,1978,"Yes, following up on your last comment, Bill, I have a question for the staff. The deposit growth chart reflects what the Chairman just mentioned. If that does not take place, would you anticipate a deposit growth curve that went down to the level or below levels of '74--or have you attempted to work that out?",66
-fomc-corpus,1978,"No, I wouldn't expect it to go below the levels of '74 for two reasons. One of the reasons is simply that interest crediting now adds about 6 percent to the rate of growth and that is about 1/2 or 3/4 percent more than three or four years back. So you have some built-in interest crediting in this. And, secondly, even though there are high maturities of longer-term accounts now coming along [the depository institutions] still have a good portion of their money locked in, so I wouldn't expect, even in the absence of the Q ceiling change, that we would go back to the 1974 rates [of growth].",138
-fomc-corpus,1978,"I might mention, in case you missed it, that the Federal Home Loan Bank has just reduced by 1/2 percent its liquidity requirements--I expect you all saw that--which releases about $1.7 or $1.8 billion in potential resources for housing.",55
-fomc-corpus,1978,"Would it be appropriate to ask, Mr. Chairman, if any progress has been made in discussions with the Home Loan Bank Board on the question of ceiling revisions?",32
-fomc-corpus,1978,"Well, Phil and I had a general opening discussion with Home Loan Bank Board members just last week and I thought it was a very agreeable discussion. We didn't get down to specifics, but I think they recognized that they have a potential problem. And they are looking at options--at things that might be done to improve the attractiveness of savings and loan instruments that are offered. So I would say that the chances are not zero. They could be better than zero in the event that market interest rates rise considerably. Now, what happened there was that they got excited about it--as I did for that matter--in January and did some thinking about it but then short-term rates eased off in February and early March, so for the moment they've got it on the back burner.",154
-fomc-corpus,1978,"If any of you want 400 letters, testify before Congress that we might be raising the rate and you will get 400 letters!",27
-fomc-corpus,1978,"But I think [the discussion] was reasonably encouraging. Would you agree with that, Philip?",19
-fomc-corpus,1978,"Mr. Chairman, it was my judgment that it was a much more constructive discussion than we expected to have.",22
-fomc-corpus,1978,"I have one other comment, if I may.",10
-fomc-corpus,1978,"Yes, Bob.",4
-fomc-corpus,1978,"The staff forecast I think is excellent, as always. I have only one area where I think our people take a little different point of view and that is on the international side. We are not nearly as pessimistic as the staff is. Whereas the staff has something like a $37 billion trade deficit projected for 1978, we get something closer to $30 billion in our analysis. I won't pursue it at great length; I'd be glad to [initiate discussions] staff versus staff if you wish.",102
-fomc-corpus,1978,I wish you would. That's an area of [unintelligible].,15
-fomc-corpus,1978,"It's a big difference, Mr. Chairman, and I think it adds up to two things. First of all, there are certain temporary factors--let's just call them disorderly factors for the moment--that I think made the figures look much worse than they really were for the first part of this year. They relate to iron and steel imports and the reference price stuff that is coming along, the bulge in Japanese exports, the anticipated import restrictions from their standpoint and, of course, the coal strike. But on the more positive side, we see a little better outlook for oil imports, for what it is worth--a leveling off this year. We see better economic growth abroad than the staff does, although again this is pretty hard to document. We see a better agricultural trade balance than I think the staff has implicit in their forecast. We also have done some work that would seem to indicate not quite as great a lag as I see implicit in Ted's figures on the effect of the depreciation of the dollar. We, therefore, also disagree with the suggestion that there may be a further 5 percent decline in the trade-weighted value of the dollar. Again, this is a terribly speculative area, but not only does that point of view reflect our opinion of the trade deficit--that it may have been overestimated--but we think also that there is a better chance now than for some time that the capital flows should improve in our favor and that this will moderate, if not virtually eliminate, a lot of the other factors in the decline of the dollar. So, I will knock on wood, Mr. Chairman.",326
-fomc-corpus,1978,"Hope you are right. We have listed for comments: Phil Coldwell, Henry Wallich, Ernie Baughman, and David Eastburn. So we will start with Phil.",37
-fomc-corpus,1978,"Mr. Chairman, I think the staff projection is again moderate, in line with what a few of us have been talking about for several months. I still think we have a little ways to go, Jim--maybe another 0.2 or 0.3 on the average annual rate of GNP. I think [your] pattern, too, is still a little bit flat, with not quite as much volatility as I still see in it. I think we are going to clear 7 percent in the second quarter; you are in the 6 range. Bob Mayo has given a good share of my comments concerning the international side; I think we perhaps overreacted to a bad set of figures in the early part here. I thought you were perhaps a bit optimistic a couple of months ago about improvement, but I think you are a bit pessimistic on the 5 percent depreciation now. Somewhere in the middle range, which I guess is zero--which is about where Bob came out--I believe. On the internal forecast here, I would suggest that you might want to take another look at housing starts. I doubt if they are going to hold up this high; these things have a cyclical life of their own and once that cyclical life starts it's a bit difficult to turn them around. I suspect we will get [greater] declines than we anticipate and we may get a little less strength out of the consumer expenditure side than you seem to be forecasting, particularly on the strength of the tax cut in the third quarter. All of this adds up, Mr. Chairman, to [my view that] we are still a bit more optimistic on total growth of GNP on the real side. I'd suggest that we are looking at something that might be termed a mini recession--I hope it's mini--by the latter part of this year.",372
-fomc-corpus,1978,Starting in the latter part of this year?,9
-fomc-corpus,1978,A mini growth recession?,5
-fomc-corpus,1978,That is exactly what I have written down.,9
-fomc-corpus,1978,[Henry.],3
-fomc-corpus,1978,"Well, I see us moving into a pattern that is quite traditional in business cycles. My question is how genuinely this pattern reflects past developments. We are approaching a high level of employment--I would call it getting close to full employment--and prices are beginning to rise. Now, ordinarily, I would associate these two things. There are always special reasons why prices may be rising that are not associated with the expansion of the economy in the latter phases of the business cycle. And I would like to get the staff's reaction to whether we are facing a traditional pattern where one would have to say this is in danger of getting out of hand. Or are there enough special circumstances so that one could hope the pressures would not be exacerbated unless monetary policy took action against it?",154
-fomc-corpus,1978,"Well, certainly what has influenced our recent upward adjustment in inflation, current and expected, involves largely exogenous forces--namely food prices and, secondly, partially exogenous forces of the effects on domestic prices of the depreciation of the dollar. We have not seen an explosion in wage rates nor do we believe that is in prospect. Nevertheless, there are feedback effects of these higher prices into compensation. Our view currently is that for l978 there may be spot shortages in some markets. One of the things we are aware of would be in building--particularly insulation and those sorts of things. But we see no generalized problem. When we get into l979, given the staff forecast, manufacturing capacity utilization gets up around 86 percent or so. It is not entirely clear what number in the aggregate would exert pressure, but I think that is getting close to a range where one would need to be concerned. On the labor side, our staff judgment I guess disagrees a bit with yours in that we do think that there is more labor slack and that this is not a full employment level yet. It is not entirely clear to us what such a number would be, but I think it's something closer to 5-1/2 than 6 percent.",250
-fomc-corpus,1978,"Mr. Chairman, I have a couple of things. First, just a factual point: It's reported that steel for new high-rise office type structures in the Southwest currently costs $900 a ton. As recently as 90 days ago, the same builder contracted for the same kind of steel for the same types of structures and was buying it for $750.",71
-fomc-corpus,1978,That is just the market--the supply and demand.,11
-fomc-corpus,1978,"Well, I suspect it flows to an extent at least from what the government has done with respect to reference prices. And certainly the demand has been increasing, as has been suggested. In the projection, interest rates and the proportion of managed liabilities to earning assets in the commercial banks both are projected to move somewhat above the rates we had in the closing months of '74. Would you think that the credit market might have many of the other characteristics of late 1974, which as we recall was a crunch situation? If so, is there anything we could do now to help assure that Henry Wallich's advice that we condition our economy for a soft landing would be realized?",135
-fomc-corpus,1978,"Well, you are quite correct that some of these ratios in managed liabilities by 1979 particularly are [projected to be] above that which we experienced in l974. At the same time, with regard to the general question and the other types of problems, there are difficulties interpreting the aggregate numbers and there may be disruption problems that we are not aware of. But in a variety of areas I would suspect that if this scenario indeed were to occur, it would be quite a bit different than 1973-74. In the housing area, for example, one is that you don't have massive speculation and the REIT problem, if you will, added to [the problems of] the bank holding companies. I think there is something to the notion that attitudes have changed and perhaps the attitudes will remain rather conservative in some respects, even in the environment we anticipate. With regard to banks, it's very clear to us that increasingly they are relying more on purchased money than they have in the past. A good deal of [what] is driving that, by the way, is RPs--interest free money. And there is clearly an incentive to do that in the kind of environment that we would be looking at. So, I think in general we have some characteristics that are the same but many of the problems we would not envisage being there.",270
-fomc-corpus,1978,"I might mention just one other fact, Mr. Chairman. Large savings and loan associations in the Southwest, though a small number of them to be sure, have been advertising quite widely for 6-year money at 8-1/2 percent in large amounts--$l00,000 minimum. In part, this is probably anticipating what you are suggesting here in terms of the developments in financial markets.",81
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"Thank you, Mr. Chairman. I would like to pick up a little bit on the comments about prices earlier--particularly Jim's comment about the exogenous nature of the food and dollar price increases. I remember last year, roughly about this time, a number of comments were made around the table with respect to policy that we were building in a pro-cyclical policy with the rates of expansion in the aggregates that we were seeing. And going back to February l977, the forecast at the time for price increases for the first half of this year was 5-1/4 percent annual rate and it is now 7.4 percent. This, I think, is very relevant to the issue of credibility that we discussed earlier. It seems to me that it's very easy to find specific reasons for price increases which appear to be exogenous. But it may be more difficult to see the connection between [price increases and] the growth in the aggregates with a lag--seeing that changes particular aspects of the price picture. Perhaps you would like to comment on this. Do you see a delayed impact of the earlier increases in money supply growth?",229
-fomc-corpus,1978,"Well, we would judge from a model result that we'd have a small impact by now--that is, one year out. According to the Board's econometric model, the System model, it really is a matter of looking ahead two or three years. So I would think the results of having overshoots in l977 probably would have a very small impact today but it may be growing over time. One of the difficulties here in assessing the staff's forecast is that lots of things have changed in terms of fiscal policy and in terms of monetary policy. And the international situation has changed. So I find it very difficult to settle on M1 growth, for example, as being the causal factor. I think our recent changes in the forecast really have been driven by largely exogenous factors. But I would not disagree with your underlying point, which I guess is that [money growth] does matter. If we had had higher interest rates in l977 and lower rates of growth in the aggregates, we would probably be looking at somewhat lower rates of inflation and we would also have lower rates of real activity. So I think throughout you would be talking about a situation that is different today than it would have been with a different set of aggregates and interest rates.",251
-fomc-corpus,1978,Mark.,2
-fomc-corpus,1978,"Thank you, Mr. Chairman. I feel very comfortable with the staff forecast. The numbers are almost identical to the ones we have been using. To the extent that it is wrong--and we are wrong on the price side--I'd like to comment on a couple of things that I think are relevant. There is a growing acceptance of the notion that expectations of businessmen and consumers have a certain degree of self-fulfilling activity in them. People sign contracts and conduct behavior that in effect helps validate their expectations. In that regard, we had a group of former directors from throughout the District in our Bank last week, representing a large cross spectrum of activities in our District and I took a little poll as to what their expectations were for inflation. It was interesting to me that I found nobody below 7 percent. The vast majority thought that for l978 inflation would be above 7 percent and half of them were expecting double digit numbers in l979. And I thought I had a grim outlook! It was nothing compared to what they were [expecting]. Now, it doesn't make a whole lot of difference whether their expectations are soundly based or not, in the sense that if that is their expectation and they operate on that expectation, it has very serious implications both for inflation and, of course, for the kind of recession that would put in place. The second reaction that we got from that group and from our own board was that in terms of labor negotiations going on in our District, people are not distinguishing between the coal settlement as being in one world and the other settlements being in a different world. The unions that are coming forward are saying that they got that kind of [wage package] in coal and we expect that kind of thing in our industry. At least in the preliminary posturing they are taking a very, very hard stand. A third point is that the reaction in our District to the President's anti-inflation speech was really quite negative. The general response on the part of the business community and the financial community was that the inflation was primarily government-based and yet the President is telling the private sector that they are primarily the ones who have to solve the problem. As a result, it was almost counterproductive rather than helpful in terms of moderating people's expectations as to what the future holds. So if I had to make a guess, I would come out with the same numbers that the staff does. And to the extent that they are wrong, I think we are facing more significant inflationary pressures than any of us would like to believe.",515
-fomc-corpus,1978,"Thank you, Mark. Frank.",7
-fomc-corpus,1978,"Mr. Chairman, a month ago I argued that we ought to keep an open mind on the outlook because the statistics were muddy. I think in the past four weeks we have gotten data that are not muddy. It is very clear that we are coming out of the slowdown with a very strong economy--stronger, I think, in the second quarter than the staff is projecting. If we have the sort of slowdown in growth rates in the last half [that is projected]--or even Phil Coldwell's growth recession--that would be very constructive. I ought to emphasize my support for Henry Wallich's position that we are getting close to capacity. I follow a couple of series on the labor force which I think are good measures in the sense that they reflect people who have good reason to believe they are permanently attached to the labor force, and those are the unemployment rates for heads of households and the unemployment rates for married men. Both of them are within 0.8 of their l973 peak levels. I think we should not have as a target getting back to that degree of utilization of the labor force because at that degree of labor force utilization our ability to stabilize the rate of inflation is going to be greatly impaired. So we are talking here about a margin of play of maybe 0.5 percent. That would mean an objective [for the unemployment rate] of maybe 5.7 percent or something like that overall. Given this fairly narrow tolerance in which we have to operate, I think there is a real risk of the economy moving too fast, and I think we ought to recognize that risk. It is not a projection, but the great vigor of the last four weeks suggests to me that it is now a substantial risk.",350
-fomc-corpus,1978,"Thank you, Frank. Chuck.",7
-fomc-corpus,1978,"I have something of the same feeling that Frank does. I can't find fault with the staff projections; indeed, they have moved most things the same way I would have moved them. Unfortunately, I would have put the inflation rate up, as they did; I would have recognized that the trade deficit is going to be bigger, as they did; and I would have tended to cut down the rate of real growth over the whole expansion period, as they did. I might not have reduced the trade-weighted exchange value of the dollar as far as Ted did because I think the financial flows are so important in determining that; it hasn't been all that closely associated with the trade experience in my view. So I would have moved in the same direction as the staff did in each case except that last one. But I would put in the caveat--and maybe Frank meant it as a caveat--that it is possible that we are going to get a much stronger economy in the short run than is in the staff projections. There are dynamics in change and the change is very rapidly upward. It's partly catch-up, but it is still upward. I pointed out last month how strong our employment data were. We have added another month's data since then and that has come in even stronger--on the establishment series on employment. Of course that employment generates income, which generates sales, which leads to a demand for production. There is a circularity there that could give us more of a dynamic increase over this spring and summer than is in the staff projection. And we need to be concerned about that because it can be quite destabilizing at this point. I also have to say that it seems to me as I go through the year--the 5-quarter projection that the staff has--that the end point of the projection presents a situation of instability in every figure of importance. Now, I am not [inclined] to think that a 5.8 percent unemployment rate represents full employment, as Henry does and apparently as Frank does. But what I think [is] really so very important is an unemployment rate leveling off at 5.8 and tending to drift up as it does in the still longer-run model projection that Mr. Kichline presented in memo form. That is unacceptable to most people in Congress. It is unacceptable, I think, to the Administration. It is unacceptable to the drafters of the Humphrey-Hawkins bill and it is probably unacceptable to large segments of the population. So if that rate stops there or even starts to look as if it is going to go up, it is going to bring further action that we don't have in our staff projection and that we can't quite anticipate. Likewise, I think a 7 to 7-1/2 percent rate of inflation, which is the projection for the first and second quarters of l979 is unstable. I agree with Mark that an intensification in the rate of inflation as the year goes on, as is projected here, will almost certainly bring larger wage gains and larger price increases as we get into l979. The Teamsters' contract is one of the first major ones up in l979; it's in March. And I believe the head of the Teamsters is already on record as saying that his objective is [to match] the coal miners' settlement. That is going to be the kind of labor environment I think we will have if we have this much inflation over the period. And I can't say that we won't, I am sorry to say. So I think on beyond maybe the very end of the projection stage we will probably have more inflation in prospect than seems implied by these figures, though I can't say that with certainty at this point. Finally, I would say that the financial markets look [likely] to me to be more unstable by then than is suggested. We have in Jim's Chart Show presentation that chart on GNP and interest rates in which we have a level of bill rates that is about as high as it was at the peak in l974. In l974 the financial markets were certainly in turmoil. Now, maybe there is some adjustment to a higher level of rates as time goes on. Nevertheless, I would remind you that in l974 housing starts were 1 million and in l975 they were 1.15 million. That is the kind of market response we got from that level of interest rates then. Also, just looking at that relationship between GNP and M1 at the top of that chart, I'd say that the implied increase of velocity is very, very large. And I don't know whether, in fact, we would get that relationship with only a rise to the 8 percent rate levels that are projected. It might take more if in fact we are to have that M1 and GNP relationship. So, Mr. Chairman, my feeling is that the projection is okay as a statement of what is probable, at least in early l979, though there could be more strength in the interim than is projected. But we have a major problem developing in the economy on all fronts with regard to all components that are in the staff projections. I am in a quandary because I don't have any proposition to make to the Committee that would rectify this.",1059
-fomc-corpus,1978,"I am a little disappointed. We know the problem, Chuck.",13
-fomc-corpus,1978,I guess we had better work on that problem!,10
-fomc-corpus,1978,Philip Jackson.,3
-fomc-corpus,1978,"I share generally the views that have been expressed by Chuck and Frank. I do think that our focus on the GNP concepts of the economy may be masking some of the factors simply because we get this rate-of-growth focus rather than some of the actual rates of current activities that are taking place. For example, we focus on housing starts and what we really ought to be thinking about is how much construction is being put in place as a consequence of what is going on. In my judgment we are likely to have a substantial carry-forward in l978 even if the rate of starts turns downward. I happen to be closer to Henry Wallich's point of view about the concept of full employment. I think we are reaching full employment in many sectors of our labor force today. Even though the aggregate numbers of people unemployed may be socially unacceptable, I'm not sure that necessarily means that they are economically unacceptable. There is an important difference that we have not faced. I think the consequences of an increase in employment are going to be to sustain consumption. And it looks like the changes in our social fabric of who is employed will sustain much more expansion in consumer credit than we had previously expected ever to be sustainable. I realize that there are upper limits on that, but thus far it looks like they have not been reached. I also think our prospects for fixed investment are going to be good. Unfortunately, I also share the judgment that our inflationary prospects are dim. I see a general unwillingness on the part of those people who [ought to] make some very nasty decisions in private and public sectors to make them. And I am not pointing the finger at any one group. I am pointing the finger at all of us maybe collectively when I say that I think the prospects of labor making those decisions of moderation are remote if not ridiculous; I think the prospects of price moderation on the part of the owners of enterprises that price their products and services slim; and I think the prospects of any elected official in either party making those nasty political decisions that cost votes in order to change structural inflation-producing governmental policies are beyond prospect. So, I too share the concern that we could get a serious pickup in inflation as a result of people's attitudes that nobody is going to do anything and therefore I had better get mine before it gets out of hand. And that will introduce the one element we have thus far not had and that is speculative activity, which is the most destabilizing of all.",492
-fomc-corpus,1978,I can't say thank you to that one; I appreciate it. Bones.,15
-fomc-corpus,1978,"Mr. Chairman, we are now very close to the staff's projections. Particularly this time with the reduced real GNP growth and the projected high inflation rates, we are getting very close to what my own staff has been trying to impose on me for some months now. Both the demand-pull and the cost-push forces, we think, are very much at work. Let me give a few examples [from] our recent visits with businessmen in our area and our directors. They [talked about business in terms such as] ""extremely good"" or ""booming."" Tourist business in our area is the best since l973. Offshore gas and oil business is booming. Office space in several areas is tight. Trucking in [unintelligible] the Teamsters; trucking can't handle the business. This is translating into enormous inflationary expectations in calculating the new decisions being made, and expectations, of course, are translating already into calculated high interest rates. If indeed there is a slowdown in the last quarter of this year, or even early next year, many of our people will have miscalculated that. We would have to associate ourselves on the side of [believing that] the risk of the economy moving too fast is very real.",253
-fomc-corpus,1978,"Thank you, Bones. Tom Williams, it's nice to have you with us.",16
-fomc-corpus,1978,"Our directors would agree with Mark Willes and Phil Jackson in that they are very concerned about inflation. They are very concerned about the large government deficit and the lack of concern of some in Washington about this deficit. Also, our staff would agree with Henry that the March 6.2 percent unemployment rate places us within the zone of a fully employed labor force, which I think is a little bit different from the staff [view]. I also want to ask a question about the unprecedented growth of consumer debt and whether this will have a dampening effect on consumer spending over the next few months.",118
-fomc-corpus,1978,"I don't know about the next few months but I think that is a serious problem. In terms of looking at various sectors, I would rate the consumer area now as one that would have the most potential difficulty as we look ahead a year if economic activity slows. If you look at a repayment measure of debt burden, it is very high--at the high end of the range we have experienced in the last several years. Debt outstanding has continued to soar, particularly in recent months with the pickup in auto sales again. And looking ahead, we think that the current debt level, as well as some further drifting up of debt repayment burdens, will have a dampening influence on consumers' willingness to spend.",140
-fomc-corpus,1978,Thank you.,3
-fomc-corpus,1978,"Paul, you have been very quiet.",8
-fomc-corpus,1978,"And at this point there is nothing left to say, so I will just make a couple of very brief comments. The exchange rate forecast caught my eye, as it did some other people's here. I didn't like it much, both because I hope the forecast for the trade balance is too pessimistic and because I have substantial uncertainty as to how closely the exchange rate projection can be related to the trade balance at this stage, as has been mentioned. But I would just point out, if I read it correctly, what the projection implies about the rate of decline in the dollar against key currencies that we have had in the last six months. It depends upon how you weight it--what you assume has happened with the Canadian dollar and all the rest. I don't know what [the staff is] assuming but it strikes me that that kind of depreciation would present very serious problems of international financial stability. And if a projection of that sort did come about, I'd be a little concerned about it. I don't know how it is handled in these policy memoranda or whatever they call them in terms of staff projections. But that is the kind of sizable decline in the exchange rate that could have some self-fulfilling aspects to it.",245
-fomc-corpus,1978,"Paul, I would simply note that a year ago the staff projected a 3 percent appreciation in the dollar.",22
-fomc-corpus,1978,"Well, I think the major burden here is that it is almost impossible to project anything very intelligently in this area. I wouldn't put any weight on any particular projection. So far as more general comments are concerned, I share the concern that has already been expressed about inflationary expectations in a sense hardening. I'll give you my own anecdote in that respect. I went out to hear Senator Proxmire give a speech to a group of businessmen in New Jersey the other day which he entitled ""Things for the Future"" or some such thing. He was making projections and the projection he seemed to feel most sure of and wanted to repeat most frequently was that the inflation rate was going to be 8 to 10 percent over the next three years. I am not sure that the audience thought that was an unreasonable projection. I do think the dilemmas have been very clearly spelled out for us. I don't think we have a problem that can be handled by monetary policy alone, to say the least. We do have many of the classic signs of a business cycle developing, as has been mentioned. The most serious part of that dilemma seems to be the inflationary hardening of the arteries of expectations.",240
-fomc-corpus,1978,"To rise to the defense of the staff, you may project the exchange rates intelligently; you just don't have to do it accurately. There is an important difference.",32
-fomc-corpus,1978,Could I just make one point?,7
-fomc-corpus,1978,Don't be too defensive.,5
-fomc-corpus,1978,"I'll try not to be too defensive. One of the reasons why we made the exchange rate forecast we did is that it is our belief that, for the market in general, expectations about the trade balance are similar to some of the views around this table if not [more optimistic], i.e., a smaller deficit. Therefore, to the extent the forecast of the trade balance is accurate, then that will force a very large division in expectations. The number, I think, is less important than the view that this forecast is very different from what is expected and, therefore, we are likely to get further pressure.",122
-fomc-corpus,1978,"I would be the last to say that it is not going to happen. Who knows? If it does happen, it would be a very serious matter and I don't think it is at all certain at this point. [CHAIRMAN MILLER]. I think some of the comments, Ted, were that if one looks short term, it seems that some factors may be distorting and [are being projected] further than they should. If that is true, then we come back in the cycle. Larry, I think you had [a comment].",110
-fomc-corpus,1978,"Yes, sir. I can't add a great deal. We agree basically with the staff's position. We feel that average inflation for l978 will not be as high as the staff projects; however, we foresee a serious escalation in inflation as prices rise next year and the year after. I disagree, at the risk of making myself the most unpopular boy in the class, with some of the observations that were made. I do not believe that the responsibility for the predicament that we are in is necessarily attributable to the unions or to management, to the trade deficit or the depreciation of the dollar, or even to the Arabs. It doesn't accomplish anything to look at past procedures but I do think that monetary policy has to be filtered in as one of the elements of responsibility--or one of the elements of blame, if you want to put it that way--for where we are today. And I hope when we get to the next item on the agenda we will consider monetary policy and not--two years from now, as a result of an action we took today--blame [the consequences] on management or labor or the Arabs.",226
-fomc-corpus,1978,Thank you. Let's see. We haven't heard Roger. Is there anything you would like to comment on?,21
-fomc-corpus,1978,"I'd only say, Mr. Chairman, that our staff projections come very close to those presented by your staff here at the Board. There are a couple of areas that we have taken a look at that come out a little bit differently, and one is housing. We would agree with Phil Jackson that there may be a carryover through '78 and into early '79 that may add some real strength that is not evident in the staff's forecast. Secondly, we think the contribution of agricultural exports might be somewhat stronger. There has been an announcement that Red China is coming into our market for small grain, wheat principally. And if the attitude of that nation were such as to buy rather significant amounts in our markets, it could make a substantial difference in our trade balance. In summary, I feel that the staff's forecast is reasonable to the extent that it goes. But contrary to Governor Coldwell's feeling, we think there may be strength that moves on into l979. And that is not terribly good because that level of economic activity, coupled with the inflationary pressures, is all going to come crashing together. And we should be mindful, as we set monetary policy for the period ahead, that a year ahead inflation is going to be a self-fulfilling prophecy in our part of the world.",261
-fomc-corpus,1978,"Bob Black, do you have anything to say?",10
-fomc-corpus,1978,"I don't really have anything, Mr. Chairman. We are fairly close [to the staff's projection] except that we too believe, as Governor Coldwell suggested earlier, that there will be less regular increases and [perhaps] a little more inflation, but all these things have been mentioned.",58
-fomc-corpus,1978,"Well, tomorrow I complete six weeks in my new assignment and in that period of time it seems to me that inflation has risen in the visibility of people as an issue. It seems that underlying everything we are saying today [inflation] is what is behind the changes in projections and a lot of the comments here. There are factors that would indicate the possibility of sustained moderate growth in the economy. The inventory situation is in good shape. The ratios are good. Depending on how you look at it and where you go in the country, the capacity utilization does have some slack. Employment we can debate about but we shouldn't forget that we have a large number of people--almost a million--parked in public service jobs that might be flushed out into the other labor force if the economy needed them and there was a demand for them. And capital spending hasn't yet recovered in real terms to where it was before. So those are all factors that would allow for continued moderate growth without unusual pressure. But contrary to that are the effects of inflation that would show up in interest rates and in housing--and therefore possibly a decline in housing. Capital spending may not ever get to be as well as we project if interest rates move ahead because businesses do act a little on their expectations of costs and prices; when they are uncertain, they hold back. And the international situation could be a destabilizing force for growth. So I think we have a mixed situation, with a possibility of continuing at moderate growth rates through the forecast period. And I would concur that those growth rates, short term, are going to be rather vigorous and may tempt us to believe that we have a very strong economy when I would see other factors moderating growth. I look at the slower growth rate absent the peculiar bulge of the second quarter, which [reflects] some activity shoved forward from the first quarter. I take that back out. As you know, last meeting and this meeting I have been looking myself at more moderate growth. I was under the projections of the staff last time in my own views and would still believe that we are looking, except for the second quarter situation, at a moderate outlook. I would suggest that we take a coffee break and when we return we will turn to the question of do we believe in monetary policy.",461
-fomc-corpus,1978,"I would like to compliment the staff for the presentation this morning. I thought it was excellent; I could understand it, so obviously it was excellent! I usually come to these briefings and I don't understand them. It is nice to have it put in simple economics that I can understand. Thank you. Now, as a prelude to considering the long-run ranges, I've asked Steve if he would give just a few of the pros and cons on some possibilities. As you know, in the Bluebook on page 5 some alternatives are presented.",110
-fomc-corpus,1978,"Thank you, Mr. Chairman. I might first make three small statistical points of background and then present some of the various arguments that the Committee might wish to consider on whether they wish to lower, raise, or maintain the existing long-run ranges for the aggregates. As background I might first mention that actual growth in the first quarter of l978 for M1 was at a 5.1 percent annual rate, around the middle of the range currently in place. Growth in that quarter in both M2 and M3 was near the lower limits of their ranges, however. For the year ending with the first quarter of l978, the year just past, growth of M2 and M3--because of this drop-off in the first quarter--was within the ranges applicable to that period, which had been established in April l977. M2 over this past year expanded 8.6 percent and M3 10.4 percent. The ranges had been 7 to 9-1/2 for M2 and 8-1/2 to 11 for M3. Growth in M1 in the year just past was at a 7 percent rate, which was somewhat above the 6-1/2 percent upper limit for that range that had been adopted earlier. Thus the slowing of growth in the first quarter is starting to bring growth of the aggregates back into their ranges. And M2 and M3 growth over the quarters ahead could even fall short of the present ranges if short-term market rates stay at or rise from the current levels. In light of that risk, the staff has built in upward adjustment in the Regulation Q ceiling rates sometime in the summer in the projections that are presented in the Bluebook. I would like now to suggest some of the arguments for and against lowering or raising the existing M1 range. There are about three arguments for lowering the M1 range--three important ones. One is that it would add credibility to the Administration's determination to curb inflation. Second, of course, it would be in line with the Federal Reserve's effort to reduce monetary growth rates gradually to those consistent with reasonable price stability. And third, I believe a lowering of the range would enhance the international value of the dollar and to that degree would be anti-inflationary. There are, however, also compelling arguments for raising the existing M1 range or its upper limit. Given upward cost pressures that are presently built into the economy, economic growth sufficient to reduce unemployment further may require expansion in M1 at or above the 6-1/2 percent upper limit. Secondly, if M1 growth is to be 6-1/2 percent or less over the next year and GNP expands by around 12-1/2 percent, as the staff projects, income velocity of M1 will have to rise by about 6 percent or more. However, the income velocity of M1 in the most recent two years of this expansion--that is, in the last two of the 3-year expansion--has increased only by 2-3/4 to 3 percent in each year. That was at the low end of the range of experience in similar stages of previous expansions. Thus, the recent shift toward less velocity growth suggests the need for additional money growth. There are also arguments for maintaining the present M1 range, of course. An increase in the range, under current conditions, would erode the credibility of the Federal Reserve's determination to curb inflation and would not appear supportive of the President's anti-inflation program and it might increase inflationary expectations. On the other hand, a reduction in the range would not provide for adequate money growth to finance the desired expansion in real economic activity given built-in price pressures. Finally, on this point, I might mention that the present range does contemplate a slowing in actual M1 growth from the relatively rapid pace of l977. Such a slowing, if accomplished, will work against accelerating inflationary forces and lay the basis for a lessening of price pressures later. And of course, it is the actual behavior of M1 rather than the targeted behavior which does affect the market view. Finally, I would like to make just three or four points, Mr. Chairman, with regard to M2 and M3. These ranges could be lowered slightly in adjustment to the continued relatively low growth in the interest-bearing deposit components of M2 and M3. A second point, on the other hand, is that a reduction in the ranges, especially for M3, would raise questions about the adequacy of credit to finance borrowers who rely on institutional sources [of funds]--particularly home buyers. The Committee may also wish to bear in mind that the midpoints of the current ranges, at 7-3/4 percent for M2 and 8-3/4 percent for M3, are well below average annual growth rates in these aggregates since l97l. In the case of M2, the growth rate is only about l/2 percentage point above its average annual rate of increase from l965 through l970, a period in which growth was sharply curtailed in the two credit crunch years of l966 and l969. Finally, the same point with regard to velocity of M1 also applies to the velocity of M2 and M3. Those are the considerations I had, Mr. Chairman.",1084
-fomc-corpus,1978,"Well, gentlemen, normally I would like to add my analysis but Steve has said it well. My personal reaction is that, considering all the pluses and minuses, I believe it would be prudent to maintain the current ranges at the present time. That is my own reaction to the situation. There is one aspect I would call to your attention and that is that in the past we have been reporting these ranges to the Congress on M1, M2, and M3. In the Federal Reserve Reform Act there is reference to reporting on monetary and credit aggregates, so I think we would be wise to look at bank credit and make that a formal part of our proceedings. We could include that also and be more consistent with the language of the Act. Before the Federal Reserve Reform Act we were dealing with a resolution that did not have the effect of law. Now we are talking about the law and I think we ought to be more in compliance with it. As you know from the materials that were circulated, Senator Proxmire also wants us to deal with this debt proxy situation, which I am not all that excited about. But we are going to study it and at least get the analysis done. But I would feel that we should have four items for which to establish ranges: M1, M2, M3, and bank credit. Again, my suggestion would be that we live within the current ranges until the next quarterly meeting. Dave.",291
-fomc-corpus,1978,Time for discussion?,4
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Well, I would like to support that, Mr. Chairman. I came prepared with that view and I think Steve's analysis was very helpful. It seems to me that some of the items that Steve presented were in the area of public policy and more of them were in the area of public psychology. We are dealing, it seems to me, with this credibility problem and we should concentrate our efforts on trying to get better performance with the targets than we have. Rather than aggravate our credibility, I think we ought to hold where we are on the targets and try to do better on the performance.",120
-fomc-corpus,1978,Paul.,2
-fomc-corpus,1978,"I would essentially support the same position, Mr. Chairman, particularly the point that David Eastburn just made. I think our priority at the moment is getting within the targets that we have instead of trying to play around with psychology in changing them. That has been the problem in the past year; in the past quarter we have been within them and I think we ought to try to extend that record. The only thing I would add, Mr. Chairman, is that I think there is a kind of economic logic for us to reduce the M3 range and I would be willing to do that if there is general support. I can also live with the present range so that you don't have to go through the torture of explaining all the implications of reducing the M3 target in this particular quarter. We might have to end up reducing it if this scenario is played out, but I would not be insistent upon it--although willing--at this time.",190
-fomc-corpus,1978,I think intellectually one would want to see it lower but my feeling is that it is not worth the effort in terms of what we are trying to accomplish. Phil Coldwell.,35
-fomc-corpus,1978,"Mr. Chairman, I have no real preference for movement. I came prepared to support a 4 to 6 percent range on M1 and 6 to 8-1/2 or 6-1/2 to 8-1/2 on M2 and I think those are the two principal items that we are looking at here anyway. We are playing a surface game in a sense, [in] that we are setting long-range targets and not meeting them. So I, too, am much more interested in the short-range side--the attitude and actions of the Committee--than I am the long-range side. So I don't really object to the status quo.",138
-fomc-corpus,1978,Okay. Henry.,4
-fomc-corpus,1978,"I would be satisfied to stay with M1 as it is. I would, if possible, cut back M2 and M3 simply to accommodate to the degree of disintermediation. I don't think that means a great deal for the actual liquidity of the economy because the people who no longer hold M2 or M3 hold something else as a liquid asset. It does mean something for housing to us because it affects the flow into the institutions that finance housing. I agree that we ought to be concerned with getting within our targets; we have overshot each of the last five targets but one. We are outside all those except the most recent one and that shows that we have pumped quite a bit of money into the economy. I would recognize the argument that Steve put forward--that if nominal GNP rises, a constraint on money growth means something different in terms of financial pressures. One can't deny that. On the other hand, if one were to follow that thought out to its ultimate conclusion, one would always be accommodating inflation. And the higher inflation goes, the more money we need. That surely cannot be the policy that we want to follow. So as a practical matter, I would expect that if we stay with the existing M1 range we may find ourselves pushed toward the upper end of the band and maybe even above it, but we should at least make an effort to hold it there. Cyclically I think that is the right thing to do and I think it is also the right thing to do in terms of the considerations that Steve has mentioned on the side of either reducing or holding on to this level.",326
-fomc-corpus,1978,Thank you. Bones.,5
-fomc-corpus,1978,"Mr. Chairman, philosophically I'd like to see us reduce [the range]. Maybe your comment that it isn't worth the effort at the moment [is right], so as an alternative I would hope that our performance does indeed take us within the ranges and that we make an earnest effort to accomplish that. [Unintelligible] suggestion that some of your early comments might include with reference to the fact that we are going to make an added effort to keep within these ranges. With that I would be inclined to maintain them as they are.",108
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"Well, I would support leaving the ranges where they are, too. But I do want to point out that the implication of that is that we will have a good deal tighter money than we previously were thinking about because if everyone agrees--and I think virtually everyone did --that the inflation rate is likely to be higher, the chances are very strong that nominal GNP growth will be higher. If that is so, it is going to be very difficult in the case of M1 to stay within this 4 to 6-1/2 percent range. And it is going to imply very much higher interest rates as the spring and summer go on than we have had. Now, M2 I think we are safe enough in leaving where it is because I would point out again that there are quite a few time deposit components of M2 that are not subject to interest rate ceilings and they have been growing quite rapidly and will probably continue to grow quite rapidly. So that I think we can do. It probably would be theoretically most appropriate to cut M3 although we were told last week, Phillip, that the S&Ls are going to start to push--and the Home Loan Bank Board is going to encourage them to push--the sale of large CDs, which are also not subject to interest ceilings. So if they are successful in marketing these, that might mean that M3 will do a little better than the staff is expecting. So I think I would prefer to leave it and to fall low and to say afterwards that we fell low because the interest rates that were being paid by the thrifts were not high enough to be able to compete in the market circumstances. I would stay with [the current ranges] but I do want to point out that it means in all probability a very substantial rise in interest rates as the spring and summer go on.",371
-fomc-corpus,1978,Phil Jackson.,3
-fomc-corpus,1978,"I would support leaving the ranges where they are and I do share the same conclusion Chuck did about the consequences of doing so. For that reason, as we convey these to the Congress I would hope that our message would emphasize what leaving them where they are [means] in light of current and prospective economic developments for prices, production, et cetera. Whether we do that in Arabic [numerals] or in English, in either case the consequences are for a substantially more restrictive monetary policy than has previously been the case--even with the same [numerical] expression of the long-term ranges. I think it is important that we convey that to the public at the time those ranges are put forward. I would like to ask just a factual question. I believe that projections of bank credit are important, but which number are we going to use--month-end or monthly average? Would somebody on the staff tell me which one we are focusing on?",189
-fomc-corpus,1978,"Well, we have been actually using the month-end in developing these. The monthly average is an average of Wednesday numbers at the moment and I don't think it makes any substantial difference over the 12-month period for those two measures. This is not the bank credit proxy, of course.",57
-fomc-corpus,1978,Which one would you prefer we address ourselves to when we discuss the issue at the table?,18
-fomc-corpus,1978,I think it is better to have the monthly average just to avoid the little blips.,18
-fomc-corpus,1978,I just want to be sure.,7
-fomc-corpus,1978,Is 7 to 10 percent what is being proposed here?,13
-fomc-corpus,1978,"Yes, 7 to 10 is what is being proposed.",13
-fomc-corpus,1978,"It strikes me, given our most recent experience, that this again is a pretty restrictive monetary policy. In fact, it might be more restrictive than all these others put together. If we are serious about that as a goal of policy, rather than just a fallout of the other policy--",57
-fomc-corpus,1978,"Our projection of what is consistent with the [unintelligible] at 6-1/2 percent M1. And the somewhat higher bank credit, at 7-1/2 to 10-1/2, is our projection of what would be consistent with the existing ranges.",60
-fomc-corpus,1978,"In that case, Mr. Chairman, I would think that we ought to try to make that consistent under the circumstances. It strikes me that if we are going to be serious about looking at bank credit as an object of policy, then we ought to at least, to the extent we know how, have a consistent set of numbers.",67
-fomc-corpus,1978,"Steve, how would that strike you?",8
-fomc-corpus,1978,I would see no problem with that.,8
-fomc-corpus,1978,We didn't report that last time around.,8
-fomc-corpus,1978,"No, that isn't what is in the testimony.",10
-fomc-corpus,1978,So we don't have the same problem of change. I wouldn't object to that if--,17
-fomc-corpus,1978,It strikes me that that would be a wiser choice.,11
-fomc-corpus,1978,It is in the public record--in the policy record.,12
-fomc-corpus,1978,"There is something screwy between that alternative B and--oh, I see, one is current.",20
-fomc-corpus,1978,It is in the policy record so the question is: Do we want to show an increase at this point? I don't feel strongly about it because I don't think it is one that is focused on. And I could certainly live with making that 7-1/2 to 10-1/2.,62
-fomc-corpus,1978,"The fact is that we can't do much about it if it comes through higher, so perhaps we ought to try to put it where it is likely to be.",32
-fomc-corpus,1978,"It is likely to be there only in the first few months and it is a long way for a year's operation. I am not sure that 7-1/2, 10-1/2, or 6-1/2--or whatever figure you want to pick--is adequate.",61
-fomc-corpus,1978,"Well, let's come back to that in a moment. Roger.",13
-fomc-corpus,1978,"Mr. Chairman, I would have no problem with reestablishing the ranges at their current levels. I am attracted, however, by what has become almost a tradition with the Committee to continue to move these ranges to a lower level. And I would like to suggest, if that were the feeling within the Committee, that it could perhaps be done without any great disruption--in view of the fact that you don't have to testify very soon--by lowering the lower ends of both M2 and M3 by perhaps a half percentage point and leaving the tops of the ranges where they are now. I think it could be explained away in your testimony on the basis of an anticipation of increased inflation, higher interest rates, and that type of thing and not an attempt to really squeeze credit in those two areas.",161
-fomc-corpus,1978,Bob Black.,3
-fomc-corpus,1978,"Mr. Chairman, my intellectual preference would be to go right down the line on alternative B. It would seem to me that the reduction in the limits on M3 would be a logical fallout of the updrift in interest rates we are likely to have if we continue our program of gradually lowering the aggregate targets in the long run. And it serves as an important reminder that we are still interested in fighting inflation. But I [understand] the points that you and Paul Volcker made very well comparatively early in our discussion--that it probably isn't worth the hassle to lower M3 and that we can probably handle things with the current range--so I believe I would go ahead and stick with that. But I think we ought to recognize that these ranges are predicated on the assumption that there will be an increase in Reg. Q and if that doesn't happen, we may not have as much growth as we are saying here.",186
-fomc-corpus,1978,Mark.,2
-fomc-corpus,1978,"Thank you, Mr. Chairman. May I ask a question before I make a comment? When you present the Committee's view on these long-range targets, do you envision making explicitly a statement to the effect that they're not being lowered but one of the reasons is because we intend to be more diligent in trying to actually come [within] the ranges that we have set?",74
-fomc-corpus,1978,I have already made that statement; I made it to the House Committee when they asked me. It seems to me that our policy should be to set ranges and to be within them. That is our purpose and I realize that if we stick with our current one that we do have to take some restraining measures to live within the M1 range. I realize that.,74
-fomc-corpus,1978,But you would envision stating that principle publicly in connection with presenting these ranges? I think that is fairly critical because that is one of the few restraining influences on inflationary expectations that is left. I think that will be an important message and will come across importantly.,53
-fomc-corpus,1978,"Mark, if we want to be safe, to live within them I think Steve is right that we should raise the upper limit of M1. But the trouble with that is that it works against our purpose--to fight inflation.",46
-fomc-corpus,1978,"That is right. I agree with that. I would like to make just one comment on the credit thing. I agree that we ought to live within the law. I wonder if it would be worth considering the context in which we present whatever credit figures we present. We never use those in these discussions as targets. I don't know of a theory of credit determination--or of bank credit determination--of prices or anything else. And if we are going to pass those numbers on, I think somehow we ought to do it within a context that indicates how we actually use or do not use those numbers so that the public isn't misled.",127
-fomc-corpus,1978,"President Willes, we were tentatively thinking of suggesting that you use wording [such as]: ""Given the ranges for M1, M2, and M3, the associated range for bank credit would be..."" to give it that slight dimension of not quite the same importance.",56
-fomc-corpus,1978,"Mark, anything else? Thank you. Larry.",10
-fomc-corpus,1978,"Mr. Chairman, if we're going to make a strenuous effort to stay within the range and toward the midpoint of the range, there really isn't much difference between alternative B and alternative C. I would prefer alternative C just for one reason. I am not trying to be mechanistic and I know that a half point doesn't make that much difference. I do know that the long-term trend rate of money over a 5-year period is about 6 percent and I think that all of us would agree that there is a relationship between prices after a lag and a long 5-year or 20-quarter trend rate in the growth of money. And if we really want to gradually crank this thing down, I don't really see the logic in having an upper range above 6-1/2 percent, above the trend rate of money, because mechanically--and I am probably being overly mechanistic--if we moved it up that high we would be doing exactly what we don't want to do. But I would [agree with] Mark Willes's point of view that the real key to this is the strenuous effort to stay as close to the midpoint of either ""B"" or ""C"" as possible and I would opt for ""C"" just to be cantankerous.",254
-fomc-corpus,1978,Bob Mayo.,3
-fomc-corpus,1978,"Mr. Chairman, thank you. I support your recommendation of 4 to 6-1/2 and the other ones that go with it on the current ranges, with 7-1/2 to 10-1/2 on bank credit. I think that is advisable. I don't feel that there should be any change in this [M1] range. I think our credibility is better served by our determination, which everyone seems to agree here, that we get by being within the [4 to] 6-1/2 percent range rather than by changing the range at this point. We'd just become less credible if we change it on either side. The low side doesn't mean anything; it seems symbolic. On the upper side it would mean something and I think it would act against our credibility. I would emphasize Chuck's point again--and I believe Phil said this as well--it is a restrictive monetary policy stance that we have taken. And I think it is appropriate. In our own discussions of this within the Chicago Bank we have come to the conclusion--it is obviously a speculative conclusion--about the line labeled 5-1/4 percent M1 growth rate, which is the midpoint of the present range and the suggested range. The projections of selected economic and financial variables seem more comfortably associated with a 6 percent than a 5-1/4 percent [rate of growth in M1], as we look through all of these figures. So I am merely making perhaps an intellectual point that I approve the 4 to 6-1/2 range, with my interpretation that 6 percent is about as low as we can get and still maintain what I [believe] to be sound economic goals. But that is within the 4 to 6-1/2. It is merely a rationalization of my position and it need not be anything that is exposed to the [Banking] Committee. But I favor the 4 to 6-1/2.",405
-fomc-corpus,1978,"Thank you, Bob. Ernie. Before you speak, I want to welcome Steve Gardner, who has come in. I will tell you, Steve, that we are right in the midst of setting the long-term ranges and we were being very imaginative by trying to keep them where they are--which I might add will be very tough in terms of the current outlook for inflation.",76
-fomc-corpus,1978,"Mr. Chairman, I came here with views very much like those Phil Coldwell has mentioned. But I agree that staying where we are--if we in fact do it--on the aggregates will probably give us a significant tightening of credit. The difference [relative to my view] will be very small, so I can ride with your proposal to keep the ranges that we now have.",77
-fomc-corpus,1978,Thank you. Willis.,5
-fomc-corpus,1978,"Mr. Chairman, following upon Mark's question: Does [Congress] get you in any way into the short-term targets at the same time they are talking about the long-range targets?",37
-fomc-corpus,1978,We have not discussed the short-range targets and we do not plan to do so because they are not released until three days after the next meeting. So the only thing they might discuss is why we had the short-term ranges from the March meeting. I might get questions but we would not normally be volunteering in our testimony any comments on the short-run ranges. And we will not discuss the ranges set today.,81
-fomc-corpus,1978,It seems to me that that gets you quickly into Chuck's problem of suppose we have to very quickly--,21
-fomc-corpus,1978,"We have the Merrill case we have to worry about the same day; we may face it. In this go-around of testimony, we will not be addressing short-term ranges other than questions they might ask about the past.",44
-fomc-corpus,1978,I concur with your [recommendation].,8
-fomc-corpus,1978,"Yes, we would advocate staying with the current ranges.",11
-fomc-corpus,1978,"All right. Frank, did you have anything to add?",12
-fomc-corpus,1978,"No, I support your recommendation.",7
-fomc-corpus,1978,"Steve, did you have any suggestions? We're talking about staying with the current ranges. I'll make a comment in just a moment about the bank credit part of it.",33
-fomc-corpus,1978,"No, I don't have any difficulties [with that].",11
-fomc-corpus,1978,"I think every member has been consistent with this except perhaps Henry. I am not sure how strongly you felt about reducing M2 and M3. My suggestion, to recap, would be to stay with the current ranges for M1, M2, and M3. And from Phil's comment, which I think is a good one, we'd set the bank credit at 7-1/2 to 10-1/2. Now, Henry, would you be able to vote for that?",101
-fomc-corpus,1978,"Yes, I can vote for that.",8
-fomc-corpus,1978,"Is there anyone who can't vote for that? Then we have a [unanimous] vote. Thank you very much. The next item of business is the continuing discussion of how we handle these quantitative expectations for real GNP, prices, and the unemployment rate, consistent with the long-run ranges for the monetary aggregates. We know we have some problems. If I were giving my personal view today, I think you all know the issue so I won't repeat it. We have had a couple of excellent letters which have been circulated. I appreciated those letters; they were helpful. If I were giving my own estimates for the second quarter of l978 to the second quarter of l979--that would be our first-quarter-to-first-quarter [figures], I would be looking at real GNP in the 4 to 4-3/4 percent range. That means fairly slow growth after the second quarter. I would look at unemployment as 5-3/4 to 6 and I would look at inflation as 6-3/4 to 7-1/4. The question before the house is: Would it be your desire for us to seek a consensus of the FOMC and for me to report to the Congress on the consensus? That consensus might say that all or most of the members fell within these ranges, two members thought it should be higher, and one thought it should be lower. It would be that kind of comment, which opens up the possibility, particularly for Henry Reuss, [to say]: ""Send me the names of the people who felt that way."" That may be a good idea or a bad idea. He backed off that, however, in my recent testimony when I said that I thought that would be inappropriate because it would be impossible to get an open discussion if people thought they were going to be called before Congress to explain every little quiver and quake. The other alternative is for me to make these my own personal observations and report them accordingly. The other alternative, of course, is to consider this an official action--that is, as ranges of the Committee. What is your pleasure? I am looking for guidance.",437
-fomc-corpus,1978,"Mr. Chairman, I would continue exactly as you have done in the past. I think they will try to play us off against each other.",29
-fomc-corpus,1978,I understand. Philip Jackson.,6
-fomc-corpus,1978,"I think that is the only answer. I believe that ultimately washes out when you get through with it. I do think it is possible in our testimony to give descriptive phrases rather than arithmetic ranges that would indicate the substance of the discussion of the Committee--that the economic activity might be a little slower or that we see an acceleration of inflation or that production is likely to slow. And maybe we can even use adverbs to describe the verbs, if I can put it that way. But I think trying to get a consensus even on ranges puts us in an awful dilemma. Among other things, I would think that the consequences of such [a procedure] would be to impose on each of us the duty to make personal and private arithmetic projections.",148
-fomc-corpus,1978,You'd rather me have that burden!,8
-fomc-corpus,1978,"I'd rather nobody do it, but considering the lesser of the evils, if I can put it that way, I think it certainly would be appropriate for you. If you feel that under the duties of your office you are going to be called on to make such [projections] you can be as extensively prepared and as meticulous as you wish to be even in the form of saying: ""Mr. Chairman, I'll just submit this for the record. Here is my personal private projection of what I think the economy is going to do."" I would not object to that if that is the way you prefer to do it. But I think it would be a mistake for the Committee to have either a consensus or [something else] that focuses on arithmetic projections.",152
-fomc-corpus,1978,John.,2
-fomc-corpus,1978,"I don't think there is any big advantage one way or the other. However, monetary policy is a consensus of the Federal Open Market Committee and, therefore, we would urge the consensus view--provided you use the name Balles rather than Williams if they ask you the name!",55
-fomc-corpus,1978,"Of course, we do on the monetary side have the vote of the Committee; and it is only on GNP and inflation numbers [that we do not]. Mark.",34
-fomc-corpus,1978,"I won't repeat anything I said in the letter; I would like to add two comments, if I may.",22
-fomc-corpus,1978,I appreciated the letter; it was very helpful.,10
-fomc-corpus,1978,"Thank you. First of all, I think we are accountable to the public for what we do. And if there is some fundamental thinking behind the policy positions that we take, somehow it seems right to me to put that out in the public domain. Second, many members of this Committee already put out forecasts of one kind or another in speeches they give or questions they ask and so on. So I have a feeling that we are not really giving away anything we don't give away anyway. Third and finally, I am a little perplexed by the argument that somehow if there were differences of opinion expressed that that can be used to divide us and be divisive and so on. The Supreme Court renders opinions without that problem and lots of other deliberative bodies do. I guess I just can't quite follow the logic which says that if we acknowledge what everybody knows privately--and that is that members of this Committee have different views--that somehow that can be used to either inhibit us or to damage the policy process. So I think there are some advantages to putting it out and I fail to see the disadvantages.",220
-fomc-corpus,1978,Bob Mayo.,3
-fomc-corpus,1978,"Well, I disagree with Mark on his last statement. I find that we live in a political world. And what I am willing to say informally in a speech in Chicago I am willing to say because I know that I don't have to make any formal justification of that to the Congress of the United States. I think I can give better speeches and I can [provide] more informal support for what we are trying to do in that way. I think it would be used against us. They love to play the figures game in various ways to try to bring out different points of view and so forth. Therefore, I enthusiastically support the idea of your giving your personal forecasts and giving them in writing and with whatever qualification you want to give.",149
-fomc-corpus,1978,"You all saw my last letter, I take it.",11
-fomc-corpus,1978,"This may be unfair for one of us to say, but I think this is perhaps one of the burdens of being Chairman of this Committee. Someone has to speak for the Committee and I think doing it--",41
-fomc-corpus,1978,Somebody has to be available to go to jail!,11
-fomc-corpus,1978,"Well, sure. That's right. We have all been in that position in different parts of our life and no one has been to jail as far as I know.",33
-fomc-corpus,1978,"Thank you, Bob. Philip Coldwell.",9
-fomc-corpus,1978,"Mr. Chairman, I think I would support the idea for you to continue to give your private thoughts and views on this. The harder and more formal these become I think the more the Committee is going to be forced into a position on this. We may end up quibbling among ourselves and having outliers. In just the figures you have named, for example, you said 5-3/4 to 6 percent for the unemployment rate and I would put a 6-1/4 [on the top] partly because I think you have your range too narrow. You might not want to be too tight on the package. These are quibbles. And maybe if we got down to the point of debating this around the table and going through the exercise we did last time, then we might come up with a reasonable consensus and those who were outliers would have to be outliers. But I do think that the more formal this becomes and the more it becomes a position that the Federal Reserve has a forecast--whether you put it out on your own or the public merely perceives it as the Federal Reserve's forecast--the more we have to be careful.",237
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"I share Phil's views. I think it is not conducive to good policymaking to be put in a position of having this kind of forecast. It isn't quite clear to me whether it is a forecast or a target. Presumably, it would be the latter. I wouldn't want to have an unemployment target of 6 percent even though it might be my forecast. And I wouldn't want to have an inflation target of your numbers and my own [forecast] would be a little higher. So I think that the way you achieve agreement in this group is not to argue over the various real sector numbers which, of course, we could multiply very considerably; it is not only these three. We can agree on a proxy for what kind of policy we have in mind. That is what we are doing and that is what is relatively easy for a group to agree on--the aggregates or interest rates. So my inclination is to stay as far as we can from having either projections or targets of a quantitative kind and to make whatever you say as much yours as you can.",213
-fomc-corpus,1978,Can I mention one other thing? I don't remember exactly what your figures were that you surfaced to the [Banking] Committee last time.,28
-fomc-corpus,1978,"They were consistent with this except on inflation, which was 6-1/2 percent.",19
-fomc-corpus,1978,That was my recollection. That exactly portrays my point. These are going to have a track life of their own and you will have yourself in a ruler graph of the economy coming down the [pike].,42
-fomc-corpus,1978,I feel comfortable in saying that I think inflation is worse now than it was three months ago and worse three months [ago] than it was before that. Your point is well taken. Paul.,39
-fomc-corpus,1978,"I feel quite clear in my mind, Mr. Chairman, that we don't want a Committee forecast as such. We don't want to try to get a consensus and say that this is the official position of the Federal Open Market Committee. We probably couldn't do it anyway. I do think there are some pluses and minuses in giving a kind of informal analysis of the range of opinion in the Committee; I feel myself a little closer to John Williams and Mark Willes in that circumstance. Particularly, I think there is some strength in showing some diversity on the Committee in the outlook--a particular strength if they happen to agree on the policy despite some disagreement on the outlook. There is nothing more deflating to the politician who wants to attack you to say even the fellow that feels a little differently about the business outlook fully agrees with the policy that is being adopted in the short run. If he doesn't agree, it is on the record anyway so you have--",192
-fomc-corpus,1978,We have twelve [differing views] on the outlook for the economy and a unanimous vote for monetary policy.,23
-fomc-corpus,1978,"I can imagine that happening. I don't want to project today. I could imagine some difference in the rate of growth a year from now that isn't reflected in a difference of opinion on what we should be doing today. I would think that might happen quite frequently, as a matter of fact. But anyway, I think the right compromise is that you probably should emphasize your personal view but I wouldn't be allergic to indicating in an informal way that there is, in some cases, a range of opinion on the Committee. We do this now in the policy record or whatever we call it and I think extending that same kind of qualitative commentary occasionally to your testimony isn't going to hurt anything; it may help. But I'd keep it pretty informal.",146
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"I would assume, Mr. Chairman, that if you felt that your testimony on the economy was way out of line with everybody else's view that you could put that in some kind of context.",38
-fomc-corpus,1978,"I will say that I will let you know each time what I am thinking. If you think it is way out of line, whistle. I don't think a quarter of a point is a big deal but if you really thought we [had big] differences I would like to debate it because I don't want to get at variance with a middle range.",70
-fomc-corpus,1978,"Well, with that kind of assumption, it seems to be perfectly reasonable to continue with your own views.",21
-fomc-corpus,1978,"I think I will bring you in on what I am thinking each time. That way you won't be surprised and you will have a chance to suggest, as Phil did, that maybe I ought to widen a range. It won't be locked up until we prepare the testimony, so I am open to arguments or even persuasion. Chuck.",66
-fomc-corpus,1978,"I think I agree with Paul that the formal expression ought to be a personal view but that informally you can certainly indicate the range of diversity in the Committee or a general consensus of the Committee [if our views are] not far different. The reason I think the formal expression should be personal is that I think you will be better able on your own to handle the projection of recession that will eventually come than have it be a Committee vote, so to speak, that a recession is in prospect. [The latter] carries with it policy implications in the minds of many Congressmen. So I think there is great difficulty in that. I also don't think that we are a particularly good forecasting panel. So we shouldn't get into the business.",147
-fomc-corpus,1978,Willis.,3
-fomc-corpus,1978,"Mr. Chairman, I think the statement you made earlier about your changed opinion in the last six weeks is essential, really, to a forecasting episode. The only way you can forecast successfully is to keep forecasting because the scenario changes on you and all of the underlying assumptions that you have made in the outline you have sketched for the year ahead can change very drastically in the period. I would keep it on a personal view with the thought that you are going to change your mind over time. If it becomes institutional--and nobody has a very good record on that sort of thing--you are going to find that policy then becomes a matter of Congressional concern because difference is what they are aiming at for the short term versus the long term. And I think you will get yourself involved in problems you really don't want to take on at this time.",168
-fomc-corpus,1978,Steve.,2
-fomc-corpus,1978,"I will put it very simply. When you testify you will, I am sure, indicate that you have discussed all these measures with the Committee and, therefore--",32
-fomc-corpus,1978,"And having listened, I've come to this personal judgment.",11
-fomc-corpus,1978,"Yes, that whatever you've come to, you have talked it over with the FOMC. Now, that doesn't indicate exactly how far you would go in saying three members disagreed on the low side and two members were very much [higher]. I wouldn't do that. That is terribly dangerous. We will all be testifying on our own forecasts. Having expressed the projection, I think if you made it very clear that you talked with the full Committee and had gotten their views, then I would feel more comfortable about it.",105
-fomc-corpus,1978,"Thank you, Steve. Roger.",7
-fomc-corpus,1978,"I would feel fairly strongly that it should be your personal views. I don't think much can be accomplished by way of expressing a ""corporate"" view. You are not going to satisfy Chairman Reuss or those like him. The next step would be to ask to come into this room and then participate. I think a line has to be drawn and your expressing your own views is as far as it should go.",83
-fomc-corpus,1978,Bones.,2
-fomc-corpus,1978,"I share, Mr. Chairman, the consensus that seems to be clear that the views expressed be yours. It would avoid the potential at least of having a Babel in the house.",36
-fomc-corpus,1978,Frank.,2
-fomc-corpus,1978,"Mr. Chairman, I think if you can get away with the procedure you used last time of presenting your own personal view--and I like the idea of presenting a range rather than a point projection--fine.",42
-fomc-corpus,1978,Really? I'll come back [to that].,9
-fomc-corpus,1978,"If you find that you can't, then I would be much less fearful than some of the others around here of the consequences of presenting to the Congress a consensus point of view and indicating that we have two members of the Committee who think it should be lower and three who think it should be higher. I think Arthur Burns had this feeling that the Federal Reserve always had to present a monolithic view to the Congress or all hell would break loose. I always thought that was quite unrealistic. I know that in the past few years there have been occasions when some of the Presidents were called up before Congress to testify. And the whole Board and the Board's staff--everybody around here--was absolutely terrified that they would say something that would somehow get the Chairman in hot water. That didn't happen. Even when we had a renegade from St. Louis in the group who said some things that made Mr. Burns unhappy, nothing really happened as a consequence of this.",192
-fomc-corpus,1978,"Point of order, Mr. Chairman!",8
-fomc-corpus,1978,"So I have always thought that this idea that we had to present a monolithic view and that any differences--this whole idea of playing one against the other--is gravely overdrawn. If it should happen that sometime the Congress invites all the members of the Committee for, say, two or three days of hearings to hear everybody's view on the economy, I can guarantee it won't happen very often.",82
-fomc-corpus,1978,Only one Senator will show up!,7
-fomc-corpus,1978,And he will be asleep!,6
-fomc-corpus,1978,"If they really push you hard, I don't think you need to fear horrendous consequences from displaying some diversity of viewpoints.",24
-fomc-corpus,1978,I agree with that.,5
-fomc-corpus,1978,"With all the times we are invited to testify, maybe we better get the Presidents testifying more often so we can spend more time working at the Board. Well, Larry, you are entitled to a rebuttal if it is short. We are running out of time.",54
-fomc-corpus,1978,"I'll surprise everybody by agreeing totally with Frank. I think you exceed [what is necessary] if you go the whole way right at the beginning. There is no retracing your steps. I don't see any danger or any harm in ultimately being forced into having diverse points of view expressed, but I would let them drag you to that situation instead of doing it immediately.",73
-fomc-corpus,1978,"Ernie, you are the last I believe. We have heard from everyone [else].",18
-fomc-corpus,1978,"Mr. Chairman, I have already expressed my view with respect to the procedure. With respect to the specific ranges, they are acceptable to me. My expectation is that the real economy and the price movement may both be a little stronger than [you indicated] but I wouldn't suggest that you change them.",60
-fomc-corpus,1978,"Mr. Chairman, I don't think we are making this decision forever anyway.",15
-fomc-corpus,1978,"I wanted a procedure with your permission. I don't hear anyone who is objecting to my making personal projections for the time being. I hear people who say they would be comfortable if [Congress] moves us more into [providing a consensus of] the Committee, but I see no pressure to do that. So with your permission, I'll proceed accordingly. You will get the testimony; you will see it, and we will discuss it from time to time. And we will see what happens. Is that agreeable? So we will proceed accordingly.",109
-fomc-corpus,1978,"With regard to what you just stated, I would urge that in the testimony what is presented on behalf of the Committee be in subjective terms to describe the [various] things that the Congress proposes. It is only how specific you are in the ranges--",51
-fomc-corpus,1978,"Well, our records show moderate growth [in] all those things, but it is a question of when you get the numbers. Now we come to what we have all morning been waiting for--what we do about all of this.",47
-fomc-corpus,1978,"Excuse me, Mr. Chairman.",8
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,Are you going to handle the question that was raised by Mr. Proxmire? Are you going to assign that Kaufman proposal to the directive subcommittee or to somebody to review?,37
-fomc-corpus,1978,"Yes, to the Subcommittee [on the Directive].",11
-fomc-corpus,1978,The staff of the subcommittee has work under way on that,12
-fomc-corpus,1978,So that will come forth and we will discuss it at some point.,14
-fomc-corpus,1978,Okay.,2
-fomc-corpus,1978,"On the domestic open market operations, Peter Sternlight has been waiting patiently and is now going to tell us about the operations since the last meeting.",29
-fomc-corpus,1978,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1978,"Thank you, Peter. We need an action to ratify the transactions since the previous meeting. May I consider that a vote? Any objection? Hearing none, that is approved. Any questions or comments on Peter's report? Frank.",47
-fomc-corpus,1978,"Peter, I don't think you ought to apologize to the Committee for failing to keep the federal funds rate absolutely stable during the 4-week period. I think we would be better off if we could design a little more instability into the funds rate--create a little more uncertainty in the market as to precisely where policy is. It seems to me, even though it occurred against your wishes, that the [result] was highly desirable.",86
-fomc-corpus,1978,"I would agree with that, President Morris. I didn't think I was apologizing but just explaining the rates as they were and the action we were taking under the circumstances.",34
-fomc-corpus,1978,"He is happier that it was on the upside than on the downside, I guess, particularly--",19
-fomc-corpus,1978,It is more comforting to have it that way.,10
-fomc-corpus,1978,It is a little disconcerting that the explanation is that there was a [shortage] of bills available.,23
-fomc-corpus,1978,"It is a conscious effort on our part that collateral [unintelligible]. Any other comments or questions? Steve, if you will report to us now.",32
-fomc-corpus,1978,"Mr. Chairman, in view of the hour I think I would just note that the--",18
-fomc-corpus,1978,Does that mean you are hungry and you are ready to go or something like that?,17
-fomc-corpus,1978,"I was assuming that the Committee members might be. I would just note that the Bluebook simply indicates that we now expect M1 growth to accelerate. That is our projection. And the short-run range, particularly for M1, that you see is well above the long-run range that the Committee adopted. This again reflects our view that nominal GNP is expanding rapidly. I don't think I really need to add much more to that at this point.",90
-fomc-corpus,1978,"Thank you, Steve. I'd like to give you a personal proposition, not intending to constrict your views but just to give you something to shoot at as a possible idea. If we are going to have any chance of living within our long-run range, we are going to have to tighten up here a little bit. I would suggest, therefore, the following possibility: that we accept for the April-May period the ranges shown on page 8 in alternative C, which for M1 is 5-1/2 to 9-1/2 percent and for M2 6 to 10 percent, and that we set the federal funds range at 6-1/2 to 7-1/4 percent. And [I'd take the wording] on page 3 for the directive, lines 43 and 44, which states that in the judgment of the Committee such growth rates are likely to be associated with a weekly average federal funds rate close to or slightly above the current level. That would, of course, give the Desk some possibility for a move in the direction that I think we need to move in--to begin to accomplish that. That is a suggestion. I am open to your thoughts.",246
-fomc-corpus,1978,"Mr. Chairman, do you care to suggest whether you prefer a monetary aggregates or a--",18
-fomc-corpus,1978,"Oh, I'm sorry. By saying on page 3, I meant to suggest using the monetary aggregates. I meant to say 5-1/2 to 9-1/2, 6 to 10, 6-1/2 to 7-1/4, and use ""close to or slightly above"" the current level. Paul, you have a comment?",79
-fomc-corpus,1978,"Well, I fully accept the implication of the earlier conversation and what you have just said--that we have to move here to tighten some. I guess my reaction to what you [proposed] is that maybe we ought to tighten that down even further.",51
-fomc-corpus,1978,"Even further? Well,--",5
-fomc-corpus,1978,"Not necessarily in the size of the move, but in the way we specify these things. We just did a lot of talking about keeping within the long-term ranges and not changing them. I would much prefer to see these ranges set to straddle--they would be wider presumably because we are in the short run--what we agreed should be the longer-term ranges. That brings me for M1 at least--I think the arithmetic and the statistical noise in the series suggest a 6-point range if we're going to have 4 points on the M2 range--something like 2 to 8 percent. That's the way the series is drifting; it is more volatile. And if we're going to straddle, something like 2 to 8 seems to me the right range. We had 6-point ranges for several months. The 5-1/2 to 9-1/2 for M1 looks a little high to me. We could go along too easily, I think, going above the long-term range. The 6 to 10 also looks a trifle high to me. I would rather see that at 5-1/2 to 9-1/2 or even 5 to 9 and then just pinning down the federal funds a little closer. A range that I had in mind was 6-3/4 to 7-1/4--cutting off 1/4 point from where you had it--and probably going up toward 7 percent by the end of this week in view of the Treasury financing. I'd be very reluctant to go above 7 percent but if the aggregates get high enough, I would go above 7, which suggests an aggregates directive with some sticking point at 7 before going above it.",361
-fomc-corpus,1978,Okay. Phil Coldwell.,6
-fomc-corpus,1978,"Mr. Chairman, I find myself very compatible with what Paul Volcker just said. The 2 to 8 range seems terribly wide to me for M1 but I like the upper limit; the lower limit seems a bit low to me.",49
-fomc-corpus,1978,Where would you put the lower limit?,8
-fomc-corpus,1978,"Oh, perhaps a range of 4 to 8 or 3-1/2 to 8--something like that. M2 at 5 to 9 I could live with. The combination of the two I think is reflecting a restrictive position, which will mean--if the staff figures are reasonably close on this--that we will be moving the federal funds rate fairly promptly. I am perfectly willing to live with Paul's 6-3/4 to 7-1/4 for that. I could have 6-1/2 to 7-1/2, with a 7 percent midpoint on the package, which is the same as the midpoint that Paul has in the narrower range. I think there is some advantage to having a wider range on these things, so I really prefer 6-1/2 to 7-1/2. I think what this is doing is perfectly compatible with what I was saying [regarding] my expectations for the economy--that we are going to attack this inflation rate promptly and are likely to slow down the economy in the latter part of this year.",227
-fomc-corpus,1978,John Williams.,3
-fomc-corpus,1978,"I have a feeling that I may be getting in over my head, but we voted today to maintain the same long-run target ranges. M1 and M2 have been within those long-run targets and, therefore, I have trouble figuring out why we don't set the same short-run targets that we have for the long-run targets.",66
-fomc-corpus,1978,Steve.,2
-fomc-corpus,1978,"Well, the aggregates do fluctuate quite substantially from month to month. In the Bluebook, of course, we are not setting targets; we are just trying to estimate what is likely to happen given a particular interest rate pattern. That is why I tried to make a point that what we think is going to happen, if we don't change interest rates, is growth above the target.",76
-fomc-corpus,1978,"It is [something] like 10 percent for the month of April, you see. Unless we do something, we are going to get outside of our ranges.",33
-fomc-corpus,1978,"In general, the Committee might want to consider short-run targets different from the long-run targets because there are often special factors one could point to that this month are affecting the money supply especially, which might lead to offsets later. In this particular case, they are not largely due to special factors.",59
-fomc-corpus,1978,Bob Black.,3
-fomc-corpus,1978,"Mr. Chairman, my governing principle is what we said earlier. In light of the consensus that we need to get back within the targets, I think we need to take some tightening action. I remember quite well last year that we were faced with a tremendous bulge in the aggregates in April and we thought it was temporary and would be washed out. It did not get washed out as well as we would have liked it to have been washed out. So when we ended the year, we had pumped out more money than any of us thought we really should have. I don't think that was appropriate last year and it would probably be even less appropriate this year. So, I come down on this a little bit harder than anyone has so far. I would set the specifications for M1 at 3 to 7 percent.",165
-fomc-corpus,1978,[Unintelligible] if you got zero.,11
-fomc-corpus,1978,"That involves, with an aggregates directive, our beginning to move up from the [6-3/4] percent. We think we are going to have a reversal in May, which we may not have, of course. On M2, I would want to go 4-1/2 to 8-1/2 and for the federal funds rate 6-1/2 to 7-1/2 with an asymmetrical midpoint of 6-3/4. We would strongly urge an aggregates directive. We wouldn't want to support a money market directive at this time and we don't think a half point spread is enough for an aggregates directive. These specifications, of course, are not anywhere near what the staff has come up with. But we think that ours, on balance, involve a lot less risk of a repeat of last year's performance. And if we are wrong, then we believe the error can be corrected pretty quickly and easily by retreating to a lower federal funds rate at the May meeting. If the staff is wrong, resulting in excess growth in the aggregates, it may be much harder to correct. On the other point that was made by the staff on the wording of the directive--on page 2 in that footnote--I think that would be a desirable change to make. The only thing I would suggest that is different would be to leave out the word ""help"" in the third line from the bottom.",292
-fomc-corpus,1978,"We might just want to delete lines 20 to 24, too; it is not a full picture.",22
-fomc-corpus,1978,Phil Jackson.,3
-fomc-corpus,1978,"Mr. Chairman, while the thrust of the policy that I would have in mind is not substantially different from comments that have been expressed, I have a concern about making dramatic moves based purely on expectations and projections. As much as I admire the work that our staffs do, I just don't think that the results have been sufficiently accurate consistently enough for us to move monetary policy that strongly as the consequence purely of a projection. If we look at the calendar, we see that the 9.9 percent is based on two weeks in April thus far. So I really hesitate to do that. At the same time, having said that, I would think that if those projections prove to be correct, we need to move against them. For that reason I would support 5 to 9 for M1, 6 to 10 for M2, and 6-3/4 to 7-1/4 for the federal funds range. And I'd have the Manager move to the midpoint by May 1. Am I missing the Treasury's date on that, Steve?",215
-fomc-corpus,1978,It's April 26.,5
-fomc-corpus,1978,The 26th is the Treasury [announcement].,10
-fomc-corpus,1978,"If you were planning to tighten, it might be advisable to get it in motion before the announcements so the markets have a chance to revise their expectations.",30
-fomc-corpus,1978,"I don't think 1/4 point is sufficiently critical, so I would go ahead to the midpoint now. In other words, I'd rather err on the side of an increase.",36
-fomc-corpus,1978,With an aggregates directive.,5
-fomc-corpus,1978,Aggregates directive.,4
-fomc-corpus,1978,We could wait and see what this week's aggregates look like.,12
-fomc-corpus,1978,"Yes, I wouldn't object to waiting until after Thursday to see what this week looks like. A whole week won't--",23
-fomc-corpus,1978,Bones.,2
-fomc-corpus,1978,"As I expressed earlier, Mr. Chairman, I feel strongly that the economy is already rebounding. And with the Treasury likely to actually be paying off some debt, I believe the time [to tighten] is here. I would support a gradual firming during this period rather than an abrupt move later on. The numbers that seem to attract me are 4 to 8 for M1, 5-1/2 to 9-1/2 for M2, and for the funds rate 6-1/2 to 7-1/2. And I'd move pretty promptly to the midpoint, with a monetary aggregates directive.",130
-fomc-corpus,1978,Ernie.,3
-fomc-corpus,1978,"Mr. Chairman, I think we should have a monetary aggregates directive and along with it, a funds rate range which centers on 7 percent. Now, I can go with either 6-3/4 to 7-1/4 or 6-1/2 to 7-1/2. If we go to the wider range on the funds rate, then I'd go with the aggregates of alternative B; with a narrower range, I'd use the aggregates of alternative C. My inclination would be toward the latter.",107
-fomc-corpus,1978,"Would you say that again, Ernie?",9
-fomc-corpus,1978,"The ""C"" aggregates with a federal funds range of 6-3/4 to 7-1/4.",25
-fomc-corpus,1978,"Yes, that's 5-1/2 to 9-1/2 and 6 to 10. Dave.",25
-fomc-corpus,1978,I think we are all heading in the same direction; it is only a question of the specifications. I also get the impression that there is a tendency to be bold with the aggregates and rather prudent with the funds rate. I think we should try to be reasonably consistent.,54
-fomc-corpus,1978,There is a psychiatrist with us!,7
-fomc-corpus,1978,Old habits.,3
-fomc-corpus,1978,"I'd resist the temptation to slash the aggregates specifications. That is, [I'd favor] perhaps cutting another 1/2 point off what you had, Mr. Chairman, and make it 5 to 9 or perhaps 5-1/2 to 9-1/2--within that area. But I like your specification for the funds rate because it accomplishes something that I think has been highly desirable for a long time--that is, it widens the range and also provides amplitude to move up if these aggregates do come in strong.",111
-fomc-corpus,1978,I'd put my midpoint at 7 in my 6-1/2 to 7-1/4. It is a very good midpoint. Chuck.,32
-fomc-corpus,1978,"I, too, think that maybe the time has come to make a move. And I think we ought to take advantage of the probability that April will be a month of large growth in the aggregates to do that. We need to have an explanation and I think that provides us with the explanation. Also, in a way I agree with Dave that maybe we ought to be a little bolder on the funds rate than has been suggested. And I agree somewhat with Paul that we ought to have a somewhat wider range on M1, though I don't think I'd go all the way back to 6 points from 4 points. Therefore, what I would propose, within the context of a monetary aggregates directive, is that we take a range for M1 that cuts just a little bit from alternative C on the downside. I would say 4 to 9 percent. I don't want to go as far as some have suggested because it does look as if April is going to be a large month and it is not reasonable to have something that is just totally outside the [figures] that are possible. And I would take 5-1/2 to 9-1/2, a 4-point range for M2, which I think is consistent with the M1 numbers that I gave and would mean about the same kind of deposit expansion as in alternative C. On the funds rate, I would say 6-3/4 to 7-1/2. I don't really think we want a funds rate below 6-3/4 and I don't think there is any sense in having a range that [goes below] that. My midpoint would also be 7.",341
-fomc-corpus,1978,Mathematically I think it just works out that way.,12
-fomc-corpus,1978,"On my 6-3/4 to 7-1/2 percent range, I would move to 7 if this week the aggregates tend to confirm that April expansion of 10 percent. One other change I think I would make, Mr. Chairman, is in the directive in lines 27 and 28. I think it is a good idea to reverse the order of the longer-term objectives that we have at this point. What I would say specifically is ""foster bank reserve and other financial conditions that will resist inflationary pressures while encouraging continued gradual economic expansion and contributing to a sustainable pattern of international transactions.""",125
-fomc-corpus,1978,It is good.,4
-fomc-corpus,1978,It rather shifts the emphasis and yet it leaves in gradual economic expansion as one of our objectives.,19
-fomc-corpus,1978,Did you mention an aggregates or money market directive?,10
-fomc-corpus,1978,A monetary aggregates rather than a money market directive.,10
-fomc-corpus,1978,Larry.,2
-fomc-corpus,1978,"Yes, sir. [I favor] for M1, 4 to 8; for M2, 5 to 9; for the fed funds rate, 6-1/2 to 7-1/2; and an aggregates directive. I interpret that as not being bold but being momentarily responsible.",66
-fomc-corpus,1978,Frank Morris.,3
-fomc-corpus,1978,"Well, Mr. Chairman, I like the Partee specifications of 4 to 9 and 5-1/2 to 9-1/2. I like the idea of our moving in anticipation of the bulge. It is going to be for the first time, as far as I know. I'm not quite as bold as Mr. Partee. I think we ought to instruct the Manager to establish a 6-7/8 percent rate by this Friday and to move beyond that only if he finds evidence that [the aggregates] are about to exceed the established ranges.",119
-fomc-corpus,1978,"Well, of course, he can't do anything for about a week around that financing and the 6-7/8 is really very little change.",30
-fomc-corpus,1978,"Frank, anything else?",5
-fomc-corpus,1978,No.,2
-fomc-corpus,1978,"Steve, would you have any comments?",8
-fomc-corpus,1978,I'd only say that I have listened carefully to Chuck and am supportive of his statement.,17
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"I want to commend the staff for narrowing the aggregates ranges [shown in the Bluebook]. At the same time, I don't think a range of 6 to l0 with a midpoint of 8 is a very good way of getting to a 5-1/4 percent 1-year target. So I think we should hold these down in any event or treat them simply as triggers and not as particular rates of growth in the money supply that we anticipate. I would say 4 to 8 [for M1] and for M2, 4-1/2 to 8-1/2 since that 1/2 point seems to be the spread now. On the funds rate, I wouldn't like to see it go below where it is in any event because of international implications. I would like to see it move up fairly promptly before the Treasury financing so that any damage that might result falls on the government rather than on the innocent buyer who might feel that he had been misled. And I would like an asymmetrical midpoint with the 6-3/4 to 7-1/2--a 7 percent midpoint--and an aggregates directive.",238
-fomc-corpus,1978,Thank you. Mark.,5
-fomc-corpus,1978,"Thank you, Mr. Chairman. This is a strange day for me. I find that I not only agree with the staff but I agree with Chuck Partee almost in total.",36
-fomc-corpus,1978,"You did last time, too!",7
-fomc-corpus,1978,I know it. It really has me worried; I've got to go back and rethink my position!,20
-fomc-corpus,1978,There has been a lot of that going around.,10
-fomc-corpus,1978,The only modification I would make is that I would be slightly more aggressive than some--but I think with the majority--in having M1 at 4 to 8. That simply forces us to be a little more aggressive on the funds rate if April and May come in strong. I very much like the 6-3/4 to 7-1/2 federal funds range and moving very promptly on the first piece of that.,89
-fomc-corpus,1978,"Okay. Willis, you haven't given us your views yet.",12
-fomc-corpus,1978,"Well, we are pretty much in agreement. I think it is probably important that the top of the range be down more than the bottom in terms of imagery and determination. And I remind you that we don't have to freeze these in stone for the month. We can come back by telephone and other ways to make adjustments. I think we have to feel our way along. The 5 to 9 or 4 to 8 is a move that would be agreeable to me on M1, and perhaps 5-1/2 to 9-1/2 on M2. And I would buy the [funds] range of 6-3/4 to 7-1/2. I wouldn't want to do that too specifically in terms of a move that is in a sense determined. I think we will be faced with Reg. Q [constraints] very fast. I hope we don't get backed [against] the wall before we [enact] that relief because once you are up to that ceiling any time you raise it you are up to the other ceiling. And I think it is imperative that we move on track as [much as] we can as this [firming] move starts.",246
-fomc-corpus,1978,"John, did you have any specifics you would like to mention?",13
-fomc-corpus,1978,No.,2
-fomc-corpus,1978,Roger.,2
-fomc-corpus,1978,"I would adopt Chuck Partee's proposal. I would also, however, align myself with what Frank Morris has suggested--to take a small bite now and go to 6-7/8 percent immediately but to wait and be fairly cautious about moving on to 7. And I assume that if the aggregates begin to come in very strongly, we would delay moving to 7 until after the Treasury financing has been completed, which would be just about before this Committee meets next month.",97
-fomc-corpus,1978,"Well, Bob Mayo, you are the last one and you can, therefore, sum it up and tell us what we are really going to adopt.",30
-fomc-corpus,1978,"Well, I am prepared to come full circle, Mr. Chairman. I came in with figures jotted down here that happen to conform exactly to what you started this discussion with: 6-1/2 to 7-1/4 on the federal funds range, feeling that some tightening should take place and some of it immediately, [and] I would say 5-1/2 to 9-1/2 for M1 and 6 to 10 for M2. I feel that we are trying here to struggle for an element of consistency with our short-run versus our long-run [ranges]. It really shouldn't bother us that much at this point, especially since we have quite a bit of the period already behind us. I, too, have great problems, as everybody knows, with the staff projections and the seasonals, and so forth. But I think Steve's explanation is valid here. And if you combine that with the fact that even with all the work we put in on the seasonal adjustments, we are still not too sure of ourselves, I don't see any reason why we can't have a 2-month range that is seemingly inconsistent with our long-term projections or ranges, given the assumptions for these months that fit in with those projections. So I come out the same way as you did, Mr. Chairman, and with an aggregates directive.",276
-fomc-corpus,1978,"Well, thank you all very much. Let me see if I can synthesize this quickly. I don't think we have that much disagreement. On M1, we have 6-1/2 votes for something below 5, one of which is 2, and the rest of which are 4. Therefore, it would look pretty consistent to put the bottom at 4. On the upside we are kind of split between the 8 and 9. If 4 is on the bottom, I suspect that 8 or 8-1/2 on the top makes sense--4 to 8 maybe?",126
-fomc-corpus,1978,"No, I wouldn't. I think we ought to go to a 5-point range.",18
-fomc-corpus,1978,"Well, I think that it is split pretty evenly. I would see nothing wrong with putting 4 to 9. Excuse me, go ahead.",31
-fomc-corpus,1978,I am just afraid of that low point and that high point. You get too high an average. The low point is significant only if you get an average of 3.,35
-fomc-corpus,1978,"Let's put down 4 to 8 for the moment. It is just for seeing where we come out here. We have Partee with 4 to 9 and a couple of others on the Committee agreeing with that and quite a few agreeing with it among the Presidents. On M2 it looks like the 5-1/2s have it. In other words, 5-1/2 to 9-1/2 appears to be the range that mostly shows up here. It almost looks as if there is a fairly strong consensus on a federal funds range of 6-3/4 to 7-1/4.",131
-fomc-corpus,1978,7-1/4 or 7-1/2?,13
-fomc-corpus,1978,"Well, there is 6-1/2 to 7-1/2 and 6-3/4 to 7-1/2. There are more that would be 6-3/4 to 7-1/2. I think everyone was for an aggregates directive, as I read it. If that is right, the biggest debate is whether we should have a wider range on M1. Chuck.",88
-fomc-corpus,1978,"I think that is somewhat tied with the funds rate range selection. If you have a 4 to 8, Paul, that means--if that 10 percent [M1 growth estimate] holds up for April--that 5 or 6 percent in May would touch off the full use of the range to 7-1/2 percent on fed funds. And I really think that is pretty precipitous. So my feeling, Mr. Chairman, is that if we had an 8 percent top, I would want to [cut] another 1/4 on the funds range; but if we had a 9 percent top, I would be prepared to go up to 7-1/2 on the fed funds range.",150
-fomc-corpus,1978,"Excuse me. May I respond to that? I have more or less the same feeling that Chuck does, but what bothers me is that I think 7-1/2 percent would be a big move. And I am not at all sure the Committee is ready for that move. You can tell me. I myself don't feel that we ought to make that move from 7-1/4 to 7-1/2 on the basis of only 1 percentage point difference in a highly volatile series. That is almost meaningless. I would want to be pretty sure that if we get up in that area--maybe go to 7-1/4--that another 1 percentage point [in growth of M1] doesn't drive me to 7-1/2. That is my problem. So I would stick with the 8 and stick with the 7-1/4 top.",184
-fomc-corpus,1978,"Of the members of the Committee, how many would prefer an 8 top on M1 with a 4 bottom, considering all this discussion?",29
-fomc-corpus,1978,"Just members, Mr. Chairman, or everybody?",10
-fomc-corpus,1978,"This is just an indication. Assuming a 4 bottom, how many of you prefer 8 on the top side? Members only.",27
-fomc-corpus,1978,"It seems to me, Mr. Chairman, that a key part of the consideration is what funds rate range you hitch with it.",26
-fomc-corpus,1978,All right. Let's go backwards then. Let's settle the funds rate first. There seems to be more sympathy for a 6-3/4 to 7-1/2 percent funds range. Would any voting member of the Committee find himself unable to vote for that?,55
-fomc-corpus,1978,"Close. [I'd be] unable to vote for it, depending upon the interpretation. If the Committee would go casually--is really ready to go to the 7-1/2--I find that very difficult. You are really saying that you're putting it down for form. If you put down 7-1/2 [and say as] last time that there is going to be great resistance at 7-1/4, I guess I would vote for it. In that case we might as well say 7-1/4.",112
-fomc-corpus,1978,"Paul, one way to resolve that would be to ask for a wire vote or something like that.",20
-fomc-corpus,1978,If we want to go beyond 7-1/4.,13
-fomc-corpus,1978,"Mr. Chairman, I happen to share that judgment, primarily because so much of the final action would be based on a projection rather than actual experience. That is what makes me nervous--going 75 basis points between meetings as a consequence of only very little additional knowledge than we have today. That is what concerns me. The bulk of it would be based on the projections for the last three weeks of May.",82
-fomc-corpus,1978,"Mr. Chairman, could I suggest an interpretation? I suggest that we move to the 7 percent and accept 7-1/4 but go beyond 7-1/4 only on consultation.",41
-fomc-corpus,1978,"Well, if it were stated that way--6-3/4 to 7-1/2, with no movement above 7-1/4 without consultation--how would that sit with the voting members? Okay, that is what it would be there. Now we can move to M2. There seems to be a kind of consensus around 5-1/2 to 9-1/2. There are some 6 to 10s and some 4-1/2 to 8s, but most are around there. What is the reaction of the voting members on that? SEVERAL. 5-1/2 to 9-1/2 percent?",143
-fomc-corpus,1978,"All right, that's 5-1/2 to 9-1/2. Then we have the M1 question left. Let us put it in terms of having that range as our objective on federal funds, what do we think of a 4 to 9 percent M1 range? Would that be satisfactory to everyone? Mark.",69
-fomc-corpus,1978,"If we have in effect made 7-1/4 the operational top, it seems to me that the 8 percent top would be satisfactory.",30
-fomc-corpus,1978,We could take 4 to 8-1/2 for a split.,16
-fomc-corpus,1978,"Yes, we could split it. I am afraid of getting caught [in terms of] what really happens in aggregates. I don't know. I am a little nervous that if we get it down to 4 and find ourselves--",46
-fomc-corpus,1978,We have protected ourselves by that consultation at 7-1/4.,15
-fomc-corpus,1978,"Yes. Well, how about 4 to 8-1/2? Is that all right? SEVERAL. Sure",26
-fomc-corpus,1978,"All right. We have, therefore, 7 as the midpoint and consultation above 7-1/4. On the directive itself we have a few suggestions. I would like to review them and see if we are all in agreement. One suggestion is that we actually cut out lines 20-24. I did not read them carefully. Does that do anything of detriment to the directive?",80
-fomc-corpus,1978,Yes. Then there would be no M1 reference.,11
-fomc-corpus,1978,There is no M2 reference either; it is a very balanced paragraph.,15
-fomc-corpus,1978,"Well, I just don't think, I can't ever recall a directive that didn't refer to M1.",20
-fomc-corpus,1978,There are all sorts of [references to] M1 below that. This is just the historic past now.,22
-fomc-corpus,1978,But I still don't--,5
-fomc-corpus,1978,"Yes, M2 is the second sentence, isn't it? What is the sentiment?",17
-fomc-corpus,1978,I would be very much opposed to taking it out.,11
-fomc-corpus,1978,Does anybody else want to take it out besides Phil? Then we will leave it in. Then on the lines beginning at 20--the footnote--we will do the switching around of the language that I think Chuck Partee [suggested]. Did everyone note that?,55
-fomc-corpus,1978,"May I make a comment on that, please? As I heard it, Mr. Chairman, ""gradual"" to my ear just sounded very slow.",31
-fomc-corpus,1978,"Why don't we just strike the word ""gradual"" and say ""while encouraging continued economic expansion""?",20
-fomc-corpus,1978,"Well, I thought of the word ""moderate"" in there. It doesn't sound quite so slow as ""gradual"" to me.",28
-fomc-corpus,1978,"Is ""moderate"" acceptable? Then the figures we all discussed, and the other thing is to take the footnote on page 3. That one line, ""the associated range for bank credit is 7-1/2 to 10-1/2 percent"" we put up in the text. And we have line 43 saying ""a federal funds rate close to or slightly above the current level."" Do we have a directive?",90
-fomc-corpus,1978,Could I have one point of clarification? Is it understood that we would go promptly to 7 percent?,21
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,I am not sure that is consistent with that sentence.,11
-fomc-corpus,1978,"You could say ""slightly above the [current level].""",13
-fomc-corpus,1978,Especially if you hit the 7-1/4.,12
-fomc-corpus,1978,"Well, all right. On the federal funds rate sentence strike out ""close to or."" So it says ""with the federal funds rate slightly above the current level."" How is that? And on page 2 somebody wanted one word in. What was it?",52
-fomc-corpus,1978,"That was my suggestion, Mr. Chairman, but--",11
-fomc-corpus,1978,"Nobody minds one word. Well, you were marvelous today. You got through on time and everything. You are all invited to lunch and the next meeting is [May 16]. We had a vote, didn't we? Is there any dissent? Hearing no dissent, we have voted on all those wonderful things unanimously. So that is confirmed. Thank you all. We will see you in the dining room.",81
-fomc-corpus,1978,"Well, ladies and gentlemen, the time has arrived for our May meeting of the Federal Open Market Committee. I'd like to welcome all of our travelers from far away and thank the Governors for coming out of their offices so early to be with us. It's getting to be a habit to be on time! I read in the newspapers that you usually start these [meetings] 15 minutes late. You can't really believe what you read in the paper. I read yesterday that I'm part Indian, which was news to me.",104
-fomc-corpus,1978,Because you're from Oklahoma?,5
-fomc-corpus,1978,"The Federal Reserve will do anything to get its EEO [objectives]. The first order of business is to approve the minutes of the Committee meeting on April 18 and the phone meeting on May 5. Are there any corrections or comments on the minutes? I hear no objections, so we shall consider those approved and move to item 2, the report on foreign currency operations since the last meeting. Scott Pardee.",85
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"How much of that, Scott, is for the System? Just to remind everyone, that's for the Treasury and the System I think. Is it 60 percent?",33
-fomc-corpus,1978,It's 60-40. [Statement continued.],10
-fomc-corpus,1978,"Thank you, Scott. Any questions? Frank.",10
-fomc-corpus,1978,"Could you elaborate, Scott, on your reluctance to buy marks in the open market? Most of the foreign exchange traders I've talked to about this have complained about the lack of symmetry in Federal Reserve operations. I hear that if we're going to be concerned about disorderly markets on the downside that we shouldn't be afraid to show our face when the market is moving very strongly on the upside.",77
-fomc-corpus,1978,"Well, we haven't had too many days on which the dollar was rising in what we would technically call a disorderly market. Last Friday we did have almost a 1 percent rise and that was the day on which I bought marks--almost $40 million worth of marks.",55
-fomc-corpus,1978,But not in the market.,6
-fomc-corpus,1978,"In the market. We went in the market and we used some techniques similar to those we had used on the downside. That was our first occasion. Now, my sensitivity is that we've gone through a period since last June in which many people in the market were persuaded, from all of the things that had been said, that the United States government wanted the dollar down. And the massive effort we have engaged in both in the market and through our public relations techniques--and even now the gold sales--to reassure the market that we don't want the dollar down has helped. But if we appear in the market in a way which would suggest that we are holding the rate down now, it would reconfirm a lot of those earlier fears. I think we are in a better position now to buy in the market than we were a month ago or a few weeks ago. And as far as I'm concerned, whenever a mark comes in my direction I want to take a look and hope we can take it in for repayment. I'm prepared now, in these nonmarket transactions, to take everything that the Bundesbank offers to us. I think with rates at these levels we can pull out all the stops in repayment, including [buying] in the market. We've had the question from the Treasury this morning, should we buy marks today. The dollar is up 30 points. Should we go in to a market that is not in any sense disorderly or frothy and buy simply to repay? That's the hard decision; I am prepared to buy more quickly now than I was.",315
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"I'd like to add to what Scott said. I think our ability to repay the Bundesbank is now reasonably assured. They seem to be willing to [offer] us D-marks if we can't get them through one of the other operations. As Scott has laid out, we can get them through their capital export conversions, we can buy them in the market, and we can possibly get them from special transactions where the Germans need dollars. And if all that doesn't add up before the end of the year--that is, before the end of that 12-month period on each particular swap transaction--they would be prepared to [sell] us D-marks. So to that extent we would seem to be in the clear, as far as repayment is concerned. Now, as far as the rate is concerned, we should not have in mind any particular rate; we rely on fundamentals. But there is such a thing as going too fast and there's also such a thing as trying to look ahead to see what the fundamentals are going to be. In both senses it seems to me that the rate has gone quite fast and it has gone in a direction that is not what the forecast of the current account deficit would lead one to think. It's quite possible that the market has looked farther than we have, but that's not the impression one gets from talking to people and asking them what they expect in the way of a deficit in 1978 and in 1979. The official statement is still that the deficit in '78 will be at least as big, or a little bigger, than that in '77. And while nobody says anything about '79, the outlook is not very strong. The summary of my remarks is that to the extent we can influence the rate by being more active when there is disorder on the upside or buying back marks simply because we need to repay--which is a known fact--I think we ought to do that. And if that slows down the upward move of the rates somewhat, I think that would be all for the good.",411
-fomc-corpus,1978,I'd like to endorse what Governor Wallich said because I do think we may have a slight windfall now that we need to take advantage of; otherwise we may wish later that we had.,38
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"May I ask Henry a question? In your view of the attitude of the German central bank, would you assume that some repayment would stand us in good stead for further drawings in the future--if the fundamentals start to reassert themselves, in other words?",51
-fomc-corpus,1978,"Well, as we pay off [the drawings] we are closing out the old line of $2 billion, but the new line of $2 billion we haven't even drawn upon. So we would always find ourselves with at least a $2 billion line. I think the fact that we're repaying they regard as normal. There was an issue at one time of whether we wanted to fund the debt--and I think they might have liked the funding idea--by carrying it over one year. It was the sense of this Committee that that would not be a good idea; we wanted to pay it off after one year. And we pushed fairly firmly in our negotiations for that. The Germans dropped the funding idea without saying anything more about it.",148
-fomc-corpus,1978,"I don't know whether we intended to wait for our normal reports to disclose that we had repaid. But whether we did or not, Dr. Emminger has made a public statement that we have repaid, so that's now in the marketplace. And there was no particular reaction to it, as I gather, Scott.",65
-fomc-corpus,1978,Not yet. They're wondering where we got the marks.,11
-fomc-corpus,1978,"I think that a certain amount of confusion in the marketplace is healthy sometimes. Now we must act to ratify the transactions since the previous meeting. Are there any questions or comments? May we have your approval of such ratification? Hearing no dissent, we shall so approve. I regret to say that Alan Holmes is not able to be with us. He is ill today. We do have his report on the question of the status of negotiations for repayment. Scott, were you planning to comment on this in Alan's absence?",105
-fomc-corpus,1978,"Actually, Governor Wallich has just reviewed the three major points, so I won't go into them unless people have questions on this. The only action needed by the Committee in this procedure would be to [vote] on the renewals of the swap drawings as they come due through the three renewals out to 12 months. But so far with our repayments, we've been able to liquidate the swaps that would run out in October and November. We're taking the oldest swaps first, thus gaining two months' time before we face the 12-month deadline. For today, we have five swap drawings for a total amount of $257 million equivalent coming up for first [renewal] and I recommend that they be renewed for a second three months.",149
-fomc-corpus,1978,"Henry, you might just comment a moment on one source of D-marks that has been worked out, and that's the Canadian borrowing in D-marks. When they convert that, it allows us to have a source of D-marks, which is very helpful to us.",55
-fomc-corpus,1978,"Yes, this is part of the capital export conversion program. The Germans have an agreement with their banks that--well, for customers [who] put on D-mark issues and when these customers are foreigners, they want dollars and instead of buying the dollars in the market, they buy them from the Bundesbank. That means that there's less support for the dollar than there ought to be from these capital outflows. But the Bundesbank gets rid of its dollars. That's their intention. We have pressed for some of this to be put into the market. That hasn't carried very far. But we've been able to get one half, on average, of these accruing D-marks. And then we use these for repayment instead of buying back in the market. So the effect of that is to avoid a downward pressure on the dollar. To the extent that we use them for repayment as we do, it works in the right direction. The only sterilization of the effects that takes place is when the Bundesbank keeps the D-marks and gets rid of the dollars. We have no firm commitment there but I understand that they've been very cooperative in offering us [D-marks]. And on the Canadian, we've been getting half or more, is that right?",251
-fomc-corpus,1978,I'm prepared to take all of it now.,9
-fomc-corpus,1978,"The Canadians have been a little sensitive about these operations. If we got any sales in the market it would mean that they were getting less for their D-mark than they might, so we had to take that into account also.",45
-fomc-corpus,1978,I see. The point is that it wouldn't make any difference ordinarily whether you got them indirectly or directly from the market. But in this case the Germans would use the dollars for sterilization purposes.,39
-fomc-corpus,1978,Speaking of sterilization really as a--,8
-fomc-corpus,1978,Domestic monetary matter.,4
-fomc-corpus,1978,"No, as the exchange rate effect. They sterilize the exchange rate effect that would occur if a foreign borrower sells the D-marks he's borrowed, gets the dollars that he needs, and thereby drives up the dollar. That effect doesn't take place; they sterilize it. That's what I had in mind.",62
-fomc-corpus,1978,It retires some of the debt.,8
-fomc-corpus,1978,It does have a domestic monetary effect.,8
-fomc-corpus,1978,And there's a net depressing effect on the dollar from these operations because most of the issues are bought for dollars in the first place. D-marks have to be purchased by the buyer of the issue in the first place.,44
-fomc-corpus,1978,"But you're right, the market for D-marks would drive them up so it's a--",18
-fomc-corpus,1978,"But there is a domestic monetary effect. They are trying to absorb domestic liquidity through this mechanism. Governor Partee is correct. And they did exceed their monetary target early this year; it was 8 percent and they were running 12 to 15 percent. Now, they pulled it down to 7 percent in April, largely as a result of these operations, sterilizing marks--pulling marks out from, let's say, capital export conversions.",90
-fomc-corpus,1978,You said the Canadians are concerned that they might not be getting the equivalent dollar effect of their conversions.,20
-fomc-corpus,1978,"If part of the D-marks they borrowed were sold in the market, thereby driving down the price of the D-mark, they fare a little worse than if the same D-marks are sold to the Bundesbank at what they hope would be a slightly better price. We're always talking about very small differences, of course. I just wanted to add--",71
-fomc-corpus,1978,"But in billions of dollars, they add up.",10
-fomc-corpus,1978,Chuck is right that what the Bundesbank does is also a domestic sterilization operation. They absorb D-marks from the market and get rid of dollars.,31
-fomc-corpus,1978,"Scott, you have a recommendation on the open position between meetings, is that correct?",17
-fomc-corpus,1978,"As I noted, we reduced our net open position in the last period by over $300 million. It's just under $1.5 billion. And indeed, last Friday we even had the satisfaction of having to request the Subcommittee to approve, pursuant to the procedural instructions, our continuing to buy marks as we approached the $300 million limit on changes in the net open position between meetings. That was a pleasure.",83
-fomc-corpus,1978,"This is a change down instead of up, which wasn't contemplated when people set these rules.",18
-fomc-corpus,1978,"Oh no, that's fine. No, they were. But it's a pleasure on this side. Now, late last year and early this year, as we moved more deeply into debt, the Committee approved additional leeway for operations under the authorization. The net open position had been raised to $2.25 billion, I think back in March. And now $2.25 billion gives us more leeway than we need--$750 million--so I recommend that the Committee reduce the net open position to a limit of $2 billion.",108
-fomc-corpus,1978,"You've heard the recommendation. Is there any discussion or dissent? Hearing none, we will consider that recommendation approved. There were those here who were skeptical that we would be at that point at this time, but it's working fairly well.",46
-fomc-corpus,1978,But I certainly--,4
-fomc-corpus,1978,We have problems ahead no doubt.,7
-fomc-corpus,1978,"I do want to subscribe to [the view expressed by] I think it was Dave, or maybe Henry, that we ought to move right ahead while we've got the chance. MR. PARDEE(?). That's music to my ears. MR. PARTEE(?). And reduce that debt.",58
-fomc-corpus,1978,We ought to move ahead but cautiously.,8
-fomc-corpus,1978,"Well, I don't know how cautiously.",8
-fomc-corpus,1978,Prudently.,4
-fomc-corpus,1978,There's a difference in emphasis that I particularly subscribe to.,11
-fomc-corpus,1978,"Well, it will be done well. Don't worry.",11
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,"Unless there are further questions, I would propose that we go ahead with the economic and financial situation and I call on Jim to give us his staff's comments.",32
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,I welcome any comments and discussion. Frank do you want to--,13
-fomc-corpus,1978,"Yes, let me ask the staff whether you have any consensus on the natural rate of unemployment, given the current structure of the labor force.",28
-fomc-corpus,1978,We have a project under way assessing that and I must say that there is a good deal of work yet to be done. It's a very difficult problem to assess. Our judgment today I think is something in the 5-1/2 percent area. There are many people in Washington I understand who would now judge--and some work is going on in other agencies--that perhaps 6 percent is the rate. And there are people who believe it's much lower. I think we're sort of in the middle of these forecasts. We have looked at the distribution of unemployment among various groups and there is in our view some [room for it to] move downward that could be associated with past periods of relatively high employment and still not imply a situation of extreme tight labor markets. But there is not very much room. So I think our forecast of somewhere around 5-3/4 would be getting close to the so-called natural rate of unemployment. Perhaps Jerry would like to comment; he has been directing this work that we're doing.,206
-fomc-corpus,1978,"Yes, there are just a couple of points I'd like to make. It's recognized that there has been an upward bias in the unemployment rate from various sources. The age/sex structure of the labor force, for example, has over the last couple of decades tended to move the unemployment rate that is the minimum rate of unemployment at high levels of income up somewhat largely because of the large proportion of younger people and women--people who move in and out of the labor force. That's tending to move slightly in the other direction at this point, so that the effect there is to dampen that bias somewhat. Another factor over the last couple of years is the extension of unemployment benefits to well over a year, which has had a tendency, we feel, to bias the rate up. But most of those programs have now been phased out, so that probably has less of an effect now than it had, let's say, late last year. Nevertheless, there are variables operating to raise the rate. As Jim said, a very rough estimate we've been making suggests that it is somewhere in the 5-1/2 percent range, but I wouldn't want to give a point estimate.",234
-fomc-corpus,1978,"Jerry, if I may, it seems to me that you're being very optimistic with 5-1/2 percent. You focus on the quantitative phenomena--changes in the structure of the labor force and so forth. I think we have to take into account also changes in attitudes. One factor you mentioned goes in the other direction--the phasing out of the long compensation period. But I think basically there is a much greater acceptance of unemployment as not very detrimental, not at all dishonorable, and in some respects a productive condition. And that, it seems to me, injects a very significant upward bias into the rates.",126
-fomc-corpus,1978,"I would like to suggest that we get your specific questions and then do a round robin and see how everyone feels about real GNP, prices, and unemployment either in relation to the staff or in relation to their own work or experiences. Ernie, do you have a question? I think [you're] next. Oh, Frank, I'm sorry, did we cover yours?",75
-fomc-corpus,1978,[Unintelligible] right.,8
-fomc-corpus,1978,"I would just raise a question as to whether there is a significant possibility that we may see stronger capital expenditures coming on than is now currently indicated in the surveys or from other sources. I guess I would make a further comment that I see indications in the Southwest that capital expenditures are moving about as fast as the available real resources will permit. And there are increasing shortages of the materials that are used in capital investment, increasing delays in getting materials, and increasing difficulty in getting staff to work on these projects.",100
-fomc-corpus,1978,"Well, there is always the possibility, of course, that investment plans will be scaled up even more. It's difficult to judge the dynamics involved in this whole process but if firms now, for example, experience much higher ordering rates than they thought, that could surely be an encouraging factor. And I would presume that that's one of the things involved in the scaling up of the funds that we've seen recently. That could go on. I think the construction area, as you noted, is a segment that has caught on; it was one of the weaker areas earlier and we have noticed an increase of size in commercial and industrial contract awards. They're up something like 60 percent March over March. So it's a huge increase but it's from a fairly low level. I think the orders and survey results available to date would be supportive of a fairly moderate picture. In fact, we will have a reading early in June from the Commerce Department and that would need to be scaled up significantly in order to achieve the staff forecast. So implicit in our own forecast is a view that conditions were reasonably optimistic so that businesses would be prompted to scale up their plans. So what we've seen to date, I think, is what we have hoped for and I don't think it has run beyond that. But, of course, there is that possibility.",263
-fomc-corpus,1978,"Jim, wouldn't you say, though, that if they would scale up their plans, we'd still have a lag time because of [unintelligible] problems? These kinds of problems are worse today than they were five years ago.",47
-fomc-corpus,1978,"Oh, sure.",4
-fomc-corpus,1978,"So even if plans get built up, it's hard to get the spending in very quickly. Bob Black.",21
-fomc-corpus,1978,"Jim, I was impressed that right after the first-quarter GNP figures appeared there was an unusually strong statistic for March. I was just wondering what odds you would put on an upward revision of that [Q1 GNP] from an actual decline to a positive figure.",54
-fomc-corpus,1978,"Well, early on, I suggested that my guess was that it would be revised up perhaps to at worst no change but [probably] to a small positive number. I've been changing my view, however. That is, some of those March data that I was looking at have been revised down. In particular, retail sales have been revised down and some of the construction [data have] been revised down a bit. The March net exports [figure] was somewhat worse than we had anticipated and worse than Commerce had anticipated, so for now I would think zero is the highest [for Q1 GNP] and probably it's in the range of minus 0.5 to minus 1 percent--a negative. We will get a reading on that Thursday; that is the next revision.",157
-fomc-corpus,1978,"Chuck, you had a question.",7
-fomc-corpus,1978,"Well, I was just going to comment that I would be inclined to say that I don't quite know what the natural rate of unemployment means. ""Natural"" in what sense? I presume it means the unemployment rate that would be associated with no acceleration in inflation, in which case we must already be below the natural rate of unemployment because we're having the acceleration in inflation. But if you're looking at what is achievable, I would say it certainly could be brought down to 5-1/2 percent and perhaps a little lower. So I disagree with Henry. Just looking at the age structure, the quality of the labor force, and that kind of thing, I would say it could go lower. I wanted it to be clear that I disagree with Henry on that point.",154
-fomc-corpus,1978,Dave. No rebuttals. You can discuss it at lunch.,14
-fomc-corpus,1978,My question is on consumer spending in anticipation of higher prices. I have the impression that studies somewhere--perhaps earlier in the Katona studies and others--have indicated that consumers have reacted adversely to expected price increases. (A) Is that wrong? and (B) have things changed?,57
-fomc-corpus,1978,"(A) It's right. That is, the studies in the past--the Katona studies, which I think are the most important in that area--have pointed to an irrational response, if you will: As prices rose, consumers deferred purchasing. But interestingly, the Michigan surveys--and that's the source of the Katona studies--have been picking up increasingly now reports of ""this is a good time to buy to avoid further price increases"" where they used to get ""now is a terrible time to buy"" when prices began to rise. So we're getting a different response in the Michigan surveys than used to be the case. And I think in general it may well be that there is an increasing awareness on the part of consumers as to what has happened in the last several years, and their behavior may well be changing.",165
-fomc-corpus,1978,Phil Coldwell.,4
-fomc-corpus,1978,"Jim, you've got a fairly strong durable goods personal consumption estimate in here and yet you're also commenting on the very high level of consumer debt. How do you [reconcile] those two?",38
-fomc-corpus,1978,"Well, I think the high level of consumer debt is driven by essentially two things. As you know, one is consumer installment debt--for autos particularly. But that's not the most important factor driving up the total; it's housing. And for housing the debt is longer [term] so perhaps the repayment burden in the view of consumers doesn't necessarily track into a less willing feeling on their part to acquire debt than would be the case if the debt had been taken on for something other than housing. So a good deal of this debt burden problem is, in fact, associated with mortgages. As I noted, it's very high. A year ago it wasn't and six months ago it didn't look that bad. But right now debt outstanding relative to disposable income is above the peak level that we experienced in '70, which was in the fourth quarter of 1970. It's a couple of percentage points above that. So it shot up dramatically. The repayment burden now is also up there. I think the attitudes for durable goods purchases in the short run are really quite strong in part because of this inflation phenomenon. As we go out further, one of the problems we have in looking at these aggregate statistics is that we have nothing on individual consumers. And it may well be that what we're talking about is a universe of consumers in which there are many willing and able to take on additional debt in this environment. The fact that we have talked a little bit about reducing personal consumption expenditures for durables reflects our judgment that income growth will be weaker in the first half of next year. And associated with that, we'll have lower purchases of durables--not as large an increase, if you will, in purchases of durables.",341
-fomc-corpus,1978,"Willis, you had a question.",8
-fomc-corpus,1978,"On the housing figure, shouldn't we put back in manufactured homes or mobile homes? It fell out of bed but it's really coming back very strong. I wonder if we shouldn't look at that.",38
-fomc-corpus,1978,"Well, it's in on the expenditure side but we don't refer to it.",15
-fomc-corpus,1978,"Second, the inventory behavior is the thing I'm beginning to be puzzled about in terms of what lies ahead. [That] is occasioned by a couple of factors. One is steel, which is talking about operating at 90 percent capacity, and that introduces the capacity argument. But the question is: How much of that is for inventory rebuilding and what is happening there? And if you look at warehouse space problems, again you wonder if there is not some inventory building. And with this big spurt in sales, what's the prospect that we'll follow this with an inventory cycle before we get into the capital goods cycle of an expenditures problem? You see this in certain chemical lines now, in steel, and a whole host of areas. [It] makes me wonder if we may not be on the verge of a--",163
-fomc-corpus,1978,"Well, I think that's one of the risks. I did not refer to it explicitly but to the extent that concerns about rising prices prompt speculative behavior or hedging attempts, you could get into that situation. We're not aware of any significant problems right now and we have been attempting to be alert to those sorts of things. [In] the steel area that you referred to, we have done a bit of checking and are fairly convinced that in the short run it is rebuilding of depleted stocks. As you know, in the first quarter steel inventories were run down substantially. So as of now we're not aware of significant problems, but the environment is one which I think would perhaps be conducive to that sort of behavior cropping up.",144
-fomc-corpus,1978,"The third point I'd make has to do with the capacity problem. Part of this is in steel and part of it is in transportation equipment where you just can't get rail cars for anything. If you try to get on a plane, you feel like the same thing [is going on] there. Delivery time on machine tools has been extended and that's one indication of the problems in this area. The labor market problem is another. To what extent are we really close to capacity bottlenecks here that throw off the price expectations pretty fast?",107
-fomc-corpus,1978,"Well, I think you pointed to the key areas. I am not sure about airlines, but steel and other transportation would certainly be pressing [capacity constraints]. There are many other areas, of course, in manufacturing where that's not the case. So I'm not sure that we're not talking about spot problems perhaps for now that would traditionally be associated with that sort of thing going on. I was struck, however, by comments in the Redbook which this month referred to more such areas than had been the case in the past. So we're alert to that. It's clear that as we go on from here, there is less capacity available--less room--and these problems would naturally be expected to crop up.",140
-fomc-corpus,1978,Ford shut down in the Cleveland area because of no engines.,12
-fomc-corpus,1978,Because of what?,4
-fomc-corpus,1978,"No engines, which they have been importing through Canada.",11
-fomc-corpus,1978,"And there's the Mexican box car situation. They were buying from Mexico and had trouble with customers, and that has created a real shortage.",27
-fomc-corpus,1978,"We have a big shortage in the Midwest, too, Bill. They can't find box cars. They are accusing ConRail of taking them to New England and losing them somewhere.",35
-fomc-corpus,1978,[Unintelligible] you go down that rail and you'll go into the ocean; you can't expect to come back.,25
-fomc-corpus,1978,"Well, these are hopper cars, too. They're not moving the export grain the way it's supposed to [be done]. In fact, they've even gotten unitrains, going all the way to Los Angeles, because that's the simplest way of getting some of the grain out of Iowa.",57
-fomc-corpus,1978,"John Balles, you had a question.",9
-fomc-corpus,1978,"Yes sir, I have two quick ones here--one a question and one a comment. The question: Jim, you stated that you marked down your housing forecast somewhat because the recent change in the Q ceiling wasn't as big as you had assumed earlier, which I think was 50 basis points across the board and in all the categories.",67
-fomc-corpus,1978,All except passbook accounts.,6
-fomc-corpus,1978,All except passbooks. Why is it that you think the recent changes will not be as effective in keeping savings in the thrift institutions and the banks as what would have occurred under your assumption?,38
-fomc-corpus,1978,"I'd like to give that question to Ed Ettin, who is the concocter of the numbers.",20
-fomc-corpus,1978,"First of all, the 8-year certificate clearly is a certificate with a lower rate ceiling than we had been anticipating and for a longer-term [instrument]. We don't think that would pick up as much money as, say, raising the ceiling for the existing 4- and 6-year certificates. On the 6-month certificate, we have to admit that we're working in an area of considerable uncertainty. We've never had anything like this; we don't know how big the impact will be, although we are reasonably certain that the impact will be larger for thrift institutions than it will be for commercial banks because of the differential. The cost of the [unintelligible] is directed toward [unintelligible] funds. Our own judgment had suggested that the 50 basis point increase across the board would be worth, other things equal, anywhere from 1-3/4 to 2 percentage points of additional growth. Our best judgment is that this package, other things equal, not adjusted for interest rate changes, would be worth between 1 and 1-1/2 percentage points. It is admittedly the roughest of judgments because we haven't had experience with the 6-month certificate.",240
-fomc-corpus,1978,"I appreciate the difficulty, Ed, of making that forecast here. All I can say is that in sounding out the banks in our area, we expect a lot of action in the 6-month money market certificate. The other thing, Mr. Chairman, just quickly, is that Frank raised an interesting question, I thought a crucial question, about what sort of non-inflationary rate of unemployment we can get down to. There is another question that Willis touched on and I'd like to piggy back on it, and that's: How close are we to [a level] of capacity use that may itself generate inflationary pressures? Some of the work done by our staff quite recently indicates--contrary to the usual view that we don't get inflationary pressures until we get up to about 87 percent capacity utilization--that inflationary [pressures] begin at somewhere between 81 and 85 percent. A more refined analysis of that [relationship] leads them to that conclusion. I was wondering if your staff here, Jim, has done any work on that, which I consider an equally important area. And I think you touched on this, Mr. Chairman, in your testimony--[saying] that capacity is one thing but the cost of the capacity is another.",256
-fomc-corpus,1978,I was just interviewed yesterday. I hope we get the right answer here that's consistent with what I said. I always try to answer and get the facts later!,32
-fomc-corpus,1978,We haven't done any work along those lines but I'd be very interested in having the opportunity to see that [work by your staff].,26
-fomc-corpus,1978,"We're going to send it out to everybody around the table, as a matter of fact, for information and possible comments if they have any.",28
-fomc-corpus,1978,"I think there is no question that we're going to hit the pressure sooner. We have some high cost capacity that's counted in capacity. It's obsolete, [given] high energy costs.",36
-fomc-corpus,1978,"In this connection, Mr. Chairman, could I follow up on this? [Jim], have you taken a look at this study by Wachter that just came out recently? I haven't had a chance to read it myself but I understand it suggests that we are much closer to capacity than most of the numbers generated earlier have suggested.",66
-fomc-corpus,1978,"No, I have not personally looked at it.",10
-fomc-corpus,1978,"Well, why don't we do a round robin on how you all see the economy? Do we want to start with volunteers or should I just start here with Steve and go around? Why don't we ask you, Steve, to give us your views? Do you agree with the staff or do you have--",61
-fomc-corpus,1978,"Yes, I'm reasonably in agreement with the staff. I've been thinking that this very old and aging recovery would eventually get a thrust from business investment spending and you seem to feel that that's coming on now. That can only not be a factor for a certain period of time; it must come on [eventually]. Technologies change and costs change. I've also been convinced since last fall that it's time to change automobiles. There are an incredible number of models which offer longer mileage and certain advantages like front wheel drive. It's quite impressive and, therefore, I'm not surprised at all by the automobile record that you expect and that the industry is anticipating. So I believe that there is merit to the staff forecast and that we will have a stronger period this year than we originally thought.",153
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"I'm less optimistic on the price outlook than the staff. We've now had three months where the [increase in the] CPI, computed at an annual rate, would be at 9 percent. We are likely to get another bad month in April because we've had a bad wholesale price index. That would give us four bad months to live down, as it were, if we want to stay at or near a 7 percent CPI for the year. In fact, it would have to [rise] at close to a 5 to 6 percent annual rate for the rest of the year and I think that's quite unlikely in the light of what we see. So I'm pessimistic about the price outlook. I feel that way also because from my colloquy with Chuck it is clear that I think the limit on where we can go with unemployment without producing more inflation is unfortunately higher. I don't doubt that one could get to 5-1/2 percent or even 5, but you see that even now there are some inflationary consequences. They may not be closely related to employment, but I think four or five of the Reserve Banks referred in the Redbook to incipient skilled labor shortages. [The unemployment rate for] married males is 3 percent, if it hasn't gone down below that. So my concern about inflation rests on these factors. Now, as far as income is concerned, if you take 6 percent unemployment or near there--I would be surprised if it did go below that--what we ought to do then is not to aim above 4 percent for real growth. In fact, we ought to aim over the rest of the year for slowing down to the long-term rate of 3-1/2 percent. That's about what we can expect to do at constant unemployment. We don't have to shift to that right now but by the end of the year it seems to me we ought to not worry at all if we're in the 3 to 4 or around the 3-1/2 percent range. That makes me somewhat more relaxed about concerns that the economy is not as strong as it seemed to be.",431
-fomc-corpus,1978,But you want that to be a soft landing.,10
-fomc-corpus,1978,"Right, a soft landing.",6
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"Mr. Chairman, I find myself in agreement with Governor Wallich's comments. I think our effective labor supply is narrowing and I think our capacity availability is less than shown. I am especially worried about price pressures, which I view as very strong; and if fed by the availability of credit, they will intensify. Credit demands in this nation are extremely strong in certain areas and strengthening elsewhere. The competition for it is good; nevertheless, the demands are high and they're going to be met with some of the liquidity and large CD funding. I view the possibility of the staff's forecast as I guess 50 percent and maybe that's enough for you, Jim. But I suspect that your second-quarter GNP [forecast] is still going to be low. I think the chances of 10 percent are very good. Third-quarter GNP, I think is going to fall off faster than you have indicated--perhaps down to 4 percent and then in the fourth quarter, I view down to 2 percent [as likely]. I see that largely because I think consumer demand is going to weaken as debt increases and I think the interest rate increases are going to dampen housing and eventually in 1979 they may have an impact on capital spending. I don't view this as a very horrible scenario because I think we need to slow the growth of the economy down to a [pace that is sustainable] longer run because if we don't and we face these continued price pressures, we're going to have a bigger problem later on.",303
-fomc-corpus,1978,Frank.,2
-fomc-corpus,1978,"Well, in a sense, Mr. Chairman, my view is a little opposite from Phil's as far as the third quarter is concerned. I hope that the pattern that [the staff] set out in the Bluebook happens, because I think it is pretty close to an optimum development over the next year or so. But what I'm concerned about now is the possibility that the third quarter may be substantially stronger than we are now contemplating.",87
-fomc-corpus,1978,"Frank, would you think the second quarter is along the lines that Phil talked about?",17
-fomc-corpus,1978,I think the second quarter is going along very strong.,11
-fomc-corpus,1978,Would you go up to 10 percent?,9
-fomc-corpus,1978,"Well, I think the Board's staff's 9 percent is about right. What I'm concerned about is the stronger third quarter and there are two pieces of evidence that led me to wonder about this. I don't have a conviction, but if we do get a much stronger third quarter than we're projecting, I think we'll have real problems this summer. The first of the two pieces of evidence is the surprising performance of automobile sales, which I think were probably above all of our expectations, particularly because of the level of consumer debt. This does not jibe with the kind of behavior on the part of the consumer that I had expected. The other thing is the amazing strength in the stock market, which suggests to me that animal spirits in the Keynesian sense have had a remarkable recovery.",156
-fomc-corpus,1978,The block buying is going to pick up.,9
-fomc-corpus,1978,"Well, it suggests to me that capital spending may well pick up much more strongly than perhaps even the staff is projecting. Certainly, the stock market--I think you'd agree with me, Bill--does influence the behavior of businessmen and it reflects the thinking of businessmen. And it has a wealth effect on consumer spending. So if this remarkable performance were to continue for a while, I think it could be an independent source of strength in capital goods and in consumer spending. I hope that doesn't happen because I think two very strong quarters back-to-back could put us in a very difficult position. So I hope you're right about the third quarter.",127
-fomc-corpus,1978,Ernie.,3
-fomc-corpus,1978,"Mr. Chairman, in terms of a specific forecast, I would not quarrel with what the staff has presented. It seems to me to be a reasonable representation as to what may happen. In terms of problem situations, however, I see increasing indications now that we may see over the next nine months to a year that confluence of events which typically sets the stage for a period of adjustment. I have not had such a feeling thus far in this particular period of expansion, but at the present time it seems to me that we now see indications of that final burst of activity which brings the distortions in the economy that then get washed out during a period of adjustment which we call recession. This suggests that if we are to have a soft landing, we probably need to be working very hard at the present time to moderate that final burst of activity that typically gives us--toward the end of a period of business expansion--those distortions which give us recession. I've been trying to [determine the] significance of a recent observation made in our District but haven't been able to; nevertheless, I'll report it to you. In one of the towns in western Texas, there was a sign over a hall, which for recent months had read ""American Agricultural Headquarters."" I'm told that that has now been replaced with a sign that reads ""Domino Hall."" Thank you.",274
-fomc-corpus,1978,John.,2
-fomc-corpus,1978,"Mr. Chairman, our staff forecast is broadly consistent with that of the Board staff going, say, to about the third quarter of the year. But from about the fourth quarter on and running into early '79, we are not as optimistic and for several reasons. One is the capacity bottleneck factor that I have already mentioned. We think we are already there, in fact, in terms of where it can go without generating further inflationary pressures. Based on some work we published several months ago, we think we are already there in terms of how low we can get the unemployment rate without generating some inflationary pressures. Our staff analysis, if I recall the figures right, suggested that a range of between 5.6 and 6.3 percent is the range below which you'd get considerable inflationary pressures. In short, translating this into GNP components, by the fourth quarter and first and second quarters of '79 we just see less strength in the economy than the Board staff does. I detailed some of these figures in March, so I won't repeat them again, but it's principally in consumption expenditures, especially in housing and other durables, and consequently in business inventories. But I would also add what I think I heard Phil saying--that it's not all that bad. I think we've probably got to slow down based on the real growth capacity of the economy [to avoid] generating a lot of inflationary pressures after a surge of activity for three years now that very clearly has been above the long-term trend growth rate in the United States.",310
-fomc-corpus,1978,"Thanks, John. Mark.",6
-fomc-corpus,1978,"I agree basically with what the staff has [forecast], with two fairly significant differences, I think. One is that I agree very much with Henry's statement on the outlook for inflation. Last week I had a meeting with 170 primarily middle level businessmen--chief financial officers and that sort of person. I took a little poll and 80 percent expected inflation of at least 8 percent for 1978; 40 percent expected inflation of 10 percent or higher in 1979. You know, it just doesn't make any difference whether that is soundly based or not. If that feeling is widespread, they will make decisions that will in fact generate those kinds of rates. So, as I look at it, I think the inflation forecast that the Board staff has is probably still on the low side. I also agree with Frank, for slightly different reasons, that the chances are that real growth in '78 will be still somewhat higher than we really would like to have, given where we are. We are a little more optimistic on housing than the staff is, reflecting primarily [our view that] the thrifts will get more money than the Board staff thinks. On consumer spending, I think the Board staff is right. We think that is going to be quite strong. This may come out kind of funny because it's hard to articulate, but it seems consistent to me to have a negative reaction be the basic reaction to inflation in terms of consumer spending and yet still in the short run have consumer spending, particularly for durable goods, go up. That's because what you would expect in a period of inflation is a substitution--purchasing durables which, if you buy on credit you then rent from yourself for the rest of the time and substituting that for other kinds of nondurable services you ordinarily would have bought. What that would mean is that in 1978 we will continue to get strong consumer spending as [people] make this change in their spending decisions. And then, unfortunately, that could be one of the things that comes back to haunt us in 1979 if we fail to make a soft landing--where we get a significant fallback in consumer spending. So in terms of real growth for '78, we are quite optimistic, but increasingly pessimistic about what all of this means for '79.",465
-fomc-corpus,1978,Bob.,2
-fomc-corpus,1978,"I have no quarrel, Bill, with the staff projection on real GNP; a range of 4 to 4-1/2 percent certainly covers my personal feelings and those of my staff as logical for this year. I think we will be very lucky in this country, however, if we keep the inflation rate under 7-1/2 percent for this year. I think the outlook for agricultural prices is perhaps even a little more bleak than the staff has estimated, and they certainly have been more pessimistic than they were earlier in the year. I feel fairly strongly that we can't get the unemployment rate in this cycle under 6 percent because I have seen so much evidence of companies grabbing up help because they anticipate some sort of a boom--in which way they aren't quite sure themselves. And this is one of the reasons for our very low productivity figures that we have seen, for what they are worth, in the first part of 1978. So I guess I'm just a little more pessimistic on the inflation front than the staff and a little more pessimistic on the labor force side. And yet I must say that I'm very skeptical as to how much help monetary policy can be--we can be of some help--in alleviating what seems to be another potential, at least, boom and bust situation. It's not as bad as 1973-74, but it is one that could be rather serious.",288
-fomc-corpus,1978,"Our views are consistent with the staff's with respect to growth in real GNP, with maybe some variation of how that occurs. We're expecting somewhat stronger growth perhaps in the third quarter, as Frank also may have mentioned, and somewhat less as we move into 1979. As to prices, we believe the staff may be a little bit low. That is to say we expect the pressures to be somewhat greater than the staff's 7 percent projection. [I've heard] an interesting comment, and I really don't know what it means. But businessmen I have met with most recently on two occasions have mentioned the fact that their suppliers had been posting price increases to take effect either 60 or 90 days hence and then were withdrawing those before the price really goes into effect. The thought is that they are [hedging] again against some wage or price controls--that they are building their case. So apparently there is a very strong expectation for [the rate of increase in] prices in our part of the world to accelerate, and it's a matter of when and how much. Lastly, as to employment and unemployment--particularly on a regional or District basis--in the nonagricultural sector we are finding unemployment levels at or below 5 percent now and all skilled laborers fully employed. So there is going to be some pressure on that side, we believe. Thus we think prices may be modestly higher than the staff is now projecting.",290
-fomc-corpus,1978,We will skip across and pick up Larry.,9
-fomc-corpus,1978,"Mr. Chairman, as you know, where I work we feel that there is a direct relationship between the decisions made by monetary policymakers on the rate of growth of money and these various elements we are taking about. So, assuming a 6 percent annual rate of money growth this year--though we have no way of knowing whether that will be the case--we would project an average real GNP figure of 3-1/2 percent, prices at 6-1/2 percent, and unemployment at 5-3/4 to 6 percent. I would like, Mr. Chairman, if I'm not out of order, just to comment on one other aspect of what has been discussed this morning by John Balles. Some of us at the Reserve Bank level do significant research and devote significant research resources to subjects such as capacity. As John knows, just as his people have, our economists have done a lot of work over the last year, year and a half. I just wondered--I'm sure this can't be settled today--whether there couldn't be some method devised whereby on some of these fundamental questions there could be greater interaction between the staff at Washington and some of the Reserve Bank staffs. So if they are doing research in some specific underlying subjects we would know of that. [Now we're] operating totally independently of the others, only knowing what the others do if we read their publications. I just think we have great resources and that we could pool them in some way on selected subjects on selected occasions. I think there would be value.",311
-fomc-corpus,1978,Thank you. Bones.,5
-fomc-corpus,1978,"Mr. Chairman, we too are becoming increasingly concerned about the burst of activity. [We thought] first that maybe it was a rebound from the winter induced difficulties, but that does not seem to continue now. We think it's a matter of genuine concern. Housing for instance, [we were] thinking the availability of mortgages and the cost of money would be limiting that. It is not happening. Real estate fellows are telling us they have never known business to be better. [There's a] scarcity of sites in some areas and prices are just jumping. And we are less optimistic over the total price [picture] than suggested here, partly because of the demands of labor, number one. And frankly, the scarcity of skilled labor is becoming very marked in some areas. Farm prices we think are likely to add an extra kick or two. And almost every group of businessmen we join now suggests that they are anticipating price increases and are adjusting--marking [up] for that purpose. Incidentally, Mr. Chairman, I'd mention the yacht [business]. One of our directors happens to be a builder of luxury yachts and could not take another order for the rest of this year. The customs people running the drug traffic insisted that he do two for them to be specially designed to be a little bit faster than the [others]. That's sort of the demand in that field.",273
-fomc-corpus,1978,"Not to mention the control boats for oil people too--right, Ernie?",16
-fomc-corpus,1978,They're moving just as rapidly as they can find the labor to move.,14
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"Well, I already agree essentially with the staff forecast and I would also agree with what [seems] to be the sentiment around the table so far that if the forecast is wrong, it underestimates the [rate of] price increase. I have also listened with considerable interest to the groping around for [answers to] the question--Ernie started it, I think--of whether factors are building here for a possible recession in '79. I've asked this question in our [Bank] several times and as nearly as we can see, these forces aren't building, at least in our forecast, autonomously within the economy. There is a great unknown as to how people will behave with respect to the uncertainty of inflation. And that was the reason for my question to Jim as to how consumers are reacting. It may be that we are in a new kind of psychological environment that makes it very difficult for us to understand and forecast these factors. But as nearly as we can see, we are not building these cumulative forces for a recession. Now, the other possibility of bringing on a recession is what we do here around this table with monetary policy. If I understand the research that has been done on this by Bill Poole and others in the past, to bring that about would require considerably lower money growth rates than the kinds we're contemplating. So I don't see that as building, and I don't think we are about to [foster a recession] through monetary policy. So my risks are all on the inflationary side.",307
-fomc-corpus,1978,Willis.,3
-fomc-corpus,1978,I guess I have a little stronger feeling about the economy than the staff. And I see a more normal cyclical kind of development out of that than Dave does in terms of the setup. The price phenomenon bothers all of us and I think we are picking up the fact that [inflation] is suddenly accelerating in the service area. Some of my [lawyer] friends are increasing their fees by 20 percent and they are amazed that they are not running into any resistance.,96
-fomc-corpus,1978,Are they still your friends?,6
-fomc-corpus,1978,"Yes, they are not charging me. With the prospect for what seems to me a typical inventory cycle in the setup coinciding with the bottleneck problem in the construction [area], I get worried about '79 and not about '78. The '78 pressure seems to me much bigger than we have anticipated. It creates challenges to us in terms of what we do here. On the credit side, I would just like to make a couple of comments. One is that I think we ought to be a little concerned about what's happening in the margin credit area, particularly with the options on some of these things. In the real estate area we are seeing a very different phenomenon. These apartments and shopping centers and other buildings are all being constructed with much higher equity than in the 1972-74 boom. Where [formerly] it was a 20/80 kind of equity/debt ratio, we are now seeing 33-1/3 and 66-2/3, which is really quite a different phenomenon in this area. So that building boom strikes me as being a better base in terms of the credit side of the picture, but in some of these other areas I am getting concerned [about] what we are seeing.",248
-fomc-corpus,1978,"Mr. Chairman, if I could just [add a] footnote on that. I agree with the observation of higher equity in real estate development, but that equity in our part of the country is largely foreign money rather than domestic.",47
-fomc-corpus,1978,"I don't care where the money comes from, as long as it's in there.",16
-fomc-corpus,1978,That's true. You're right.,6
-fomc-corpus,1978,Bob.,2
-fomc-corpus,1978,"Mr. Chairman, I think one can make a reasonable case for any of these scenarios that have been painted around this table. I think the crucial issue is what happens to inflation and inflationary expectations. We are riding a crest now [where it] seems that everybody thinks that the Administration, Congress, and the Federal Reserve are all committed to fighting inflation as a primary target. I think it would be very unfortunate if they shifted their [beliefs] to something else; I think that could be extremely risky. I would be especially concerned if the foreigners were to reach such a conclusion--that we had shifted away from this primary emphasis--because this would lead to a weakened dollar, strong outflows of money, and probably rising interest rates. I think it could [unintelligible] and also give us a pretty [hefty] burst of inflation.",172
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"Well, I'm sorry to say that I don't think the economy is developing very well. I agree with Frank that the third quarter is a very strategic quarter from the standpoint of what's going to happen in the cycle. I don't think it makes too much difference whether [GNP growth in] the second quarter is 9 or 10. It's going to be a big quarter, partly just because of the arithmetic of the comparisons of the three average months against the three average months. But I'm inclined to think we are developing the steam for continued rather rapid expansion into the summer, made up partly of capital spending which I think is taking off. And some of that [unintelligible]. You are right, Bill; you can't really do that in a long-term new capital project but things like heavy trucks apparently--according to the Chicago report that I read yesterday--are in very large demand. There are a number of things you can spend money on where you don't need to worry about [unintelligible] and I think we are getting a surge beginning now in capital spending. I'm also inclined to think that some consumers at least are more inclined to spend in anticipation of inflation than had been the case for the thirty years in the Katona survey because they have been so badly burned by [inflation] in the past. And finally, I would point out to you that the staff doesn't have an inventory cycle. You never project an inventory cycle. There's no way to project an inventory cycle. But there is a source of instability that isn't in the projection--a considerably bigger buildup in inventory in the summer and the fall and then a retreating from that next winter or early spring that will bring on a recession in the spring of 1979. Now, I also happen to be even gloomier than Henry about the rate of inflation. I think it's going to be very substantial in the period to come. It wasn't mentioned, but some information that we received yesterday from the staff you ought to have in your mind. And that is that the inflation rate that is predicted by the staff is based in part on a decline in the rate of increase in food prices to the 5 to 6 percent range from here on out. I think it's more likely to be double that because of meat prices principally. And that's going to make a high inflation rate for the year as a whole, which will then guarantee an even higher inflation rate for 1979 because the wage settlement round that is coming up is wholly based on this year's inflation and will be very, very large. I am halfway inclined to buy your businessmen's 10 percent expectations for next year on the rate of inflation, [Mark]. And that's of course going to upset, as it has done before, real activity and calculations about the future and in the end consumers' ability to spend. For some time important segments of the consumer society won't keep pace with that. So I think we have probably already set the stage for a recession next year and one with a relatively high rate of inflation continuing. And finally, Mr. Chairman, I don't really think that what we are doing in monetary policy will change that rate of inflation very much one way or the other. It's going to be high regardless of that.",653
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"I would say that, given the constraint put on the staff forecast by this Committee's projections of monetary growth, the staff forecast is certainly a rational one. I personally doubt when the time really comes that the Committee is going to exercise the severe constraints that we presently have imposed upon them. And for that reason the forecast is, yes, based on their instructions but perhaps not their judgment as to the most likely outcome. I think we've got some downside and upside potentials and for that reason our risks of being wrong in substantial degree are perhaps greater than we have had before. On the downside, I can see a sharper drop in housing than that forecast because the staff forecast has just a very modest drop in actual current levels of housing starts and activity. As I remember, the average for the year is 1.75 million, which is still pretty high and probably is reflective of the real capacity of that industry today. It looks like there is no way we can produce above 2 million with the present capacity level without it just getting out of hand as far as supplies and materials. The other downside risk is that if we get the types of inflation that have been discussed, I think all sectors of the economy could have their confidence severely shaken and therefore retrench some. And the other thing is that we could have a reverse trend in the value of the dollar, which struck me as one of the contributors to our first-quarter reversal. There appeared to be a substantial multiplier effect of even the psychology of that fact throughout the economy. I don't think we are likely to get much lower rates of unemployment, and I do think that given the circumstances we are getting very close to the bottom. There's one factor that I haven't heard mentioned in that respect. As a result of the dramatic change in the role of women in the economy, in many cases when we create unemployment we don't mean that the family is without income; we just mean today that one of the breadwinners is without a job. And that produces a substantial difference in attitude toward unemployment, which you mentioned, Henry, and I think we haven't really understood the effect of that yet on the economy. On the upside, I would say that the chances of carrying forward at the present level of activity are pretty good. People everywhere think that business prospects look good. It's hard for a man with a substantial backlog of orders to think business is bad enough to start worrying yet. I think when the history book is written on this expansion, we will say that the previous expansions were speculative in capital goods, in business activity, inventories, and commercial real estate, and things like that. The one before that was built on mergers and acquisitions and speculation on things of that sort. This one is probably going to be based on the speculative consumer. Now, if you don't think that is a fact, let's point fingers around the room. Governor Coldwell still has his house in Dallas, speculating on the future value, while he lives in Washington. Governor Lilly did not sell his house in Washington when he went back to Minneapolis; he kept it because of the increase in value. Governor Partee now owns two yachts.",630
-fomc-corpus,1978,I have two 14-foot canoes!,9
-fomc-corpus,1978,"I just used that for illustration; people are buying recreation and residences already. We are all speculating on real estate to a substantial degree and I think when we get that behind us someday we will see the possibilities. I would on balance think that the prospects for '78 are probably better than the staff forecast. That means, of course, that inflation will be worse and that means that the risks for '79, when sooner or later consumer confidence is shaken up, are likely to be more severe than we are presently anticipating.",105
-fomc-corpus,1978,Paul.,2
-fomc-corpus,1978,"Governor Jackson reminds me that we in New York are living in a completely different world. We worry about the City going bankrupt and whether the price of the cooperative apartments will go down. And the debate on wage increases is whether they should be 3 or 4 percent a year. I hear of all this over-exuberance in the rest of the world and maybe there's some hope for New York business eventually--when banks get business loans. They haven't gotten any business loans. That's right. My feeling about the business outlook has been more like the beginning of this conversation than the latter part: Things may slow down more rapidly in the second half of the year and more abruptly. I'm not drastically different than the staff forecast, but a little bit on the lower side of that and continuing into '79. I think that would be a good thing if it happened, as was suggested earlier. I'm just thinking of a rate of growth of something like 3-1/2 percent--that's too good to be true, of course--in terms of the long-run potential. But I do think that, while our people forecast prices at exactly the same annual rates per period of time as the staff here has, all the risks are on the higher side. That is related to the fact that I think there is some risk of some boom psychology entering in here, particularly with inventories and an inventory buildup of the kind that Chuck Partee mentioned, although I don't think you see evidence of it now. You just have the feeling that it could happen and there's some risk and that would be a major destabilizing factor looking out further ahead into '79. On this whole question of price increases, let me just report some very simple correlations that someone in New York did. They suggest, if I recall them correctly, simple regressions. You have to get a 6-1/2 percent rate of unemployment; that was the only factor you were looking at, to have any deceleration in the rate of price [increase] at all. And if you were going to get down to something you call price stability--which isn't exactly a zero rate of price increase--within a decade, you had to have a rate of unemployment steadily above 7 percent. That was just a simple regression coming out of what has happened in the last decade. You wonder how to deal with this inflation problem, even with the kind of levels of unemployment that we have now. But I guess I don't come away feeling quite so pessimistic as at least some of our last comments suggested. I think there is a risk of a more speculative bubble on top, coming out of what I think is a temporary spurt here in the second quarter. But together with the price developments it could catch on into an inventory, and beyond inventory, kind of spurt that I think would bode very poorly for business next year if it happened. It's not my central expectation.",585
-fomc-corpus,1978,"Well, thank you all. May I just say that what I hear is a universal opinion of a strong second quarter, not terribly different from the real growth that the staff has [forecast]. I hear differences of opinion as to the outlook for growth in the second half of the year and almost a universal feeling that the risk is for higher inflation. That's what I hear. Jim, before we leave the subject, I think several of the staff, when asked yesterday by the Governors in our briefing, indicated their feeling that if there was any risk in the last half of the year it might be that the performance would be weaker than the [forecast]. Is that still the staff opinion? Or did I reflect it correctly?",143
-fomc-corpus,1978,"You reflected it correctly, and I don't know of any change--certainly not on my part.",20
-fomc-corpus,1978,"I thought that the Committee might [want to] know that. You all see some things, but the staff was questioned on this yesterday and I think they would probably feel that prices are the most vulnerable part of their forecast--that they see pressures--but for the discussion on actual real activity, [they thought] it might be lower. Let me ask: I'm told coffee is ready, but is [a coffee break] desirable or can we get out some reports before? What would be your pleasure--break and come back? All right, why don't we do that and we'll pick up on the next and most exciting part, I thought, of an FOMC meeting.",136
-fomc-corpus,1978,"Ladies and gentlemen, may we reconvene to come to the part we are paid for? For now it's going to [unintelligible]. Opinions are very valuable, but votes separating the folks [unintelligible]. Let's see now; [the next agenda item is] domestic open market operations. Peter Sternlight will give us a report on operations since our last meeting.",76
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Peter. Any questions? Phil.",10
-fomc-corpus,1978,How does the market currently view the disparity between the level of the federal funds rate and the 90-day bill rate? What is the market conversation about that disparity in rates?,35
-fomc-corpus,1978,"Well, bills, particularly short bills, are widely regarded and accurately regarded as just being in very short supply. Our Desk was a big buyer of bills for foreign accounts from late last year to the first few months of this year. That has lessened--turned around a little bit--but that type of buying has been replaced, I think, by some buying of short bills by people who see prospects of rising rates and want to stay in the shortest, most liquid, investment in the short term as a hedge. They recognize that [rates on] bills are out of line in some historical sense. There are those reasons for their being sold--foreign accounts, captive-type customers, and others who [unintelligible].",145
-fomc-corpus,1978,You all have received a report on the transactions of the Desk and we need action to ratify those. Are there any questions or comments? Are there any dissents from approval? Then we will consider those approved and turn to Steve Axilrod for his comments.,53
-fomc-corpus,1978,"Well, Mr. Chairman, I would just like to make a few comments with regard to the evaluation of M1 and M2 [and] its implications for current policy. We had some time past looked at variability of M1 and M2 in the short run and in the long run. I think as background some of that may be interesting to Committee members. I don't think the results would be unexpected. These are measures I had from 1960 through mid-1977, and I don't think anything in recent results would change this. That is, the '77 data for M1 would be somewhat smoother because the old seasonals were revised. But we found that on a week-to-week and month-to-month basis, the variability of M1 is, of course, quite a bit higher--less so monthly than weekly--than the variability of M2, using a number of measures of variability. We had looked at 3 or 4 standard deviations, average absolute deviation from the mean, average absolute change in the series itself. By any of these measures the variability of M1 was higher than the variability of M2. However, if you lengthen the period to a quarter, the results change. That is, it is no longer the case that the variability of M1 was noticeably higher than the variability of M2. In fact, over a long period in the sense of the absolute amount of the variability, there was very little difference. M1 had become somewhat more variable in the periods since '73, but going back 17 or 18 years there was no discernable difference at all. And if you lengthen the period even further to a year, M1 is less variable than M2. It shows less variability by these various measures. So I think the general rule is, that as the time period lengthens, M1 becomes a more ""stable indicator"" than M2. Thus, I think the trend of M1--and the trend over a fairly modest period of a quarter or so--can be said to have no less significance than the trend of M2, in this limited statistical sense that I'm talking about. Well, that brings up the question of what have been the trends recently in M1 and M2. And of course, I think the April result for M1, which also caused M2 to be strong, clearly should be discounted. But over the 12-month period ending in April, M1 grew at a 7.3 percent annual rate, above the upper limit of the 4 to 6-1/2 percent range. For the 5-month period from the fourth-quarter average [to] April, M1 also grew at a 7.3 percent annual rate. Of course, for the year 1977, M1 had grown at a 7.8 percent annual rate. So I would say that the evidence is fairly clear--and it's buttressed by just looking at those charts we put in the Bluebook--that M1 is running above the Committee's 4 to 6-1/2 percent range. M2, if you look at the 12-month April-over-April period, rose at an 8.2 percent rate. And if you look at the 5-month period from the fourth-quarter average to April, it grew at a 7.2 percent rate. So the growth rate of M2 is well within the Committee's 6-1/2 to 9 percent range over these periods, again as is clear from the charts that we introduced in the Bluebook. I think the question that then comes up for the Committee in its decisionmaking--and it can be put fairly starkly--is: If you had your choice of having M1 out of its range but M2 in, or having M2 out of its range and M1 in, what in the present circumstances would you choose? That puts it in somewhat of an extreme way but I don't think it's terribly unrealistic. And I think at the moment I would take M2 in its range, so long as M1--again speaking in a trend way--is growing less than last year. [Its] growth rate was 7.8 percent and [it is] growing less by, say, on the order of magnitude of a percentage point or so. I have three reasons. First, a significantly slower rate of growth of M1 than last year would in any event represent progress in curtailing inflation. The realistic growth rates in M1 were 7.8 percent last year and in 1976 considerably higher--the 5.7 percent after allowances were made for shifts into money from other deposits [and] shifts out of money into other deposits such as business saving deposits. Secondly, I believe that M1 may be mis-specified; that is, the velocity implied by M1 growth in the 4 to 6-1/2 percent range is unrealistic under current circumstances. And a higher rate of growth in M1 than the Committee's range may be required for any desirable GNP outcome. And thirdly, if M2 and M3 have to be below their ranges, if M1 is within its range, I believe there are serious implications for a credit crunch as it affects thrift institutions in any such very low number. Clearly, I don't mean by that that M1 can be or should be ignored. First, so far as all our research goes, M1 has considerable information content; the behavior of M1 relative to its projections does tell us something about GNP. When it's running strong, it apparently tells us GNP will be strengthening. And when it's running weak, it seems to tell us the opposite. Work done by Mr. Kalchbrenner and his group seems to bear this out. Secondly, if M1 is running very high relative to its current trend, I think that is clearly in an inflationary direction. And thirdly, we have a problem with M2 because of the artificiality of Q ceiling rates; and that problem is going to be important in the months to come because the new ceiling rates go into effect June 1. We have made some allowance for that in our projection in the Bluebook, but as Mr. Balles brought out in the discussion, we can not be certain of the response to a new instrument such as this new certificate. Finally, Mr. Chairman, I would point out that the staff does expect that interest rates will rise from here on, even if M1 is to be kept at a rate of growth of around 7-1/4 percent. And certainly they will rise much as indicated in the Bluebook for lower rates of growth. I think that in terms of current decisionmaking, if FOMC members are determined to lower M1 growth into a 4 to 6-1/2 percent range, there's little reason to wait before permitting interest rates to rise, given the distance we think it would have to go. On the other hand, if FOMC members wish to give more weight to M2 relative to M1 and are willing to countenance this relatively high M1 relative to its range, then there is certainly a stronger argument for waiting now and appraising the future before permitting further interest rate increases. Those are my comments.",1484
-fomc-corpus,1978,"If I may inquire of Steve: If we have these continuing problems of jumping back and forth in the emphasis we give M1 and M2--perhaps the answer to this question is obvious because it dates back prior to my involvement in this process--why don't we target on the monetary base, for example? Isn't that much more controllable?",68
-fomc-corpus,1978,"Well, President Roos, the monetary base is certainly controllable and in my view is probably more controllable than M1. You have member bank borrowing [in] it, which is not exactly a controllable item. But [it's] more controllable than M1 or M2. We simply can't be certain at what rate of growth you should control the monetary base because the demand for monetary base depends on the public demand for demand deposits, time deposits, and currency relative to other liquid assets. So the problem that I see with the monetary base is to know what rate of growth to have, because in order to make that determination you have to make a prior determination about what you want in currency and demand deposits and other time deposits. You don't eliminate any of the problems we now have.",160
-fomc-corpus,1978,"But we don't have any fewer problems than the way we're going now, right?",16
-fomc-corpus,1978,"Well, we don't have to worry about currency right now.",12
-fomc-corpus,1978,That would get me into a long essay. I don't think that anyone could take that much time.,20
-fomc-corpus,1978,We have a question from Frank Morris.,8
-fomc-corpus,1978,"Steve, could you elaborate a bit more than you did in the Bluebook on the reasons for the big bulge in the last published data and [give us] whatever information you have as to how permanent that bulge is likely to be?",49
-fomc-corpus,1978,"The one factor that we could see that is different this year was that the amount of nonwithheld tax payments paid by individuals in April was $6 billion higher than it had been in the previous three years on average. Now that $6 billion--if you make the assumption that people sold other securities and transferred time deposits into cash to make that payment, then that $6 billion, let us say, would go into demand deposits. And if it stayed in there for a week on average, that little fact itself would add $18 billion on a monthly average [at an annual rate; a week is 1/4 of a month so in terms of an annual rate of growth for the month the calculation would be] 1/4 of $6 billion times 12, which is around 5 or 6 percentage points on M1. [Those funds] would be drawn down but just being in there for a week would add 5 or 6 percentage points to growth of M1. Then we have further evidence that the Treasury was processing the money that came in slowly, so [the $6 billion] might have stayed in [demand deposits for] more than a week. Clearly, people don't transfer all that money; they make some payments out of existing accounts. So we have been saying that in round numbers this little fact--the greater nonwithheld payments and the slower processing by the Treasury--might have temporarily added 4 to 8 percentage points to the growth rate of M1 in April. Now, given the usual patterns of inflow to the Treasury and even with some slowing in their depositing checks into their own account, we would have expected that to come out in the first week of May and it didn't. It went to around $4 billion. But our preliminary data for the second week of May suggest a drop of about $4 billion. So there is some evidence of things beginning to calm down to a more normal level. However, the average for those two weeks in May is not sufficiently low to believe that you're going to have all these 8 percentage points go away and get a May growth rate of around zero, which is what would be required. So we are not able to put substantial credence into that explanation. We're not able to say for sure that the underlying growth rate is 7 percent and you're going to get 19 percent with a zero or negative in May and [return to] the underlying growth rate. We just don't have the evidence to substantiate a reasonable explanation. So it may very well be that the underlying growth rate for M1 is stronger than on the order of 7 percent. It's clearly stronger in the second quarter because of a large rebound in nominal GNP calling for transactions cash. So that's why we've come up with a 9 percent projection, possibly with a margin of error that's close to 1 or 2 percent.",584
-fomc-corpus,1978,"May I ask a further question, Mr. Chairman?",11
-fomc-corpus,1978,I think we have a couple ahead [of you]. We'll put your name on the list. Paul you had [a question].,26
-fomc-corpus,1978,"I'm just curious, after listening to Mr. Axilrod's [description] of the dilemma between M1 and M2, which is readily understandable in recent data. My question is if you look ahead [at] the projections that the staff gave us, somehow they both fall nicely within their ranges. I would think the implication at this time is that it would be somehow--Well, what are the implications for the future when we seem to be suggesting that we can't accomplish that but the projections say we can?",103
-fomc-corpus,1978,"The projection assumes a further increase in Q ceilings. That's the first thing the projection assumes, which we now do not have. And secondly, the projection is in some sense a maximum likelihood, but I don't think it means that the probability is over 50 percent. I think that if you order the probabilities, the projection may be a modal one and that mode may be 20 percent and you have 19 percent and 18 percent and 17 percent for a lot of the other ones.",99
-fomc-corpus,1978,All the other chances are on the other side?,10
-fomc-corpus,1978,"Well, it can be on either side.",9
-fomc-corpus,1978,The mode.,3
-fomc-corpus,1978,"Henry, you had a question, I think.",10
-fomc-corpus,1978,"Given the prospects for a reduced federal deficit and reduced federal borrowing, can you make any quantitative guess as to what impact that might have on interest rates if nothing else changes? Would it be at all significant?",41
-fomc-corpus,1978,"I can't really give you a guess. I think you have to go through the GNP projection because if you have higher taxes than you would otherwise have or reduced spending, you clearly have to go to the GNP projections and through that assess money demand. So offhand I really couldn't give you an estimate, Governor Wallich, and I don't know whether we've gone through that projection method yet.",79
-fomc-corpus,1978,"We have run a couple of simulations. For what it's worth, if you use the new package, which is deferral for one quarter and 1/5 smaller in size, the bill rate as compared with that in the forecast now would be about 1/4 percentage point lower than we had assumed in both the first and the fourth quarter and no change in the second quarter. But it's really a small impact on bill rates.",87
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"Well, I think Steve answered this, but I just wanted to clarify. The precise figures you gave on M1, Steve, fourth quarter-to-April and April-to-April suggested something like an unchanged trend rate of growth of 7-1/4 percent. Now, that just happened to be that way because the last period that you were using was a quite weak GNP period. And I think you said that you would anticipate that the trend rate of growth in M1 has moved up from that.",103
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,Into the 8 to 9 percent range.,10
-fomc-corpus,1978,"That's right. To hold 7-1/4 we think you'd have that interest rate rise, but of course not at the levels we had in the Bluebook.",34
-fomc-corpus,1978,"Yes, so that without action to over time impact on the growth of M1, it would be more than 7-1/4.",29
-fomc-corpus,1978,"That's our thought, yes--given recent trends in velocity.",12
-fomc-corpus,1978,Ernie.,3
-fomc-corpus,1978,"On the large amount of nonwithheld taxes, Steve, do you have any impression as to how that's split between personal and business? Is it predominantly one of them?",34
-fomc-corpus,1978,I'm talking about individuals.,5
-fomc-corpus,1978,About individuals. So you would not relate this development to the strong surge in business loans and--,19
-fomc-corpus,1978,"No, that was individuals only on the nonwithheld [taxes]. I would relate the strong surge in business loans to the strength of the economy; and the strong demands for cash in the economy had an effect on M1. I think they are related facts, but through the effect on the economy.",62
-fomc-corpus,1978,"We used to hear, on a quarterly basis, quite a lot of conversation in banking circles about loan demand for tax payments in the business sector. I just hadn't encountered any such conversations [recently].",40
-fomc-corpus,1978,"No, no, that was not it.",9
-fomc-corpus,1978,"I would like to suggest a procedure now that you've asked your questions of Steve. I would like to give you some personal comments about the question of the directive and then perhaps call on the voting members of the FOMC in order to get your personal viewpoints and then call on the other Presidents to give us their inputs. I think that might speed up the process in getting to a decision. I think this is the most difficult of the few meetings I've been to in terms of making the right judgment and I'll tell you a few reasons why. I won't try to give you the full scope of my interests and concerns because I don't want to take that much of your time. But first let me just give you a few slants on the money situation. If you look at the [figures on the] money aggregates on page 4, change the second M3 to M4; we don't have two M3s. The first thing that has concerned me about the decision this month is to what degree [M1 growth in] April is an aberration and to what degree [it is due] to the tax deposits--the nonwithheld payments--which were higher than usual. And to what extent has the high level of stock market activity created aberrations that we can't yet measure or understand? I'm beginning to assume that it is an aberration. I look back and I see--not on this table--7.8 percent growth in M1 in calendar year '77 and for the last twelve months 7.3; it's coming down. In the last six months, including this April, it's 6.5. And in the last three months, including this April, it's 7.2. My first observation is that if there is something strange about April, then averaging over time, the figures aren't nearly as bad as we might be thinking [when] looking too closely at one month. You see the same thing in M2. Steve, refresh my memory. What was the rate of growth in calendar '77?",410
-fomc-corpus,1978,I have the figure right here--9.8 percent.,12
-fomc-corpus,1978,"It was 9.8. But in the last twelve months it's down to 8.2 and in the last six months it's down to 6.9. And even with 3 months and April the way it is, it's 7.0. So my first conclusion is that perhaps we should not begin to exercise policy too quickly over a month that may have strange features about it. My second concern goes to the general judgment about the economy and the risk of being right or wrong on that judgment. It's interesting that when we look out at the [unintelligible] as it is. What we've got to do in judging the economy in the next twelve months is to judge how it's going to behave, and it never behaves like we feel today. It always behaves in some other pattern. When we look at the first half of the year, we have an average real growth of 4-1/4, or maybe 4-1/2, and we put that against the context of the early projections of the staff for growth for the full year of 4.6 percent. And the first half, with a strong quarter, is less than that. I don't see the characteristics of an overheated economy if you assume that the two quarters do have to be averaged because of the characteristics of the first quarter and the catch-up significance of the second quarter--the second-quarter bounceback. When we were here talking earlier in the year and looking at first-quarter figures, everybody assumed a much softer bounceback, you see. Now that it has happened and it averages out everybody assumes that it's going to continue forever. I think we tend to do this psychologically. I worry about that because it might make us make poor judgments. The inevitability of the circumstances, if I'm correct, would indicate that we shouldn't yet judge that there is a built-in strong economic uptrend. One would expect that we'd be running out of characteristics of catch-up buying, running out of characteristics that may be influencing consumers [to spend], recognizing that we have already put some restraint into the system and recognizing that the change in the tax proposals mean the fourth quarter is going to have a reduction of stimulus of about $35 billion, annual rate. I think the more likely scenario is for a slowdown in the economy along the lines of the staff projection--perhaps even weaker by the fourth quarter. I personally think this is good. I assume our policy direction for the last few months has been directed toward slowing the economy as a means of slowing inflation and as a means of bringing some equilibrium in world economic conditions because our fast growth rate against slow rates have created certain problems for us. Now, if in fact that judgment is true, I hope we'd be cautious in further monetary action that might precipitate or trigger some dislocations that we don't intend. I also would think that we want to achieve that lower growth rate with that soft landing that Henry Wallich speaks of, which means we ought to be a little cautious in how we move to reinforce that slowdown for fear that we'd overshoot and we don't land very softly--we go right on through the line and end up in a recession. I guess my fear is that we're at the point of time at the Federal Reserve where if we don't make a very judicious judgment here, we could well find ourselves being the cause of recessionary pressures. On the other side, I view the risk as being low if we go slowly, because I don't see further significant tightening here as doing much for inflation or doing much for preventing a cycle if it's already under way from some of the forces you all mentioned. I mean it's going to happen then, so why do we need to accelerate it? Therefore, I don't see a high risk in going slowly. I see a high risk in going too fast because if the scenario [I've outlined] is right, surely that will bring about a recession, which I think would be unwise. So [that's how] I look at the balance of risks--and again I'm shortening this without telling you about my recent conversation with the housing industry yesterday. They came out with a very strong anti-inflation resolution and they're home saying they're going to cut down their activities because this is what the group meeting in Washington yesterday was saying. They were calling on the federal government to balance the budget this year [and] in '79; they were calling on the federal government to take action to balance the budget even if it meant withdrawing money from housing. So there is a psychology a little different from what I heard [previously]; they're going home with the idea of dampening their activities and being willing to forgo building in order to hold down inflation. That was the story when they had a written resolution they had just adopted 90-10--90 percent voting for it after a very intense debate. So there are, it seems to me, more probabilities that we could create problems by going too far this time than we'd create by being a little more cautious. Therefore, my tendency is to hope in our discussion that we might find some concurrence in that viewpoint and some consensus that we [should] learn more before we begin to take too significant an action in either direction. There are no conditions here for easing money, at all, that I can see. But what I worry about is that we might begin to tighten too much too soon without knowing enough and regret it later. Now, I would hope that we might run down the list, as I say, and ask for your viewpoints, specifically on what [alternative] you'd like to see us adopt--A, B, or others. And then if you were willing, I'd like to suggest that you might last turn your attention to some of the revised wording in the memo that I sent to you. It's not a big issue, but if we have time, we might at least look at that question as to the wording of the directive. So Ernie, your name [begins with a] B, so I guess you start.",1213
-fomc-corpus,1978,"Mr. Chairman, I guess I assess the probabilities of making an error at the present time, judged in the perspective of looking back twelve months [and] down the road, as being somewhat different. My major reason for this is our historical experience. Granted, every experience is a different one, but my impression is that our historical record of monetary policy overall tends to say that we were too slow in undertaking the restraining measures as the economy was moving toward full use of its resources. And that contributed both to the fact of a subsequent adjustment, which took the form of recession, and to the duration and depth of the recession. So I'm inclined to feel that the probability of achieving a so-called soft landing, which I judge is a leveling off of activity at a level approximating capacity use of resources, is increased by moving fairly vigorously on the restraint side at a point in time [such as] now in the pattern of this economic expansion, but with a high sensitivity to easing off earlier. I realize that particular judgment as to the timing of easing off is a high risk one because we have not demonstrated any particular ability to pinpoint the beginning of recession. Coming to specifics, my preference this time would be to take a federal funds rate range on the order of about 7-1/4 to 8, with a 7-5/8 midpoint, I believe, on that range. I would be inclined to move rather judiciously within that range. As to the monetary aggregates, the difference between A and B is fairly small and I could ride with either one of those.",319
-fomc-corpus,1978,"Thank you, Ernie. Phil Coldwell.",10
-fomc-corpus,1978,"Mr. Chairman, I'll be brief. I think the point of view that Ernie has expressed fairly well encompasses my position. I think we run a greater risk of a bigger inflationary blow-up by not taking a small judicious action in tightening further now. The change in fiscal stance, I think, will be helpful but I don't think it is material. So in my view we need to slow this GNP down a bit more and I think the inflation problem is our greatest problem. I'd prefer to have, in line with what Steve said, a greater emphasis on M2. I made this comment at the Board meeting the other day. I'd be willing to [give it] 2/3rd weight as our policy action guide. But I think we do need to curtail growth if inflation is to be slowed. Therefore, I'd take a small step. I happen to have come out with precisely the same [range] on federal funds that Ernie came out with but I would put the midpoint at a skewed level of 7-1/2 instead of taking the 7-5/8 [midpoint] and then I'd wait to see what happened to the monetary aggregates against our expectations. And here I would provide a little more room for action, which would mean that we didn't necessarily push ourselves. I would prefer an M1 range of 3 to 8 and an M2 range of 4 to 9, which I think gives us a bit more leeway here to work with, and at the same time a skewed federal funds range.",318
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"Well, let me say first, Mr. Chairman, that I found your opening comments very provocative. However, I think I am following in the same trend direction as Ernie and Phil. On the April bulge, I think there are two risks. One is that it is essentially temporary and that to respond too promptly to something like that presents a problem of having to undo something that you wish you hadn't done. I think an example of this is two years ago when we did respond too quickly to bumps and had to undo it. So that's one risk. The other risk, however, is that with a bulge of this kind followed by subsequent but more moderate rates of growth that these more moderate rates of growth will not be sufficiently low to average out to the kind of growth rates over the whole period that we really should have. I'm inclined to think that that's the more likely possibility and that we may find ourselves with growth rates over an average of the first half, for example, that will be higher than they should be in this kind of an economic environment. So, I would be inclined to move very cautiously and moderately toward somewhat less expansion. The funds rate range that I had is from 7-1/4 to 7-3/4, although Ernie's would be acceptable to me. I'd be inclined to place the midpoint low in that range.",275
-fomc-corpus,1978,What would you do?,5
-fomc-corpus,1978,"Not to be picky about it but I'd say 7-3/8 or something like that. I wouldn't object to 7-1/2. In any case, it shouldn't go down. I think we are agreed on that. On the aggregates, I would prefer something like 3 to 7 percent for M1 and whatever is appropriate for M2 to conform with that.",78
-fomc-corpus,1978,Thank you. Steve.,5
-fomc-corpus,1978,"Well, you've heard me speak before about the danger of organized meetings of groups who will then feel that they are pressed to do something. I would be supportive of your view. I think we have had good luck and good fortune and the Federal Reserve's role has been somewhat spotlighted. And I am not sure enough about a continuation of this bulge to be certain that we should throw at the country a significantly higher rate at this time. We've got some transactions balances to worry about--the announcement we made about transferring funds from savings to checking accounts. We have a new system for setting ceiling rates. And I'd just as soon move cautiously at this time for any length of time that you wish. It may not be as long as [until] the next meeting but it certainly would require another conference of some kind. So I would much prefer not to boost the fed funds rate significantly higher than we have already boosted it. There we will be leading. The prime rate will go up and all kinds of things will happen. Therefore, I would stay around [the current rate] for awhile.",218
-fomc-corpus,1978,"Thank you, Steve. Philip Jackson.",8
-fomc-corpus,1978,"I think as we talk about ranges of growth--and focusing on M1 for purposes of discussion--we need to recall that we did make a 5.6 percent change in the seasonal adjustment so that if we compare 1978 against 1977 we are talking about roughly 24 percent for April, which strikes me as being in the range of growth hard to excuse for just abnormal factors. It gets out of hand. I also would agree that to rush pell-mell toward double-digit interest rates is probably foolish and that, therefore, we will need to be more judicious in our use of monetary policy. At the same time, unfortunately, we are in a period where the risks of a loss of public confidence, in my judgment, not only will damage the economy but will exacerbate the underlying inflation that we have. [That's] because if the public perceives that there is no attempt to do something, then you'll get the negative reaction and things like that will contribute to it. So for that reason, despite the risks, I think the Federal Reserve has to contain inflation or at least continue its visible policy of doing what it can on the control of inflation. For that reason I see no choice in the face of the monetary evidence that we have [but] to continue to increase interest rates to some degree. I think the degree should be moderate and cautious. To be explicit, it's my judgment that we should go on to the 7-1/2 midpoint of a 7-1/4 to 7-3/4 percent federal funds range over the next month. Considering April and the consequences for the third quarter, if we had a zero rate of growth for May-June we'd still end up with 6-1/3. As a consequence--",359
-fomc-corpus,1978,Is that right?,4
-fomc-corpus,1978,It was 19 in April.,7
-fomc-corpus,1978,"For May and June, what are your growth figures?",11
-fomc-corpus,1978,6-1/2 for M1.,9
-fomc-corpus,1978,For May and June. What would it average for the quarter then?,14
-fomc-corpus,1978,For the quarter it would be 9.2.,11
-fomc-corpus,1978,"As I say, if it was zero, we'd still end up with a 6. So it's my judgment that particularly on M1, the [low] side of the projected 2-month range we ought to drop to 2. I'd say zero but I think that's foolishness; here again 2 is more realistic. In other words, what I am really saying is that I think our chances of reducing the federal funds rate as a consequence of the aggregates that come in should be very low. At the same time, I would prefer an 8 percent top on that. I would buy the suggestion that 4 to 9 would be a realistic range on M2 in that respect. I do think it is time for us to face, and face seriously, the probability that the demand function for M1 in relationship to real GNP is changed from what we expected it to be. And, therefore, we need to readdress our ranges for M1 and make a significant change to adjust them to the real world that we've now seen unfold over a sufficient length of time where short-term aberrations are less likely to be the cause of it. I could even be tempted to go ahead and address it now as much to remind ourselves as the Congress that you don't have to wait three months before you face the facts. However, in view of the regulatory changes that are anticipated, which will in turn influence the results of the ranges, I think the smartest course of action would be to wait until our regular period in July to readdress that question, hoping that we will have at least better insight or more study. I think either one would be helpful, preferably more insight but in the absence of insight at least more effort to gain insight. But at least [we ought to] address that question then so that we can give consideration to the consequences of the regulatory action. So for that reason I would defer it but I do think it's time for us to do something, Mr. Chairman.",400
-fomc-corpus,1978,Thank you. Chuck.,5
-fomc-corpus,1978,"Well, I'm not really far away from you for a very short-term strategy. But I think I probably am considerably away from you in terms of what the ultimate result may be. As many people around this table have probably long suspected--and I shall now admit--I'm not much of a monetarist.",62
-fomc-corpus,1978,"Surprise, surprise!",5
-fomc-corpus,1978,"I've always looked at [money growth] as an index, as a guide of what we're doing rather than a quantity that is of any significance to control in and of itself. But I think at a stage like this in the business cycle, with these differences that have come to light here this morning on what may develop after we get through this temporary bulge, that what we especially have to guard against is the creation of too much credit. We have to be sure that the conditions in the credit markets are such that if there is a self-generating burst of credit demand--and I must say that I see some signs of it in business demands for credit and in consumer demands for credit. You know, the consumer credit increase reported in this last month was the largest ever for one month. We have to be in a position to resist that. For that reason I think the aggregates have significance as an indirect proxy for that purpose, and that may mean substantially tighter conditions and substantially higher rates. I am particularly bothered by the fact that the kind of interest rates that we are talking about may not be at all sufficient if in fact there's been an acceleration in inflation of a point or two since the end of the year. So I do believe that we may have to move and move substantially as the spring and summer go on. For now we have given the market quite a shock in the increases that we've had in the last several weeks. And we have touched off, certainly, the basis for disintermediation. Perhaps the new certificate--which is where I put my confidence rather than in the 8-year note--will help forestall that to a degree. I don't know. But I think we have given [the market] a shock so I would say that we ought to go easily and carefully for the period right ahead. I think an 8 percent funds rate is really too high to contemplate unless we again seriously consider the implications of an 8 percent funds rate. So I come out with a fairly narrow funds rate range--7-1/4 to 7-3/4. I would put the midpoint at 7-3/8, Mr. Chairman, which is just about where we are now, but move if in fact the aggregates seem to be strengthening within the ranges I am going to suggest. The ranges I am going to suggest are 3 to 8 for M1 and 4 to 9 for M2. I think that does bias the probabilities a little on the side of our being high in the ranges and, therefore, needing to move up the funds rate but not greatly because this 19 percent increase was so large in April that we may well have a backup from that in the period to come. So that's what I would propose; and I would of course have a monetary aggregates type directive. No one else has mentioned that, I think.",580
-fomc-corpus,1978,Thank you. Henry.,5
-fomc-corpus,1978,"Let me look at the economy first. Inflation looks worse than it did some time ago. Growth looks a little worse, too, but I think that's not inappropriate because we are, in my opinion, close to full employment. I think our main need now is to go out against accelerating inflation. If [a pickup in inflation] were to happen, we would be sure of a recession and probably, with inflation going into wages, very little chance of winding down that inflation. As far as the dollar is concerned, I would argue that it's strong enough and we don't need to do much to tighten as far as that consideration is concerned, which I don't give a great deal of weight to. Now, that [leads] me to [want a] somewhat tighter position. Looking at the aggregates, I think the evolution of M1 over time will be that we will not try to get back on track but that we will go on overshooting and using base drift as a means of covering our tracks. So we'll be going on at 4 to 6-1/2 percent. I don't share Philip's view that we ought to change this because I think it would create a false psychological impact. But I do agree that it's not a meaningful target once one recognizes that velocity gains are going to be smaller than seemed possible. But we can get by perfectly with 4 to 6-1/2 and occasional overshoots. The danger is, I think, that these overshoots might be very large and I'd like to guard against that by setting a slightly higher funds rate target now and putting the trigger points on the aggregates not too high. So that would get me to a range of 7-1/4 to 7-3/4 on the funds rate, with 7-1/2 to move to. For M1 I would have 3 to 7-1/2, bearing in mind the need for a relatively low upper trigger. [I'd favor] for M2 a range of 4 to 8 and a monetary aggregates directive.",419
-fomc-corpus,1978,"Thank you, Henry. Mark, I think is our next member. Is that right?",18
-fomc-corpus,1978,"As I listened to most of the discussion, I seemed to follow it well right until we got to the policy prescription and then I wonder what--.",30
-fomc-corpus,1978,That's the trouble with listening!,6
-fomc-corpus,1978,"I'm going to make a different recommendation, so I guess I'd better explain briefly why. First of all with regard to the inflation outlook, I thought that we all pretty much agreed earlier in the day that it is very serious and most of the risks are on [the high] side. While it's perfectly true that we can't do anything about that in the short run, I think it's also true even for non-monetarists that in the long run you tend to get the same rate of inflation at which you have allowed the trend rate of money to grow. Chuck made the point earlier, and I think it's a very critical one, that abstracting from the first quarter--which I think has to be considered an aberration because of what was happening in the real economy--the trend rate of growth of money is up. And my guess is that when people look back at that they're going to say: ""There they went again and they followed a pro-cyclical monetary policy, with the trend rate of growth of money increasing precisely at the time when inflation was increasing and we were at a very high level of capacity utilization."" So it seems to me, while there are always reasons why we need to be concerned about bulges and that sort of thing, that if there ever were a time when we ought to get the trend rate of growth of money down, now is the time to do that. And I think that will have an impact, although unfortunately a moderate one, in 1979, and it will have a significantly greater impact beyond that. And if we don't get the trend rate of money growth down then all we do is simply validate the higher inflation rate that we're looking at through 1979. I think, too, that the point Phil Jackson made is a very crucial one. People are looking very closely at the moment at what we do and if they see us quote ""easing up"" in whatever way they [view] that--the rate of growth of money or whatever--I think that can have a very serious short-run implication in terms of inflation. We currently have the inflation rate expected to go above 7 percent for 1978. That means that, at current levels of interest rates, the Treasury bill for example has a negative real rate. Now, I know there are lots of technical ways of trying to figure out what real rates are, but just making very crude calculations here we are accelerating inflation at almost near full employment and we still have some negative real rates of interest. And that seems to me to be a very strange posture for us to be in. So I'm not at all concerned about a further movement of interest rates. Second, since we have had an enormous bulge in April, we are looking for a reduction from that in May. But in order to get that reduction we're going to have to have what I think would be one of the largest drops in the history of the series to get it. The staff's forecast for May and June is 6-1/2 percent coming off that huge increase in April. I can't conjure up in my mind why we would want money to grow any faster than that in May and June because that will still give us for the quarter [growth] of money of over 9 percent. So in terms of M1, I would put the range at 2-1/2 to 6-1/2 because I don't see why we would want--coming off the very strong April number--to have it go any faster than that in May and June. And that will still give us a quarterly number that I think is too high. In conjunction with that, I have M2 at 4 to 8 although I go in the opposite direction of Steve. I become less confident about M2 as we move into these kinds of periods rather than more confident about what it means. In terms of the federal funds rate, I would prefer a range of 7-1/4 to 8 and would let it get there as fast as the aggregates suggest that it should.",820
-fomc-corpus,1978,"Thank you, Mark. Willis.",7
-fomc-corpus,1978,I'm puzzled as to what happened to V in our alphabet.,12
-fomc-corpus,1978,V?,2
-fomc-corpus,1978,Paul Volcker.,4
-fomc-corpus,1978,"Oh, the Chairman and the Vice Chairman will speak last. We want all your wisdom--all that we can get--first.",26
-fomc-corpus,1978,I'm afraid I'm not contributing much wisdom but I do have a sense of experience at having been burned for being a little foot-dragging in our efforts to broach some of these problems. I guess my tendency is to average out to perfection by erring on the other side.,56
-fomc-corpus,1978,Be wrong?,3
-fomc-corpus,1978,Two wrongs don't make a right.,8
-fomc-corpus,1978,"I understand, but I can do two wrongs as well as a right sometimes. My tendency would be to be concerned about the image of the Fed and its actions as they are perceived by others. The problems are very real in terms of the inflation front and activity. While I realize what we do has impacts down the road and not immediately, my tendency would be to proceed cautiously, but certainly. [I'd go] with ranges of 4 to 8 or 3 to 8 and 5 to 9--I don't really care too much on those--with the funds rate range of 7-1/4 to 8 with a 7-1/2 midpoint and a conference call before we proceed over 7-3/4. But at least it makes us face up to it again should the aggregates [grow] more rapidly than we're projecting.",176
-fomc-corpus,1978,"Why don't I quickly get the views of the other Presidents and I'll come back to you, Paul. John.",22
-fomc-corpus,1978,"All things considered, I think I would join those [who would] snug up a bit, doing it very cautiously and for not the same reason that you mentioned. Looking down the road a bit I am quite concerned about the further inflation risks from the cost-push side. I'm concerned about the rejection [by] the AFL-CIO of the President's suggested guidelines for wage behavior. I'm concerned about the implications for inflation [given] the extent to which I think we are already at a practical full employment point. I'm concerned about the inflation risks coming from what I think are capacity restraints in industry; for all intents and purposes we're at a point where any further use of capacity will build in inflationary pressures. I think that the Administration has come quite a distance, [with] prodding from you possibly. The President's inflation message I might add was received with tremendous lack of enthusiasm in the four Far East countries I was visiting in April. They looked [at it as] a lot of rhetoric with no real cutting edge. About the only thing that helped the psychology in terms of the dollar were actions that the System took and that the Treasury took in announcing gold sales. I'm hoping that we'll get some beneficial reaction to this latest scaling down in the way of a tax cut; nevertheless the budget deficit will still be as big as it was in the past fiscal year. And Chuck, I think part of the burden is still on us to go a bit further than we have already. Net, the bottom line I would come out with is a federal funds rate midpoint of about 7-1/2 or a range of 7-1/4 to 7-3/4, M1 at 3 to 8, M2 at 4 to 9, and a monetary aggregates directive.",363
-fomc-corpus,1978,"Thank you, John. Bob Black.",8
-fomc-corpus,1978,"Mr. Chairman, I again end up closer to Mark Willes than anyone else, although I'm not exactly at the same point. I do think there are a couple reasons why we might not get as much growth in M1 as we may have been assuming. Our work with the aggregates, for what it may be worth, suggested that there may be more of a reversal in June than in May--[more] than the staff [shows]. And I think that we ought to bear in mind that we have had a pretty significant deceleration in M2. If you take out of M2 the large non-negotiable CDs that are in there, we've had even more [deceleration] so that's one we don't want to see decelerate too much. But having said all this, I still think the way M1 has gone that we ought to move up. My specific figures come out to be for the federal funds range 7-1/4 to 8 with a midpoint of 7-5/8 to which I would want to move right away and for M2, 4 to 8--Chuck is going to throw up his hands in horror at this again but I'm thinking along the same lines as Phil Jackson--and for M1, 1 to 5 percent. And Chuck, if you trigger that one, you go 1 percentage point past the midpoint and that would still give you 8-3/4 if you average the three rates in M1 for [unintelligible].",309
-fomc-corpus,1978,"You are specifying an 8 percent funds rate, in other words. Why bother with the aggregates?",20
-fomc-corpus,1978,"No, not necessarily.",5
-fomc-corpus,1978,Yes it is. Almost certainly.,7
-fomc-corpus,1978,Your predictions are--,4
-fomc-corpus,1978,"Thank you very much, Bob. Roger.",9
-fomc-corpus,1978,"Mr. Chairman, I'd like to come out on the side of that we have moved a considerable extent since the last meeting and it seems to me that the risk now may be on the side of going a little too far and in early 1979 our actions maybe accounting for this possible recession. It also seems to me that right now, whatever we do around this table, there isn't an awful lot monetary policy can do to abate inflationary pressures in the near term. I could also say that it seems to me that the criticism of the Fed is that we always move too slowly and we must take the first step. And indeed, I believe that in this past month we have taken the first step. So I would propose that we not move too much further at the moment and just wait and see. [My preference] would be a 4 to 8 M1 range and a 5 to 9 M2 range, with a federal funds range of 7-1/4 to 7-3/4 with at least a near-term midpoint of 7-3/8--where we are now. I would like really to see us move over the period to 7-1/2 [by] this time next month. I think the market anticipates it. I think we're going to do it sometime in the future and the pain would be very little for us to be at 7-1/2 this time next month.",295
-fomc-corpus,1978,Thank you very much. Bones.,7
-fomc-corpus,1978,"Mr. Chairman, from our vantage point, I think we'd want to associate with those who want to snug cautiously. Maybe we do not contribute to the inflationary restraint at the moment but I think the market psychology can be very helpful and I am encouraged by the responses we've been able to obtain in that area recently, sustaining efforts both in the equity and the foreign exchange markets. Accordingly, I'd like to see us move cautiously with [a funds range of] 7-1/4 to 8 percent maybe skewed to 7-1/2 but not be reluctant to move if the aggregates suggest it. [The ranges I'd propose] there are 3 to 8 and 4 to 9.",143
-fomc-corpus,1978,Thank you. Bob Mayo.,6
-fomc-corpus,1978,"Well, I guess I'll join Chuck in confessing. Nobody ever thought it--and I wouldn't want to repeat it--but I am a monetarist over a period of a year or more. I think money does matter in that period of time but again I hope it isn't a monthly speech that we are committing, if I may use the term, ""idolatry"" in worshiping statistics that are the best we have and the best in the world. But they're really not good enough to [base short-] term decisions on without a considerable degree of perspective and flexibility in realizing what we're doing. To illustrate my point on statistics, I have a table in front of me that shows the 12-month moving average on the money supply going down very substantially from its peak of almost 8 percent last September and October to under 7 percent including April. Figures on M2 show an even more dramatic reversal in [terms of] showing our resolve in keeping the money supply under control. I join Roger in feeling that we made a courageous decision in this Committee a month ago. I think it has paid off in many, many ways--whether you look at the stock market, whether you look at the foreigners and they look at us, whether you are looking at the prestige of the Federal Reserve and its influence on the fiscal side. In just any number of ways we are riding pretty well. Let's not let that go to our heads and try to overdo it. I think we've made our major move for this quarter for tightness. We'll be here again next month. I don't see any reason to tighten further. On the other hand, for psychological reasons I see no reason either, if the aggregates are bumping up a little bit, for being shy about going to 7-1/2. We are actually at 7-3/8, I believe, are we not now? [That 7-1/2 is] a practical expression on the federal funds rate. I don't see much reason for going beyond that without a special meeting, even if the aggregates are not behaving as we would like. I don't have that much faith in our weekly figures of the aggregates and that's no complaint about the staff. I think it's merely an expression of realism. I would go with the 7--or even the 7-1/4 is all right--to 7-3/4, keeping it at 7-3/8 unless things seem to be pushing a little. I think this will keep our market image proper--if we are indeed concerned about that, which we should be. I would widen M1 to 4 to 9 and go with 4-1/2 to 9-1/2 on M2. I see no reason to go lower in either maximum or minimum M1 or M2. I think it would again be an expression of overly fine-tuning.",590
-fomc-corpus,1978,"Thank you, Bob. Frank Morris.",8
-fomc-corpus,1978,"Mr. Chairman, I support your position for a reason that you didn't mention.",16
-fomc-corpus,1978,Give some reasons out.,5
-fomc-corpus,1978,"Well, I think that this is a reasonably important one. We did get a jump on the problem last month and it's the first time that I have sat around this table that this Committee has ever acted in anticipation of a bulge in the money supply and I think that's a great step forward. But we also know from a study of history that the monetary aggregates react with a lag to a change in interest rate policy by the central bank, so that we have not yet seen the full effect of the move that we've already made and the impact that the current level of rates is having. I don't think we should ignore that fact. One little piece of evidence: the New England mutual savings banks outside of Boston--and their deposit flows are less sensitive to interest rates than those of the Boston savings banks--had a net outflow in the month of April. MR. JACKSON(?). After the tax date.",182
-fomc-corpus,1978,"Yes, but still it is significant nonetheless. On the other hand, Mr. Chairman, while I can accept Steve's projection of 9 percent for M1 for the second quarter, since I can average that [with] the first quarter and come out with 6-1/2, I do think that we've got to structure ourselves so that we don't exceed that number. Therefore, it seems to me that we should do this: First, I like the funds rate of alternative A, moving to 7-3/8--we're almost there now. But I would scale down the range for M1 to 3 to 7 because an 8-1/2 upper limit for that range would mean that if the staff projection for May is correct it could accommodate a 10-1/2 percent increase in June, which I think is too high. Similarly, on M2, if the staff projection is correct, the 9 percent May-June average would accommodate roughly a 12 percent rise in M2 in June. And it seems to me that we simply can't [accept that]; that's beyond the pale. Therefore, those ranges ought to be revised downward to something like 3 to 7 and 3-1/2 to 7-1/2, which would assure that we stay within the current projections for the second quarter. And to do so I would give the Manager full authority to move up to 7-3/4 percent if necessary--if the evidence coming in suggests that June is busting out all over, as the song goes.",321
-fomc-corpus,1978,"Just one comment, Frank: On M2, you ought to recognize that those new certificates go in on June 1 and there could be some stock adjustments [unintelligible]. It's more likely at the thrifts than at the banks, but there might be some at the banks.",58
-fomc-corpus,1978,Citibank just announced its offering of it already.,11
-fomc-corpus,1978,That's true.,3
-fomc-corpus,1978,"But it only has a one-third impact, given the fact that M1 is currency and demand deposits--",21
-fomc-corpus,1978,"Yes, but it's in the M2.",9
-fomc-corpus,1978,Two-fifths.,5
-fomc-corpus,1978,Larry.,2
-fomc-corpus,1978,"If this is the month for confessing, I must confess that I'm neither a monetarist nor an economist but I am a realist, I think. And there are certain things about this posture we find ourselves in today which I think realistically ought to be observed. First of all, we're between a rock and a hard place; we're in an awfully difficult position. We are here because of our own--and this was before you came aboard, Mr. Chairman--doings. Since the third quarter of 1976, for seven quarters M1 has grown at an average rate of 7-1/2 percent and there's no way in the world after we've permitted that to happen that we can do anything in the near term to rectify this situation or to materially fend off inflation in the period ahead. However, I think we can make one terrible mistake. I think the best thing that the economy has going for it, both as far as the domestic economy is concerned and the international economy, is the fact that an awful lot of people, Mr. Chairman, believe that we are at long last concerned about inflation and that we're determined to do something about it. I'm not sure whether this has permeated the Washington climate, but this is the one thing that businessmen and everyone in our part of the world feel good about--that we're doing something about it. Whatever policy decisions are made today have got to be made in a manner that would not reflect any easing of our determination to continue to try to reduce the rate of inflation. I would subscribe to Mark Willes's basic proposals with one additional word of caution--that under conditions of strong credit demand as presently exist if we are not willing to permit the fed funds range to [move] upward to at least the 8 percent upper limit, we may as well right now in the cold light of day admit that we're going to refuel and we're setting the fires of further inflation. I think we ought to face up to these things realistically. I don't think they make us monetarists or non-monetarists but we're in an awful tough situation and I think it's our own doing.",430
-fomc-corpus,1978,Thank you. Paul.,5
-fomc-corpus,1978,"Well, I am really struck, Mr. Chairman, in listening to all of this by the difference in semantics used by members of the Committee. They are not reflected very much as differences in prescription.",40
-fomc-corpus,1978,The figures are closer than I would have thought.,10
-fomc-corpus,1978,"Virtually everybody is 7-1/4 on the downside of the federal funds range and the whole difference in the range is split between 7-3/4 and 8 essentially and split between 7-3/8 and 7-5/8, it would seem, for the midpoint. The language sounded like a bigger difference than that, somehow. My own feeling is somewhat reinforced after listening to all of this. I think at this particular meeting we are caught in the midst of a policy change, a federal funds rate change, which I don't think the market considers completed; I don't really consider it completed. We are in motion a bit having let it go a little above 7-1/4. I suspect the market really thinks that we are going to end up around 7-1/2 in this particular phase. And it would take 7-1/2 without any very sharp impact either in the stock market or in the bond market. Now, that is a matter of judgment. On balance, I would think that we would be well advised, given the risks that have been alluded to on the inflation front and otherwise, to permit this to work out its natural culmination at this stage which I see it as 7-1/2 [and] not very upsetting. I think there would be some question if we stopped at right where we are; we might lose a little bit of that credibility that we've built up here in the last month when they see the inflation figures coming in very badly and the business picture as strong as it is now. So I would be willing to move to 7-1/2 as a midpoint--not necessarily tomorrow or this week--not really seeing that myself as a new move but as completing something that we started with the federal funds range of 7-1/4 to 7-3/4 percent. I think going above 7-3/4 would certainly bring us into a new policy area and I'd want to take another look at it. I would agree with the logic that Governor Jackson presented on the ranges for the aggregates. I don't think we want to move down very quickly if for a few weeks the money supply did happen to come in low. Our projections also show a low, along with Richmond's, so I like his 2 percent lower range. I also think we ought to be pretty cautious. It would be a new move in my mind going above 7-1/2 so I'd leave that 8 percent at the top of the range for the same reason that he did. And something like 4 to 9 or 4-1/2 to 8-1/2 on M2 looks fine to me. So I put this in a context of completing what we started here, pausing before we make another discrete new move.",578
-fomc-corpus,1978,"Well, hearing all that, let me see if I can come up with a proposal to be voted on. Let me start off with what I think is an easy one looking down the list. Six people--a majority of 7, if I include myself--say 7-1/4 to 7-3/4 for the range of the fed funds rate. My own preference would be to operate in a mode from where we are now and seek in due course a 7-1/2 percent rate, with an understanding not to go above that without some consultation. That's the trigger point at which the market in my mind would be wondering if we weren't in a new phase. On the ranges I would think that 3 to 8 and 4 to 9 would suit most everybody, as I look down the list. There are some who went a little lower, but most seem to prefer 3 or 4 as a starting base and 8 seems to be the majority on the upside. So if I have expressed myself well, it would be 7-1/4 to 7-3/4--moving toward 7-1/2 percent as the objective, but cautiously and not going above it without some discussion--and 3 to 8 and 4 to 9. Is there--",270
-fomc-corpus,1978,Is the midpoint 7-3/8 or 7-1/2?,17
-fomc-corpus,1978,"Well, I would make the midpoint 7-3/8 but expect the Desk to be moving to 7-1/2.",28
-fomc-corpus,1978,I see. And you wouldn't want them to go above 7-1/2 no matter how strong the aggregates.,24
-fomc-corpus,1978,"Well, I think I would like to consult with people just to see where we stand. Maybe we have to go further than that.",27
-fomc-corpus,1978,"Mr. Chairman, you've introduced a new procedure that I suspect is not going to serve us as well as that under which we have been operating--namely that we set a range and then don't use it until we have had another meeting.",48
-fomc-corpus,1978,"That has been the procedure for the last few meetings. I've been there. The first meeting was we don't go above a certain level until we consult and the second meeting was the same thing. So if I am setting a new procedure, it's news to me.",52
-fomc-corpus,1978,"Well, I mean by that our practice. It strikes me that we had compelling reasons to do that in the previous meetings. And as a result of the way we've moved, it strikes me that at the present moment we would be better served to [go to] whatever midpoint the Committee agrees upon and if we agree on the 7-3/4 top limit that we allow the Manager to go ahead and move above 7-1/2 based on the aggregate figures without having to call another meeting. Otherwise, we effectively have a money market directive because we have told the Manager don't move because of the narrow ranges that we have given in which he has discretion.",134
-fomc-corpus,1978,"Well, I would not feel comfortable myself with just turning it loose to 7-3/4. I just have to be frank; I would be uncomfortable with that.",35
-fomc-corpus,1978,"Well, I differ with that judgment.",8
-fomc-corpus,1978,"I would have to say that's my judgment. Let's take a vote on the proposal I've made. If we don't have a majority, then we'll take a vote on another proposal.",35
-fomc-corpus,1978,I really interpreted it the way you said it as kind of a 7-3/8 to 7-1/2 midpoint.,28
-fomc-corpus,1978,"Yes, that's right.",5
-fomc-corpus,1978,Okay.,2
-fomc-corpus,1978,"That's absolutely right. But I didn't want it to go above 7-1/2 without some consultation with the group because I think it may have some broader implications--that's all. So where are we, Mr. Secretary?",46
-fomc-corpus,1978,Why not have just a show of hands?,9
-fomc-corpus,1978,"Well, whichever you like.",6
-fomc-corpus,1978,You can have the formal vote later.,8
-fomc-corpus,1978,All right. How many of the voting members would be willing to accede to that proposal?,19
-fomc-corpus,1978,Five.,2
-fomc-corpus,1978,Okay. And how many would not?,8
-fomc-corpus,1978,Six.,2
-fomc-corpus,1978,Okay. And what differences do you want?,9
-fomc-corpus,1978,"Mr. Chairman, may I suggest that my objection is registered largely on your 7-3/8 midpoint? I would take the 7-1/2 midpoint and I would permit the Desk to go on to the 7-3/4 percent. I have no objection to consultation. You can call a meeting of the FOMC by telephone any time you like or you can send a wire out.",84
-fomc-corpus,1978,"I'm sorry, I don't understand. What's different from what I said then--just the 7-1/2?",24
-fomc-corpus,1978,"Well, my principal point is that I think we ought not to put a cap on the 7-1/2 right now and merely say that's going to trigger a meeting. I think we ought to move to the 7-1/2 promptly. That's my biggest difference here.",58
-fomc-corpus,1978,How many of you would prefer that?,8
-fomc-corpus,1978,Five.,2
-fomc-corpus,1978,"We are just voting on the narrow question of whether we prefer to go to 7-1/2 immediately or whether, if we do that, we can then accept the rest of the package?",40
-fomc-corpus,1978,"Well, I think we were voting on the whole package with that change.",15
-fomc-corpus,1978,How immediate is immediate?,5
-fomc-corpus,1978,"Just as we normally do, Paul. I wouldn't change the normal arrangements of this.",17
-fomc-corpus,1978,But last time we went on Wednesday.,8
-fomc-corpus,1978,But that's not a normal arrangement.,7
-fomc-corpus,1978,"No, I understand we're not going tomorrow.",9
-fomc-corpus,1978,"We shouldn't go immediately after Thursday because if the preliminary indications stand up, then Thursday there would be a considerable drop [in the money supply figures we publish], which is not unexpected, but wouldn't be consonant with a move.",45
-fomc-corpus,1978,"But, Paul, the position I think is right. We are at 7-3/8 now and edging on up to 7-1/2 is no big deal right now.",39
-fomc-corpus,1978,I must say that I don't think people generally recognize that we are at 7-3/8. They may see that we've had an average that has been a little above 7-1/4. I think there are a considerable number of people in Washington who think [our objective] is 7-1/4.,67
-fomc-corpus,1978,That may be true. But I think the concerns of the market may be useful--,17
-fomc-corpus,1978,Peter.,2
-fomc-corpus,1978,I think the market perceives us as at kind of a tight 7-1/4--7-1/4 ranging a little [above it].,32
-fomc-corpus,1978,That's not the language of the directive.,8
-fomc-corpus,1978,I think the account of it in the New York Times this morning was not a bad one. The comment was that he thinks the target is still 7-1/4 but it's a damn curious 7-1/4.,47
-fomc-corpus,1978,That you don't want to go below that.,9
-fomc-corpus,1978,The rate had averaged 7-3/8 through yesterday but today it's a little softer. It started out at 7-5/16 and it has been at 7-1/4.,41
-fomc-corpus,1978,"I think [going to] 7-1/2 is a considerable move. I think we will make it in a week or 10 days or so, but I don't--",37
-fomc-corpus,1978,"I'm not quite sure where we are, Mr. Chairman. As I understand it, with Mr. Coldwell's amendment the presumption is we go to 7-1/2 over the course of the next week or so.",47
-fomc-corpus,1978,Of course not tomorrow.,5
-fomc-corpus,1978,That was my proposal originally--that we edge up to 7-1/2. The only difference I see is whether or not there's consultation [before we go] above 7-1/2.,42
-fomc-corpus,1978,"So far as I'm concerned, you can have a consultation whenever you want. If you want to have it at 7-1/2, I certainly am not going to vote against that.",39
-fomc-corpus,1978,"So where are we split on the votes then? I'm not sure I understand. Is it on the ranges for M1 and M2? As I look down the list here 1, 2, 3, 4, 5, 6 people suggested--7 actually--no higher than a 7-1/2 for the midpoint. So is that what--",77
-fomc-corpus,1978,"Well, I can certainly agree with Governor Coldwell's amendment--if it is an amendment. I suspect other people can, too, but I don't know about that.",34
-fomc-corpus,1978,"A week to 10 days, Phil?",9
-fomc-corpus,1978,A week to 10 days; that doesn't bother me a bit.,14
-fomc-corpus,1978,"All right, I can accept that.",8
-fomc-corpus,1978,"Okay, let's try it again. Let's be sure what we are talking about, though. Do you have any problem with the M1 and M2 ranges? To repeat, they are 3 to 8 and 4 to 9. The range on fed funds is 7-1/4 to 7-3/4, moving to 7-1/2 in a week to 10 days after looking at the Thursday numbers. And I must say that I intend to get back to the FOMC, whether we have it in the understanding or not, if [the situation] requires going over 7-1/2. I just feel that has to require some discussion.",142
-fomc-corpus,1978,"What statistical event, then, would trigger the upper figure?",12
-fomc-corpus,1978,"The statistics that would mean that we can't live within these ranges without going higher [on the funds rate]. And I want everybody to look at what is happening in the economy, the revision of the first quarter, and--",44
-fomc-corpus,1978,"Well, I think a perception that the aggregates were consistently above the midpoint of these ranges--",18
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"In that case, the projections would dictate an immediate consultation because the projections are for 6-1/2 [percent M1 growth].",28
-fomc-corpus,1978,"All right, how about that one? Therein is a question. Suppose we end up and have a surprise--we have a negative. Suppose money behaves differently [than we expect] in the next week. What we would do then? Go to the 7-1/2 regardless?",59
-fomc-corpus,1978,If it's really negative--,5
-fomc-corpus,1978,"I don't think that's a problem. Why don't we just [vote]. We'll take care of that if necessary. So, is there a vote on this one? How many would favor what you think the proposal is?",43
-fomc-corpus,1978,Tell me what the funds rate is. What's the range?,12
-fomc-corpus,1978,"The funds rate range will be 7-1/4 to 7-3/4, with the plan to move it up to 7-1/2 in the next week to 10 days after looking at [developments].",49
-fomc-corpus,1978,What I wanted or hoped for is a consultation before we went above 7-1/2.,20
-fomc-corpus,1978,"Yes, I'm going to do that.",8
-fomc-corpus,1978,That's what the Chairman has the right to do.,10
-fomc-corpus,1978,That's what I'm going to do.,7
-fomc-corpus,1978,He has expressed his opinion.,6
-fomc-corpus,1978,"Yes, I'd rather not have it in the directive.",11
-fomc-corpus,1978,I'd rather not have it in the directive.,9
-fomc-corpus,1978,I don't think we should.,6
-fomc-corpus,1978,"Okay, how many of the voting members are for this particular one?",14
-fomc-corpus,1978,Eight.,2
-fomc-corpus,1978,Let's call the roll.,5
-fomc-corpus,1978,"Yes, Mr. Chairman, do you want to get the type of directive [in this vote as well]?",22
-fomc-corpus,1978,Aggregates.,3
-fomc-corpus,1978,"Let's see who's for this, and nobody will be locked in until we clear the language.",18
-fomc-corpus,1978,This is an informal poll. Chairman Miller Yes Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Gardner Yes Governor Jackson Yes Governor Partee Yes Governor Wallich Yes President Willes No President Winn Yes,48
-fomc-corpus,1978,"Now may I turn to the language? If it's inappropriate to consider the changes in the directive language at this meeting because of the lateness or anything, we can defer it. My point in suggesting it is because I find around Washington that people think we are doing something different than I think we are--in fact the language reads as if we are. I have something to read--",76
-fomc-corpus,1978,"Mr. Chairman, the way it is written I think is quite a distance from where we are now. It's more in the direction of an interest rate oriented, and less of an aggregates oriented--",39
-fomc-corpus,1978,"Let me read you some language. Let me read first the language of your present directive, which says what you have been saying, ""Specifically, at present, it expects the annual growth rates over the May-June period to be within ranges of"" so-and-so to so-and-so. That's read in the world as meaning that we are forecasting [those rates of growth] and that is where we intend to be. The actual operation has been that if [the aggregates] move beyond the midpoints or beyond those ranges, that triggers further action on the funds rate. It is not a prediction that they will necessarily be within those ranges. And that difference of perception is causing the Federal Reserve to be read as not knowing what it's doing. That's how those on Capitol Hill read these directives. [They say,] ""You guys say you are going to do so-and-so and you never do it, so obviously you don't know what you are doing."" Now, regardless of whether it's a money market or aggregates [directive]--I'm not worried about the technical part--I only am concerned for the welfare of the Federal Reserve as to whether it says what it's going to do and does what it says it's going to do. So I have some language here, which Chuck Partee has suggested, which I will throw out to you. I think it is an improvement. It says, ""In the short run, the Committee seeks to foster money market conditions that are consistent with the longer-run ranges for the monetary aggregates cited above, while taking account of more general financial market conditions, including the conditions in foreign exchange markets. During the period until the next regular meeting, System open market operations shall be directed initially at keeping the weekly federal funds rate at about the current level""--or in this case I should say ""slightly above the current level."" [The wording continues,] ""Subsequently, operations shall be directed at maintaining the weekly federal funds rate in a range of 7-1/4 to 7-3/4 percent."" Now here is the new language: ""In deciding on his specific objective for the federal funds rate, the Manager shall be guided mainly by the relationship between the latest estimates of annual rates of growth in the May-June period of M1 and M2 within the following ranges of tolerance: 3 to 8 percent for M1 and 4 to 9 percent for M2."" Personally I would add--because I think Governor Coldwell has a point--""For this purpose M2 shall be given somewhat greater weight than M1.""",519
-fomc-corpus,1978,"What was that early language again, sir?",9
-fomc-corpus,1978,"The changed language? You probably all have this before you. If you don't, it suggests changing the sentence that [talks about] the specific level [of the funds rate]. It would read: In deciding on his specific objective for the federal funds rate, the Manager shall be guided mainly--this ""influenced"" is a bad word--by the relationship between the latest estimates of annual rates of growth in the May-June period of M1 and M2 and the following ranges of tolerance. This [latter part] is a very big improvement in my mind because these have been perceived by me to be tolerance ranges.",127
-fomc-corpus,1978,This seems to be a much more accurate description.,10
-fomc-corpus,1978,"That's what we are really doing, and that's why I was trying to--",15
-fomc-corpus,1978,"I realize some people might not like the ""mainly,"" but since we referred earlier to money market conditions including foreign exchange market conditions it isn't correct unless we have--",33
-fomc-corpus,1978,But since you are the author--,7
-fomc-corpus,1978,"But some people might prefer just ""guided by.""",10
-fomc-corpus,1978,"I think this is an improvement in language, but I don't think it necessarily will get you out of the PR problem that these 2-month ranges have caused--and it has been [going on] for a long time. I think there's a lot to be said for the Committee moving away from this 2-month structure, and I want to compliment the Philadelphia Fed for the research it has done in this area. It seems to me that this is the question the Committee fundamentally ought to address itself to pretty soon, because I don't think there is any way we can describe these 2-month ranges without the press and the Congress describing them as targets--I don't care what we call them.",138
-fomc-corpus,1978,"Yes, I think you're right, Frank. I think there has to be another session to address this issue in depth. We may or may not solve it. But I think an interim step to play it in a different way can be constructive.",49
-fomc-corpus,1978,Mr. Chairman.,4
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,Would it be in order to make one other suggestion?,11
-fomc-corpus,1978,"Surely, all kinds of [suggestions are welcome] or we can even drop the whole idea.",21
-fomc-corpus,1978,"No sir, I think the idea is excellent. I wonder whether you would consider one other minor change, and that is in that same paragraph--the second paragraph on page 1, line 5--putting in before the words ""during the period"" these words: ""In view of the recent growth of monetary aggregates with respect to the proposed longer-run ranges during the period"" et cetera. The purpose of that would be to clarify in the public's mind that we are targeting on the longer-run ranges and to dramatize, if you will, or at least to point out, that what we are doing in adjusting our fed funds target is being done with the view of trying to accomplish in the long pull the targeted growth of monetary aggregates. It would read ""in view of the recent growth of monetary aggregates with respect to the proposed longer-run ranges..."" It identifies longer-run ranges and what has happened recently [as what] we're taking [into account with regard to] the fed funds action.",201
-fomc-corpus,1978,Let me read that. In view of the recent growth of monetary aggregates in relation to--,18
-fomc-corpus,1978,With respect to or in relation to--,8
-fomc-corpus,1978,"Well, let's say ""in relation to"" the longer-run ranges. See, then you tie in the prior [sentence]. That's our objective. Then we say in view of the growth in relation to such longer-run...",44
-fomc-corpus,1978,"I don't understand the purpose of this addition, Mr. Chairman.",13
-fomc-corpus,1978,The significance of the sentence--,6
-fomc-corpus,1978,The first sentence of the paragraph says that.,9
-fomc-corpus,1978,The significance of it is to clarify in the public's mind how the short-term fed funds targets relate to our attempt to achieve the longer-term monetary aggregate targets.,32
-fomc-corpus,1978,That's what the first sentence says.,7
-fomc-corpus,1978,That's why I asked you the second time.,9
-fomc-corpus,1978,"Yes, Bob.",4
-fomc-corpus,1978,"These are all good ideas, but we're getting into the position of the Committee writing the directive. I would like to [suggest that we] refer this to the Subcommittee on the Directive to combine with their discussion of a quarterly or whatever it is on the 2-month [issue] and to come back with a recommendation. I think to take an interim step might merely cause the market to puzzle over why we are doing that--especially if we change it again in a couple of months. So I would like to refer it to the Subcommittee on the Directive.",113
-fomc-corpus,1978,I would support that.,5
-fomc-corpus,1978,I would also.,4
-fomc-corpus,1978,"Larry, I think the question is addressed on page 2 of the draft on line 27--if you get the formal [version] of the revised draft. It says ""M1, which had grown moderately in the first quarter, rose sharply in April."" Therefore, I think that read with the subsequent paragraph in the directive will address the point which you just read.",75
-fomc-corpus,1978,I don't feel strongly about it; I think what you are doing here is excellent.,17
-fomc-corpus,1978,"Well, I might say, Mr. Chairman, as the Chairman of the Subcommittee on the Directive, that I don't think the proposal that you made--with the modest word amendments that I suggested--represents a change in policy or in the prescription for policy and, therefore, I don't think it needs to be referred to the Subcommittee on the Directive. I do think the idea of changing the relative weights given to M1 and M2 is a change in policy and does require referral. In fact, we have already studied it and concluded that 50-50 is the best we can do. But we will study it again.",128
-fomc-corpus,1978,I'm a little worried about that one. Right at this point when you are going to [see] some intermediation--,25
-fomc-corpus,1978,But as far as your--,6
-fomc-corpus,1978,"My original proposal was merely to shift wording to explain what we are doing, rather than change policy. While I tend to like Phil Coldwell's suggestion, I think I agree with you that we are getting into substance and it probably shouldn't be done. But I'm also willing to leave everything the way it is and let you consider it at the next meeting.",71
-fomc-corpus,1978,"May I make one--I hope modest--proposal of substance? It has nothing to do with what we are now talking about but I see that the directive has in it ""including conditions in foreign exchange markets."" We put that in rather explicitly in either December or January because we were particularly worried about the foreign exchange markets in influencing policy.",67
-fomc-corpus,1978,Why don't we take it out?,7
-fomc-corpus,1978,I might want to put it back in next month. I don't think it's all that--,18
-fomc-corpus,1978,I think this is a code word now for one thing to support another.,15
-fomc-corpus,1978,I think it's wrong when it's not actively influencing the direction of what we are doing.,17
-fomc-corpus,1978,And you are pretty sure you won't want it [in again] before a month has passed?,19
-fomc-corpus,1978,I hope not. Bob.,6
-fomc-corpus,1978,"I do have one technical point--and I hate to prolong this--but it says here that the Manager shall be guided mainly by the relationship between the latest estimates of the aggregates M1 and M2 and ""the following ranges..."" But when we use a money market directive we have a different trigger point. When we have a monetary aggregates [directive, the Manager] acts when [money growth] deviates significantly from the midpoints of the indicated ranges. When we have a money market formulation, it's when growth appears to be approaching or moving beyond the limits. I think we could take [care] of that very easily by inserting in there ""the midpoints"" of the following ranges or ""the upper and lower limits"" of the following ranges. Otherwise, I think we act at the same trigger point.",162
-fomc-corpus,1978,Which is the appropriate one?,6
-fomc-corpus,1978,"Well, if you use an aggregates directive it would be the midpoints of the [following] ranges, and if you use a money market it would be the upper and lower limits.",37
-fomc-corpus,1978,Mr. Chairman I think that--,7
-fomc-corpus,1978,It's not totally agreed on.,6
-fomc-corpus,1978,"That affects the interpretations of policy, I think. For example, when the Committee adopted the 3 to 8 percent range, it was not clear to me from the discussion that they wanted to lower the midpoint or whether they were just saying that you don't worry too much if [growth hits the low] end and worry more when it gets to the high end. So it's the limits that got to be more important, even with the aggregates directive or the money market. So, really, I think it depends on a sense of the interpretation of the Committee's wishes, no matter what the form of the directive.",123
-fomc-corpus,1978,"Yes, I would criticize our earlier discussion for that ambiguity, Steve. I thought that was one issue we didn't settle, and that's one reason why Chuck and I see it so differently on the appropriate ranges. I see a different trigger point than he does.",51
-fomc-corpus,1978,Roger.,2
-fomc-corpus,1978,"Mr. Chairman, as a non-voting member, I would like to protest the exercise we have gone through around this table. The lateness of the time of receiving your memorandum hasn't given me an opportunity to read it and think it through and yet we are amending that language here at the table. It's very difficult to follow and I can't think precisely what the effect may be. It does seem to me that Frank Morris has identified the real problem. So long as you publish the ranges, you are going to have the same problem you're trying to correct. As a result, maybe this isn't the time to be changing [the language] but maybe next month when we have a little more time to consider it.",143
-fomc-corpus,1978,Mark.,2
-fomc-corpus,1978,"I was going to say almost the same thing. I feel uncomfortable because it's not clear to me whether we are just changing words or changing policy, and I'd like more time to think about it.",39
-fomc-corpus,1978,I feel the same way.,6
-fomc-corpus,1978,Is there a general consensus on that viewpoint? We have no reason to rush this. The issue is still with us.,24
-fomc-corpus,1978,"I think we need to clear it up, but I don't think it has to be done today.",20
-fomc-corpus,1978,"No. There's no reason [to rush]. I think we need to address the point that we continue to use the word ""expects."" I even think we ought to consider taking that out of the directive if we do nothing else.",46
-fomc-corpus,1978,That's the one word that jumped out at me in the directive. Sometimes we deliberately put the ranges at a place we don't expect.,26
-fomc-corpus,1978,"Let's look then at [that language]. I gathered from the conversation that everyone would like a monetary aggregates formulation. Let's look on page 3, which has the operating paragraph, which is what we are talking about. ""The Committee seeks to encourage near-term rates of growth in M1 and M2 on a path believed to be reasonably consistent with the longer-run ranges for monetary aggregates cited in the preceding paragraph. Specifically, at present,"" it intends to be guided, or what? ""Expects"" is really wrong to my mind.",107
-fomc-corpus,1978,"You could say the ranges of tolerance of the annual growth rates. Picking up Chuck's words for the aggregates, ""the ranges of tolerance for the annual growth rates of the May-June period would be 3 to 8 and 4 to 9...""",52
-fomc-corpus,1978,"The ranges of tolerance, okay. And then ""In the judgment of the Committee such growth rates are likely to be associated with a weekly-average federal funds rate slightly above the current level. If, giving approximately equal weight to M1 and M2, it appears that the growth rates will deviate significantly from the midpoints [of the indicated ranges,]..."" And the word ""midpoints"" is your problem, [Steve]?",86
-fomc-corpus,1978,That's the formulation with a monetary aggregates [directive].,10
-fomc-corpus,1978,"I think that wording can be interpreted asymmetrically, if the Committee wishes.",16
-fomc-corpus,1978,Significantly.,4
-fomc-corpus,1978,Or sensitive to up or down.,7
-fomc-corpus,1978,"All right. [The rest of that sentence reads ""...the operational] objective for the federal funds rate shall be modified in an orderly fashion within a range of 7-1/4 to 7-3/4 percent."" Any other changes?",50
-fomc-corpus,1978,I hope we are not understanding a change of policy here on this. Midpoints are midpoints. And they do trigger a change if [the aggregates] move above them.,35
-fomc-corpus,1978,That's not really the intention that I think was implied today. We treated the ranges as trigger points and not as a defining midpoint.,26
-fomc-corpus,1978,Meaning you're waiting until you get to the peak--to the ceiling--before you change?,18
-fomc-corpus,1978,You move gradually.,4
-fomc-corpus,1978,I was asking if the Committee is more sensitive to moving above the midpoint rather than [below].,19
-fomc-corpus,1978,No question about that.,5
-fomc-corpus,1978,So I think so we can live with this. Any other changes?,14
-fomc-corpus,1978,"We have 30 days, don't we?",9
-fomc-corpus,1978,"Yes. All right, I suspect at this point that we should ask your blessing on the directive. Is there any dissent from it as we have outlined it? Oh, Mark. All right. [Next on the agenda is] the Federal agency issues, which I think can be deferred. Our next meeting is Tuesday, June 20. And we can now adjourn. I thank you for your patience. Your tolerance, within ranges, has been very good.",93
-fomc-corpus,1978,Has a letter been sent to Congress?,8
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"We do have a busy day and I am going to once again ask your cooperation in trying to stick to the subject matter and I=ll try to do the same. Before we begin, I want to call to your attention a letter I received from Chairman Henry Reuss about the possibility of raising the long-run ranges for the monetary aggregates. I call it to your attention because I=m sure that when I testify in July he will be anxious to know that you have received this and considered it. And, of course, our ranges will come up for consideration in July. I would also mention that I have some concern about how we establish the ranges for M1 in July as we look ahead twelve months, realizing that on November 1 the automatic transfer regulations go into effect and M1 is going to change in some unspecified way. It=s going to be very difficult to guess how to establish ranges for a measure that=s going to be drifting on a string in the period. Whether or not it would be wise, possible, desirable, or agreeable to temporarily suspend the ranges for M1 until we can find out what=s happening, I don=t know. But it=s something you might think about because otherwise we=re just guessing. We don=t know whether the change is going to be x or y.",261
-fomc-corpus,1978,"There=s another problem, Mr. Chairman, and that is that there is a cyclical variation in the relationship of M1 to M2 and our present range structure reflects the kind of relationship that you typically get in an easier money period. As money tightens, the rates of growth of M1 and M2 tend to come together and we have not recognized this, I think, in the present structure. It seems to me that we ought to. That=s another issue, which works in the opposite direction of this one.",106
-fomc-corpus,1978,"Yes. Any thoughts along these lines, if you=d like to share them with us before the next meeting, would be appreciated because I think it is going to be a tricky time for the establishment of these ranges. The first order of official business is to approve the minutes of the actions taken at our FOMC meeting on May 16. I think you=ve had the minutes and, unless there are any corrections or additions, I will record them as approved. Hearing none, we will assume you=ve done your usual good job, Mr. Secretary, and gotten concurrence. [We move on to] foreign currency operations and a report on the activities since the last Committee meeting. Scott Pardee.",142
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,And the attitude is different [depending on] which way you are going. Would you repeat [the figure] so that we all have it for the total amount of purchases of marks--Treasury and Federal Reserve--for the period?,47
-fomc-corpus,1978,$879 million.,4
-fomc-corpus,1978,Dollars?,3
-fomc-corpus,1978,Dollars.,3
-fomc-corpus,1978,"Thank you. Any questions, comments?",8
-fomc-corpus,1978,We ought to commend the Desk for a very good job.,12
-fomc-corpus,1978,"Well, we don=t know. Compared with what? You=re just impressed with the numbers; you=re not impressed with [unintelligible] they=ve done a good job. Henry.",40
-fomc-corpus,1978,"Scott, how is the program going--that we buy moderately but as regularly as we can?",19
-fomc-corpus,1978,"That=s why I stressed that we bought $200 million worth of marks in the market and that we=ve acquired over $100 million worth of marks through our agency, the BIS, or the Bank of England on days in which the dollar was steady or firming in the European market.",58
-fomc-corpus,1978,"What percentage of days would that be, approximately, in this last period?",15
-fomc-corpus,1978,"We=ve been in a period in which the dollar has been declining on more days that it was rising so I think it was maybe five, six, seven days--or a quarter to a third of the days.",44
-fomc-corpus,1978,Our next action is to ratify the transactions in foreign currency operations since the previous meeting. Is there any dissent from that action? Then we will consider that action approved. [Next is] consideration of the Manager=s recommendations with respect to foreign currency operations. Alan.,53
-fomc-corpus,1978,"Mr. Chairman, as Scott has noted, we have made good progress in repaying our System D-mark debt, particularly the drawings of the earliest maturities--those drawings [totaling] about $800 million that we incurred last October, November, and December. They have all been repaid. We are now working against the drawings incurred in January, which will be coming up for a second renewal in July. Specifically, there are ten swap drawings up for second renewal by July 26, totaling $448 million and one drawing for $35 million up for first renewal. As you know, the Bundesbank had earlier agreed to second renewals of swap drawings maturing in April, May, and June, all of which have been paid off. They have now agreed for second renewals of swap drawings maturing in July, should we not be able to pay them off by maturity. I should note that the swap arrangement with the Bundesbank has been in continuous use since October 5 and any swap drawings that we renew in July for 3 months, even those incurred this year, will lead to a situation in which the swap line will have been in continuous use for more than 12 months. Paragraph 1C of the authorization specifies that any drawings shall be fully liquidated within 12 months after any amount outstanding at that time was first drawn unless the Committee, because of exceptional circumstances, specifically authorizes a delay. To me, this 12-month limit applies to the actual drawings on the line rather than to the line itself. The language is somewhat ambiguous, however, and to avoid any misunderstanding I think the Committee should recognize that these second renewals could result in the continuous use of the swap line--not drawings but the line--for more than twelve months. We would, of course, make every effort under current arrangements to repay the swap debt in full by October 5th. Finally, Mr. Chairman, at the last meeting the Committee reduced the net open position limit under paragraph 1D of the authorization to $2 billion to conform to the pace of our swap repayments. With our swap drawings having been reduced by another $500 million to just over $1 billion, it would be appropriate to reduce the limit by $500 million. Accordingly, I recommend that the net open position be reduced to $1.5 billion. That=s all I have, Mr. Chairman.",481
-fomc-corpus,1978,"Thank you, Alan. You have recommended two actions. One is to approve the renewals of drawings with July maturities and the second is to reduce the [limit on the] open position [in paragraph 1D] of the authorization to $1.5 million. Any questions or comments? Any dissent from those actions? Hearing none, we will approve those two items. Thank you very much, Alan. I do concur that the Desk has been operating quite successfully during this period. The next item is the matter of revisions to the procedural instructions for foreign currency operations and this involves a report of our ad hoc subcommittee. Henry, I believe you are the Chairman of that subcommittee and you circulated a paper. [Do you have] any particular comments or should we go directly to the revisions that are recommended?",164
-fomc-corpus,1978,"I think we might go to the revisions, Mr. Chairman.",13
-fomc-corpus,1978,"I think you all have Attachment A, a strike-through [version that shows the] changes that are recommended.",22
-fomc-corpus,1978,I can summarize.,4
-fomc-corpus,1978,Would you please?,4
-fomc-corpus,1978,"We are [proposing] essentially six things. First, as you know, we want to get rid of the gross transactions limit, which has proved cumbersome in active trading. There is a reason for it, namely that the limitation on the Manager of not being able to change the overall open position by more than $100 million a day and $300 million in the intermeeting period is ambiguous. He could make very large transactions, reversing totally the entire position from plus to minus, even though he couldn=t do intermediate-size transactions that would change the position moderately. He is very unlikely to do that, but it was just procedurally defective to have such a provision. If we should ever get audited in this area by the GAO, which I assume we will not, it would become apparent that our procedures were not watertight. So to replace the gross transactions limit, which is to be dropped, we add the net position. The net position refers to positions in a single currency and is taken with respect to signs that make a difference whether we=re long or short whereas the overall [limit] makes no distinction between being long or short; it=s just the measure of risk. By adding the net position and giving the Manager the same right--$100 million a day and $300 million between meetings--we have relatively simple numbers. They are the same as on the overall open position. At the same time, we make the regulations watertight and prevent a Manager who was going haywire from making very big changes that would be possible under the overall open [position limit]. Then we add a restraint on substantial trading. The Desk has found that it can achieve desirable market effects by making a two-way market--offering bid and ask deals--and that can add up very rapidly to large transactions without changing the net position very much if at all. So in order to make sure that when that happens we do have a control, it is also entered into the procedural instructions that a Manager must communicate that. [Also, we have proposed] two minor things. We say ""operation"" now where in the past we have said ""transaction."" Transaction presumably refers to any single $5 million affair. Operation means a kind of campaign undertaken to achieve a given objective and it seems more meaningful to have the Desk communicate on operations rather than transactions. And finally we adjust the authorization, which is the more fundamental instrument compared with the procedural instructions, so that we refer there now to the [net] position rather than the [open] position. It=s a terminology change that seems to make sense if we say ""open"" for something that involves risk and ""net"" for something that is merely a position without indicating whether it actually involves an open position or not.",553
-fomc-corpus,1978,The proposal is that it be net.,8
-fomc-corpus,1978,"The proposal is that it be on the net position. The overall open [position] is the major risk measure and the net is in a single currency, taking account of sign--either way. In other words, plus is not the same as minus but on the open [position] plus is the same as minus. We=ve also sent you a set of papers on disorder. It was not possible to be very precise in defining this. The term is used all around the world and everybody is very careful always to claim that he is intervening only to counter disorder, not to influence the rate. We have found that disorder is a fairly flexible term but disorder can [have] a cumulative aspect. So if rates as a result of [changes over] a series of days move continuously in one direction, one can regard this as a disorderly market and accordingly intervene to overcome that.",178
-fomc-corpus,1978,"Thank you. The action that is being requested is the approval of the amended procedural instructions, [shown in] Attachment A, and the amended paragraph 1D of the Foreign Currency Authorization in Attachment B. Are there any questions? Comments?",48
-fomc-corpus,1978,I wonder if the Manager has any comments on these proposals.,12
-fomc-corpus,1978,"Alan, do you have any comments on these proposals for change?",13
-fomc-corpus,1978,"Well, Mr. Chairman, I never have felt the need for written procedural instructions because I felt there was a joint understanding between the Committee and the Desk about how we did things. But I have no objections to what I hear. I do find some slight problem with the fact that the overall net limits of $100 million and $300 million are exactly the same as those for any one currency. That means we=re going to hit one of them before we can get past either of them. In other words, if we hit $100 million on the overall, that means we only have $50 million on an individual currency. That concerns me some, but we can live with it as it is.",140
-fomc-corpus,1978,"I was wondering particularly, Alan, about [what seems to be] rather a term of art in subsection C, any operation that might generate a ""substantial"" volume of trading in a particular currency.",41
-fomc-corpus,1978,"This is something that we would normally report all the time, whenever it happens. This is the language that I think Scott himself had suggested and it=s nothing that would bother us.",36
-fomc-corpus,1978,"Scott, did you have any comment?",8
-fomc-corpus,1978,No. I was just saying that we would work this out in close consultation with the Board=s staff. Remember the day on which we did exceed the gross transactions limit? We had consulted; we had informed the members of the Subcommittee that an operation was under way that would lead to substantial operations. We just didn=t pin it down by asking for an approval.,73
-fomc-corpus,1978,"My only point, Scott, is that ""substantial"" means different things in different contexts.",19
-fomc-corpus,1978,"You have the other limits so you do know almost where you are. Any other comments? Is there any dissent from approving these recommendations? Hearing none, they are approved. We move from foreign currency to the economic and financial situation and outlook, and Jim Kichline has a report.",57
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"May I ask a question? I=m confused about the interrelationship of some of the figures in the Bluebook and some of your Greenbook projections. It=s my understanding that your nominal GNP projections in the Greenbook, for example, are based on money and interest rate projections in the Bluebook. Just to use an example, you project for the first quarter of 1979 nominal GNP growth of 11 to 12 percent and in the Bluebook, if I read it correctly, under alternatives A and B M1 growth is projected at maybe 2 to 2-1/2 percent for the last quarter of 1978 and interest rates are up in the area of 9 to10 percent for the last quarter of 1978 and the first quarter of 1979. How could you conceivably, unless you have almost an unrealistic projection of velocity growth, anticipate the sort of GNP growth that we=re talking about early next year with M1 growth of 2 to 2-1/2 percent and these other Bluebook projections? Is there a relationship between those?",223
-fomc-corpus,1978,"Yes, we make a strenuous effort to have a relationship between the two. As I noted, the forecast of the GNP is based on the low interest rates that are in that range [shown in alternatives A and B]. It=s a 9 percent funds rate and in the first quarter of 1979 we have an 8-1/2 percent Treasury bill rate. So in terms of the mechanism for which we have impacts on GNP in our forecasting process, we believe it works through interest rate channels and that=s critically important. The problem that you=re focusing on is one of the policy Q1-to-Q1 in which you have a burst of money in Q2 and then in order to achieve 5-1/4 percent [for the year] one has to look at significantly lower rates of growth over the three remaining quarters. Now, one of the problems here, among many, is the question of the extent to which velocity would be growing without any interest rate pressure. And the staff forecast for some time has assumed that there would be additional slippage in the money demand function, which we had experienced from mid-1974 through the first quarter of 1977. More recently, however, that has not occurred so that=s an open issue. If it didn=t occur, you=d have higher interest rates--at the upper end of the range or perhaps even higher. That=s one problem. Another difficulty relates to the fact that we do have in the second quarter a much higher level of money stock than would be expressed in a 5-1/4 percent range and the extent to which that higher level of money stock would be sufficient to finance transactions and economic activity, for example, into the third quarter without much interest rate pressure, I think is an open question. But looking at the past would suggest that there is room to experience some velocity growth in the shorter run without having substantial further increases in interest rates.",391
-fomc-corpus,1978,"Jim, do you look at the output of your model or do you do a certain amount of subjective wishful thinking?",24
-fomc-corpus,1978,"Professional judgment we like to call it! We use two approaches. The forecast that you=re looking at is the staff projection; it=s what we refer to as a consensus forecast. It is heavily reliant upon judgment of individual sector experts as well as combining that [with other] inputs. One of the inputs is indeed a model run which we do each and every time and from which we tend to modify our judgmental projections. So what you=re looking at is a consensus. If you look at our model, what you would find if you specified, for example, the interest rates that we have, is that you have to have a substantial further downward drift in the money demand function in order to achieve the GNP forecast that we currently have. If it did not continue to drift down, then you would experience higher interest rates or, more likely, lower real growth and lower activity.",177
-fomc-corpus,1978,"I just had in mind a question, Mr. Chairman. Jim, were there any significant revisions in the GNP figure or just minor ones?",29
-fomc-corpus,1978,"We had a number of minus 0.4 percent rate of growth and it=s now 1.0. The implicit deflator went from 7.1 to 7.0 and the fixed weight from 6.5 to 6.2. There are a number of small revisions throughout. This is normally a time in their revision process when they get final data, or virtually final data, on the foreign sector. And the national income accounts basis of net exports of goods and services was reduced by $1 billion; instead of $24-1/2 billion, it=s $23-1/2 billion. So, there are small changes throughout.",135
-fomc-corpus,1978,"I=d like to come back for just a minute to the little dialogue between Jim and Larry. One of the things that=s obviously going on now is that the econometric relationships in most of the models we have don=t work as well as maybe they have in past times. But one of the reasons for that is because it=s not possible to model effectively the way people form expectations and then the decisions they base on those expectations. And it=s not at all inconceivable to me to have--and I think you gave up too easily, Jim--",111
-fomc-corpus,1978,I didn=t give up.,6
-fomc-corpus,1978,"It seems to me that if in fact you had higher interest rates, there is a way in which that might be perceived in the world as reducing the expected rates of inflation, and that would have a rather substantial positive impact on investment and other forms of spending and, therefore, a rather positive impact on real growth. For that reason I=m not sure, even if we have higher interest rates than you=re assuming in your forecast, that that automatically means lower real growth. It depends on the context in which that takes place. If it takes place in an environment where those higher interest rates are perceived as having a moderating impact on inflation, then the impact on real growth could be neutral or it could be positive. I=m not sure we will know until we get there, but it=s not at all clear to me that higher interest rates automatically mean that real growth will be smaller, particularly in light of--",182
-fomc-corpus,1978,How do you handle housing on that?,8
-fomc-corpus,1978,"Well, housing is a very difficult sector; [its performance] depends a lot on what happens to Regulation Q ceilings and the impact that has on financial flows. I will readily admit, however, that if interest rates escalate significantly in a short period of time, housing will have a difficult time sustaining itself. It would still be possible, however, to have that compensated for and then some by business and other types of spending. Jim commented that one of the reasons we don=t see business spending coming along the way we=d all like to see it is because of the uncertainty and so on associated with inflation. If we could really do something--as we might have the possibility of doing--to change that perception, then it seems to me we could have a rather vigorous growth and be [unintelligible]. I=m not predicting that but I think that=s--",173
-fomc-corpus,1978,"If you have to hold down money growth, though, to 2 to 2-1/2 percent in the last quarter of this year in order to give that reassurance that we=re doing something about inflation, doesn=t that have an effect on GNP growth early next year? In other words, there are two factors--interest rates and money growth. And if we crunch down the money growth to 2 to 2.3 percent, which are the projections in the Bluebook--I have many doubts about whether we=ll do that--to give reassurance to the world of our determination to deal with inflation, I question whether that wouldn=t have an effect of reducing GNP.",139
-fomc-corpus,1978,"I guess all I=m saying is that I=m not really sure. That may well be the case. But I think one can make an argument that under the very special circumstances we face, we could get quite a different reaction than one would normally expect.",51
-fomc-corpus,1978,"May I suggest a procedure? I=d like to have this continue for a while but I=d like to cut it off at some point and do a round robin, as we did the last time, and get the comments from everybody, if you don=t mind. So I=ll run through a few more comments here and then I=d like to [move on]. Last time we went clockwise; this time we=ll go counter-clockwise. Steve, do you want to make a comment?",100
-fomc-corpus,1978,"Well, I just wanted to mention this: Mr. Roos indicated that [the figures he cited] were the projections in the Bluebook, but they are simply the results of arithmetic. That is, if the Committee is going to achieve a 5-1/4 percent growth [in M1] Q1-to-Q1, that=s the arithmetic of it. Next quarter, depending on the Committee=s attitude toward the high rate of growth in the second quarter--whether it compensates for it or not--those rates are [likely to be] substantially higher.",115
-fomc-corpus,1978,"Jim, this gets down to your judgmental forecast. Where is your strongest level of confidence in this forecast--in the GNP or inflation? Or to put it the other way around, where is your weakest level of confidence?",46
-fomc-corpus,1978,"Well, I think it=s a fairly risky forecast in lots of ways. On real growth, my gut feeling would be that if this is an inappropriate forecast, given the conditions, the odds would weigh very heavily on the downside rather than the upside. On inflation, I think it=s the other way around with serious concern about going into 1979. I noted just this morning that the postal workers were reported in the papers to have started out with a huge request [in terms of wage increases.] It was worked down from that, but that=s sort of the nub of the problem. I think on inflation this forecast right now is a good one. Of the forecasts I=ve seen, we rank on the high side of most outside forecasters on inflation--I think for good reason. I think the odds are pretty much favoring the current forecast we have; but again, if it=s wrong, I think inflation will tend to be higher rather than lower.",194
-fomc-corpus,1978,"Second question. If I understand you correctly, this forecast is based on the 5-1/4 percent midpoint of the target range. If it were based instead on the 7-1/2 percent actual we=ve been achieving over the past period of--I forgot what it is but let=s say this last 18 months or whatever it is--where would you be coming out on the GNP and inflation forecasts?",87
-fomc-corpus,1978,"I would tend to raise the real growth, I think, perhaps back into the area where we were months ago. I=d put the number surely over 4 in the short run. We=re talking about a time horizon here that is just to the second quarter of 1979 but for the short run I=d say it would have a more favorable impact on real growth.",75
-fomc-corpus,1978,"You call that short run. [Do you mean through] 1979 or are you talking about ""short run"" through the rest of 1978?",32
-fomc-corpus,1978,"No, I=d say our forecast is really short run. If we begin to talk about the impact on real [growth] and inflation, the problem here is the differential effect. On the fourth quarter impact, I think you can look forward to something like one half of a percent or more on real growth assuming what happens is that we get lower interest rates out of that. If the relationship that we specified in the forecast is right--so that 7-1/4, for example, results in lower interest rates than we have assumed in the forecast--on inflation, I think it might add another quarter or something like that over the next year but you=d have much more adverse impacts as you go out to three years. So, I think you change the rules of the game. But it hinges importantly on whether we=ve specified correctly this money demand, interest rate, and GNP relationship.",181
-fomc-corpus,1978,"I just wanted to confirm, Jim, the figures for May that you cited. Although they are below the earlier figures in the year, they are still pretty high. The production index is an annual rate of increase of more than 7 percent. Nonfarm employment is growing at 175,000; that=s more than 2 million a year. I see the retail sales in May were 4 percent above the first quarter average, which is a 16 percent annual rate of increase. It=s going to take a significant further moderation in those growth rates, I take it, to be consistent with the GNP projection for the third and fourth quarters.",131
-fomc-corpus,1978,"Not much I don=t think. But you=re right, some further modification.",16
-fomc-corpus,1978,You mean to say that a 4 percent GNP will be associated with more than 7 percent in production?,23
-fomc-corpus,1978,"No, you mixed up a couple of things there. One was a quote of the average sales ratio in May over the first quarter. Part of the problem here in Q1, Q2, Q3 on GNP is again arithmetic and not economics. You=re going to have a very high second-quarter average level of activity. So to get a large increase in real GNP in the third quarter would require substantial further growth",85
-fomc-corpus,1978,"Well, perhaps I should have mentioned that, but what about production and employment?",16
-fomc-corpus,1978,I would expect that production would edge down a bit further. But I think I phrased it--I know on production I did--that developments still involved large or healthy rates of increase but I said I would read into these numbers that we did indeed experience something that was transitory and we are now on a path toward slower real growth.,68
-fomc-corpus,1978,"Mr. Chairman, I would like to ask Jim what kind of reaction he would have to the proposition that rather than the current high level and rapid rate of growth in consumer installment debt setting the stage, as it has in earlier periods for a number of years now, for a slower rate of growth in debt and/or maybe an actual decline in purchases of consumer durables that we might be seeing now instead a basic cyclical change. Could we be seeing a phenomenon reflected in a change in consumer attitudes based primarily on a gradual embracing of the idea that inflation is probably a permanent part of the environment? So over a period of time, we might see an acceleration in the rate of purchasing durables both in anticipation of continued price increases and a willingness, or maybe even a desire, to carry more debt and less dollar-denominated assets, which would be similar to what we seem to have been seeing in residential mortgages. And, therefore, we might--or that there=s at least a fair chance--toward the latter part of this year not be looking at a weakening in the demand for consumer durables but possibly a maintenance or maybe even an acceleration in demand for consumer durables.",236
-fomc-corpus,1978,"I think you=ve raised an issue that is very important and one that=s difficult to sort out. Again, it hinges on consumer expectations and I think the evidence available in the short run from survey reports and what=s going on in the auto market, is suggestive of the substitution effect--the desire to acquire real or durable goods. I would expect that to be short- lived, though, in the sense that the rate we=re looking at is well above anyone=s expectations, including, I think, most of the major manufacturers. The reports there would indicate some slowing from this pace. The question is to what pace and what would be the underlying rate of growth thereafter. You would, I take it, raise the issue that perhaps it=s higher than we thought before. That=s possible. In the housing market I think one can make a stronger case because a house can be viewed as an investment and there is a secondary market that=s well-developed. If you get into other kinds of durable goods--washing machines or whatever--it=s difficult to develop a secondary market. I think cars you can talk about in terms of an investment. If one were looking at consumers who anticipated a major outlay, the tendency would be to accelerate that purchase. And that in the short run should tend to hold up outlays--perhaps for the balance of the year, as you suggest. I am increasingly concerned, though, about the debt side. Look at these numbers again. The issue was raised about a year and a half ago and over the last year and a half the debt has grown tremendously. And I believe that will result in some lessened capacity and willingness to take on major outlays. The issue here is what happens to income growth to support that debt burden. If indeed income growth fails to keep pace with inflation and increasing tax burdens, I think it will act as a dragging influence; that, indeed, is what=s built into our forecast.",392
-fomc-corpus,1978,"Mr. Chairman, I have great sympathy for the staff=s dilemma here. My interpretation of what you might call the wishful thinking department of it, however, relates not only to what Larry described as wishful [thinking] but rather to the assumption that has been forced on them by us of the 5-1/4 percent M1 growth central point. The model, as I recall the figures, comes up with from Q2 this year to Q2 next year an increase of only something like 2.3 percent in real GNP. And what I would call their more real-world model in the Greenbook comes up with an average of 3.8 percent. I think this is a much more realistic model. But to tie it back to 5-1/4 percent involves straining staff credibility in a way that I think we should all be aware of. Really, to me, we=re talking about a consistency of the real GNP forecast with more like a 6 percent M1. I don=t think we have to go as far as Phil=s question suggested, to the most recent 18-month period, but I think we should view realistically the assumption. Really, we=re assuming 6 percent [M1 growth] here in moving from the model to the judgmental forecast. I think this is supported by what Larry pointed out--that we have a rather absurd set of figures in terms of velocity to tie to the money supply figure estimates for the last quarter of 1978. I was just wondering if the staff would care to comment on what I just said.",323
-fomc-corpus,1978,Thank you.,3
-fomc-corpus,1978,"Do you need any more answer to that, Bob?",11
-fomc-corpus,1978,"Well, I guess not.",6
-fomc-corpus,1978,Three more comments; then we=ll do a go-around. Henry Wallich.,17
-fomc-corpus,1978,"I=d like to make a suggestion, which really follows in the footsteps of what Bob and Larry have said. This is a very artificial performance where three different kinds of unlikely assumptions have to be made in order to get a halfway presentable result--namely, that the demand function for money shifts, that Regulation Q is raised again, and that interest rates remain at the lower level of the estimated range. All these things are not likely to happen at the same time. It=s a purely formal exercise. I wondered if we could not authorize the staff to do the following in addition to [not] instead of what they are doing now: simply assume that the 5-1/4 percent midpoint growth rate that follows from our M1 range [goes from the current actual level of M1]. Likewise the M2 midpoint would be employed on the basis of where we are with the money supply so that the overshoot is in essence integrated into the existing money supply rather than trying to come back on track as, of course, the exact observance of the targets would require. We could do two projections, perhaps--one the rigorous one and the other with this modification. We would get a better answer to Larry Roos=s problem.",249
-fomc-corpus,1978,Any reaction?,3
-fomc-corpus,1978,"I think it may cause some potential problems in looking at the Bluebook and trying to maintain and develop a consistent financial and real forecast. I think perhaps one of the ways to go about this is to discuss in greater detail the implications of the assumption. And for major variables, if there are significant problems developing, perhaps [it would be helpful] to provide the Committee with information using an alternative forecasting technique.",81
-fomc-corpus,1978,"Yes, rather than do the whole thing. I think that=s right.",15
-fomc-corpus,1978,"Two comments, Mr. Chairman. First, one inconsistency that I have trouble identifying is that if you look at freight truck traffic it doesn=t really seem to relate to the other measures of economic activity that we have. Has something gone wrong in those measurements?",52
-fomc-corpus,1978,"The answer is, I don=t know. We have someone looking at this. This was called to our attention in the Redbook, in which transportation is discussed; freight cars, for example, are mentioned as in very short supply. So I don=t have an answer to that, but we will be checking into it.",65
-fomc-corpus,1978,"You=d think that inventory would pile up or something if you look at production figures and those other things. My second comment is that I think it=s important in terms of cyclical behavior in the future to look at the dissimilarities from what we=ve had in the past. For example, take the housing problem. As we look ahead, if financing does tend to pinch off that activity, it would be occurring at a time of the lowest vacancy rates since World War II. This could in some ways be salutary in terms of the price impact, perhaps some offset by Q or some other factors here that may not be altogether bad. We looked at other cyclical behavior. I think you=ll find a difference in terms of the structure of the real economy now versus other kinds of excesses that have given rise to cyclical behavior in the past.",173
-fomc-corpus,1978,"Is this the go-around, Mr. Chairman?",10
-fomc-corpus,1978,"No, you=re the last commenter before the go-around.",12
-fomc-corpus,1978,"In terms of the outlook, it=s terribly difficult, as I think we all recognize, to really judge what inflation expectations are going to do, especially to the consumer sector. We=re somewhat less optimistic, frankly, than the Board staff. We=ve done something like Larry=s people evidently have done; we've looked at the difference between the Board=s model output and the judgmental forecast. I=m not saying that the model outlook is the thing you should rely on. In fact, I=m glad you do apply judgment to the econometric forecast. But it=s true, if we read the numbers right, that more than half of your increase in consumption spending is a judgmental outcome and not what the model is telling you. In a nutshell, we=re less optimistic about the economy starting with late this year and going into 1979. While this gets into a lot of methodological detail, a part of the result stems from the fact that for a year or a year and a half now my staff has been convinced that one gets somewhat better results, though not dramatically better results, from forecasting the economy on an M2 basis rather than an M1 basis. We circulated a paper to this group, I think it was 18 months ago, to that effect and we=re still getting similar results in the ongoing experiments. So, looking at the projection of M2, we come up with a somewhat less optimistic economy starting late this year. To be quite specific about it, by the time we get into the first half of 1979, the real growth the Board's staff is showing averages 4.2 percent for the first half of the year. We have less than half of that, at 1.9 percent. And we think most of it=s going to be in the consumption sector, with the principal explanation of that being that we=re afraid the inflation expectations factor is going to cut deeply into consumer spending. There=s already been quite a rise in the saving rate if we look back four or five quarters. I think what is happening in the Board=s forecast, Jim, if we interpret you right, is that you=re borrowing some consumer spending in effect by counting on the saving rate going down. We=re not certain that's going to happen. That=s where I think the big differences come between the outlooks of our two staffs.",472
-fomc-corpus,1978,"If I may comment, it is quite correct that it is borrowing in some sense and that can=t be done forever. The only other comment I would make is that the Board=s model --I can=t remember the quarters [exactly but] I think for something like the last 5 or 6 quarters has underestimated significantly the consumption spending that has taken place. So in terms of the difference between actual and projected, the judgmental forecasts have been much closer. That doesn=t mean it=s going to be that way in the future, which may be a totally different environment. But that has been an equation causing difficulties.",125
-fomc-corpus,1978,"Thank you all very much. Now we=ll have a go-around and I hope that each of you will comment on your own views and the views of your staff organization on the outlook for real GNP, prices, and unemployment. And note any other factors that you want to mention regarding the 1978 Q2 through 1979 Q2 period. Paul, we=ll start [with you].",82
-fomc-corpus,1978,"First, I would just observe, Mr. Chairman, that we see more optimism--a better feeling on the part of businessmen that have reported to us--than we=ve seen in a long time. I don=t have the sense that this is leading to great changes in spending plans, though there may be some acceleration of what they were doing. Certainly they have no big inventory plans but they do seem to be feeling better [about the outlook] despite the fact that when I look analytically at the figures I think we=re in for a slowdown all right, along the lines that the staff has projected. But I also think that it could be lower than that. It=s just hard when you analyze these figures to see where much new thrust is coming from; and consumption doesn=t seem to me likely to provide the leading edge. The investment surveys are certainly not ebullient despite a little better tone of conversation of businessmen as I observe it. Home building has no place to go but down, I suspect; it=s just a question of how much. And government isn=t doing anything all that different from what it has been doing. So I share the view that has already been expressed by several people that the staff forecast may indicate the general direction of things or, if anything, may be a little bit on the high side. I would share the view that if the money supply were really going to be as tight as the targets suggest, it=s then very hard to see the business picture being as strong as projected. I assume that that practice [of using the midpoint] might be relaxed somewhat. We=d do well to hit the top of our range instead of the midpoint over this period. Now, this outlook doesn=t particularly disturb me, I hasten to add, if that=s all it is--a slowdown in this area. We could use it on the inflation side and we could use it on the balance of payments side. It would concern me a bit if, in the event, this kind of slowdown were to coincide with a slowdown abroad. I=m not projecting that but I don=t think it=s impossible; and then we might be in trouble. We might begin interacting at each other and our balance of payments isn=t going to improve under those circumstances. That prospect does concern me. I think it=s worthwhile when we=re slowing [unintelligible] to somehow or another get Europe rising faster and Japan continuing to rise. If that doesn=t happen, I think we=re going to have problems. I hope it does happen. So I suppose, on balance, I=m a little less than the staff [on GNP growth] and I=d be a little more pessimistic than they are on the inflation figures. Maybe those two are related.",556
-fomc-corpus,1978,"Any specific numbers, Paul?",6
-fomc-corpus,1978,"[For] the second quarter to the second quarter, I=d be closer to 3-1/2 percent or below in terms of GNP growth. For the GNP deflator, I think probably you=re talking 7-1/2 percent, anyway, and for unemployment around 6 percent.",63
-fomc-corpus,1978,Thank you. Phil.,5
-fomc-corpus,1978,"I don=t guess my attitude has changed much over that I expressed last month. I=m perhaps more optimistic on the short run than the staff forecast would indicate, but I'm not as optimistic over the long run. I do feel that we=re in the usual situation [in terms of the attitude typical of] most North Americans. No matter how well you do, somebody wants [you] to do better. That=s not bad; I=m not condemning that attitude, but we=re in that situation economically where no matter how well we continue to do and how well we do in the current quarter, somebody wants the next quarter's figures to be good and strong, too. I think that=s unlikely. However, I do sense a great deal of momentum going forward--perhaps more and more momentum than otherwise one would expect. Sectorally, I think we are entering a period of speculation as a consequence of inflationary pressures. It=s hard to identify. It hasn=t shown up yet in business inventories--[at least not] that we can clearly identify. I think it=s obviously reflected in consumer expenditures and consumers' willingness to take on additional debt. Automobiles seem to be the best example of it. I would expect that trend to continue [going] forward. And everybody talks about the housing sector, although we=re really only talking about $100 billion out of $2 trillion, so you have to put it into perspective.",287
-fomc-corpus,1978,"That=s the first time I=ve heard ""only"" $100 billion!",16
-fomc-corpus,1978,"Well, we=re talking about 5 percent of the total and we=re talking about a reduction of maybe 10 percent of the 5 percent. So you really have to wonder whether you=re getting excited about things that aren=t that significant in terms of the level of total activity and that=s more my concern. If I had to push some arbitrary number--I couldn=t prove what I=m about to say but if I had to guess--I would say that from the second quarter to the second quarter we probably will see something in the 4 percent range, with the early part being stronger than we expected and the latter part being weaker than we expected. I continue to be very pessimistic about inflation. First, I think we will do the proper thing here, namely that we will look at the real economy rather than our arbitrary monetary rates of growth. And I think that=s proper; anything less than that would be grossly improper. So for that reason, despite our public relations campaign about monetary aggregates--and again I=m not critical of that but we=re going to have to face the real world--I think that we will do whatever it takes to make sure we don=t create a problem ourselves by arbitrary or numerical slavishness. We have to face the fact that that is not going to create any inflationary shock. Second, I think it most unlikely, whatever the consequences, that we will see any major changes in fiscal policy that will have an impact on inflation. Third, I don=t see the American public yet willing to pay the prices that it will be required to pay to do anything substantive about this--whether it=s the postal workers or many other groups. Let me just tell you one quick story. The Nebraska bankers were here, Roger. I asked the roomful here who was willing to step forward and in their own bank and in their own way try to do something specific about wage inflation and price inflation. There was not a single banker willing to do anything, and in every case they said ""we=re grossly underpaid."" If we once catch up, then we=d be willing to be responsible. It's the same story you get everywhere.",437
-fomc-corpus,1978,Like the labor unions.,5
-fomc-corpus,1978,"Absolutely. The point I=m making is that there is no difference between management and labor when it comes to ""my ox is being gored."" They all have the same attitude and for that reason I think--",42
-fomc-corpus,1978,Unlike the Federal Reserve family.,6
-fomc-corpus,1978,"Absolutely. We=re part of the problem, too. What I=m really saying is that I am not optimistic that we're going to be able to do anything. For that reason I think the instabilities that will result toward the end of the year are likely to [remain] with us and it could be costly.",63
-fomc-corpus,1978,"Phil, do you have a number on prices?",10
-fomc-corpus,1978,"If I had to guess, I=d say 7-1/2 percent. Unemployment probably would go up by the year-end.",28
-fomc-corpus,1978,Over 6 percent?,5
-fomc-corpus,1978,"By the end of the year. If I had to guess, I=d say 6-1/2 because I think the participation rate will go up but it will be difficult to maintain employment levels at the end of the cycle.",47
-fomc-corpus,1978,Thank you. Chuck.,5
-fomc-corpus,1978,"Well, if I had to present a standard forecast, my forecast would be very much like the staff's. I think it=s a safe forecast and a reasonable one. Not only that, it=s not much out of line with other forecasts. But I have to say that I think I=m much closer to Phil Jackson than I am to the staff forecast. And I do believe, although it=s all right that we put the numbers out, that we ought to talk about the process. The process is not developing well at this stage. I think there=s a substantial risk of a period of speculative exuberance and influence in the period immediately to come that would be followed by significantly weaker conditions, probably within this year that Philip=s talking about. So the average, looking second quarter to second quarter, might not be that much different from the staff forecast, but it might be associated with substantially higher inflation than the 7 percent rate forecast for the second half and substantially higher GNP growth than the 3.4 percent rate that is forecast for the second half of this year. MR. MORRIS(?). Would you elaborate on what you mean by ""speculative exuberance""?",236
-fomc-corpus,1978,"Well, I sort of agree with Ernie that consumers are going to stay in there and buy for a longer period because they=ll figure that it=s their last opportunity to do so in what looks like an inflationary environment. I think housing demand is very strong. As for business--maybe I=m being misled by the Redbook--the Redbook reports sound to me a good deal stronger in tone than the staff projection with regard to capital spending. They=re not yet talking in the Redbook about inventory accumulation, but I would expect that also to occur in the period immediately ahead. And I just don=t see the inflation rate slowing down that much. Today Alcoa [announced] a 6.1 percent increase on flat roll products, which is a large part of their line. It's their second raise of the year and they had the gall to say that they thought it was consistent with the President's program. That=s going to happen, you know, in very many areas. Steel is up 10 percent, as I understand it. I didn=t get a staff confirmation on that, but it=s close to 10 percent with all the increases they=ve put in this year. They do it just a little bit at a time, but it adds up. That is what=s occurring, I=m afraid, in the economy. And finally, I=ve had a healthy skepticism about food prices moderating to the extent that has been forecast for several months and I continue to have it. So what I foresee as at least a substantial risk is a period of more rapid growth, with more rapid inflation, that lasts not too long--two or three quarters--followed by a significant weakening in the economy. Now since everybody else has spoken about monetary policy, I have to say that that projection does not take into account the possibility of 3-1/2 percent growth in the money supply. In fact, it doesn=t take into account the possibility of 5-1/4 percent growth and maybe not 6-1/2 percent. But what it takes into account--",425
-fomc-corpus,1978,A standard 7-1/2?,9
-fomc-corpus,1978,"What it takes into account is the prospect that interest rates will rise moderately throughout the forecast [horizon] or at least until the second quarter, say, of next year and bring some problems.",39
-fomc-corpus,1978,"Chuck, do you have specific numbers for us on our three [measures]?",16
-fomc-corpus,1978,"Well, I=ll buy the ones that Phil Jackson mentioned.",13
-fomc-corpus,1978,Okay. Bob.,4
-fomc-corpus,1978,"Mr. Chairman, I share some of the apprehensions that both Phil and Chuck have expressed about what I perceive to be some surge in speculation. If you look at the Redbook, you get a pretty clear indication there of accelerating inflation, increasing demands for credit of all types, pressure on interest rates, tightening labor markets, scarcity of certain skilled labor, developing shortages in some commodity markets, stepped up demand for capital equipment, and a worsening balance of trade which frequently occurs before you do have a downturn. Having said that, I don=t see the inventory excesses yet. I know those figures are notoriously bad, and a strong increase in business loan demand suggests to me that there may be more building of inventories than the figures now show. But absent further evidence of that, I think I would come out fairly near where the staff has come out, although I don=t think it is beyond the realm of possibility that [activity] could drop off before then. I would be a tad higher on prices and I would not expect much change in the unemployment rate.",212
-fomc-corpus,1978,"Thank you, Bob. Willis.",7
-fomc-corpus,1978,"That sounds like [my view] too. But those in the business community certainly have the bit in their teeth and are running hard with the feeling that this year is going to be better than most of the projections that have been given. And it seems to me that momentum is going to carry longer. Second, the unrest on the inflation [front] seems to me to be increasing. The tax revolt in California was part of this but I sense it is everywhere--the bitterness about prices and the feeling that we are losing ground. And this is true at all levels of income, not just the lower levels. My guess is that everybody attempts to take care of themselves under those circumstances, so we are probably going to get more [unfavorable] price behavior. Should we get the slowing down that [the staff is] projecting, my guess is that the fiscal assumptions will be altered. Things change very rapidly. And attitudes can alter in six months of time so that a projected cutback may be an increase rather than a cutback. If that holds, it gets pretty precarious in terms of one's projections, but my roll of the dice is that I suspect the real GNP will be up 4 percent and I'd say maybe 7-1/2 percent on prices.",257
-fomc-corpus,1978,Unemployment [unintelligible]?,8
-fomc-corpus,1978,That is right.,4
-fomc-corpus,1978,"Thank you very much, Willis. Dave, we haven=t heard from you yet.",17
-fomc-corpus,1978,"Mr. Chairman, in our briefing discussion last week, we spent a good deal of time talking about what has already been discussed here. We discussed the difference between the forecast that would come from the model and the one that we have in the Greenbook and the kinds of judgmental decisions that are made to revise the model. My inclination is to move closer to the model results than the judgmental Greenbook results. The main reason is the third point that Jim mentioned and that is the uncertainties that come from inflation. We have had a number of discussions with businessmen and I think I have one clue to what appears to be developing here in terms of assessing their sentiment. I have detected that when you talk to a businessman about his own attitudes toward his own business, it is good, generally. But when you talk to them about the overall environment, it is bad. And the main factor there is inflation. I think this may account for some of the difference in the tone of the Redbook, Chuck, where you get individual reports from individual businessmen, as against the overall sentiment that may exist. So my conclusion is that we are likely to have less growth than the Greenbook has. In terms of numbers, generally speaking, I would say 1 percentage point or so below the Greenbook; in terms of unemployment, it may be up to 6.1, 6.2, or 6.3 percent, and inflation at something around 7-1/2 percent. There is one other aspect that has not been touched on that may have some implications for the future and that is that if you look at the term structure of interest rates, it does suggest a leveling off of interest rates as you move out in the future. Some of this may simply be uncertainty but I wonder whether the money market isn=t already telling us that the economy may be slowing down more than we think and if [market participants are] feeding this into their own judgments about the likely course of interest rates.",401
-fomc-corpus,1978,"Thank you, David. Bones, we haven=t heard from you either. You are quiet down in that corner!",23
-fomc-corpus,1978,"I think our view, [based on reports] from directors and visits with businessmen, would very closely parallel Dave Eastburn's, which is something odd to have happen in our area. We would be slightly less optimistic than the Greenbook numbers. [There are exceptions in] a couple of instances, particularly employment. I really think employment may continue somewhat near the present level; you could say that in our area at least. Jobs are still available. The soliciting [through] ads continues to be very, very strong. I think we are beginning to see some surplus and some shortages in other areas. Price increases are broadening; maybe this has been influenced largely by our agricultural relationship. But also we are hearing more and more [about price increases] in building materials and some of those [areas] mentioned by others. Smaller labor groups are suggesting that they have to increase prices now, possibly anticipating that they may have some restraints later on. Inflation psychology, we gather, is spreading rather rapidly. Homebuyers do not seem to be deterred by higher costs. We are learning that a much larger number of institutions are limiting the loans they are making for homes, but the buyer himself does not at this moment seem to be very restrained by the cost. We are also seeing office buildings that are being started with considerably fewer tenant commitments than would have been true fairly recently. On the inventory build-up, just an aside: The chairman of one of our larger department store chains suggested very confidentially that they felt they were over-extended and that this fall his buyers would either be heroes or unemployed. He didn=t know which it might be. The availability of trucks and rail cars are distorting a lot of our operations. Farm products can=t move because the trucks and rail cars are simply not available; phosphates can=t be moved to the ports; oil from the ports can=t be moved inland. This is distorting, and how long that will continue, we certainly don=t know. Final demand may be slowing down, but we think the catastrophe [involves] inflation pressures; price increases remain very, very strong. In trying to reduce these to numbers, I guess maybe a deflator of 7-1/2 percent; on unemployment, though, I think we would stick pretty much to 6 or maybe 6.2 to 6.3.",476
-fomc-corpus,1978,And GNP?,4
-fomc-corpus,1978,About 4 percent.,5
-fomc-corpus,1978,Thank you. Larry.,5
-fomc-corpus,1978,"For the second quarter of '78 to the second quarter of '79, assuming growth in M1 is 6 percent, we would estimate inflation at 6-1/2 percent, which is somewhat less than others. This does not mean that we think [inflation in] late 1979 and 1980 is going to increase significantly, but to the second quarter of '79 we have it at 6-1/2 percent, unemployment at 6 percent, and real GNP about 3-1/2 percent. I would just reiterate that I believe we have it within our ability, if we have it within our desire, to keep money growth to a 6 percent rate without disrupting the economy. Regardless of what Alcoa does and regardless of what the postal workers do, I think it is important that we recognize what we might be able to do.",179
-fomc-corpus,1978,"Thank you, Larry. Roger.",7
-fomc-corpus,1978,"Thank you, Mr. Chairman. I think that my staff and I come out very close to where the Board staff comes out on all three of these numbers, providing we don=t screw it up by focusing in on the 5-1/4 percent. Rather, our staff would suggest that if we are at 6 to 6-1/2 percent money growth over the year ahead, we indeed could have a real GNP number perhaps a little more vigorous than the Board staff's 4 percent. We think there is underlying strength in this economy that is going to carry through not only in '78 but well into '79. We think that [the rate of increase in] prices quite likely would be in a range of 7-1/4 percent. But that is based in part upon some research and analysis that our people have done with respect to what food prices may do in relation to farm prices. As I think you all know, there has been a rather substantial increase in both commodity and cattle prices. We are talking about small grain prices--for wheat and corn--up some 50 percent over the last six months. The same is true for cattle; 90 days ago we were talking about $40 cattle and now we are talking about $60 cattle. Our analysis is that that probably is at or near the top for both of those major commodities; [they] might rest for the remainder of this year. But that does not imply a slowdown in the rate of increase in food prices, by our staff analysis. Food prices will continue to add to the inflationary pressures, thus coming to about 7-1/4 percent over this period. Lastly, I would say with regard to unemployment--and our view perhaps is biased by the regional information--we again have information that unemployment in the mid part of the country is at a very low level. Depending on what metropolitan area you're talking about, it's someplace between 3 and 5 percent, which is substantially below the national rate. And if the projection that the economy is vigorous and will continue so over the period ahead [materializes], it is going to put some upward pressure on prices to be sure, but also it will hold that national unemployment rate at around 6 percent or moderately above. That would be our judgment.",465
-fomc-corpus,1978,"Thank you, Roger. Bob Mayo.",8
-fomc-corpus,1978,"Mr. Chairman, I have a basic agreement with what Chuck Partee and Phil Jackson said with regard to perhaps a little more strength than the Greenbook forecast for the third and fourth quarters. The economy is still very strong in the Midwest. People are optimistic. But I see the ingredients here of a slowdown, which makes me feel that the staff forecast is too optimistic for the first half of next year. We still have the social security increases, and I think they will stick, to temper any tax cuts that will eventually take place. I would venture to say that in picking our period here for comment today, Mr. Chairman, you have caused me to be a little more pessimistic than the rest because my elbow tells me--and that's all it is I guess at this point--that the second quarter of next year is going to be kind of soft. I would expect unemployment, therefore, of more like 6-3/4 percent. I=ll probably end up high man on the totem pole but, after all, we are talking about the rate of unemployment in the second quarter because the year-to-year figure doesn=t mean anything. I think we will have a soft economy by the second quarter and some [softness] in the first quarter, too, as we work through whatever you want to call it--maybe a growth recession is as good or as bad a term as we have. I would consider that the overall increase in real GNP from the second quarter to next year might only be about 3-1/4 percent, which I don=t think is anything to be ashamed of. I think it is part of a moderating process that is going to be taking place almost regardless of what we do on monetary policy--not that I am fatalistic or a defeatist on that. But as we get into the next part of our meeting I think [we ought] to realize a great humility regarding our ability to contribute substantively to some moderation of the process that I am trying to describe. I feel that the price pressures are very great. I am more pessimistic than Roger on food prices; I think food prices '78 over '77 may be up 9 to 10 percent. Therefore, I come out with a personal appraisal on the GNP deflator of more like 7-3/4 percent. I hope I am wrong. I pray I am wrong. But I see a basic block here that I don=t see how we can crack on the labor negotiations front in terms of the price pressures that are already built in. Even if the President is reasonably successful in his 5-1/2 percent wage increase program for much of the economy, I don=t think he will be successful with big labor. I am a little more optimistic, I think, than Paul Volcker with regard to the danger of a coincidence of a slowdown here and a slowdown abroad. I still have an innate optimism on that. Well, Germany improved again in April, for whatever it's worth, after several bad months. I see some improvement abroad that is lagging ours but is not going to be turned around by a slowing in our own economy. So that is about where I come out, with real GNP maybe only 3-1/4 percent, as I say, second quarter to second quarter. I wish it were better, but I don=t think it is in the cards.",689
-fomc-corpus,1978,"Thank you, Bob. Mark.",7
-fomc-corpus,1978,"Thank you, Mr. Chairman. I will try to be brief. First, farmers are smiling. And if they scowl when their net worth is down to a million dollars, you can imagine how good it must be if they are smiling. We have a couple of the largest food processors in the country, General Mills and Pillsbury, and they confirm what Chuck said. The rate of increase in food prices is not going to moderate during the rest of this year. And I think that does give real pause in terms of what the overall rate of inflation is going to be. In terms of second quarter to second quarter, for prices our guess is 7-1/2 percent; if we are wrong, our guess is it will be closer to 8 than to 7. In terms of unemployment in the second quarter, frankly, I don=t know. Unlike some others around the table--",181
-fomc-corpus,1978,"Now, that is no excuse, Mark. None of the rest of us does either.",18
-fomc-corpus,1978,"My feeling is that it does depend on what we do. I don=t think that is cast in concrete. I find the scenario that Phil and Chuck outlined all too likely. I think we could do something about that. I doubt that we will--""we"" meaning both the Fed and the Administration--but I think we could. I am somewhat encouraged by the Miller reduction in the deficit, at least that is how the paper described it in our part of the country.",95
-fomc-corpus,1978,I thought that was a Federal Reserve action.,9
-fomc-corpus,1978,"Well, whatever it was, I thought that was good. If we had more of that, I could get fairly optimistic, but I don=t know how much more there is going to be. [On unemployment], for a number my guess is that by the second quarter of next year we will be at 6 percent or a little above. I think it is going to go down a little bit, but then it will start coming up; and how high it will get, I don=t know. In terms of real GNP, since we are talking about an average, I feel a little more confident about that. I think that will be somewhere between 3-1/2 and 4 percent over that period simply because we are going to have so much going on between now and then. I would like to make just two additional comments. One is on housing because of high interest rates. If you look at a l0 percent mortgage, which we are starting to look at in some places around the country, those interest [payments] are tax deductible for those who pay [taxes]. If you have an inflation rate of over 7 percent plus the full l0 percent is tax deductible, consumers aren=t going to shy away from 10 percent mortgages because the real cost to them is very, very low. So if we have a problem in housing, it is going to be because the financial markets aren=t going to be allowed to work in such a way as to keep the money moving into that sector. Second, I think that the prospect for real growth depends to an unusually large degree on the prospects for inflation. And the kind of scenario that Phil and Chuck outlined I think is a direct consequence of people=s expectations with regard to inflation. To the extent that we in our policy discussions can impact on that, that will make me more optimistic than I am.",377
-fomc-corpus,1978,"Thank you, Mark. John.",7
-fomc-corpus,1978,"Mr. Chairman, I think I already covered part of the story in my earlier remarks, but let me just go over a few figures quickly. As far as the last half of this year is concerned, our staff has very little difference with the Board=s staff in terms of real growth, inflation, and unemployment. The principal difference will show up in the first half of next year, as I said, when we would show real growth of a touch under 2 percent versus the Board staff forecast of a little over 4 percent. We expect less real growth--and I am going to pause at this moment to [note] the reasons, which I didn=t mention earlier--in part because of the supply constraints both in terms of skilled labor and really useable cost-effective capacity. We hear about skilled labor shortages all over the country. It shows up in help wanted ads and complaints that I hear from directors about the ability to get people to fill skilled jobs. In one sense I think we have been running at an unsustainable rate in the economy in the first half of this year. And the constraints on the supply side, both in labor and capacity, will be a factor at work in slowing down real growth in the economy as we get into the second half and the first half of 1979. Because we expect somewhat less real growth than the Board=s staff does for the first half of next year, we show a touch higher unemployment--6.1 percent to be specific for the first six months of next year versus the Board=s staff forecast averaging 5.9. About the only hopeful thing that we see in this is that we may, therefore, see less pressure on prices since aggregate demand will slow down. And our forecast on inflation for the first half of next year would be about 1/2 point under the Board=s staff forecast of 6.9; we have it running about 6.4. Those are the highlights.",393
-fomc-corpus,1978,"What was it second quarter to second quarter, John? Could you summarize?",15
-fomc-corpus,1978,"No, I haven=t recapped this into Q2 '78 to Q2 '79, unfortunately. I=d have to go back to the drawing boards to do that.",35
-fomc-corpus,1978,"Thank you, John. Ernie.",8
-fomc-corpus,1978,"Mr. Chairman, as you all know, the Southwest continues to be boom country, and I have the impression that that is becoming a more and more common state of affairs around the country. As to the general economic picture over the next year, I am inclined to think that we are going to see, as has been suggested, a continued strong picture for some time. And it seems to me that the odds are fairly good that that time frame may well run through our forecast period. But I don=t think it is possible to predict with any degree of confidence when an expansion period will reach that set of circumstances which will cause a turning point to come. At least historically economists' ability to predict turning points before turning points arise has been demonstrated to be very close to zero. And I don=t see any reason why we should be more successful this time than in earlier periods.",175
-fomc-corpus,1978,On a daily basis.,5
-fomc-corpus,1978,"Yes, I think the record shows that, according to studies that have been done. I think how soon it comes to an end depends on how much of a speculative surge develops. While I am pretty sure it is developing, I would hope that it will not come forth with such a thrust that [the expansion] has to be as short-lived as Chuck and Phil suggest. And as I say, I think there is a fair chance of [continued strength for some time], particularly if, as Governor Wallich has suggested, we [view] the inflation aspect as our major problem and undertake to give it our major attention. So I would suggest that we might see somewhat more real growth over the next l2 months than the staff has suggested, probably averaging 4 percent or maybe even a point or two above that. Along with this I think we are likely to see more price increase than the staff has suggested, probably something averaging in the 7-3/4 to 8 percent range. With respect to unemployment, I wouldn=t expect to see very much change in the percentage of the labor force unemployed during that time period, notwithstanding the fact that, as has already been reported, the areas of severe labor shortage probably will become more widespread rather than less widespread. A significant part of this pattern of expectations is my reading of the consumer's performance with respect to consumer installment debt at the present time. While I am not unaware that the retailers represented on our board of directors are reading this development in the historical pattern that we have had for a number of years, I am inclined to think that a different pattern may be emerging this time. We are seeing consumers undertaking to find ways to get a bit of protection against the impact of inflation in sectors other than residential real estate, which has been the one that has been available to them thus far. I might just take a moment to make a reference to a very fine seminar that the Boston Bank, under Frank=s leadership, sponsored at the end of last week. I was interested to note that the preponderantly academic economists continued to present models and to draw inferences from them which say, in effect--if I understood [correctly]--that the inflation problem is not attributable in any significant way to structural aspects of the economy. [Their view was] that the economy does have the flexibility to respond to appropriate monetary and fiscal policies. I would have to report that that is the preponderant view among the economists and the staff at the Federal Reserve Bank of Dallas, [unintelligible] to be persuaded that that in fact is the situation. And it seems to me that unless we find some way to address in a more meaningful way than we have thus far what has come to be known as the structural rigidities in the economy, we will not be able to achieve Governor Wallich=s much publicized and I think very desirable soft landing.",582
-fomc-corpus,1978,Thank you. Frank.,5
-fomc-corpus,1978,"Well, Mr. Chairman, a month ago I was concerned that the third quarter was going to come in a lot stronger than the staff had projected. In particular, I thought that was a possibility because I feared that a surge of investment might be accompanying the changed thinking that was then evident in Wall Street. And I found my reaction a little ""too bad"" in the sense that quite clearly we don=t have room in the economy for a capital goods boom. Even though in the long run that is exactly what we have to have, there is no room in the system at the moment to accommodate it. I say I feared a strong third quarter because I think that would have put us in an extremely difficult situation, with strong [rates] of growth in the aggregates in the second quarter. But the evidence coming in over the past month, although it apparently hasn=t changed Chuck=s mind, has changed mine. The May survey of plant and equipment showed a surprisingly poor performance and it is confirmed, I think, with the figures on capital appropriations and new orders for plant and equipment. The figure that I thought might be coming in just isn=t there. We have a new factor in this situation because the Proposition 13 effect, which we can=t measure very well, quite clearly is going to reduce state and local spending in California but its influences are being felt as far east as Massachusetts where we have under way a momentum for a referendum to place a limitation on the size of state government expenditures. It appears to be having a fairly general sobering effect on plans for state and local spending in general. If you look around the economy to find areas where we might get this speculative enthusiasm, the consumer sector is the only one that you can really hang your hat on. Investment has not come through. Government spending--Federal and state and local--is not going to provide much net stimulus. And it appears that housing has already peaked. But to hang your hat on the consumer sector--I agree with the staff on this--is pretty hazardous in light of the fact that in recent months we have seen the consumer finance more of his spending by credit than at any time in our history. Both the ratio of consumer credit to current expenditures and the growth of consumer expenditures are at all-time highs. The ratio of household debt to disposable income is at an all-time high. And Mark, I don=t think the average consumer thinks an awful lot about real interest rates. When he looks at a 10 percent mortgage, he says: How much of a down payment is this going to mean for me? It may turn out to be a great investment, but can my cash flow finance this situation? And with his debt already at an historic peak, the amount of further expansion in consumer debt that would be required to have the consumer continue to lead the economy ahead just seems to me improbable. So in looking at the staff projections, I think I=d be inclined to be a little more pessimistic on real growth and a little more optimistic on the price side. That's because if we do get this deceleration of real growth that we=re talking about, historically a deceleration of growth rates has been accompanied by at least some deceleration of prices as well. Geoffrey Moore had a paper in our conference along these lines--Ted, you have it and I think that might be worth passing out to everyone. Maybe I=ll send it to all the members of the Committee because it demonstrated, I thought rather convincingly, the relationships between the rate of growth in the economy and the rate of inflation, and not just the level that the economy is at. So I would expect that we=d be easing back to the 6 percent rate of inflation that we had seen earlier. But this means also that my unemployment rate figure would probably be higher than the staff has projected.",770
-fomc-corpus,1978,You don=t mean 6 percent. Do you mean 6 percent over the four quarters?,19
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,Okay. I was only making sure we got it right.,12
-fomc-corpus,1978,"Well, I don=t know what the average of the four quarters [would be], but I think we will be moving back to a 6 percent inflation rate over time.",35
-fomc-corpus,1978,"Yes, I understood that.",6
-fomc-corpus,1978,But the real question in my mind is whether we can avoid a recession in 1979. That I think is the key.,26
-fomc-corpus,1978,What would be your unemployment figure?,7
-fomc-corpus,1978,"Well, I'd say it would probably be somewhat above 6 percent. But I think we=re going to have a very difficult job, even with a lot of luck, engineering things so that we can avoid a recession in 1979. Now, I think Larry called our attention to this projected deceleration in monetary growth rates, which comes automatically from Steve=s arithmetic. Clearly, if you look at that and you say we=re going to decelerate M1 growth down to the 2 to 2-1/2 percent level and decelerate M2 growth down to the 6 to 6-1/2 percent level, then on the basis of past history, you=d have to project that we=d be moving into a recession by the second quarter of '79.",159
-fomc-corpus,1978,You'd get a credit crunch at that time.,10
-fomc-corpus,1978,"Sure. So it seems to me that the fundamental issue is not what the growth rate is going to be in '79, but whether policies can be geared to avoid nosing into a recession in say, the second quarter. Now, you might argue perhaps that a mild recession--if it could be kept mild enough--might not be all that bad. That=s off the record, I assume. But on the other hand, the economy is extremely illiquid. The corporate sector has really not gone far in building up its liquidity. The consumer sector, as I said earlier, is at an all-time historic debt position. As for the banking system, while it has worked out a lot of its problems, if we moved into another recession in '79, I can tell you that I think I=d be spending more time on bank supervision than I am now. So that=s the thing that concerns me. I think we may be building a trap for ourselves in the way we've presented our long-term ranges in terms of trying to juggle two measures--M1 and M2--that do not move in a constant way over the business cycle. So I think your idea, Mr. Chairman, of dropping M1 this time is a very good one. And I think we ought to drop it for all times.",264
-fomc-corpus,1978,That would be ideal.,5
-fomc-corpus,1978,"But at least you can tie it to this automatic transfer effect; that=s a good rationale for departing from it. And maybe you could add M3, since M2 and M3 do move together in a reasonably predictable way and we=d be out from under M1 as a guideline. I think that would be a great step forward and save a lot of trouble in the future.",77
-fomc-corpus,1978,That=s like walking out on your wife every time you have an argument!,15
-fomc-corpus,1978,The problem is we=re supporting two women and they=re running off in different directions.,17
-fomc-corpus,1978,It=s very expensive.,5
-fomc-corpus,1978,I=ve always liked a more stable woman myself.,11
-fomc-corpus,1978,I think we=re all monogamous at heart.,11
-fomc-corpus,1978,Thank you very much. Phil.,7
-fomc-corpus,1978,"Mr. Chairman, I am troubled with trying to give a forecast, troubled between what I think is coming up against what I=d like to see come. I think I=d agree with much of what Phil and Chuck have said--that it looks like we=ve got strength here that if left unchecked is going to create a sharp downturn next year. I=d like very much to cut the peaks and valleys off of that forecast. I think the consumer does have a problem with the degree of debt he=s assumed and a problem with the inflationary cycle. Inflation, I think, is going to be higher than what our staff has forecast, unless it=s hit pretty hard, and I expect it=s going to be in the 7-1/2 to 7-3/4 percent range. Unemployment looks to me like it will be very strong in the sense of a lower figure; and I wouldn=t be terribly surprised if it went down to the 5-3/4 percent range. I don=t gain any comfort out of that because I think it=s a short-run [development] which I see then causing significant adjustments into the summer of '79. I question whether we are at a sustainable level of GNP in other facets, given the level of inflation and other matters. It seems to me that expectations are rising for higher rates of interest and higher rates of inflation, and we=re even seeing some acceleration in wage rates also. So it seems to me a desirable aim of policy would be to moderate this. I don=t gain any comfort by what fiscal policy has done so far. I see an early '79 increase in the minimum wage--in the 9 percent plus range--and yet I hear them saying they want to cut wage rates. If they=re going to cut wage rates, you can=t have a 9-1/2 percent increase in the minimum wage. The forecast our staff has given us, admittedly at the low end, still requires an 8-1/4 to 9-1/4 percent federal funds rate. And if that=s in the cards just to achieve what they have [forecast], then I suspect we=re not going to be looking at the staff forecast. The artificial velocity assumptions here I think are just out of the ball park. I can=t see an 8 percent velocity change. So I guess I=m more pessimistic in one way in that I=m afraid we=re headed toward a sharp retrenchment next year unless we do something about it now.",510
-fomc-corpus,1978,Did we get your GNP number?,8
-fomc-corpus,1978,"If you want to forecast GNP without much change, you=re going to have it somewhere in the 4 percent [area]; I=d prefer to aim at a little less than 3. The unemployment figure I=ve given you.",48
-fomc-corpus,1978,Thank you. Henry.,5
-fomc-corpus,1978,"Well, it looks as though we are coming in for some sort of landing. It is not clear whether it will be a soft one and I think it very much depends on what we do. If you look ahead one year, monetary policy has time to be effective. If we do what is in the Bluebook which, of course, is a purely statistical exercise, I think we tilt the probability very clearly in favor of a recession. Now, I think we=re not going to do anything like that. We may or may not suspend [the range for] M1; that doesn=t cause the concept to go away. I would say that M1 [will be] interpreted excluding automatic transfers, given the past behavior of our group to something like this; we will think of it as moving at the upper edge of the band. We=re not going to change the band very much, if at all, and we added 1 percent to overshoots in the second quarter so that 6-1/2 really becomes 7-1/2 and that is not an unsustainable thing if you think of GNP as moving somewhere around 11 to 11-1/2 percent in nominal terms. Some rise in interest rates plus the normal uptrend of velocity will make that, I think, roughly livable. So that=s not a guarantee of a recession at all. Now, I do think we need to come down from the relatively high growth estimates that still exist. I think our potential is probably closer to 3-1/4 than 3-1/2 or 3-3/4 percent. The IMF seems to have taken us to task in their consultation for having a higher potential than seemed reasonable. We looked at the rapid growth of the labor force recently. That must have involved some borrowing from future increases, which would mean that given rather poor productivity and not a very fast growth of the labor force hereafter the potential can=t be very high. That=s why I say 3-1/4. I would think that we ought to expect and try for GNP growth of that level. It would also be confirmed and supported by the suspicion some of us have about capacity; the paper that John Balles circulated suggests that. I=ve always been skeptical about how much the capacity level really is in both the labor force and in manufacturing. So again for that reason--approaching capacity--we ought to slow down. Given all this I think we still have a chance of a recession but a less than even one. It depends very much on what happens to inflation. If inflation remains halfway moderate, we will not be driven into actions, and the economy will not be driven into reactions, that will precipitate a recession. I=d be surprised if we got away with less than 7-1/2 percent inflation; 8 percent is a more likely number and that is barely consistent with thinking that we may be spared a recession or may at worst have a growth recession.",609
-fomc-corpus,1978,From here on? From the second quarter--,9
-fomc-corpus,1978,"Yes, the next 12 months. And likewise on GNP I=d be inclined to say that we would be at 3-1/4 percent a year from now. We might have a little more, of course, over that period. Unemployment [I'd put at] 6 percent. But the main issue really depends on whether inflation becomes such that the economy and any reasonable monetary policy would create pressures that would push the economy down.",90
-fomc-corpus,1978,"Thank you, Henry. Steve.",7
-fomc-corpus,1978,"Well, you just heard a very scholarly presentation and you=re not going to get one now.",19
-fomc-corpus,1978,We=ve heard sixteen! Fifteen--you and I are left. We=re in trouble.,20
-fomc-corpus,1978,"I have no staff so I=m glad to accept the staff=s work and material. I noticed the Presidents often comment on their staff and the Board=s staff but I don=t have that problem since I don=t have a staff at all. The feeling I have is always related to where we=ve been. I think back to a year ago and unemployment was just beginning to break at this time. I=m not quite certain when it was but a little before June I think it began to subside. Employment continued to grow in great measure. Now, all I want to suggest is that the common interest today is inflation. The President has appointed an inflation fighter czar. Everybody is talking about inflation. Everybody is being asked to do something about inflation. I just don=t believe these pleas will fall entirely on deaf ears. The public is terrified about inflation. I think that when we set the national mind to achieving something we have to estimate as best we can what will be achieved. I think there will be stop-and-go on inflation in preventing its growth. We just released more South American beef into this country to offset somewhat the rising price of beef here at home and that=s kind of a courageous act; nobody=s really pleased because our farmers had a couple of tough years. So, I think a national purpose to do our best to control inflation will be respected. In any event, I=m also persuaded that there=s a little more strength in the economy than many of you are willing to [suppose]. I see in my own routine survey that the conglomerate movement is starting up again. Why the heck is the conglomerate movement starting up again? It got us into all kinds of trouble the last time it started up in this fashion but we see it happening all the time. At the present time banks who have for two years been doing their best to control their bought funds--to reduce them and to get rid of their bad loans--are now in a position where they=re more aggressive. They=ve been through that cold shower. So I think credit availability is likely and in time that will add some fuel to this recovery we=re in. I have always thought that capital investment was due to be part of this at some time in the future and it is now beginning to be. Some people are telling me that it isn=t likely to persist but if we=re talking about inflation and investment, we=ve got two connected things. If you can put in a process or machinery in a plant that will reduce your cost, you=re being very patriotic on the inflation side. So I expect to see an inflation push coming on. I don=t think unemployment will go high. All the country has been dealing with this question, or trying to deal with it, of unemployment in an affluent society. It is down to 6 percent now. All possible policies have not been used; more can be. Chances are that minimum wages can be ameliorated in the future to keep the youngsters employed who would otherwise be priced out of the market. So I think we=re going to have a fair experience with employment. When I put all this optimism together I get to the point where I think the staff forecast is, if anything, about right. I don=t think that employment will go much over 6 percent. And I don=t think inflation will go much over 7-1/2, particularly if it=s a national purpose of this country and our whole society to keep inflation down the best we can. I think the housing activities will continue. As Phillip said, it isn=t a great activity but nevertheless it certainly is [important] at the Federal Reserve Board.",737
-fomc-corpus,1978,"Steve, you put your GNP at what?",10
-fomc-corpus,1978,Four.,2
-fomc-corpus,1978,"Thank you very much. Let me make a couple of observations. One is that I would think this exercise this morning has proved conclusively that economics is a science. Second, I would ask the Secretary to retain all of these estimates that we=ve been getting since March. And when we come around to next March, we=ll be able to start putting your score cards together on how well you=ve done on what you have estimated each time. So please sharpen your estimates for next month and remember you=ll be measured over time--that is if you=re planning to stay with the Federal Reserve.",122
-fomc-corpus,1978,Do we get a raise if we=re right?,10
-fomc-corpus,1978,"No, you get a cut if you=re wrong.",11
-fomc-corpus,1978,"I=ll tell you. The deal is you get to keep your job if you=re right. Okay? Let me make a few quick observations. One [relates to] the Redbook. My experience with business people is that they=re always looking at last month=s performance and they look at it the end of the following month. They=re always, therefore, slightly out of touch [if they are large] corporations. Small corporations are in very close touch, but large companies are extremely out of touch with reality and with day-to-day reality. So I think there=s always the lag effect. In terms of where we are and where we can go, it seems to me that we're at a high level of activity that will carry us forward at substantial growth rates. I don=t see it [continuing] in the automotive or durables [sectors] because certainly there=s probably been anticipatory buying. But like everything else, that will run its course; the credit involvement and the cash flows will begin to restrain that. So I don=t see a great deal of buoyancy in that area. Housing certainly isn=t the area for buoyancy because it=s going to be headed down. As far as business fixed investment is concerned, that doesn=t have time to crank up in this period of time to create a substantial increase in our outlook for [activity]. When it comes to government spending, I think we see it going somewhat toward less stimulation. When it comes to other consumer spending, the consumer has spent so much money on durables and I doubt that the consumer will want to shift quickly into nondurables. We=re looking for a period of consolidation plus there will be credit restraints. Inventories and business I should have mentioned in passing. I think we=re going to see businesses very concerned, as they now are getting their financing from banks, because they=re unwilling to take down long-term money and they=re going to be cautious about building up more short-term debt to carry inventories at high levels in the face of their expectations. So I don=t see the conditions for a great deal of ebullience in the period ahead. I do think that what we do on monetary policy is critical. If we should crunch the economy, we can bring on a recession. If we use a steady and sure hand to restrain the growth of the aggregates and bring it down at a more measured pace, then I think we see conditions for bringing the rate of growth down to a more sustainable level that will counter inflation but avoid the overshoot that would carry us into a recession. We particularly have to be conscious of that overshoot if the amount of fiscal restraint is going to be removed toward the end part of this year at the same time some of the impact of our restraint will be taking hold. My numbers would indicate, therefore, real GNP growth over this period in the 3-1/2 to 4 percent area--probably nearer the 3-1/2 but in that area. I would think that inflation is going to take time to abate and that we=ll see 7 to 7-1/2 percent on prices in this period. If we get the kind of growth rate that I=ve indicated, I think employment is not going to be a major additional problem and I would see it in the 5-3/4 to 6-1/4 range as a prospect. And with those comments, I think we should take a 10-minute break.",708
-fomc-corpus,1978,"Well, ladies and gentlemen, let me call the meeting back [to order] and remind you that we have a luncheon at one o'clock and a meeting on membership at 2:15 p.m. And I'd remind some of you that we=re meeting tomorrow on delegation. While this morning=s session has so far been outstanding, particularly in the degree of eloquence with which each of you has spoken, it has not been outstanding with respect to the degree of time you took to be eloquent. So I would like you now to be both eloquent and brief. The results will be the same, and you=ll be able to have lunch and have your meeting on important membership issues. The first order of business, however, is to hear the report on open market operations since the last Committee meeting. Peter Sternlight.",166
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you very much, Peter. Any questions? Bones.",12
-fomc-corpus,1978,"Peter, did I understand you to suggest that the dealers would be upset with an increase after today=s meeting?",22
-fomc-corpus,1978,"If something were done in a very highly visible form just in the next day or so, I think that might be a bit [upsetting] because they=re bidding on a coupon issue. But they would not be that surprised by something that developed by the end of this week.",56
-fomc-corpus,1978,"Any other questions? We need the approval of the Committee to ratify transactions since the previous meeting. Hearing no dissent, we will record that as approved. Let's turn to the comments of our chief economist, Steve Axilrod.",46
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you very much, Steve. Are there any questions to Steve? Yes, Dave.",18
-fomc-corpus,1978,"Steve, I wonder if you have any thoughts about the possibility of a leveling of interest rates five or six months from now.",25
-fomc-corpus,1978,"Well, President Eastburn, if I abstract from that 2-1/2 percent and assume that the Committee permits this--doesn=t attempt to make up, in effect, for the second-quarter overshoot and doesn=t attempt to make up for the third-quarter overshoot--then I believe that it is quite possible that interest rates will begin to level out for a while. But then beyond that point, where you then get into the question of whether that generates further inflation, you wouldn=t have a leveling out for long. That would have to be assessed, of course, depending on the economy at that point. But in terms of this arithmetic exercise I see no hope. If I track past Committee behavior and average it out, I believe there=s some hope for the short run.",159
-fomc-corpus,1978,"Well, gentlemen we have two major matters of business: (1) the directive and (2) the language. I would suggest that we run through the Committee to get your suggestions for the directive first and look at the language second. Since I cut our Vice Chairman short the last time and left him to the end, the least I can do is to put him up front today. Paul, would you like to lead off?",86
-fomc-corpus,1978,"Well, I=ll try to be short, Mr. Chairman. Despite the comments I made earlier on being skeptical about the longer-term outlook for business, I do think it=s strong at the moment. We do have these inflationary pressures. We do have speculative concerns that have been referred to. I think we have an expectation in the market of some Federal Reserve tightening and I think we probably should meet that expectation or we would be feeding some of the adverse speculative feeling. I do have some concern over the value of some tightening in terms of the continuing stability of the dollar internationally as well. Therefore, I do think we should move. The 7-1/2 to 8 percent range seems right to me and the B alternative, with some implication that we go to 7-3/4 percent as promptly as the people at the Desk think that=s advisable. I would be a little reluctant to go beyond that but not absolutely allergic to it if that=s necessary--if the aggregates come in on the high side. That raises the question of what ranges we should put there. Those ranges specified under the B alternative look awfully high in terms of our longer-range objectives. I recognize that the projections are also fairly high. It seems to me that we could at least widen the range on the downside, because I don=t think we want to ease very [readily], and I would suggest a lower level of 5. And if we widen the range a little bit, we could leave it 5 to 10 percent. As I say, if it really got to the top part of that range, I think I would go to 8 [on the funds rate], but I would do it with some reluctance. Perhaps the way to express that would be a money market directive and the new language or some other kind of device to make clear that, while we might be willing to move to 8, we'd do it with some due deliberation after a good deal of further evidence comes in.",406
-fomc-corpus,1978,"Thank you, Paul. Why don=t we run down the Committee alphabetically. Ernie.",19
-fomc-corpus,1978,"Mr. Chairman, I would accept Paul=s suggestion and the alternative B suggestion for 7-1/2 to 8 for the federal funds range. But I would like somewhat narrower and significantly lower ranges on the aggregates--4 to 8 on M1 and 4 to 9 on M2--with the directive in the aggregates form and embracing most of your suggested new language or, as far as I=m concerned, all of it. I'd have a further instruction to the Desk that they move 1/4 point of the 1/2 point range, assuming the aggregates come in strong, in each of the first two weeks. And if at that time we=re at the top of both the fed funds and the aggregates ranges we would have a meeting for further consideration of the situation.",161
-fomc-corpus,1978,Phil Coldwell.,4
-fomc-corpus,1978,"Mr. Chairman, I approach this from a standpoint that we=re having too high a rate of inflation and, therefore, have to cut it back. If you want to translate this into what we should do now, I think we need to tighten up and that means raising the federal funds rate. I would go to 7-3/4 percent promptly. I would leave ourselves leeway of at least 1/4 point, preferably 1/2 point, above that. And I wouldn=t be reluctant to take it up there if the aggregates are growing above what I consider to be very high figures in relation to what we have set as targets or even in relation to what we have accomplished over the last year. So I would put the federal funds range in the neighborhood of 7-1/2 to 8-1/4; I would put the aggregates limits at 4-1/2 to 9-1/2 on both M1 and M2 and that gives me a midpoint of 7 percent, which I think is still too high. Nevertheless, I'm willing to buy it because of the projections for this. But I certainly would be very reluctant to see us accept anything above 9-1/2 percent.",252
-fomc-corpus,1978,Thank you. Dave Eastburn.,7
-fomc-corpus,1978,"Well, I think there are risks in further tightening, but I think they are risks that we have to take, and I like Paul=s prescription. I think that we should move the funds rate up to 7-3/4. We might want to pause at that time and consult depending on what the aggregates show. And somewhat lower on both the top and the bottom of the ranges I think would be preferable--perhaps something like 5 to 9 for both M1 and M2.",100
-fomc-corpus,1978,"Thank you, Dave. Steve Gardner.",8
-fomc-corpus,1978,"I can agree with Paul and Dave on the measures specified. I=m a little bit concerned about going up because everybody expects it, and the market has discounted it and everything else but I guess there=s no alternative.",43
-fomc-corpus,1978,"They=ve got to be right once in a while. Would you prefer the 5 to 10 or the 5 to 9 range, Steve?",32
-fomc-corpus,1978,I would much prefer 5 to 10.,10
-fomc-corpus,1978,Thank you. Phil Jackson.,6
-fomc-corpus,1978,"I would concur that we need to go up [on the funds rate]; I wouldn=t move as promptly as has been discussed. I would move perhaps over the next week to ten days to 7-3/4 instead of jumping immediately, as I got the sense was the others= inclination. I am concerned about lowering the ranges from the point of view that that means a lower midpoint. And if the present projection of about 9 to 9-1/4 percent for M1--and not too much different for M2--for the month of June is correct, that means you would force yourself into [needing] a very weak July or an automatic rise of the federal funds rate. It strikes me that that is not the sense of what I heard [people] say. Some of you said otherwise--that you wanted to consult before you made any other precipitous action. For that reason it strikes me that by lowering that range you would force yourself into an inconsistent position.",200
-fomc-corpus,1978,"Phil, you could use the money market directive.",10
-fomc-corpus,1978,"Yes, but even then it strikes me that you=re running a danger in that sense. So for that reason I would be inclined to use the 6-1/2 to 10-1/2 and the aggregates directive. If we=re going to use a money market directive, it strikes me that the top might well be 9 to 9-1/2 because I think if we have a July that runs 9 percent or better there=s a basis for genuine concern and perhaps for further action. But if we=re going to use a monetary aggregate directive, it strikes me that you force yourself [to act]. Did I express a preference, Mr. Secretary? I=m not sure I did. I=m willing to go either way based on what the Committee okays as the top of the range.",165
-fomc-corpus,1978,"Either way. Well, we always like flexibility! Chuck.",12
-fomc-corpus,1978,"I would be reluctant to cut the aggregates limits because I think there=s a considerable exposure to July being a fairly big month on M1, which has been the case in the last number of quarters for the beginning month of the quarter. Also, M2 [growth could be strong] with the new money market certificate, which under the circumstances could be pretty saleable. That first week=s result is that sales of the certificate are very large, indeed. And I think we ought to recognize the probability that for M1 par for the course is 8 percent and this range has only an 8-1/2 percent midpoint. So if we just abstract from our preferences and look at what=s going on, [the staff has] something that is already pretty moderate here in terms of a projection. If you want to widen [the range], as Paul did--and I certainly don=t see any harm in widening on the bottom--I would also widen on the top and make it 5 to 11 for M1, indicating a certain amount of uncertainty as to what might happen with regard to that figure. For M2 I think we might take 6 to 10. Now, on rates, I would point out that we=ve had a considerable adjustment in rates thus far this year. I just looked at my book and compared to the fourth quarter, the funds rate is up 125 basis points, the bill rate is up 60, the triple A long-term corporate is up 75, and the primary mortgage rate is up 75 basis points. Those are pretty considerable increases. And I do think that we can get to the point here where we endanger the prospect for the kinds of spending that depend on the flow of credit in the period ahead. So I would think that from this point on we ought to move pretty gingerly. I could accept the 7-1/2 to 8 percent range, Mr. Chairman, but I think I would move very moderately within that range in an upward direction--maybe, given the market, just a little knock here in the next few days to 7-5/8 or something like that. But choosing the 7-1/2 to 8 percent range, I wouldn=t want to bias the outcome by taking aggregates [ranges] that are so low that we=re almost certain to signal that we=d be at the top of the funds range by the time the period is over.",497
-fomc-corpus,1978,"Thank you, Chuck. Henry.",7
-fomc-corpus,1978,"Well, I would like to move up the funds rate. I=d like to give us room to go from 7-1/2 to 8-1/4 but with consultation at 8. I think we have to recognize that, whatever we call it, we're really on a funds rate target and that every move now is very sensitive, so we ought to have more consultation. As far as the directive is concerned, I still would prefer an aggregates directive because it may provide for a smoother movement over the month than a money market conditions directive. I wish I could find a way of pulling down the ranges somewhat and getting them more in line with what we say our long-term one-year ranges are. But that does set in motion immediately a movement of the funds rate. So I=ll go with the staff=s alternative B, 6-1/2 to 10-1/2 percent for both.",186
-fomc-corpus,1978,"Thank you, Henry. Mark.",7
-fomc-corpus,1978,"Let me make just one comment on interest rates, since so many people have commented on them, before I give my projections. We have moved interest rates up fairly significantly this year. And yet if you look at the increase in rates in this expansion relative to a comparable point in previous expansions, we=re way below where we normally would be. And given the fact that inflation is higher than in those earlier expansions, it seems to me that no matter what your persuasion--whether it=s monetarist or Keynesian or anything else--our interest rate policy has been very moderate indeed. And the level of real interest rates is very low. The 90-day Treasury bill rate currently is zero in real terms. If we=re talking about being essentially at full capacity with inflation accelerating, I find it difficult to be concerned about a rather substantial upward movement in interest rates. However, being the moderate person that I am, I must say, Mr. Chairman, that I=m troubled by the fact that there=s always a reason why we can=t do what we kind of would like to do. Somehow it seems to me that we ought to force ourselves to at least push in that direction. I like Ernie Baughman=s suggestion very much of having an M1 range of 4 to 8. I think it would do exactly as you suggest, Phil: It would force us quickly to move the rate up, which is precisely what I=d like to see us do. I=d like to have a federal funds range of 7-1/2 to 8-1/4 and I'd be happy to have discussions before we move above 8 percent. But I think we must go toward 8 relatively rapidly. On M2, I think 6-1/2 to 9 is a more prudent range than the one that has been recommended.",373
-fomc-corpus,1978,Thank you very much. Willis.,7
-fomc-corpus,1978,"Mr. Chairman, I have a feeling that we stopped reading on page 6 when the problem got severe and didn=t look ahead to what is an alternative for us.",34
-fomc-corpus,1978,Some of us may have stopped earlier than that!,10
-fomc-corpus,1978,"My feeling is that market conditions are more favorable for action now than they will be in the future, with possibly accelerating credit demands, and that we should push now to try to moderate things rather than be faced with rate increases in the fall. My inclination would be a federal funds range of 7-1/2 to 8, with narrower ranges [for the aggregates, which] probably would force us to look at it. I thought 3-1/2 to 8-1/2 [on M1] and perhaps 5 to 9 on M2.",117
-fomc-corpus,1978,Thank you very much. John Balles.,9
-fomc-corpus,1978,"Some of my colleagues happened to hear me say my glasses fell apart when I came into the room this morning so I suffer from a little case of myopia and I guess I lean toward short-sighted policies today. That was supposed to be a joke! My main concern for at least the last two years has been the lack of a systematic way of linking our short-run ranges with what we allege to be our long-term goals. And I think we=re seeing another case of that now. I just don't think it's going to be possible to ever get down to the midpoint of what we said we would do on the long-term ranges, but that=s a subject for next month. At the same time, I feel very strongly that if we let the aggregates run too strongly in the direction of an overshoot, it will feed back in a way that will really harm the economy by even worsening inflationary expectations and everything that that implies for the behavior of both consumers and businessmen. I don=t think there=s any choice but to tighten up right now and I like some of these formulations I=ve heard, particularly Ernie Baughman=s, and I would go right along with it: 7-1/2 to 8 on the funds range, move quickly toward the 7-3/4 midpoint, but bring down the ranges for M1 and M2 to something like 4 to 8 and 4 to 9. I think it=s going to be easier to bite the bullet now when the economy is still performing very strongly than it will be by later this year when I expect the economy to be slowing down somewhat.",331
-fomc-corpus,1978,Thank you. Bob Black.,6
-fomc-corpus,1978,"Mr. Chairman, I asked Art Broida if he would distribute a table here which I think brings into focus the major problem as I perceive it. It=s not a very complicated table, and I think we=re all aware of what it says. But it does go back to the first period when we set our target ranges a year ahead, back in March of 1975. And it goes on to the last one that=s completely filled in--the one that we have projected for the current quarter, the second quarter of '78. If you look at this table, you can see very quickly that M2 as of late has been doing pretty reasonably, I think to a large extent because of Reg. Q. But look at the performance on M1 for the last 3 complete periods and it looks pretty lousy and the projection for the period ending this quarter is worse. I think this has certainly increased inflationary pressures on the economy and I think it has done real damage to our credibility. There are several ways to deal with this. What I=m really suggesting is somewhat along the lines of what Phil Coldwell suggested and also what John Balles was saying. I would propose to deal with this mostly in the next quarter. Specifically, I have in mind trying to get this last line, the third quarter of '77 to the third quarter of '78 down a little bit more toward the top of our target. I think it=s foolhardy to suppose that we could get it there, and I=d take 7.3 as what I hope it comes out to be. That=s 0.8 percentage point above the top of our range and this would imply third-quarter growth at 5.6 percent, if we hit it, and 7.7 percent when you compare the third quarter to the first quarter. Now, if you assume that the monthly pattern of June and July is something like we have had in the past, a rate of about 5.2 percent would be consistent with that. So I would think of an M1 range of 2 to 6 percent and M2 of 4 to 8. I=d like to emphasize that this is in the spirit in which you said last time that these ranges should be viewed, Mr. Chairman. I don=t expect that we=ll hit these [ranges], but I would expect, as others have, that this would [result in] some upward movement in the federal funds rate through our failure to achieve them. So far as the federal funds rate is concerned, I would think a range of 7-1/2 to 8-1/4 would probably be about right, with an asymmetrical midpoint of 7-3/4 and the Desk moving soon--if we wait a day or so, I wouldn=t object--right to 7-3/4 and going as high as 8 without checking back with the Committee. I might add that I realize, as Dave Eastburn pointed out, that there are risks in doing this, but as he also pointed out there are risks in the other direction, too. The choice is either a risk of a relatively mild recession in the near future versus a more serious recession down the road. So I would opt for this sort of approach in the period right ahead. And so far as the form of the directive is concerned, I think the change you suggested last time was excellent and in fact made a [difference]. To me that really dealt sufficiently with the problem that you wanted to deal with. The new formulation goes beyond that to me, emphasizing money market conditions to the exclusion of the aggregates as trigger points for action, and I would prefer to leave it just like what we ended up with the last time.",761
-fomc-corpus,1978,"Thank you, Bob. Roger.",7
-fomc-corpus,1978,"Mr. Chairman, I think Paul Volcker fairly well expressed my view. I have just a couple of comments about the range of 5 to 10. Somebody around the table mentioned that July could come in much stronger than is being projected by the staff and I guess I am fearful that that will occur. It seems that in each of these quarters for the first month of the quarter we have missed [always] on the downside and have been surprised. So, I=m concerned that July may come in very strong. In that context, the M1 range of 5 to 10 implies, I believe, a growth rate of about 12 percent in July for M1 if the June growth rate as projected by the staff is correct. That=s a very vigorous growth, it seems to me.",161
-fomc-corpus,1978,To be at the upper end.,7
-fomc-corpus,1978,"At the upper end--that=s correct. If we get that kind of growth, I would hope that the Committee, whether it be in consultation or otherwise, would indeed move onto the 8 percent funds rate level before the meeting next month. I'd really suggest Paul Volcker=s range of 5 to 10, with a federal funds range of 7-1/2 to 8, and a money markets condition directive--that is, to move to 8 only in the case that July does come in much stronger than is now projected by the staff.",114
-fomc-corpus,1978,Thank you. Bones.,5
-fomc-corpus,1978,"Mr. Chairman, admittedly interest rates have been moving up. I, nevertheless, have failed to detect that it has deterred very much the hectic pace of bank lending. So I think it=s appropriate in that context, plus our enormous concern for continued inflation, to continue our move. I would like to see the funds range under alternative B, 7-1/2 to 8-1/4 and moving as promptly as appropriate to 7-3/4 and to 8 if necessary without consultation. To maintain some indication that we=re trying to work these ranges down, I=d like to see us at maybe 6 to 10 for both M1 and M2.",139
-fomc-corpus,1978,Thank you. Bob Mayo.,6
-fomc-corpus,1978,"Well, Mr. Chairman, I think our dilemma here is pretty obvious, even to those of us who feel that some sort of an economic growth now and a slide maybe next year is likely. Again, I think we have a responsibility to exercise a very careful monetary policy that will steer us on this narrow road. We can=t take the peaks off completely or fill in the valleys; our bulldozer isn=t that big. I think we can have a real effect, however. And although I=m not eager to go to 7-3/4 in the next week or two, I think we ought to take a stance that will continue to see the string that we have here fairly taut in terms of the market pressures and the market understanding that indeed we are working toward a somewhat tighter policy as long as the growth signals are as strong as they are now. We can reverse that policy later on. I hope we will do it sooner than we did last time. I would buy the 7-1/2 to 8 percent with a money market directive. I have mixed emotions, as many of us seem to, on the ranges. I am perhaps even more skeptical than Roger on the July figures; we just haven=t developed any confidence in our [projections for the] first month in a quarter. If it weren=t for that, I would press for a little lower range, but I=m satisfied with 5 to 10 on both of them.",296
-fomc-corpus,1978,"Thank you, Bob. Frank Morris.",8
-fomc-corpus,1978,"Mr. Chairman, I guess I=m in a minority of one so far. Since I now feel that the third quarter is going to show the slowdown that the staff has been projecting for some time, I=m a little less hawkish on monetary policy than I would otherwise have been. So I would go for the alternative A funds range of 7-1/4 to 7-3/4 percent, with a money market directive, and I would stay at 7-1/2 until such time as we get confirmation that the July aggregates are in fact coming in strong. I=d use a range of 5 to 9, which means that if we get another 9 percent growth in M1 in July we would move to 7-3/4. At the current position of the economy, it seems to me that that is a sufficient move.",176
-fomc-corpus,1978,"Thank you, Frank. Larry.",7
-fomc-corpus,1978,"For M1, 4 to 8 and for M2, 6-1/2 to 9. And the most important thing that we should do is to attempt not to inhibit the rise of the federal funds rate. Being a moderate like my friend Mark Willes, I'd say 7-1/2 to 8-1/4. I=d rather go above that and I do recommend to everybody who is sitting at that side of the table, as well as this side, the chart on what has happened in the past. We really haven=t tightened our federal funds rate significantly. We have a long, long way to go, in my judgment, before it would have a detrimental effect on the economy. That=s what I see.",153
-fomc-corpus,1978,Not if you look at absolutes.,8
-fomc-corpus,1978,"Well, we=ve had a complete rundown except for my comments. Let me just take these in order. For the range on the fed funds rate, we have one, two, three, four, five, six, seven of the voting members, not counting myself, who prefer 7-1/2 to 8, which would indicate the majority. I don=t know whether those who preferred an 8-1/4 [upper limit] would be willing to accept the 7-1/2 to 8. It appears that the members also have a wide majority in favor of moving to 7-3/4 any time between tomorrow and two weeks, which would indicate Friday or Monday. Now, we have more trouble with the M1 and M2 ranges. We=ll probably have even more trouble in trying to decide on the language. But let=s see. Seven of them would be 9 to 11 on the upper side and 4-1/2 to 6-1/2 on the bottom side on M1. I don=t know quite where we come out on this.",228
-fomc-corpus,1978,Looks like 5 to 10 would be a good average.,13
-fomc-corpus,1978,"Yes, I think that looks about right, Phil. Let me, therefore, formulate [a proposal]. If 5 to 10 is about right [for M1], it looks like it=s almost the same thing for M2; I don=t really see that much variation. Let me suggest for the ranges, just for a straw poll, 5 to 10, 5 to10, and 7-1/2 to 8 [on the funds range], moving to 7-3/4 probably by the end of the week.",113
-fomc-corpus,1978,By the end of this week?,7
-fomc-corpus,1978,"End of this week or early next week. Chuck, what was your view?",16
-fomc-corpus,1978,"Well, I would want to move to 7-5/8 by the end of this week. There is also this financing question that Peter raised, and to do a quarter by the end of this week may be a little--",47
-fomc-corpus,1978,I don=t think that would be a problem.,10
-fomc-corpus,1978,"I think the market is expecting it, so I don=t think it=s a big problem if we do it now or early next week.",28
-fomc-corpus,1978,Would this be an aggregates [directive] or--,10
-fomc-corpus,1978,"Well, let=s come to the language before we--",11
-fomc-corpus,1978,It makes some difference.,5
-fomc-corpus,1978,"Yes, I can understand that.",7
-fomc-corpus,1978,"Is there any significance to the fact that we would have our M1 and M2 ranges alike? It normally isn=t that way; they=d both be 5 to 10, if I understand you. Would that signal anything unusual? We=ve never done that.",55
-fomc-corpus,1978,"No, I think [people might ask] to be sure it's not a misprint. [Unintelligible.]",24
-fomc-corpus,1978,I think there is some case to be made for 6 to 10 on M2. We typically have a smaller range and it seems to be growing well very recently and it would make them a little different.,43
-fomc-corpus,1978,"One, two, three, four had a 6 or 6-1/2; I think your point is well taken. Let me come to the language for a moment and then I=ll come back to those numbers. I would first like to find if there=s a sentiment--we=ve all had now a month to look at this proposed language--in favor of this language. My own sentiment obviously is, though I don=t take any pride of authorship in it because I didn=t write it. It was written by some brilliant leaders at the Federal Reserve; it=s associated with my interest in trying to accomplish some things with the language. I do think it is helpful. Also, in the context that we are now operating, on page 2 of the language--if we use it--my preference would be to let the Desk operate on the language in line 28. I just feel that under present conditions to let the Desk operate in connection with the ranges would be better than picking the midpoint. But that=s just a personal preference. Now, is there sentiment to go to this kind of language? I heard only one negative comment.",234
-fomc-corpus,1978,"Mr. Chairman. I have only one problem, and that=s [with] lines 12 and 13; if that were moderated, I wouldn=t have any trouble with the rest.",38
-fomc-corpus,1978,"Okay, Phil, what would you like?",9
-fomc-corpus,1978,"It says: ""In the short run the Committee seeks to achieve bank reserve and money market conditions consistent with the longer-run ranges for the monetary aggregates.""",30
-fomc-corpus,1978,"You want to take out ""in the short run""?",11
-fomc-corpus,1978,"What I wanted to put instead was: ""In the short run...seeks to achieve...that are consistent with the expected growth rate of the aggregates.""",31
-fomc-corpus,1978,To achieve bank reserve and money market conditions that are consistent with the expected growth rate of the aggregates?,20
-fomc-corpus,1978,The longer-run growth rate or the short-run?,10
-fomc-corpus,1978,"Well, I=m thinking of both long and short. What bothers me about the--",17
-fomc-corpus,1978,I would expect it would be troublesome now.,9
-fomc-corpus,1978,This is a linkage to the long-run statement of objectives.,12
-fomc-corpus,1978,"Well, I understand it is. But we=re really going to do what we=re saying, [and] we haven=t been doing [that].",30
-fomc-corpus,1978,That=s for sure.,5
-fomc-corpus,1978,And to say that in the short run we=re going to seek these bank reserve and money market conditions consistent with the 4 to 6-1/2 percent--,34
-fomc-corpus,1978,"I know, but the problem may not be in the language. It may be in the specifications.",20
-fomc-corpus,1978,"But the language says what we=re trying to do, supposedly.",13
-fomc-corpus,1978,"Suppose we said ""reasonably"" consistent with the long term or used some qualifying word. Is that what you=re worried about?",27
-fomc-corpus,1978,"Yes, that=s what I=m worried about.",10
-fomc-corpus,1978,"""Expected"" gets us into a bit of a problem, I think.",15
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,It sure does.,4
-fomc-corpus,1978,The time period is just too difficult.,8
-fomc-corpus,1978,We=ve got the right words at the wrong time.,12
-fomc-corpus,1978,That=s right! We are just not doing it.,11
-fomc-corpus,1978,We=re just not doing it. And this was a directive [from] this Committee.,18
-fomc-corpus,1978,"You want to say ""hopes to achieve""?",10
-fomc-corpus,1978,"""Moves in the direction of the longer-run ranges for the aggregates.""",14
-fomc-corpus,1978,"""Somewhat"" in the direction.",8
-fomc-corpus,1978,"""Consistent with moving toward""?",7
-fomc-corpus,1978,"The problem is really more fundamental. It says that we have an objective for the year, which Mr. Coldwell says we don=t really have.",30
-fomc-corpus,1978,"Come on. We just don=t do it, and we are instructing the Desk to do it.",21
-fomc-corpus,1978,"Instead of changing the words, why don=t we just do it?",14
-fomc-corpus,1978,"Now, that=s another good alternative.",8
-fomc-corpus,1978,That=s an alternative.,5
-fomc-corpus,1978,I=m not sure how good it is.,9
-fomc-corpus,1978,I think the only instruction to the Desk starts in line 15. The other is an expression of what the Committee thinks it=s trying to do and [then it] instructs the Desk. The Desk can operate [unintelligible] telling them about the ranges.,55
-fomc-corpus,1978,"Mr. Chairman, I think all this suggests that we=re going to continue to have trouble until we get rid of the 2-month range as an operating device.",33
-fomc-corpus,1978,"I agree with that, but I haven=t been able to do that yet.",16
-fomc-corpus,1978,"Mr. Chairman, following what Frank says, you might consider this on lines 23 to 26 in an effort to downplay the importance of the short-term ranges. Instead of saying in the June-July period M1 and M2 in the following ranges of tolerance, can we say in the June-July period M1 and M2 in the annual ranges established in April? That is, we're [tying] the relationship of what we=re doing to our longer-range targets instead of to the short-term targets, where there really is--",110
-fomc-corpus,1978,"The problem, Larry, is that the 2-month range is largely dictated by what happened in the first month. It has nothing to do with the long-term ranges.",34
-fomc-corpus,1978,It=s already finished.,5
-fomc-corpus,1978,We ought to go to a 3-month range.,11
-fomc-corpus,1978,Yes. MR. MAYO(?). I vote for that.,13
-fomc-corpus,1978,"I think you complicate it, Larry, because your instruction goes on to say that you look at these in deciding whether to move [the funds rate] within [its range]. You can=t go back and look at both. Let me do this with those who are voting members: Just by a show of hands temporarily indicate--I=m not freezing this language and I=m not skipping Phil=s point--who is willing to see if we can make this language of the current proposal, Attachment A, acceptable? I gathered there was [favorable] sentiment; I=d like to see it. Okay, I think we=re all in agreement. So now, is this such a serious [problem]? We=ve been doing it so long.",149
-fomc-corpus,1978,This has been in [the directive].,8
-fomc-corpus,1978,Forever. Is this the time to [change it]?,11
-fomc-corpus,1978,This isn=t a change.,6
-fomc-corpus,1978,"This is the same kind of language we=ve been using all along, isn=t it? I agree with you that we haven=t been meeting it. I=ve always read into it that longer run means beyond a year even.",47
-fomc-corpus,1978,"It seems to me that if we=re not doing it, we ought to change the range. I mean that=s--",24
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Well, we ought to raise the range of M1--that=s the truth--or get rid of it. We have given our staff an impossible task to fit economic reality in ranges that are inconsistent with it. That=s what we have been doing.",51
-fomc-corpus,1978,You really don=t deal with the problem by fiddling with the sentence.,15
-fomc-corpus,1978,"You might change it to ""reasonably consistent."" You probably ought to have that in there in the first place.",23
-fomc-corpus,1978,I think we=re in some danger of talking ourselves into a change in policy. I wouldn=t give up the one-year ranges quite that easily even though they are unrealistic.,34
-fomc-corpus,1978,"We ought to change them to be realistic, but we can't even do that right now. We don=t even consider it until next month unless--",29
-fomc-corpus,1978,"It=s a modification, Mr. Chairman, but I think I=d be willing to buy it with ""reasonably consistent.""",25
-fomc-corpus,1978,All right. Does that offend anybody?,8
-fomc-corpus,1978,"Or does ""broadly"" offend anybody?",10
-fomc-corpus,1978,"""Broadly consistent""?",5
-fomc-corpus,1978,Broadly? Generally? That=s an even better word. SEVERAL. Broadly.,19
-fomc-corpus,1978,We bought broadly. Anybody else?,7
-fomc-corpus,1978,"I have an editorial [suggestion]. It says ""weekly average federal funds rate,"" which just has a degree of precision that--",26
-fomc-corpus,1978,What would you like?,5
-fomc-corpus,1978,"Just take out ""weekly average.""",7
-fomc-corpus,1978,"Does that mean daily average? I just want to be sure I understand, President Volcker, because that weekly average was in there to give day-to-day flexibility and--",34
-fomc-corpus,1978,I don=t want to eliminate the day-to-day flexibility but I don=t like the implication. I don=t want [the Desk] to move on a Wednesday just to get the weekly average.,39
-fomc-corpus,1978,"Do you want to take the word ""weekly"" out and leave ""average"" in?",18
-fomc-corpus,1978,Leave average in. Maybe that would--,8
-fomc-corpus,1978,Steve?,2
-fomc-corpus,1978,Average of what? A monthly average?,8
-fomc-corpus,1978,So the Desk isn=t tied each day [to a] target; when it changes it would be an average--,23
-fomc-corpus,1978,"When you say ""initially"" keeping the average funds rate you can=t mean [the average over] three months. What do you want to do? Leave ""weekly"" in or take it out? How many want to leave it in? [Pause] How many want to take it out? The ""ins"" have it. On page 2 we have to jot in some figures later. And if we decide on lines 27 and 28, we=ll know how you all feel. My preference is line 28. How many prefer line 28? One, two, three, four, five. How many prefer 27? One, two, three, four. There are some non-voters.",146
-fomc-corpus,1978,I=m not sure the question was clear to some.,11
-fomc-corpus,1978,"This says ""giving approximately equal weight to M1 and M2 if their rates of growth appear to be""--and you have a choice--""significantly above"" or ""significantly below"" their midpoints. That=s one choice. The second choice is ""close to or beyond"" the upper or lower limits. Normally, I would prefer 27 but in the touchy situation we=re in at this time--with July being such a seasonally unpredictable month--I thought the Desk would be better served to give them the right to operate within our chosen range if they were allowed to go close to the upper or lower limits. If we get to the lower limits, we certainly don=t want to cut the rate; if we get to the upper limits we certainly are all going to be able to express our views but we wouldn=t be compelled to make a [move].",178
-fomc-corpus,1978,"Mr. Chairman, if I might add: If the Committee adopts this form of a directive, the staff would anticipate providing these two alternative languages each time just as it provided a money market directive and an aggregates directive.",43
-fomc-corpus,1978,Sure. Last month I would have preferred line 27; this month I prefer line 28 because I think we are going to have a very tough time operating--,33
-fomc-corpus,1978,Have we set the upper limit on--,8
-fomc-corpus,1978,"No, that=s the point. That=s why I wanted to get this settled first and then you=ll decide on--",25
-fomc-corpus,1978,I can see the rate then staying put while the aggregates move and then comes the moment for their [unintelligible] when they have to take a jump. That=s not a happy situation.,40
-fomc-corpus,1978,"In a range of 7-1/2 to 8 on the funds rate with a 7-3/4 percent midpoint, what=s the jump? If the jump is up a quarter or down a quarter--",45
-fomc-corpus,1978,At that point we might have a consultation to do another 1/4 so that the whole move then would be 1/2 and we might not have the courage to do that. I=d rather let the market do it for us.,49
-fomc-corpus,1978,"I will still put the question to you. Line 27 now is operating off the midpoint. How many prefer that? One, two--no, we have to have voting members only. One, two, three, four, five. How many prefer line 28? One, two, three, four, five. Who=s missing?",69
-fomc-corpus,1978,One of the Board members.,6
-fomc-corpus,1978,That only makes 11.,6
-fomc-corpus,1978,"I=ll call the roll. That=s easier. Just say 27 or 28. Ernie Baughman 27 Phil Coldwell 27 Dave Eastburn 27 Steve Gardner 28 Phil Jackson 28 Bill Miller 28 Chuck Partee 28 Paul Volcker 28 Henry Wallich 27 Mark Willes 27 Willis Winn 27 All right, 27 won, so 27 we=re going to use. That=s simple. It=s a very democratic process. Now, we can, therefore, go back--it makes the ranges a little more difficult. The ranges we had talked about a moment ago were 5 to 10 and I think it might--pardon me? Does that mean more leeway would be desired by anyone who has expressed ranges before? Is it 5 to 10?",168
-fomc-corpus,1978,"Yes, I would feel with an aggregates directive that I would need 5 to 11.",19
-fomc-corpus,1978,"Mr. Chairman, I had moved [my ranges] in a lower direction because mine were predicated on being able to go as far as 8-1/4.",35
-fomc-corpus,1978,"All right. How many would prefer 5 to 11? Let=s just take a straw vote on that. Four of us. How many would prefer 5 to 10? One, two, three, four. And how many would prefer something else?",53
-fomc-corpus,1978,"Well, 5 to 9 would be stretching it a bit but I could ride there I guess.",21
-fomc-corpus,1978,Don=t give up.,5
-fomc-corpus,1978,"Well, I would prefer 4-1/2 to 8-1/2.",19
-fomc-corpus,1978,We=ll go back and ask: How many now want 5 to 10? That takes care of that. All right we=ve got 5 to 10.,36
-fomc-corpus,1978,I think 6 to 10--,8
-fomc-corpus,1978,"Now on M2, what is your pleasure? How about 6 to 11? All right, let=s say 6 to 10. How many will accept that? It looks like a clear majority. We, therefore, need a final vote, Mr. Secretary.",56
-fomc-corpus,1978,"Mr. Chairman, there was some earlier reference to moving from 7-1/2 to 7-3/4 but there was no comment in connection to the additional 1/4 point of the range. Is there any need for comment to clarify that?",54
-fomc-corpus,1978,"As I read the consensus, it was the 7-1/2 to 8 percent range, moving to 7-3/4 by the end of the week and thereafter operating on the directive. If we have strong aggregates, we go to 8. We=re going to put [that] in the language. The language would read ""During the period until the next regular meeting, System open market operations shall be directed initially at attaining a weekly-average federal funds rate slightly above the current level. Subsequently, operations shall be directed at maintaining...within a range of 7-1/2 to 8 percent."" On page 2, we use 5 to 10 and 6 to 10 and we use line 27. That's the sum of what we got individual votes on. Now, may we call the roll for a final vote on that version?",177
-fomc-corpus,1978,"Mr. Chairman, in the background paragraphs, on line 17, according to the latest data we should change the 1-1/2 percent to 2 percent--that being the decline in the trade-weighted value of the dollar against major foreign currencies as of this morning.",57
-fomc-corpus,1978,It would read 2 percent instead of 1-1/2. Now call the roll on the directive as outlined.,25
-fomc-corpus,1978,Chairman Miller Yes Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Gardner Yes Governor Jackson Yes Governor Partee Yes Governor Wallich Yes President Willis No President Winn No Nine to two.,46
-fomc-corpus,1978,We have a vote. Thank you all very much. Now we need to consider in the next seven minutes the memorandum that Steve Axilrod and Peter Sternlight have been putting together as their great debate. It may go on forever since we never seem to get to it. I don=t think we=re going to sell any agencies if we never get to this subject.,74
-fomc-corpus,1978,Maybe that=s part of the plan.,8
-fomc-corpus,1978,Is it so urgent that we can=t put it over [to the next meeting]?,17
-fomc-corpus,1978,"The only practical problem may be that I think Peter has been somewhat reluctant to undertake his normal operations in agency issues because this is pending. If he felt free to do that, I see no problems in holding.",42
-fomc-corpus,1978,In sales you mean?,5
-fomc-corpus,1978,Both sales and purchases.,5
-fomc-corpus,1978,"Well, you all have had this before you for a couple of meetings. What is your pleasure?",20
-fomc-corpus,1978,"Mr. Chairman, I wonder if there isn=t a halfway house we could go with, without going into the full details. We could just ask the Desk to stop its rollover of new issues to reduce its portfolio and do some reduced buying.",48
-fomc-corpus,1978,Gentlemen?,4
-fomc-corpus,1978,"That sounds all right to me--if I may enter in here--but in general I am [unintelligible] on the Axilrod side of this. It seems to me that we pay too much tender loving care to these agency issues and treat them too much as a special case. If we=re going to use them, we ought to use them flexibly on both sides as [unintelligible]. The market ought to get used to that. Given the fact that the proposal is extremely modest in terms of any sales anyway, Mr. Coldwell=s suggestion is a perfectly reasonable, pragmatic approach.",124
-fomc-corpus,1978,I don=t fully understand Phil=s suggestion.,9
-fomc-corpus,1978,"Phil is saying that on rollovers don=t roll them over, thereby reducing the portfolio.",18
-fomc-corpus,1978,Reduce your degree of buying,5
-fomc-corpus,1978,Reduce your buying and therefore cut back some.,9
-fomc-corpus,1978,Are you saying never roll them over? I didn=t understand that it was never roll them over but when it fits in with some other--,28
-fomc-corpus,1978,How quickly would we eliminate the existing stock?,9
-fomc-corpus,1978,"Well, he=s not suggesting--again, as I understand it--that you automatically not roll them over. If you happen to be liquidating at that time you might not roll over some of them, or maybe roll over some small amount.",49
-fomc-corpus,1978,It just reduces the degree but without going into a heavy or visible selling program at a time when I don=t think we ought to be giving that kind of signal to the market.,36
-fomc-corpus,1978,But is your comment to reduce buying?,8
-fomc-corpus,1978,May I ask the Desk what this would imply in terms of maturity and how many are coming up? I don=t have to have specifics but I think we need to have some [idea].,38
-fomc-corpus,1978,"Mr. Chairman, I=m sorry I made the suggestion. I thought maybe we might be able to buy ourselves out of this quickly. But we apparently can=t.",33
-fomc-corpus,1978,"Mr. Chairman, we have a very simple suggestion, I think. It simply is that the Desk cut down a little bit on its buying, which it has done already--probably more so than it would have if the decision had already been made. And that wouldn=t be inconsistent with occasionally letting an agency [issue] run off, just as occasionally a bill is.",74
-fomc-corpus,1978,You didn=t ask us if you could do all that.,12
-fomc-corpus,1978,"In some sense, Mr. Sternlight and I view this as a rather simple--",17
-fomc-corpus,1978,Why don=t you fellows work it out?,9
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Mr. Chairman, I think this is a singularly bad time to be talking about any significant reduction in our participation in the agency market. Here we=ve been talking all morning long about the fact that housing is going to go down and that mortgage markets are tighter, and all this means that there=s going to be a bigger supply of agency issues. For us to not be rolling over [agency issues] and so forth will tend to raise [rates on] those agency issues relative to other market rates. And it will be a problem, I think, in terms of the structure we=re looking for.",122
-fomc-corpus,1978,"We=re not--or at least I=m not--saying systematically don=t roll them over. I=m saying, I think, what Steve Axilrod said: [Do so] occasionally if it fits the pattern.",45
-fomc-corpus,1978,To try to lighten a little over time.,9
-fomc-corpus,1978,"We are buying on the other side, so maybe we don=t actually go down on total agency holdings.",21
-fomc-corpus,1978,We=re also getting in a position where we need collateral.,12
-fomc-corpus,1978,Those are minor issues.,5
-fomc-corpus,1978,Not that minor.,4
-fomc-corpus,1978,"I think we need to bear in mind that if our discussion this afternoon should ultimately lead to significant reductions in reserve requirements, the consequences could well be that our capacity to collateralize currency would be impaired. And that in and of itself could influence our actions on something unrelated to that. For that reason I would hate for us not to take at least deliberate action on the agency side, given the fact that the Congress is unlikely to act in a timely fashion. I would agree, though, that doing something strong like a major reduction at this time is probably inappropriate for other reasons.",115
-fomc-corpus,1978,"Gentlemen, would there be a show of hands of those who would like to see us affirmatively selling out issues of agencies at this point?",30
-fomc-corpus,1978,A little selling.,4
-fomc-corpus,1978,On a small scale.,5
-fomc-corpus,1978,Occasional selling.,4
-fomc-corpus,1978,Not in this present market.,6
-fomc-corpus,1978,"We=re talking now; if we instruct the Desk to do this, it will be [effective] now. How many would prefer to not have that happen?",32
-fomc-corpus,1978,"Mr. Chairman, you don=t mean that the Desk would have to go out and sell?",19
-fomc-corpus,1978,"No, we would authorize the Desk to carry out the objective you had in mind in your recommendation, giving due consideration to the market conditions, and to demonstrate that there is another side of agency holdings. The timing is to be selected with great care and judgment and prudently.",55
-fomc-corpus,1978,About 1980 I=d buy it.,9
-fomc-corpus,1978,Apparently there was a majority of the Committee unless I misread it. Who=d be willing to give Steve and Peter that [authority] now?,29
-fomc-corpus,1978,"Mr. Chairman, while I=m willing to give that, it seems to me that Phil Coldwell=s suggestion of just letting them run off is a preferable one.",33
-fomc-corpus,1978,"Well, they are able to do that now.",10
-fomc-corpus,1978,"Let them sell agricultural ones and support the housing ones, not on the record.",16
-fomc-corpus,1978,"Would you like to vote again? I got a pretty strong sentiment that we would authorize you to go ahead, recognizing the cautions and constraints.",29
-fomc-corpus,1978,"I think they should have the authority, but that doesn=t mean that they should go ahead just to make a demonstration [in] the market.",29
-fomc-corpus,1978,"Exactly. The next item of business is to confirm the [date of the] next meeting, which is Tuesday, July 18. And the next item of business is an executive session for five minutes. [Executive Session]",45
-fomc-corpus,1978,"Gentlemen, we are going to have John Denkler here in a moment, but you have seen the memo and we have a serious problem. Microwave communications can be intercepted. There is a general feeling that they are being intercepted and on a number of our actions where there are market consequences, [the information obtained] could be or might be used for gain either for international reasons or for reasons of organized crime and that sort of thing. [Secretary's note: Messrs. Denkler and Wallace came in to the meeting at this point] You all know John Denkler, I think, and Bill Wallace I think you also know. I=ve just begun to state the problem, John. Why don=t you pick right up?",148
-fomc-corpus,1978,"The problem that has caused us to place this emphasis on security is that of the vulnerability of telephone communications to intercept. We have studied this problem rather extensively, and essentially [the situation] is that, as now used, telephone communications rely very heavily on microwave relay and as some of you, I am sure are aware, microwave relay is particularly vulnerable to intercept [even] by just an amateur. It is very inexpensive. [The capability] is there; it can be done and beyond that we know that it is being done. It is being done on a rather large scale by certain foreign governments. One of the ways to secure the microwave is to revert to the use of cables. This can be done relatively inexpensively but in doing that, of course, then you make yourself more vulnerable to wire tap. So, looking at the cost of doing something about the vulnerability from those two perspectives, we have concluded that the best way to handle it is by using fairly sophisticated scrambler devices in the handsets that would be involved in the communication. Now, point-to-point communication involving these scrambler devices is relatively easy and is well within the present state of the art. As I said in my memo it can be done, for example, between Washington and New York for about $130,000. To go beyond that takes a giant step as far as the technology and the complexity of the problem are concerned. Tying in a third station requires a mixer--a conference bridge or some device to allow you to extend this beyond [two stations]. To go to the entire System, as an example, [would require] a thirteen station network and becomes even more expensive on a large scale. That [cost] would be approaching about $1 million. Looking at the risks that are involved and at the comparative expenses of the measures that we could take, I came up with the recommendations that you have seen in my memorandum. It looks as if at the present time the most cost effective measure would be to render the Washington to New York circuit safe from interception and to defer anything beyond that until such time as the technology is better proven. Then we can look at that in any manner that would be appropriate. Right now, frankly, it is something of an unknown. That essentially summarizes the problem.",460
-fomc-corpus,1978,"Gentlemen, this presents a couple of problems for us. We were very reluctant to spend approximately $500,000 for an inter-connect, which is the cost of equipment that would allow us to link up the twelve Reserve Banks and Washington, in an area where probably technology in a few years will make it more likely to be accomplished in some less expensive way and where the benefit of it is in connection with FOMC telephonic conferences. On our daily calls, we greatly value the monitoring of the [Reserve Bank] President [on the call] and yet that is the vulnerable link because the calls are made on a daily basis at a given time, which makes an intercept [more likely] and use of the information particularly vulnerable. An alternative to following John=s recommendation would be for the call to be made with perhaps a Governor rotating on the call rather than a President just to have another member of the FOMC on a secure line. And the information passed to the President could be on market conditions without stating any of the dealer positions or program for the day. Of course, as you know, they would then get that within an hour or two of the program and the monitoring could be a little more after the fact, which I don=t think would be a great impairment to the [process]. You'd have a chance then to still exercise surveillance in terms of the general trend of the Desk's operations and to raise a problem, if one exists, the next day. Certainly we'd get the input. It seems to me that that=s a more reasonable course at this stage than to spend $1 million and a more reasonable course also in [terms of] time because to get the whole System network together will take 18 months or so, I gather. I think it will take a very much shorter time to do just the Washington-New York link. The FOMC, I think, is going to be a very serious problem if we have to have a [telephonic] session. We are going to have to be extremely cautious in having voice conference calls in the future. It may mean that we will use other lines of communication that are more secure. We would include, however, a land line system in your proposal, John, as I understand it. And because the FOMC conference calls would be irregular, it probably would not be worthwhile to tap the land lines, so we probably could risk taking those calls on the land lines. But because the daily call is at a particular time, there I think tapping would be too much of a risk.",516
-fomc-corpus,1978,"Let me ask, Mr. Chairman, how good is this scrambler now? The scramblers that we've used in the past were practically impossible to understand.",33
-fomc-corpus,1978,This uses a new technique. It digitizes the signal. I have used it and Steve has used it and it worked well between here and New York.,31
-fomc-corpus,1978,"Rome Air Force Base developed this for the military and it=s only in prototype. One of the risks here is that we'd be one of the first buyers, although the test that John has conducted--",39
-fomc-corpus,1978,"It=s the best-grade system that we have. In point of fact, it very marginally degrades the voice signal. You will notice that you are on a scrambler, but when it works properly, it=s a good system security-wise.",51
-fomc-corpus,1978,"What will happen in the next few years is that micro processors will develop and digital techniques will develop and you will be able to get very high quality signals at much lower cost, I think.",38
-fomc-corpus,1978,The old [scrambler device] was so annoying to use.,14
-fomc-corpus,1978,That was an analog. Those old analog systems were terrible.,12
-fomc-corpus,1978,Alan.,2
-fomc-corpus,1978,Do I understand that each installation can have five handsets that can be used?,16
-fomc-corpus,1978,That is correct.,4
-fomc-corpus,1978,That is in New York and Washington--at each terminal.,12
-fomc-corpus,1978,"That=s correct. Dialing would have to be centralized, but any one extension could talk to any other extension at the other end.",27
-fomc-corpus,1978,"Now, we need to discipline ourselves on all of our telephone calls. I am guilty of talking about sensitive matters on the phone with any of you or anybody else just because this has never been brought to my attention as a serious risk. But apparently, without saying more, we feel that it is a current risk and may be being used against us in ways that would be to our disadvantage. So I think that we should move rather promptly.",88
-fomc-corpus,1978,What about the security of the wire?,8
-fomc-corpus,1978,"Well, once you use the scrambler--",10
-fomc-corpus,1978,"No, I=m talking about the daily FOMC wire.",13
-fomc-corpus,1978,"The wire? The current state of the market is known. If we don't give out dealer positions, which are not known, and the program to be executed and inform you of that after its execution has started-- When do you send out the wire? You do that within a couple of hours, don=t you?",63
-fomc-corpus,1978,"We send it out very promptly. It goes out within 30 or 45 minutes. How long it takes to get there, I=m not sure.",31
-fomc-corpus,1978,Are you asking if that information is secure?,9
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,What is the answer to that?,7
-fomc-corpus,1978,"Well, it's relatively insecure, but more secure than the telephone. It could be intercepted.",18
-fomc-corpus,1978,"That it=s after the fact is the main security. In fact, we may have to make sure we hold those wires until an hour after the fact or something so that we don=t get [unintelligible]. Now, the problem is a very clear-cut one. Would the Presidents be willing to do their surveillance on the basis of [knowing the program] a few hours after the fact and reining in the Desk prospectively, rather than on each day? There'd be a 1-day lag in your ability to respond. I don=t think that=s a big risk; the way the Desk operates, it's a very responsible operation as far as I am concerned.",137
-fomc-corpus,1978,And we would run a monitoring [from the Board]?,11
-fomc-corpus,1978,"Without myself participating, I would recommend that one of the Governors here rotate [as a participant on the call] to keep a second monitor under those conditions so that there is somebody from the Committee who is alerted at all times. Yes?",47
-fomc-corpus,1978,"Bill, relating to this subject of security--I was involved in the service and probably some of the rest of you [were also]--and it seems to me that this might be a good time to review our whole security system in terms of the documents we receive. When we receive [communications designated] ""eyes only"" or ""restricted confidential,"" quite candidly, nobody in our place puts much weight on what the different security designations really mean in practicality. Maybe there is a manual but-- I don=t know whether the rest of you share that view.",113
-fomc-corpus,1978,"We need to upgrade our security all around and I think we need some instruction. As I say, I have been guilty of picking up the phone to someone in Washington and they ask me a question and I give them the answer. It will be terribly inconvenient, but in many cases I think we are going to have to wait [to discuss some issues] until we get together face to face. And, of course, you have to be careful. I don=t think that Washington=s a big risk, but in foreign countries the ability to pick up your conversation at a distance is tremendous. So any of you traveling abroad if you are walking in a park talking secretly and think you're secure, you=re not. MR. WILLES(?). May I ask: Has any President ever reined in the Desk?",163
-fomc-corpus,1978,"No, I asked that question. Would this be a problem?",13
-fomc-corpus,1978,It=s mostly against the rules.,7
-fomc-corpus,1978,[The President on the call] raises questions and usually it is after the fact. That=s why I didn=t think a shift of procedure would be that objectionable. But I didn=t want to [do] it without a full Committee discussion to get your sense of what you would like to see us do.,63
-fomc-corpus,1978,"By way of one response to your question, I would see no serious erosion of the surveillance if we picked [the information] up either a few hours late or a day late.",36
-fomc-corpus,1978,Does anybody disagree with that? Are you agreeable for us to proceed with this program and let John implement it as soon as we can? We=ll post you on procedures as soon as we can get organized.,42
-fomc-corpus,1978,"One minor thought, Mr. Chairman.",8
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"John, would it be safe if you transmitted the wire over the facsimile--over the land lines rather than over the Federal Reserve communication network?",30
-fomc-corpus,1978,"Yes, for the same reason.",7
-fomc-corpus,1978,"Yes, that=s what we want to do. When we get the land lines, we want to use them for the facsimile.",28
-fomc-corpus,1978,"Bob, if I could comment on that particular question. Our staff is looking at a side issue of this and that is the possible development of a System-wide facsimile transmission system that would be far superior to anything that we have now.",48
-fomc-corpus,1978,"Faster, cheaper, and more secure--and that would help.",14
-fomc-corpus,1978,"And presumably this would permit us to organize a conference call in less than two hours, if we had these dedicated lines?",24
-fomc-corpus,1978,"Yes, I think the leased lines would allow us to organize a conference call much more quickly; we can patch it up on our own board.",29
-fomc-corpus,1978,There are certain automated features in connection with a cable system that would allow us to do that.,19
-fomc-corpus,1978,"We can use it on off time, too. We will use it for our own calls.",19
-fomc-corpus,1978,It=s a dedicated network.,6
-fomc-corpus,1978,We will lease it and we will have it just for ourselves.,13
-fomc-corpus,1978,"Well, that would be a big plus just by itself.",12
-fomc-corpus,1978,"And if Bill=s plan works out, we will end up paying for that [to a large extent] with the reduced cost in the transmission of documents. So with your blessing, we will proceed accordingly. Now we will all have lunch. We=ll see you upstairs as soon as we can.",60
-fomc-corpus,1978,We will begin today's meeting with Scott Pardee's report.],12
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,Realized [or] unrealized?,8
-fomc-corpus,1978,Unrealized is about the same. Our average rate is 2.07; the current market rate is around 2.06-1/2.,32
-fomc-corpus,1978,"Thank you, Scott. I heard a report this morning--maybe I misunderstood it--that there was a sudden drop in the dollar in the Far East. Is that [true]?",36
-fomc-corpus,1978,"Yes. In the Far East, the Japanese came out with some more trade figures that suggested they would have a bigger trade surplus in June--$2.3 billion. But we have a case where--that's why I pointed to interest rates here--the dollar tends to firm up in our hours. The dollar was up just before the meeting.",69
-fomc-corpus,1978,Thank you very much. Any questions? Henry.,10
-fomc-corpus,1978,"Yes. I just wanted to note that in looking at the cost of the swap in terms of losses that Scott just described, it's worth bearing in mind that we're paying interest at the dollar rate, not at the D-mark rate. I think the staff is working now to figure out how much that difference is and what we might do about it. We get this 50-50 loss sharing, which is fine, but they're taking us on the interest rate. We really ought to split the interest rate between the dollar rate and the D-mark rate in order to make it fair for both sides. We're working on that.",124
-fomc-corpus,1978,"Scott, do you have an impression of where the major corporations and others are with regard to their position on payments? Are they running a covered position, doing shorts on this, or are they shifting in their leads and lags positions?",47
-fomc-corpus,1978,"Over the course of last fall and winter, many of the corporations did cover well in advance their needs in currencies that they thought would rise. They were, in effect, short of dollars, and that position built up rather substantially. I think a good bit of that was either run off or covered in March and April. Some good [sources] in the market who have contacts with these people think that most, if not all, of it has been run off. I would say that quite a bit still remains to be done. That is, we have leads and lags that could shift in our favor should the dollar continue to firm. This last monthly period has been a very delicate one for these people. They didn't know whether suddenly, with the EC meeting, the Bonn conference, and the dollar declining, they might not go into a new series of selling dollars forward to cover on the expectation that perhaps the dollar will continue to decline. We haven't seen that. So it's a tenuous situation but at this stage I think if the dollar were to start rising, there would be more covering and we'd have a sustained rise in the dollar and a technical reaction on the favorable shift of leads and lags. But there's still some to be done.",249
-fomc-corpus,1978,I raised the question because I'm hearing noises from some friends of mine involved in the international area. They are increasing their covered positions.,26
-fomc-corpus,1978,"Well, some of them have been [doing that] in recent weeks. But when you tip a table and something starts rolling down, the question is how much suddenly slides off. When the market balance tipped against the dollar, some of it did slide. We know of some covering that took place. That is, the selling of dollars forward did take place but it wasn't the massive amount that we had last fall and winter.",85
-fomc-corpus,1978,"We need an action to ratify the transactions since the previous meeting. Is there any dissent from that action? Then we will consider that approved. [Next we have] a recommendation of the Manager with respect to foreign currency operations, Scott?",48
-fomc-corpus,1978,"Yes. It's simply that in August we have coming up for maturity ten individual swap drawings in the amount of $315 million equivalent of German marks. These will all be for second renewal, which is agreeable to the Bundesbank in view of the progress that we've been making. I don't know if we'll be able to pay them off by the time of maturity--but we'll do our best--so I recommend that we renew them.",85
-fomc-corpus,1978,"Any questions? May I consider that recommendation approved? Hearing no dissent, it is so approved. Now, while Henry was in Basle, I understand that the Japanese asked the question about activating our swap line. You might mention that to the Committee, Henry.",52
-fomc-corpus,1978,"During the last BIS meeting the Japanese came to me and suggested that we now implement something that . [The Japanese] are interested in having the System intervene in yen for its own account instead of just as an agent. I said we'd have to discuss this here but gave them very little hope, citing the objections that exist there. The Chairman and I have talked about this and I've also taken it up with Tony Solomon. There seems to be a continued strong feeling that it would not be appropriate at this time to intervene in yen--that is, to support the currency that has the biggest current account surplus. It would undoubtedly arouse a lot of political comment if we were to give any support to the yen for our account. It would also probably be unwise in terms of the prospective losses, considering how strong that currency is in a fundamental sense.",169
-fomc-corpus,1978,"Unless there's a groundswell of desire to [acquire] yen and intervene, I think we'll respond saying that we do not believe conditions are appropriate for this. If there's a groundswell, those of you who want to [do this can] testify before Congress and explain why we did it.",59
-fomc-corpus,1978,"I will not be a groundswell, Mr. Chairman, but I can see the day arising when a gesture in that direction may be entirely appropriate. I'm not sure we're right there.",37
-fomc-corpus,1978,As a quid pro quo for something?,8
-fomc-corpus,1978,Maybe. In a small amount.,7
-fomc-corpus,1978,"Well, you either should do it enough to be effective [or not do it]. If you do it in a small amount, the static we'll get from it will be more abuse than we--",39
-fomc-corpus,1978,"Well, a small amount for the United States. It might be part of a big program by Japan.",21
-fomc-corpus,1978,"Yes. I could visualize it if this were a concession as part of a package. But as you know, the Japanese have not been terribly forthcoming on their summit package and their trade negotiations.",38
-fomc-corpus,1978,"I think the question is--and I don't want to pursue this forever--that the relationship between the appreciating yen and a change in their trade problems is nothing very apparent in any event and could have, and has had, some unfortunate side effects. At some point I think the rate ought to be stabilized. Whether we can contribute to that through some gesture or at what level, I don't know. I hardly discount in my own thinking a suitable gesture as part of a more general program that is appropriate.",100
-fomc-corpus,1978,I'd have to see some fundamentals change before I jump into this.,13
-fomc-corpus,1978,"Well, Paul's point, I think, is that time may [bring a] change. On the point Henry and I made: In formulating a response, we don't want to make this a ""forever close the door"" response; it's just in today's conditions. Who knows what will happen in the future? All right, let's move along then to the economic and financial outlook. We are going to have a staff presentation led off by Jim Kichline. MESSRS. KICHLINE, ZEISEL, and TRUMAN. [Statements--see Appendix.]",116
-fomc-corpus,1978,"I would suggest as a procedure that we take a few minutes for any questions of Jim, Jerry, Ted, or others. Then after that I'd like to do once again a go-around and get the inputs from each of you on your [estimates] for GNP. Chuck.",57
-fomc-corpus,1978,"Jim, there's one thing I wanted to clarify that came up in a seminar we had with the Board last week. Some of the papers were distributed to the members of the Committee. If I understand it correctly--although [you] say your last table is put entirely in terms of M1 growth rates and their effect--the projection period of your forecast, extending to 1979, has a monetary policy based on a pattern of interest rate change. That is, your fundamental input is interest rates, not M1. And then there's the additional step from your presumption of the linkage between interest rates and M1. Is that correct?",128
-fomc-corpus,1978,"That's correct. There's uncertainty on the part of the staff, for example, on the precise nature of the money demand function.",25
-fomc-corpus,1978,Sure.,2
-fomc-corpus,1978,And we believe that the channels through which monetary policy works would be interest rates. So we've stuck with the interest rates at the low end of the ranges in alternative B.,34
-fomc-corpus,1978,And that's about 8-1/4 percent for the funds rate?,15
-fomc-corpus,1978,"No, it's higher than that.",7
-fomc-corpus,1978,It's 8-3/4; the 8-1/4 is for the bill rate.,21
-fomc-corpus,1978,"Right. And we believe associated with that would likely be a rate of growth in money of 6-1/4 percent. That assumes, as Steve I guess will be talking about in his presentation, some further downward drift in the money demand function. If that were not to occur, then money growth would be stronger, assuming the same interest rates. Or holding money [demand constant], interest rates would rise and the economic activity that we would forecast would be lower.",95
-fomc-corpus,1978,All right. Thank you.,6
-fomc-corpus,1978,John Balles.,4
-fomc-corpus,1978,"The question I wanted to ask Jim, Mr. Chairman, has to do with the 6-1/4 percent M1 growth postulated here for the forecast period, which is through 1979. I don't know how you feel about it yourself, Jim, but we're so concerned about the undermining of M1 in terms of institutional changes, past and prospective, that we have great difficulty doing any kind of a forecast based on M1. So we've shifted to M2, which we found in an earlier period is superior in any event. In our judgment it's getting more superior, probably. What assumptions specifically did you make concerning developments on M1 subsequent to November 1, Jim?",140
-fomc-corpus,1978,"We have not made any change. In effect, the 6-1/4 percent is premised now on a scenario in which either the automatic transfers do not go into effect or, if they do, the rate of growth of M1 would be adjusted downward sufficiently to offset that impact. So, again, in terms of interest rates you have the 6-1/4 percent interest rate policy but it would require slower rates of growth. We have not done anything here. Steve, perhaps you have something to add.",106
-fomc-corpus,1978,"President Balles, for purposes of the projection, I think the point you raise doesn't matter because the projections are based on a 6-1/4 percent rate of growth in M1 abstracting from automatic transfers. If there's automatic transfers, that rate of growth may indeed be lower but if you added back in the shifts that occurred as a result of the automatic transfers you'd be back to 6-1/4 percent. It's as if the rate of growth in M1 is 6-1/4 percent and with automatic transfers it was reduced to 4-1/4 percent; you'd add back in the extent of the shift from demand to saving deposits and you'd be back to 6-1/4 percent. So the fact of automatic transfers doesn't really matter in the way the projection is developed.",164
-fomc-corpus,1978,I hear what you're saying.,6
-fomc-corpus,1978,You're not too convinced but you hear it. Ernie.,12
-fomc-corpus,1978,"Mr. Chairman, I have a question--in fact two of them--relating primarily to the assumptions. If the tax cut assumed were not to materialize and if we were to operate the same monetary policy--assuming it is cast in terms of monetary aggregates--that we would if there were a tax cut, would you judge that that would change your forecast significantly? Or would that particular assumption be fairly well neutralized?",85
-fomc-corpus,1978,"We have done some exercises, and Jerry may remember some of the details better than I do. But I do remember that for 1979 we believe that stripping out the tax cut is worth about 1/2 percentage point, or maybe a shade more, in terms of real growth for the whole year. You get a bigger bang early on but it fades fairly quickly. So using that, I would say roughly 1/2 to 3/4 [unintelligible] to move down a bit and offset it. I think maybe the low end of the range, 1/2 point, is roughly what we'd be talking about.",131
-fomc-corpus,1978,"With respect to the energy program, you still view that as essentially having a neutral effect--that whatever funds are picked up will be put back in the economy?",32
-fomc-corpus,1978,"Yes, we do. The Administration's estimate on this crude oil equalization tax (COET) in 1979 is about $4-1/2 billion. It soon will be distributed. Actually, the formulas that have been worked out provide in 1979 a little bit more distribution and inflow, but it would even out over time. The major impact there, I think, is on the price side. This COET is estimated by us and others to be worth about 0.3 percentage point on the deflator in 1979, 1980, and 1981. So I think the price impact is quite important.",132
-fomc-corpus,1978,"Will that come right at the beginning of the year, Jim?",13
-fomc-corpus,1978,January 1.,4
-fomc-corpus,1978,"Yes, because it's a one-time increase for that year.",12
-fomc-corpus,1978,Thank you. Larry.,5
-fomc-corpus,1978,"Jim, I'm confused about two remarks that I think you made. One is that assuming a 6-1/4 percent M1 growth rate you anticipated a moderating trend in inflation. It looks to me as though the figures show at least a continuation of 7.2 percent, which is not really moderating. Secondly, in your response to Chuck's question, you referred to 8-1/4 percent interest rates and a 6-1/4 percent M1 growth rate. [In] the projections of the price levels you show in Appendix 1 of the Bluebook under alternative B, which is that general scenario, you show interest rates of 8-3/4 to 9-3/4 percent for the fourth quarter of '78 and the first and second quarters of '79. What I'm getting at is that I don't think you can have an 8-1/4 percent federal funds rate--",190
-fomc-corpus,1978,"No, the difference there is between the funds rate and the bill rate in forecasting. The bill rate tends, through much of the forecast period, to run roughly 1/2 percentage point below the funds rate.",43
-fomc-corpus,1978,That explains it.,4
-fomc-corpus,1978,"But as interest rates rise, that differential widens.",11
-fomc-corpus,1978,I got it.,4
-fomc-corpus,1978,"My chart and comments referred to the bill rate but it's consistent in our view with the low [unintelligible] end of the funds rate. With regard to your other question, I may have misspoken--or perhaps you're referring to my comments at the end of my briefing. When I talked about ""moderating,"" it wasn't in terms of the explicit forecast for 1979. In trying to sort out what the problems are, you're looking at in 1979 an explicit forecast--the judgmental or model solution--of weakening real activity and continuing high rates of inflation. [Inflation is] virtually unchanged. One of the problems in this whole scenario is that in '79, '80, and '81 you would like to have lower rates of inflation. But you find that in 1979 you're hit January 1 with an increase in the minimum wage and social security, the crude oil equalization tax, a dairy price support, and it goes on and on and on. So you begin to take care of that and then in 1980 we're scheduled to get it again. So if we stripped out those exogenous price shocks, we would be led to forecast lower rates of inflation. I think that was my statement. If you took away all of these government-mandated programs and had weakening real growth for a period of six quarters or so, it would begin to have effects on the [inflation rate].",290
-fomc-corpus,1978,"Is that a recommendation, Jim, that we cut those things out?",14
-fomc-corpus,1978,"I don't ask this question in an impertinent manner, but do you totally discount the relationship of aggregates growth to prices? Forgetting those exogenous factors, isn't there a relationship between our monetary policy actions--M1 [growth of] 6-1/4 or 7-1/4 and this price level into the future? Isn't that relevant?",73
-fomc-corpus,1978,"Depending on one's preconceptions, I guess the question, frankly, is: How does monetary policy work? The way we go about this, and certainly in terms of my own view, money does matter. But it matters in that it affects markets and it affects interest rates. It alters decisions, so the level of activity is either higher or lower. And if you were talking about higher rates of M1 growth, you'd be talking about lower rates of interest and more rapid increases in economic activity, and that process would lead to some tightening of markets and upward price pressure. So in my own case, and I guess for the Board's model, the lags are quite long; but I think [inflation] is related to economic activity. That's the channel. You go through the interest rates, decisionmaking, and economic activity route. So in 1979, for example, we do have in our forecast maintenance of relatively high inflation. But at the same time, real money supplies are declining, inflation is running faster than money, and we're getting upward pressure on interest rates. So activity is slowing down and we would like to have, aside from the governmental programs, a slowdown in the rates of increase of inflation. So I think it does matter. It's a question of how does it matter and how fast. If you had lower levels of activity, you'd expect lower rates of inflation or vice versa.",283
-fomc-corpus,1978,"Frank Morris had a question. Did he leave? Well then, we'll go to Bob Mayo.",19
-fomc-corpus,1978,My question has been answered.,6
-fomc-corpus,1978,"Yours has been answered. All right then, we'll go to Philip Jackson.",16
-fomc-corpus,1978,I think mine has been answered but I'm not positive. Did the President's announcements yesterday about the United States energy policy change any of your energy [assumptions] and the impact on inflationary expectations?,41
-fomc-corpus,1978,"Truthfully, no.",5
-fomc-corpus,1978,Let's just say we can live with what he promised. Would that change any--,16
-fomc-corpus,1978,"Well, in my understanding, the key word in that [communique] that was circulated to you was ""approximately""--2.5 billion barrels a day by approximately 1985. Now, 2.5 million barrels a day is a current estimate of what the full energy program will give you in terms of savings. Of course, you also have to worry about where you would be otherwise, which is helpful. So it assumes the full 5-piece energy bill, which is consistent with this forecast. On the other hand, it does have the word ""approximately"" in there. I gather--and all the press reports suggest this--that although the President would very much like either to get his fifth piece or go to something else he has a political problem in that area. And he's not quite clear how he would bring that about and has not asserted anything precisely in that area. But the reference in the communique is broadly consistent with what we have. So it could be consistent conceivably at its lower bounds with the absence of the COET, which I guess will give you a little bit of help on inflation. But it's not intended to be [unintelligible].",239
-fomc-corpus,1978,"Frank, we missed you for a moment, and we're going to pick you up now.",18
-fomc-corpus,1978,"All right, sir. Jim, the problem I have with this whole scenario is that we are projecting moderate growth rates through 1981 under conditions of very severe financial strain without generating a recession, all of which seems to me very improbable. It seems to me that the more probable case would be a recession beginning sometime in l979 or at the latest l980--producing quite a different array of results than this. I think this [forecast] is sort of a test tube product, but it doesn't conform to the probabilities as I see them.",110
-fomc-corpus,1978,"Well, one of the difficulties when you look ahead is that it is often hard to perceive what sources of strength might emerge. It is a traditional problem we have. And perhaps here it is also a case where it is difficult to see the swings that might develop. When you look back in history, we have these wild swings and they don't show up in most forecasts. I would say that we have a reasonable forecast--one that we are comfortable with given the assumptions--but I would weight the risks on the downside. I don't think there is any danger of significance at this point of a large overshoot, given the assumptions; I think the danger is clearly on the downside. I am comfortable with what we have, but I just don't see the sources of imbalances and problems that will get you into this recession. It is very difficult to put that forth today as the most probable forecast.",179
-fomc-corpus,1978,"Gentlemen, I have four names left on the list. I suggest I run through them and then perhaps we will do a go-around, in which case any other comments or questions will be brought up. Bones, do you have a question?",50
-fomc-corpus,1978,"Quickly. Jim, I didn't detect any comment on inventories. But in the Greenbook you [have] pretty conservative [numbers] over this period. Do you feel comfortable with the continuing situation we have with the inventory outlook?",46
-fomc-corpus,1978,"Yes. I would like to share the wealth here, so maybe Jerry can answer that. He has been looking at inventories particularly.",26
-fomc-corpus,1978,The inventory situation doesn't look like it contains any major significant imbalances. There are some reports of a back-up in inventories of consumer nondurables. But that is the sort of thing that usually can be run off rather quickly and we don't seem to be seeing any progressively larger problems developing. So for the moment things look reasonable; and our projections implicitly assume that businessmen will continue to maintain a conservative posture.,81
-fomc-corpus,1978,Roger.,2
-fomc-corpus,1978,"Thank you, Mr. Chairman. My question revolves around your projection for the first quarter of l979 premised upon the tax cut. What are the elements of that tax cut that give a kick early in the year and then die off so quickly? It seems to me that on the [consumer] side at least we won't realize that until we have gone through the year.",75
-fomc-corpus,1978,"I think in the National Income Accounting, though, you get it at an annual rate. You get the full effect.",24
-fomc-corpus,1978,"There is a change in the withholding immediately, isn't there?",12
-fomc-corpus,1978,That is right but it is annualized. So you get the full impact of that immediately.,19
-fomc-corpus,1978,"But in terms of consumer expenditures, if you follow it into the economy, it is spread over the full year, right?",25
-fomc-corpus,1978,"Yes, and we have most of the impact occurring, frankly, in the first half; there is still some there later on but it fades. In addition, we have assumed some impact [from] the investment tax credit, which might be in the fourth quarter to the first quarter in terms of the shipment and delivery of goods. It is retroactive, so we may get some of that bunched into that [period].",85
-fomc-corpus,1978,"Roger, spending would rise to a higher level. Then it would stay at that higher level and since the GNP [unintelligible] first difference is right in the first part of the year. I think that is the reason.",48
-fomc-corpus,1978,"But that is coupled, for those of us who pay taxes, with social security tax increases, so there is some question of whether you get any kick at all in the first quarter.",37
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"Jim, you have alternative levels for inflation and unemployment, which if I read this correctly are roughly of a 1-to-1 nature. One percent more inflation saves you 1 percent on unemployment and vice versa. How does that check with the numbers that we frequently hear from Charlie Schultze and Art Okun where a much less favorable tradeoff is assumed? I think something like 1 percent on unemployment gets you a 0.2 percent reduction in inflation. Also, there's the widespread argument that the Phillips curve, which this seems to imply, is really an unstable construct and doesn't have any validity for the longer run.",126
-fomc-corpus,1978,"With regard to the Phillips curve, that is a debated issue that has generated much journal literature and I presume it will continue to do so in the years to come. In the model, obviously, we have an implicit Phillips curve relationship. It is stable. The tradeoff in the model relationship is much more favorable than that which you get, for example, from Arthur Okun or from George Perry at Brookings. The latest work I have seen from Brookings on this is by George Perry and his findings were that over a year's time period if the unemployment rate averaged 1 percentage point higher, you can have roughly 1/3 percentage point less rate of increase in prices. [Our model's tradeoff] is larger but in fact there are some difficulties in interpreting that tradeoff because we have in addition these exogenous price shocks that come on here. Also, it depends on the time horizon you are talking about. After the end of three years, in 1981, what we are catching is a large part of the impact going into prices and out of the real [side]. If you look at a 1-year horizon in which you have the unemployment rate 1 percentage point higher than it would have been, the price differentials begin to narrow. But in the model, ultimately, money is neutral. That is, you will get the impact on the price side eventually (in eight or ten years) and the real side effects will all disappear.",294
-fomc-corpus,1978,Thank you.,3
-fomc-corpus,1978,Phil Coldwell.,4
-fomc-corpus,1978,"Jim, you have made two variable assumptions in this, as I hear you--a 6-1/4 percent rate of growth in M1 and a lower end of the interest rate spectrum. If you were to modify the interest rate assumption, what impact would this have on your model?",59
-fomc-corpus,1978,"If you modify the interest rate, then we would share alternative GNP scenarios. We do have an assumption of the low end of interest rates defined by alternative B. If, for example, one wanted to opt for looking at interest rate levels that are a bit higher, such as at the midpoint, we have enough sets of books around now, in terms of the alternatives, to give you other combinations. It looks like a level of interest rates around the midpoint of ""B"" would be close to the interest rates that we have for the low end of ""C."" So on this table that I distributed, a rate of GNP growth, for example, in ['79] averaging 2.6 percent is associated with 5-1/4 percent money. Those interest rates are pretty close to those in ""B;"" they are a little bit more stringent. I'd edge that number up to a bit closer to 3--2.8 or 2.9 or whatever. So that is a combination. Do you want to hear others?",211
-fomc-corpus,1978,"No, that's fine. I was just curious which way things would move in terms of the impact on GNP, prices, and unemployment. You would say, for example, that your l979 figures would give me a rough estimate of what you would expect on real GNP, prices, and unemployment.",61
-fomc-corpus,1978,"Right--perhaps a little bit less impact if you choose mid-alternative B interest rates and look at 5-1/4 percent money. Again, those are rough.",35
-fomc-corpus,1978,"Gentlemen, we have quite an interesting process. We have the Redbook. We have the Greenbook and the Bluebook and we have the presentations and your questions. Then we finally come around to the recent procedure of asking you for your individual judgments of what you see in terms of three critical elements in the next four quarters. Why don't you pick up your pencils for a moment and let me remind you to jot down the figures that would be the staff figures. We will be asking you to give your own reactions. So, first is the real growth of GNP from the second quarter of 1978 to the second quarter of 1979; the staff projection is 3.7 percent. The next is the gross business product fixed-weighted price index over the same period of time--our measure of inflation, if you will. And there we have a staff figure of 7.3 percent. The third figure is the rate of unemployment in the second quarter of 1979--that is, at the end of the four-quarter period. There the staff is looking at 5.7 percent, which happens to be the same figure as in June. So, those are the figures. Last time I went around [the table] counterclockwise, so what about going clockwise this time and starting with Henry.",268
-fomc-corpus,1978,"I think the possibility that these figures may not materialize is quite considerable. The chances are still that we will make it without a recession but I think the chances have increased that we might have a recession. Full employment has come upon us more rapidly than we thought and you might say that we again missed the right timing for a soft landing. We should have moved a little earlier, realizing as we do now how quickly unemployment was coming down. That was quite unanticipated. So we confront now some considerable imbalances in the economy with very little room for maneuver for accommodating them. Inflation is mounting; if I am skeptical of anything in the staff forecast it is the moderate inflation forecast. I see next year as one of very strong wage contracts and the possibility of a wage explosion in the organized sector carrying over into other prices. So that seems to be the most vulnerable aspect of the projection. Other than that, I would say that these numbers are perhaps the most likely single outcome but the probability of its being realized I think has diminished in recent months.",209
-fomc-corpus,1978,"Thank you, Henry. Phil.",7
-fomc-corpus,1978,"I don't believe this is all that inherently stable. Looking at the figures I jotted down before I came here, I would put the range of GNP in this coming period at 2-3/4 to 3-1/4, the price deflator from 7-1/2 to 8, and the unemployment rate probably running in a range of about 5-3/4 to 6-1/4.",90
-fomc-corpus,1978,Any particular comments?,4
-fomc-corpus,1978,"Only that I think the possibility of having Henry's soft landing is still a possibility. I think we could reach that if we have some appropriate government policy to dampen this [inflation]. My figures for the price deflator are very high, largely because I question whether we are going to do the appropriate things in all of the government to correct this. Consequently, I am fearful that the price side is going on up. The unemployment side I think is the most favorable of the whole package.",99
-fomc-corpus,1978,Thank you. Frank.,5
-fomc-corpus,1978,"Well, Mr. Chairman I think we are headed for a recession in l979. I don't know whether it is going to start in the first half or the second half, so I have a range for real GNP of 1-1/2 to 3 percent. The 1-1/2, of course, will be if the recession starts in the first quarter. Therefore, I am more optimistic on prices in connection with this scenario since I have noticed in recent years a very coincident behavior between the rate of real growth in the economy and the rate of change in prices, without much of a lag. So I would expect something like 6 to 6-1/2 on prices in that kind of situation and obviously the unemployment rate above 6 percent by the second quarter of the year.",165
-fomc-corpus,1978,Why are you so sure about a recession?,9
-fomc-corpus,1978,"Well, I think we are building up financial pressures in the system.",14
-fomc-corpus,1978,Because of the financial side.,6
-fomc-corpus,1978,"Thank you, Frank. Ernie.",8
-fomc-corpus,1978,"Mr. Chairman, I think we still have significant expansive elements in the economy and I share what I think is the staff's view that the distortions are not yet great enough, and that it will take a fair time for them to become great enough, to terminate the expansive influences. And I think there is still some possibility of achieving something that might appropriately be labeled a ""soft landing"" ex the inflation aspect. So I would still [expect] something on the order of 4 percent or just slightly under on GNP, about 7-1/2 percent on prices, and something a bit under 6 percent on unemployment.",128
-fomc-corpus,1978,Thank you very much. John.,7
-fomc-corpus,1978,"Well, for some months now, Mr. Chairman, my staff has been somewhat less optimistic than the Board's staff. I consider their--",28
-fomc-corpus,1978,You've been being proved right from meeting to meeting.,10
-fomc-corpus,1978,"I am not sure that we will be; that is still a forecast. It has to do with the second half of this year and going into l979. I think the Board staff's view was very well articulated. It is a very plausible package and yet there are different scenarios, which I became especially aware of over the weekend when I met with the ABA's economic advisory committee --the top economists from the major banks in the country. There was quite a divergence of opinion within that group and I would say, Jim, that your forecast would definitely rank among the most optimistic that I heard. There were some others among that group who would have been optimistic but some were at the other end of the scale and, like Frank, were definitely expecting a recession. More or less by accident rather than design here, our staff forecast has come out with what I would call a growth recession. Specifically, to nail down the numbers, we look for less strength in real consumer spending than you do. We had it about flat from here out into l979 and the underlying reasons for that have to do with the feedback of current and prospective inflationary developments on consumer attitudes--especially coming down to the bottom line that we expect the saving rate to rise somewhat. We expect the constraining influences of debt repayments relative to personal income--take home pay--to begin to make themselves felt. If you believe that scenario, then there is probably going to be some feedback on inventory positions with businesses. That is, by the first two quarters of next year there may be a raft of orderly corrections of excess inventories, especially at the retail level if real consumer spending does in fact flatten out. And that could even have a bit of a dampening effect on real capital spending, which we expect to grow at about a 5-1/2 percent rate through this year and into l979. As for where we come out on the bottom line as compared to your forecast of real GNP of up 4 percent this year, we are almost identical--just a shade under it. But for next year as a whole you have GNP up 3.9 and we are at 2.7. If you take it from the fourth quarter of '78 to the fourth quarter of '79, you are at 3-1/2 and we are at 1.9. That is just the difference in the assumptions and that starts principally with consumer spending. We show less strength on residential and a little less strength on business capital spending. And as a final element, our methodology differs from yours Jim, in this sense: We have used the midpoint of the present M2 range as a part of our methodology. Of course, you have more monetary stimulus now than you had previously because you've got M1 at 6-1/4. To make our forecast fully comparable to yours, we would have to be assuming a somewhat higher M2 growth, which I would not recommend. But that is one of the reasons our forecast, I guess, is a little less optimistic than yours.",616
-fomc-corpus,1978,"President Balles, excuse me, but Jim's forecast assumes the midpoint of the M2 range.",20
-fomc-corpus,1978,"Oh, it does?",5
-fomc-corpus,1978,Yes. It is a difference of the assumption on the relationship--,13
-fomc-corpus,1978,"Okay, if that is the case, then we don't have inconsistent monetary assumptions. But if this view of ours happens to be right, and who knows, starting about the fourth quarter of this year we would show GNP rising about 2.7 percent and then quarter by quarter after that going into 1979 we'd show 2.1, 1.6, and 1.9. That is, I would have to say, a growth recession. We think we can avoid an outright recession but I certainly wouldn't rule out the possibility of that developing. I have my fingers crossed on this growth recession of ours, hoping--and maybe it is wishful thinking--that we can avoid an outright recession.",144
-fomc-corpus,1978,"John, perhaps at the break you can get how it works out on these quarter-to-quarter figures consistent with the others, because I think you have to do a little calculating there.",36
-fomc-corpus,1978,"Unfortunately, [the way] we slice things up is the third quarter of '78 to the third quarter of '79. We haven't--",28
-fomc-corpus,1978,"Well, if it is possible.",7
-fomc-corpus,1978,We will do that; yes we could easily do that.,12
-fomc-corpus,1978,Thank you very much. Mark.,7
-fomc-corpus,1978,"Thank you, Mr. Chairman. For reasons that Henry and Ernie articulated more clearly than I can, I have come up with these most likely numbers: real GNP of 3-1/2 to 4, but with the risk clearly on the downside; inflation of 7-1/2 to 8, with the risk in that case on the upside; ending up with an unemployment rate of around 6 percent, with the risk on the upside. I would like to make one comment if I may, Mr. Chairman. And that is that it seems to me that this particular exercise in the current state of the economy depends very crucially on what we individually forecast monetary policy will be, because I think people do respond to monetary policy more quickly than they used to. I don't think the lags are as long. And that is particularly true in terms of the impact that they perceive monetary policy will have on expected rates of inflation and how they then build that into their forecasts and spending decisions. Because of that, it seems to me that in reviewing things like the simulations the staff put together, which I personally found very useful, there is a problem. I like the tradeoff [in the staff's model] much better than most that I have seen come out of the models. Nevertheless, there always is a problem in trying to model the way people form expectations and then behave [based] on that. It is possible, for example--going back to the question that Chuck raised--that you could have higher interest rates and have that consistent with more rapid real economic growth. [That could occur] if the higher interest rates were generated by lower rates of growth of money and if that, in turn, made people expect lower rates of inflation and, therefore, in response to lower rates of inflation and lower uncertainty associated with inflation they spent more. It seems to me it is that kind of possibility that we need to keep very carefully in mind as we think about the likely course of events over the next year.",408
-fomc-corpus,1978,Thank you very much. Bob.,7
-fomc-corpus,1978,"Well, Mr. Chairman, I think the economy is still quite healthy and is growing vigorously and I don't find implausible--at least over the next year--the staff's forecast of a slowdown in economic growth. I think it is likely to be achieved partly because the expectational caution being generated, which we hear so much about, may indeed avoid the excesses that produced the last recession and may extend the expansion at least through the year ahead, as we see it. Just to round the figures off, I come out with 3-1/2 percent for real GNP growth, and I think that would be a very good record in terms of a long-term trend, given the problems that we have before us. I am a little more concerned on the price index; I would come out more like 7-3/4 than 7.3 percent. And I think the 5.7 is a fluke on unemployment and I would say we would have at least 6 percent by this time next year.",209
-fomc-corpus,1978,"Thank you, Bob. Roger.",7
-fomc-corpus,1978,"Thank you, Mr. Chairman. I, too, think that the economy has a lot of vigor in it. But the assumptions for the forecast figures that I will give probably put a little more emphasis on what I think monetary policy is going to have to do in the period ahead, and thus reduce the growth that we would otherwise expect. As a result, we expect a GNP of around 3-1/2, which is something less than the last time we were asked to give these figures.",102
-fomc-corpus,1978,"You've got one more quarter on it now, though.",11
-fomc-corpus,1978,"Okay. I think it was 4 plus the last time; I would scale that down simply because of the role I think monetary policy has to play in the period ahead. So I have 3-1/2 for GNP. I agree with Bob Mayo in that I think the 5.7 is a fluke so two quarters from now we will have about the same level [of unemployment] but it will be 6 percent as measured. And for prices, the deflator will be 7-1/2 or I would think in a range of 7-1/2 to 8 percent.",126
-fomc-corpus,1978,Thank you very much. Larry.,7
-fomc-corpus,1978,"I would project--and again I predicate what I am saying on the assumption that we will keep M1 growth at 6-1/4 percent--real GNP at 3 percent, the deflator at about the same 7.3 percent that the staff had, and unemployment at 6 percent. I would echo and support wholeheartedly the remarks of Mark Willes. I think the biggest factor, far overriding all of these exogenous factors that we read about and talk about so frequently, is monetary policy. And regardless of the interest rate consequences of stating a goal for money growth and sticking with it, I think that would be the most stimulative action that we could take. If the Chairman of this group made clear that we are determined to hold money growth at 6-1/4 percent and he said that for everyone to hear, I think that would encourage capital spending. It would clear the air. I think very few people in the real world have confidence that we are really going to conduct monetary policy in a manner that will hold money growth at that targeted rate.",218
-fomc-corpus,1978,Thank you very much. Bones.,7
-fomc-corpus,1978,"Mr. Chairman, I, too, think there's a lot of strength left over this period. I am somewhat pessimistic, though, about the collective bargaining calendar, the possibility of an oil price boost, the impact of the minimum wage and social security increases, and the stagnation of productivity. That brings me to feel that the GNP growth may be about 3-1/2. I have prices at about 8 percent and unemployment probably at 6.",94
-fomc-corpus,1978,Thank you. Dave.,5
-fomc-corpus,1978,"Well, I would like to second what Henry started with and some of what Frank said. My most probable forecast is very close to the Greenbook forecast, with 3-1/2 percent GNP, 7-1/2 percent for inflation, and 6 percent for the unemployment rate. But I am nervous about this because it is taking place in a very high inflation environment and I suspect that to say that the risks are on the downside is probably to minimize that likelihood. One reason relates to the kinds of things that Frank pointed out--financial stringencies. I think that was well brought out in the charts that Jim showed and it was supported by some discussions that I have had in the last week or so with small businessmen. We often meet with big businessmen but never met with small businessmen, and it's quite clear that they have a cash flow problem and have had one for some time. They are at the end of the line as far as receivables go. If you were to have the kinds of financial pressures which Jim's charts indicate happening at the corporate level, you would see that it is exacerbated even as you get into smaller business. And I think some substantial change in their expectations would have a negative effect on the economy.",252
-fomc-corpus,1978,Thank you. Willis.,5
-fomc-corpus,1978,"Mr. Chairman, I am intrigued with the games economists play and I think we must not forget that it is a game. As I look at Africa, the Middle East, South America, and the Far East and the problems in municipal finance at home and in some other areas, it seems to me that there are a number of factors we haven't put into our models to judge their impact. So I think we need to be reminded that we are playing this game. I personally think that momentum is still running very strong, and I would suspect that we still will achieve by the second quarter of next year 3-3/4 to 4 percent real GNP growth. I am more pessimistic on the inflation outlook, with the wages and structuring by business people and others to try to offset some of these things, so I am 8 percent plus by the middle of the year, and I have a 6 percent unemployment rate.",189
-fomc-corpus,1978,"Thank you, Willis. Bob.",7
-fomc-corpus,1978,"Mr. Chairman, at this point I have to declare my sympathy with Barry Bosworth's observation the other day that it is very difficult to distinguish between a forecast and a prayer these days. I think the real outcome is pretty well indicated by the degree of inflation that we end up with, and I can't help but echo the remarks of Mark Willes about this. They struck a very sympathetic cord. We don't disagree strongly with the profile of the Greenbook for the balance of this year, but we do believe the staff is a little low on the inflation side. And when we go to the longer run, we would become considerably less optimistic than they are on that end. We think the underlying rate of inflation is about the 7.2 percent or so that they are talking about and we think it will probably accelerate to 8 percent or so as we move into the next year.",178
-fomc-corpus,1978,But that's not the average for the four quarters.,10
-fomc-corpus,1978,"No. Well, I guess it's pretty close to it. But if this is the case, then I think we will see more disorder in the foreign exchange markets and we will see further sizable increases in interest rates and a correspondent deterioration in business and consumer confidence. And if this is the case, then I certainly would [forecast] lower real GNP growth than they are projecting and my best guess would be that we would slip into a recession early next year. So when you get down to the specific figures, I would like to emphasize the prayer part on this. I come out at 3 percent on the real GNP and [for the deflator] pretty close to 8 percent--maybe 7-3/4 to show my sense of moderation, Chuck, on that. And if we do succeed in getting away with only a growth recession, I'd say 6 to 6-1/2 percent on unemployment. I'm not sure it will be that favorable if inflation gets away from us. I think it could become worse than that. If you want some spurious accuracy, I'll put 6.2 in there.",228
-fomc-corpus,1978,We will give you the range. Chuck.,9
-fomc-corpus,1978,"I think the difficulty in providing the numbers that you have asked for is the question of the precise timing of the probable recession. If the recession comes early, the numbers will be much lower for the year, the four quarters. If it comes late, it may indeed be that the staff projection will be right, which doesn't get even into a growth recession until the second half of l979, and that is a real possibility. I was worried about a recession within the forecast period beginning the last time and I guess I feel that way still--in fact, maybe a little more strongly. I agree with much of what Frank said. I think that the financial tensions projected here are very great and almost certainly imply a recession in the foreseeable future without quite getting the timing straight on that. The other feeling that I have that is different from a month ago is that last month I was worried about a bulge in demand in the third quarter. I don't think that is [likely]. I think instead that the demand is quieting and quieting fast. It appears that consumers indeed have been buying in anticipation of higher prices, borrowing from the future. And I think we can expect lower consumer spending in strategic areas--in cars and other durables and houses too--as we get into the fall. So if it comes down, I am prepared to incorporate--almost--the staff's real GNP within my range, which would be 3 to 3-1/2 for the next four quarters.",300
-fomc-corpus,1978,"It is 3 to 3-1/2, which now includes 3.7?",20
-fomc-corpus,1978,"It is pretty close, yes. On inflation, I am not quite as bearish as some of my associates on my right, but I do think it is unlikely that inflation is going to slow very fast with the kind of wage increases in prospect and with the increases in the minimum wage and in social security taxes early next year. I would put the inflation rate between 7 and 7-1/2 percent for the next four quarters and rising in the latter part of that period. Because of that, I think there is going to be more labor force participation than the staff has projected and, therefore, my unemployment range would be rather wide. It would be from 5-3/4, which is fairly consistent with the 3-1/2 percent real GNP, all the way up to 6-1/4 for the second quarter of next year on the presumption that we could have more labor force growth than [the staff assumes]. And I want to agree with many of my associates around the table in that I think monetary policy can have some influence in making this outlook not quite so [adverse] as otherwise. In particular, I think it could have some influence in reducing the probability of a marked slowing in the economy next year in the spring and summer. But to do so I'd say we would have to avoid the kind of financial tension that is being produced by monetary policy rather than just hope that somehow, as a philosophical matter, people will feel that if there is less money growth that means there will be less inflation in the future.",315
-fomc-corpus,1978,"Thank you, Chuck. Philip.",7
-fomc-corpus,1978,"I will give you some end results and then I will explain how I get there because I think we are in a situation where, unfortunately, annual averages don't tell us anything about the course we are really talking about. I would guess that real GNP growth will be in a range of 3 to 3-1/2 percent, inflation in the 7 to 7-3/4 range, and unemployment probably in the 6 to 6-1/2 range. How do we get there, though? It is my judgment still that we will see a third quarter that is stronger than expected, primarily as a result of the carrying forward of the increase in personal income related to the increases in employment we have seen in the second quarter. I would be inclined to think that continued inflationary expectations will carry forward consumer buying at least through the second quarter and maybe even through the third quarter and the beginning of the fourth. I don't see the impact of housing and contract construction taking place quite as severely as some of you do. It strikes me that if we got the starts figure that we have today and the contract figures, it will be a good while before the actual economic impact of those activities wash through that result from the lower starts and lower construction that might take place. I don't see that monetary policy is quite as stringent today as some of you do. I recognize it's having its impact; perhaps it's only in combination with the increased inflation that we have that it is putting pressure on financial institutions. I don't see it as quite as severe as some of you do. I do see the inflation situation getting much worse and having an impact. For that reason, while I think we will continue to see a better second half for l978 than is generally anticipated, my guess is that l979 will degenerate and go down much more sharply than in the staff forecast; it may be in the 2 to 2-1/2 range toward the end of that period. I guess on average [we may get] these figures but the pattern certainly would be a stronger front and a weaker back end.",424
-fomc-corpus,1978,Thank you. Paul.,5
-fomc-corpus,1978,"Well, I can give you a staff forecast, which happens to be relevant in the sense that it is almost exactly the same in nominal GNP as the Board of Governors staff forecast. There is a little difference in that the prices are higher and the real is lower--in each case by about 1/2 percentage point over that period. In other words, real growth would be about 3-1/4, prices about 7-1/2, and the unemployment rate a little lower than 6 percent. I do think there is some chance of more exuberance, if that is the right word, or more anticipatory buying--either by consumers or by businesses in the form of inventory or conceivably a little bit in plant and equipment--in the next quarter and the current quarter particularly. It's very hard for me to see a recession before the end of the year. And if we get a tax cut at the end of the year, it's very hard for me to see a recession developing in the first or second quarter. Therefore, while I recognize the risk of a recession, it's a little difficult for me to see one in this time perspective. And I would think the risks in that sense are pretty symmetrical, where the major risk is of the price increases having more momentum than the forecast suggests. I do think we are going to get a recession sooner or later, but I share Phil Jackson's feelings that the financial pressures have not built up to the point of producing one in the next year. Conceivably we could get it by the end of l979 but that is too far ahead for me to foresee at the moment.",333
-fomc-corpus,1978,"Thank you, Paul. I am just looking quickly at the means [of these figures] for members only. Art has given me some figures showing that [compared to] the staff's real GNP growth of 3.7 percent, for members the consensus comes out at 3.7. Is that what you're saying?",67
-fomc-corpus,1978,"No, two are above--",6
-fomc-corpus,1978,There are two above and three below.,8
-fomc-corpus,1978,Five below.,3
-fomc-corpus,1978,And five below. Now I'm getting it. Why don't you tell us what it is? Turn your microphone around and give us the straight dope.,30
-fomc-corpus,1978,Are we averaging here recessions and continued expansions?,10
-fomc-corpus,1978,Sure. We are averaging all kinds of things.,10
-fomc-corpus,1978,"What I did was to take the midpoints every time anybody mentioned a range and if someone said 6 or a little below I made it 6, and so forth. For real GNP, the staff forecast is 3.7. [Of the Committee members,] there were two who expected higher rates--one 3-7/8 and one almost the same at 3-3/4. One was at exactly 3.7 and five were below it, with the lowest being 3.",105
-fomc-corpus,1978,That doesn't come out to the numbers. We have 10 who have spoken.,16
-fomc-corpus,1978,The Chairman hasn't given his.,6
-fomc-corpus,1978,"On prices, the staff figure is 7.3. [For members,] there is one at 7-1/4. All the others were above that, ranging from 7-1/2 to 8-1/2. On the unemployment rate, the staff had 5.7; there were seven at 6 and one at 6-1/4. Why I have only eight, I am not sure.",91
-fomc-corpus,1978,"Can you count this one up? There is an interesting thing because the range on the real GNP from the lowest figure cited to the highest is 1-1/2 to 4 and prices go from 6 to 8-1/2 and for unemployment it's 5-3/4 to 6-1/2 percent. There is not much I can add. I think the conversation has been very helpful. We have seen a lot of common viewpoints and some variations of the theme. I would say that the most discouraging thing about inflation is the number of things that are going to be happening over which we have no control but they feed inflation. The staff did some studies for my testimony last week at the House Budget Committee and the calculation Jim came up with is that the minimum wage increase on January l will add almost 1/2 percentage point to inflation next year. And the increase in the social security tax on January l will add 0.4 percentage point. So you're talking about almost a percentage point. In fact, some other extraneous factors there added it up to about 1 percentage point on inflation just from those factors. Naturally, I have proposed--",240
-fomc-corpus,1978,Oil.,2
-fomc-corpus,1978,"The 0.3 [from] oil, I am more sympathetic. We are going to have to do something to constrain that; we may have to absorb that. The others we have within our power. As I said, I recommended in my testimony that we defer the minimum wage for two years and nobody screamed, but nobody rushed in with a bill. So, if any of you would like to introduce the bill I am sure it would be welcome. Reserving the right to change my mind, in preparing my testimony for next week, Steve, I would think that we are talking in this period about 3-1/2 percent growth. We are going to have to average the four quarters. On prices, I'd say 7-1/2 probably and on unemployment 5-3/4 to 6. That would be my guess, and I am not far off from what everybody else had. That is how I see the situation. The most important announcement that I have is that coffee is ready and I suggest we take a break for a few minutes and come back and see if we can struggle with setting some long-term ranges.",232
-fomc-corpus,1978,"Inflation has taken over the food industry, Mr. Chairman. It is obvious that the donuts are smaller!",22
-fomc-corpus,1978,"We now face the task of our quarterly fixing of long-run ranges. At the last meeting I suggested a couple of things for you to be thinking about and I called your attention to a letter I received from Chairman Reuss asking us to give consideration to raising the upper limit of the M1 growth ranges. I also called your attention to the probability that over the next twelve months, the next four quarters, M1 would get a little murky with the automatic transfer going into effect for M1 on November l. I asked you to think about whether anything should be [done] there. We have had some comments, but let us start off first by having some introductory observations by Steve and then we will open it up for your views on that.",150
-fomc-corpus,1978,"Mr. Chairman, I would first like to give some factual background for the Committee to ponder in considering its decision on the longer-run aggregates ranges. And then I'll present, in effect, some arguments for and against certain changes with regard to M1 and the broader aggregates. On factual background I would note--and I'm sure the Committee is well aware of it--that in the year ending with the second quarter of l978, the most recent policy year, M1 and bank credit ran well above the top ends of their ranges. M1 growth in the year just ending was around 7.9 percent; the top end of the M1 range was 6-1/2. Bank credit was running 11.3 percent; the top end of its range was 10 percent when [a range for] the Q2 '77 to Q2 '78 period was established and it is now 10-1/2 percent. On the other hand, M2 and M3 have been running well within their ranges. M2 growth in the year ending with the second quarter of 1978 was at 8.6 percent; the top end of its range is now 9 and it was 9-1/2. And M3 growth was around 9.9 percent; the top end of its range was 11 and is now 10. In the first half of l978 the same set of relationships obtained. M1 and bank credit were above their ranges by about the same amounts as they had been for the full year. M2 and M3, however, were further within their ranges; M2 growth in the first half of this year [slowed] to 7.7 percent and M3 to 7.9 percent. So very clearly we have a phenomenon where M1 growth, as well as bank credit, is strong relative to the whole set of relationships that the Committee had viewed. The stronger growth in M1 reflects, we believe, the shift in demand for M1 relative to GNP. It is stronger than the staff and the Committee had earlier assumed. There are a variety of ways of looking at that and one of the methods most commonly employed--and the one we have used--is to compare the money growth predicted by the money demand equation in our quarterly econometric model with what actually happened. That is, the model says there's a relationship between M1 growth and GNP and certain short-term interest rates with a certain lag structure. What did the model predict relative to what actually happened? For about eleven straight quarters, beginning with the fourth quarter of [l974], the model was very consistently predicting more M1 growth given the GNP and interest rates than we actually got. That's what we kept referring to as the downward drift in money relative to GNP. Since then, in the last four quarters--the third and fourth quarters of 1977 and the first and second quarters of l978--there has not been any further downward shift in terms of what the model would have predicted. The increase in money predicted by the model has been virtually the actual increase in money, given GNP and interest rates. Our assumption that is built into the GNP forecast and built into the Bluebook is that there will be a further downward drift again of modest proportions--about l.8 percentage points of downward drift. That is based on the idea that with interest rates as high as they are and are becoming, institutions will more actively market substitutes for money. And [our view is] that the public has been sensitized since l974 to their earnings loss with high interest rates, compounded by the effect of inflation, so we believe they will become more desirous of substituting. It is quite likely that the model, which was through l974, does not have that built in. So that is the basis for our assumption of a further downward drift. I might add that there are other ways of looking at this. The DRI model money demand equation would predict money pretty much as we predicted it, for GNP and interest rates. That is, if you look at that model, you would not observe a downward drift given the set of relationships between money, GNP, and interest rates that we have predicted. I hasten to add that most other models, however, would give a downward drift. With that background, I would like to present some argumentation with regard to Ml, M2, and M3. The fact that money demand has been running strong, of course, is the reason why we have assumed a 6-1/4 percent M1 increase. Now, this assumption in itself argues for raising the range. In fact, it argues for making 6-1/4 percent the midpoint. Given the normal error distribution around our assumption of a midpoint, it would argue for raising the range to where 6-1/4 is the midpoint--somewhere in the range of a little less than 5 to a little less than 8 percent. On the other hand, automatic transfers, which will go into effect on November 1, suggest that actual money growth may be lower than 6-1/4 percent or so because people will shift out of demand deposits into savings deposits in some amount. Thus, in practice, it may be desirable to raise only the upper end of the range by some amount--and not necessarily raise the whole range--to take account of this shift in money demand. Any increase would have adverse announcement effects regarding the willingness of the Committee to fight inflation. But the larger the increase, the greater the risk of these effects and the more likely it is that the market will believe that the Committee may have given up some on the fight against inflation. To minimize such a possibility, the Committee may wish to consider an increase of the upper [end] of the range of only l/2 percentage point. I think this sort of an increase would minimize the adverse announcement effects; the upper end would still be lower than recent growth rates, so it would point in the direction of restraint. And it might just be attainable. On the other hand, if you do that, it may make the market come to believe that you have some intention of really hitting it or otherwise why would you make such an adjustment. Therefore, if you don't hit it, there is some danger of eroding credibility even further. With regard to the broader money supply ranges, they too, like M1, imply a substantial rise in velocity over the next year relative to historical experience. I believe they might be attained, however, given the movement out of deposits to market instruments that we have been seeing and that is likely to develop, as interest rates remain well above ceiling rates. Thus, the recent experience of being within their ranges clearly suggests no need for an upward adjustment at this time, even though the velocity increases are somewhat out of keeping with historical experience. In any event, any upward adjustment--particularly if M1 were adjusted upward--would be clearly interpreted as an inflationary move and would be quite counterproductive from the Committee's viewpoint. The Committee may also wish to consider lowering these ranges, particularly if M1 were adjusted upward as a countervailing move to that. I believe there are strong arguments against lowering these ranges, against even dropping the lower end but not touching the top end. The principal argument, of course, is that that would very clearly imply considerable pressure on thrift institutions and even banks to a degree and more pressure than may be desirable given the present stringency in the mortgage market. Finally, Mr. Chairman, the issue about dropping M1 entirely has been raised. The main argument for that at this point, of course, is that there are large uncertainties with respect to the automatic transfers, which may go into effect after November l. Thus, it is very difficult to set a range because one does not know how promptly and to what degree the public or the banks are going to respond to this innovation. In addition, of course, there is a certain awkwardness about the range because the actual growth has been so far out of line with the target; this provides a kind of incentive to ditch the target and there is a good reason. There are arguments against dropping it and I believe some fairly strong ones. First, the automatic transfers will not be effective until November l and, in any event, there are still legal uncertainties. We have not had a ruling on the request for an injunction yet. Second, even if it is dropped, the market probably will still pay attention to M1--and I believe with very good reason, since our research indicates that M1 is the principal financial element that foreshadows GNP and, therefore, it is a sensitive monetary indicator. And people are unlikely to give up on it unless there is a very strong and obvious technological innovation that is disturbing it. Thirdly, I don't believe dropping M1 will solve the problem of market attention to weekly money supply figures. That problem, I think, has been abating recently. In any event, without Ml the market will focus on M2, which has also very large variations in it--and larger than Ml. For example, M2 rose $5 billion in the week of July 5. Finally, Mr. Chairman, and in a way convincing to me, I believe that it would be very undesirable for the Committee to be left with only one operating variable in the short run [unintelligible] at the moment--that is, M2. For M3, we don't have data to permit that to be a short-run operating range. And I believe two [variables] are preferable from the viewpoint of providing both operational flexibility and a better basis for judging special circumstances. For example, it would be desirable to have a less interest-sensitive M1 in place as a target, in judging M2 in a period when a decline in market rates may be leading to reintermediation and vice versa in a period when a rise in market interest rates may be leading to disintermediation. Mr. Chairman, those are the comments that I would offer to the Committee on these issues.",2052
-fomc-corpus,1978,"Steve, I think you have talked yourself into something. Now let us see if you have talked the Committee into something. Phil you had a question.",30
-fomc-corpus,1978,"Not a question, Mr. Chairman.",8
-fomc-corpus,1978,"All right then, a comment.",7
-fomc-corpus,1978,"I would like to try to put a rationale in front of the Committee here by taking a look at the purpose, the public perception, the performance, and the prospects--the four ""Ps"" if you wish. It seems to me that the purpose of our long-range targets is to provide a guide that the FOMC can use to, in effect, have a forward framework for its short-run decisions. Public perception, unfortunately, has been conditioned to low rate goals, and a noticeable move upward could damage our credibility to some extent unless carefully couched. Our performance obviously has not been good in the last year for M1. But it has been good on M2 and M3. And I would not back away from that position. The prospects, though, seem to be that there is no real expectation of being able to hit a 4 to 6-1/2 percent range in the coming three months. And I would not like to make this long-range decision to encompass the change in the automatic transfer. I think we can look at that next time. It seems to me that these four points imply, obviously, some basic philosophy on how much lag we look at [in terms of the] impact of policy. It may highlight some of the differences between an aggregate and an interest rate policy, and it assumes certain velocity changes. I think the Committee ought to be looking at putting this long-range growth in the perspective of economic growth slowing in the third and fourth quarter. But with what we are already looking at--in my opinion, an insufficient amount of restraint--the timing of this change is unfortunate, but there is not much we can do about it. So what I would recommend is for the Committee to consider announcing a policy shift away from M1--a modest shift at the moment by perhaps taking M1 as being 1/4 and M2 3/4 of our average. I would accept the 4 to 7-1/2 percent for M1, which gives it a midpoint of 5-3/4, not 6-1/4. I would go 6 to 9 on M2 and 7 to 10 on M3, with the midpoints of their long-range goals being 1/2 point less than what the staff has suggested. I would announce these [decisions as being] a result of inflation and our failure to meet the more restrictive goal, but with it clearly implied, if not explicitly stated, that we are going to meet this goal. I think the velocities are going to be higher than the 2 to 3 percent range the staff is telling us. I suspect they are going to be 4-1/2 to 5 percent. I have some backing out of the data, which Steve sent around to the rest of the Board, for the average in the four quarters prior to the peak.",586
-fomc-corpus,1978,"Thank you. We have quite a few hands up, so let's go on and get other reactions. Frank.",22
-fomc-corpus,1978,"Well, Mr. Chairman, I would like to first comment on the Bluebook page IV-3, which estimates the impact of automatic transfers on M1. The text states that this is based on the l976 experience with NOW accounts in New England. The problem with that rationale is that the NOW account began in New England in the summer of l972. It seems to me that the l973 or l972-74 experience with NOW accounts is much more relevant for the initial period than the summer of l976 experience because the NOW experience taught us two things. The first was that the public changes its habits very slowly. The savings banks in Massachusetts and New Hampshire were advertising vigorously during the first two years of NOW accounts and the rate of growth of NOW accounts during that period was very slow. It took a lot of hearsay and people talking to each other, in addition to advertising, to really get the thing moving. So I think these estimates of the impact of automatic transfers on the growth of M1 are greatly exaggerated. I think that in the first year the impact is going to be very small--not only because the public changes its habits slowly but also because banks are reluctant to adopt expensive innovations unless they are forced to do so by competitive pressures. In the case of the NOW account, we had the competitive pressure of the thrift institutions offering this very attractive instrument, which drove the banks into also offering it. If we had had a situation where the banks had been offered NOW account powers but not the thrifts, I think the growth of the NOW account would have been exceedingly slow because the banks would have been reluctant to push a product that they knew was going to cost them a lot of money. Now, in the case of the automatic transfer, both of these factors--the fact that the public does not change their habits very quickly and the reluctance of the banks to adopt expensive innovations unless forced into it--are going to work very strongly in the first year or two because in most states the thrifts will not be able to offer a competing instrument. In the State of New York they will and in a few other states where [thrifts] have demand deposit powers. But by and large around the country the S&Ls and the savings banks are not going to be able to offer a competing product, and the development of the automatic transfer is going to be based on inter-commercial bank competition generating pressures for change. So I think we should not have the hope that the automatic transfer is going to restore the kind of the relationship between M1 and M2 that we would like to see happen in the year ahead. I don't think that is going to happen. I sent out a note indicating my feeling that we ought to nonetheless take the advent of automatic transfers as a public rationale for doing something that we ought to do anyway, and that is to move to a single M2 target with M1 and M3 given as memorandum items. By that I mean that we'd express the target in terms of M2 and say in our records that associated with it we would expect x rate of growth for M1 and y rate of growth for [M3]. I think there are important reasons for making this change. First,--",647
-fomc-corpus,1978,I assume everyone got a copy of your memo.,10
-fomc-corpus,1978,"They should have. First, I think the dynamics of the changes in the payments mechanism are going to force us sooner or later to move to a broader concept of money. We already have in the case of New England some $2-1/2 billion of transactions accounts that are not in M1. Forty percent of these are not in M2. If what has been going on in New England for several years is going to move eventually to the rest of the country, which I think will happen, I think we are going to have to move to broader and broader concepts of money. I would even propose M3 now if it were operationally feasible. But since it is not, I think we ought to leave the transition for the moment to M2. So, sooner or later we are going to be pulled into the direction of broader measures of money as being the most relevant. Secondly, the problem that we've found with having two targets is that their relationship varies over the business cycle. That is, in easy money periods you would expect the structure of [comparatively] high M2 relative to M1, and in tight money periods you would expect the growth rates to converge. That being the case, if we are going to keep two targets, we should be moving toward raising the M1 range relative to M2. But, politically, that is simply not a feasible thing to do. I think any upward revision in the M1 range would create a substantial stir in the markets. It seems to me that we have a situation reasonably well attuned to making a shift that I think we are going to have to make ultimately anyway toward a single broader [measure of money].",338
-fomc-corpus,1978,"Frank, on your proposal, what would your proposed ranges be?",13
-fomc-corpus,1978,I would keep the present range of 6-1/2 to 9.,17
-fomc-corpus,1978,6-1/2 to 9. You would announce that as a primary range. And what would you have in the memo items as the ranges for the other aggregates?,35
-fomc-corpus,1978,"I would use higher levels for M1 than are given in the Bluebook with automated transfers since I don't think they are going to have that big of an impact. I would use the ""without"" figures as a basis for the range in M2.",51
-fomc-corpus,1978,Which one?,3
-fomc-corpus,1978,"The ""without.""",4
-fomc-corpus,1978,You wouldn't have a figure for an M1 projection?,11
-fomc-corpus,1978,"I would say ""We would expect....""",9
-fomc-corpus,1978,So are you going with the 4 to 7-1/2 that Phil mentioned or the 4 to 7 or what?,28
-fomc-corpus,1978,"I would be a little leery about changing the M1 range, even though I don't think--",20
-fomc-corpus,1978,You might leave it as a memo item at 4 to 6-1/2.,19
-fomc-corpus,1978,4 to 6-1/2 is reasonable.,11
-fomc-corpus,1978,How about M3--the same?,8
-fomc-corpus,1978,I think I'd be inclined to leave all the numbers the same and simply change the emphasis.,18
-fomc-corpus,1978,Okay. Very interesting proposal. Henry.,8
-fomc-corpus,1978,"I would argue very strongly for not changing the present M1 range, and not changing any of the relationships of the three aggregates. First, there are substantive reasons for proceeding as I suggest. We have for a long time had an unrealistic M1 target; we've lived with that by utilizing base drift. We have adjusted it, in effect, from quarter to quarter and we [operated] essentially on a very modified money supply or aggregates target. We have been more nearly on an interest rate target. At the present time I think the dangers of ignoring sudden upward movements on the interest rate, as might come from observing a tight money supply target very closely, are particularly great. Now, we probably are going to have automatic transfers and I am impressed by what Frank says--that they might not produce very much of a change. I can visualize, because of the very fact that NOW accounts have been talked about so widely nationally, that people would be prepared for them now and would be interested in taking advantage of them. I wouldn't write this off. In the least favorable case, I think Steve predicted an improvement in velocity--if you can call it that--of 1 percentage point and the maximum I think you had was 3.",247
-fomc-corpus,1978,"We used four New England states as an upper limit, not as the average, of course.",19
-fomc-corpus,1978,"Yes, so that it might be in the range of 1 to 3 percentage points on growth or equivalent of growth depending on the [unintelligible]. At that time then, we could use [the new accounts as a reason] to get away from an unrealistic M1 target. We have lived with it for a long time and I think we might live with it for another quarter or two. Let me point to what I think would be the consequences of changing the ranges or the relationship of the aggregates in any major way. I am sure you have all been discussing the implications of our discount rate action when asked questions by the press; I have gotten this abroad. Everybody is looking at us wondering whether we are about to move to inflate ourselves out of an oncoming recession. And if we do anything like this, there will be a very general and uncontrollable reaction among central bankers abroad, in the press here, and I would guess the general public [to the perception] that we have turned. And to say what we might say--that there is a technical adjustment and we haven't changed our thinking at all--will be taken as a major policy change for fighting an oncoming recession rather than continuing to fight inflation. Since that isn't, as I see it, this group's view or intention, we should not give a misleading signal in that direction. The only way to avoid giving that misleading signal is not to make a public statement to that effect but to stick for the time being with the M1 targets certainly. On M2 and M3, I have great misgivings as to their meanings. I think M2 is not a factor that determines economic activity. M1 transactions balances one can say ought to have some relationship in influencing activity. Savings deposits influence activity in a very indirect and remote sense, namely by making people feel a little more liquid and so they will spend their M1 a little faster. But that is a far cry from saying it is a determinant. And that is of course what our research shows: that M1 is what has the close relationship to [income] and determining it even though the velocity fluctuates; and that M2, even though it has a statistically close relationship, is really not a [determinant] relationship. So I would stick with M1, not give any weight to M2 or M3, and for the present exercise today I would leave all three targets unchanged.",490
-fomc-corpus,1978,"Gentlemen, I am pleased to say that three speakers have consumed 25 minutes, so I would like to set lunch for 3:00 p.m. Or can we get away from the speechmaking and get down to the nitty-gritty? I appreciate the comments; they are very good. But we will be here all day if we do that, so you have your choice. I think you've got to tell us what you think and leave out all the rest of it if you don't mind. Dave Eastburn.",107
-fomc-corpus,1978,"Yes sir. I would opt for staying where we are with the long-range targets, and the reason is not for any positive rationale but mostly because there are disadvantages in almost every other way we might go. There are disadvantages in raising the ceiling for M1 and there are disadvantages in lowering it. So I would keep it just as it is and I think this will help you, Mr. Chairman, in your public comments with the Congress and also serve our policy needs.",94
-fomc-corpus,1978,"Thank you, Dave. Chuck.",7
-fomc-corpus,1978,"Well, Mr. Chairman, everybody's talking public relations. Since we are not supposed to talk very long, I won't talk economics except to say that based on the relationship between money growth and nominal GNP growth in the past year with a 210 basis point increase in the federal funds rate over the past year I would say that the [M1] increase everyone would associate with their desired nominal GNP growth in the next year would be at least 7-1/2 percent. So my forecast is that M1 will go up at least 7-1/2 percent next year, and that is based on an 11 percent nominal GNP. You can have more inflation or less inflation and more real growth or less real growth and probably some further movement up in interest rates even to keep it to 7-1/2. We have a record that anyone can look at that says in the past year M1 has gone up 7.9. And we have in my view the probability that in the next year it will go up 7-1/2, maybe minus a half or so for the automated transfer but that isn't a very big factor--I agree with Frank--initially in what we do there. So the question is: Will we in the end be better off to continue to hold 4 to 6-1/2 percent as our desired target and continue for another year to exceed that target by a very substantial margin, which as I look at the figures I assure you we will do? I think the answer is no. I think we have gone along here with an actual growth rate that was far in excess of our targets and that the honest, rational, intelligent thing to do is to recognize that M1 growth has exceeded the target over a protracted period and that is because there has been a great deal of inflation in the system, which is induced by wage increases and government actions and things like that. And therefore, we hope to be moving down as we are able to within a reasonable range. I don't think 7-1/2, as I think about it, is enough, Bill, for the top. I would put the top at 8 and go with maybe 4 to 8 on the weak grounds that perhaps automatic transfer will make it possible to get down to the bottom of the range. Perhaps it would have some effect in reducing the inflation psychology but I do think the time has come to recognize what is the fact of the case, and that is that the money supply is increasing faster than we have been prescribing for a long period of time. I am not prepared to go to M2, as Frank suggests, as the primary or only driver of the operation and my reason for that is that I feel we don't have enough control over M2 to do that. That has large certificates in there that are not subject to interest rate ceilings; we could have a blow-up in the issuance of large certificates by banks and that's quite uncontrollable on our part. On the other hand, it has a lot of ceiling rates in it, which we might not be able to raise because this is subject to veto by the Home Loan Bank Board. To take M2 is to put ourselves to a degree at the mercy of either the banks with their marketing strategy or the Home Loan Bank Board. So I just don't think we ought to be [using M2] as our primary driver. I agree with Frank that we will have to come to a different definition; I think what it will include is transaction-type accounts no matter where they are, whether at [savings] banks or member banks or nonmember banks. But that is something, I think, for the future rather than for this time. So my proposal is: an M1 long-run target growth range of 4 to 8, expressing the hope that we can be moving down in that range with the passage of time; and for M2 and M3 the ranges as specified in alternative B by the staff.",813
-fomc-corpus,1978,"As now published, it doesn't include the large CDs, does it?",14
-fomc-corpus,1978,It doesn't include negotiable CDs of 350 banks but it includes large CDs that are non-negotiable everywhere. It includes negotiable CDs at the banks under that top 350 group. And it has been a major mover in the behavior of the time deposit component of M2.,57
-fomc-corpus,1978,Mark Willes.,4
-fomc-corpus,1978,"Thank you, Mr. Chairman. I feel very strongly that we ought not to change the long-run ranges, and for more than public relations. Steve made a comment about a further downward drift in money--if [the staff estimate] is right--that was l percent. I think that's the number you used, Steve. With the growth in money in the past quarter, we have base drift of l percent. So just to keep the existing ranges would mean not really 4-1/2 to 6 but 6-1/2 to 8. We have had, as Chuck mentioned, 7.9 percent growth over the last four quarters. If you look back, we have had above 7 percent growth in money for a very long time now. And I don't see how we are ever going to deal with the inflation problem unless we do something to bring the rate of growth of money down. If we were to do that, I think we could have a very positive rather than a negative impact on the outlook for a recession. So I would like to keep the long-run ranges both for M1 and M2 where they are today. I would heartily endorse what Chuck said on M2. We have no basis at this point to make the kind of switch that [operating on M2] would imply, and I think we should be very, very careful before we do that.",285
-fomc-corpus,1978,John Balles.,4
-fomc-corpus,1978,"Well, Mr. Chairman, I would support the views that have been expressed by Governor Coldwell and President Morris. I am one of those who is an M2 believer. Well over a year ago we circulated a paper to everybody around this table that pointed out that prior to about mid-l975 M1 and M2 moved closely together and, therefore, were giving about the same monetary signal. And that was true, I might add, even in [times] of high interest rates like l974. [After] we circulated that paper, with the subsequent monitoring that we have done, we are still convinced that in these periods of divergent growth rates of M1 and M2, M2 is giving the better signal. It's not that it's a [unintelligible] factor, but it's giving a better signal of future GNP, real or nominal, than M1. I would be prepared [to operate on M2] for that reason, and especially in view of all of the uncertainties that are surrounding M1 behavior in the future. Frank thinks the coming on stream of the automatic transfers will be pretty slow. I happen to think it will be a little faster, based on my conversations with banks. But overall, M1 has become so contaminated--if that's the right word--by institutional changes, past and prospective, that I think we should move toward greater weight on M2. And I would suggest 3/4 weight on M2, despite the reservations that Chuck has, which I don't share. As far as the ranges are concerned, I think a good case has already been made by earlier speakers. Net net, I would leave them unchanged.",336
-fomc-corpus,1978,"Thank you, John. Bob Mayo.",8
-fomc-corpus,1978,"Mr. Chairman, I find myself in complete agreement with Chuck Partee on the M2 arguments. I think this would be exactly the wrong time to move to a broader measure, even though I am enthusiastic in the longer run for more properly defined money supply concepts than we have to date. In the long run, Frank is right. Right now I think it would be a bad mistake for the reasons that Chuck gave. Rather than repeat those I'll go on to my other point. I must say that Henry Wallich expressed exactly the way they [feel] on the foreign side. [I have] some question on Frank's statements on the likelihood of the demand deposit/savings demand shift effect. I would keep the targets exactly where they are--not just for public relations. But I will admit that if you use that term loosely to incorporate foreign relations, corporate relations, and market relations, I think it is a legitimate concern. And I would not want to be in the Chairman's shoes to have to go up and try to defend any change in either target at this point.",216
-fomc-corpus,1978,"Thank you, Bob. Paul Volcker.",9
-fomc-corpus,1978,"I suspect this discussion, Mr. Chairman, suggests the need for reviewing the definition of M1 that we have now.",24
-fomc-corpus,1978,I think so. I think it's one thing we must discuss at the end of this.,18
-fomc-corpus,1978,"I would urge that that be done. I certainly have some unhappiness about the general method of setting targets that we have. Frank distributed one possible reform and [it's one] that we had also looked at earlier and I am not sure that it is perfect. But we have had so much base drift recently, and the target we set is something of a farce recently in terms of failing to deal with or recognize the base drift problem. I don't know how we should go about it but I really think we ought to talk about it before the next quarters. So far as the substance of the decision this time is concerned, for all the reasons that have already been suggested, I am among those who do not favor dropping M1 with all its difficulty now, primarily because of arbitrary factors in M2 during a period of potential interest rate ceiling pressure. I can recognize the logic of raising the range on M1, particularly the upper end of it. I don't see how we can, consistent with the kinds of concerns that Henry has ably expressed, think of going above 7, really, on top of the base drift, on top of the automatic transfer, [and the] increase in velocity certainly going in that direction. At this point, going above 7 would clearly give the wrong signal. I would be very worried about going to 7. If we go to 7 on the long-term target, I think there is all the more burden on doing something in the short run to indicate that we really intend to keep to that target. I don't know whether the Committee will be willing to do that or not.",326
-fomc-corpus,1978,"I think that's the point that Steve made--that if you don't do enough and then you fail to meet it, you have a double loss.",29
-fomc-corpus,1978,That's right. I think we really have to balance an increase in the target with some move that makes it credible that we are going to meet it. So I come out thinking that kind of combination might be tolerable. I can't see going above 7. I would prefer to leave it unchanged for the reasons that have already been expressed by a number of others and I won't prolong it.,78
-fomc-corpus,1978,Many rationales will lead to the same [conclusion]. Bob Black.,15
-fomc-corpus,1978,"Mr. Chairman, I distributed a table similar to the one that I did the last time which I was also pleased to see was quite similar to the one Bill Poole prepared for Frank. It is a tribute since I very much admire your work. To get down to it very quickly, I would propose that we try to work the rates of increase over the yearly period down from the 7.9 we had in the quarter just ended to 7.5, then to 7, and then down to 6.8 and then 6.4. That is about 3/8s of a percentage point drop [for each quarter]. That is certainly gradual, but it's certainly a perceptible move. At the same time, I don't think anybody could accuse us of slamming on the brakes. And if we follow this course with M1, I think we can do the same sort of thing with M2. So on this basis, we would recommend leaving the M1 range unchanged, but I think we probably ought to announce publicly that we expect the rate of growth in M1 to be coming in near the top of the range or maybe even above the top of the range for a while. This approach would keep us from having all the unfavorable effects that Henry described in announcing a change in the range and at the same time make it possible for us to counter either the charge that we intend to tighten too sharply--because I don't think this is too sharp a tightening--or that the target is so low that we don't have any intentions of hitting it. As you will notice in this last line, we do come down to [a growth rate of] 6.4. So I would leave them all unchanged. I'd rather work toward hitting them.",357
-fomc-corpus,1978,"Thank you, Bob. Ernie.",8
-fomc-corpus,1978,"Mr. Chairman, Henry Wallich's comments adequately expressed my views. I would simply underscore that 4 to 6-1/2 today means about what 5 to 7-1/2 meant three months ago. And that is a fairly significant upward adjustment for the targets, it seems to me, and is adequate for the time being. So, ""B"" captures my views at the moment.",83
-fomc-corpus,1978,Thank you very much. Roger.,7
-fomc-corpus,1978,"Thank you, Mr. Chairman. I don't know quite how to say this. I've listened to the people around the table and I give great credence to what has been said about the international perception. But it bothers me that we may be underselling our critics and watchers in the sense that if we [stay] with no change--[4 to 6-1/2] on M1--I think we have as large a credibility problem as if we go the other way and recognize the realities and raise the upper end to some extent. That is to say, if we were to publish an M1 target of [4 to 6-1/2] it is almost laughable in view of the track record we have now built--with 7.9 percent in the most recent period of time. Thus, I would suggest that we do indeed raise [the top of the range], with an adequate explanation. But rather than going to the 7-1/2 or 8 percent that has been suggested around the table, I would adopt much of what Paul Volcker has already suggested, which is moving to 7 with some action by the Committee--not only by rhetoric but also by action--to demonstrate that we really intend to hit 7 percent. I guess I am encouraged by Steve Axilrod's statement that 7 may be doable. But the fact of the matter is, if it is doable, and if it's believed, that is a much tighter monetary policy than what we have been following in the past and one which is not too tight, perhaps, to push us over the hump. So I would propose that we indeed go up, recognizing reality, but do it cautiously to 7 and do something about it on the short run.",358
-fomc-corpus,1978,"Mr. Chairman, in terms of what is doable and not doable, my understanding of this morning's discussion was that 6-1/2 is doable.",32
-fomc-corpus,1978,I don't believe it.,5
-fomc-corpus,1978,"Yes, in Bob's table, I think--",10
-fomc-corpus,1978,The staff should believe it.,6
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Well, a benefit of the automatic transfer--",9
-fomc-corpus,1978,"President Volcker, what I was trying to say was that if you did not have automatic transfers, it would be like saying [6-1/2] was the midpoint of a range which would be more like 5 to 8 [these] days.",53
-fomc-corpus,1978,"But even without automatic transfers, Steve, wouldn't you agree that base drift makes 6-1/2 doable?",23
-fomc-corpus,1978,"Well, I--",4
-fomc-corpus,1978,I think it does.,5
-fomc-corpus,1978,Base drift makes anything doable.,6
-fomc-corpus,1978,Now we need to hear from Philip Jackson.,9
-fomc-corpus,1978,"Well, gentlemen, first I would urge that we not take into--",14
-fomc-corpus,1978,"Phil, excuse me. Roger, I assume the others are the same then?",16
-fomc-corpus,1978,"Yes, leave M2 and M3.",9
-fomc-corpus,1978,"First, I would urge that we not take into consideration in establishing the targets the prospective change in the regulations that might occur as of November l with regard to automatic transfers. It strikes me that what we are really doing is continuing to set long-range targets for the purpose of operating until we set another long-range target. We are far wiser to continue to set long-range targets without recognition of any prospective change because whether the change will take place is uncertain. And in an uncertain economic world, it is foolish in my judgment to set a regulation into that picture, as uncertain as that is. We can certainly do so with a reduced degree of uncertainty in October when this takes place. Second, I would urge that we not shift the basis of operations to M2 for all the reasons stated. I would urge us for goodness sakes to please let's get to work and get these aggregates redefined before the year-end so we can get some rationale restored to our policy. I've felt that way for a long time and I am glad some of you have finally agreed with the great wisdom that I had earlier! Third, it is my judgment that we cannot ignore the consequences of increased rates of inflation. Therefore, it's tragic but [true] nonetheless that our continued devotion to unrealistic targets for M1 is foolishness. The present rates of inflation and the future prospective exogenous forces that will sustain it, if not accelerate it, make it even more foolish. For that reason, I think it is important that we go ahead and set a higher target range on M1. I would argue for [raising the upper limit to] 7-1/2 percent. This implies increased velocity. And while I recognize Phil Coldwell's argument that the average velocity for previous peaks of the cycle is about 4 percent, unfortunately, the most recent experience we had was 4.6 percent in the fourth quarter of 1973. I would hope that we would not achieve the velocity we are proposing by achieving the relative increases in interest rates that that period produced and the consequences that period produced. So for that reason, I would argue for increasing the [top of the M1] range to 7-1/2 percent, keeping the other ranges as they are today. And it is my judgment that not only can it be explained to the public but that it should be explained to the public.",477
-fomc-corpus,1978,Larry.,2
-fomc-corpus,1978,"Mr. Chairman, I will be very brief. I have several observations. One, I would invite the attention of the Committee to the last page of the staff presentation which says unequivocally that 7-1/4 percent for M1 growth will result in 8.2 percent inflation in the year 1980. Without being specific, I would observe that the year 1980 is going to be a unique and important year and that perhaps the economy would be an issue very much on people's minds in l980. I believe that inflation is the number one issue impeding capital investment. It is the number one issue in the minds of the people of this country today. It is going to be the number one issue, if it is not brought under control, in l980. I believe that there is a direct relationship, and we can demonstrate it, between the growth of M1 and, after a lag period, the rate of inflation. I take total exception, though, to the point of view that the control of M1 or any other aggregate is not doable. We can control it. Peter Sternlight can sell or buy securities. It can be done. And what we do today on setting the targets for the next year will either come back to haunt us or come back as good cheer to us in the year l980 when I assume there will be a certain amount of attention paid to what the rate of inflation is. So, I would recommend that we go with ""B"" and try to stick to the midpoint--and not try to tell ourselves that this is not doable--because I believe it is doable, Mr. Chairman. And if we say it is not, we are just excusing our ineptitude.",351
-fomc-corpus,1978,Bones.,2
-fomc-corpus,1978,"Mr. Chairman, I've heard the comments about the fact that we have not been hitting the ranges and that we ought to adjust them, and I am completely unimpressed at the moment. I think the timing could not be worse. It would tend to confuse the markets at a time when they are already uncertain. It would contribute to our credibility [problem] even more. I would strongly opt for maintaining the ranges exactly as they are, with a dedication on our part to be more diligent in attaining those ranges.",102
-fomc-corpus,1978,"Thank you very much. Willis, you have been very unusually quiet. Wouldn't you like to be heard from?",23
-fomc-corpus,1978,I thought that was the instruction.,7
-fomc-corpus,1978,Not that quiet. We want to hear from you.,11
-fomc-corpus,1978,"It seems like we have backed ourselves into a win/lose posture no matter which way we go, which is not the way I like to look at alternatives. To minimize our risks, it seems to me that the status quo, for reasons that have already been expressed, would be the best posture.",60
-fomc-corpus,1978,"Well, thank you. I think we have heard from everyone on this subject. You will be impressed to know that of the voting members, not counting myself who has not yet indicated [any view on this], only three would change M1 by raising the upper limit. And there is one non-voting member who would do the same. So, unless there are changes of opinion, it looks as if there is a fairly overwhelming majority to maintain the present ranges for M1 regardless of what I would say. I don't know whether you would like to stop there and give a reaction; M2 is a little more complicated. I think there was only one suggestion of a change on M2 and only one suggestion of a change on M3. I will come back to bank credit. What is your pleasure? It seems to me that the--",169
-fomc-corpus,1978,"I would like to ask all this great assemblage who believe in maintaining the range on M1 what they would say about the way to get growth down within the range. Are you going to get down within it? Are you going to raise interest rates 300, 400, 500 basis points? Is that what you would have the Chairman say to the [Congressional] committee?",78
-fomc-corpus,1978,"May I respond to that? I think the Chairman has an excellent opportunity to spell out the fact of great uncertainty--and great disagreement as a matter of fact--in judgments within the Committee on the behavior of M1 over this entire period, especially because of the automatic transfers. Therefore, the significance of the M1 range is necessarily sharply diminished for that reason. Deemphasize it even if we make no formal change in our 50-50 weighting just to recognize the facts of life--the great uncertainty.",103
-fomc-corpus,1978,"You would permit him to say: Well, that's our range but we may exceed it.",18
-fomc-corpus,1978,You would almost have to say that.,8
-fomc-corpus,1978,"We are going to come closer this time, Chuck, than we have; and very frankly, base drift helps us do that.",26
-fomc-corpus,1978,"There are two sentiments that I hear, Chuck. One is that we are going to have these ranges and explain later our going over them. The other is that we are going to have these ranges and live within them. And those will be the debates at our following meetings. It seems to me that is what the issue is.",66
-fomc-corpus,1978,You are giving him a very difficult assignment.,9
-fomc-corpus,1978,"Could I ask just a quick question of Chuck? I am interested in why you are so certain, Chuck, that M1 is going to grow at that 7-1/2 percent rate [that you mentioned] over the entire period starting with the second quarter of this year.",57
-fomc-corpus,1978,"Well, because almost everyone has a forecast for nominal GNP that is in the vicinity of 11 percent for the next year. Some have more inflation and less real, some have more real and less inflation. For example, the Chairman stated his point estimates at 3-1/2 and 7-1/2. That is about 11 percent nominal GNP; it is a little more actually, because there is a compounding effect. [So, my belief is based on] observation of the relationship that we have had now for a few years running between M1 growth and nominal GNP. Last year, that is in the year [ending in the second quarter]--with the second quarter as a given although it is a projection--we had a money increase of 7.9 percent. And on average from the second quarter of '77 to the second quarter of '78, the fed funds rate went up 2l0 basis points. It seems to me that it is just very likely that we are going to have more than the staff's 6-1/4 percent projection associated with that interest rate increase if we have something like an 11 percent nominal GNP. And I think it would be a disservice for this Committee to seek a smaller increase in nominal GNP than 11 percent over the next year, recognizing as all of you do that there is going to be in any event quite a lot of inflation in the figure, because to do that is to seek a recession. I don't think it is the purpose of this Committee to seek a recession in the United States economy.",327
-fomc-corpus,1978,"May I just make one comment? I think what we have seen happen is that we have gone from something like 4-1/2 to 5 percent real growth with 6 to 6-1/2 percent inflation to something like a 3 to 3-1/2 percent rate of [GNP] increase with 7-1/2 to 8 percent inflation, coming out with the same nominal activity. That has put us in a very strong dilemma because the only area we can really operate on is to squeeze down that real growth because the inflation lags and we have built in with the legislation [a substantial amount of inflation]. We've got that very serious problem.",140
-fomc-corpus,1978,"Mr. Chairman, can I make one point?",10
-fomc-corpus,1978,"Yes, Phil.",4
-fomc-corpus,1978,"[There is another] reason I opted for a slightly higher rate in M1 as well as the other things I have already said. [If we retain the current range] I think we are giving up an opportunity here to say to the Congress: Look, the Administration and the Congressional actions of the past year and those forthcoming in the first quarter of next year are the cause of this rise in inflation. We are giving up the opportunity of telling them that if they would defer the minimum wage increase, stagger out the increase in the social security taxes, and take stronger action to reduce the deficit, we could live within the smaller range of growth in M1. I think we would give up something important by not being able to say that.",148
-fomc-corpus,1978,"I don't know, because actually the threat that we would squeeze more is more of a threat than what we would give up. I [think] Congress has reacted more from a fear that we would tighten.",41
-fomc-corpus,1978,I think we are forecasting a tightening.,8
-fomc-corpus,1978,"I am saying that while I am concerned about all of this, I think we'd be more likely to persuade them to do something legislative if they felt the other choice was tight monetary policy. I don't know.",41
-fomc-corpus,1978,"Well, I think that the Coldwell proposal, which I would accept, does imply a considerable further increase in interest rates.",25
-fomc-corpus,1978,"Oh yes, no question about that.",8
-fomc-corpus,1978,Mr. Chairman?,4
-fomc-corpus,1978,"Yes, Lawrence.",4
-fomc-corpus,1978,"I don't think we should lose sight of the fact that anything that enhances inflationary expectations will lead to an increase in interest rates, too. If people think that we have lost control of our ability to deal with inflation, inevitably that will cause interest rates to rise. Long-term rates are rising now. We are going to end up in the same pickle either way, and I would rather have us end up with lower inflation and temporarily higher interest rates than have inflation drive these rates up.",97
-fomc-corpus,1978,"You all have heard the discussion. It has been very thorough and interesting. Are there any candidates to switch votes? If not, there is a majority, I am afraid. We just have to vote; that is all.",45
-fomc-corpus,1978,"I feel I could go to 7 but I'd hate to go to 7-1/2. The argument just comes too close to saying we have had a lot of inflation and, therefore, we will increase our targets.",46
-fomc-corpus,1978,"Mr. Chairman, you are the one who is going to have to face the music.",18
-fomc-corpus,1978,"I can live with anything. I have to learn to do that because, when you vote, there is not much else I could do. What are my other choices? It is a very sneaky way to ask for my resignation!",47
-fomc-corpus,1978,"If I could just follow up: I, for one, would certainly be interested, if you care to share your view with us. I assume everybody else would. I don't think I heard you express your view.",43
-fomc-corpus,1978,"I think my preference would have been to make some upward adjustment in the top of the M1 range--how far I had not decided--because I think we have a better chance of restoring credibility. Even if we went to 7, we would have a chance at least to come nearer to our goal. With 7-1/2, I admit that you begin to raise serious problems with the international area and, in fact, you raise [problems] with other forces. But I have a hard time seeing us getting into the 4 to 6-1/2 percent range. No matter what we do with interest rates, I think we probably are going to live with overshooting, but we have been doing that for quite a while. The Committee may later decide to bring about a control of M1 to get it in the range. If so, I think we will trigger a recession, and that would concern me too.",191
-fomc-corpus,1978,"Mr. Chairman, I wonder if this would make any sense at all, even though I discarded it in my own thinking: If you are going to raise the upper end of the range by 1/2 point, for the reasons that have been set forth earlier, you could take some of the sting out of the announcement effect of that by dropping the lower end 1/2 point at the same time and making an impassioned speech about the tremendous uncertainties that lie ahead in M1, given the prospect of automatic transfers and how that will turn out--in fact, whether it will turn out. And you could sort of reduce M1 to a memo item type of treatment, which Frank Morris suggested.",143
-fomc-corpus,1978,But it is very hard to imagine that getting--,10
-fomc-corpus,1978,"I think that would be perceived [in a way] that might [work] against us. Look, we can live with whatever you vote because we are going to be back [reviewing these long-run ranges again] in three months. We also are going to have a lot of other hot issues around town. To a degree, there will be a divergent interest in this while we do membership and a few other things.",85
-fomc-corpus,1978,Move the question.,4
-fomc-corpus,1978,"Will you call the roll, Mr. Broida? Look, I think we need to do this. We need to focus on M1 because it does not look like there is any sentiment that would get a consensus for changing [to] M2 or M3. Let me call your attention to the recommendation in alternative B that the bank credit range be increased by l percentage point on each end. Only a couple of you mentioned that specifically. Are all of you accepting of that associated bank credit range? Are there any implications of that higher range that disturb you?",114
-fomc-corpus,1978,I would prefer not to make that change.,9
-fomc-corpus,1978,Let's vote on that separately. Let us first take M1.,13
-fomc-corpus,1978,"Point of information, Mr. Chairman: In the bank credit numbers, are we getting the foreign bank credit in that picture or not? Is it just loans to domestic companies?",35
-fomc-corpus,1978,It's everything except the agencies.,6
-fomc-corpus,1978,That is not the branches here but the foreign banks?,11
-fomc-corpus,1978,Foreign branches and foreign-owned banks operating in the United States are in the statistics; foreign agencies operating in the United States are not. We hope to revise [the definition of bank credit] to include those in l979.,44
-fomc-corpus,1978,"Loans from foreign banks I think are what you asked about. In other words, Barclays lending [unintelligible]. But that is a big factor in this.",33
-fomc-corpus,1978,"Doing it without operating through a branch? I don't think it would be picked up, would it Ed? If it is a direct loan from a British bank to a U.S. company, it will not be picked up. For M1, let us just say maintain or revise upward. We know what we mean.",64
-fomc-corpus,1978,Chairman Miller I would revise upward Vice Chairman Volcker Maintain President Baughman Maintain Governor Coldwell Revise upward President Eastburn Maintain Governor Jackson Revise upward Governor Partee Revise upward Governor Wallich Maintain President Willes Maintain President Winn Maintain It's 6 to 4 to maintain the M1 range.,62
-fomc-corpus,1978,I will switch my vote and go along with the majority. Does anybody else want to be associated with this?,22
-fomc-corpus,1978,"I see no reason to create a major division on this point because I think we're going to be back at it in October, so I will go with the majority.",33
-fomc-corpus,1978,I maintain my negative.,5
-fomc-corpus,1978,You are going to maintain your negative.,8
-fomc-corpus,1978,I maintain my position.,5
-fomc-corpus,1978,"Okay, we have two dissents. All right, thank you very much. Now, on bank credit, do we take the current range or the alternative B range? I am willing to go with the range in alternative B.",46
-fomc-corpus,1978,"Vice Chairman Volcker In all honesty, I am willing to go either way President Baughman I will take the ""B"" range President Coldwell Current range President Eastburn ""B"" Governor Jackson Current Governor Partee It doesn't make that much difference; I'd suggest 8 to 11.",59
-fomc-corpus,1978,"To be consistent with the other vote, you have to go for ""B.""",16
-fomc-corpus,1978,"No you don't, because there are an awful lot of sales of non-money instruments.",17
-fomc-corpus,1978,"All right, go ahead.",6
-fomc-corpus,1978,"Governor Wallich ""B"" President Willes ""B"" President Winn I would go for the current range I guess there are 5 for ""B,"" 3 for the current range, one no comment, and one 8 to 11.",50
-fomc-corpus,1978,"I will change mine to ""B.""",8
-fomc-corpus,1978,So will I.,4
-fomc-corpus,1978,"Anybody else? All right no dissents on that. Thank you very much, I think. One word: We do need to do some work. We have Larry's suggestion and we have Frank's suggestion and we did not have time, obviously, to [give them much] attention. We know we need to redefine the aggregates. I think the staff had a proposal on that when I first arrived here, which I thought was a very excellent proposal, but the Governors were not interested at the time. Now I find they are.",107
-fomc-corpus,1978,Correction: Some of the Governors were not interested.,10
-fomc-corpus,1978,"I'm kidding you. I am just teasing. There were other pressures at the time. I think what we need to do, Steve, is to see how we should organize a method to come back to this Committee with a series of options or possibilities, perhaps through a discussion phase and then a perfecting phase. With all these choices--pluses and minuses or pros and cons for this way or that way--let's get some direction before we do too much detailed work.",96
-fomc-corpus,1978,"Mr. Chairman, if it were feasible, could we possibly let an economist from each of these points of view get in the discussion?",27
-fomc-corpus,1978,Why don't we get Steve to round up the right kinds of specialists to help us look at the pros and cons of various options?,26
-fomc-corpus,1978,We will get a balanced group and then I would like to come up with four or five options. I wonder whether we will have three or four dissident opinions.,33
-fomc-corpus,1978,"No, we don't need that. I think it is more [unintelligible] to go through the exercise. All right now, I think we still have a question from our Secretary.",39
-fomc-corpus,1978,"Mr. Chairman, normally we would record a single vote for the longer-run targets. Is my understanding correct that we will have two dissents and the explanation will be that those members would have preferred raising the upper limit for M1 and that there are no dissents with respect to the bank credit ranges?",61
-fomc-corpus,1978,"That is right. All right, let's see if we can catch up. We are now at the point where Steve, the Committee's economist, is supposed to have some comments on prospective financial relationships. He did not have any, did he?",49
-fomc-corpus,1978,"No, I have no comments.",7
-fomc-corpus,1978,Have we heard from Peter Sternlight yet?,9
-fomc-corpus,1978,"No, he hasn't said a word. No, he [isn't] finished.",17
-fomc-corpus,1978,Now we will have the report of open market operations since the [previous] meeting from Peter.,19
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you very much, Peter. We need a vote to ratify the transactions since the previous meeting. Hearing no dissent, we can consider that approved. Steve, do you have any further comments?",40
-fomc-corpus,1978,"No, I don't, Mr. Chairman.",9
-fomc-corpus,1978,"Considering the thorough discussion we have had on the economy and on the monetary situation, I suggest that I call the names alphabetically, first of the voting member and then of the nonvoting members. I would suggest, if you wouldn't mind, that you first give us a quick rundown--you can refer to page l2 of the Bluebook--on your suggested short-term ranges for M1, M2, the federal funds range, and what you consider [appropriate to do] quickly. Let's see whether we have any wide variances of opinion. If everybody seems to be coming out together, I think we can shorten the discussion. If we have wide variance of opinion, let's come back and air [our differences]. Ernie Baughman.",151
-fomc-corpus,1978,"Mr. Chairman, my views are pretty well captured in alternative C. It seems to me that that would call for a 1/4 point increase in the federal funds rate promptly. It seems to me that the market is expecting it and actually installing it would tend to put the dealers back into a [more] conventional operating position whereas they are operating on an oversold position in the anticipation that something like this is coming along.",86
-fomc-corpus,1978,Phil Coldwell.,4
-fomc-corpus,1978,"Mr. Chairman, my recommendation to the Committee would be encompassed in the following: 4 to 8 percent for M1, 5 to 10 for M2, and a 7-3/4 to 8-1/8 percent funds rate range with a skewed midpoint of 7-7/8, to which I'd move promptly. I do that deliberately.",79
-fomc-corpus,1978,I thought it was deliberately.,6
-fomc-corpus,1978,"I think it is desirable to take another notch in this but not as great as a full 1/4 percentage point on a prompt move. I don't think we have excessive restraint on the economy yet. In fact, I don't really see much restraint in the change. You will note that the ranges as given do move us down and if the Committee is really serious about its 4 to 6-1/2 percent long-run range, it must start moving down from the very high level of M1 growth that has been in effect. Inflation is obviously unsatisfactory--both the present and prospective rates--and I think there are some excess demands both internally and for foreign goods, which can be moderated by monetary policy actions.",146
-fomc-corpus,1978,Thank you. Dave.,5
-fomc-corpus,1978,"Well, I would pause for this month and go with alternative A or B. That would seem to me consistent with the kind of economic uncertainties that were revealed in our discussion. And those aggregates ranges would be satisfactory to me; I would wait and see what happens next.",54
-fomc-corpus,1978,"Thank you, Dave. Phil Jackson.",8
-fomc-corpus,1978,"I would move up 1/8 on the federal funds range to 7-5/8 to 8-1/8, with instructions to the Desk to go to 7-7/8 promptly. I think the ranges stated for alternative A or B--5 to 9 and 7 to 11--are satisfactory.",69
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"I would go with alternative A or B. I really would have preferred an M1 range of 5 to l0. Remember, we are including July and it still may be a bulge month of some size. So, I guess I would [propose] an alternative M1 range of 5 to l0. I certainly think we have had enough movement in interest rates for the time being. The figures that Peter was reciting on the increases over the last month were very substantial and I do think that we have a lot of restraint in [unintelligible]. It certainly is occurring in the mortgage market in every major city in this country and I think it is broader than that. I think it is part of the explanation for the behavior of the stock market--the increase in capitalization rates that has occurred over the time. So, I would very strongly wish to remain at 7-l/2 to 8 [on the funds rate range] with a 7-3/4 midpoint.",204
-fomc-corpus,1978,"Thank you, Chuck. Paul.",7
-fomc-corpus,1978,"Well, I think we have a timing problem here, Mr. Chairman. I heard an awful lot of talk this morning, both before and after the break, about the inevitability of interest rates going up. It is an argument whether they are going up by l or 2 or 3 percentage points. I'm not at all sure that they are going up as much as l percentage point but if it is all that much in that direction, I would rather have a little more of it sooner rather than later. I think it would be a mistake not to move now, so I would certainly go to the 7-3/4 to 8-1/4 percent funds rate criteria and I rather like Governor Coldwell's specifications on the aggregates--moving them a little lower. I actually had 3 to 8 on M1 and 6 to 10 on M2 but his were very similar. I think I'd go to a money market directive with those kinds of aggregate numbers so we don't move too readily above the 8 percent. I would be reluctant to go above that.",220
-fomc-corpus,1978,An 8 percent midpoint?,6
-fomc-corpus,1978,An 8 percent midpoint. I would use the money market directive so that we would not move readily above that but I would allow that possibility. [And I'd move] fairly promptly to give it a nudge.,43
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"Well, I think we can do without an interest rate increase at this time. If we do 1/4 every two months we will do 3/4s over the rest of the year to January and I think that is what one can now foresee as likely. So I would stay with 7-3/4. I would like to see an upward move triggered more readily than a downward move, so I would reduce the M1 range to 4 to 8 and the M2 range to 6 to l0, but with a money market directive so that we are in an asymmetrical position. Then it's only when the upper limits get triggered that there should be a move.",141
-fomc-corpus,1978,"Thank you, Henry. Willis? No, I'm sorry, Mark is next. I am not very alphabetical today. I didn't mean to leave you out, Mark.",33
-fomc-corpus,1978,"It might have been just as well, Mr. Chairman! If I could, I'd just make one comment on interest rates, since there seems to be so much concern about rising interest rates. We seem to accept easily the notion that if we want to look at real wages we adjust for inflation, and that if we want to look at what is happening to profits and depreciation, we adjust for inflation. Most of the economic theory that I know says that if you want to look at the real bite of interest rates, you also adjust for inflation. And interest rates adjusted for inflation are not high at all. I think that is the sense that Phil probably means when he says we are not very tight. In fact, we have had negative real rates of interest on Treasury bills, for example, for over two years. This is in contrast with periods in the early '60s and most of the '50s when real rates of interest not only were not negative but they were positive. I don't see how we can deal effectively, when we are at full employment, with accelerating inflation and still have substantially negative real rates of interest. So it does not bother me to have interest rates go up; I think they should go up. If they don't go up, I think we are simply guaranteeing more rapid rates of inflation, which will then guarantee, in turn, higher interest rates. One of the most stable and profound relationships we have in all of economics is the relationship between inflation and interest rates, and I don't think we hold [inflation] down by failing to move interest rates up now. So I think we ought to make another move. I think that the federal funds range ought to be 7-3/4 to 8-1/4 and that all of the numbers I have heard so far [for the M1 and M2 ranges] are too high. They will not move us in the direction that we need to go. I think something like 3 to 7 percent would be more appropriate for M1.",409
-fomc-corpus,1978,Thank you. We will now come to Willis.,10
-fomc-corpus,1978,"Thank you, Mr. Chairman. I am concerned about the momentum I see on prices, attitudes, and even real activity, in view of our past experience of waiting and then having to raise rates too sharply. I share Paul's feelings that I would rather do it now than later, as I felt last month. Therefore, I vote for alternative C for the funds rate, with 4 to 8 and 6 to l0 as specifications on the aggregates.",92
-fomc-corpus,1978,Thank you. John Balles.,7
-fomc-corpus,1978,"I will make this brief because my speech has already been given by several here, especially including Mark Willes. I think we do need to have a link between our short-run and long-term ranges. Unless we move at some point, we are going to have the overshoots everybody has complained about this morning. Therefore, I would go essentially with alternative C, but I would like to see the upper end of those ranges reduced by at least a point or so.",94
-fomc-corpus,1978,"Thank you very much, John. Bob Black.",10
-fomc-corpus,1978,"Mr. Chairman, I would go for 4 to 8 on M1 and 5-1/2 to 9-1/2 on M2. I'd adopt the federal funds range for alternative C, move immediately to 8 percent, and use an aggregates directive.",57
-fomc-corpus,1978,Thank you. Roger Guffey.,8
-fomc-corpus,1978,"Thank you, Mr. Chairman. I think we have had quite a lot of movement [in interest rates] and, as a result, I'd prefer not to see an additional movement come out of this meeting. But to insure that we do indeed move if we have strong growth in the aggregates in the intermeeting period, the prescription that I would prefer is 4 to 8 on M1, 5 to 10 on M2, with the existing 7-1/2 to 8 percent funds range, but with an aggregates directive. That means, if I interpret it correctly, that if the July-August growth rate for M1 approaches 7 percent, for example, we would indeed move to 8 and quite likely we would be at 8 percent under those circumstances by this time next month. I think that would be all right, but I would hate to come out of this meeting moving to 8 percent. So, the important aspect of that, in my view, is that we have an aggregates directive with those ranges.",212
-fomc-corpus,1978,"Thank you, Roger. Bones.",7
-fomc-corpus,1978,"Mr. Chairman, I would like very much to see us continue to lean against the price trends. And I would like alternative C with the federal funds rate shown there, M1 at 4 to 8, M2 at 5 to 9, and an aggregates directive.",57
-fomc-corpus,1978,Bob Mayo.,3
-fomc-corpus,1978,"Alternative C is acceptable to me, Mr. Chairman. I would not be in any hurry to get to 8 percent but if it comes naturally in the Desk's operations, I would just let the funds rate go to 8. I wouldn't want to see it go over 8; I would be a little uncomfortable about that without a meeting, but I think ""C"" is still my preference. And I would accept [the specifications in] ""C"" on the M1 and M2 ranges as well.",104
-fomc-corpus,1978,Thank you. Frank Morris.,6
-fomc-corpus,1978,"Mr. Chairman, I would like to support a federal funds range of 7-1/2 to 8 percent. I would stay at 7-3/4 until the aggregates triggered a move to 8 percent, but I would lower the triggering points to 3 to 7 for M1 and 5 to 9 for M2.",72
-fomc-corpus,1978,"But it is already triggered. By the projections we have, it is already triggered.",17
-fomc-corpus,1978,It would be triggered if it came in over the projections. The projections are [for M1 growth of] about 7 percent.,27
-fomc-corpus,1978,"I will now say last but I will not say least, that's for sure. Larry.",18
-fomc-corpus,1978,I would go with [the views of] either John Balles or Mark Willes.,18
-fomc-corpus,1978,"I thought so. I'm beginning to learn. Well, let me take a quick look at this. Let me suggest to you a couple of thoughts that I have. One is that I believe--and I have said this publicly--that we are in a period of difficult decisionmaking. It has been easy over the last year to raise the federal funds rate 300 basis points or whatever has been done from the low point of last year. Is that right?",92
-fomc-corpus,1978,[Unintelligible.],6
-fomc-corpus,1978,"It has been easy to see all of that in a period when the economy was growing rapidly in real terms and there was considerable slack. Now we have had restraint on for some time. I guess my concern here is that continued restraint, while logical in economic terms, is likely to trigger a recession at this time. And if [we have a recession], I think the stimulating effects of fiscal policy that will [occur as a result] will take away our restraint and we will have accomplished nothing except to leave the Federal Reserve probably in a less effective position to deal [with the situation]. That is why I think this is a very difficult period. If we do what the textbook would tell us to do, we may start a chain of events that will work against us. If we fail to do it, we may regret it, so it is a [difficult decision]. We get paid here for making tough judgments. On balance, I would prefer alternative A or B except that I believe I would narrow the federal funds range to 7-3/4 to 8 percent. And I liked a suggestion that was given to me for the wording of the directive: The directive would say that if the M1 and M2 rates of growth appeared to be significantly above their midpoints, we would go up [on the funds rate] but we couldn't go down without a meeting, in effect. So we'd keep it at 7-3/4 and there's no likelihood of it moving lower but we have prospects, as we see the aggregates, of it moving on up to 8 percent. I think that would be my preference. I don't like the situation that has been developing where each day after an FOMC meeting the market takes over and decides that we have raised the rate 1/4 and puts it into effect and then tells us. I think we need a little more chance to regain some flexibility; so that would be my preference. I don't know what the census comes out to. In terms of the midpoint, among the voting members we have four at 7-3/4, two at 7-7/8, and with a couple of questions, four at 8. Is that right?",448
-fomc-corpus,1978,[Unintelligible.],6
-fomc-corpus,1978,"Well, let's ask the question. Mark, did you want to go to 8 percent immediately?",20
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"And Willis, did you want to go to 8 immediately?",13
-fomc-corpus,1978,The timing is not that important.,7
-fomc-corpus,1978,"So then it really is more like three 8s and the others around 7-3/4 and 7-7/8. I don't know whether or not we have the makings of something where we are all agreeable or not. I don't know if you like my suggestion of a very tight range and we don't go down in that range but could, and probably will, go up to 8 before the next meeting.",88
-fomc-corpus,1978,"Mr. Chairman, I would suggest that the 7-3/4 and 7-7/8 people are very close together. And 7-3/4 to 8 percent is an extremely narrow range; it is much more like a money market directive. How about going to 7-7/8 as the midpoint with that 7-3/4 to 8 percent range and make it a money market directive?",89
-fomc-corpus,1978,"I have no objection, personally.",7
-fomc-corpus,1978,I think I would buy that.,7
-fomc-corpus,1978,"What does that mean, Chuck? You move to 7-7/8 immediately?",18
-fomc-corpus,1978,"Well, pretty soon. There is this financing--",10
-fomc-corpus,1978,"I will tell you what Peter will tell you. He will have a hard time maintaining 7-7/8 because this is a very, very fine line, isn't it, Peter?",38
-fomc-corpus,1978,"I think it would be difficult to implement. Once we'd gotten there, then the market could perhaps over time be made to understand that is what we wanted. But the process of getting it up just 1/8 without everybody thinking we want it up 1/4 is impossible.",57
-fomc-corpus,1978,You could tell them.,5
-fomc-corpus,1978,"Henry Wallich has a novel idea. He said ""tell them,"" just like we have said we've always wanted to do. If Congress would let us, we'd issue the directive this afternoon!",38
-fomc-corpus,1978,Who's on first?,4
-fomc-corpus,1978,"Chuck, I think I could buy your formulation if we took the ranges down to around 4 to 8.",23
-fomc-corpus,1978,"I think if you had a money market directive, you might be able to do that.",18
-fomc-corpus,1978,"Well, let's listen to Peter for a moment. You are going to have a hard time maintaining [an increase of] 1/8.",29
-fomc-corpus,1978,I think it may be hard to achieve that 7-7/8 without overshooting.,19
-fomc-corpus,1978,I think we all ought to be aware of that.,11
-fomc-corpus,1978,[Unintelligible.],6
-fomc-corpus,1978,[Unintelligible.],6
-fomc-corpus,1978,It might not be the most undesirable thing in the world to have a little uncertainty just as to where that is and let it move.,27
-fomc-corpus,1978,Can you operate between 7-3/4 and 8?,14
-fomc-corpus,1978,"I think so, but again, there would be a risk that the market could assume that we wanted 8 and it could take a while to batter it down from the 8 percent level.",39
-fomc-corpus,1978,"I would argue that the operating considerations that you have outlined probably are the best compromise for the diversion of the positions of the people on the [Committee]. That is, shoot at 7-7/8 and recognize that you may miss it [within] about the range of judgments that we have been discussing.",62
-fomc-corpus,1978,"Steve, do you have any thoughts? You usually have some good thoughts.",15
-fomc-corpus,1978,"Mr. Chairman, I certainly share Peter's view [given] that the market had been at 8 yesterday and it's at 7-15/16 today. It is going to be difficult to fine-tune it. So, I would think that it may be desirable for the Committee to decide whether it should stay right around where it is, whatever that is--if it's a 7-3/4 to 7-7/8 range--until the aggregates more clearly suggest [you ought] to let it go up toward the 8 percent. I think you would end up somewhere above 7-3/4 percent for a while or a shade above. Then if the aggregates come in strong relative to the decided ranges, you could just let it go to 8. But I think an effort to push it to 7-7/8 will probably push it to 8.",182
-fomc-corpus,1978,But an effort to hold it down to 7-3/4 would be difficult,17
-fomc-corpus,1978,We are already at 7-7/8.,11
-fomc-corpus,1978,"Well, I think we at the Desk would like to have some idea in mind of what we are to aim for.",24
-fomc-corpus,1978,"If I understand these current projections, with the ranges we most recently discussed, you're almost at the point where you would go toward 8 anyway, unless instructed otherwise.",33
-fomc-corpus,1978,Not with the money market directive.,7
-fomc-corpus,1978,"Well, not quite but darn close to it.",10
-fomc-corpus,1978,"Well, if you take 4 to 8, it really does cut it [close]. There is no question about it.",26
-fomc-corpus,1978,All you have to do is have one week in July and you are in.,16
-fomc-corpus,1978,Our projection is already 9.,7
-fomc-corpus,1978,"Mr. Chairman, I wonder if I might suggest something. I suggest that we formulate instructions to the Desk to resist 8 percent until the end of this week and early next week and then, checking the aggregates, move gradually on up. If it moves to 8, accept it but choose between 7-3/4 and 8.",70
-fomc-corpus,1978,What is the Treasury situation this week?,8
-fomc-corpus,1978,"There is an auction of 1-year bills tomorrow and 2-year notes on Thursday. And then they will announce a week from tomorrow the terms of the August refunding, which will probably be about a 6 or 7 billion dollar [offering].",52
-fomc-corpus,1978,What is the proper thing to do if we expect to get to 8 percent?,17
-fomc-corpus,1978,"Mr. Chairman, may I suggest that the Committee could simply instruct the Manager to aim at a federal funds rate in the 7-3/4 to 8 percent range over the next few days, without making a strong restraining effort to reduce it. I think that the funds rate then could very likely be up around 7-7/8 to 8 percent because the financings are coming up and you really would not want to give a misleading signal. And then if the aggregates are strong, he would more clearly let it move to around 8. I think that, in effect, sanctions where you are now and doesn't have the Manager taking any strong actions that might be misleading in this period where we are coming up to a large refunding as well as current offerings this week.",160
-fomc-corpus,1978,Could that be bought by a majority of the Committee?,11
-fomc-corpus,1978,We are in effect saying it's going to be played around 7-7/8 to 8 in the very next period.,26
-fomc-corpus,1978,Or 7-3/4 to 8. It may bounce back to 7-3/4 some days; it may not.,29
-fomc-corpus,1978,Let it bounce a bit.,6
-fomc-corpus,1978,"I don't think there is anything wrong with that. One, two, three, Paul?",18
-fomc-corpus,1978,"That's all right with me, I think. I assume we are going with these lower [M1 and M2 ranges of] 4 to 8 and 5 to 10.",38
-fomc-corpus,1978,4 to 8 and 5 or 6 to 10.,14
-fomc-corpus,1978,I don't think 5 to 10. I think [the M2 range] ought to be 6 to 10. I don't want to cut it too much [because of] the time deposit component.,43
-fomc-corpus,1978,"Does 4 to 8 work on that instruction, Steve?",13
-fomc-corpus,1978,"Well, if our projections are anywhere near right, that pretty much assures that we will be at 8 fairly promptly if that is the upper limit of the range.",33
-fomc-corpus,1978,That is all you do.,6
-fomc-corpus,1978,That means you're frozen for the next month.,9
-fomc-corpus,1978,"That's why I'm not sure if we shouldn't go ahead and have the ranges a little wider, because--",20
-fomc-corpus,1978,You could make these ranges to 5 to 9 and 7 to 11. I would prefer that.,23
-fomc-corpus,1978,"Yes, 5 to 9 and 7 to 11 because you're just making a decision to operate at 7-3/4 to 8 and you're really going to be operating at 8 percent at the next meeting.",47
-fomc-corpus,1978,Our uncertainties about July and the seasonals and all that seem to me to argue for a wide range in this period.,24
-fomc-corpus,1978,"[If growth is] more than that, we certainly ought to [bring] the Committee back in consultation.",22
-fomc-corpus,1978,"I don't believe I could accept that high a range. I think that's too much. If we are really headed to try to restrain this, we should not be accepting a 5 to 9 range.",42
-fomc-corpus,1978,That is a midpoint of 7.,8
-fomc-corpus,1978,[The midpoint] doesn't mean anything with a money market directive.,13
-fomc-corpus,1978,Can we try 7-3/4 to 8 on the understanding of 4 to 8 and 6 to 10?,28
-fomc-corpus,1978,"What was that, please?",6
-fomc-corpus,1978,"Can we try 4 to 8 on M1, 6 to 10 on M2, and 7-3/4 to 8 on the funds rate, conducted in the manner Mr. Axilrod has just described?",49
-fomc-corpus,1978,With a money market directive.,6
-fomc-corpus,1978,Cap it at 8.,6
-fomc-corpus,1978,That seems to be where we are.,8
-fomc-corpus,1978,That is as high as I am going to go.,11
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,I'd put the cap at 8-1/4 with a consultation at 8.,18
-fomc-corpus,1978,"Well, I would prefer that but--",8
-fomc-corpus,1978,"If you put an 8 percent cap now, if it's inconsistent, you'll get a consultation anyway. So you get the same result.",27
-fomc-corpus,1978,"Not necessarily, if we're talking about 7-3/4 being [unintelligible] too.",22
-fomc-corpus,1978,"Let's see if we can make this wording [acceptable to] get a majority vote here. Let's look on page 3 at the operating paragraph. The first problem is line 57, [or] page 2, line 43. Steve, on the formulation we are talking about, what does that line read?",64
-fomc-corpus,1978,"I think that it could read ""about the current level"" because that could refer to the last very few days and the Committee understands that as 7-3/4 to 8 percent. So I don't see any problem with that.",48
-fomc-corpus,1978,"All right, it's ""initially at...about the current level."" Then ""Subsequently, operations shall be directed at maintaining...7-3/4 to 8 percent....In deciding on the specific objective for the federal funds rate the Manager shall be guided mainly by the relationship between the latest estimates of annual rates of growth in the July-August period of M1 and M2 and the following ranges of tolerance:..."" Now, 4 to 8 and 6 to l0 have been suggested and I want to ask again, does that create a problem?",115
-fomc-corpus,1978,"It doesn't create a problem for me, but if most people wanted to delay [a rise in] market interest rates--",24
-fomc-corpus,1978,"All right then as we go on we will say ""If, giving approximately equal weight to M1 and M2, their rates of growth appear to be close to or beyond the upper or lower limits...."" We will use the money market emphasis. That is a suggestion and proposal. Are we all clear on that? Use 7-3/4 to 8 on line 45, 4 to 8 on line 50, and 6 to l0 on line 54.",100
-fomc-corpus,1978,May I get a clarification of the understanding?,9
-fomc-corpus,1978,"Yes, the understanding is that the current level is above 7-3/4 but not yet at 8.",24
-fomc-corpus,1978,"In the last two days, it has been in the 7-3/4 to 8 percent range.",23
-fomc-corpus,1978,I really wanted a clarification that if the M1 and M2 figures came in strong and you moved up to 8 and they still came in strong we would have another consultation.,36
-fomc-corpus,1978,"It is not clear to me--it's a matter of simplification--why we need those lines 42 and 43 that say ""shall be directed initially"" at one thing and subsequently at another thing. The ranges are narrow anyway. Why don't we just say ""during the period until the next regular meeting System open market operations shall be directed at maintaining a weekly average....""",75
-fomc-corpus,1978,I like that a little bit.,7
-fomc-corpus,1978,I think that is perfectly okay with this very narrow range.,12
-fomc-corpus,1978,"I think that would be perfectly acceptable. Are you with us on that? [Instead of] directed ""initially at maintaining"" just say ""at maintaining"" the weekly average within the range, right? Gentlemen, can I have a show of hands of those on the Committee who are voting if that would be acceptable? Yes, a straw vote.",71
-fomc-corpus,1978,Could you just run through the specific numbers again?,10
-fomc-corpus,1978,"Now it says ""During the period until the next regular meeting, System open market operations shall be directed at maintaining the weekly average federal funds rate within the range of 7-3/4 to 8 percent. In deciding on the specific objective for the federal funds rate the Manager shall be guided mainly by the relationship between the latest estimates of annual rates of growth in the July-August period of M1 and M2 and the following ranges of tolerance: 4 to 8 percent for M1 and 6 to 10 percent for M2. If, giving approximately equal weight to M1 and M2, their rates of growth appear to be close to or beyond the upper or lower limits of the indicated ranges, the objective for the funds rate should be raised or lowered in an orderly fashion within its range."" And then we have the regular paragraph about consultations if we are getting out of whack. It doesn't give the Desk much leeway.",191
-fomc-corpus,1978,It sure doesn't.,4
-fomc-corpus,1978,Peter can set the dial and go on vacation.,10
-fomc-corpus,1978,That is what he intends to do!,8
-fomc-corpus,1978,Do you have any final comment before we nail you up on this one?,15
-fomc-corpus,1978,"I think that should be workable, Mr. Chairman.",11
-fomc-corpus,1978,"Yes, I want it to be workable because we really shouldn't push something on you that is foolish.",20
-fomc-corpus,1978,"It is workable, but I take it on the understanding that the Committee recognizes there is a substantial chance you are going to end up at 8 percent in a week or so.",36
-fomc-corpus,1978,"[The market will] probably take it away from us. That is probably what will happen. There's nothing wrong with that. Now may we have a show of hands--a straw poll--of those who are voting members? We should be able to count ten, I think.",56
-fomc-corpus,1978,Seven.,2
-fomc-corpus,1978,Those who don't like it?,6
-fomc-corpus,1978,Three. It adds up.,6
-fomc-corpus,1978,Now shall we do an official vote? I'll vote for it.,13
-fomc-corpus,1978,Vice Chairman Volcker Yes President Baughman No Governor Coldwell Yes President Eastburn Yes Governor Jackson Yes Governor Partee Yes Governor Wallich Yes President Willes No President Winn No The vote is 7 to 3.,45
-fomc-corpus,1978,"Gentlemen, we have a vote of 7 to 3. Thank you all very much for your patience. Now we have the matter of item 7; [you received] a memorandum. Tom O'Connell is here to explain it but I think it is self explanatory. And I think we would be wise to leave our language in force on the assumption that the Congress will act promptly. If it doesn't, we will have to [act]. In the meantime, we can't implement it and we know that. Is that all right with everyone? Then I would like to confirm the date of the next meeting as Tuesday, August 15. Now I would like to do something that I rarely do at these meetings. I would like to stand up and I would like to say before we have our Executive Session that this is the last meeting at which Art will be present as Secretary. He has been with the government for 37 years and decided he doesn't like it, so he is getting out! He has been with the Board for over 30 years. I have known him only for the short time that I've been here and I have found him to be what you have known him to be--extremely able and a great colleague. He has made my life so pleasant by keeping me in bounds here--running this meeting through me and telling me when to tell you off for speaking too long and that sort of thing, which has made it all workable. It has been a great experience. I am really going to miss you, Art. If you all don't know this, he has decided to finally take a permanent job. So he will be going to work for the American Enterprise Institute with a fellow you may know, Arthur Burns. They are going to be looking over our shoulder and telling us what we are doing that is wrong. When they look at the last eight years, they will have to explain that to themselves. Art, I just want to wish you all the best on behalf of the Committee and everyone here as well as all the associates from the System. We do wish you well and I will miss you. We hope to see you around now and then. And now I think we need a short Executive Session before we adjourn for a 1:30 lunch.",460
-fomc-corpus,1978,"Mr. Chairman, may I have just two minutes? I would like to bring to the attention of this group the fact that the financial problems of our city are not all the theatrical exhibitions of our current mayor. We do have a very critical problem in the area, unlike New York City, which managed to get rid of most of the short-term debts and got them over into long-term [borrowings]. We had about $41 million in short-term debts at the moment the market foreclosed. They have been dipping into the funds and there is a deficit in the various [sinking] fund accounts for the cemetery and the waterworks, and all of the other sorts of setups. There is a current deficit of around $2 to $2.2 million a month in terms of the general funds account and the city has outstanding debts against the electric illuminating company [unintelligible] and total about $3 million. [There are] debts against the gas company, [which] has not collected, and the telephone company; all of their accounts have continued to run. The banks are not heavily exposed in terms of any single one in this area but I think it's really going to call public attention to the fact that in the first place most of the government accounts are not audited and second that there has been a great deal of transfer from one fund to another--the [unintelligible] concept in terms of the management of city financing departments. I think this is going to come to a head with some very hard choices for communities. We have in addition a school system that is also bankrupt or virtually close to it because under the integration order they can't get any tax increases passed. They have already tried two or three times now. Both of these factors are going to come to [a head] this fall irrespective of what happens in terms of--",372
-fomc-corpus,1978,"It is a tragedy isn't it, to see that happen? Thank you for your report. We will now go into Executive Session. Is John here now? Gentlemen, last meeting we had a discussion, as you know, of the security situation. I know that it was a new subject and that not everyone felt there was adequate time to deal with the issue. We are back here today, by popular request, to allow for further thoughts and expressions. Those who have access to information about security feel there is a real danger. I think we have pretty good information that there has been an interception and a pretty good sense that there may be abusive use of that information for financial advantage. We can't prove that, probably, and we all want to work toward a secure voice communication system, which will allow us to maintain the present [practices], but we have cost and time inhibitions. The question was whether we could have an interim procedure for a period of time. We are looking first toward immediately getting a completely secure line between the Board and the New York Federal Reserve Bank. And ultimately we're looking toward technological development that would allow a completely secure line to all the Reserve Banks or if not, whether we couldn't have an interim procedure at some point with the leased lines and a certain reduction of risk. John would you just add anything you want to add? Let's see how people feel about it. The procedure had been suggested that certain sensitive information--the [Desk's] program, for example--be omitted from the morning calls or that the President be omitted from the calls and that a Governor here on a secure line might monitor the situation during the interim until we get a secure system for the entire network. We weren't authorizing spending $850 million at the moment; we were authorizing the first step to get a secure line from Washington to New York.",372
-fomc-corpus,1978,"The critical aspect, technically, is that of extending beyond just a point-to-point link between here and New York. As we pointed out earlier, any conferencing of three or more stations involves a rather astronomical rise in cost. To tie in the twelve Reserve Banks with the Board would amount to about $800,000, over half of which would be just the so-called conference bridge that is necessary to tie in the twelve stations. So we are proceeding with the point-to-point link, which will provide secure communications between here and New York. At the same time, somewhat coincidental of that, we are going ahead with the plan to link all the Banks with cable--safe telephone communications that will provide a modicum of security. It will provide security against the most vulnerable aspect of regular telephone communications--that is, microwave, which is very easily intercepted. Now, of course, that in our present mode would not be used for the morning market call. There would be no way of tying in another Bank [and having it] secure between here and New York and that Bank. So, we are up against the technical problems of that.",227
-fomc-corpus,1978,Why can't you use [unintelligible]?,10
-fomc-corpus,1978,Because the secure link would be between Washington and New York. To add a third station requires a conferencing capability; you can't have half secure and half open.,31
-fomc-corpus,1978,"The unsecured line can't hear the secure lines, so you have to go to an unsecured line to deal with the whole thing. That is the problem. You would have to go unsecured from New York to Washington, which is very vulnerable to being tapped, because it is well known [that communications between the two occur]. And the cable can be tapped at so many points that it is extremely vulnerable.",79
-fomc-corpus,1978,The Washington and New York areas are the ones that are most vulnerable to microwave intercept.,17
-fomc-corpus,1978,A land line is vulnerable to being tapped.,9
-fomc-corpus,1978,It is a discrete tap.,6
-fomc-corpus,1978,"I am sure you can, but how vulnerable is it? How much is the difference between-- Let me state the question straightforwardly. As I understood from earlier discussions, and as I thought of it myself after the previous meeting, the question that I have and I think some others had is: Given the microwave is too vulnerable--we will assume that for the moment--isn't there a large difference in vulnerability between the microwave and the leased line without going to the secure link? And if that is true, is it possible to continue on the leased line basis, possibly pending the secure link, which some people think may be worth it? I would add: if the quality is good enough. If the quality is mediocre, forget about it, based on my earlier experience with these things. If the quality is really good maybe it is worth the $800,000. You can use it for a variety of purposes.",184
-fomc-corpus,1978,"Well, I am from Missouri on spending $800,000 because the only things you'd use the line for are unsecured other uses. You wouldn't use it for other secure uses. So you can get the leased lines and [save] money on it.",50
-fomc-corpus,1978,You could use it for Committee meetings and--,9
-fomc-corpus,1978,"Well, that is so rare.",7
-fomc-corpus,1978,Wouldn't the problem in your suggestion be that the obvious line to tap would be the New York to Washington line?,23
-fomc-corpus,1978,Sure.,2
-fomc-corpus,1978,"Sure, but how ""easy"" is it on that line? I don't know.",17
-fomc-corpus,1978,"Extremely. The thing is that now foreign agencies are undoubtedly monitoring by microwave. Those same foreign agencies would have to employ another technique. They can't do it from their physical facilities. They would have to have somebody go out and do it. They can hire those people, to be perfectly blunt, for a fee. Then you also open it up to non-foreign interveners who think there is a lot of money to be made through organized crime by tapping into financial information. We don't know whether they have been active or not, but foreign [entities] have been active and could very easily just say fine, if we can't get it by microwave, we can get it by tap. I don't say that their risk is less because they have to go through the trouble and they could always possibly be detected in some sort of maintenance program. But those wires are just in so many places, and they are so relatively easy to identify. The taps nowadays, I believe, actually can be done without a physical connection, too, which makes that even more vulnerable. That is a fairly new technique. All you need is, in effect, an induced sensor that will pick up and translate this into voice. So it is not that hard, and it's mobile. It can be done anytime and over and over again. Bob.",263
-fomc-corpus,1978,"Mr. Chairman, I have thought long and hard before deciding to say this, but I guess partly growing out of my experience in the Nixon cabinet, I must question the basic premise. We say here it is known that information from these intercepts is being used, among other things, to develop economic intelligence on the United States and to improve the bargaining position of foreign governments in dealings with public and private organizations in the United States. I think I am a fairly imaginative guy, but I can't quite figure out how any information derived from the morning call, most of which--with a couple of key exceptions--is known by the end of the day anyway, is going to affect one way or another the evaluation of the economic intelligence information on the United States. In the absence of any known threat in this regard--that is, known to me--I then turn [to whether it] is also possible that information gained from telephone eavesdropping is being used to engage in financial market dealings for the purpose of financial gain. Do we actually have any evidence that any dealer or any broker, or any outsider for that matter, is capitalizing on this? I must say that there is a tendency that exists in the government--and I think particularly in the Federal Reserve, Mr. Chairman, for understandable reasons [because] we must be secure on so many of our operations--[to exaggerate]. I don't feel that this is a security risk, though I realize I am probably talking about something that I have only partial information on. But I am concerned that we may engage in an exaggerated response where the actual threat is kind of a bogeyman. Am I out of order in saying this?",340
-fomc-corpus,1978,"No, no, not at all. We must explore this. On the first point--John, you will have to clarify this--I understood the information to be just a report on what microwave intercepts are being used for. It had nothing to do with the Federal Reserve, but was generally on how they are being used. And I think there is pretty strong evidence that in wheat transactions or whatnot they have been used to substantial advantage and may even have caused some of the inflationary problems we are dealing with around this table in terms of what happened in 1973. I don't know, but that is the evidence. In terms of other market transactions, I don't know. There is a pretty good indication that we are a target to being intercepted now. Then you begin to break down. No, I don't know of any linkage that can tell us of a transaction that took place by using this intercept to go short or to buy securities in knowledge of a market movement by the Federal Reserve. But the problem is that we don't know how they use it or where, or even in what secondary markets it could be used. It is certainly true in our experience that the foreign powers involved have no qualms about making money if it gives them off balance sheet funds.",254
-fomc-corpus,1978,"Well, I can see the potential threat and I suppose an ounce of prevention is worth a pound of cure. But I don't see any real threat and I personally am willing to take the risk. But, of course, I am not in your position, so I--",54
-fomc-corpus,1978,"No, I think we should do this together. If the value of the morning market call monitored by a President rather than a Governor has enough benefit--public benefit and benefit to the System--to outweigh that potential risk which is undefined, then we should go ahead with the calls. If the benefit of that call outweighs the risks, we should continue for a period of time--for two or three or however many years we need to get to where we have new technology that will make this [secure communication] more realistically available.",106
-fomc-corpus,1978,"I think it does, Mr. Chairman, if I may continue just for a moment. Granted, there are many occasions when our participation as individual Presidents monitoring the call consists of saying ""yes"" and ""I haven't any comments"" when the approach [being contemplated] is more or less an orthodox one. But there have been many, many occasions in my experience--and I know some of the others I have talked to about this feel the same way given their experience--where there has been a positive contribution. There is rarely a Governor on the call; Paul doesn't participate in it because his people are there. I think it is perhaps important that one of us do it. And I must say, selfishly, from a regional standpoint that I think it is part of my job description to be able to say to my board of directors and to my banks that yes, one of my functions is the participation, when called upon, to serve my duty on the morning call. It keeps the System as a whole in a much more orderly way of looking at things.",213
-fomc-corpus,1978,"Well, Bob, I think we all ought to decide. The point, I guess, was to leave it unchanged--not that a Governor would be monitoring but we'd make that assignment if we went this way. We haven't implemented this yet, as I understand it. We are still doing it the way it was. Is that correct?",67
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"You haven't very many Governors even when you have seven, and there is so much work to do. I think it--",24
-fomc-corpus,1978,"Well, would you please write a letter to the Senate and House Banking Committees to explain that to them?",22
-fomc-corpus,1978,"The only comment I was going to make, Mr. Chairman--I'm sure everybody is quite aware of it--is that of course any President or Governor is quite welcome to join the call either here at the Board or in New York even.",48
-fomc-corpus,1978,Sure. That is true.,6
-fomc-corpus,1978,"Yes, no doubt about that.",7
-fomc-corpus,1978,But it's haphazard. That is physical presence by chance.,13
-fomc-corpus,1978,That is by chance.,5
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,"If you were in New York or if you were here, you could do it. But you could not if you were in neither of those places.",30
-fomc-corpus,1978,I think the only discussion we ought to have is not whether the cost of getting a secure line to New York is--,24
-fomc-corpus,1978,The cost is not material to my point.,9
-fomc-corpus,1978,"We ought to do that. The only discussion is whether we extend it throughout the System. It is my judgment that [that decision] could well be made by all of you collectively and individually to see whether or not you think spending $850,000 is worth it.",54
-fomc-corpus,1978,"Well, it probably isn't quite that simple though, Phil, at this point. What I am arguing for is the status quo.",26
-fomc-corpus,1978,You are arguing for not even putting in the secure line between here and New York?,17
-fomc-corpus,1978,I see no objection to that.,7
-fomc-corpus,1978,It won't do us any good.,7
-fomc-corpus,1978,It wouldn't do you any good if you have an outsider on the call.,15
-fomc-corpus,1978,It would be an improvement to have leased lines. I think everybody would agree with some improvement in the--,21
-fomc-corpus,1978,I think that's right.,5
-fomc-corpus,1978,"Well, we can use them for other things.",10
-fomc-corpus,1978,Sure.,2
-fomc-corpus,1978,But not with the cost of the secure--,9
-fomc-corpus,1978,"Paul, have your people indicated how often--this can be rough--any of us Presidents ever adds anything to that call? I ask because I sure as hell don't. Maybe it is my own weakness or ineptitude--I'm using that word again. Our people think it is a laughable process.",61
-fomc-corpus,1978,"I've talked to quite a few of you individually about this since the last meeting and many of you have raised it with me. Peter can talk directly on how many Presidents ever say anything specifically. I think there is quite a different attitude among some of the Presidents. Some of them do feel it's important to stay in touch and keep their people in touch. And I think I can say from the standpoint of the Desk that it is a disappointment to them to know they have to present their thoughts in an orderly way--and kind of pass scrutiny even--if nobody says anything for three months in a row. On balance, I think it is a healthy thing for them to have to present the program in an orderly way. But my--",146
-fomc-corpus,1978,And they wouldn't feel that way if it was just a Governor!,13
-fomc-corpus,1978,"No, the second part you'd get the Governor; the first part obviously you can't.",17
-fomc-corpus,1978,"The reason for the monitoring by the substitute Governor was to have that discipline. But there was another suggestion I had made and that is that there is no reason not to give the President a rundown on the market situation, all of which is publicly known, and inform him later in the day of the action. And the President can critique it and say, ""That was a mistake; learn from that and don't do it again."" It is not correcting in advance but correcting after the fact--that kind of approach.",102
-fomc-corpus,1978,"But it is difficult, Mr. Chairman, for any President to read between the lines as to the reasons and so forth. The telegram is cold.",30
-fomc-corpus,1978,"After [the program] has been implemented, of course, [someone from the Desk] can call you and explain it to you in complete detail. He can say this is why we did this and we want you to know why and please if you have any thoughts in thinking about tomorrow and so forth, is this the kind of approach that makes sense?",71
-fomc-corpus,1978,"My recollection of this, going back to the mid-1950s when I was once upon a time on the Desk, was that it was supposed to be a Governor and a President on the call. And through the years the Governor fell off.",51
-fomc-corpus,1978,"Disappeared. I think that is right, Paul.",12
-fomc-corpus,1978,One reason is the timing of Board meetings.,9
-fomc-corpus,1978,"Yes. Well, what is your pleasure, gentlemen? This is a case where there is certainly no built-in fixed position on our part.",28
-fomc-corpus,1978,"My feeling frankly, Mr. Chairman, is that we can get by for a while without the participation of the Presidents but that we ought to seek to develop a secure communication system, which we could use for a lot of other things as well.",49
-fomc-corpus,1978,"I think in several years, with the growth in the market for this sort of thing--it is going to be needed more and more just for commercial reasons because the intercepts are very damaging to all kinds of communications. You are going to find more and more equipment and costs coming down and more and more techniques. Look what happened if you bought the first mini-computer: Five years later you could buy six times the power for one [half] the cost of the original. And that is what is going to happen here. That's why I'm not worried about our solving it long term. I'm just a little bit stingy about spending $850,000 when I think probably for a quarter million dollars in three or four years you will get a better deal.",152
-fomc-corpus,1978,You cannot hook an ordinary lease in New York or Washington--one that is secure. The garbage in between is the problem.,25
-fomc-corpus,1978,You can have two phones. A guy can be talking with two phones.,15
-fomc-corpus,1978,Maybe I didn't understand the question.,7
-fomc-corpus,1978,Are you talking about extensions?,6
-fomc-corpus,1978,I would think the most vulnerable link is between New York and Washington. That is where everybody is looking.,21
-fomc-corpus,1978,"That could be secure. And you can't be on the same line and understand that elsewhere, but you could be on a separate line.",27
-fomc-corpus,1978,Even if it is unscrambled with one hand and transmitted through a box onto the other speaker.,19
-fomc-corpus,1978,You would have an elaborate system there. Peter might be able to give all the unsecured information on the regular call on the leased line and give the secure information to the Board on the squawk box and then communicate one or two seconds later on the regular handset to the Presidents.,55
-fomc-corpus,1978,"You can't connect them up electronically, then?",9
-fomc-corpus,1978,"No, but you could do it at least two ways.",12
-fomc-corpus,1978,It would be far too expensive to connect it electronically. It would be a whole research department project.,20
-fomc-corpus,1978,"Mr. Chairman, I wonder if there is some possibility of beefing up the content of the daily wire that all of us get in any event. Admittedly, it is after, rather than before, the fact, but that would not preclude a one-day-later critique or whatever, if that could be done. Speaking personally, that would be a perfectly adequate solution. I would feel pretty much the way Frank has expressed himself, as long as we weren't precluded from critiquing the [program] even if it is after the event. My experience is that it has [not] occurred often but, when it does occur, it seems important. I don't see that we would be prevented from a little postmortem instead of a comment prior to the time the program is imposed. And I don't think much would be lost in the process.",172
-fomc-corpus,1978,"Dave, do you have a comment?",8
-fomc-corpus,1978,"Well, I would support that for another reason. And that is that in my experience the most frequent contribution that a President makes in the phone calls is not on the techniques of the day-to-day call but if he feels the Desk is not moving promptly enough or is moving overly promptly [relative] to the directions of the Committee. [The President on the call] is kind of a burr in the saddle. And I think he could be as effective at that after he has had the news as he is at the moment [of the call] because it is a day-by-day cumulative process.",119
-fomc-corpus,1978,"Well, certainly, before implementing anything we should work out a procedure. We should have an assigned President to continue to be in the loop in some way. That is certainly true. How do others feel?",41
-fomc-corpus,1978,"Mr. Chairman, I would endorse what Bob has said. I think it is important to maintain the integrity of the System, as it has been in the past. I would ask a question that has not been raised otherwise as to whether or not the supplier of this material--and I'm talking about the bridge principally, which I understand is the big cost item--who wants to develop and market this is prepared to go on a lease arrangement with us for some time to prove the product. We indeed used this arrangement when I was on the call last year. Apparently there was a bridge in place at that time. We were using a scrambling device. I was talking to Kansas City and I had a device set in my office. What I am really suggesting is that a cooperative effort or some sort of reasonable lease arrangement might be possible.",166
-fomc-corpus,1978,I do know that they will lease the security equipment itself on the bridge. I have not asked that question.,22
-fomc-corpus,1978,"It seems to me that they are new in the business and if the Chairman's forecast is right--if mass development is going to take place in the period to come--this company will be in the forefront. And if they have us as a touchstone to sell, it may be very advantageous for them. I would like to see us look into that.",72
-fomc-corpus,1978,"The thing with that is that you pay for it, though, [in] a lease. Also, I think that--",25
-fomc-corpus,1978,You would want [the cost] to be reasonable.,11
-fomc-corpus,1978,"At this stage of the game, it would be a unique--",13
-fomc-corpus,1978,"But I understand there is also competition in this, Mr. Chairman. There is at least one other company--it has three initials--with the same research and offering the same service and it expects to come out with something.",45
-fomc-corpus,1978,We hope this competition is going to develop.,9
-fomc-corpus,1978,"Well, that may work [in favor of going] the lease way.",15
-fomc-corpus,1978,"This particular system has been being developed for several years at Rome airbase through an Air Force contract, and is reported to us to be one of the most--",32
-fomc-corpus,1978,"It may be that there are other alternatives, Mr. Chairman. I am continuing to look at them. The demand in the private sector is very strong right now, as you say, for this type of solution. If suddenly one should appear, I certainly would be very interested.",56
-fomc-corpus,1978,"Mr. Chairman, when we look for this new system, I think we are in dire need of a greatly improved hard copy transmission system as well.",30
-fomc-corpus,1978,"Yes, we are going to do that. We need [to assess the] fallout of this whole discussion. I think we are undoubtedly going to lease lines where we would have control of our network and could use them 24 hours a day to transmit facsimile on a high speed basis. We are testing now and the pay-out for that will make this all very economical. You don't get a pay-out for the other. You make one call a day for an enormous investment and maybe one call every quarter for the FOMC.",108
-fomc-corpus,1978,The wire has a delay of 2 to 3 hours; at least that is my experience.,20
-fomc-corpus,1978,Oh yes.,3
-fomc-corpus,1978,"And the facsimile could, I think, be done immediately.",14
-fomc-corpus,1978,"If we get that done, you are going to get a much better copy, a much more readable copy. Some of this other stuff is very hard to decipher.",33
-fomc-corpus,1978,The wire actually is done here around 12:30 or 12:45.,17
-fomc-corpus,1978,"I will secure that wire, by the way.",10
-fomc-corpus,1978,We don't get it until after 1:00 or 1:30 our time in Kansas City.,21
-fomc-corpus,1978,"Mr. Chairman, I think we ought to go ahead with the New York lease line arrangement and work toward the idea of additional hookups and the security device.",31
-fomc-corpus,1978,"Why don't we also, Phil, draw up a procedure that takes account of a system that would keep a monitoring President in the loop to the maximum degree we can and puts a Governor specifically in the loop? And let's work toward the proposition that we want to return to the present system whenever we can get a feeling of security--when the equipment is available and the costs are right. [We'll move] promptly to improve our facsimile transmission.",89
-fomc-corpus,1978,[Unintelligible] out of the Board then.,12
-fomc-corpus,1978,What is the security on that line?,8
-fomc-corpus,1978,But it's after the fact.,6
-fomc-corpus,1978,"Yes, the reason that is not considered secure is that everybody in the market knows by then.",19
-fomc-corpus,1978,But it really isn't after the fact. It indicates that there may another round of repurchase agreements necessary in the afternoon and so forth. So it is a real--,33
-fomc-corpus,1978,[It provides] preliminary indications of the aggregates [figures].,13
-fomc-corpus,1978,Sure.,2
-fomc-corpus,1978,"They are not quantitative, because the quantitative--",9
-fomc-corpus,1978,"Yes, all of these things need to be better secured, there is no question. And that can be done. I think if you can get a lease line with the facsimile you're going to get much better security. As I said, we are going to have a 3:00 lunch. Nothing will happen in thirty days; we are going to keep exploring it. Gentlemen, the Presidents will meet in this room after lunch. We have just one brief item.",96
-fomc-corpus,1978,"First, I want to apologize for a little delay this morning. It was because the Treasury [breakfast] had more eggs than usual and I didn't want to pass up the last opportunity to be fed before this ordeal. Before FOMC meetings I get a very big appetite! Second, I have to apologize for Steve Axilrod, but he's going on vacation this afternoon and he doesn't normally dress this way. Actually, when people saw him yesterday in this outfit, the exchange markets, as you know, went wild. Let's see what happens. The first order of business is for me to recommend to you the election of Murray Altmann as Secretary. I think you all know Murray. He's a New Yorker and has been with the Federal Reserve System since 1949--going on 30 years almost--and most recently, of course, has been working with the FOMC as Deputy Secretary. And I take great pleasure in recommending him to you as the Secretary. Is there such a motion?",201
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,Second.,2
-fomc-corpus,1978,Any discussion? All those in favor? SEVERAL. Aye.,15
-fomc-corpus,1978,"All opposed? Now, the reason Murray has been selected is because he has a mean streak. Art Broida was so kind that when I asked him to get a timer with a bell on it to keep us under control, he just couldn't get up the courage to do it himself. But as he left, he presented me with these timers, which [are hourglasses with sand and] don't have any bells. So I'm going to try to set them up when each of you starts to talk and Murray is going to show a mean streak--since I'm a gentleman--[and tell you when your time is up].",126
-fomc-corpus,1978,What are they--three minutes?,7
-fomc-corpus,1978,"Yes. And when your three minutes is up, he's going to say ""next speaker."" Three minutes for each one of us is an hour, so if we each speak three times for three minutes, it's three hours.",44
-fomc-corpus,1978,"How many times can you talk, though?",9
-fomc-corpus,1978,"Less. So those are your time limits. You didn't know this was your duty, did you?",20
-fomc-corpus,1978,"No, I didn't. I'm not sure yet whether you're serious.",13
-fomc-corpus,1978,"We are having a lot of fun but we are serious. My second serious duty is to note that Bob Black, Roger Guffey, and Larry Roos will not be at this meeting and they are being represented by their First Vice Presidents. George Rankin is here from Richmond, Henry Czerwinski is here from Kansas City, and Don Moriarty is here from St. Louis, so we are all represented, and we welcome you. I think at least for Henry and perhaps Don this is your first time attending [as a participant] at this table, though you've been [at FOMC meetings seated in] other places. We are delighted to have you and we hope you will speak up. The next thing I would like to mention is a concern that has come to my mind about possible inadvertent, but nonetheless potentially damaging, leakage from the FOMC meetings. We have seen a recent article by Ben Weberman that comes very close to indicating that he has inside information about what goes on in these meetings. And that could only come from someone here. It is not coming from anyone because of a leak. It's occurring because of the general capacity of the journalist to put 2 and 2 together--by calling you and chatting and by innocent questions and silences during these calls around the country--to make up a story. I think this is very damaging. There have been memos circulated in the past about how we take special care for security and there is, I believe, a procedure where each March the Committee is reminded of this problem. But I would like to suggest to you that all of us are subject to our egos being massaged by the press calling us and saying how important it is to get our views on the economy. And a few questions put here and there [can give them a story]. Frankly, I think it would be well just to decline to take calls from the press for a respectable period after an FOMC meeting and not get trapped in this procedure. Have your public information people take the calls and ask what the subject is. I think we should be--and I hope we will be--more sophisticated than to let ourselves be trapped because I do think it does damage for stories to get out about what goes on inside these meetings. If you'd like, we can circulate some of the memos on this subject going back to 1972 and 1975, but I think you all probably appreciate what I am talking about and I hope we can watch it. Unless I have omitted something, Mr. Secretary, I think we can now proceed with the regular agenda and ask for approval of the minutes of the actions taken at the FOMC of July 18. Are there any questions or changes that have not already been [submitted] to the Secretary? Hearing none, and in the absence of any dissent, we will assume the minutes are approved. Next is a report on foreign currency operations since the last meeting. Scott Pardee.",602
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,Any questions or comments?,5
-fomc-corpus,1978,"One question, Mr. Chairman. Scott, to what extent do you ascribe some of the dollar's difficulties to the effort we've made to repay German debt?",32
-fomc-corpus,1978,"I think at this stage very little. It comes back to the question of how the marks are pulled out of the market. That is, the marks that we have acquired have been directly from the Bundesbank, which itself has been absorbing marks from the market in connection with capital export conversions. We have not been buying in the market itself and we have not been perceived as a buyer of marks in the market itself, so that would not influence market psychology. So I don't think it has had an effect.",101
-fomc-corpus,1978,"Is this publicly known, Scott?",7
-fomc-corpus,1978,"We've announced it, yes.",6
-fomc-corpus,1978,"Yes, the Treasury's Tony Solomon made an announcement some weeks ago. I think it's the first time the public had been informed of substantial repayments. Ernie, I think you had a question.",39
-fomc-corpus,1978,"I was wondering if Mr. Pardee could elaborate a little on the characterization of ""ridiculously low levels."" Can you put that in a setting a bit?",32
-fomc-corpus,1978,"Well, there are a number of ways you can look at it. As I say, these rates have moved [substantially]. The Swiss franc has moved practically 50 percent in the past few months and the yen the same--just in terms of how far the rates have moved in a very short period of time. Yesterday the Swiss franc moved by 5 percent. And to the extent that anyone goes to these countries and finds how expensive it is to do anything--in terms of inflation differentials or those kinds of analyses--I think you'd find that the dollar is currently undervalued relative to these currencies. As I say, I am essentially trying to report to you what people are telling us from the market. These are the people who are selling the dollar.",155
-fomc-corpus,1978,This is not your own characterization.,7
-fomc-corpus,1978,"Well, in fact it is, but I don't want to interpose my own views because, as I say, we have been inundated with calls. People out of retirement have called and said, we want to find someone we can talk with to express our concern about what is happening to the dollar. We think the situation is ridiculous, it's overdone and we want to see what can be done at this stage to turn this thing around. It's hard to follow the market and to do what little intervention we've done while getting all of these other phone calls from people who want to talk for half an hour and explain their frets.",127
-fomc-corpus,1978,"With your permission, at the end of this meeting I'd like to bring up the subject of countermeasures to this sort of situation. I'd prefer not to do it now but at the end of the meeting, if you all don't mind, because we had not prepared to do so. I'd better bring it up because there is something to [discuss]. I'm not trying to cut into the questioning to Scott.",82
-fomc-corpus,1978,"Any clue, Mr. Chairman, on the discussion of the yen swap?",15
-fomc-corpus,1978,"I think we should discuss that with the Committee, yes.",12
-fomc-corpus,1978,"What happened yesterday, Scott, that caused this outbreak in markets?",13
-fomc-corpus,1978,"Well, under floating exchange rates, Mondays are usually the bad day because everybody--at least outside of New York--has newspapers to sit and read and Sunday newspapers tend to pick up all of the tag ends of [the news]. And when there's bad news for the week, that's the time when money managers begin to mull things over in their minds as to what they are going to do. So, quite often Monday is an exaggeration of whatever problems we had the week before and, therefore, we had a more serious problem, I think, to some degree. Phil Coldwell asked last month whether the corporate treasurers were moving, and we had a feeling yesterday that the corporate treasurers were now moving in bigger volume to sell dollars to cover their positions. [They apparently felt] that the decline of the dollar had gone so far that they could no longer sit tight and say this will blow over. We had been describing this as a professional market--traders dealing with each other--but we are running into the situation now where there's more money coming in from treasurers outside.",220
-fomc-corpus,1978,What sort of volume did the market have yesterday?,10
-fomc-corpus,1978,"We had a big volume. Anything we wanted to do could have been done. We could have done $1/2 billion, if we wanted, in intervention. That would have satisfied some of the pent-up demands for other currencies. If you're not there, then not so much will go through, but the rates will move further.",67
-fomc-corpus,1978,Chuck Partee.,4
-fomc-corpus,1978,"I think maybe that partly answers my question. I was going to ask you, Scott, whether you sense the kinds of conditions that would be characteristic of a climatic sell-off in the market. That's an analogy with the stock market and I gather that you are [getting] much more participation in the selling as you see it. The volume is up and the thing is moving now very rapidly. You can't tell how far down it will go but it is of the nature of that final sell-off surge.",100
-fomc-corpus,1978,But it's not a final sell-off; these things can go on for a longer period.,18
-fomc-corpus,1978,I don't think we could characterize it as final.,10
-fomc-corpus,1978,But it's a climatic situation.,6
-fomc-corpus,1978,You have a massive amount of dollar holdings that could be moved if there were a real panic.,19
-fomc-corpus,1978,So it could go much further.,7
-fomc-corpus,1978,"Oh yes, because you have, of course, substantial holdings of foreigners, of OPEC countries--",20
-fomc-corpus,1978,"Well, of course, you have all the Americans with their holdings of dollars that they could move into foreign currencies.",23
-fomc-corpus,1978,"You have a bottomless pit--in some sense--of panic. In the international field, I don't think we have mechanisms to avoid a panic.",30
-fomc-corpus,1978,Was yesterday a disorderly market?,7
-fomc-corpus,1978,"By all [means], when the Swiss franc moves by 5 percent.",15
-fomc-corpus,1978,"By all the standards we developed before, Bob, it was disorderly.",15
-fomc-corpus,1978,What has the market done this morning?,8
-fomc-corpus,1978,"Well, the dollar was lower and now there has been a technical rebound in the last half hour. The Swiss government is having a cabinet meeting tomorrow and, as I say, people worry about their Draconian measures. The Swiss have taken several Draconian measures and people worry about them before they are taken and after they are taken. They say, well, that won't work and then they buy Swiss francs anyway. The Swiss went and this last month by, as I say, cr eating worth of Swiss francs, which turns out to be about percent of their monetary base, simply as a way of trying to flood the market with Swiss francs and turn the thing around. But the Swiss franc is up about 15 percent. So anything they have done has been thrown right back in their faces and they are rather frantic at this stage. They do have their own economy to manage under these circumstances.",180
-fomc-corpus,1978,So we need your action to ratify the transactions since the previous meeting. I believe they have been reported to you. Is there such a motion?,30
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,"And seconded. Any discussion? All those in favor, say ""aye."" SEVERAL. Aye.",23
-fomc-corpus,1978,"It is so voted. Scott, I think you also have some recommendations with respect to renewals of swap drawings, and perhaps you can go on to report on the Bundesbank's proposals.",38
-fomc-corpus,1978,"Right. On the renewals of German mark swaps, we have four drawings, totaling $246 million, coming due in September. These are second renewals and the Bundesbank has agreed to renew them. And I recommend that the Committee approve their renewal.",51
-fomc-corpus,1978,Any discussion? Then we may have a motion for a renewal.,13
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,"[ None] opposed, so voted.",8
-fomc-corpus,1978,"I'd like to add that Mr. Gleske of the Bundesbank has written to Alan Holmes with some points that the Germans would like to reconsider in the basic swap agreement with the Bundesbank, which would be up for renewal in December. They are raising these points now so that we can consider and discuss them in due time. First, they suggest that the even sharing of exchange risks on drawings be dropped so that we would bear all of the risk. They are prepared to accept that drawings be at their interest rates, which are currently 4 to 5 percent below ours, rather than at U.S. Treasury bill rates. So there is a tradeoff that's involved in that point. Second, they would like to have any renewals made at current rates of exchange rather than at the rate of the original drawings. This would mean, in effect, the booking of profits and losses on individual swap drawings on a quarterly basis. Finally, they would like to have the language tightened up on the mode of repayment, making clear the principle that first efforts to acquire marks would be in the market. I have nothing to recommend today in this regard. All of these points require study. But we are preparing a memorandum to lay out the issues before the Committee. Some of these proposed changes are of a fundamental nature, such as the 50-50 loss sharing and would have to be extended to the swap arrangements with other central banks as well as with the Bundesbank. We have to consider them carefully.",300
-fomc-corpus,1978,The recognition of profits and losses quarterly is also quite fundamental. We've never done anything like that before.,20
-fomc-corpus,1978,No.,2
-fomc-corpus,1978,But isn't the Treasury doing that now?,8
-fomc-corpus,1978,"Well, that's internal accounting.",6
-fomc-corpus,1978,"No, not on the Bundesbank swaps. They are doing it for their own account.",18
-fomc-corpus,1978,The Treasury is doing it for their own purposes.,10
-fomc-corpus,1978,This would be a rewriting of the swap [arrangements].,12
-fomc-corpus,1978,This would change the relationship for repayment purposes. Any questions? I think we will have much to consider in that field as this develops further. You'll be coming back to us with something further?,38
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,I believe that completes the [subject of] foreign currency operations unless there are still questions. We will go on to the economic and financial situation and outlook. This month Jerry Zeisel will report. Jim Kichline is on vacation despite the terrible international outlook.,52
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Jerry. I would suggest that we now take a period of time first for questions of the staff and then, as we've been doing recently, that we do the go-around and get your own views on the outlook for the next four quarters on real GNP, inflation, and unemployment. Are there any questions now of the staff before we begin?",72
-fomc-corpus,1978,I take it the revised GNP figures are going to come out fairly shortly. Do you have any strong feelings that they're going to be revised upward or revised in either direction?,35
-fomc-corpus,1978,"The major revision is likely to be in the net export figures and that's substantially upward. That could be as large as, what--",26
-fomc-corpus,1978,We think it could be as much as 3.8.,13
-fomc-corpus,1978,Which would be possibly 3/4 of a percent or in that range.,16
-fomc-corpus,1978,That's the second quarter you're talking about?,8
-fomc-corpus,1978,"It's the second quarter, right, so [GNP growth] could well be above 8 percent for the second quarter.",25
-fomc-corpus,1978,Other questions?,3
-fomc-corpus,1978,"One of the particularly striking aspects of the forecast, Jerry, is the continued relatively low personal saving rate that is projected. That is relatively low by historical comparison, and I wonder if you could talk a little bit about the justification for that.",48
-fomc-corpus,1978,"Obviously, that's rather a key element in the forecast. We maintain the saving rate in the upper 5 percent range--somewhere around 5.7 percent toward the end of the projection period. If the saving rate were to be significantly higher, obviously, the implications for consumption and overall activity would be on the downside. Our feeling is that the relative price movements, particularly for food, housing, services, and other necessary outlays have put so much of a burden on disposable income that just to maintain the standard of living is going to require people to keep their saving rate at a relatively low level during this period. And that's, I guess, the key element in our projection.",137
-fomc-corpus,1978,"Could I follow that with one question in the same area? Jerry, what's your opinion regarding debt burdens as far as consumer spending?",26
-fomc-corpus,1978,"Debt burdens are high in historical terms. They are particularly high when one incorporates mortgage debt burdens along with the others. However, there has been no indication as yet of a deterioration in the quality of debt, and defaults don't show any significant deterioration. Our feeling is that as long as income growth is maintained at a reasonable pace, we'll probably be all right. But obviously, we have factored in this high debt burden and it's one of the elements that led us to conclude that consumer outlays would not be rising at a very rapid pace over the next year.",112
-fomc-corpus,1978,Your banking contacts don't indicate deterioration?,7
-fomc-corpus,1978,"On the contrary, the delinquency rates declined in the most recent months. I might also add, Governor Coldwell, that there are demographic reasons that would suggest that the amount of consumer borrowing should be rising. The baby boomers are between 25 and 35 years of age and this is the sector that tends to accumulate the most debt as it is acquiring capital assets and beginning family formations.",79
-fomc-corpus,1978,Bob.,2
-fomc-corpus,1978,"Just to support the staff's response to Phil, one of the nation's largest retailers reported to us just three days ago that their delinquency rate is lower than at any time in the past six or seven years. They're amazed themselves, but they're having no problems whatsoever.",53
-fomc-corpus,1978,"Henry Wallich, you have a question, do you?",12
-fomc-corpus,1978,"I see we are now counting on a full employment surplus in the second quarter of $12 billion. We still have a very large actual unified budget deficit. How do we get from a large deficit at about 6 percent unemployment to a full employment surplus at, I would assume, 4.9 percent?",62
-fomc-corpus,1978,"This is a leading question, so be careful how you answer it.",14
-fomc-corpus,1978,No longer is there basis--,6
-fomc-corpus,1978,You can't even find the tax cut there.,9
-fomc-corpus,1978,The answer is what you assume to be full employment.,11
-fomc-corpus,1978,"Well, I thought it was 4.9 but if you tell me it's otherwise, then you've resolved my perplexity.",25
-fomc-corpus,1978,I don't know the explicit number in the calculations but there has been increasing criticism of that concept--not only because of how one determines what is full employment but also because the effect of any given surplus or deficit depends so importantly on the composition of tax revenues and expenditures. The staff here is trying to develop other methods of measuring the same thing that the full employment budget surplus or deficit tries to measure. It is a very complicated issue and we've only made minor progress so far.,94
-fomc-corpus,1978,"Well, gentlemen, I would suggest that since we went around this way last time, as I recall, we'll go around the other way this time. Let me start off, as usually I end up. I would call your attention to Part 1 of the Greenbook, page 6. Under changes, it shows the projected changes; it says '78 II to '79 II, and that's the line we're talking about in a way. If you look there, you'll see that on a four-quarter basis the staff is projecting real GNP to grow 3.6 percent, they're looking at a deflator of 7.4 percent, and they're looking at an average unemployment rate in the second quarter of 1979 of 5.8 percent. Those figures are the ones we're going to try to get your feeling on. Now we know what the staff thinks and we're going to see what we're all thinking around the country about the orders of magnitude [for those variables]. In my own case, I don't believe I've really changed my feeling from the last meeting. I think that real GNP is apt to grow at 3-1/4 to 3-3/4 percent in this period, that the deflator is apt to be between 7 and 7-3/4, and that the unemployment rate will be 5-3/4 to 6. I believe those are the figures I had last time. I'm not going to fill in any comments because I know what we've seen in the Redbook and what we've seen in the Greenbook. [I wonder] if we all could at least get that general feeling that the economy is slowing [but] it's still fairly well balanced in the sense that there are no major sectors that are either expanding [or going] down rapidly. We're talking nationwide. Obviously, cement is short in some places but generally there are no capacity constraints. There seem to be no general excesses of inventory and there seem to be no general deflationary pressures in any particular sectors. It's a fairly well balanced situation with some leeway. Paul.",424
-fomc-corpus,1978,"I've changed your figures by about 1/4 point--3 to 3-1/2 percent on the growth, 7-1/2 to 7-3/4 on the inflation factor, and unemployment somewhere around 6 or a little below. The growth outlook doesn't look entirely unsatisfactory to me; the inflation outlook does.",70
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"I don't think I've changed my mind significantly. I still think we are likely to have better growth than the projection for the balance of '78 and probably worse than the projection for the first half of '79, but on balance the growth would probably be about the same. I would say that if there's any news since the last meeting in my own mind it looks like we're going to get less cooperation from organized labor on the inflation front and to that [extent] we may have a slightly higher net result over the year than we expected, though not to a major degree. But considering the present level, any increase is a significant increase and, therefore, probably worrisome. If anything, I'm probably inclined to be up a 1/4, to maybe 7-3/4 on inflation by year-end. Unemployment probably will be up in the 6 percent range. It strikes me that we are likely to continue to have some discipline in the manufacturing sector but the service and government sectors are probably where we will continue to be in trouble--and probably worsening trouble over the year. Therefore, the 30 percent of GNP that's in [those areas] will probably be adversely affected.",240
-fomc-corpus,1978,"Phil, I was particularly waiting for your remarks because anyone who spent two weeks in the wilds of Canada has the most balanced view of what the outlook might be--not contaminated by being too--",39
-fomc-corpus,1978,I would say that for the last two days--having been completely without news of any sort for seventeen days--the labor question is the one thing that hit me since coming back. It looks like the environment in labor is worse than it was when I left.,52
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"I'm disappointed, Phil. I thought you were going to say that you could hear the roar of Nancy all the way up there! I think Phil is exactly right to feel that the signs of serious labor difficulty are the most important developments of the last month. I would be inclined to feel that would mean both that wage rate increases next year will be going up more rapidly than we had anticipated and also that there will be considerable strike interruptions in the course of the period. It is, of course, very difficult to forecast. I do believe that the effect of the labor developments are more in terms of a continuation of a high rate of inflation next year than of changing the outlook for the twelve months under review here, of which a large part is already predetermined by the wage increases in process, and the minimum wage and social security [increases to come]. And food output, which may have improved somewhat in the course of the past month, [may also be a factor]. I haven't really changed my view either from the last time. I feel that we'll come out on the low end of the real GNP projection that the staff has here--probably with a little better second half, although the second half is not looking so good right now, and a distinctly weaker first half next year. I would say 3 to 3-1/2 percent for real GNP over the period. I haven't much quarrel with the price projection; 7-1/2 is probably now about right for this period, but I think it may be gradually rising, so if you were to look at 1979 as a whole, it would be more than 7-1/2 percent. And I would still say that the unemployment rate will be a bit higher by the second quarter of next year, say 6-1/4 percent.",370
-fomc-corpus,1978,"Thank you, Chuck. George.",7
-fomc-corpus,1978,"Mr. Chairman, in general we think the profile of the staff's forecasts pertaining to inflation and moderate real growth is probably correct. We're not quite as optimistic on real GNP over the forthcoming period; we'd guess it may go as low as 2-1/2 percent. The fixed-weight deflator we'd guess at 8 percent and the unemployment at maybe 6.2 percent.",78
-fomc-corpus,1978,Mr. Winn.,4
-fomc-corpus,1978,"I am concerned about the inflation developments and I'm not sure that they're all attributable to organized labor. As you know, we suggested to our Chairman that he not send a letter to the [banks] on inflation issues and the Secretary of the Treasury did. And I noticed that a large number of banks were having very substantial [wage] increases at midyear this year. When you talk to them they say: Well, we're afraid of wage controls and we want to get them in early. So, we're starting to see this sort of a movement. If you go to a restaurant and you complain about what's happening to their prices, they say: Well, we're afraid of price controls. We hear more and more of this in conversations as we talk to business people; they're all very quietly trying to get their prices up just as rapidly as they can, which tends to accelerate. I think [it's] a rather broad view. Second, I'm a little more concerned [about capacity constraints]. While I agree that generally capacity looks all right, it's the bottleneck problem that kills you and we're seeing that more and more in terms of skilled labor. More [firms] are using this as the restraint--their ability to increase not physical capacity but the skilled labor component. The steel companies will say: Look, if we could change the mix, we'd be all right. But talk about drilling equipment, we're in trouble; talk about wire, we're in trouble. If we talk about certain flat steel for automobiles, we're in trouble. But in general people still talk about 80 percent or 85 percent in terms of capacity. So you see, the general figures look good but you get to specific areas and you begin to [see] the bottlenecks. Whether that will show up in prices or in delayed delivery or what, I don't know. So, I think the capacity problem may be more of a constraint than indicated and, therefore, I would say that the real growth would probably be in the 3-1/2 to 3-3/4 area but my price concerns would be higher. I'd be in the 8 to 8-1/2 percent area [with] everybody starting to raise [prices] in view of the real certainty they feel that price controls are around the corner. And they look forward to rent controls, so everybody is trying to get in [price increases] in advance of controls. So I think you're going to see a frightening--",497
-fomc-corpus,1978,"So competitiveness makes no difference, even with slack?",10
-fomc-corpus,1978,"I was just mentioning that the banks are now raising their wages in view of the letter they received from Mr. Blumenthal. They've had very fine earnings this first half, as you know, and instead of waiting until the end of the year they're making the adjustments now and saying they'll be more in line at the end of the year. But [the wage increases] will be in advance of any possible wage controls. On unemployment, I'd say around 6 percent.",94
-fomc-corpus,1978,Thank you. Dave.,5
-fomc-corpus,1978,"My figures are quite similar to the Board [staff projections] and are quite similar to last time: real growth 3-1/2 or a little under; the deflator at 7-1/2 percent; the unemployment rate 6 percent plus a little bit. I think it's quite clear that the economy is running out of steam. The only question that I was trying to resolve between the meetings was this question that we explored last time about liquidity problems. Remember, there were a number of charts discussed at the last meeting and I took the occasion, on the basis of those charts, to talk to a number of bankers about liquidity conditions both in the corporate and consumer areas and at banks. And uniformly I got expressions of no concern. They didn't see evidence of corporate sector problems and they didn't see evidence in the consumer sector. [Their views] supported the kinds of figures that have been mentioned about delinquencies in consumer loans and they felt reasonably comfortable as far as their own situations were concerned. I raised the question as to whether they might have said the same thing in 1974. They said that's possible--that things can happen of which they're not aware and can happen fast--but they don't think so. They're really much more aware of the problem than they were at that time. So this gives me some feeling of reassurance that we're not going to have that kind of crunch [or] up and down situation. I think it's going to go out with a whimper, if it goes out, rather than a bang.",309
-fomc-corpus,1978,"Thank you, Dave. Bones.",7
-fomc-corpus,1978,"Mr. Chairman, we have observed pockets of weakness, but on balance our people are still very optimistic. They're concerned more than [anything else] I guess about prices, for the reasons pointed out [by others]. Labor and energy--the availability and the cost--are very [much in the forefront] in their considerations price wise. Also in the background is the possibility of OPEC repricing or changing the manner in which it prices. Even in the food sector--cattle prices [and] related [products]--they expect strength. And price supports seem to indicate that food is going to be [unintelligible]. Even the lumber area continues to show the possibility of increased prices. Well, that brings us to the numbers. I guess if we were going to be specific, we'd say 3 percent or less on real GNP, unemployment at 6.2 percent or more, and at least 8 percent on the deflator.",192
-fomc-corpus,1978,"Thank you for the report, not the information. Don.",12
-fomc-corpus,1978,"Thank you, Mr. Chairman. Our figures come out to be very similar to those we've heard already and for many of the same reasons. We believe the economy is slowing but pretty balanced. Our particular figures would reflect an inflation rate of 7 percent to slightly higher, real output at about 3 percent, and the unemployment rate at about 6.2.",73
-fomc-corpus,1978,Thank you. Let's pop over [to the other side of the table] to Henry.,18
-fomc-corpus,1978,"Thank you, Mr. Chairman. Our view is a little less optimistic than the Board's staff. We would estimate real GNP at about 3 percent, inflation close to 8, and unemployment at about 6.",45
-fomc-corpus,1978,"Okay, thank you. Bob.",7
-fomc-corpus,1978,"We share the point of view that has been circulating around the table here that the economy is slowing perhaps, but is in pretty good balance. We don't see any serious problems, nor do the people that we have direct contact with. I would say again 3 to 3-1/4 percent for real GNP and I consider that a quite reasonable sort of projection--not a pessimistic projection. Prices we have at 7-3/4 to 8 percent. For unemployment, I think we're already at the 6 to 6-1/4 percent range, if you look at the figures over a more sensible period of time than the last two observations on a monthly basis. And I don't think it is going to get significantly worse than that.",154
-fomc-corpus,1978,"Thank you, Bob. Mark.",7
-fomc-corpus,1978,"Thank you, Mr. Chairman. Real GNP 3.52, down from 3.53.",22
-fomc-corpus,1978,"I like someone who'll stick his neck out! Remember we're keeping the record, Mark.",18
-fomc-corpus,1978,Is this the second adjustment or the first adjustment?,10
-fomc-corpus,1978,"That's the first. Inflation of 7-1/2 to 8 percent and unemployment around 6 percent. The only comment I would make--I guess we've all been going through the same kind of exercises trying to see where the imbalances are and whether we really see a recession coming. I don't. Things do seem remarkably well balanced for this stage in the expansion. I would endorse, however, the concerns that have been expressed about what has happened in labor. That not only has some potential difficulties for prices, as has been indicated, but a severe work stoppage. In our state they're talking about how high interest rates are and they want to put usury ceilings back to 8 percent for the homeowner, that sort of thing. If the response of labor is such that it's forceful and effective, then that could generate some of the imbalances that could precipitate a recession. Other than that, I think [the outlook] on the real side remains good at this stage and inflation is the only thing that's really [unintelligible].",212
-fomc-corpus,1978,"Thank you, Mark. John.",7
-fomc-corpus,1978,"Well, I guess up to this point, I'm the great bear in the crowd. That may be only incidentally related to having been chased by a brown bear in Alaska, which made me a little more cautious than ever! We've shaded our forecast down a bit from last month and are among the least optimistic now in that our real GNP is 2.4 percent, inflation is 7.7, and unemployment is 6.1. The major differences in our forecast and the Board staff's are much as I recited last time. We expect the consumer spending drive to run out of steam. [People] have been buying in advance of expected price increases; that's drawing business from the future. The ravages of both actual and expected inflation will make themselves felt in consumer psychology and business spending plans and will feed back on inventory positions. That in a nutshell is why we come out somewhat less optimistic. And I guess I'll call a spade a spade; the numbers we have would actually constitute a growth recession.",206
-fomc-corpus,1978,"Do you [expect the economy to] weaken over the period, John, or is it pretty much even?",22
-fomc-corpus,1978,"The real weakness is in next year, when every quarter of real growth is under 2 percent.",20
-fomc-corpus,1978,What kind of monetary policy do you assume?,9
-fomc-corpus,1978,Prudent.,3
-fomc-corpus,1978,Measured by interest rates.,5
-fomc-corpus,1978,"Well, my general point would be that there is such a lag in the impact of policy that even if we move now we probably couldn't head this off, and it would merely exacerbate the inflation situation. I'm presuming that monetary policy will be about in the range we've set for our 12-month ranges. And even if we ease up beyond that, it would have little noticeable impact in the forecast horizon; it takes 6 to 9 months for the policy even to show up, in my view in the real economy, and 1-1/2 to 2 years to show up on the price front.",125
-fomc-corpus,1978,"Thank you, John. Ernie.",8
-fomc-corpus,1978,"Mr. Chairman, our numbers have come down somewhat from what we had last time. On real GNP, we would now think that the staff's projection is a very reasonable one. With respect to prices, also essentially [we agree with] the staff projection of about 7-1/2 percent and we have on unemployment about 6 percent. I would like to underscore what Willis Winn has [reported]. I encounter a good bit of expectations that wage and price controls will be imposed within this forecast period and I share that feeling myself. I [base that on] the continuing evidence that the existing tools are not impacting significantly on the inflation problem and the indication that labor is building a stage for very large demands, which probably will not be vigorously resisted in the absence of controls. [So, I think] the political conclusion will in fact be reached that that's the necessary and appropriate thing to do.",181
-fomc-corpus,1978,"I'm curious about those feelings, which I'm sure are accurately reported. In a sense it's hard to believe that this Congress could be motivated between now and their election to put in wage and price controls. It's hard to see the circumstances where that could be. You can't get them to do sensible legislation, let alone irrational legislation! Then that means we're into the next session, because I don't believe you could bring back a lame duck Congress to do it either. We don't have any wage and price controls on the books, so we'd have to have an awfully big emergency to get either this Congress or the lame duck Congress to do it. Starting with the new Congress I guess the President would have to announce a request for it [and have] a date in mind [with] no changes past that date--or ask for legislation barring changes past a certain date. And that's a very clumsy situation.",180
-fomc-corpus,1978,I believe public opinion surveys are beginning to show a preponderance of a willingness to accept price controls. It's a saleable view.,27
-fomc-corpus,1978,"Yes, that's the people who are tired of inflation and wouldn't have to deal with whether it would work or not. Everybody is in favor of stopping price increases, I think; that's what public opinion polls are showing. I can't translate that easily--in the next six months--into legislation myself, unless there's a much bigger crisis. But I'm sure that's the [view]. It's very disappointing to see bankers say that the problem is labor, but we're raising our salaries above the guidelines because we want to be ahead of the wage and price controls. However, labor is guilty. Now, that kind of attitude [among] people who presumably should be leaders of their communities is really shocking. Well, it's fairly discouraging. And they point the finger at labor. We're taking care of ourselves and our own fat salaries, but we're going to blame it on labor. It's a very sad situation.",177
-fomc-corpus,1978,"You see increasing indications of it in businessmen's administration of prices also. For example, I believe, one of the Chevrolet products has had about eight price increases since it was introduced.",36
-fomc-corpus,1978,"Very, very discouraging. And there's little hope that you could keep a system together if people have such little willingness to show restraint. And there's so little competitiveness taking place. I would think some businessmen would want more share of market--apparently not.",51
-fomc-corpus,1978,"Mr. Chairman, there's another aspect of this, which I'm not sure has been fully covered. I hear increasing complaints from directors in a wide range of industries in our District that it's just getting awfully tough to hire skilled labor. Another outstanding example is the case of Boeing, which is undergoing a big expansion program right now--three new model planes. They've already hired 12,000 people and they are looking for another 15,000 and it's absolutely messing up the Seattle labor market in a major way. They're hiring people away from every other employer, including our Seattle branch. This is just one example. We get the same complaint from San Francisco, Los Angeles, Phoenix, and Portland. You name it; there's not a big city on the West Coast where [major businesses] have not expressed a severe concern. This is helping to drive wage rates up.",173
-fomc-corpus,1978,They always do talk about shortages in skilled labor during the late stages of a boom. I've never known it not to happen.,25
-fomc-corpus,1978,We've got a developing shortage of labor in Connecticut to make the engines for those airplanes.,17
-fomc-corpus,1978,"Well, let us move to you, Frank.",10
-fomc-corpus,1978,"Mr. Chairman, I think we were the most pessimistic last month on the outlook.",18
-fomc-corpus,1978,You may lose your position this time.,8
-fomc-corpus,1978,"And we still retain that position. The evidence of the past month of a leveling off of retail sales, and very poor new orders figures--particularly for capital goods, which I thought were very disappointing--lead us to still think the staff projections are too optimistic as far as real growth is concerned. We would look for 1-1/2 to 2 percent real growth during the period you suggested.",81
-fomc-corpus,1978,"Where does that take place, Frank? Do you see it being a progressive downslide? That's a very low average. If you start off with over 3 percent in the third quarter, you have to get down pretty low before you're through.",49
-fomc-corpus,1978,"I think the last half of this year is going to be somewhat less strong than the Board's staff is projecting. And we're not looking for much, if any, growth at all in the first half of next year.",44
-fomc-corpus,1978,You're looking at a pretty low first half. Okay.,11
-fomc-corpus,1978,"The main areas of difference, I think are in consumer durable goods and housing and also state and local government. On the other hand, I'm more optimistic on prices as a consequence of this more sluggish economy. The fact is that I've noted a very tight correlation in the past few years between the rate of growth in the economy and the rate of change in prices, excluding things not related to the rate of growth in the economy like food and so on. So I would look for a deflator in the range of 6 to 6-1/2 percent--which I think is the lowest around here--and an unemployment rate of 6-1/4 to 6-1/2.",141
-fomc-corpus,1978,"I think you do win. Okay. Thank you, Frank. Phil.",15
-fomc-corpus,1978,"Mr. Chairman, when it comes to the figures that you asked for, I'm talking in terms of real [growth] of about 3.2, an inflation rate between 8-1/4 and 8-3/4--probably centered on the high side of that--and an unemployment rate of 6 percent. I think the slackening that has occurred from the second quarter was expected and, to a considerable extent, desirable. Inflationary pressures to me are building faster, and the dollar depreciation of the past few weeks I think is going to add a major fillip to that inflationary problem. The wage problem into '79 I view as being pretty close to your crisis [situation] here. If we do get the kind of price inflation that I'm looking for--not with any anticipation but looking at--I think we're going to get wage requests certainly up at the coal settlement level. And I think this will [lead to] a number of strikes and interruptions and I caveat my real growth projection on the basis of that. That is, if we do get major strikes, we could have a negative real growth rate.",231
-fomc-corpus,1978,Okay. Henry.,4
-fomc-corpus,1978,"Well, just to give it a little variety, I think it's quite difficult now to be married to a single forecast. One has to ask oneself what the probabilities are of a negative growth rate sometime in 1979.",44
-fomc-corpus,1978,You mean in some quarters?,6
-fomc-corpus,1978,"Successively, say in the first half of '79 or beginning in the second quarter and following through so that it will be classified as a recession. I would think that there are enough imbalances, even though the situation looks quite well balanced by usual standards. But there's heavy consumer credit, the creeping up on us of capacity limitations, and diverse seemingly unimportant shortages that I think we underestimate. And more than anything, there are the wage settlements that seem to be pending and the inflation. I think that is the key factor--that the inflation accelerates--and I would guess if there's no recession 8-1/2 is the least we can look to. But if the pressures are very strong there, then the chances of an end to the expansion become much greater. If we can hold it a little better, then I think the other two-thirds of the probabilities are that we'll get something like the staff's projection: 3 to 3-1/2 on growth, unemployment at about 6, and inflation I would say even in the most favorable case at 8 percent.",220
-fomc-corpus,1978,"Thank you, Henry. Steve.",7
-fomc-corpus,1978,"I wasn't here last month, so I don't have to correct what I said.",16
-fomc-corpus,1978,You have a clean slate.,6
-fomc-corpus,1978,"I don't take any exception to the general consensus including the staff's 3-1/2, 7-3/4, and 6.2 for unemployment. I've felt that this recovery is a little stronger than most of my colleagues, I think. I've always felt that. It hasn't yet disappointed me although it may be going to do so very soon. In any event, I have gone along on that course for quite a number of months and I'm not going to change at this point.",101
-fomc-corpus,1978,"Thank you, Steve. Just looking down this quickly, in outline, for real GNP we seem to come out with a consensus lower than the staff's--that is, a little lower than 3-1/2 percent. Inflation looks to be maybe a little stronger than the staff projection, at 7-1/2 plus, and unemployment looks higher at a 6 percent plus figure. That's very helpful to us. I think this is a very helpful process.",96
-fomc-corpus,1978,"I thought it was interesting, Mr. Chairman, that I didn't hear anybody talking about the unemployment rate varying any more than 5-3/4 percent to 6-1/2 percent--a very narrow range.",45
-fomc-corpus,1978,"That's correct. It looks like there are not many below 6 percent, so it's a 6 plus kind of thing. Interestingly, it looks like on labor [our view] is that we're in that range and the other things are going to slow down the economy [but firms will] not discharge labor because apparently productivity is not going to [increase]. So apparently that is the judgment built into this and that's not surprising. Well, may I [say that] I want to give the Federal Reserve medal of honor to the counterclockwise process, considering that this time we completed the whole circle in the time it took us to go through three speakers the other way last month. I want to commend you and I won't say who was sitting on which side at the time. Too beaten down to make a speech, it is kind of a dull, dreary thing. We have a few minutes before the coffee is being sent up and I would like to indulge your attention and have Peter Sternlight report on the open market operations and ratify his transactions before we take the coffee break. Peter.",219
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Peter, it seems to me that the Committee at the last meeting gave you a very difficult assignment to operate in the intervening period. I think you've done it very credibly and I commend you for it.",42
-fomc-corpus,1978,"Thank you. I acknowledge Lady Luck as part of it, giving a helping hand in carrying that out, too.",23
-fomc-corpus,1978,"I didn't think you were going to be able to do it. [I don't know] whether it was luck or skill. I have to assume that it was skill, so you have my congratulations. Are there any questions or comments? A motion would be in order to ratify the transactions since the previous meeting. I believe they have been reported to you. Is there--",75
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,Seconded.,3
-fomc-corpus,1978,"Any discussion? All those in favor say ""aye."" SEVERAL. Aye.",18
-fomc-corpus,1978,Opposed? So voted. We will take a recess for coffee.,14
-fomc-corpus,1978,"Before we proceed, let me just mention a couple of things that have happened with the breakout of the yen. A couple weeks ago we began to look at the bag of tricks that might be examined in connection with the foreign exchange markets. I guess we had a little premonition because now the foreign exchange markets are [being] disorderly. Yesterday afternoon, Henry Wallich and Paul Volcker and I met with people from the Treasury at their request to see if we could review some of the possible steps that might be taken to counter disorderly conditions and to look at the more fundamental causes of the continuing decline of the dollar. I think our discussions today are relevant because the international situation does become a relevant factor when you have such dramatic changes and all the repercussions that may come from them. I don't need to spell out to this group the possibilities of this kind of disorder becoming increasingly disturbing and leading to wholesale disruptions and long-range problems that would be very serious indeed. And we know that in the absence of some sense of direction, there is a very large potential for disruption that could continue. Things that the Federal Reserve could do are, as usual, relatively limited and might be ineffective unless coupled with Treasury Department/Administration actions that look to things within their control and in some longer-term areas. It's a very sensitive area and I would ask you to pay particularly close [attention] to security possibilities in this area because we are dealing with markets that can run any direction just from a leak at the meeting. I was called out from this office a moment ago to respond to a call that has asked me to come over to the White House this afternoon and see what can proceed along these lines. I would ask you not to indicate that such a meeting is even being held because that's, I think, in the control of the President. If he wants to announce it or indicate it, I think that's how it should be. Just as Scott said--or someone said: The Swiss cabinet is meeting, and the market reacts just to a meeting. I think we should avoid any such discussion from our side. The White House security is terrible because the message came through some of our staff not cleared for FOMC [materials] even. That shows you my problems [on security]. Anyway, [there are] things that we might consider doing, obviously. In combination with [our] economic views, we might look at changes in reserve requirements for CDs so that we could--the Board of Governors could--substantially increase the reserve requirements for domestic CDs short-term, and we could lower to zero the reserve requirements for CD dollars acquired from abroad. [That would] therefore make it possible for banks to offer a higher interest rate without changing domestic interest rates, in terms of attracting capital from abroad--making it more interesting to hold dollars. We could also consider raising the discount rate, which--if coordinated with other policies we'd do anyway--would be perceived as an announcement signal that we intend to [do something about this situation]. Another thing we might do--and we'll discuss this later--is to consider activating the swap line on yen, provided we could get a series of commitments from the Japanese. That would include a commitment to lower their discount rate to 2-1/2 percent, say--thereby greatly widening the differential and assisting the exchange adjustments--and a commitment to go forward with their stimulus program of 4 trillion yen. [They can] no longer have it be ""we'll think about it in September;"" but the Prime Minister will say he is going to call on his cabinet and endeavor to do so and perhaps take some steps on trade and other things. It's possible that we can agree with the Treasury--incidentally on the yen swap we'd want Treasury participation and we'd want to leverage it with considerably more commitment with the Japanese intervention than our intervention so that we'd get more bang for the buck. Or yuk for the yen or whatever it is. If it's possible, the Treasury [may] announce that it is going to draw on the IMF to acquire currency to replace swaps, thereby taking the reverse market pressure off. It would be possible for the Treasury to announce that it might increase its sales of gold, which we might admit doesn't have tremendous technical advantage, except that it has psychological advantage. It may be a good way to bring in dollars at these prices of gold. It does, at least, put the supply [as a] factor of the gold situation. We could persuade the President to put on quotas on oil as a definite step--that no longer will he wait considering the disruptions in the international situation, etc. I don't know how any of these will come out, but it seems to me that they may be relevant to this Committee in terms of the directive to the Desk in the interim period. They certainly are relevant in terms of the authority of this Committee to decide on swaps and, as I say, before this meeting is over I'd like to get some sense in that direction. Up until now there's been a strong consensus--at least I felt there was a strong consensus on this Committee--that it was not appropriate to go into yen intervention. And I have certainly shared that view and expressed it consistently. On the other hand, we have not foreclosed that forever and ever, because conditions do change. They may be at a state now where we want to think about it or be prepared to do it rather quickly. If we're going to do any of these things and be effective, they must be done promptly. If we can put together a package of actions and proposed actions, it must be done probably within 48 hours to have an impact--or by Friday, let's say. Meantime, we have the problem of what the Administration says, because they cannot remain silent. If they remain silent, that would be interpreted in the market as not caring at all. If they say something that is in the nature of a promise that is interpreted as something dramatic like capital controls or wage and price controls, that could be disruptive. If they tell the truth, nobody knows what that is until we decide what to do. So it's a very, very ticklish situation and I hope you all will bear with us as we try to struggle through it. With that preliminary to excite your imaginations, let us proceed with what is your pleasure on the directive. We'll start with our eminently attired Steve Axilrod.",1291
-fomc-corpus,1978,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1978,A twist.,3
-fomc-corpus,1978,A little twist.,4
-fomc-corpus,1978,"Thank you, Steve. Any questions before we begin to give our personal views?",16
-fomc-corpus,1978,"What are your estimates for September M1, Steve? I missed that.",15
-fomc-corpus,1978,"For September, it's close to 8 percent--a shade over.",14
-fomc-corpus,1978,"Gentlemen, I think we might as usual call the roll--with voting members first and then the other Presidents--and ask for views. I might express a little personal statement before we start that. As you know, for some time, after substantial tightening up in the spring, I've been interested in being sure that we didn't move too rapidly until we saw how the economy was behaving after what I considered to be abnormal conditions of the second quarter. I say abnormal because of the carry-over from the first quarter of a strike and winter weather, and because of the pull forward [from] the third quarter because of anticipatory buying. At the same time, I feel the timing is extremely important. Nothing in recent events, as seen in the external world, would indicate a particular need to change the Federal Reserve's policy. In fact, the morning paper predicts that we'll stand pat because what the world has seen is a rally in the bill and bond markets. And they've seen a slowing in the rate of growth of the aggregates--slower than we've seen for quite a while--and the economy is slowing down and unemployment is going up. So the expectation would be--with all those things happening, and the Fed's policy beginning to bite and things happening that one would like to see happen--no need for change. However, my view is that we have the aggregates moving in the right direction and we ought to keep them moving in that direction and not let them bounce back up on us. Second, I think the international situation is critical to our inflationary fight because if we should continue to have an erosion of the dollar, we're just feeding inflation and making our problem worse and worse. I think we need a series of actions. Therefore, I would tend to favor a program that would be nearer to alternative B. I tend to agree with the ranges for M1. Some of you who favor tightening may want to suggest lower ranges but let me remind you: Considering that M1 grew last year at 7.9 percent and has been growing pretty much in the 7-3/4 percent area for a while and with the economy as weak [as it appears] I'm not sure how hard we'd want to bang down on it. So 5 to 9 as the range does have an upper limit of our long-term range, for which we expect to be hunting around [for growth at] sort of the midpoint. The M2 ranges are satisfactory, and I would think a federal funds range at 7-3/4 to 8-1/4 would probably be the right next move. And the expectation is that in the interim before the next Committee meeting, if the aggregates behave along the lines projected, we'd find ourselves getting toward the upper end of that range, which absent another consultation I would think would be enough action in the interim. Those aren't hard and fast views; they're views that suggest another notch is desirable. I think it would be consistent, if we moved the federal funds rate fairly soon to 8 percent, for us to consider a move in the discount rate of perhaps as much as 1/2 percentage point. The reason for that is, as I say, timing is something. Some of you may wonder why we haven't moved it. Well, one reason is that now it gives us the time to move it where we can do something instead of just having to dribble along. So we might consider a move of the discount rate--if the [Board members] so elect and they may not--in a way that would keep it in alignment with the fed funds rate of 8 percent. And it would give us a chance to somehow make one step in accommodating the international disorder. So with those general views, subject to being [influenced] in either direction and being very flexible, I will now turn to the members of the Committee. Paul, would you like to comment first?",790
-fomc-corpus,1978,"Let me say, as I heard the economic forecasts around the table--and I had a much lower inflation forecast than some, although slightly higher than the staff's--that I also have some sympathy, or fear or whatever the right word is, that those with the high [inflation] forecasts are going to be the ones who are right. Phil Coldwell's forecast was [high] in particular and I don't consider that out of the realm of possibility at all. It's the kind of thing I hope we can avoid; I'm not sure of it. And that affects my policy judgment as well as the feeling that a slower rate of growth in business, while certainly slower, is not unsatisfactory. The kind of projection that I've had in mind does assume that interest rates would be up some. I don't think monetary policy has bitten particularly hard on the interest rate side thus far and I'm not concerned about some modest further increase in interest rates purely on domestic grounds and would have been in favor of some snugging regardless of the international situation. But for all the reasons you've already referred to on the international side, I do think it's important that we make some move now. There has been some confusion over what our intentions have been, rightly or wrongly, and I think it's important particularly in view of the international situation that we correct the misapprehensions about our lack of concern over inflation. I do think it would be wise to put a specific mention of the international situation in the directive at some point. We can talk about the wording later; I would just make that point while I think of it. We have a precedent for that, of course. In terms of the specifics, you suggested 7-3/4 to 8-1/4, which seems quite reasonable to me. A week ago or even a few days ago I might have said let's wait for the aggregates to come along and I would expect they would move it to 8 percent but I wouldn't have felt it was urgent. Given what's going on in the rest of the world, I would say let's move to that midpoint of 8 right away and be prepared to move further if the aggregates so suggest. I feel a little more restrictive than you do, Mr. Chairman, about the ranges for the aggregates; at 5 to 9, the midpoint does put us above even the high end of the range we've just decided upon. I'd like to get it within that range. It's rather a rare instance--I say without checking the record--having set a long-term range a month ago and we're still within it.",520
-fomc-corpus,1978,We should put out a press release!,8
-fomc-corpus,1978,"I would just as soon stay within it. So I was thinking actually 3 to 8 or 4 to 8 as a possibility, and I would also lower the M2 range a bit--say, 6 to 10. That's not much of a lowering but I would get it down more clearly straddling the long-term range. This one is basically above the long-term range; the midpoint's within it, of course, but the lower end is right at the long-term range and the upper end is above it. I would rather straddle it with M1, too, so that's the difference. I do assume in saying that--otherwise I suppose I would be more aggressive--that there will be in view of the international situation now a 1/2 percentage point increase in the discount rate. That seems to me consistent with an 8 percent funds rate, as you suggested, and has more than ordinary importance in view of the announcement effect, given what's going on in the exchange markets.",205
-fomc-corpus,1978,"Thank you, Paul, I think. Ernie.",11
-fomc-corpus,1978,"My thought process before the discussion was similar to that Paul described, and in particular with respect to our short ranges relative to our long ranges. So the proposal I arrived at was to narrow the ranges on M1 and M2 and also on the federal funds rate. This means that by going with the narrower ranges on the aggregates, I would use the narrow range on the funds rate to constrain the funds rate movement. But it seems to me important that we go to a narrow range on the aggregates at this point in time. So I would suggest on M1 something like 5-1/2 to 7-1/2; on M2, 6-1/2 to 8-1/2 or 9; and on federal funds 8 to 8-1/4. And I'd move to 8 promptly and after a week or so, if we were at the top of these lower ranges on the aggregates, I'd move to 8-1/4. And I agree with the suggestion that it is probably timely to move on the discount rate at the present time.",223
-fomc-corpus,1978,"Thank you, Ernie. Phil Coldwell I believe is next.",14
-fomc-corpus,1978,"Mr. Chairman, I came prepared to recommend almost exactly what Paul Volcker said--a 4 to 8 percent range on M1 and 6 to 10 on M2. However, I did come prepared to raise the federal funds rate range [to] 7-3/4 to 8-1/2, not 8-1/4. I think we need that margin up there in the event these aggregates do start breaking out--to put a little more pressure on it. I'd adopt a money market directive, which would mean that if they're moving toward that upper range you'd start moving the rate. I would skew the midpoint to an 8 percent rate, thus moving to that 8 percent. But I'm leaving myself a half point above that in the event we need it.",163
-fomc-corpus,1978,You said to an 8--,7
-fomc-corpus,1978,"Yes, a flat 8 percent midpoint; a 7-3/4 to 8-1/2 range.",25
-fomc-corpus,1978,We just had accounting trouble.,6
-fomc-corpus,1978,Did you mean money market or monetary aggregates directive?,10
-fomc-corpus,1978,If I read the directive right--the way this is written on the back of page 13--you start moving the fed funds rate on a monetary aggregates approach [if growth is] significantly above or below the midpoint and on a money market when it's close to or beyond the upper or lower limits. So I'm talking really monetary aggregates.,67
-fomc-corpus,1978,"Yes, but you said money market.",8
-fomc-corpus,1978,"Sorry, I meant monetary aggregates. Sorry to have misspoken. I think it's time we cut the availability of reserves. I'm not impressed that we're making much progress in the availability; we're making some progress in terms of raising rates but I don't think that's doing the job. Consequently, I'm toying with ideas of reducing the availability that are not under this Committee's control but are matters which the Board might wish to consider at a later time.",89
-fomc-corpus,1978,Dave?,2
-fomc-corpus,1978,"Mr. Chairman, for the last month I've been on the morning call and, up until recently, I have shared the opinion the market had, as reflected in the Wall Street Journal article this morning, that the fed funds rate had been held remarkably under control--I think because of the Desk's precision--and that the aggregates were behaving. And actually we were having a rally in the bond market and it looked as though we could come into the meeting with a more comfortable feeling about where we were. However, with the aggregates projected as they are, I think we don't have that luxury. So my proposal would be quite similar to yours, Mr. Chairman, with some modifications. I would have an M1 range of 4 to 8 percent and an M2 range of 6 to 10, with a funds rate range of 7-3/4 to 8-1/4 and a money market formulation [of the directive]. My inclination on the international is not to move precipitously for that reason. I would be influenced mainly for domestic reasons, relying on other kinds of devices which you've cited as possibilities to deal with the international situation. But I think what I'm suggesting would be consistent with that. Where I might differ is in the promptness of action. I think I'd be more inclined to let the aggregates move the rate rather than move promptly with the rate itself.",279
-fomc-corpus,1978,"Thank you, Dave. Steve Gardner.",8
-fomc-corpus,1978,I have no difficulty with the 5 to 9 and 6-1/2 to 10-1/2 or Paul Volcker's specification--and 7-3/4 to 8-1/4. But I am convinced that some reference to the international situation would be well advised in view of our former experience recently and in view of the great interest that has to center around the decline of the dollar. I think the last one worked beautifully and I think this will have a salutary [effect].,106
-fomc-corpus,1978,"Thank you, Steve. Philip Jackson.",8
-fomc-corpus,1978,"Having argued brilliantly and eloquently but unsuccessfully for raising the targets for M1 last month, I'd be satisfied with the 5 to 9. I do think we ought to increase the range very slightly on M2 but keep the same midpoints. I would argue for 6 to 11. I am concerned that if we have this [experience] we're talking about, we will pick up heavy demand in the next few weeks for the big CDs that are reflected in M2, which will then show up in M2 in a way that [unintelligible] because those non-negotiable CDs on certain types of banks are reflected in that. I would [favor] a range of 7-3/4 to 8-1/4 [for the funds rate]. I frankly don't care if we stick with 7-7/8 or go to 8. I have never felt that an eighth of a point on the federal funds rate was worth that much argument over one way or the other. We could go on to 8 or stay at 7-7/8; it would be immaterial to me. I do think, because we have five weeks between now and the time we meet again, that we may well have a situation in which we'd have a telephone meeting.",265
-fomc-corpus,1978,Some of us would have a telephone meeting.,9
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,Those of us who can get on it.,9
-fomc-corpus,1978,Phil missed that experience. We lost five [of the participants on the phone call] the other day.,21
-fomc-corpus,1978,"But in short, I'd want a monetary aggregates directive and a reference to the international situation in the directive.",21
-fomc-corpus,1978,Thank you. Chuck.,5
-fomc-corpus,1978,"Well, I think we are reaching a fairly sensitive stage in monetary policy. I wasn't able to discern as we went around the table earlier any feeling that there is going to be an explosion of economic growth. Indeed, the average for the Committee members and the other Presidents, too, was that GNP was likely to grow less than the staff projection--perhaps at 3 or 3-1/4 percent or something like that over the period.",90
-fomc-corpus,1978,Assuming a tightening up.,6
-fomc-corpus,1978,"And I consider that just barely acceptable. I think anything [less] is going to give us a real possibility of a stall and anything more is going to give us a very real possibility of political repercussions of a stimulative nature in the Congress. Now, there was some discussion of scarcities but it seems to me, as I said, that a little shortage in skilled labor reported during the latter stages of a boom is a typical, regular experience that I've always seen before. Indeed, it is the way you get employers to train people and improve the skills of the working force. So far as the shortages of material are concerned, it seems to me that they largely relate either to housing, which we expect to be coming down, or to very strong durable goods sales--such as in the sheet area, Willis. And again, we expect durable goods sales to be coming down, particularly car sales. So I don't see anything in the real economy that would call for a tighter monetary policy. We are having more inflation, and typically monetary policy has brought recessions by reacting to the inflationary threat; and I think that's the danger again. But now in addition we have the international situation where essentially, as I see it, the market is calling upon us to create the same bad economic conditions here that exist abroad. And I think that would be the wrong way for us to go. I don't have any great problem with your specifications, Mr. Chairman, because I don't think that constitutes much of a move. I would prefer to remain at 7-7/8 until the aggregates beckon us to move and I think we ought to be alert to the possibility that the aggregates will be coming in low rather than high. If in fact the economy is weakening underfoot, which is a possibility, we'll begin to see it in the aggregates and I think we ought to be evenhanded. So when I say a range from 7-3/4 to 8-1/4 with, say, 5 to 9 percent for M1 I mean that we would back down to 7-3/4 if in fact the aggregates came in at the low end of the range, which I think is a possibility. Probably Steve is right that they are going to come in on the high side rather than on the low side. But there's a chance that we will begin now to see in the monetary financial statistics the signs of recession. And we ought to try to adjust to them fairly promptly as we see them. A monetary aggregates directive, I think, is appropriate.",519
-fomc-corpus,1978,"Thank you, Chuck. Henry, you didn't get [to hear] all of the discussion; perhaps you picked up most of it. Did you hear me when I gave my views?",37
-fomc-corpus,1978,"Well, I'm concerned about a 5 to 9 percent M1 range; that allows for a very substantial rise in September, given what we so far know about August. I think it would allow for up to 12 percent in September and I wouldn't like to give such a signal. So my preference on the M1 range would be 4 to 8. I would move to 8 percent definitely on the funds rate and make the range 7-3/4 to 8-1/4. I realize this is somewhat skewed with respect to the aggregates I am proposing, particularly if I add to this that I'd like to see an aggregates directive so that movement could come immediately. I do think, though, that the situation is very [touchy] on the upside and on the downside so we ought to set ourselves yet narrow limits on the funds rate. I think perhaps we ought to become reconciled with having to have a telephone conversation in the middle of the period more frequently than we have had in the past. I think that would be a way of playing it safe. It would be worth the inconvenience and difficulties associated with that. So that would be my M1 [and funds rate ranges]. Let's see, I haven't given you M2. On M2, 6 to 10 would seem right to me, and that still would allow for a pretty sizable rise in September given what has happened so far in August.",292
-fomc-corpus,1978,"Thank you, Henry. Mark.",7
-fomc-corpus,1978,"M1 for the last six quarters has grown at about 7.8 percent, as you suggested earlier. It seems to me that if we're to give any kind of meaningful signal to labor negotiators next year, to people concerned about the dollar internationally, and to anybody who looks at inflation and our policy responses to inflation, we are going to have to do something that makes people feel confident that we are not going to continue money growth at that rate. On the other hand, I agree with all of the comments that have been expressed that we ought not to move too sharply or we will precipitate a recession. We have done that in the past; we ought not to do it this time. I think we can avoid doing it. But I also think that we could move the rate of growth of money down to around 7 percent--a reduction of about 3/4 of a point on average--without precipitating a recession. And I think that would have very positive impacts in terms of not only the dollar internationally but the rate of inflation domestically. Now, with what's happened to money in July and the expectation for August, and also given the comments that Chuck made about the possibility that the numbers might be a little weaker rather than a little stronger, it would seem to me that this is a good time to move carefully in that direction and still kind of hedge our bets a little bit. [We could do that] if we accepted a lower ceiling for growth in money for the 2-month period but also indicated that we wouldn't allow rates to move up too high. Therefore, if money growth did come in strong, we still wouldn't have a very precipitous move in the federal funds rate in the short run. I'd really like to see the Committee--coming at the end, it's clear to me it's not going to happen because everybody has already given other ranges--have an M1 range of 3 to 7 percent. [I say that] because if we always have our ranges straddle the midpoint of where we want to be, as long as inflation is going in the direction it's going, we are always going to err on the high side. We will never get down below where we are unless we kind of force ourselves down by bringing the ceiling rate down. So I would have M1 from 3 to 7, M2 from 6 to 10, and then the federal funds rate from 7-3/4 to 8-1/4, which means that under my aggregates conditions [directive] we might hit that top fairly quickly. But at least we wouldn't go above that unless the Committee made an explicit decision to go above it.",540
-fomc-corpus,1978,What would you move to immediately? You have a midpoint of 8.,15
-fomc-corpus,1978,The midpoint would be 8 and I'd have no problem moving to that. I would also agree with those who have indicated that increasing the discount rate would be a desirable thing to do.,37
-fomc-corpus,1978,Thank you. Willis.,5
-fomc-corpus,1978,"Yes, Mr. Chairman, I would also be inclined to lower the ranges a bit on M1 and M2--to 3 to 8 or 4 to 8 on M1 and 6 to 10 on M2. And I'd have 7-3/4 to 8-1/4 on the funds rate, again using this as our discipline to reevaluate the situation rather than permit wider rate fluctuations. I'd also use the aggregates directive and move ahead to the 8 percent and raise the discount rate.",108
-fomc-corpus,1978,"Thank you, Willis. John.",7
-fomc-corpus,1978,"I find myself, Mr. Chairman, very close to the views already expressed by Messrs. Coldwell, Volcker, Wallich, and Willes, so there's no point in repeating those arguments. I am concerned about having too high an upper end on the ranges. My staff has calculated that if we were to adopt 5 to 9 and 6-1/2 to 10-1/2, during this 2-month period M1 could grow at a rate 2-1/2 percentage points above the upper bound of its long-term target and M2 1-1/2 points above its upper bound. To me that's just a bad possibility. I think we are facing a crisis of confidence, and not just in the international field; I see it developing internally within this country in terms of a growing fear of inflation getting out of hand on the upside. And I think a small but prompt and decisive move on our part would, therefore, be well advised. So I would share the growth ranges of some of my colleagues or be down even a touch more: on M1, 3 to 7 and on M2, 5 to 9. I would settle for the 7-3/4 to 8-1/4 percent range for federal funds, moving promptly to the 8 percent midpoint with a monetary aggregates directive.",279
-fomc-corpus,1978,"Thank you, John. Bones.",7
-fomc-corpus,1978,"Mr. Chairman, I, too, would like to see something in the range of 4 to 8, 6 to 10, 7-3/4 to 8-1/4, moving promptly to 8, and an aggregates directive. For some time I've had sympathy for a discount rate increase. [My view on that is] much stronger, realizing that with the timing, though, maybe we wouldn't be accomplishing with this a reduction in reserves, and I would very much like to see something in that area.",109
-fomc-corpus,1978,Thank you very much. Bob Mayo.,8
-fomc-corpus,1978,"I have no problem with your suggestion, Mr. Chairman, except that I, too, would move the M1 range down but only slightly. A 4-1/2 to 8-1/2 percent range would give you a 6-1/2 midpoint, which is at the upper [end] of our long-term target range. [I favor an] aggregates directive. The discount rate I think should be raised if not this next week, soon thereafter. But it could be part of a package; I think that might be the best way to do it. The 7-3/4 to 8-1/4 I think is an appropriate range for the federal funds rate and I would wait until the figures come in on this week's M1 and M2 to see how things are moving. I wouldn't go immediately tomorrow to 8 percent, but I think there's good reason to go maybe next week unless the aggregates are quite weak.",195
-fomc-corpus,1978,"Thank you, Bob. Frank Morris.",8
-fomc-corpus,1978,"Mr. Chairman, I think the Committee is coming out just about right; a 7-3/4 to 8-1/4 range seems right. I think we can't afford another bulge in the aggregates in September, so I would agree that the ranges ought to be moved down a bit--4 to 8 and 6 to 10 I think are about right. And the discount rate, because of its high visibility and low cost, ought to be part of the international package.",101
-fomc-corpus,1978,"Thank you, Frank. Did you have an 8 percent midpoint?",14
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"Mr. Chairman, we would agree with the prescription outlined by Mr. Mayo: 4-1/2 to 8-1/2 on M1, which would put the midpoint at the upper end of the long-term range; 6 to 10 on M2; and 7-3/4 to 8-1/4 on fed funds, moving immediately to 8 percent.",82
-fomc-corpus,1978,"Thank you, Henry. Don.",7
-fomc-corpus,1978,"We would generally agree with all of the sentiment, too. With the rates moving up, it's an excellent time to move down on M1 because we are getting the flak one way so let's obtain some benefit. So we would agree with the 5 to 9 and 6-1/2 to 10-1/2. On the fed funds rate 7-3/4 to 8-1/2 seems good. We would suggest maybe a move to 8 to 8-1/8. The reason for the extra quarter above most of the [other ranges suggested] is our concern for having a little more elbow room should the situation tighten up a little bit.",141
-fomc-corpus,1978,Thank you. George.,5
-fomc-corpus,1978,"Mr. Chairman, we are pretty much in accord with what is being recommended around the table. We came prepared to hold to alternative B: M1 at 4-1/2 to 8-1/2; M2 at 6 to 10; and the federal funds rate range [at 7-3/4] to 8-1/4 under the specification that we expect the Desk to move the rate up to the 8 percent midpoint at an early date.",100
-fomc-corpus,1978,"Thank you very much. It will be very helpful if I can see where we stand. We have [by my count] nine of the voting members who have suggested a range on federal funds of 7-3/4 to 8-1/4, [though] not necessarily the same [on the] other ranges. On the M1 range, there are five who are for 4 to 8. If we take the alternatives, there are a couple of those at 3 to 8 or 4 to 8, so I assume they'd go with a 4 to 8. And for 5 to 9, we have four. And 5-1/2 to 7-1/2 is a maverick. There seems to be a little more sentiment on the lower side of M1. For the M2 range, six are at 6 to 10 and three at 6-1/2 to 10-1/2. How many does that add to? SEVERAL. Nine.",215
-fomc-corpus,1978,"We're missing a couple. We are going to count again. Well, we have one 6 to 11 and one 6-1/2 to 8-1/2. The midpoint is 8 for almost everybody except two indicated they'd stay at 7-7/8 and several indicated slowness in moving [to 8 percent]. Let's see if I can formulate a consensus. I don't know if the consensus would be to fit M1 at 4-1/2 to 8-1/2. Steve, do you have any comments before we go forward? Peter do you have anything to add?",128
-fomc-corpus,1978,No sir.,3
-fomc-corpus,1978,Does anything here bother you?,6
-fomc-corpus,1978,"No, I'm sure you will be clarifying whatever the--",12
-fomc-corpus,1978,"Clearly, [we'll talk about] the timing of the move--as the last order of business, I think. First we ought to decide what ranges we are going for and see what the order is of how to get there. Steve, do you have anything to add?",56
-fomc-corpus,1978,"From what you read, Mr. Chairman, it would seem like 4-1/2 to 8-1/2 and 6 to 10 would just about average through everyone's ranges for M1 and M2.",46
-fomc-corpus,1978,I believe you've got a majority of seven of the Committee members who are saying either 8 or below as the peak for M1.,27
-fomc-corpus,1978,"Yes, but one of those would also have the bottom at 5-1/2 so you've got to be evenhanded.",27
-fomc-corpus,1978,"You've got one, two at 3--",9
-fomc-corpus,1978,"Well, let's try this for a moment: 4-1/2 to 8-1/2, 6 to 10, and 7-3/4 to 8-1/4 with the midpoint of 8 but discuss later on how we will get to 8. And there seems to be a pretty big consensus for a monetary aggregates directive. Just as a straw vote, [let's have] a show of hands of those who are voting members. How would that strike you? Do we get any votes for that? 1, 2, 3, 4, 5, 6. Yes, I suppose the difference would be if we change it to 4 to 8. Then how many would vote for that proposition--most everybody? Everybody who didn't vote [before]. It's the same--1, 2, 3, 4, 5, 6--a split.",192
-fomc-corpus,1978,How about trying 5 to 9?,9
-fomc-corpus,1978,"Yes, how many would go for 5 to 9? All right, four. Doesn't prove much, does it? Looks like 4 to 8 is a pretty good compromise. Yes, you've got company; we have switch votes. What if we have a vote now where you only get one vote? You don't get two votes; you only get one vote. There were two votes, obviously, going both ways there. Let's have a straw vote on 4-1/2 to 8-1/2, realizing you can't vote again. How many would accept the other and 4-1/2 to 8-1/2? Five. And those for 4 to 8? Five. Who is missing? Oh, Mark. Well, you want a lower one altogether. Why don't you stay that way and we'll have a hung jury! But you would vote for 4 to 8 if we had the whole directive this way.",196
-fomc-corpus,1978,I'm still thinking about it. I certainly would not vote for 8-1/2; I might vote for 8.,26
-fomc-corpus,1978,"Just for a moment, assume we are going to have a 4 to 8 range. It looks like the majority was lined up that way, by a very close margin. Then the next question is: How [directly] do we get to 8, as the midpoint of the [funds rate] range? There's some possibility that we might want to [wait] a few days on moving to 8 and keep where we are so that we can see if some international program will develop in the next couple of days.",108
-fomc-corpus,1978,"I have another question, too, Mr. Chairman. Could we ask Steve? There's a Treasury financing intervening here.",24
-fomc-corpus,1978,I don't think that poses any problem over the next few days.,13
-fomc-corpus,1978,"The only reason I would think of hesitating a little, although I think I originally said move it to 8, would be if in the next few days or by the end of the week we have some international package. Then I think we might reserve this to flow out of that process. That might just be a little running room for us. How do you feel, Scott?",77
-fomc-corpus,1978,Any time is fine; moving to 8 percent is not going to have much effect.,18
-fomc-corpus,1978,Not much effect one way or another.,8
-fomc-corpus,1978,"It would add to the package, but if it came earlier that would be fine, too. The market is waiting for something.",26
-fomc-corpus,1978,It'll take a day or two for people to realize what you are doing. I would at least state it this way: See whether there is a consensus on this and it shouldn't be [implemented] any later than the international package. There is no point in waiting to move an 1/8 beyond Thursday or Friday if you're going to have an international package.,73
-fomc-corpus,1978,"Actually, Peter, you'll find that people will test you today or tomorrow.",15
-fomc-corpus,1978,I think they might very well because we have a reserve need over the next few days and it would be a probably convenient time--if we wanted to accommodate 8 percent--just to kind of permit that to happen.,44
-fomc-corpus,1978,"What is your preference as the person on the firing line--give you the freedom to go ahead? If it takes too much to hold it below 8, to let it stay at 8?",40
-fomc-corpus,1978,"I think that would be an acceptable approach, Mr. Chairman, yes.",15
-fomc-corpus,1978,"I think that's a sensible approach. I think there's just too little in it for the international to hold off if you're getting [market resistance]. Now, if the market is just quiescent, I would leave [the funds rate] where it is until we see what things look like this week. That directive language--does that formulation create any problems?",71
-fomc-corpus,1978,I think that would be fine.,7
-fomc-corpus,1978,"Anybody feel differently? So we will let the market judge a little. But certainly once the international matter is decided, if the rate hasn't been moved by the market, it will be moved by the Desk to 8. And then we will proceed.",50
-fomc-corpus,1978,"In no event, later than next week.",9
-fomc-corpus,1978,"Oh, I think the market will move it tomorrow.",11
-fomc-corpus,1978,"I think that's the truth. Well, thank you. Now we will have an official vote. We will call the roll. It came out that the majority had 4 to 8 and 6 to 10 on M1 and M2 and the range for federal funds is 7-3/4 to 8-1/4. And the midpoint is 8, with the instruction we discussed for moving to 8. On the draft directive a suggestion has been made that on page 1, line 16, we point out that [the value of the dollar against major] foreign currencies declined sharply further because since this was written there has been a sharp decline. Another suggestion is that, using a monetary aggregates [directive] line 66 on page 4 should read--I was going to read it starting on line 64, but in fact I will read the whole thing--as follows: ""In deciding on the specific objective for the federal funds rate the Manager shall be guided by..."" strike ""mainly"" and insert ""developing conditions in financial and foreign exchange markets and by the relationship between the latest estimates..."" The reason for that is--this is a suggestion--if the aggregates should come in a little weaker than projected and money market conditions are still disorderly, we might want to keep a little firmer hand on it.",273
-fomc-corpus,1978,"I would have thought that would have belonged around line 41, Mr. Chairman.",17
-fomc-corpus,1978,"Well, let's see.",5
-fomc-corpus,1978,"Where we say ""while giving due regard to developing conditions in financial markets...."" Add it there especially--",21
-fomc-corpus,1978,"Well, you can say ""domestic and international financial markets"" or you can--",17
-fomc-corpus,1978,"Yes, or you could even emphasize the international.",10
-fomc-corpus,1978,"Well, what was used before was in that place. The language for the short run that we used before said: ""In the conduct of day-to-day operations, account shall be taken of emerging conditions in domestic and international financial markets."" Where do you prefer it gentlemen--in the paragraph on page 2 or page 4?",66
-fomc-corpus,1978,I would prefer it in the latter one since it's more operational.,13
-fomc-corpus,1978,"It seems to me that if we want the Desk to actually use it as a basis of decision, it ought to go in the latter part.",29
-fomc-corpus,1978,That is Paul's point.,5
-fomc-corpus,1978,"Well then, let's tell him what to do. There's no direction. I presume he would not ease on account of international.",25
-fomc-corpus,1978,It would not put the federal funds rate down if the aggregates were weak unless they get [extremely] weak.,23
-fomc-corpus,1978,You're biasing the whole result.,7
-fomc-corpus,1978,I think I'd put it in the earlier one.,10
-fomc-corpus,1978,"It sounds like there's enough confusion; maybe we better put it in page 2. I think we are going to have to have a consultation if things get wild anyway. I don't like to see us operate without talking. So let's do it that way if everyone's agreeable. Hearing no dissent, they are agreeable. Now, let's vote on the proposed consensus I have just outlined. I need not repeat it again. And I will vote for it.",89
-fomc-corpus,1978,Will you repeat the specifications?,6
-fomc-corpus,1978,"The specs were: 4 to 8 and 6 to 10 on the M1 and M2 ranges, 7-3/4 to 8-1/4 on fed funds, and a move to 8 on instructions that we have discussed. Now we will take votes.",60
-fomc-corpus,1978,Chairman Miller Yes Vice Chairman Volcker Yes Governor Coldwell Yes President Eastburn Yes Governor Gardner Yes Governor Jackson Yes Governor Partee No Governor Wallich Yes President Willes No President Winn Yes,38
-fomc-corpus,1978,I think that is a remarkable vote. One is negative because we should be higher on M1 and one is negative because we should be lower. So we have two dissents in this case. It's too bad we can't have a series of votes so we could have a unanimous vote on the [funds rate] range. I don't think we've ever formulated a vote that way but it would be nice. The dissent will actually show the individual reasons for dissent.,92
-fomc-corpus,1978,"Mr. Chairman, as a technical point in the directive, the Committee has to decide on the language under alternative B whether it should say a range initially attaining a weekly-average federal funds rate ""slightly"" or ""somewhat"" above the current level. I think the Committee has to choose.",59
-fomc-corpus,1978,"Well, you tell us what we are supposed to choose.",12
-fomc-corpus,1978,"Well, I think the 8 is slightly.",10
-fomc-corpus,1978,"Is ""slightly"" satisfactory?",7
-fomc-corpus,1978,"Is ""somewhat"" bigger than ""slightly""?",11
-fomc-corpus,1978,That's the staff's lexicon.,7
-fomc-corpus,1978,You have to know the code words. That's why I asked Steve to tell us what to say. Thank you very much; you had a great contribution.,31
-fomc-corpus,1978,"Mr. Chairman, do I understand this initially to be a contravention of the instructions that we gave the Desk as to promptness of movement?",30
-fomc-corpus,1978,Pardon me?,4
-fomc-corpus,1978,"What does ""initially"" mean? Does this have a bearing on the instructions that you gave the Desk as to how promptly we'd move?",28
-fomc-corpus,1978,Promptly might be a better word than initially.,10
-fomc-corpus,1978,I think you have a very good point. Initially means that he should do it immediately.,18
-fomc-corpus,1978,"Well, that's the way I read it.",9
-fomc-corpus,1978,"Yes, I think you are absolutely right. We can change the word initially to promptly in due course.",21
-fomc-corpus,1978,Why don't we just leave out the adverb?,10
-fomc-corpus,1978,Do you need it at all?,7
-fomc-corpus,1978,"Why don't we just say ""directed at attaining"" and leave out ""initially.""",18
-fomc-corpus,1978,And it could be understood that the Desk would move as you suggested.,14
-fomc-corpus,1978,"Right. Thank you for catching that. Are there any other comments on this? We have a vote. Thank you very much. We have the confirmation of the date of the next meeting, which is September 19. Now I'd like to discuss the international situation. Henry, is there anything you'd like to say before I do?",66
-fomc-corpus,1978,"Well, Mr. Chairman I think you've made it clear that we have a crisis on our hands--a crisis of confidence. For some currencies yesterday, it was a panic. I think it's at a point where the functioning of the monetary system is in some doubt. That is, it could lead to severe capital controls and it could lead to trade controls--all things that would eventually hit back upon the United States. So whatever is done is really in the interest of the United States primarily, and not just for the sake of international cooperation or helping other countries. That's all I have to say.",119
-fomc-corpus,1978,"I've outlined some actions that might be taken. As we discussed yesterday, one of the actions is to be more aggressive in the D-mark intervention. But there I believe we have to have a better concept of where we're going or we may find some disagreement from the Bundesbank on what to do. We certainly need to have a more comprehensive program; otherwise it will be viewed as sending good money after bad. So we have to be careful there. I'll reiterate some of the things the Federal Reserve could do. As I said, one is to adjust the reserve requirements on short-term CDs as to domestic and foreign, to skew it in favor of attracting foreign dollars. Yes, I mean all of the skewing could be accomplished.",146
-fomc-corpus,1978,Or you could do just the foreign; you could take it to zero.,15
-fomc-corpus,1978,"That's right. The skewing is a matter of how many basis points difference it makes, Chuck, which would be up to the Board of Governors. We could raise the discount rate. The activation of the yen swap line would be, I think, the one area we should get some viewpoint on now and some direction to us as to proceed or to not proceed, since I believe that has to be decided very shortly. The argument that we've had for not doing it has been, of course, that to us the Japanese have not been terribly forthcoming in solutions to adjusting their surplus and, therefore, to intervene without a more fundamental attack on the problem would be to put band aids on and not solve anything. More recently the Japanese have been sending their emissaries here to visit and probe again on whether we would activate [the swap]. Among the Administration and ourselves we intend to ask the question: What good is intervention unless there's a package and what kind of package do you see? The package could consist of a commitment by the prime minister to go ahead with the stimulus package in Japan of, say, 4 trillion yen. It could include a commitment to lower their discount rate, which is now 3-1/2 percent, to something below 3 and perhaps 2-1/2 to widen the spread. It could contain some other features in terms of trade and whatnot, but they get very hard to tie down because of the complications. But it could be beefed up with a few other primary things; it might not be those. The terms would have to be worked out where we would have a 50-50 sharing. And the amount that we can activate I believe is $2 billion; we might or might not want to go that far.",355
-fomc-corpus,1978,Would the sharing arrangement have to be negotiated?,9
-fomc-corpus,1978,I think it's already--,5
-fomc-corpus,1978,"It's in there, isn't it?",7
-fomc-corpus,1978,"It's not in, but they've indicated that they'd be very quick to agree.",15
-fomc-corpus,1978,"We'd also have to agree on the method of operation. It seems to me that we would want to have an agreement on the amount, on the relative amount of intervention they would do for their own accounts in New York and in Tokyo. And we'd want some understanding on the repayment. Those points, Scott, I believe you feel you could work out in fairly short order.",75
-fomc-corpus,1978,"Hopefully, yes.",4
-fomc-corpus,1978,"And, Mr. Chairman, the interest rate.",10
-fomc-corpus,1978,And the interest rate would have to be discussed.,10
-fomc-corpus,1978,So that we don't just pay a higher rate.,10
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,Now that's a bigger complication.,6
-fomc-corpus,1978,"That's right, I think, Mr. Chairman.",10
-fomc-corpus,1978,That would change the nature of the swap arrangement that we have with the Bank of Japan and would be a difference between the swap arrangement we have with them and those with other central banks.,37
-fomc-corpus,1978,"Yes, you're right; we'd probably have a hard time getting them to agree to that, because it isn't what we're doing with the Bundesbank.",29
-fomc-corpus,1978,"I think you might get them to agree that if we change the others, they would change.",19
-fomc-corpus,1978,"And they're changing in the wrong direction. If we change the non-50-50--incidentally, the other condition I think we would want, if we did this, is to have the Treasury in either as a participant in our swap line or opening a swap line of their own. I don't believe necessarily that we should do that unless there were these other actions by the Federal Reserve contemplated and some actions by the Treasury contemplated and something from the Administration. But I don't know what those can be, so it's hard for this Committee to act [for or] against an unknown package. It's a very difficult problem and crisis. But I would like to know the sentiment of the Committee as to whether there would be a willingness to move in this direction. It would be a change in policy. Now, Chuck Partee's name is first and then John Balles and Phil Coldwell. You better start putting names down, [Murray].",188
-fomc-corpus,1978,"I haven't been an advocate of intervention as a general rule, but I must say that I'm beginning to warm up to a yen intervention program, particularly if we can get some of the conditions that you have specified. I would not as one of those conditions want to encourage them to have a special imports scheme for materials. I think they did that in the early 1970s and the effect of that was simply to tighten up the materials market and raise prices with a lag, and I don't think we ought to encourage them on that. If we can get them to lower the discount rate, fine. But I think we also ought to try to get them to agree to make credit more readily available in Japan because, as I understand it, that is not such a rate-oriented market; it also has a great deal of direct steering by the central bank. And it may be that you would have to have better access to credit to get any positive effect. That would be perhaps more important even than the rate in the way it works. So far as our intervention is concerned, if we could get some of those arrangements, I think I would agree mainly because surely the dollar is oversold [against] the yen and, therefore, the chances of an ultimate loss on this series of interventions would be quite slight indeed. I realize that the Swiss franc has gone up as much, but that's sort of a currency without a country, and the yen is a currency with a country. Therefore, I think I would be prepared to do it.",307
-fomc-corpus,1978,"Mr. Chairman, I'd note as a matter of fact to Chuck that the Japanese already are doing that type of import program.",25
-fomc-corpus,1978,"I know they're doing it, and I've been a little worried about it.",15
-fomc-corpus,1978,"I just didn't want others to be misled, thinking that the Japanese weren't when they in fact are.",21
-fomc-corpus,1978,"I wouldn't want to encourage them to do any more, for sure.",14
-fomc-corpus,1978,"Thank you, Chuck. John Balles.",9
-fomc-corpus,1978,"Well, Mr. Chairman I guess my views are biased strongly against supporting the yen as a result of sitting through a meeting of and giving a speech a little over a week ago to the Japan California Society. Without going into gruesome details, the American contingent there was in a state of deep distress and shock and dismay as a result of the intransigence of the Japanese spokesmen for leading banks and businesses that we have to guess reflects the government view. They were just not willing or apparently able to move decisively or promptly in loosening up both tariff and non-tariff areas of their goods, saying that they need a great deal of time to study all of these questions. I think that could be a move very badly received in the American business community, as a matter of fact. There's a powerful case for doing something against these other currencies. But if we were to do it at all, I must say I would want tougher conditions laid down than just moving to a 2-1/2 percent discount rate and a stimulus program of 4 [trillion] yen. I think they've got to move more promptly, especially on these non-tariff barriers and all the ways they have of keeping out American goods. Their trade surplus with the United States is just fantastic and it's getting worse and not better.",267
-fomc-corpus,1978,"Thank you, John. Phil Coldwell.",9
-fomc-corpus,1978,"Mr. Chairman, I have been on both sides of the fence. I think there have been times when intervention has been desirable. If we're going into this we ought to go into it in a major way; I would not want to go into this if we're going to fritter away a few hundred million. I think we ought to embark on a program of this character with the Japanese expecting to spend at least $4 billion.",86
-fomc-corpus,1978,Between the two combined you mean.,7
-fomc-corpus,1978,No. The Treasury and us.,7
-fomc-corpus,1978,"And the Japanese, too.",6
-fomc-corpus,1978,"And the Japanese also. Though actually I think if we're going in with the Japanese, in the sense of coming back from the other side, then my figure might be higher. But I think we ought to at least be willing to commit $4 billion as far as the United States is concerned. I think the conditions that you've said you're looking for are largely long-range conditions and we're looking at a short-range crisis problem. I can't expect that a change in their budget, for example, would suddenly put the yen under pressure or reverse this package. So it seems to me that if we're going into this, we need to go into it with a long-range expectation. I would add one other condition to such intervention on our part--that the Treasury provide a takeout to the Federal Reserve and conversion with long-range bonds if such swaps were outstanding more than six months.",173
-fomc-corpus,1978,"Thank you, Phil. Frank Morris.",8
-fomc-corpus,1978,"Mr. Chairman, I support the operation. I think [of] the United States currency as a world currency, and we have the responsibility of seeing--to the extent that we can--that the foreign exchange markets operate in a rational way. But I agree with Phil Coldwell that if we're going to do this, it ought to be done on a sufficiently large scale to establish credibility in the marketplace. I think what happened last December and early January, when the United States government came out with an announcement by the President, Secretary of the Treasury, and the Chairman of the Federal Reserve Board that we were going to intervene--and then we failed to operate on anything except a very small scale--was a net loss of yardage in the operation. I think if we're going to do it, we have to be prepared to do it on a sufficient scale to impress the market that we are prepared to be a force in the marketplace.",187
-fomc-corpus,1978,"But $4 billion is an awful lot, Frank. It might come to that but I don't see why you'd operate on that scale to begin with.",30
-fomc-corpus,1978,"Well, Chuck, if you did $2 billion under one swap line and 50-50 sharing, we're risking $1 billion, other than the interest cost. And if the Treasury did $1 billion, that's $3 billion; if the Japanese did $2 billion more on their own, that's $5 billion.",64
-fomc-corpus,1978,"Well, I think Phil meant $4 billion on our end, and that is pretty big.",19
-fomc-corpus,1978,"Oh, I see.",5
-fomc-corpus,1978,I'm not saying do this tomorrow. But I think the Committee ought to be prepared to commit that kind of money if it's going into this kind of deal.,31
-fomc-corpus,1978,Four billion on our end ought to imply $20 billion on their end.,15
-fomc-corpus,1978,This [is] not in line with the rules of floating. We'd clearly be acting to change rates; I would be very skeptical of such a move.,31
-fomc-corpus,1978,"Well, now to get us back in order. Murray, you'd better put Henry's name down. Phil Jackson.",23
-fomc-corpus,1978,"I think we're in a process [typical of] most finance committees. Every member of the committee wants to add another condition to the loan, and that's a mistake. I'd like to ask some questions because of the suggestions made earlier. How much yen is being traded and how much is being bought by the Japanese now? And in what proportions will these figures that we're discussing impact on the marketplace? [I ask] because my impression is that last year when we saw $35 billion bought by others it didn't make that much difference. The magnitudes are such that $4 billion may still be just idle conversation except for the psychological impact of it. I would really like some information on what sort of magnitudes we're talking about.",145
-fomc-corpus,1978,"Well, the magnitude can be very big. The Japanese themselves did of intervention in March, as the rate moved against them. And many people felt that they were just sitting ducks. Each day they moved, you'd throw another $100 million at them and they'd move again. You'd take your profits and then throw another $100 million. They were sitting ducks because they were alone. As far as the market is concerned, if the United States is prepared--just the gesture at this stage--to provide its resources to support whatever the Japanese are doing, not necessarily the rate, [it would change the psychology] just that we've got this agreement between the United States and Japan. The isolation of the Japanese at this stage in the exchange market is very important. So, we can talk in terms of big numbers, but you're frightening me a little bit in how big they are because my objective and the type of negotiation I have in mind is to talk to them as we have with the Swiss. That is, all right we'll intervene in New York and commit our resources because it is important for the United States to commit its resources at this stage to get the psychological benefit in the market that the United States is cooperating. But there will be days in which you'll want to intervene in your own market and in New York when it is not in the U.S. interest, in our judgment, so we would not want to commit our resources. [That is what] we have done with the Swiss. So that some days we're in on a 50-50 basis--half theirs and half the U.S. authorities, and on other days we're simply operating on their behalf. On a cumulative basis they'd end up intervening a lot more in New York than we're likely to be because we are very cautious on the days we bring the System and the Treasury's resources to bear. But we will still have made this very important gesture, showing that the United States is prepared to do something about this disorderly market in yen. So we can talk in terms of big numbers, again, for the psychological benefit. But I would hope that, as we did on July 4, we'd start off with a splash and then if we win on the psychological effect, we wouldn't have to do very much later on. But that requires some of these other elements such as the policy actions that Chairman Miller mentioned. And a few people on the Japanese side have to keep their mouths shut afterwards and stop criticizing the United States. Because if we're in the middle in the exchange market intervening and we have another one of these comments that the United States is doing this, that, and the other thing, then there's not much help we can give the exchange market or the rate that [unintelligible]. So we have to have a cooling of tempers a bit if this is going to work.",574
-fomc-corpus,1978,"May I ask one more question in that connection? To what extent will our announcement of intervention make it possible for some major holders of dollar reserves to feel that they can then make the currency shift to yen reserves with some more assurance that the market will be broad enough to get out later if they want to? Right now my general impression is that many of these dollar holders are concerned about going into yen because the Bank of Japan is the only basic support. And [they feel] that market is not broad enough for them to have the possibility of getting out if they want to whereas if they see us come in, it may give them a type of bail-out assurance. That would encourage them to make the swaps that they're now not making, which would exacerbate our problem.",154
-fomc-corpus,1978,"We would still have a floating exchange rate and the key element in our experience with the German mark was not to peg the rate. Once we peg, then we provide the substitution facility and everybody will come at it. But as long as they recognize that the risk will go both ways--",57
-fomc-corpus,1978,We can't have a zone or a peg.,9
-fomc-corpus,1978,"Well, I recognize that.",6
-fomc-corpus,1978,The yen would run up.,6
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,"I just wanted to discuss it because it strikes me that it's one of the risks that we have to be very alert to--that we don't provide the vehicle for our own destruction. My impression is that by careful structuring and some very nasty demands, if I might characterize them that way--at least the Japanese probably would--we ought to go ahead.",71
-fomc-corpus,1978,Ernie Baughman.,6
-fomc-corpus,1978,"Mr. Chairman, first a question to Mr. Pardee. Could you hang any amounts on the concept of the operations you're suggesting as compared to the $4 billion?",34
-fomc-corpus,1978,"Well, it all depends on how the market takes it and what happens afterwards. The first day or two I would anticipate that we should be there forcefully when the market tests this. We will be tested by the market. Remember, back in January we had a testing period.",56
-fomc-corpus,1978,"In marks, too.",5
-fomc-corpus,1978,"In marks, and we may be tested in other currencies, including Swiss francs. So we ought to be thinking in terms of a budget in the first couple of days of $200 to $300 million. If we aren't prepared to spend it then, we'll have to spend it later on. But if that doesn't work--of course, you'll have other elements in the package, and so hopefully that will do the trick--then we'd move into the kind of pattern we've had with the other currencies. When we feel it's important, then we will intervene. It may be $10 million or it may $50 million on a day-to-day basis. But [I prefer] not to think in terms of an overall budget except [with regard to the limits] under the authorization and the other guidelines we have, including the procedural instructions.",166
-fomc-corpus,1978,Is it fair to say that you are thinking in terms of hundreds of millions rather than billions?,19
-fomc-corpus,1978,"I'm not thinking in terms of billions. But if that is part of the announcement, then that would help--that the amount that we might have to deal with is credible.",35
-fomc-corpus,1978,"Mr. Chairman, I would have to admit to never having been an enthusiastic supporter of the swaps program. And I guess I cannot generate much enthusiasm for the [proposed] program. It seems to me that our problem is more basic. Unless we can demonstrate by some means that we're going to make some progress in getting hold of the wage-price push or some progress in getting hold of the continued outflow of dollars on the trade balance, then what we could do in this sort of operation has a fairly high probability of being rather costly and not particularly rewarding. I think that's all I had on that. On the proposal for a zero reserve requirement on foreign CDs, is it suggested that we have the authority to exempt foreign CDs from reserve requirements or--",150
-fomc-corpus,1978,The Board of Governors has the right to set any reserve requirements they want.,15
-fomc-corpus,1978,These are eurodollar borrowings--borrowings by banks from the eurodollar market.,19
-fomc-corpus,1978,"Yes, we put [a reserve requirement] on specially some years ago; there hadn't been any before that.",22
-fomc-corpus,1978,So this wouldn't come under the 3 percent limit on time deposits.,14
-fomc-corpus,1978,"No, no. Steve, am I correct?",10
-fomc-corpus,1978,"Yes, as an exemption. Reg. D would provide a basis and also Reg. M for both.",21
-fomc-corpus,1978,What is the rate now--3 or 4 percent?,12
-fomc-corpus,1978,Four.,2
-fomc-corpus,1978,It's 4 on all.,6
-fomc-corpus,1978,It's 4 on borrowings from branches and 4 on borrowings directly for that branch.,19
-fomc-corpus,1978,The question is how much--you can go up or down--you can differentiate them and create a bias in favor of pulling in eurodollars. Thank you. Bones.,35
-fomc-corpus,1978,"Mr. Chairman, I, too, have not been particularly fond of swap lines all along, so I have some difficulty generating any warmth for this one. I'd like to feel that maybe we could move in this area and generate some favorable psychology, recognizing that stability would be desirable now. But these numbers that are suggested to possibly accomplish it--very candidly excite me. Then when I look back to my own area and recognize the emotions that have been generated among the textile people and the automobile people and think about how unpopular this could be--and frankly, bottom line, how costly it could be--I really am not excited. Frankly, I'm not impressed with the forthcoming nature of the Japanese. I personally would like to see something [from them] that was visible--was positive and known--before we move into this. I think the timing could be most unfortunate. If I seem to suggest that I lack some enthusiasm, that's correct.",189
-fomc-corpus,1978,Thank you. Bob.,5
-fomc-corpus,1978,"Well, I have to say that I do have some enthusiasm, although it's in a lesser of evils department, I'll admit. I think Scott has given a good explanation of the technical side of this and I concur in what he has had to say. I know exactly what John Balles is talking about. I've had the same experience, having been in Japan several times, and I feel that in the Japanese economy, their traditions have been harder to shake than those of any other country in the modern world. The Japanese have had a marvelous experience in their export industry because they have a rate of personal saving, for example, three times our own. So they can raise capital and this in turn generates the enthusiasm over there for export industry. The attempts by the Japanese government to encourage the Japanese people to buy more worldly goods run up against a stone wall in that the Japanese [home] is not big enough to acquire furniture even, much less a lot of other gadgets. I've discussed this problem with Japanese bankers, some as recently as last week, and I think there is a real feeling that, despite the political difficulties, the Japanese are getting to the point where they feel too that something more drastic has to be done. I think the American business response to the Japanese situation has tended to become more and more emotional and not understanding of the political problems that the Japanese have. It seems to me, therefore, Mr. Chairman, that we should go into this but with our eyes wide open and with the idea that maybe we are in the best position now to strike a hard bargain with the Japanese that we have ever been in before. It's no great solution or cure-all. The basic solution to the Japanese-American trade balance problem is far more complex than just the initiation of swap agreements that can [not] have any real effect on it. But I think it can have a stemming effect to show that we're not just a sitting duck for the makers of disorderly markets, if I may put it that way.",401
-fomc-corpus,1978,"Thank you, Bob. Henry Wallich.",9
-fomc-corpus,1978,"I've been a proponent of a yen intervention. I've changed my mind, given the vicissitudes faced by the dollar, but in my view what we should do here is to support the dollar rather than to hold down the yen. The Japanese can do all of that themselves. They can do $800 million in a day and I don't think they need any additional resources. What is needed here is evidence that we are not practicing benign--or malign or whatever--neglect. There is a gap, an implausibility, in our method of operations; we do everything in D-mark and occasionally in Swiss francs and somehow there never seems to be disorder in the yen market. So even though the Japanese through the New York Bank can take care of disorder in the U.S. yen market, we are seen to be somewhat implausible here. We should remove that and we should remove it in a credible way. I think the only way to get any response from the Japanese in mending their policies is to keep their feet in the fire with a high rate and I would regret it if the yen were to come down from its present level. Their situation, I think, is not nearly as desperate as sometimes it's made out to be. While exporters suffer possible [drops] of profit margins, even losses, this is a very diversified economy. They're making up on cheaper raw materials, which they use [in products for] domestic sale, what they lose on sales to the rest of the world. So I would do whatever is the minimum to give credibility to our participating. But I'd let the risk and burden of it fall on them to the extent that's possible through loss-sharing and the proportionality of operations. I think we should avoid being sucked into their very large operations; suddenly we'd find if we promised to do a quarter of what they do, they'd do $800 million in one day. I would also avoid violating, obviously, what are still the rules of floating, or at least precepts, namely, we shouldn't push a rising currency upwards. That is one thing we're in danger of doing here. And we should not, of course, aim at a particular rate. We need to explain this to Congress, I think. We need to explain it to the business community. We have to bear in mind that over time if inflation rates continue anything like now, the yen will rise against the dollar, whatever it does in the short run. And we shouldn't do something that goes against this fundamental. And finally, the Treasury, I think, needs to be in and we need to have a package and not just this one operation. I think it would be very unfortunate if we didn't get a package.",543
-fomc-corpus,1978,"Thank you, Henry. Paul.",7
-fomc-corpus,1978,"Well, [everything] has been said, I suppose, at this stage of the game, although not always in the same way or with the same meaning. Everybody approaches it from a different point of view. You did emphasize right from the start the importance of a bargain here, and one of the reasons we haven't intervened was that the bargain wasn't there. I think that's important. I think people have implicitly been saying, and I just want to emphasize this, that it's probably a matter of where the rate is. I think if we weren't interested in intervening earlier, quite properly it was because there was a great fear that dollar rates would go down some more and that it was against our interest if they didn't. At least some people thought that way. If we still feel that way, I think we shouldn't be intervening. I don't. It seems to me that this rate has gone far enough so that further appreciation of the yen gives us more difficulty than benefit. I feel quite clear about that in my own mind. And if one does not feel clear about it, one ought to be suspicious of this operation. But when I look at the price of steel going up here, and the price of small cars, and the price of RCA television sets and I look at the repercussions on the Japanese trade balance with all the J-curve perversities and all the rest, I don't think it's in our interest to see a further appreciation of a currency that has already appreciated by 50 percent or 100 percent, depending on which way you calculate it. It's exactly half of what it was against the dollar now compared to 1971. It's twice what it was; I suppose that is the way to state it. I think what the Japanese are interested in is a signal and not just a signal of no benign neglect. They're interested in a signal that the United States says it's okay for them to intervene at these levels forcibly. And that's worth quite a lot to them. If you're not willing to give that signal, you shouldn't be intervening. I'm willing to give that signal at this level. That suggests that the operation may have to be a big one to make it credible, as Phil suggests. I haven't thought of anything nearly as big as his numbers for us because I would expect that while the numbers could get quite big they should be Japanese numbers. What they're looking for is symbolism from us and not money from us. Now, that remains to be seen, on the negotiating side. But if they did $20 billion, I don't know that we'd have to do $4 billion over the course of a year or so. That remains to be seen. But I wasn't thinking in those kinds of numbers. Initially, I'd certainly have a much more limited number in mind, even though I think they ought to be forceful, let me put it that way. We're giving them permission to be forceful. And I would hope that we don't have to worry about a take-out from the Treasury. I would again worry about the whole operation. I think the take-out ought to be from the Bank of Japan, after about six months. That's what we try to negotiate here so we don't have to go to the Treasury. You get a clean-cut agreement with the Japanese that after six months or nine months, whatever it is, you're out.",671
-fomc-corpus,1978,"Phil, did you mean a take-out from Treasury in terms of how we get the yen to repay?",21
-fomc-corpus,1978,No. I meant in terms of conversion of the swap line into long-term bonds.,17
-fomc-corpus,1978,So you don't need the yen. I'm saying that we ought to get the yen to repay from the Japanese.,22
-fomc-corpus,1978,"But if we do that, Paul, then we have not solved the problem. Things continue, and we exacerbate it by--",26
-fomc-corpus,1978,"We're going to get it from the Bank of Japan, not from the market.",16
-fomc-corpus,1978,"Well,--",2
-fomc-corpus,1978,It throws the risk back on them.,8
-fomc-corpus,1978,"From the time you close out, they take the risk. The only reason I wanted to raise the question again is that I'm not sure it would be possible in 48 hours for the Treasury to commit to a yen-denominated [bond]. I just don't know.",53
-fomc-corpus,1978,They did a long-term denominated D-mark bond before.,12
-fomc-corpus,1978,"But why wouldn't you rather have the Bank of Japan do it? What advantages are there for having the Treasury do it, assuming they will do it?",30
-fomc-corpus,1978,"For one thing you continue to keep those dollars off the market. If you dump this back on the Japanese central bank, you know perfectly well they're going to take those reserves and put them out into the market again, as they've been doing with their own reserves.",52
-fomc-corpus,1978,"Well, they do that with a lot of their intervention anyway. The amount involved here, I think, wouldn't affect that volume significantly.",27
-fomc-corpus,1978,What I'm talking about in the Treasury is that I'm not sure they can take the currency exchange risk--an unknown risk in advance without legislation. That is what I'm saying. I don't think they have any room in their--,44
-fomc-corpus,1978,It's outmoded.,5
-fomc-corpus,1978,It's completely out of line.,6
-fomc-corpus,1978,That's what I thought.,5
-fomc-corpus,1978,So I don't see how they can agree to something [like that].,14
-fomc-corpus,1978,The [ESF] would have to take the risk of their swap too and I don't see how they're going to manage that. If they can manage one [unintelligible] they can manage the other.,43
-fomc-corpus,1978,They have enough accounting problems now.,7
-fomc-corpus,1978,They may not be able to.,7
-fomc-corpus,1978,I would not insist that the Treasury take any major part of this for that simple reason--their financial capacity. We want their support. We want it publicly. All of these political considerations that have been raised are very valid and there's no point in doing it unless we really have White House support and Treasury support.,62
-fomc-corpus,1978,"As far as any loss on transactions is concerned, it comes right out of the Treasury because our earnings go to the Treasury. If we don't have it, it comes out of the Treasury.",38
-fomc-corpus,1978,Yes. It's just a question of which pocket it comes out of.,14
-fomc-corpus,1978,"In that sense, it doesn't make any difference which pocket it is. Okay thank you, Paul. Dave Eastburn has been trying to get a word in here edgewise.",35
-fomc-corpus,1978,"Very briefly, Mr. Chairman, I'd just like to join those who have expressed reluctance on this. That's not from the point of view of any fondness or lack of fondness for swaps per se, but I have skepticism as to how much effect this will have and how well it will work. We're dealing with credibility and psychology here to a great extent. I think our record on that is not good and I don't see any reason why it should be any better in the new situation. So I would be very careful about this.",108
-fomc-corpus,1978,"Thank you, Dave. I think we've heard from all the members of the Committee, except Willis Winn and Mark Willes. Do you have anything to say?",32
-fomc-corpus,1978,"No I really don't, Mr. Chairman.",9
-fomc-corpus,1978,[Would you] say yes or no?,9
-fomc-corpus,1978,I share the skepticism. I think we are again addressing the symptoms and not the real problem. I'd rather see our attention focused on the real issues and not divert our attention here.,36
-fomc-corpus,1978,Mark.,2
-fomc-corpus,1978,I have nothing to add. I am on the side of those who are skeptical.,17
-fomc-corpus,1978,"I would add only a couple of words. I don't think there's any point in our taking action on a swap agreement to do intervention for the sake of the Japanese. We should only do it for the sake of the United States, believing that there is no good mechanism to prevent money panics in the world, even though we may have created some ways to prevent them in the United States and our own domestic economy. [Given] the amount of money that could shift around in disorder and the amount of harm that could be done in the United States from a change in pricing of oil constantly or demanding gold for it or something else, it could be very serious. I do not project that there will be an international panic but I know one can be created if you get a whole series of events. Therefore, I also look upon this in terms of a very simple thing: How does it affect inflation in the United States and how does that affect our long-term objectives? How does it affect the possibility of more serious things happening, in terms of creating recession, in the world? You go on and on and you can [escalate] it up to warfare. As someone said, economics is the profession where if you're wrong, people go to the barricades. That has often been true in history. But if we could couple this with a series of actions and commitments from the Administration to help address a broader program, I think we might be aiding the United States. I don't think we should do it to aid the Japanese at all. Henry's comments along those lines were, I think, particularly pertinent, although on a different slant. I think that's correct. Steve, I was incorrect. You were silent. I just checked over this [list] quickly and I--",356
-fomc-corpus,1978,"Well, I'm very pleased with what you just said. I concur with Henry and Philip and whoever else was suspicious. There's an underlying problem here that's got to be solved. Now, we can try with intervention and a stop-gap measure. But I'm sincerely suspicious of the effectiveness of that.",57
-fomc-corpus,1978,"If I counted noses correctly, on the Committee there were seven who expressed themselves in favor of pursuing this course and four who either felt we shouldn't do it or were skeptical. The four who expressed disagreement or skepticism would be Ernie, Dave, Mark, and Willis.",53
-fomc-corpus,1978,I would consider myself in that group if we were not going into full-scale intervention.,17
-fomc-corpus,1978,"Okay, let's put a question mark. It depends on the terms in your case. I think it depends on terms for all of us. SEVERAL. Yes, the conditions are important.",39
-fomc-corpus,1978,"So I think we would need [to know them]. I want to be sure I don't mistake this. But there seems to be a clear majority to let us see what can be developed. Obviously, we don't want to open the subject with the Japanese until we know more about a governmental program because the last thing we'd want is to have the Japanese saying we have a swap agreement being activated. So it's a touchy business. All I can say is, with that guidance, we will go forward and see what we come up with. I'm supposed to be over at the White House and I'm going to have to beg off for lunch if you don't mind.",131
-fomc-corpus,1978,That clock is slow.,5
-fomc-corpus,1978,That clock is very slow. That's right; the electricity must have been off. I think the only thing we can do is to come back to the Committee by phone or otherwise and get clearance for the details. Dave.,44
-fomc-corpus,1978,"I'd just like to say that, speaking for myself, on a matter like this it seems to me important for the Committee to be fairly united and not to have considerable dissent on this kind of action.",40
-fomc-corpus,1978,"Oh, yes. Anyway, with that guidance, we will go forward. Unless there are any more comments on that, we'll keep you fully apprised and ask you to keep extremely close confidence about this because this is information that can affect markets. Therefore, we have a very high fiduciary duty to see that it is not handled the way the White House handles it. There are several subjects at lunch that I hope will go forward in my absence. One is to report to you on developments on the membership situation. I think Steve can give you [an update]. I must say that the staff has done an outstanding job in responding to developments since last week and working over the weekends so we could make a response after our discussion on Friday; they continue to work with your comments and are making a number of changes. So we can bring you up to date on where that stands. And Ken Guenther can bring you up to date on the legislative posture of it. In terms of other legislative matters, I think Ken Guenther will be there to brief you. I've asked Janet Hart to come to the luncheon. I feel it's important that we begin to get a clear understanding within the System of our professional obligation to be diligent in the enforcement of consumer and civil rights legislation. I'm not saying we're not doing it but the internal report of our consultant indicates that we're slightly confused and we're not adequately focused. And I think we have to be. We're starting some things at the Board in terms of direction and resources, and I think Janet can brief you on those issues. There was going to be, if time permits, an opportunity to bring to your attention some of the subjects that might come up at the IMF meeting in September. Time may not permit. That may have to go by the way. And Tom O'Connell wants to brief you in 30 seconds--right Tom?--on a couple of the court cases. There's nothing about those things that you need me for. I apologize for missing it but I think I'd better pursue the other course and see what I can report to you.",420
-fomc-corpus,1978,Good luck.,3
-fomc-corpus,1978,The luncheon is on for the Presidents and the host will be the Board's Vice Chairman Gardner. And I'll have a sandwich in my office in five minutes.,31
-fomc-corpus,1978,"We're missing a couple of people, but it is 9:30 so I think we will proceed. I think the most important order of business this morning is to welcome Nancy Teeters to the Board of Governors and to the FOMC. It's very nice to have your first full day at the Federal Open Market Committee meeting; my first day was testifying before the House Banking Committee. I think you're going to have a more pleasant day than I had, but I hope you've done as much homework as I had to do.",106
-fomc-corpus,1978,I've done quite a bit of homework.,8
-fomc-corpus,1978,"Well, it gets worse. I would also like to say, Larry, how pleased we are to see you back [though] with your cane. It was probably the low point of humor last night--I won't give any attribution--when they said that was because you were a Keynesian. I thought I would not really be able to have [your] support. Nonetheless, [we are pleased with] your rapid recovery. The fact is that we missed you last month and are delighted to have you back. If you vote right for a couple of times, we'll see that you don't get injured further! Welcome to you both. The agenda is before you, I believe, and the first order of business is approval of the minutes of the Committee meeting of August 15 and the telephonic meeting of September 8. That has been circulated for comments and corrections. Hearing [none,] those will stand approved. [Next is] a report on foreign currency operations since the August 15 meeting. Scott Pardee.",205
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,Is it possible to so look toward future operations as to make it plausible that the Treasury and the Fed will get out of debt at about the same time--that we are more or less in step in terms of the 50-50 on new drawings and 60-40 on when we purchase D-marks?,63
-fomc-corpus,1978,"It will be closer than it was before now that we are drawing on the basis of 50-50 but we are repaying on the basis of 60-40. Rounding it off, we have about $700 million left.",48
-fomc-corpus,1978,That's 7 to 3 and we're repaying 6 to 4; it's closer than it was before. It would be hard to calibrate it so we'd both be out of debt at the same time. It's not unreasonable to say that that's a possibility.,53
-fomc-corpus,1978,"It's close, yes.",5
-fomc-corpus,1978,"We've gone through a number of actions and announcements, and so forth, and seen the consequences of them. Do you have a judgment as to whether or not future actions of a similar character or scope would have any impact on the marketplace? In other words, I'm really asking your judgment as to whether or not we're about to run out of so-called announcement effects and whether the only possibility we have is some more substantive long-term solutions. Or would actions similar to those we've taken in recent weeks still have some impact on the exchange market?",106
-fomc-corpus,1978,"This is a very difficult question because the market is now so pessimistic, so bearish, and so negative on everything that comes out. It's not everybody; many people out there feel as we do that the dollar is oversold, unrealistically low, undervalued--all of the terms that we bring out under these circumstances. But there are so many bearish people who have an economic stake in having a lower dollar. That is, they have short positions in dollars and they're prepared to throw big money [out there] to maintain those positions and make their profits. It's a very speculative atmosphere in the exchange market [and it's] not only the banks. You have the IMM in Chicago and you have some pretty big corporations in Europe; I don't necessarily see much from the U.S. [corporations]. And, of course, the last two days there have been rumors about Middle East money, following the Camp David [meetings]. So it's hard to know. There's this speculative atmosphere. How are we going to persuade those fellows that they can't make profits by selling dollars? I think the approach that's been taken this time of a sequence of things, which are clearly positive themselves but not necessarily sufficient, at least has kept the market off balance. The dollar is higher than it was in the middle of August. The atmosphere is not as horrible as it was at that time. So there is a feeling that the U.S. government does care, President Carter cares, and the Federal Reserve and the Treasury are taking steps and have taken steps. But now you come to the hard part of your question. Well, they haven't done enough. This is where we come back to the energy program and really [coming to] grips with inflation. Until we have some positive numbers, a combination both of trade and price figures, I think we're going to have a bad market. In July the market jumped on us when we had good trade figures and poor price figures; in August they jumped on us after getting good price figures and poor trade figures. What we need is a month in which both the trade and price figures are better.",424
-fomc-corpus,1978,Larry.,2
-fomc-corpus,1978,"Scott, assuming that this gas bill passes--and there's been a lot of difference of opinion as to whether or not the energy package is really important--what would be your thinking as to the effect on the dollar? And how long-lasting will that effect be if next week this package passes?",58
-fomc-corpus,1978,"I think it will help, and it may give [the dollar] a brief rise. But I'm disappointed in the reaction of the market to the Camp David [outcome]. They were all focusing on it, speculating up and down last week. And then when it went through positively, for all intents and purposes, the dollar is now lower than it was before. So it will help in the long run to get this whole controversial issue out of the way and in the short run perhaps will give a lift to the dollar but, until we get some good numbers, I think that will pass very quickly.",122
-fomc-corpus,1978,Bob Mayo.,3
-fomc-corpus,1978,I had the same question.,6
-fomc-corpus,1978,Thank you very much. Now we'll turn to action to ratify the transactions since the previous meeting. You've all had the packet on transactions. Are there any questions or comments? May I have a motion to approve?,43
-fomc-corpus,1978,I move.,3
-fomc-corpus,1978,Second?,2
-fomc-corpus,1978,Second.,2
-fomc-corpus,1978,"Any discussion? All in favor say ""aye."" SEVERAL. Aye.",17
-fomc-corpus,1978,Opposed? So voted. Now we'll turn to consideration of the Manager's recommendation with respect to foreign currency operations. Alan Holmes.,26
-fomc-corpus,1978,"Well, Mr. Chairman, there is for once not much in the way of swap drawings maturing before the next meeting of the Committee. We have one swap drawing of $35 million equivalent of German marks maturing in early October. This will be the second renewal. We have two Swiss franc drawings totaling about $13 million equivalent maturing in early October also, both representing first renewals. I recommend that the Committee agree to roll over these three swap drawings at maturity should we not be able to acquire sufficient foreign exchange to pay them off. I think there's a good chance we will, but in these days I don't want to make any forecasts.",130
-fomc-corpus,1978,Fine. You've heard the recommendation. Is there any discussion? Henry.,14
-fomc-corpus,1978,"Mr. Chairman, I continue to think that we ought to have a program of gradually but steadily buying [foreign] exchange as we go. We're working on how to devise this so it doesn't lead to adverse consequences but I'd like to urge the Desk again, whenever there is a reasonable chance to pick up some exchange in the market--if the market is rising and it wouldn't seem to the market that we were putting a lid on the advance--to take advantage of the opportunities.",95
-fomc-corpus,1978,"Governor Wallich, at the moment we have almost enough marks to pay off this swap drawing. But goodness knows what is going to happen tomorrow or the next day.",33
-fomc-corpus,1978,We may have to use them.,7
-fomc-corpus,1978,That's precisely the point.,5
-fomc-corpus,1978,Is there a motion to approve the recommendation?,9
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,"Any further discussion? All in favor say ""aye."" SEVERAL. Aye.",18
-fomc-corpus,1978,Opposed? So voted. Thank you very much. We'll move from the international to the--,19
-fomc-corpus,1978,"Mr. Chairman, I have a couple of other recommendations.",12
-fomc-corpus,1978,"You have a couple of other things, excuse me.",11
-fomc-corpus,1978,"As of October 5th our swap line with the Bundesbank will have been in continuous use for twelve months although specific drawings under the swap lines have been repaid well before [they had been outstanding for] a 12-month period. While paragraph 1C of the Authorization for Foreign Currency Operations in my mind is not exactly crystal clear, it has been interpreted as requiring Committee approval if a swap line--I'm not talking about drawings but this is a line itself--is in continuous use for more than twelve months. I request that approval.",109
-fomc-corpus,1978,"Otherwise, we could be in default?",8
-fomc-corpus,1978,"Otherwise, we'd be in a little problem, except I believe that that [paragraph] can be interpreted somewhat differently.",23
-fomc-corpus,1978,Any discussion?,3
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,Second.,2
-fomc-corpus,1978,"All in favor say ""aye."" SEVERAL. Aye.",14
-fomc-corpus,1978,"Opposed? So voted. Alan, you also are going to discuss the possible terms of renewal?",20
-fomc-corpus,1978,"Mr. Chairman, I'd like to do that quite briefly. At the last meeting, Scott Pardee referred to the proposals that Dr. Gleske of the Bundesbank had made to alter the terms of our basic swap agreement. We will be presenting the Committee with a memorandum containing detailed suggestions within the next few days but at the risk of being a bit premature, I would like to preshadow the suggestions that will be made. First, Dr. Gleske proposed that the 50-50 profit-loss sharing provisions be eliminated. I happen to share this view for three basic reasons. Except for our current drawing on the Bundesbank, this provision has meant a sharing of profits, not losses, from our point of view. The net dollar and cents value of the provision to the Federal Reserve and Treasury has really been quite small. Second, the fact that the 50-50 ratio applies to our drawings on foreign central banks but not to foreign central bank drawings on us has caused some resentment, I think you'll understand, on the part of our partners in other central banks. Third, when we undertake coordinated operations in the exchange markets, foreign central banks are taking full risk on their operations, which are usually much larger than ours, and half of the risk on our operations. Since most central banks in the swap network are already taking very large losses on their old dollar holdings apart from current acquisitions they are obviously not particularly happy with the 50-50 arrangement. Now, it can be argued that there are political advantages to the 50-50 arrangement and I understand that in discussions Governor Wallich has had with Treasury, the latter is not prepared to agree to this change, at least at the present time. I believe we should continue discussions with the Treasury and, if the Committee should agree, move at an appropriate time. Finally, in negotiations in Basle, Governor Wallich was able to elicit agreement on the part of Dr. Gleske to withdraw his proposal to eliminate the 50-50 provision. The matter is, therefore, not a matter of controversy between the Bundesbank and us. Linked to the elimination of the 50-50 provision was a proposal that the Bundesbank would receive interest on the dollar counterpart of our swap drawings at German interest rates rather than U.S. interest rates. At current interest rate differentials this would involve substantial savings to the Treasury, much more than offsetting the losses on our current swap drawings. It would also be symmetrical with our own commitment to provide funds under the swap arrangements at U.S. interest rates. I would therefore support Dr. Gleske's proposal in this respect also but I should point out that it will probably be withdrawn if we do not agree to the elimination of the 50-50 clause. The second proposal of Dr. Gleske is that the current rate of exchange be applied to swap renewals rather than the rate at which the debt was first incurred. This is in accordance with currently accepted market bookkeeping practices and I would suggest that we accept it. The third proposal is to clarify language in the agreement with respect to obtaining foreign exchange needed to repay swaps in the market whenever possible. This happens to be our current understanding and I see no problem in clarifying the language a bit. It should, however, be linked to clarification of the obligation of the Bundesbank to [sell] us marks directly should there be mutual agreement that they can not be acquired in the market in a timely fashion. I would hope that the Committee will be able to discuss the Gleske proposals at its next meeting after it has had time to study the forthcoming memorandum, which will be in your hands within a few days. That's all I have, Mr. Chairman.",749
-fomc-corpus,1978,"Thank you. Paul, you have a particular comment on--",12
-fomc-corpus,1978,"Well, I happen to agree with the logic of what Alan said on the 50-50 business. I think it's always been something of an anomaly. I have the feeling that it was a lot easier to sell, particularly to the U.S. Congress, that way and that's a pretty persuasive reason. But if that reason has relaxed in any way, I would support the notion of making the agreement conform to the logic of the situation. In principle I think we intervene when we think there's an expectation of a profit anyway and it should work out for our financial advantage over a period of time. I recognize that if it's too difficult politically, that has to remain the persuasive element for the moment, but over time I would like to see this made more symmetrical.",152
-fomc-corpus,1978,"Henry, do you have any comments?",8
-fomc-corpus,1978,"I think, Paul, this is reasonable. There's a relationship of the interest rate and the expected change in the exchange rate, which in equilibrium offset each other. That is, the German interest rate is 3 percentage points lower than ours, there's an expectation in the market that the D-mark will appreciate by 3 percent over a year, and so if we pay the German rate, we can afford to take the full loss. We take 50-50 on any loss of the exchange rate; we ought to have a 50-50 rate on the interest rate also. That's what I've been criticizing at times--that we were paying the U.S. high interest rate and yet we're getting the 50-50. The full risk should have been on the Bundesbank if we paid the full U.S. interest rate. So I think backing away from the 50-50 is perfectly feasible. It gives me a little pause to hear that foreign central banks are unhappy with it. If they're unhappy with it, it makes you suspect that maybe there's something good in it for us. The concern of the Treasury I think is genuine; it has to do with making a change in the terms of their swap at a time when the dollar is weak and they are subject to criticism. I think we have to head this [way], but next year when the dollar is strong we could have another go at this. May I say one more thing, Mr. Chairman, at the risk of running [too long on] this. The EC government wants to homogenize all our swaps. That means bringing up things like the 50-50 and other minor differences, although we homogenized them pretty much last year. Lester said he would try to talk them out of it and seemed confident that changes proposed by the EC government may therefore not come up. Thank you.",373
-fomc-corpus,1978,"Thank you, Henry. You all will receive a copy of the memorandum and at the next meeting we'll have an opportunity to consider this. I hope, because the next meeting is the meeting for setting ranges, that we will use the interim time [to look carefully at] the memo so that we'll be prepared to respond to this. I think the proposals are reasonable. It doesn't make sense [currently]. The United States should be grown up. If it's going to intervene, it should intervene for its account like other countries and not expect somebody else to share [the risk].",114
-fomc-corpus,1978,"I think it depends partly, Mr. Chairman, on what you think the intervention is for.",19
-fomc-corpus,1978,To counter disorderly markets.,6
-fomc-corpus,1978,"Yes, and I think there's an advantage to the counterpart currency as much as there is to the dollar. I think that's the basis of the principle for the sharing. I see no reason to back away from it.",43
-fomc-corpus,1978,"No, I don't think so, Chuck, because you're just saying split it in two. [When] they intervene in the market and we don't share with their intervention, we don't take half of their risk. It isn't that this is the only intervention. If this were the only intervention, your argument would be sound. The Japanese intervened with how many billions of dollars?",75
-fomc-corpus,1978,It was in March alone.,6
-fomc-corpus,1978,We don't share that. We intervene for $3 billion and we go around and ask like beggars that somebody share with us and it's not the sole intervention.,32
-fomc-corpus,1978,"Yes, but I think that there's quite a different attitude regarding the effect of the exchange rate from the standpoint of the foreign partners as against the United States. And I think the basis for the 50-50 split is perfectly reasonable. Now, I rather agree in principle with the second point that Alan made. It seems to me that when we renew the contract, we might renew it at the current price. But I don't agree with doing away with the 50-50. Now, perhaps the memo will convince me.",105
-fomc-corpus,1978,That is our report on the international situation. Now we'll move to the staff's comments on the economic and financial situation and outlook. Jim Kichline.,31
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"I would like to suggest [a change in our] procedures this morning. Nancy, in the past we've not only had an opportunity to question and comment on the staff's report, but we've then had a round robin and asked each participant to give his own estimate of real GNP growth over the next four quarters, what price [developments] will be over the four quarters, and what the unemployment rate will be in the fourth quarter out. I think that it might be desirable today to omit that particular round robin since we've done it fairly frequently on the second quarter. There isn't that much change and perhaps we'll do that quarterly instead of every time. Instead, I would suggest after a chance to comment or question the staff that we just go briefly around and see if anyone has any particular variations or additional points they would like to make from their region or from their own analysis of the overall situation. So are there any questions or comments? Dave.",189
-fomc-corpus,1978,"Jim, I have a question--or really two questions. One has to do with the Greenbook forecast compared with what I understand to be most of the other forecasts around. As near as I can determine, the Greenbook is more optimistic than any other projection, and I wonder if you would speak to that a little bit. Second, it's my understanding that implicit in your relationships between money growth and velocity and GNP is an assumed fairly substantial shift in the demand for money. And I wonder what basis there is for that assumption.",107
-fomc-corpus,1978,"On the second one, I feel comfortable in talking about it but Steve has developed some material on that and perhaps he might wish to comment on your second question. With regard to the first question--that is, the Greenbook forecast relative to various outside forecasts--of the ones I've seen I think it's quite correct to say that the Greenbook is more optimistic. One of the questions to be asked is to what extent do the assumptions differ in monetary or fiscal policy or other things and that's not always entirely clear, but I suspect that doesn't account for the major difference. As far as I remember for 1979, for example, both Wharton and DRI are fairly close in terms of the Board's staff judgmental projection for the year in total, but the pattern is dramatically different. Both of those forecasts, I believe, show a sharp decline or very sluggish performance in the first half of the year and then [growth] picking up later on. The Board staff forecast doesn't show that slowdown but shows real growth fading throughout the year. So, on average, you come out about the same place, but it's really a very different forecast. We, for one thing, are counting upon an impact of the tax cut; I think perhaps we have a little bit bigger fiscal impact there and that certainly accounts for our first half relative strength compared to others. Secondly, we have made judgmental adjustments for what we believe to be a change in consumer spending attitudes. I think a major difference in these forecasts relates to consumer spending patterns. The evidence over the last couple of years certainly isn't conclusive, and things may change, but it does appear to us that consumers have preferred to acquire goods rather than financial assets in this period of inflation. And that characteristic of trying to acquire goods would carry through into the housing market where I think, adjusted for the interest rates we have assumed in the forecast, we have a fairly optimistic housing forecast. So I think those are the major differences. But it's quite clear to us when looking at the other forecasts that we do rank on the optimistic side. Steve, did you want to comment?",424
-fomc-corpus,1978,"Well, Dave, I think I wouldn't describe it as substantial because I've assumed all along that the Committee is aiming at the top of the 4 to 6-1/2 percent range, following the discussion the Committee had when it set the target. If the Committee were aiming at the middle of the range, I believe that you'd have to say there is a more substantial downward shift involved. The downward shift, if you judge it from our quarterly econometric model--which is not the only model that exists in the world--is of modest proportions. It's something like 1-1/2 percentage points, which compares with the shifts in terms of that model on the order of 5-1/2 and 4 percentage points in the early part of this recovery. Of course in the last two years there has been, in terms of that model, almost no shift. It has been predicting pretty well and if that turned out to be the case, at current interest rates--or even at the interest rates we've projected, which are slightly higher--you'd have an M1 growth maybe a percentage point or so above the top of the Committee's range. Our basis for assuming that you'd get that percentage point less [is that as] the interest rates get even a little higher there's encouragement for innovations, apart from the automatic transfers, that will again generate activity on the part of corporate treasurers and also rich individuals to economize on their cash holdings. Now, we assume that activity will be considerably less than earlier in this period. We've assumed some such activity, but it's of quite modest dimensions, really.",325
-fomc-corpus,1978,Other questions of the staff? Roger.,8
-fomc-corpus,1978,"Yes, a question, Jim. We're still puzzled as to how you get the kind of kick in the first quarter of 1979 from the tax cut that is proposed. I assume it's from personal expenditures as a result of lesser withholding, but the figures don't seem to add up.",57
-fomc-corpus,1978,We didn't do the arithmetic right?,7
-fomc-corpus,1978,"No, I guess I'm really asking a question. Isn't it true that the tax cut will be spread more throughout the course of the year rather than getting the kick-up in the first quarter as suggested here?",41
-fomc-corpus,1978,"There are really three elements I'd like to mention there. One is that our assumption is you do get the equivalent in our case of a $19 billion tax cut at an annual rate becoming effective right in the first quarter. Now, there are offsets. And I think the question really arises with the offsets. With regard to one of those offsets--namely, fiscal drag or the effect of a progressive tax system--that amounts to something like $8 billion or so over the year. But that occurs gradually; it's about $2 billion a quarter. So that doesn't all take effect in the first quarter. The other is social security, and the social security payments are worth, in terms of net tax, something like $9-1/2 billion or so. And the accounting mechanism does indeed make those all effective in the first quarter [rather than] just spread smoothly. In practice, however, and as far as consumers are concerned, that wouldn't occur, because much of the increase relates to an increase in the base from $17,000 to $22,000. And that really would only begin to take effect later in the year. So we've made an adjustment in our own thinking, believing that consumers will see a sizable increase in their disposable income and some of that will filter into spending. We've used our model also, and the model results are roughly consistent with what we have. But I think it's an open question. And it's clearly one which some of the other forecasters have as much weaker.",302
-fomc-corpus,1978,Willis.,3
-fomc-corpus,1978,"Mr. Chairman, a question and comment. The question, Jim, involves the problems of the seasonality of the adjustments on the new orders of durable goods. The fiscal year shift, you take unadjusted figures and you get a different picture. Yet that's one of the puzzling developments here on the current scene. My comment, Mr. Chairman, has to do with my role as one of Governor Jackson's stable boys. I think it's proper to call the attention of the group to the explosion that's taking place in credit in the securities markets and the rapid expansion in the numbers of customers--if you can depend upon the statistical reporting series, which I think is questionable. But there is quite an explosion of activity there and the independent action of the exchanges to raise the margins on certain kinds of securities.",161
-fomc-corpus,1978,"On seasonal [adjustments], I'm not familiar with any particular problems that have come up. We do look at the not seasonally adjusted data, but quite candidly I don't feel comfortable discussing it in detail now. We can certainly provide a brief memo that would look at those figures more carefully.",59
-fomc-corpus,1978,I just wondered if there is something in that that accounts for some of this behavior.,17
-fomc-corpus,1978,"I'm just not aware of anything. One of the major things you may be aware of deals with transportation equipment. Commercial aircraft orders, for example, have been bouncing all over and have been a major factor in the volatility of that particular series.",48
-fomc-corpus,1978,"Well, ladies and gentlemen, the staff projections would indicate that from second quarter of 1978 to second quarter of 1979, looking at four quarters, real GNP will grow at 3-1/2 percent and prices on the gross business product fixed-weighted price index will be up 7.1 percent. For the unemployment rate--I believe I'm correct--the average in the second quarter of 1979 would be 5.8 percent. Is that right, Jim?",100
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,"So those are the kinds of figures the staff is looking at. [For] the fourth quarter of '77 to the fourth quarter of '78, they're looking at 3-1/2 percent real growth, 8 percent prices, and unemployment at 5.9 percent. So, those are for the calendar year 1978 and for the four quarters--second quarter to second quarter. Why don't we mix up the order of batting this time and start down here with Roger and come around this way? I would suggest that so that we can be through [on time]. We found out, Nancy, that the first three speakers take up all the time. We have to start at different places every time or some people would never get a chance to talk! When you start with Governors, it takes particularly long. I try not to start with Governors; they've been schooled in 45 minute lectures or something. Roger.",187
-fomc-corpus,1978,"I'll break your track record and only say that we did not disagree with the staff's projection other than in the area of price inflation. We think it will be somewhat larger, at or near 8 percent for the year ahead.",46
-fomc-corpus,1978,You're talking about to the second quarter of 1979.,12
-fomc-corpus,1978,That's correct.,3
-fomc-corpus,1978,Thank you. Bob.,5
-fomc-corpus,1978,I would join Dave's comments that the staff projection is a little on the optimistic side. I look for a little more inflation than the staff does and a little less GNP production.,37
-fomc-corpus,1978,Thank you. Mark.,5
-fomc-corpus,1978,I'd just say ditto to what Roger said.,10
-fomc-corpus,1978,"Okay, thanks Mark. John.",7
-fomc-corpus,1978,"Well, as has been the case for some months, we expect less real growth and also less inflation than the staff does. We don't expect a stimulative effect on consumption from the tax cut because of the social security offset, the effect of inflation pushing people into higher income brackets, and that sort of thing. That's where our differences really lie.",69
-fomc-corpus,1978,You expect less inflation?,5
-fomc-corpus,1978,"Yes, because we expect less real growth.",9
-fomc-corpus,1978,Thank you. Ernie.,6
-fomc-corpus,1978,"I think the staff projection is quite a reasonable one. Having said that, I think the odds are about 50-50 that they will come out low as high. I think that's where we should try to be. As to potential problems, the main thing that I've encountered is skepticism as to whether we will avoid increasing numbers of bottlenecks--in other words, whether there will be as much elbow room in plant capacity. The staff analysis suggests no real problems in that area; there is concern around that there will be.",106
-fomc-corpus,1978,Thank you. Frank.,5
-fomc-corpus,1978,"Well, Mr. Chairman we're still much more pessimistic than the staff and we think that [is supported by] some of the numbers that have come in over the past month. [I'd note] the surprising weakness in new orders for durable goods, which was broadly diffused across all types of orders--it was not a phenomenon of transportation equipment in particular--and the very disappointing performance in the capital goods sector, including the weakness in new orders plus the sharp decline in capital appropriations, which have a long lead time. So we're still very much on the pessimistic side, looking for 1-1/2 to 2 percent real growth and, for that reason, a little less inflation than the Board staff has projected.",147
-fomc-corpus,1978,"Frank, the ticker tape this morning says chief executive officers of U.S. companies turned more pessimistic about the economy according to the Conference Board's latest survey. Its measure of business confidence fell to 49 percent in this year's third quarter, down from 58 percent in quarter two. Phil.",59
-fomc-corpus,1978,"Mr. Chairman, I don't have any problems with the staff forecast in the aggregate. I don't happen to agree with the pattern they're showing. I think they're overly optimistic on the degree of impact of the tax cut in the first quarter. I think we're likely to have more inflation than the staff shows and probably a little less GNP in terms of real growth. But my differences are in terms of a half percent--not terribly off from the basic pattern in terms of the total. I am a little curious, Jim, about your description of the employment as slowing. July and August I always thought were slow months anyway and I don't really see anything there.",131
-fomc-corpus,1978,Seasonally adjusted.,4
-fomc-corpus,1978,"Also, I'm a little curious about your description of industrial production slowing when we're still getting more than 1/2 percent a month, having come off [unintelligible]. I thought it was doing very well. The consumer goods weakening I thought was something that needed to come along, and if we're going to maintain 1/2 percent growth with that kind of weakening then [something] else has to be strengthening. So I'm a little curious about your description but your net result is pretty close to mine.",103
-fomc-corpus,1978,May I comment briefly?,5
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"I would agree with you on industrial production. My point there was slowing from what we had seen earlier in the year. But I think I did use the phrase ""but still quite good."" So I would concur with you that it was a matter of describing movements within the year.",56
-fomc-corpus,1978,May I just interject a supplementary question for Mr. Kichline to comment on? I had a vague feeling that the industrial production figure is looking good relative to other figures and that they don't seem quite consistent. Is that vague impression accurate or not?,51
-fomc-corpus,1978,"Well, I think, yes. There is a good deal of activity going on in the construction business equipment area in terms of production. And we do expect an increase, for example, in shipments, in the area of capital goods. If not, we're going to get an inventory backup there. But there's a good deal of activity in this heavy equipment area that's showing up in the IP. Consumer goods are quite weak. Overall, I think the data coming in, if you adjust for the goods portion of GNP, are roughly consistent. We don't perceive a big problem but I think that is one of the stronger features of the recent data. It is one of the stronger parts.",137
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"Well, I think the odds favor continued expansion, though one can not discount the possibility of a downturn. I think what we have going in our favor is the absence of major imbalances of the usual cyclical kind. We have some new ones. We have the very high rate of inflation, and I think that is our main threat to a stable expansion now. We have a large budget deficit that more than offsets the net negative exports. We have the weak dollar. These are the principal imbalances plus the inflation. The staff's estimate of inflation looks low to me. Maybe for the next quarter, the third quarter, we can count on something better than we previously thought, but I think for next year the chances of getting high wage settlements and high wage increases are very serious.",157
-fomc-corpus,1978,"Thank you, Henry. Steve.",7
-fomc-corpus,1978,"Well, I can agree with the staff's forecast. I've felt in the last month or so that we've had lots of points of strength and an implicit desire to be pessimistic. I just can't do that when we've had as much strength as we've had. I'll go along with the staff's forecast.",60
-fomc-corpus,1978,"Thank you, Steve. Paul.",7
-fomc-corpus,1978,"Well, the staff forecast seems reasonable to me. It's probably a trifle higher than I would come up with on real growth and a trifle lower for inflation but it doesn't seem at all unreasonable to me. As time passes here our recovery is looking a little more tired, as I suppose in some sense it should. It's getting older. It's getting a little less liquid than it was but I don't see any very quick or strong pressures coming from that end, although it could build in the course of the next year. I feel a little better that it may work out reasonably well in connection with some signs of revival in foreign growth, which would help the balance of payments, help the dollar, help everybody feel better, and also add perhaps to the direct strength in the business scene through the export side. I don't think that change is big but we seem to be entering a situation here that's not totally satisfactory--to understate it. Some slowdown seems to be reasonable, even a little more than the staff projected. I think it's a tolerable kind of situation here, given the inflationary problems.",220
-fomc-corpus,1978,"Thank you, Paul. Phil.",7
-fomc-corpus,1978,"I don't have any basic disagreements [with the staff forecast], although I'm inclined to think that the real growth is probably a little on the optimistic side. I'm inclined to think that personal consumption expenditures may not grow as expected because of the flattening of real incomes. I'm also concerned that while the economic effect of strikes has always been generally considered to be zero--because you make up what you lost--I don't think we're going to see that in 1979. I wouldn't be surprised if strikes were a significant deterrent to economic activity in the first half and have a real impact on the year as a whole. So, on balance, I'm inclined to think it may be 10 to 15 percent less than the staff projection.",146
-fomc-corpus,1978,"Phil, do you have any particular reaction to the housing outlook in the forecast?",16
-fomc-corpus,1978,"No, that's right on stream, in my judgment. Again, it depends on what the rest of the people around this table do to a certain extent. At this time I think in this neighborhood is about where it belongs; 1.8 or 1.9 million wouldn't be bad news at all.",62
-fomc-corpus,1978,Thank you. Chuck.,5
-fomc-corpus,1978,"I think Frank Morris put his finger on something we have to look at very carefully in the next several months. I'm troubled by the sharp drop in durable goods new orders for business equipment, although it's just one month and I think we need to see the pattern over two or three months. But I certainly find the amount of steam in plant and equipment spending less than I anticipated it would be as the year went on. And I think it is conceivable that it's going to fall well short of present staff expectations, looking ahead into 1979. That survey that you mentioned I think I heard about a couple of weeks ago, at least on the basis of preliminary figures. It's not only that you're getting more pessimism expressed by businessmen in the survey. Whereas before the typical pessimistic view was that the economy is not going to do well but my company's prospects look very good, now a significantly higher proportion of executives feel that their own company's prospects are not very good. So we could have, instead of a generalized pessimism, a specific pessimism; and it could have a considerable impact on capital spending plans and even on inventory strategy for the period to come. As before, I tend to be a little on the low side of the staff projections for real growth over this period--3 to 3-1/2 rather than the 3-1/2 percent average. That means in practical terms that the unemployment rate will be drifting up, rather than with good fortune staying constant if the staff projection is right. Of course, I would point out to everyone once again that the staff projection is only for 3-1/2 percent real growth, which is rather minimal real growth. For this late point of the recovery it's not so bad, but rather minimal because anything much below that will mean an updrift in the unemployment rate.",369
-fomc-corpus,1978,"Chuck, that comment you mentioned is in here--that they're not only pessimistic for the general economy but are now becoming more so for their own [businesses].",33
-fomc-corpus,1978,That's the first time. This is a rather new survey and it's the first time they've ever found that.,21
-fomc-corpus,1978,Thank you. Nancy.,5
-fomc-corpus,1978,"Well, the staff forecast is remarkably similar to the one I've been using all summer.",17
-fomc-corpus,1978,Aha! So there's been a leak.,9
-fomc-corpus,1978,"One way or another there's been a leak. I would call attention to the swing in the full employment surplus, which is shown on page I-7. Fiscal policy is taking a rather large swing toward restriction at the present time. Looking at those numbers, I think I would be coming down off of my forecast that I had made to the [House Budget] Committee in the past two months. I would also like to point out that the impact of the tax cut will depend very heavily on its composition. If it's heavily capital gains with it starting in January, as it came out of the House, much of the impact will go over into 1980. If we have a capital gains change effective on November 1st, we're going to get an impact in the latter half of this year, so you may have to watch, as I'm sure you do, how we finally settle that particular issue. Other than that, I have no more comments on the forecast.",194
-fomc-corpus,1978,"Thank you, Nancy. Bob.",7
-fomc-corpus,1978,"Given the recent behavior of the aggregates, the social security and minimum wage increases scheduled for the first of the year, the likelihood of strikes that Phil Jackson mentioned, the bottlenecks that Ernie mentioned, and wage/price pressures, I think the staff may be a little low on inflation. I think 8 percent would be a little closer. I think the rate of real growth is apt to be more like 2 to 3 percent, and I would not rule out the possibility of a mild recession beginning sometime next year. And if so, then unemployment might be in the neighborhood of 6.5 percent.",125
-fomc-corpus,1978,"Thank you, Bob. Willis.",7
-fomc-corpus,1978,"I'd remind the group that for the last couple of years we've been making funeral arrangements for the economy after the strong starts at the first of the year and then worries [later]. My own feeling is that it still may be a bit premature for this event. The durable goods [figure is a] question--what prompted my question earlier--but I have a feeling that we may have more strength than is apparent. But what worries me is further down the road for two reasons, or three reasons maybe. First, commercial construction and apartment house construction are really running full out. And there is no apparent barrier in terms of financing and [related] factors. So, what worries me is that if these are brought on stream, then we may suddenly get a glut in this area with a very sharp turnoff. Second, we're seeing some interesting things in consumer spending; jewelry, furs, and other premium items are really going great guns. The nondurables are having problems. And what worries me on this score is that with consumer credit [readily available]--with the credit cards and a number of other things--we may have introduced a much higher degree of cyclical behavior in the consumer area than we've experienced previously. And if this occurs simultaneously with construction and a few other things coming to a head further down the road, there may be a problem. But at the moment I suspect we're going to get more support in the consumer area as a result of the still pushing of the credit card and credit and other factors we've projected. So, on balance, I come out with the feeling that for the few months ahead the staff forecast is probably more on the low side--not much, but we may see unexpected strength.",345
-fomc-corpus,1978,"Thank you, Willis. Dave.",7
-fomc-corpus,1978,"Well, as my question indicated, I'm a little less optimistic this month than I was a month ago. And I'm a little less optimistic than the Greenbook forecast, probably tracing down to the consumer sector where I think there is going to be more weakness than [in the staff projection]. Housing I suspect may hold up fairly well, basically because it is the only inflation hedge that the average person has and I think that will hold the demand up pretty well. As Henry indicated, a very basic factor is the inflation rates that we're having. I think it's quite remarkable, with that kind of inflation rate, that we have even the moderate growth that's forecast. I think we're doing quite well, given that inflation rate.",142
-fomc-corpus,1978,"Thank you, Dave. Bones.",7
-fomc-corpus,1978,"Mr. Chairman, we think that there's considerable [momentum] for another 15 to 18 months. Against that, though, we are somewhat concerned that the growth may be slower than the staff has projected and yet the inflation rate may be faster. We, too, may have a biased look at the moment, prejudiced by housing because of the exciting developments in our own area. Calling around to a number of housing and mortgage people in the last couple of weeks indicates that [they are] just excited and think that the outlook is extraordinarily fine. Nevertheless, in reading the Redbook I notice that is not shared around the country so I think we have to temper that a little bit. Generally, we're not far from the feeling of the Greenbook.",152
-fomc-corpus,1978,"Thank you, Bones. Our clean-up hitter, Larry.",12
-fomc-corpus,1978,"Mr. Chairman, I still have not lost my belief that what happens in the near future in terms of output growth and what happens in the long pull in terms of price level movements depends to some extent on what our monetary policy is. We agree with the projections of the staff, although for different reasons, that we should have about 7-1/2 percent price growth next year edging up to 8 percent in 1980. But we believe this is because we've had two years of 8 percent money growth. We don't question the facts [but] we have arrived at the conclusion through a different route. We do feel that real GNP can vary from around the 3 percent mark next year to 4 percent, depending on the decisions we make as to money growth. We feel that if M1 is kept at a 6 percent growth during the forthcoming quarters, we will have a real GNP figure of about 3 percent but it would be about 4 percent if we continue at an 8 percent rate of money growth. Finally, with regard to the Conference Board consensus, we had a luncheon last week with fifteen treasurers of our large corporations, most of whom are treasurers of Fortune 500 companies. There was unanimity--and this literally was unanimous---in their optimistic and positive point of view. Not one of these fellows indicated less than confidence about their company's future. Their outlook was basically positive for the 12 or 24 months ahead, so I guess there's room for a difference of opinion. Our feeling is positive and we feel strongly that what happens will depend on what we do.",328
-fomc-corpus,1978,"The [responses to the] Conference Board's survey are confidential, so it has no effect on the stock market. When the executive speaks publicly he must say his company is going to do well. Thank you, Larry. I must say that I appreciate everyone's cooperation. This has been the most cogent set of comments in the briefest time that we've had. So we must be setting a new record. I commend you all; you may get the Congressional Medal of Honor if you keep this up! May I summarize? Didn't I hear a consensus that seemed to show very few significant variations from the staff [forecast]? And I would say the consensus of the balance would be a little slower growth and a little more inflation--with some a little more in either direction. That's a very helpful rundown. Does anybody have any additional remarks?",166
-fomc-corpus,1978,I have another question that I should have brought up earlier. We keep hearing rumors but no facts yet that the housing boom may be nipped because the savings and loans are getting cold feet now on the 6-month T-bill certificate. I was wondering if staff had any input on this question--whether they consider this to be an ominous possibility or whether it's just talk.,76
-fomc-corpus,1978,"I think in large part it is talk. It depends on the institution. We've heard some of those comments but I think the bulk of the qualitative comments that we have come across have been quite positive. And the major reason for that is the spread, which is very favorable for picking up mortgages: You pay 8 to 8-1/8 to 8-1/4 percent and put out a 9-1/2 percent mortgage. So the spread is very positive and the larger institutions are quite willing to undertake them.",108
-fomc-corpus,1978,And the portfolio is rolling over from other sources of funds.,12
-fomc-corpus,1978,"That's right. So I think it's a mixed picture. I might say that we did not choose to put all of the additional funds that we have in the projection, given the performance of that certificate, into mortgages. That's because later on we do have a concern about the liquidity of those institutions and just the balance sheet structure. So I think over time more of these institutions will be concerned and they will begin to be less willing to add mortgages even though the spread is very favorable.",96
-fomc-corpus,1978,"President Mayo, I might add just a fact. We've been erroneously predicting that the rate of growth of inflows to S&Ls would slow because there is some sort of stock adjustment at work. We now have the data for the first ten days of September and we're projecting a 17-1/2 percent rate of growth at the S&Ls in September. Undoubtedly this will slow, but as Jim said, this isn't in the statistics at the moment.",94
-fomc-corpus,1978,"We may have to knock off those certificates. Larry, you had a question?",16
-fomc-corpus,1978,"I have a question, Mr. Chairman, and it's not asked in a cantankerous vein. But I'm concerned. As we went around the table, we all seemed to recognize that we do face a 7-1/2 to 8 percent rate of inflation now. Do we as a group feel that this is preordained because of circumstances that we can't control? I'm concerned that we seem to feel well, it may be 8 percent, and if it's 8 percent we've done our job well. I'm really not trying to be critical, but is our monetary policy responsibility such that we should maybe discuss whether we're satisfied to see the economy drift into an 8 percent inflation rate? And if not, are there things that we can do to affect this? I really ask that in a genuine, innocent, and physically recovering vein. Are we in any way the masters of what happens, or are we merely observers on the sidelines? I'm lost.",193
-fomc-corpus,1978,I take the fifth.,5
-fomc-corpus,1978,I don't want to comment.,6
-fomc-corpus,1978,"Yes, there is a relevant observation that may be made, which is that the Administration has said that they are going to bring forth a new anti-inflation proposal. If that should appear to be a program of substance with some possibility of having a significant impact, it could provide a basis for a wave of optimism through both the business and consumer sectors of the economy. That would be quite positive. If, on the other hand, it appears to be quite transparently meaningless--mostly talk and nothing that is likely to have a substantial impact on the wage-price push--then I think there is a strong possibility that the effect will be quite the opposite.",131
-fomc-corpus,1978,"Let me make a couple of brief comments, but I really think this belongs in our monetary discussion because we could spend the whole meeting on this. But let me just observe a couple of things. One, when I came here six months ago the outlook for the growth of the economy in real terms for the current calendar year was 4.7 percent. The staff projection is now 3.5. I would say that one of the main forces in that reduction has been monetary policy. So, have we had any positive contributions to the slowing of the forces of inflation? I would say there has been a conscious effort, Larry. I would say, in the argument that the Federal Reserve should not be left to do it alone, that the fiscal plan for stimulus in the next fiscal year has been changed by $20 billion less stimulus. I would have to say that's substantive. Maybe some of you would argue for more or less but I would have to say that these are substantive consequences of the exercise of monetary policy in pointing out the dangers of monetary policy and getting, therefore, a response from the Administration and from the Congress to spread the burden. So I think in isolation we are suffering from the inflation buildup over twelve years and in my opinion some misguided steps over twelve years. If we think we have been able to turn it as much as I have just described in six months, in terms of the outlook and the mix of things, I wouldn't exactly be critical. And I would be very cautious to restrain the system more in the face of the pessimistic comments we already have and [precipitate] a recession just to make us all feel that we have done something more. I don't think that would contribute enough to solving the problem. You know, we are already down to growing at or below the trend line. Really, is there more that we can do short term? And don't we have to live through the cycle? I don't know. We'll come back to this in the monetary policy [discussion]. John, did you have a final comment?",413
-fomc-corpus,1978,"One final comment but I'm afraid it's not a very optimistic one. I'm not sure quite what to read into George Meany's blast yesterday of wage-price guidelines, but it doesn't sound very promising--",39
-fomc-corpus,1978,"Vintage mania, I would say.",7
-fomc-corpus,1978,It doesn't sound very promising in terms of getting the cooperation of labor.,14
-fomc-corpus,1978,It was a little milder than I had anticipated.,11
-fomc-corpus,1978,"Actually, this was reported as being milder than expected.",12
-fomc-corpus,1978,I thought it was.,5
-fomc-corpus,1978,What I heard on TV didn't sound mild.,9
-fomc-corpus,1978,"Let's [cover that] perhaps in the general discussion. And before the break, let's cover the domestic open market operations. We have a report on operations, I see, from Paul Meek.",39
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,[Secretary's note: This question was asked during the statement.] You said 14 to what?,20
-fomc-corpus,1978,"I said 14 to 17 billion. There are even some that are lower than that, but that's the consensus at the moment. [Statement continued.]",31
-fomc-corpus,1978,"Thank you, Paul. Let me first get the routine business out of the way and then move on to the secondary. Routine is just to ratify the transactions of the Desk since the last meeting. Paul made a voluminous report, I believe, available to you. Are there any questions or comments or may we have a motion for approval?",69
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,Second.,2
-fomc-corpus,1978,"It has been moved and seconded. Discussion? All in favor, say ""aye."" Opposed? So voted. The second point you made, Paul, was the temporary increase in the authorization--to raise [the limit] on the change in the open position over the period stated.",58
-fomc-corpus,1978,To $4 billion.,5
-fomc-corpus,1978,You said temporary. I understand temporary to mean what in terms of time?,15
-fomc-corpus,1978,In the period between now and the next meeting of the Committee.,13
-fomc-corpus,1978,"[Until] the next meeting. All right. Steve, do you have any comment on that particular question?",22
-fomc-corpus,1978,"No, Mr. Chairman. For technical reasons, there appears to be a sizable need to provide reserves and I believe that increase would be justified for this [upcoming intermeeting] period.",38
-fomc-corpus,1978,"On that particular question, does any member have a question or comment or concern?",16
-fomc-corpus,1978,"Well, only that I hope it does not encourage the Desk to do more in the way of increased activity in the market.",25
-fomc-corpus,1978,I don't know that they've ever been constrained.,9
-fomc-corpus,1978,I don't think they have.,6
-fomc-corpus,1978,"Well, we need a motion to approve that increase, which will run to the next meeting.",19
-fomc-corpus,1978,I so move.,4
-fomc-corpus,1978,Second.,2
-fomc-corpus,1978,"Any further discussion? All in favor, ""aye."" Opposed? So voted. Now, are there any questions or comments on the report that Paul has given? Yes, John.",37
-fomc-corpus,1978,"I'd like to read a more optimistic interpretation, Paul, into that decline of long-term bond yields. The wish may be the father of the thought here. But I'm convinced, as are a lot of people, that inflationary expectations in fact have a great deal to do with the level of long-term bond yields. My interpretation, perhaps wishful thinking, is that the market has perceived the Fed as tightening up recently and, therefore, diminishing the chance of escalating inflation and perhaps even raising the chances that it will peak out before the end of the year. And markets, being very forward-looking, I think are taking this into account. Now, you can always come back with other technical explanations--light calendars, this and that, and so forth. But I would place the major weight on the explanation I've given.",163
-fomc-corpus,1978,"Well, I think that is certainly one factor on the part of some investors. The technical explanation that you alluded to is that in fact money management has attempted in the wake of the '73-'74 experience to be more sophisticated and to pile up more money in the short end, awaiting the peak in interest rates. Everyone has been betting on that. Over the course of the summer, there has been a change of view that one didn't want to miss that peak, and we have had a sustained investment of long-term funds. I think the next few weeks will tell whether it has run its course or--",122
-fomc-corpus,1978,"There's still quite a bit of liquidity waiting for that time, isn't there? So it may take a considerable time--",23
-fomc-corpus,1978,"In the forecasts of interest rates that market people make, the peak ranges from Lee Prussia from the Bank of America, who is expecting a fairly considerable decline in short-term rates by the second quarter of next year, to some others who don't see that happening even in 1979. I think the market prognosticators are about as widely divided at this juncture on the outlook for rates and when the peak will occur--if there is to be a peak--as I can remember. However you have arranged this, please keep doing it will you? [With] long-term rates down, I say all good things can happen to the economy.",130
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"For both domestic and international reasons, I think it would be desirable to get even more of a downward sloping yield curve. The Treasury bill rate is still well below other short-term rates. The coupon area could come down a little. I'm wondering whether the Desk is doing all it can to move rates in that direction. I noticed you have been buying coupons, but you also have been buying some Treasury bills directly from foreign accounts. I would hope we could get the intermediate- and long-term area to continue going down and in the short-term area a straightening out of the yield curve.",118
-fomc-corpus,1978,"Well, the reserve need that we are now confronting, which is a rise of $5 billion in the Treasury balance from the current statement week to the next statement week, will be such as to require us to be buying in all sectors of the market. So we'll certainly be in the coupon market once or possibly twice over the next two weeks, I would say.",73
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"I, too, had thought that there was a possibility for perhaps a little help in the international area on operation twist. But I must say, as I look at this yield curve, that it is about as twisted as it can get, in my view. That is, as Paul indicated, the peak is before two years and it declines progressively as one goes out. And that's a pretty extreme situation. I must say I don't think there's a lot of chance of an appreciable further decline in long rates if short rates remain where they are or a little higher. I just don't see how it can occur because I think the arbitrage would become too big of a consideration in the placement of funds.",140
-fomc-corpus,1978,"Well, thank you for your report. We will now take a break for coffee and rest and come back and finish off the meeting.",27
-fomc-corpus,1978,"All right now, Larry, I expect you to make prudent monetary policy since you raised the subject. Let's hear from Steve Axilrod.",28
-fomc-corpus,1978,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1978,"Thank you very much. Let me call your attention to a couple of figures on pages 6 and 7 in the Bluebook. On page 7 you see the September estimate for M1 is in the 10-1/2 range--10.8 or 10.4 depending on the alternative. And it's in the 6 percent range in October, according to the Board staff's estimate. That means about an 8-1/2 percent growth in M1 because of the strong growth in September, which is already pretty much a reality. And the projection is that there would be a considerable reduction of growth rates in October. Now, the New York Bank, as I understand it--Alan, you can correct me--is estimating slightly different figures. They are looking at 8-1/2 or so in September--a lower rate in September--and are looking at 7 percent--a slightly higher rate--in October, for an average of about 8 percent. So the averages between the two views of New York and the Board would be 8 percent in New York and 8-1/2 percent at the Board. That's the situation we are looking at because of the strong growth in the aggregates in September. For that reason, it would take a phenomenally low growth in October to bring the 2-month average rate very low because if you start off with either 8-1/2 or 10 you are already up there pretty high. It seems to me, therefore, that we have somewhat of a dilemma because we need to set ranges for growth and we are somewhat constrained by the existing strong figures in September. My general view is that a federal funds rate range of 8-1/4 to 8-3/4 would probably be appropriate as the next step in our efforts to meet the targets. I think the 8 percent bottom of the range is too low, considering the unlikelihood of any need for or desirability of easing. And I think it is premature to go to 9 on the upside until we see more of what's happening. As to the ranges for M1 and M2, given the figures that I have just indicated to you, if you place New York at 8 percent as your guide and bracket that somewhat you see where we're heading. If you take the Board's 8-1/2 and bracket it you see the kind of problem. Just how we should deal with that is a bit of a difficulty. It probably means we need a range of 6 to 10 or 6 to 9 percent or something like that on M1. Well, with those introductory comments--and I will come back to perhaps some summary comments when we've heard from all of you--I would like to run through the Committee. First, I'll ask for Vice Chairman Paul Volcker's comments and then go alphabetically through the Committee's voting members and then the other Presidents.",597
-fomc-corpus,1978,"Well, I approach it from exactly the opposite order you approached it, Mr. Chairman--from the aggregates to the federal funds rate rather than the reverse. I must confess to some bias toward keeping the short-term targets in some relationship with the longer-term targets. Obviously in the past year or more we have been missing the target on the upside. After our last big increase in the base, for a couple of months we ran within the new target, but we are now moving outside it again. And it rather reinforces my feeling that we should not accept something on M1 as high as 6 to 10, which seems to me to be a confession [that] we are going to accept what September hath wrought. If indeed it ""wrought-eth."" I won't repeat that.",158
-fomc-corpus,1978,"Please, we need to clean up our language.",10
-fomc-corpus,1978,"On M2, I think we have a little better argument for going above the long-term range because we are getting--for reasons we know--the reaction to the 6-month certificates. So I could see raising [the range we had] last month and going higher than the long-term range there. I think I'd be happier with something like 6 to 11 or 6-1/2 to 11 than what is there under alternative B. I would really be happier on M1 if we stick to 4 to 8. But then I think I would constrain the federal funds rate just the way you did, Mr. Chairman. I don't know as I couldn't live with 9 at the upper end, but I can see where that might appear to be a fairly rapid movement, certainly justifying a new look. And maybe you don't want to do it even if you had the look--even if the aggregates [forced you] into the look. So I am perfectly willing to second the motion on an 8-1/4 to 8-3/4 percent range. I just want to get the aggregates down from the level specified in alternative B.",238
-fomc-corpus,1978,"Thank you, Paul. Ernie Baughman.",11
-fomc-corpus,1978,"Mr. Chairman, it seems to me that the objective of the policy posture should be that of trying to keep enough constraint on the economy so that any capacity that it has to moderate inflation it will undertake to do that. And I find myself, in trying to develop some monetary specifics, leaping back to that. I'm coming out very close to where Paul came out. I don't really see much value in going below 4 on M1, although I don't object to that. But I do subscribe to 8, which is the current projection, as the maximum for the target range. And I'd do the same thing on M2, 9-1/2 being the current projection; I'd pick that up as the top of the target range. My inclination would be to put the bottom two points below the top in both instances, which is the projected bottom of the alternative B range. On fed funds, again my inclination would be the alternative B suggestion, which is 8-1/4 to 9. And if we were to wind up with higher tops on the ranges, I would think we definitely should retain the suggestion of 9 for the top of the fed funds range. If we can lower the top of the ranges on M1 and M2 to the current staff estimates of what the actual may be, then a top on the fed funds of 8-3/4 would be acceptable.",285
-fomc-corpus,1978,"Thank you, Ernie. Phil Coldwell.",10
-fomc-corpus,1978,"Mr. Chairman, I approached this on the basis that we have not yet obtained the credit restraint necessary to slow inflation. The inflation [expected] even by the most optimistic of those I have heard around the table is by my standard excessive. I don't believe we can permit the aggregates to continue to grow at this pace we have seen, and I still think policy has a contribution to make to slow them down and to slow the expectations of higher inflation. The international value of the dollar to me is a symptom. But I would point out, as the rest of the Board knows, that I've been traveling in Latin America in the last month or so, and I am disturbed about what I have heard in terms of the compositional changes in their reserve assets--shifting out of dollars. Some of this, of course, is expected as this [situation] moves ahead. As far as the specification of policy, I too am unwilling to go as high as alternative B on the top side; the bottom side doesn't bother me a whole lot. I would like to have a couple of months of weak aggregates figures. So if we are looking just at the M1 and M2 specifications, my preference would be ranges of 5 to 9 and 6 to 10 or 10-1/2. On the federal funds rate, I would like to see us move 1/2 percentage point, to 8-1/2, promptly and I'd bracket that. I don't care whether we put [the top] at 8-3/4 or 9. I would like some running room if this is going to be restrained. The way I put it down for M1 and M2, maybe we ought to have a re-consultation as we did this past month. Frankly, I'm not terribly enamored with all these M1 and M2 figures. I'd much rather look at what we can achieve and I think the interest rates are not yet slowing the demand [to the extent] necessary to constrain the inflation.",412
-fomc-corpus,1978,"Thank you, Phil. Dave Eastburn.",9
-fomc-corpus,1978,"I am influenced by two countervailing forces, as I guess many other people are. On the one hand are rates of growth of money that I think are excessive. Take the September increase plus the revisions; it gets us up to rates that are higher than we really would like to see. That consideration would lead me to something like a 3 to 7 percent range on M1. But then the other consideration, which I expressed earlier, comes into view and that is the increased pessimism about the real economy. So I would moderate my first view on the ranges, reaching some kind of a midpoint there. I think I would come out to a 5 to 9 percent range on M1 with a 6 to 10 percent range on M2. And I'd go along with your range on the federal funds rate of 8-1/4 to 8-3/4.",182
-fomc-corpus,1978,"Thank you, Dave. Steve Gardner.",8
-fomc-corpus,1978,"I have difficulty in hearing my colleagues, which means I've missed great wisdom. I'm sorry.",18
-fomc-corpus,1978,"Well, the acoustics aren't that good and I am having difficulty too. So if all of you get up and speak into your mike we'd all hear you. So now reciprocate.",37
-fomc-corpus,1978,"I have no problems with alternative B and the intermeeting range for the federal funds rate with 8-3/4 as the midpoint on whatever range we set. We do have to slow the aggregates; we often immediately reach for the red telephone when the aggregates show higher numbers than they should or than we want. But that doesn't seem to work very well, both in the longer ranges and the shorter ranges. I think we ought to keep playing the same game and put the range for M1 and M2 in October [unintelligible]. Nobody mentioned the fact that M1 is going to change all around [soon]. When is it, the 1st of November, Steve?",139
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,That's going to create some havoc with our systematic collection of figures.,13
-fomc-corpus,1978,"If we have a massive outflow into savings, we will be right for the wrong reasons for the first time.",23
-fomc-corpus,1978,"Right. In any event, that's the way I would feel, Mr. Chairman.",17
-fomc-corpus,1978,"Thank you, Steve. Phil Jackson.",8
-fomc-corpus,1978,"Mr. Chairman, I don't share the judgment of those who have felt that money was exploding all over the place and that we are irresponsible and so forth. I think the study that the staff did on the so-called M1+, or M1 prime or whatever the label is, shown on table B-9 is very interesting. In fact, if you look at that table for a minute you'll see that within the past year, through the first half of '78, it looks like that rate of growth was about 6.3 percent. I'll say 6-1/4 or something like that. And then if you look at the projection on velocity of about 3.6, you get results in the neighborhood of 9-3/4 to 9.9 versus a projection of nominal GNP of 11 percent. It [seems] like we've been about on target and the trend has definitely been down in that concept of measurement of money. So I don't think that we ought to be too self critical. Getting to the real point of the discussion here, though, I would favor an 8-1/4 to 8-3/4 federal funds range, going to 8-1/2 immediately. And on M1, I'd take 6 to 9 because I don't think we can afford to have two months in the 10 percent range without adverse public reaction. But I would take 8 to 12 for the M2 range and a monetary aggregates directive.",305
-fomc-corpus,1978,"Thank you, Phil. Now Chuck.",8
-fomc-corpus,1978,"Well, my problem is that I don't consider the 2-month average M1 growth that's being projected extraordinarily high relative to the economy. It may be a trifle high, but not very. If we have what we were talking about--roughly an 11 percent increase in nominal GNP--I would expect an increase in narrow M1 of 7-1/2 to 8 percent. If we want to have M1 growth far below 7-1/2 to 8 percent, that means we want to have a nominal GNP growth well below 11 percent. And I am afraid that we are close to the stalling point in the economy and the effect will not be so much to restrain inflation but to restrain economic growth and give us a recession--at least a growth recession and maybe more. I do agree that the Committee faces a practical problem in that a 6 to 10 or 6-1/2 to 10-1/2 percent range, on the order of the specs here, seems quite inconsistent with the long-term range that the Committee has adopted, and perhaps that can't be faced. Therefore, it might be that the range needs to be reduced, recognizing that that means the probability is that you'll go to the top of the range and you'll touch off the top of the interest rate specification that you've given to the Manager. You could take 5 to 9 [for M1] and 7 to 11 for M2, which I have put down, and assume that that will be the result. But then the real question is: How far do you want interest rates to go up in this immediate period? You have preordained, almost, that they will go up as far as you specified in your instructions to the Manager. My feeling is that we have had a large increase in interest rates. I guess that's no secret. But I was just looking at the chart on the federal funds rate in the back of the book and I find that during 1977 we raised the federal funds rate 200 basis points and so far this year we have raised it another 175 basis points. That's a total of almost 400 basis points in less than a 2-year period. And I don't think the economy looks as if it is getting away from us in the sense of explosive growth in demand or prospects for expansion in activity. So I think it's time to pause in the rise in interest rates and see in fact whether Frank's concerns about plant and equipment may be borne out. And other concerns people have expressed about consumer spending may be borne out. [Let's see] whether in fact, as most Committee members have suggested, the growth rate is likely to be less than 3-1/2 percent rather than more than the 3-1/2 percent in the staff projections. So what I would do is to take those aggregates ranges that I have mentioned--5 to 9 and 7 to 11. Then I would constrain the funds rate to 8-1/4 to 8-1/2, stay at 8-3/8, and have the money market directive in effect to hold it constant during the coming period unless the aggregates are notably stronger than the 9 or 11 tops of these ranges.",668
-fomc-corpus,1978,"Thank you, Chuck. Nancy.",7
-fomc-corpus,1978,"I would counsel to stay put at the present time. There have been a lot of moves going on in the market, a lot of activity. The economy is slowing down; that third quarter projection is for a 2.9 percent rate of real growth and one of the things that bothers me the most about the economic forecast--although I agree with it--is that we have never done it before. We've never taken our trend line growth to 3-1/2 percent without [the economy] either tipping over or suddenly taking off on us. It would be nice if we could accomplish that. But I doubt that's the way it's going to look 6 to 8 months from now. And if I have doubts on the projections, it would be on the down side [because] the economy has slowed down considerably and there has been a big increase in interest rates. I would stay another month in the position that we are in currently. So that would put me at 8-1/4 to 8-1/2 [on the funds rate], and I don't really know what that implies yet for growth in the monetary aggregates. I am going to have to work on those relationships.",242
-fomc-corpus,1978,"Thank you, Nancy. That's what I call a very tactful cop out, Nancy. You are not going to get off the hook. You are going to have to give your aggregates.",38
-fomc-corpus,1978,"Well, I go with Phil Jackson in looking at the M1+ numbers but I draw somewhat different conclusions from them. I think this is a very interesting study. It shows that we once more underestimated the rate of money growth both because of the benchmark adjustment and because of the cash items bias. Now I have two or three more items that cause us to underestimate M1 growth: the Euromarkets--and we continue to debate that--corporate RPs, and NOW accounts. When I throw all of these together I get the impression, very impressionistically, that we may have underestimated the rate of growth of M1 by 2 to 3 percentage points. When you factor in a normal growth trend of M1 velocity of 2, we've got an effective rate of growth of M1 of something like 4 to 5 percentage points more than what we think we have. In other words, with our 7 to 8 percent real increase in M1 as recorded we quite amply finance the 11 percent rise in GNP [given] rising interest rates and their effect on velocity. Then we have the fact, as Steve Axilrod pointed out, that interest rates don't bite as much as they used to; they don't bite so hard on housing. We have the fact that long-term rates fortunately are coming down, which is where I think it counts for long-term investment. But the funds rate seems to be getting a little more detached from other interest rates, leading the pack less tightly than it used to. So in short, I would like to see us move quite firmly: M1, 4 to 8; M2, 5-1/2 to 9-1/2; and a funds rate range of 8-1/2 to 9-1/4 but go to 8-3/4 for the time being and hold it there. And I guess that compels me to make it a money market conditions directive.",402
-fomc-corpus,1978,"Okay, Henry. Mark Willes.",8
-fomc-corpus,1978,"Since I have been accused of being a maverick, may I quote a statement that you made, Mr. Chairman, with which I'd like to agree to show that I am in the mainstream.",40
-fomc-corpus,1978,I probably have made two or three you could agree with!,12
-fomc-corpus,1978,"At least. But this one was particularly interesting to me. This was in a letter that you sent to Congressman Reuss and it says ""theoretical and empirical work by economists indicates that the trends in monetary expansion over the longer run have little impact on the behavior of real output and employment, the primary impact being on prices. Thus, if the monetary authority makes clear its commitment to the achievement of money stock growth rates that will ultimately be consistent with price stability, it will have provided a reliable basis for planning. This has been the direction in which the Federal Reserve has attempted to move during the past three years and in which we plan to continue to move in the years ahead."" I think that's a very positive, correct statement--one with which I agree 100 percent. I must say that if we adopt the ranges that I see put down here by some members of the Committee at least, we will not be consistent with that statement. And in my judgment we will have the consequences that are implied by that: We will not have the environment in which appropriate business and other planning can take place. I'd like to make just two brief comments before I give what are going to appear, I'm sure, to be outrageous recommendations. The first is that it's a common assumption--I think in the System as well as outside the System--that it is not possible to reduce the rate of growth of money without precipitating a recession. And I think there is substantial reason to believe that there is a way in which that could be done. That is to say, you could reduce the rate of growth of the aggregates and you could reduce the rate of increase in prices and not precipitate a recession. Obviously, I don't have the time here to explain that, but it seems clear to us with the work that we have done with regard to how expectations are formed and how that influences people's decisions that it's possible to do so. In that light I'd suggest that perhaps one reason why businessmen seem increasingly pessimistic may well have to do with inflation--that inflation is a cause of that pessimism rather than the fear that we are about to enter into a recession. We do not see the risk of a recession in the foreseeable future, in the absence of some major shock--a serious strike, or the dollar goes wild, or some sharp adjustment in policy, or something like that. Therefore, it seems to me that inflation is still clearly the number one economic problem that we have. And I just don't see how we will ever deal with that in a way that makes people believe that we are going to deal with it unless we do something to get the rate of growth of money down. Our errors, in the recent past at least, have been in being surprised on the up side in terms of the growth of the aggregates. We keep looking for that to fall off and we are always disappointed in hindsight because it doesn't. It seems to me, therefore, that we really ought to have for M1 a top rate of growth of 7 percent. That is not likely to be achieved over the course of the next month, but it will do exactly as Chuck suggested. It will force us to move the interest rates up, which I think we should do. And I would like to repeat something I've been saying now, probably ad nauseam, and that is that interest rates are not high. Real interest rates are still negative; they are not biting. Credit is flowing like crazy. So I think we can do that without any substantial risk to real spending decisions. So I think we ought to have an M1 range of 3 to 7 percent. I have trouble with M2, just as I would with the M1+, because of Regulation Q ceilings but 6 to 10 would be fine for me on M2. I must say that I think both for domestic reasons and international reasons the thought of a federal funds rate of 9 percent isn't at all disturbing to me, so I'd like to see us use that full range. And I would suggest a federal funds range of 8-1/4 to 9 percent.",826
-fomc-corpus,1978,"And what midpoint, Mark? What would you do immediately?",12
-fomc-corpus,1978,I'd go immediately to 8-1/2.,11
-fomc-corpus,1978,"All right, thank you. Willis.",8
-fomc-corpus,1978,"Mr. Chairman, I guess I've come full circle. It's a circle we have been around here in our discussion. I associate myself with the Volcker position in the sense that I think we do have to continue signaling our concern about the aggregates growth, whatever those aggregates are, with the periodic adjustments we make to them. And we also need to retain a sort of ""watch and look"" posture in the sense of the 4 to 8 and 6 to 10 on the aggregates with an 8-1/4 to 8-3/4 funds rate range. That doesn't seem like a draconian kind of development and it gives us a chance to assess later on the changing economic scene as well as the developments in these aggregates and move then to 8-1/2, with an aggregates directive.",166
-fomc-corpus,1978,All right. John Balles.,7
-fomc-corpus,1978,"This Committee continues to search for how to reach a soft landing because I think that is our continued problem. We obviously have a real dilemma. A good many of us have seen a slowdown in the rate of economic growth following several years of extraordinary growth. But also many of us are concerned about the implications of what will happen to both business and consumer psychology [and] the international market unless we get on top of the inflation problem and show some signs of deceleration. [For] a couple of years from time to time I've been proposing to this Committee that we ought to have some systematic way of getting from here to there in terms of the short run to the long run. The way you get overshoots, big overshoots, time after time, of course, is a month-to-month decision [not to take] draconian [steps. What] I had proposed in the past, which probably is too rough now, is that whenever you're at or over the target ranges the upper limit of the band should be the upper range of the long-run target. That would mean a 6-1/2 percent top for M1 now and a 9 percent top for M2. I'm not prepared to go that far this month and thus I would compromise with something like 4 to 8 on M1 and 6 to 10 percent on M2 and go immediately to 8-1/2 on the federal funds rate with a range of 8-1/4 to 8-3/4 percent.",310
-fomc-corpus,1978,"Thank you, John. Bob Black.",8
-fomc-corpus,1978,"Mr. Chairman, I find the recent behavior of the aggregates very disturbing. It seems to me that we are repeating experiences we had back in '76 and '77 when, despite our vowed intention of bringing about a gradual deceleration in the aggregates, we acquiesced--inadvertently to be sure--in letting the aggregates accelerate. I think some of those past mistakes have come back to haunt us now in the form of a lot of inflation, which we're experiencing this year. The problem all three years, as I see it, lies in our inability to predict the level of money demand on the basis of the given federal funds rate. The proper solution, I think, has to be to move relatively more toward some kind of reserve target rather than a federal funds rate. I realize we can't debate that here and now but I believe we're going to have continuing problems hitting the aggregates unless we move in that general direction. Now, despite these long [held] doubts of mine about the operating procedures, I've been hopeful that we were making some progress toward a gradual deceleration but these revisions of the aggregates shattered those hopes. Even the pleasure that I got out of the downward revision in the M2 series was more than offset by the acceleration in August and the projected acceleration in September. So in short, I feel that we ought to make some further move to slow the aggregates. I would favor the ""B"" specifications on the federal funds range; I would cut the limits on M1 [to] 4 to 8, recognizing as Mark and Chuck did, that this would trigger upward movement in the rates. [I'd set] M2 at 5 to 9. I would favor an aggregates directive and I would move promptly to 8-1/2.",356
-fomc-corpus,1978,"Thank you, Bob. Roger.",7
-fomc-corpus,1978,"Thank you, Mr. Chairman. Just an observation first of all: What has happened over the past month seems rather incredible to me--that is, that the markets have absorbed with very little pain or very little anguish the 1/2 percentage point increase that we have fostered. And it seems to me that the markets are now in a position to accept a further increase. With that background and my concern, which is beginning to become stronger, that the aggregates are growing far in excess of the long-term ranges--[I would move rates up further]. Although we make efforts to move the aggregates back toward the tops of their ranges, each month we find we're further away from them--thus, Mark Willes's comments with regard to the meaning of interest rates and the fact that they're not biting in this environment as we might have expected them to. That suggests to me that we have to take further steps and be rather bold about it--though maybe not quite as bold as Mark. That's why I would like to see this Committee today with ranges on M1 of 5 to 9 and on M2 of 6 to 10, adopting the federal funds range that you originally proposed, Mr. Chairman, of 8-1/4 to 8-3/4 percent. I'd go with an aggregates directive, which would suggest that, if we get into the upper portion of those ranges--which I would fully anticipate very early in this period--we will be at the 8-3/4 percent level within a short period of time. And I think that would be appropriate.",322
-fomc-corpus,1978,"Thank you, Roger. Bones.",7
-fomc-corpus,1978,"Mr. Chairman, I associate myself with those who have suggested that monetary policy may indeed have some influence at this juncture. And I liked Steve Axilrod's comment that we could minimize any risk of undue increases in the aggregates. So for both domestic and international reasons, I'd like to see us move the M1 range to 4 to 8 and M2 to 6 to 10, with a federal funds range of 8-1/4 to 8-3/4--the same numbers you used--and an aggregates directive.",112
-fomc-corpus,1978,Thank you. Bob Mayo.,6
-fomc-corpus,1978,"Mr. Chairman, I think I'm probably as concerned about inflation in this country as anybody around this table. I also feel very strongly that monetary policy has an important role to play. I recognize that the lags in the effect of monetary policy are substantial--and substantive in amount, not just in time. And I must admit that I have some concern about pushing too hard here. I would buy the 8-1/4 to 8-3/4 [on the funds rate range]. I have no particular problem with that. I would not move; I would consider the present 8-3/8 percent as the asymmetrical midpoint and wouldn't move from it, however, until we see our next spate of news--bad or good, whatever it may be--on the monetary aggregates. I guess I'm a maverick though, Mr. Chairman, on our seeming over-attention to the embarrassment--and it is an embarrassment--about the 6 to 10 percent M1 range that's in alternative B. I refuse to get embarrassed about it because I don't think the 2-month averages mean a damn, if I may use the phrase. I have suggested, and I think several of my associates have also, within the past two years that we ought to find a way of going to a quarterly range. That at least is a little better than the two months. So I refuse to get excited about the 6 and 10, even though it is a thermometer by which we get measured. I think we can dispose of it, not as irrelevant but perhaps as inconsequential, in view of the broader perspective. I must say that there are all sorts of ways of doing figures and the linkages of course, as we all know, are very imperfect. But if I take our present ranges, Mr. Chairman, of 4 to 6-1/2 percent on M1 and 6-1/2 to 9 percent on M2 and I pay attention to our short-term directive, which always says we give approximately equal weight to M1 and M2, I find that this comes out [using the two midpoints] as 5-1/4 percent to 7-3/4 percent for a long-term range. It's rather interesting to me that if you take the moving average of M1 and M2 over the past year, August to August, you come out with a 7.7 percent increase. That, of course, is rather close to the top of 7-3/4 percent but it's within the range. I illustrate this not to say that I am smitten by the accuracy of such figures but just to point out that you can do all sorts of things with figures. Also I would point out, more seriously perhaps, that that moving average figure a year ago at this time was 8.9, so we've made an improvement of 1.2. So I would like to join with your statement, Mr. Chairman, that indeed the Fed has made a contribution to a fairly efficiently working economy at this point, even though obviously we haven't gone as far as we would like to. So I'll stick with the 6 to 10 [on M1] and perhaps join you in the embarrassment of explaining it, but I think it could be explained away. I would join the staff on alternative B on M2. And as I say, 8-1/4 to 8-3/4 is my preference [for the funds rate range], too, but I wouldn't move yet. I'd wait for some more figures. My feeling is a little different from Roger's with regard to the calmness with which the markets have accepted the last 1/2 percentage point increase in interest rates. I think we have an international cover that has protected us on that. I don't want to overplay our cards in assuming that that will continue.",793
-fomc-corpus,1978,"Thank you, Bob. Frank Morris.",8
-fomc-corpus,1978,"Mr. Chairman, at least on the surface it would appear that our decision this month is more difficult than last month because on the one hand we have more evidence that the economy is moving into a period of slower growth but this evidence is accompanied by another bulge in the growth rates of the monetary aggregates. A month ago I thought we were in a decelerating phase of monetary growth and it now appears that we're in an accelerating phase. With August and September we'll be publishing under the new numbers close to 10 percent for those two months [for M1] and a little over 11 percent for M2. The question is: Which of these targets do we move toward? It seems to me that the evidence suggests that at this juncture we ought to be moving toward dealing with the bulge in the aggregates--toward assuring ourselves that we don't extend this bulge through October. I'm reassured only very slightly by the 6 percent M1 projection for October since the reliability of those projections is so extremely low. I'd hate seeing another 9, 10, or 11 percent added to what we have. I take this position because I've been looking at the issue of how severely monetary policy is impacting the expansion at this point in time. And my conclusion is that the impact is not a very severe one. We have, at a time when the economy is close to full employment, the remarkable phenomenon of inflows into thrift institutions at double digit rates, which I think is unique in the monetary history of recent years. We have a commercial banking system that I don't think is under any substantial pressure. If you look at the change in portfolios at commercial banks, you again find something strange for a period when the economy is close to full employment. And that is that the commercial banking system has been increasing security holdings over the past three months, including holdings of municipal bonds, which again is not characteristic of the behavior of a banking system that's under any kind of pressure. Furthermore, we're seeing another interesting phenomenon in that over the past couple of months as we have pushed short-term rates up, long-term rates have come down. All this suggests to me that we have more room to act on the aggregates without having traumatic effects on the real economy. So I would propose a range of 8-1/4 to 9 on the funds rate, moving the target immediately to 8-5/8 and with ranges for M1 of 4-1/2 to 8-1/2 and M2 of 6 to 10. Also, Mr. Chairman, I would not be too worried about a massive impact of automatic transfers on M1 during the next year. I don't think it's going to happen. The New England experience with the NOW account shows that people don't change their deposit habits very readily even when they're offered a remarkably good deal, as they were offered in New England with a no-service-charge NOW account. The banks apparently are planning to price this new service of automatic transfers fairly expensively. If they stick to this, I think automatic transfers are going to kick off with something like the gait of a large turtle.",633
-fomc-corpus,1978,"Thanks, Frank. Larry, you not only drew the clean-up position on the circle this morning, but alphabetically you do too. It would not be inappropriate, nonetheless, to stay within the time limit.",42
-fomc-corpus,1978,"Mr. Chairman, there is an advantage to being at the end of the batting order because you can sense a certain consensus of the points of view that emerge from the opinions that were stated. First of all, as far as this short-term scenario is concerned, I think the die is pretty well cast. I would be for alternative B or better--by better I mean lower aggregates growth [ranges]. But I would like to make a suggestion and try it on for size, if I may, Mr. Chairman. It seems to me that there is at least a majority consensus within this group that inflation is a problem and that it would be desirable, if possible, to attempt to slow growth in the aggregates without causing a recession. I think even the most maverick of us would be resistant to anything that would lead to recession. I might point out that on page 7 of the staff's projections for M1 growth, either alternative A or B would indicate nearly a 2 percentage point drop between the fourth quarter of '78 and the first quarter of '79 in aggregates growth, which I submit would lead to recession. I certainly would oppose that. However, I think our next big decision point is at our meeting next month when we set the yearly targets. Assuming that most of us think that it is important to try to slow aggregates growth without recession, I wonder what would be accomplished or not accomplished, Mr. Chairman, if you were to ask each of us to address ourselves in writing--and not more than two pages of writing--to how we feel aggregates growth might be slowed without causing a recession. Certainly, some of us might say it can't be done. Then at least we would state in writing that we don't think growth in the aggregates can be reduced without causing these other severe consequences. There are some of us who think that there is a simple and feasible way to do it. So I just wonder if we couldn't spend a few minutes strategizing rather than getting right into the numbers game at our next meeting. I think this might be accomplished by attempting, with our research people, to put down in two pages or less [our thoughts on this issue]. This would at least cause us to address ourselves to what I think are the fundamental concerns of all of us. I think we tend to miss that target when we get into discussing 8-1/2 versus 9, or 3-1/2 versus 4. I'd like to see next month, unless this is a totally irresponsible suggestion, each of us come forth in summary fashion with how we might address the long-term future--at least the aspect of whether we can reduce aggregates growth without causing recession.",540
-fomc-corpus,1978,"Larry, before I respond to that, I'm not sure we understood your federal funds rate range. Did you intend--",23
-fomc-corpus,1978,Alternative B is fine. I'd like to see aggregates growth tightened even more and the fed funds rate as stated in alternative B.,25
-fomc-corpus,1978,"Let me say that I certainly welcome inputs at the next meeting, from those who care to do so, on how you see the strategy for reducing aggregates growth without bringing on a recession. I wonder if we really want the rigidity of written papers. I can see that that might become a situation where when we're in a collegial atmosphere and we're trying to consult with each other, and I'm not sure that the papers are so necessary. The input could be made verbally, I would think, and we'd probably be more comfortable that way. We do have the problem, however we strategize, that the way the Federal Reserve operates at this point is to give directives to the Desk, and the Desk needs something to guide it. That's why we get into numbers, unfortunately. If we give the Desk vague comments on this, we're in trouble. I think our struggle with numbers is not because we like a numbers game but because we need to give the staff at the Desk some way to govern their actions that is responsive to a directive from this Committee.",208
-fomc-corpus,1978,"I didn't mean, Mr. Chairman, to eliminate the numbers but to build up--",17
-fomc-corpus,1978,"I understand. I regret that we have to deal with this great matrix. Now I have to make sense of this complicated matrix and see if we can strike a consensus. But at the next meeting we're going to be setting long-term ranges and I certainly would welcome inputs on how we can restrain the growth of the aggregates without triggering recession. Because there are nineteen of us, we have to realize that 19 times X minutes means that could take all day, so I think we have to be able to verbalize that with some conciseness. So I caution you to come prepared with your two pages but condense it to one paragraph when you recite it. In fact, prepare thirty pages for your private use. Let me see if I can go through this. In the first place, I'm not sure whether Ernie Baughman had a move to the midpoint on his preference. Your range was 8-1/4 to 8-3/4, but did you intend an 8-1/2 percent midpoint?",210
-fomc-corpus,1978,I would move to 8-1/2.,11
-fomc-corpus,1978,And Dave Eastburn?,5
-fomc-corpus,1978,"I would, too.",5
-fomc-corpus,1978,"And Steve, the same for you? I don't think you expressed--",14
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"In that case, let me see if I can recite [a summary]. On M1 I'll take the bottom number first. Will you keep score? One bottom number is 3; three bottom numbers are 4; three bottom numbers are 5; and four bottom numbers are 6. Does that add up to the [number of] voting members?",73
-fomc-corpus,1978,Nancy didn't give us one so that would be twelve. On the other side we have one 7; four 8s; five 9s; and one 10. Does that add to eleven?,42
-fomc-corpus,1978,"So the brackets go in that range. If you stuck with the largest number, you would have 6 to 9. Is that correct? Yes, the 6 to 9 would be the most prevalent one. On M2, I see one 5-1/2; five 6s; one 7; two 7-1/2s; and an 8. And I didn't give one; I just didn't get around to it. Let's see. On the up side we have two 9-1/2s; four 10s; two 11s; one 11-1/2; and one 12. Again, there you get a 6 to 10 percent range as the mode. It looks like we have much more agreement on fed funds. I'm talking now of the voting members, as you know. There's a similar pattern--it isn't far off--on the nonvoting members. It looks like a very strong consensus; eight out of the twelve members are at 8-1/4 to 8-3/4. And the 8-1/2 appears in eight also. There are two midpoints lower than 8-1/2--at 8-3/8--and one at 8-3/4. I should add them up. It's eleven because, Paul, you didn't give us a midpoint.",288
-fomc-corpus,1978,8-1/2.,6
-fomc-corpus,1978,"Okay. Well, that makes nine at 8-1/2. So, one could say that this looks like an M1 range of 5 or 6 on the low side and more like 9 on the up side. And it looks like M2 is kind of at 6 to 10. And we have 8-1/4 to 8-3/4, with a move to 8-1/2 as a fairly broad consensus. What is your pleasure? Let me first see if we can have not a vote but an indication. Suppose it were 6 to 9, 6 to 10, 8-1/4 to 8-3/4 and an 8-1/2 midpoint. And I gather there was a consensus for an aggregates directive, assuming that was the case. How many voting members could support that? Five. How many can not support it? Four. Would someone like to change it? I think some of the votes are going to go one way and some the other.",216
-fomc-corpus,1978,I'd want to go somewhat lower on M1.,10
-fomc-corpus,1978,On the top side or the bottom side?,9
-fomc-corpus,1978,"Well, I'd like to go lower on both, but particularly I don't like the 6 percent bottom.",21
-fomc-corpus,1978,5 to 9.,5
-fomc-corpus,1978,5 to 9.,5
-fomc-corpus,1978,Ten is awfully tight on the top of M2.,12
-fomc-corpus,1978,"I agree with that, too.",7
-fomc-corpus,1978,I think 7 to 11 would be better.,11
-fomc-corpus,1978,"If you'll go lower on M1, I'll go with that.",13
-fomc-corpus,1978,"It would be very helpful if the Manager would be explicit about how he would operate as a consequence of unfolding events. For example, if the Committee were to adopt 6 to 9 for M1, it would appear to me that the midpoint that the Manager would look at would be 7-1/2. Therefore, if the results were higher than 7-1/2 on average, insofar as that half of the two aggregates were concerned, he might be inclined toward raising, say, the 8-1/2 percent funds rate within its range. If you look at the present projection, it would mean that October would have to fall in the 5 percent range or less in order to keep M1 from dictating a move. And that might not be the Manager's perception. Frankly, that's one of the concerns I have about our lower ends of these aggregates ranges versus the higher ends, because we get mechanistic instructions to the Manager as a consequence of picking these. Somebody commented that he'd be happy to have a lower range. I might be happy to see a lower result, but that doesn't mean that I'd be happy with a lower range because it would force the Manager to do something completely different from what I want him to do.",255
-fomc-corpus,1978,What do you do if you go to 5 to 9? You increase the probability that there will be an 8-3/4 percent funds rate.,33
-fomc-corpus,1978,Let's ask the Manager to give us some perception in his own mind of how he might operate under a 6 to 9 percent [M1] component.,32
-fomc-corpus,1978,6 to 9?,5
-fomc-corpus,1978,A 7-1/2 midpoint.,9
-fomc-corpus,1978,"Well, I think it's quite clear that the instruction as tentatively arranged here is an immediate move to 8-1/2. By immediate, I mean over a few days. We'll see more aggregates on Friday, again a week from Wednesday, and then again a week from Friday. As you know, I don't believe in precipitous movement to the upper end of the range right away because the weekly numbers are very volatile and they can be revised very easily, as we all know. So if we were just barely above the midpoint of the range--let's say at 8 percent with a midpoint of 7-1/2--I don't think I would be inclined to do much of anything but wait to see what the next group of numbers showed. And as we got closer to the upper end of the range, sure, [I'd move up] a shade but not to 8-3/4 right away until we hit the upper end. But I'd make sure that we were above 8-1/2, certainly--at 8-5/8 or something like that--as best we can do it. And as you know, we're not perfect.",238
-fomc-corpus,1978,"Mr. Chairman, would it be appropriate to take a consensus on what I think is essentially Paul Volcker's suggestion of 4 to 8 on the M1 range and the others as you [suggested]?",43
-fomc-corpus,1978,4 to 8? I thought Paul said 5 to 9.,15
-fomc-corpus,1978,"No, 4 to 8 is what I originally said.",13
-fomc-corpus,1978,And [your Bank] has an 8 percent projection and staff here has 8-1/2. So you'd move immediately to the upper end of the range.,34
-fomc-corpus,1978,I would move immediately to the midpoint and [then] move to the upper end and remain that way.,21
-fomc-corpus,1978,"Well, I'll take any series of straw votes you want. You want to strike M1 at 4 to 8? How many want to support that?",32
-fomc-corpus,1978,I would support it.,5
-fomc-corpus,1978,You have to hold your hands higher.,8
-fomc-corpus,1978,What was the number?,5
-fomc-corpus,1978,4 to 8.,5
-fomc-corpus,1978,Four.,2
-fomc-corpus,1978,Try 5 to 9.,7
-fomc-corpus,1978,I was wondering about 4 to 9--approach it by steps. Say 4 to 9 and 6-1/2 to 10-1/2.,37
-fomc-corpus,1978,"Let me run the meeting, if you don't mind. How many would be willing to accept 5 to 9? I count one, two, three, four, five, six. Is that right? And apparently there is a very large consensus on the funds rate, as I gather. I may be kidding myself. It's funny. We add up the numbers, and people go for numbers that are different from what they indicate; it's hard to make this matrix work. Let's go one step further. If you had 5 to 9 and 7 to 11 and the same interest rates, how many are able to support that? Five. This doesn't make any--",136
-fomc-corpus,1978,Why not split the difference here and make it 5 to 9 on M1 and 6-1/2 to 10-1/2 on M2?,35
-fomc-corpus,1978,"All right, let's try 5 to 9 and 6-1/2 to 10-1/2. How many are able to support that? I need hands held high. One, two, three, four, five, six, seven. All right. Let's run a vote then on a directive that would have an M1 range of 5 to 9, an M2 range of 6-1/2 to 10-1/2, and a fed funds range of 8-1/4 to 8-3/4 with a move in the near term to 8-1/2, and an aggregates directive. Mr. Axilrod, do you have any comment--besides agony?",152
-fomc-corpus,1978,"Mr. Chairman, I have an opinion in regard to policy, if you are asking me that. But I started [with] a somewhat different premise than many members of the Committee because I believe the longer-run range of 4 to 6-1/2 for M1 is unrealistically low and, therefore, I would not push as hard on the funds rate. Although I don't have any particular disagreement with an upper limit of 8-3/4, I'd be very reluctant to go higher without examining very carefully what's happening on the incoming economic news in view of the fact that our projection depends essentially on that particular funds rate.",128
-fomc-corpus,1978,Anybody else? Alan?,5
-fomc-corpus,1978,"I have no comments. I think the market will take an 8-1/2 percent funds rate without much difficulty; I think if we got to 8-3/4 very quickly, we'd get a bit of a reaction.",48
-fomc-corpus,1978,"Let's read the proposal. Does everyone understand it? The proposal is 5 to 9 for M1; 6-1/2 to 10-1/2 for M2; a fed funds range of 8-1/4 to 8-3/4 with a midpoint of 8-1/2, and an aggregates directive. Let us call the roll.",79
-fomc-corpus,1978,Chairman Miller Yes Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Gardner Yes Governor Jackson Yes Governor Partee Yes Governor Teeters Yes Governor Wallich No President Willes No President Winn Yes,47
-fomc-corpus,1978,"It's a vote of 10 to 2. Our next meeting, ladies and gentlemen, is on October 17. Through arrangements of the management it will be here. There are two important events that are about to take place. One is luncheon, during which we hope to discuss a number of things, particularly the members with so-called equity and the fair competition in banking proposal. And, of course, there is a very important event at 2:30--a reception for Governor Teeters--which I hope many of the staff will be attending. Unless there are further comments or discussion, we will adjourn.",124
-fomc-corpus,1978,"Good morning, ladies and gentlemen. We have a busy agenda today, so I will ask your indulgence to take care of those matters we can expeditiously in order to leave as much time as we can for the weightier subject. I'll remind everyone that we do have a luncheon planned after the FOMC meeting. As usual, we have a number of items to discuss of importance. But without taking more time this morning, let us proceed quickly with the routine part of the agenda. First is the approval of minutes of the meeting held on September 19. Those have been circulated. Are there any comments or corrections? Hearing none, those are approved. The second item is foreign currency operations, and first we have a report on the operations since the last meeting by Scott Pardee. Scott.",161
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Normally I would say thank you, but I'm not sure I will. I appreciated your report. Any questions? Henry.",24
-fomc-corpus,1978,"If the dollar has been the vehicle for going long on marks and Swiss francs, would that suggest that there's some unwinding of positions ahead--to buy back those dollars or to repay them?",38
-fomc-corpus,1978,"Yes, I think there is a very substantial oversold position against the dollar that could be unwound at some stage. But it's one of these problems that we have in economics where you have a curve and you can slide down the curve but you may not be able to slide back on the same curve. And my fear is that people are now deciding [that] the dollar is not going to recover over the next few months or the next few years and they're going to change their investment and money management habits more or less permanently. Certainly, right now I think there is a substantial technical position in favor of the dollar should we get a change in market sentiment. It may be on the order of tens of billions of dollars, but we won't see it until there is this turn in sentiment.",158
-fomc-corpus,1978,"Scott, what is the market telling you that it thinks we ought to do about this?",18
-fomc-corpus,1978,"Well, as I say the main concern is inflation. People are now focusing on the anti-inflation program which has been indicated by President Carter and other advisers. Every time there's a new announcement that it's going to be delayed, that tends to lead to a new bout of selling pressure on the dollar. But there is a problem that every time this question comes up I give you something new that the market's looking for--[something] to be done in terms of raising of interest rates, an energy program, and all these other things. There's just a general lack of confidence the things will be done quickly enough. But as I say, fortunately, many of the fundamentals are moving in our favor now and I think it's just a matter of time before the underlying elements are recognized by the market as turning in our favor.",165
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"Scott, I have the impression, though it's sort of a vague one, that our interest rates relative to those abroad have a larger margin than the difference in the inflation rate. Why would that then be a concern? I would think that the prospects are for an increase in the inflation rate abroad and that everybody would recognize that.",65
-fomc-corpus,1978,"They do recognize the absolute differential but you're talking about day-to-day speculation in the market. If you can make 1 percent overnight, that's a differential of 360 percent per annum.",37
-fomc-corpus,1978,"Yes, but that's just a run in the market. I mean that has to reverse.",18
-fomc-corpus,1978,"Yes, it has to, but it hasn't; and we've been going several months with the same problem. As I say, the Dutch took the trick of raising interest rates very sharply on call money--that is a technique of forcing shorts to cover--and then bringing the rates down.",57
-fomc-corpus,1978,"But it's a satellite country of Germany, of course.",11
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,"It isn't quite clear, I think, [whether] the interest rates are fully offset.",18
-fomc-corpus,1978,Pretty much.,3
-fomc-corpus,1978,Larry Roos.,4
-fomc-corpus,1978,"Yes sir. I'd just like to pursue one aspect of what you said. Initially, as I heard your statement, you pointed to the lack of credibility toward our determination to deal with inflation effectively. And then a few [moments] ago you said that the fundamental factors were improving. It seems to me that we've had those fundamental factors that we earmark such as the gas tax and these other things like the energy program. Are you not saying, though, that probably the one thing that could do most for our problems is a really meaningful anti-inflation effort that we stuck by and that people could believe? Is that what you're saying?",129
-fomc-corpus,1978,I'm saying that is what the market is saying right now.,12
-fomc-corpus,1978,Hasn't it been saying that for the last six months?,12
-fomc-corpus,1978,"It's been saying that, but the moment it comes through if at the same moment an OPEC seller is selling $100 million against marks, then everyone is going to shrug it off. This is the problem. The market forces have taken over and they're driving the dollar lower. And market forces somehow have to be stopped, whether by a change in market sentiment or what I don't know. But it's a serious situation.",83
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"Scott, how would the market view a recession?",10
-fomc-corpus,1978,"Oh, they don't want a recession. They're not dealing next year; they're dealing with today and tomorrow, the next week, and the next few weeks. And we have this cumulative process under way. No, I've argued with people. And I spend more of my time arguing these days than intervening and they're both equally frustrating. No one wants a recession, but they don't like what they see at this moment.",83
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,Do you see any evidence of foreign official institutions changing their reserve holdings in enough quantities to be of concern?,21
-fomc-corpus,1978,"It's hard to see directly. We have seen some transactions. It's in what is called the second tier central banks outside of the OECD. The smaller central banks in OPEC, Latin American central banks, central banks in Asia, and so forth we know have been diversifying to some degree. The central bankers themselves--we've had many of them in recently or talked to them on the phone--claim that they are very cautious but many of them also admit that they are diversifying. It's not so much the central banks as other government institutions. Many of the OPEC countries have development banks and development funds and portfolio managers who are very big and very clumsy in their operations. Yesterday, for example, the word got around that one of the German banks that handles big accounts for OPEC was a large seller of dollars at eleven o'clock our time, and that knocked the stuffing out of the market for the day. So you get these kinds of reports almost every day now. At one point or another, some big holder of dollars has sold dollars in a clumsy way.",216
-fomc-corpus,1978,Is our withholding tax problem exacerbating this situation?,10
-fomc-corpus,1978,Not as far as the central banks are concerned.,10
-fomc-corpus,1978,I was thinking about the other institutions.,8
-fomc-corpus,1978,I don't think they're worrying so much about a technicality of that sort.,15
-fomc-corpus,1978,"Ladies and gentlemen, we need to ratify the transactions since the previous meeting; [a report] has been circulated. Is there any dissent or objection to ratification? Hearing none, that is approved and we move to consideration of the Manager's recommendation on foreign currency operations. Alan Holmes.",58
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,You'd like approval on the renewals?,9
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Is there any objection? Hearing [none], that is approved. And, Alan, while you have the floor let us move on. I believe you and Scott have written us a memo regarding those discussions to amend the swaps, and I believe you'll report to us on the recommendations. Excuse me, Phil.",62
-fomc-corpus,1978,I wonder if the Manager has a recommendation concerning the volume of operations. It seems to me that the last time we raised the limit on operations. Do you want a continuation of that increase?,38
-fomc-corpus,1978,"Governor Coldwell, I think we'll wait until we get close to using up the intermeeting limit before we come to the Committee for that. Are you talking about the overall limit or--",37
-fomc-corpus,1978,"You're talking about domestic, aren't you?",8
-fomc-corpus,1978,"Yes, I'm talking domestic.",6
-fomc-corpus,1978,I think we increased it from $4 billion to $5 billion on the domestic. You're thinking of the intermeeting limit on activity in foreign exchange.,30
-fomc-corpus,1978,"Yes, on the foreign. I'm sorry, I got confused.",13
-fomc-corpus,1978,"We are approaching the [limit in the] authorization on the net open position. But Alan and I have decided that we're going to try to hold as well we can within the current authorization over the next month. And if we have to, then we'll come to the Committee.",55
-fomc-corpus,1978,How far away are you?,6
-fomc-corpus,1978,But it would be in the context of this interim limit.,12
-fomc-corpus,1978,How much leeway do you have?,8
-fomc-corpus,1978,"About $400 million, which is above the amount that we normally have--larger [than our holdings] can increase in the interim.",28
-fomc-corpus,1978,It's a $300 million limit between meetings.,9
-fomc-corpus,1978,We've got room.,4
-fomc-corpus,1978,"Let's see how it goes. [MR. HOLMES]. On September 29, Mr. Chairman, we transmitted to the Committee a memorandum on Dr. Gleske's proposals for revision of our swap arrangement [with the Bundesbank] which, along with other swap agreements, will be up for renewal in December. I really have nothing to add to that memorandum unless there are some questions. Then I'd like to go on with the recommendations if there are no questions.",94
-fomc-corpus,1978,Let's have your recommendations. Then we'll have questions and [discuss] the recommendations.,17
-fomc-corpus,1978,"All right. I would propose, Mr. Chairman, that we accept the proposal that the current exchange rate be applied to swap renewals and the proposal that certain clarifications in the language of the existing swap arrangement be worked out. Any language change would, of course, be cleared with the Foreign [Currency] Subcommittee. I would like to proceed with negotiations with the Bundesbank and other swap partners along these lines and I ask for Committee concurrence. There are the two--",95
-fomc-corpus,1978,There were four proposals to the Committee.,8
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,You recommend that we go ahead--,7
-fomc-corpus,1978,That we go ahead on these two.,8
-fomc-corpus,1978,And defer the other two at this point because of the problems that they would raise in terms of current perceptions of our swap arrangements.,26
-fomc-corpus,1978,"Right. Well, Mr. Chairman, on the 50-50 profit sharing, which is another proposal, and on changing the interest rate to the German rate--",33
-fomc-corpus,1978,We would defer that.,5
-fomc-corpus,1978,"But I would like to see if the Committee really goes along with that sort of approach because there may come a time, even before the end of this year, when the situation has changed enough so that the Treasury may have [no objection] and we might agree that we could go ahead with these, too.",62
-fomc-corpus,1978,"All right. The proposition for consideration is whether there is general concurrence on the two you recommend and whether there are instructions on the other two to work in that direction. I'd like to put it into context at this meeting that, whatever we decide, we authorize the Manager to negotiate these technical changes subject to the final approval of the Foreign Currency Subcommittee. I don't think we want to approve the language since we all haven't seen it; but we can't put it before us at this point because you haven't negotiated it.",102
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,So that would be how we would proceed technically. Are there questions on those proposals?,17
-fomc-corpus,1978,"Just simply a clarification. In the interest of getting a sentiment: Would this be a reciprocal arrangement? If they were initiating swap drawings, they would expect to pay the Treasury bill [rate]?",38
-fomc-corpus,1978,That's what they would do under the current swap lines. It's asymmetrical in that sense. [The proposal is that] they would pay our rate and we would pay their rate.,36
-fomc-corpus,1978,"Both of these are asymmetrical. The 50-50 sharing happens only when we draw; when they draw, they take 100 percent and the interest rate based on our bill rate. [For us] it's just reverse from what they do when they draw. Any questions or comments? Any viewpoints?",61
-fomc-corpus,1978,"I think the German proposal is very reasonable, Mr. Chairman. The existing arrangements were a heritage of the Bretton Woods days, and we ought to recognize that things have changed a lot since then.",40
-fomc-corpus,1978,"Let's first see--since there doesn't seem to be a groundswell of comments--if we can have your concurrence on the first two recommendations. Is there any objection to those two recommendations that Alan has made? Hearing none, we'll instruct you [to proceed]. Now, how about the other two, which Alan says the Treasury isn't too excited about? And thanks to Henry's discussions, these can be put off at this point. My own inclination is to believe that at an appropriate time, we probably should work to change those [terms] to make them symmetrical. I really think that's the direction we should trend toward over time. I don't know when it should be done. Paul.",136
-fomc-corpus,1978,"I agree with that, Mr. Chairman. I think that the analysis was put pretty well in the memorandum and that it makes sense in the long run. But I recognize the political problems involved, so I think we better defer to the Treasury in the short run.",53
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"What would this do to the capacity of the Treasury to be our partner in these intervention efforts, given the limited resources that they have to do it with? If we went to a full loss here--",40
-fomc-corpus,1978,"Well, I don't think the loss is the major problem for the Treasury. I think the status of the [Exchange] Stabilization Fund is their main problem. The fact is that at one point, as you mentioned, Congress was tending to require that there be an appropriation for the ESF to cover any possible exchange losses, which the Treasury--I think quite rightly--wanted to avoid. And I think that's the stumbling point, as far as the Treasury is concerned. I do detect on the part of the Treasury a desire to move ahead and eliminate this once they think the situation has calmed down and their extended position under the swap with the Germans, for example, can begin to move the other way.",143
-fomc-corpus,1978,"In fact, Alan, I think it's possible that the way it would be worked out technically is that the interest rate differential might end up accruing to the ESF. So that in fact would improve its position because of the technical way it would be arranged to be handled [unintelligible] forward.",62
-fomc-corpus,1978,It would historically; we don't know the future. Henry.,12
-fomc-corpus,1978,"Well, logically there's something to be said for the proposed change. Certainly the way things are now, where we share 50-50 in losses but pay the high interest rate, is altogether bad for us. At a minimum [if] we share 50-50 in losses, the interest rates should also be merged or split. As for giving up the 50-50 loss sharing, one anticipates over time that intervention properly done, when it's merely to counter disorder, should yield a profit. That has been true in the past. It doesn't seem to be working out quite that way so far, so we've been fortunate to have had the loss sharing this time around. But I think for the long run, a simple analysis suggests that we'd be better off not sharing losses and that we'd be better off getting the benefit of the lower interest rate on borrowed currency. You might remember, of course, that that relationship of interest rates is a logical one--that the strong currency has the low interest rate, the weaker one the high rate. It doesn't always hold.",214
-fomc-corpus,1978,"Sometimes it's the other way, yes. But it's the most logical expectation. Chuck.",17
-fomc-corpus,1978,"Well, I don't know. I'm still dubious about the proposition. It seems to me, as far as the interest rate differential is concerned, that it might have not held because a lot of times the foreign country, our partner country, might not be doing what is appropriate for it to do in terms of international dealings. Indeed, I think we've had some difficulty over this phase--looking back over the last several years--in getting the Germans to put their rates down as far as they should have been given the economic circumstances of the country. And I can imagine situations in the future when a difference in points of view on economic objectives could in fact give you an inverse relationship. So I'm not nearly as confident as seems to be assumed here that the interest rate differential will work in our favor. Secondly, I have the impression, rightly or wrongly, that often in the past we have intervened for our account in a foreign currency in a [situation] when we were under considerable pressure from the foreign country to do so. Now, I'm not saying that it hasn't been in our self interest to intervene when we have, but I think the tendency has been that we're almost always being encouraged by the partner on the other side to intervene, to keep the market open in the afternoon, to show the Federal Reserve's hand. It seems to me, without being able to cite examples, Alan, that frequently it's considered sort of a matter of statesmanship for us to get into the market and to show that we are also not letting the dollar just go wherever it would but are exercising some discipline on it. I think what that reflects is the fact that there is usually a dual interest in our intervention, an interest at least as great on the part of a foreign country as there is on our part. It seems to me [unintelligible] all right, when we intervene in our own self interest as dictated by our own circumstances. And I think there's a change--",394
-fomc-corpus,1978,"Chuck, may I interrupt for a technical question? I may misunderstand, but as I understand it, under the charter of the IMF we're obligated to intervene to counter disorderly markets.",36
-fomc-corpus,1978,"Mr. Chairman, the question of what constitutes a disorderly market is--",15
-fomc-corpus,1978,"I understand that's a debate, but when that debate comes up it's often just as much our urging somebody else to do something as somebody else urging us to do something.",33
-fomc-corpus,1978,"Well, my impression over the years has been that we have been under pressure to intervene.",18
-fomc-corpus,1978,"Mr. Chairman, if I may respond to that as well. That may well have been true in the past but I do think, as the Chairman noted, that the situation has changed now. We are more big boys on our own feet in this business. We do have certain obligations that we have to live up to. So I would think that would be less of a problem now even though there always will be a mutual interest in intervention. And for us to insist on 50-50 loss sharing on our intervention--well, certainly we would not accept that from a foreign central bank who is intervening many, many times more than we are in our own interest as well as theirs.",139
-fomc-corpus,1978,The bigger interventions are normally in the other market.,10
-fomc-corpus,1978,By a foreign central bank.,6
-fomc-corpus,1978,I realize that.,4
-fomc-corpus,1978,"Also, Chuck, you never hear from us about all the urgings we get from central banks where we do not intervene. We are constantly bombarded, particularly in times like this, [with requests] for us to intervene in other currencies like Belgian francs, Dutch guilders, Austrian schillings, and Scandinavian currencies. But we don't bother to report that to you.",75
-fomc-corpus,1978,"That's precisely my point. My point is that there is a very strong interest on the part of other countries in our intervention. And when we do it, I think it's reasonable to say we do it on a 50-50 basis.",48
-fomc-corpus,1978,"Well, we do it in our own interest.",10
-fomc-corpus,1978,"Yes, in some sort of large sense, I guess we do.",14
-fomc-corpus,1978,"I fear the converse. If we're urging other countries to intervene, I don't want to see us taking 50-50 risks with them. That's the problem. And I think we've urged just as much intervention. In fact, the amazing thing is that the obligation is for the weak currency to intervene to counter disorderly markets and actually the intervention for the dollar mainly has been by other central banks. We have really pushed the burden on to others who have intervened directly, taking 100 percent of the risk. I think it's very hard to argue, therefore, that we should [take only 50 percent of the risk]. It seems to me that [the argument] breaks down a little.",139
-fomc-corpus,1978,You may be quite right from the standpoint of [fairness]. Perhaps we've got an unfair advantage. My point simply is that I believe we're giving up an advantage.,33
-fomc-corpus,1978,"An unfair one. Let me ask this because I think we've spent the time we can spend on this issue today, since it's not up for action immediately. Chuck's comments are consistent with the comments I've heard from him since I've been here--so he at least has a consistency though I will not characterize it--but I've heard other sentiments. Considering Chuck's comments, would the general consensus be to continue to look toward this with sympathy--at a proper time to go on a symmetrical basis on these matters? I see a lot of heads moving this way. Besides Chuck, are there many reservations?",119
-fomc-corpus,1978,I just want to be sure the Treasury is still with us.,13
-fomc-corpus,1978,Oh yes.,3
-fomc-corpus,1978,"I think Chuck has a good point. After all, the dollar is a world currency. We're supporting something which is of great interest to others. When Paraguay supports the guarani, that's of no interest to anybody except Paraguay.",45
-fomc-corpus,1978,"Well, we will continue to give you that guidance, Alan and Scott. Thank you very much. And, Phil, if it's still all right, we could put off your question until we come to Peter's report. Is that all right? Fine. Then we'll move on to [agenda] item 3, which is the economic and financial situation and outlook. Jim, you can lead off here. MESSRS. KICHLINE, ZEISEL, and TRUMAN. [Statements--see Appendix.]",104
-fomc-corpus,1978,"Thank you very much, Jim, Jerry, and Ted. We are open for general questions for the first part of our follow-up. After a period of questions, I would appreciate another go-around where I would ask each of you to comment on any variation [in your views] from the staff projections.",61
-fomc-corpus,1978,"Just as a matter of clarification, Jim, in the next to last table in your presentation, the 1972 unemployment [and other] rates are averages for the year?",35
-fomc-corpus,1978,"Yes, they are.",5
-fomc-corpus,1978,"And, of course, real GNP was growing rapidly during 1972, so the peak rate of GNP in '72 would have been quite a bit above the '72 average. The capacity utilization, however, is what--a quarterly peak?",51
-fomc-corpus,1978,"No, it is the peak rate in a month in 1973; and they were generally in late summer or early fall.",26
-fomc-corpus,1978,"The peak month. How do you account for the rather pronounced difference now compared with then in the materials industries as against overall manufacturing? I hadn't had the impression that capacity had expanded that much in paper, pulp, steel, aluminum, and other basic materials industries.",52
-fomc-corpus,1978,"There has been a considerable amount. Between 1975 and 1976 we estimate about 3-1/4 percent expansion in materials capacity and around 3 percent in 1977. And in the first three quarters of this [year] we have an estimate of about 3-1/4 percent. So there has been a fair gain in materials capacity since that time. There are still some key areas that pose problems. As you know, cement is one which is reportedly in question. But in general I think there has been an expansion in materials capacity since the '73 experience.",120
-fomc-corpus,1978,Doesn't the lack of a worldwide boom also come into this?,13
-fomc-corpus,1978,"Oh yes, that's quite important in our assessment of the reading of these numbers. We are not in a period currently of substantial demand abroad; internationally traded commodities are not in short supply. So, I think in reading the degree of ease or tightness here, the international situation is a real plus.",60
-fomc-corpus,1978,John Balles.,4
-fomc-corpus,1978,I just have one other point of clarification. I just want to be sure.,16
-fomc-corpus,1978,"Excuse me, Chuck, I didn't mean to cut you off.",14
-fomc-corpus,1978,Do I understand that the base projection for 3.3 percent real growth over the next five quarters assumes a bill rate of 8-1/4 percent?,33
-fomc-corpus,1978,"Yes, it's the low end of the federal funds rate range in the Bluebook under alternative B. We key off our interest rates from that, which is an 8-1/4 percent bill rate--not very far from where we are today.",51
-fomc-corpus,1978,It was 8.21 yesterday.,8
-fomc-corpus,1978,Yes. So implicit in this forecast is very little change in interest rates from current levels.,18
-fomc-corpus,1978,John Balles.,4
-fomc-corpus,1978,"Thank you, Mr. Chairman, I'd like to ask Ted Truman about the outlook that he presented for the United States and other leading countries. One encouraging factor that I see in your charts, Ted, is that in effect you're saying that in 1979 you expect some convergence in the growth rates of real GNP in the United States and its major trading partners. But what I didn't hear you say, unless I missed something, is what you expect to see on the inflation front. [I ask] because, going back to Scott Pardee's rather pessimistic report on the state of the dollar, it seems to me that we won't really come to grips with the weak position of the dollar internationally until we get a reversal of trends that have been under way for some years now--with real GNP growth considerably faster in the United States [relative to] our major trading partners but also a considerably higher inflation rate [here]. Now, if we could see some daylight at the end of the tunnel--not only a convergence of real growth rates but also a narrowing of the spread between inflation rates--that would be helpful. But I don't think you covered that. Could you give us your view on that?",242
-fomc-corpus,1978,"Well, I did, but it may have been so parenthetical that it wasn't entirely clear. I keyed off from the third quarter to try to keep it in that framework. Our best guess is that you've had through the third quarter of this year about 3-3/4 percent--or 3-1/2 to 4 if you want to use the range--real growth abroad. We expect that to continue; we don't expect an acceleration, on average, abroad but we expect a continuation from the very low levels that we had going into this year on the growth side. Meanwhile, our growth has come down somewhat so you get the convergence--in fact a crossing in that dimension. I would say, though, that you don't get enough of a convergence; it's not going back to the historical relationship where the growth abroad averaged maybe 2 percentage points higher than the growth in the United States. On the price side, which I covered in the first chart, the dotted lines there [show] the relative CPIs. The fact is that this year--or again the year ending in the third quarter--there's been quite a difference. On average we estimate that ending in the third quarter you've had about a 5-3/4 percent annual rate of price increase abroad in these ten major countries, as contrasted with 7-3/4 percent in the same period for the United States. It's a difference of approximately 2 percentage points. Next year you see that the red line continues down but at a lower slope. That reflects the fact that although our inflation performance is about the same, at least on average--slightly lower on this third quarter-to-third quarter basis--the inflation rate abroad is expected to come up somewhat, to something in the 6-1/2 percent range. That's because of the U.K. and Japan, primarily. What I've tried to suggest by way of convergence is that there is a gradual convergence. The growth rates seem to be crossing and [the spread between] inflation rates seems to be narrowing. If the markets in fact are looking for a restoration of slower inflation here than abroad, then the tunnel is longer--if I can put it that way--than [by] 1979.",452
-fomc-corpus,1978,"All right, I guess my next question then is: Are consumer prices really the most relevant price gauge for measuring with respect to currency given the fact that there's a lot of stuff in the CPI that doesn't get traded abroad?",44
-fomc-corpus,1978,"Well, there's a long and technical debate about that and we have in the October Bulletin an article coming out on that subject. As far as the United States is concerned, the various measures show approximately the same thing. One of the problems [relates to] unit labor costs and export unit values. For unit labor costs, we only have data through the first quarter of this year; for export prices we only have data through the second quarter of the year. So it gets a little difficult to compare. But, on average, the story that is told by the various price indexes for the United States is the same. So wholesale prices of manufacturers, for example, show instead of approximately a 15 percent real change in the exchange rate something like a 14 percent real change in the exchange rate. For the United States it doesn't essentially make much difference. An aside--the monetarists, if I may put it that way, would argue the CPI is exactly what should be used, not traded good prices.",203
-fomc-corpus,1978,Bones Kimbrel.,5
-fomc-corpus,1978,"Mr. Kichline, [regarding] liquidity measures, at an investment seminar in Atlanta this last week a vice president of Prudential was quoted as suggesting that Prudential was committed through 1979 with no additional opportunity. That came as something of a surprise. Is that reasonable or are we hearing any of these types of suggestions in other spots?",71
-fomc-corpus,1978,"I think that company may be, from the limited reports we have, tighter than most insurance companies. But we are getting to the point of the year where they like to be reasonably committed for next year. The insurance industry with regard to a liquidity measure is actually running with a fairly high volume of cash and short-term liquid assets according to our flow of funds accounts.",73
-fomc-corpus,1978,"Bones, was he talking overall or as to some particular segment of their business?",16
-fomc-corpus,1978,I don't know. He may have been talking about their decision to commit X amount in private placements or something. I really was not there and did not hear [what was said]. It was just a quote that came up that suggested that they were--,50
-fomc-corpus,1978,"It sounds out of touch doesn't it, Jim?",10
-fomc-corpus,1978,It sounds too tight.,5
-fomc-corpus,1978,"It does. Yes, that is my point.",10
-fomc-corpus,1978,They might be tighter than other companies.,8
-fomc-corpus,1978,It could be one company. Mark Willes.,10
-fomc-corpus,1978,"Thank you. Jim, [my question relates to] the last table where you run the simulations that we get from time to time. The work that we've done with models like the one you use--we haven't done it with yours and I don't think we can--suggests that if you build in some mechanism for rational expectations, you get quite different patterns than this, including a much more rapid impact on prices and perhaps substantially less impact on real output and unemployment. Do you have anybody who is going to try and fiddle with that with your models to see if the same thing happens with yours?",119
-fomc-corpus,1978,"Yes. We have work going on now to try to incorporate in the various parts of the model a better expression of expectations than is now captured in the model. It's clearly a weak point of the model now. I guess my own judgment would be that perhaps we wouldn't get as strong a response as the results of your work in this area just looking at some of the early things we've done. But I think it's a quite valid comment that our model does not have in it as much of an ""expectations"" phenomenon throughout as [your model] apparently. You're quite correct; I have no problem in saying that we have not progressed very far in putting that in the model.",135
-fomc-corpus,1978,It can change substantially the perceived impacts of policy alternatives.,11
-fomc-corpus,1978,It can.,3
-fomc-corpus,1978,"But this is based on historical experience isn't it, Jim? It's not based on some new theory but on historical experience.",24
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,"No, but the point is that even--",9
-fomc-corpus,1978,Based on experience that didn't have the kinds of inflation rates that we are now failing to enjoy.,19
-fomc-corpus,1978,"My point is a different one than that. If you take the same models and construct them just a little bit differently and then apply them to the same data, you get a substantially different perception of policy impacts than if you do it the way the model is currently constructed. You can fit it--",59
-fomc-corpus,1978,"But I still think, Mark, the test of the pudding is in the replication of the past. Again, no matter what your theory is, it has to be a model that--",37
-fomc-corpus,1978,It's got to be proved throughout the cycle.,9
-fomc-corpus,1978,"To show it works, and this one is based on the past.",14
-fomc-corpus,1978,"The only point I'm making is that you can have a model which fits historical data just as well and yet generates dramatically different future time paths. That's the only point. It is not a question of whether it fits history well, because it fits history just as well.",53
-fomc-corpus,1978,Bob Mayo.,3
-fomc-corpus,1978,"Mr. Chairman, I found the international charts more than usually exciting this time. I think the staff did an excellent job on them. One of the phenomenon in here that I think is sort of fascinating, but was only partially brought out in the presentation, relates to the comparative inflation rates here and abroad. A good share of the good showing by Germany and Japan, who are great importers of oil, is directly derived from the fact that they're paying for oil in U.S. dollars, which means that it becomes cheaper and cheaper as the dollar goes down in value. I know that this is just an analysis of a segment but it gives me some hope that, indeed, if the U.S. dollar is oversold at this point the turnaround will come eventually. I'm convinced of it, and that in itself is going to improve the international price competitiveness even if nothing else happens.",176
-fomc-corpus,1978,"It's a little bit sad to count [on]. I think you're right [about] the oil, and there are other dollar-denominated international commodities. The fact that the dollar has gone down has made them cheaper in foreign currencies, especially in Japan but in the U.K. and a number of other countries as well, and has helped their performance this past year. And our forecast of some pickup in inflation abroad is in part dependent upon the fact that we also are assuming or projecting--choose your own word--that the dollar will stabilize. That means they will lose that positive benefit.",117
-fomc-corpus,1978,"You have made no attempt have you, Ted, to do an analysis of what these indexes would look like if the price of oil were abstracted from them? It becomes pretty much of an academic exercise, I suppose, because of secondary effects.",49
-fomc-corpus,1978,"Yes. On this round we have not done that. We have in the past on some similar things--essentially the impact of oil price increases on foreign prices [or] inflation rates and they are, of course, significant.",46
-fomc-corpus,1978,"Well, ladies and gentlemen, according to my reading of the Greenbook the staff has projected for the third quarter of '78 to the third quarter of '79 a real GNP growth of 3-1/2 percent, a gross business product fixed-weighted price index of 7-1/2 percent, and an average rate of unemployment in the third quarter of 1979 of 5.9 percent. I don't think it will be necessary for us to ask you to give precise figures on those three; if you could give us any significant changes, qualitative or quantitative, that would help us sense whether we're [unintelligible]. In keeping track of where I started last time--and it's my determination that we do better when we start with Presidents--I want to start with Larry and come down this way this time. We started with Roger last time around.",177
-fomc-corpus,1978,"Of course, we predicate our projections on specific rates of money growth; and based on a 6 percent money growth projection, our real GNP estimates are somewhat below the staff's. We would estimate about a 2.1 percent rate of real GNP growth during the year at 6 percent M1 growth and inflation at about 6.5 percent, which is below the staff projection.",80
-fomc-corpus,1978,Unemployment?,3
-fomc-corpus,1978,"Unemployment is almost 6.1, which is almost the [same].",16
-fomc-corpus,1978,Thank you very much. Bones.,7
-fomc-corpus,1978,"Mr. Chairman, we too are a little more pessimistic than the staff, with real GNP at about 2-1/2, unemployment at about 6-1/2, and our price index at about 8-1/2.",52
-fomc-corpus,1978,You're different in both directions from Larry. Thank you. Dave.,13
-fomc-corpus,1978,"Quantitatively, I have no major difference with the Greenbook forecast. Qualitatively, I have two comments--picking up on Jim's comments about where the risks lie--that the risks are on the downside for the real economy and on the upside for inflation. I'd certainly like to stress on the real economy that qualitatively and intuitively I have the feeling that we are building a good possibility of a recession into our forecast. One reason I feel this is that, looking back into history, I find no instances where we've had the combination of slow, gradual rates of decline that the standard forecast has together with the very high inflation rates that we're also forecasting. That in my experience is a unique combination, and I would have a real question as to whether that's a sustainable combination. On the price side, I think it's quite clear that the risks are on the upside. [Let me mention] just one item of information. We've tried to make some assessment of what businesses think about the President's forthcoming announcement, whenever it's going to be. In particular, we've tried to find out if there's been any anticipation of this in terms of pay increases and price increases. The main impression we get is a sea of vast indifference. [It seems] that they don't particularly care and they're cynical, to use Scott's term, about what's likely to come of it. And if substantial teeth are attempted to be built into it, they'll resist it. So I think it's a very pessimistic kind of outlook.",302
-fomc-corpus,1978,Willis.,3
-fomc-corpus,1978,"I would say perhaps a little lower on the real GNP--real output of 2-1/2 to 3 percent--and a little higher on prices, at 7-3/4 to 8-1/4 or something of that kind. What disturbs me in all of these forecasts are the price developments. I just don't think you can talk to people without coming away with a different sense that this is simply not sustainable, in terms of the bitterness that is building up in a very, very broad area. I get public reactions that are different than we put into our forecast.",122
-fomc-corpus,1978,Bitterness?,3
-fomc-corpus,1978,On the price developments.,5
-fomc-corpus,1978,Translated into what?,4
-fomc-corpus,1978,"Well, their reactions are either going to be explosive on one side or complete withdrawal on the other. At the moment I'm not sure how that will fall out but it's a very widespread feeling and the first time I've encountered it. It's such that you can't talk to any group without that being the dominant factor in the picture.",64
-fomc-corpus,1978,Bob.,2
-fomc-corpus,1978,"Mr. Chairman, my view on the long-run economic outlook, like the staff's, has really not changed a great deal since last time. It's somewhat tempting when you see the strength that we've got in residential construction and business fixed investment, and also the pickup in retail sales, to think that things may be a little bit better. But then when the producer price index comes in at a double-digit rate, I get quite discouraged. I think the main factor in the long-term outlook is going to be expected and actual rates of inflation. As I indicated last month, if the Administration comes up with something that is perceived to be rather effective--including dealing with a reduction in the deficit--and if we're effective in getting the aggregates under control, then I think we might get growth of 2 to 3 percent in real GNP by the third quarter of next year. I would hope that we could also keep the rate of the business fixed-weight price index below 8 percent. And I think the unemployment rate might be around 6-1/4. If we are not successful in dealing with inflation, because we don't handle our monetary policy as well as we might or the Administration doesn't do as much as it might on the fiscal, then I think we could have inflation coming in at a higher rate and in that case I would expect a lower rate of real GNP and a higher unemployment rate.",282
-fomc-corpus,1978,Nancy.,2
-fomc-corpus,1978,"Well, I think the risk on the downside has increased considerably since about a month ago. This is little changed from the projection of last month, and my own perception of the economy is of one reaching a peak in terms of expansion. I would like to associate myself with the worries that we've never accomplished what we say we're going to do. We've either slipped into a recession or have resumed recovery. A policy of growing right at the potential rate of real growth and a constant unemployment rate is a very difficult thing to bring off. I think the possibilities are that the downside risks are [much] greater now than they were over the summer. If anything, I would have a lower rate of GNP and a slightly higher unemployment rate than being forecast by the staff.",152
-fomc-corpus,1978,Thank you. Chuck.,5
-fomc-corpus,1978,"Well, I feel a little better about the economic situation than I did a month ago. I think we've [now] got more evidence that production has moderated and that final sales have picked up and it's one of the most important balancing items there is in the equation. So if we're getting another adjustment--a modest, midcourse adjustment--in production and if sales will hold up, I'd be inclined this time to take the staff's projection, whereas a month ago I would have been on the low side of it. I also feel a little better about inflation. I don't think it's going to be as wild as some people have been noting, partly because I think the President's program will have a marginal impact and partly because the food supply situation is really quite good. It has been an awfully good year in growing and I think that has a fundamental influence on price behavior. I guess I feel that the unemployment rate is a little low here. Although the staff has assumed that people will stop joining the labor force because jobs won't be there, I'm not so sure that that's so. So I would have a little more labor force growth and, therefore, a somewhat higher unemployment rate. Finally, I would point out that fundamental to my acceptance of the projection the staff has here is the policy assumption of a bill rate of 8-1/4 percent. Just as Larry has in his an assumption of the 6 percent money supply growth, my emphasis is on interest rates. And I think that this interest rate level is about an equilibrium level relative to the growth patterns that are projected here.",318
-fomc-corpus,1978,"Thank you, Chuck. Phil.",7
-fomc-corpus,1978,"I think things are looking a little better although, unlike Chuck, I would say that on balance inflation probably looks a little worse. That's because, despite the good crop situation, I think our income outlook is for higher wages all the way across the board. I'm not optimistic about the improvement in productivity that the staff is projecting. I'm more pessimistic that we'll continue to see a very low rate of productivity. So on balance I'd be inclined to think that while the GNP projection is about right, the inflation measures, if anything, might be on the slightly low side. Unemployment probably will stay about the same.",123
-fomc-corpus,1978,Thank you.,3
-fomc-corpus,1978,"I'm in the happy or unhappy position of feeling just about the same way I felt last month, which is--",22
-fomc-corpus,1978,We all remember what that was.,7
-fomc-corpus,1978,"I agree with all the comments that the risk is for slower growth on the growth side and more inflation on the inflation side. In fact, I project a slightly slower real growth rate and a slightly higher inflation rate. I don't know what the implications are of these comments, which I suppose I agree with, that it's difficult to have this nice, gradual slowing down. I don't think the easy answer is to speed it up under these circumstances. I think we're just left in a difficult situation. I do feel a little more pessimistic about some of these [things]--well, optimistic in one respect and pessimistic in another respect--on the external side. Anyway, I've been presented with a forecast--I don't think any of these are very reliable--that would show more rapid improvement in the current account as we get on into the next year than the forecast that Mr. Truman had; they're in the same direction. I'm not so optimistic about any convergence in the inflation rates; I guess you didn't have a convergence, [Ted], but I would think there might be more divergence than was suggested here, partly because of the dynamics of the exchange rate itself. I don't think it will work through at all with the kind of exchange rate changes we've gotten recently. That will continue to depress price performance and economic activity abroad and give us inflationary problems for some time here--even if it stopped right now, which I'm not so sure it's going to do. But even if it did, I think this would take a period of three to six months to work through anyway. And that tends to work against any convergence of inflation rates internationally. I think that's unfortunate but true.",334
-fomc-corpus,1978,Thank you. Henry.,5
-fomc-corpus,1978,"For the short run and for one month, I think the picture is better. Housing is well maintained and business investment looks stronger, so the expansion has gained another few months of probable life. No expansion is immortal. If the peak is next year, [this expansion] will be four years old and that will be well above the average. And I think one could say that it had been a successful performance, not a great failure [if] something happens that has happened cyclically for two hundred years with considerable regularity. We can, I think, push this [expansion] into the future by restraining inflation; that is the thing that is likely to kill it. I see inflation going further than the staff's forecast. I see, unless the President's program is surprisingly successful, very high wage settlements and I see anticipatory price increases. And I think for a good part of 1979 we'll find ourselves with double-digit inflation. That means then declining GNP, perhaps a positive downturn. The position of the dollar contributes to this inflationary scenario and to the risk of recession. I think the main thing we can do is to restrain inflation now.",235
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"Mr. Chairman, I think I'd agree with a lot of what I have heard around this table--much of what Henry, Philip, Chuck, and Nancy said. I do have the same relative position: that we have seen some improvement in the economy this past month. In a kind of fundamental sense, it is getting a bit better. I don't find any evidence in what I read of an improved inflation rate, and the inflationary forecast of the staff is just unacceptable to me. I just can't agree with the idea of a future that holds a 7 to 9 percent--and maybe even Henry's 10 percent--inflation rate. So I guess I get mixed up between what should be the forecast and what I think we ought to do to alter that forecast. I don't accept the idea of the staff's fundamental assumption that interest rates will remain at the low end of the ranges of alternative B. If that's the way we are going to play the game, we end up with an inflation rate that's unacceptable. Given this assumption of the staff, I'm not far off [from their projection]. I just don't think it's going to yield an acceptable policy for the future economic growth of this country.",241
-fomc-corpus,1978,Frank.,2
-fomc-corpus,1978,"Mr. Chairman, the numbers have come in a little stronger in the past month than I'd expected. At the same time, we're shifting our policy period from the second quarter to the third quarter and this sort of offsets things. But we still come out much more pessimistic than the staff, with something like 1-1/2 to 2 percent real growth. In other words, I think that the chances of avoiding at least a mild recession in '79 are not too good. But we are also looking for some deceleration in inflation to about 6-1/2 percent and an unemployment rate of about 6-1/2 percent.",132
-fomc-corpus,1978,Ernie.,3
-fomc-corpus,1978,"Mr. Chairman, I have no particular difference with the staff's projection with respect to production. With respect to inflation, I share the view that we are likely to see stronger price movements than projected here. And along with that, it seems to me that there's a good possibility we will see somewhat more unemployment than is projected. In fact, to me the real issue as we attempt to decide policy--I'm using ""we"" in a very broad sense now, broader than the Federal Reserve--is this: Unless we can bring forth some means of reaching more directly into the wage negotiations that are coming up and getting an outcome from those that is different than has been projected in the charts here, our prospects become dimmer rather than brighter. Even though I suggest that with stronger inflation there is a probability of greater unemployment in total, I have to add that in my part of the country at the present time we have predominately very tight labor markets. Business firms are engaging in extensive recruitment efforts, ranging far outside the area, and are having difficulty bringing people in at the rate that they would like to employ them. It seems to me that there is another important question in the picture. While we're projecting a continuation of the present rate of saving--and I guess that may tie in somewhat to the projection of essentially the present rate of inflation--it seems to me there's a significant probability that our saving rate may change. As people see a continuation of inflation at a fairly strong rate, we may see a continuation of the trend we have seen this past year in efforts to take protective actions. That, of course, will feed back on price developments and also, unfortunately, on production developments, as attention shifts to protective [measures in] various production efforts.",350
-fomc-corpus,1978,John.,2
-fomc-corpus,1978,"Well, we see somewhat less real growth than the Board's staff, which has been the case now for some months. But I would like to emphasize one factor that I have not heard discussed, although I can agree with many of these views about the risk of less real growth than the staff has projected. And that is that, based on a number of studies we have made, we see the economy essentially at practically full employment, both in terms of availability of skilled labor and even some unskilled labor, which has been touched on by a number of people including Ernie. In terms of cost effective unused capacity, we don't see as much slack as the staff figures here suggest. Therefore, we don't see the possibility of real growth over the next twelve months rising beyond what our model tells us--2 to 2-1/2 percent--by pushing on the accelerator of aggregate demand. At the same time, I'm much more--",188
-fomc-corpus,1978,"You think these unemployment figures are wrong, John?",10
-fomc-corpus,1978,"Well, I think they need to be interpreted with great caution, given the sense one gets just by talking to firms trying to hire people in today's labor market. I get this from my directors all of the time; Boeing is having tremendous difficulties.",49
-fomc-corpus,1978,That's a West Coast observation.,6
-fomc-corpus,1978,"They want to add 25,000 people to the payroll. [They are] hiring away people at higher salaries from all sorts of local firms, including the [Seattle] branch of our Bank, I'm distressed to say. The labor supply just doesn't seem to be there for firms actively in the market, and that's going to be a constraining factor. And I think [it's going to be] a factor leading in turn to higher inflation just on the wage settlement side--on the unit cost of production side. So I'm not any less optimistic than the Board's staff on the inflation figures; in fact it could be somewhat worse. But I also see real growth being constrained by these limitations on supply. That's about where we come out.",148
-fomc-corpus,1978,Mark.,2
-fomc-corpus,1978,"Mr. Chairman, what Henry and Phil said is pretty much what I was going to say on the forecast. The only other comment I was going to make was about Dave's comment on the President's program. I think enough of that program has been [leaked] that people have figured out what they think it's going to be. To the extent that in some sense it's more effective in doing something to prices than people currently expect, it seems to me that that also raises the possibility that it could precipitate substantially slower growth than we're expecting. If people's income and profit potential turn out to be less than they now expect them to be, that's precisely the kind of shock that can lead to a retrenchment in economic activity. So while it may have some impact on prices, it may also have an unexpected impact on output and unemployment.",168
-fomc-corpus,1978,Bob.,2
-fomc-corpus,1978,"Mark's last point is an interesting one. I've sensed a little of this, too, Mr. Chairman, in a feeling that businessmen in several areas in the Midwest are more anxious this time around to protect their profit margins than they were in the 1973-74 experience. They still feel a little bit wounded from that. And the net effect of the President's anti-inflation program as it is now interpreted in the market may be some tendency toward greater unemployment. This goes in the face of some of the other things that have been said here. I [would note] also that just about every restaurant in suburban Chicago has a ""help wanted"" sign up. They just can't get people, even at the lower skill levels; people just don't want to work in that sort of activity. So we have a mixed bag here. Although there have been some things on the good news front since the last meeting, I feel a little more pessimistic than I did a month ago. Again, [as for] taking solace in figures, I'm somewhat of a cynic in that area. But I am a little concerned. The way I read the consensus forecast outside of the Fed, our staff forecast for the next year is one of the highest, and I think we are too high. I come out with 2 to 2-1/2 percent real growth. I don't think there is more than one chance in ten that we can hold the inflation rate next year under 8 percent. There are too many things that are already built in. And following up on my own [unintelligible] on unemployment here, I think our chances of holding the unemployment rate under 6-1/2 percent next year are rather slim.",351
-fomc-corpus,1978,Roger.,2
-fomc-corpus,1978,"Thank you, Mr. Chairman. I guess you could characterize our feeling as one of a bit less optimism than the staff has projected. Particularly with respect to GNP, we would look for a performance of around 3 percent, which we don't view as pessimistic, frankly. It is about as high as we would hope for. Secondly, on the price side, we are a good deal more pessimistic in the sense that there do not seem to be those factors working that will give us any assurance that prices will come down. Rather, [it appears that] they will accelerate even further and we are looking for something in the range of 8 percent--perhaps even 8 percent plus. There has been some comment [about] some contribution from the food sector because of good supply in the growing season of 1978. But I would remind you that prices of food are more greatly affected by the middle man than they are by the producer. Secondly, the producer price that will hit the middle man for processing is now being determined to a greater and greater extent by some floor of government subsidy. So you just don't have the elasticity in that price that you once would have expected. Lastly, with respect to unemployment, I would share [the view of] those who have mentioned--I guess I would start with Ernie--[unintelligible]. Unemployment in our area is virtually zero, particularly for skilled people but it does indeed run on down to those people who wait tables. We do not see very much unemployment, so the figure of 6 percent that is commonly [cited] nationwide is certainly not [the case] in our area, as far as we can tell. But as this year unfolds we would expect the unemployment rate, because of the price impact, to move upward. In the year that we are looking at, we think perhaps unemployment will go to the 6-1/2 level from the current 6 level.",394
-fomc-corpus,1978,"Bones, do you have any comments you want to make?",12
-fomc-corpus,1978,"Well, Mr. Chairman, maybe [my question should be] directed to you. With the several references to the Administration's anti-inflation program, I wonder if there are any significant items of intelligence that you would feel free to share with us.",51
-fomc-corpus,1978,"I'm not in the loop, so I can't share them. I think they have gone underground with their program after considerable discussion early in the year about the framework of what might be done. I'd just comment on a couple of things. I think we are now in an era when labor--skilled labor--is less mobile. Therefore, when you have a buildup in the aircraft industry, you'll have shortages of skilled labor in Connecticut building engines and in Seattle building airframes. In the past you were able to move people much more quickly; now they don't want to sell their homes and families don't want to move, for all kinds of [reasons]. Also, since I remember going into business in 1956, [based on] every meeting I have been to there is nobody who wants to work at dishwashing. So Chicago is up-to-date; that hasn't changed in 22 years. My own view of the situation is that I would be within the range of the staff's projection. I have generally through the year felt that the staff was on the high side--I thought we were coming down from the forecast earlier and we have been doing so--because I thought we would restrain the economy deliberately. I still think [that]; they're closer to my view now, although I would put it at 3 to 3-1/2 on GNP, 7-1/2 to 8 on prices, and probably 6 to 6-1/4 on unemployment. The real issue is up to us. Incidentally, Mark, you were talking about how businessmen behave. Was it behavioral or rational expectations or what do you call it? When I was in business, I never gave up business and had my overhead sitting on me unabsorbed because I had somebody tell me that I voluntarily shouldn't increase prices so much. I don't think businessmen behave that way because their profits are far more destroyed by leaving part of the present plant and capacity idle rather than sell their product. I just don't believe that's the way they behave.",411
-fomc-corpus,1978,I don't disagree with you at all.,8
-fomc-corpus,1978,"So, you may find other reasons why they ignore the President's program and break it, or you may find reasons that they can sanction it and keep them in it. In my company we did business with the government and if they could sanction us and hold us, we would have gone out and worked like the dickens to get more unit sales and absorb our overhead and improve our margin and maintain our profitability. I think just the reverse psychology would have existed. We could not give up our long-term market position in major products--sophisticated products--because of a 1-year situation. We would never have stopped our capital spending or research or anything over such a phenomenon. I don't believe businessmen behave that way. We sit here and talk about these things technically, but I've just come from the business council and, while they don't like these things, there's no pessimism around. These are the big businesses. They look for a continuation of relatively modest growth, but they look at it a little differently than we do around this table. My view is that the real future of this time period is up to us. You know Pogo said ""I have met the enemy and he is us."" And the gist of the question is: Will we, in our exuberance to prove our theories, trigger a recession? Because once you trip the psychology of the buyers or scare them, you drive them underground, as happened in '74. You go within months [from] boom and worries about inflation to a deep, deep recession where you have strung out inflation to 6 percent and you have it back in two years to 8 percent because you haven't accomplished [anything] fundamental. What we need is a steadiness of purpose. Inflation built up over twelve years; we are going to have to wring it out over five to seven years. If we think we can do it in a quarter or two quarters, we are fooling ourselves. My worry is that once again we will use high amplitude action to deal with what really requires a dampening of the process. The high amplitude action we got in the early '70s was not perceived as solving the problem.",436
-fomc-corpus,1978,"Mr. Chairman, in connection with what you have just said and this exercise we went through, one of the things that is confusing to me is that we speak in terms of pessimism and optimism, and we seem never to have really defined what we think would be the [desirable] rate of growth or what we are pessimistic about. For example, suppose we are concerned, as you just expressed concern, about precipitating a recession. Mr. Chairman, if we are speaking of a recession in the classical sense of the term, which as I understand it is two quarters of a negative rate of growth, there's absolutely no intention on the part of those of us who are the most restrictive in our attitudes toward monetary policy that we should bring [growth] down quickly enough to precipitate that type of situation. I don't know whether this is the time or not to express one's opinion on this matter of a recession but I think this is the hang-up that so many of us expressed: If we don't have an expansive monetary policy, we will have a recession. And when you look at the record, sir, there isn't a single demand-induced recession that has occurred since the World War that I can learn of, that was not preceded by a significant drop in money growth for a sustained period of time. For at least two quarters the rate of money growth dropped below the 20-quarter trend by at least 2 percent. And I don't think that even the mavericks like Larry Roos have ever suggested that we should plunge the rate of growth down precipitously to below the trend growth of money. But if we just reduce it to 6 percent--and I guess this comes in the next segment of this meeting--and hold it there and make clear to the world that we are going to hold it there, and over a period of years gradually reduce it, we can get this job done, in my opinion, without precipitating a recession.",391
-fomc-corpus,1978,"Larry, I was not present at any FOMC meeting in 1973 or 1974, but I assume the Federal Reserve didn't deliberately intend to [precipitate] a recession. I sat in Boston in '73 and '74. And yet we had the most severe one we have had. So I just have to say that my own experience is that the leader of economic policy will tell you all these wonderful things and that in three months it will turn around. And in three months people have gotten scared so they stop buying. And inventories that today look very balanced are suddenly excessive. If there is a drop of buying we suddenly have to have rebates to get the automobiles off the floor. They are being built now on the basis of selling 10 million a year. If consumers start buying at a rate of 7 million a year, you have a crisis. And that can happen.",181
-fomc-corpus,1978,Mr. Chairman.,4
-fomc-corpus,1978,"I don't think this is the time to debate. I would say only one thing. We have pulled off a minor miracle and I think we should take a little more confidence ourselves in pulling off that minor miracle of contributing to a slowdown in the economy on a balanced condition. The decision to authorize the money market certificate was a decision that cost us in these theories because we have maintained funds in the money supply that would have flowed out of the money supply and made us look better--if you want to measure by aggregate growth--if we had not done that. So by trying to maintain housing, we have worked against ourselves--in my view properly--because we now have a balanced economy in which nothing is dragging us down into a recession unless we find the place to crack it. The miracle is to have the Wallich soft landing. And I would merely say to you that to find that soft landing, I don't know how much more we have to do. But I know that since we have seven years to do it, we'd do better to gently come at the problem rather than whack it too hard on the head and be sorry. Because once you trigger the point where the public gets scared and stops buying, you can't reverse it; [economic activity] will go [down].",256
-fomc-corpus,1978,"But even the most ardent monetarists, Mr. Chairman, have spoken up consistently for a very gradual reduction. But I think we are interpreted by people who disagree with us as suggesting some precipitous reduction in the aggregates growth--",47
-fomc-corpus,1978,"I understand you don't. I only look at the nominal interest rates and I know that we are getting very near the point where we will have results in the economy from interest rates. That's the way people behave. We can have a theory all we want. We can do it as gradually as we want but if we have to get 12 percent interest rates to do it, look at the chart over there. When we get that, that's when the recession comes because people get scared; rightly or wrongly, they do. And they did very quickly in that time period. That spike, that Mount Everest, stands out there as a warning to us. It has nothing to do with how gradually you try to [reduce the growth of the] money supply. It's how much you affect these other things. I'm just expressing my personal opinion. I think if we try to continue to accomplish this slowing in the rate of growth in money supply by driving up interest rates, we are going to trigger a reduction of consumption and buying and spending that will send us into a recession. And I think we will be back with $100 million federal deficits. And we won't have accomplished very much following that exercise before we have the highest federal deficits we have ever had, taking away all the monetary restraint that possibly could have been put into the system.",265
-fomc-corpus,1978,"Aren't these long-term interest rates, though, somewhat of a reflection of inflationary expectations? In other words, if the aggregates continue to grow aren't those--",33
-fomc-corpus,1978,Is the money supply increase also a reflection of the inflation?,12
-fomc-corpus,1978,We need to take a break and come back after coffee to pursue this.,15
-fomc-corpus,1978,"Ladies and gentlemen, we have a busy hour ahead, with a couple of small matters to take care of. We're supposed to at this time look at the long-run ranges for the monetary aggregates. And we have, of course, complications because of the automatic transfer service being available effective November 1, a short period from now, unless there's a court injunction or stay. I don't know if our Counsel is here or not. Tom, any report on the court action?",94
-fomc-corpus,1978,"No, I've checked it recently, Mr. Chairman. You've stated it correctly that the matter of stay is still within the discretion of the court.",29
-fomc-corpus,1978,"You might all turn to page 5 of your Bluebook. Steve, if you would lead off with your comments, I would appreciate it.",29
-fomc-corpus,1978,"Thank you, Mr. Chairman, I hope my comments will be less complicated than the Bluebook but it's a very complicated situation. So I apologize in advance for both. I would, as statistical background, like to make two or three points to the Committee first. For the year just ended, that is the year ending in the third quarter of 1978, the Committee was generally within its monetary ranges that it had set for the Q3 1977-to-Q3 1978 period. It was within two of the three. M1 grew at an 8 percent annual rate in that period, above the 4 to 6-1/2 percent range; however, M2 grew at an 8.2 percent rate within the 6-1/2 to 9 percent range and M3 at a 9.3 percent rate, also well within its 8 to 10-1/2 percent range. And in the quarter past, there has been evidence of a faster growth in M2 and M3, mainly because of the success of the money market certificates. We wouldn't expect the rates of growth of these certificates to be sustained at the rapid rates seen when they were first introduced. Thus, I think the extremely rapid rate of growth in thrift accounts in the third quarter is a transitory phenomenon, though growth will be faster over the next year than would otherwise have been the case. Let me make a final statistical point, Mr. Chairman--and I will be coming to this somewhat later in more detail in view of the prospective distortions in M1 because of the automatic transfer service and I might add also because of the last minute introduction of interest bearing NOW accounts in New York State which ought to begin also to have a significant effect on M1. The Committee might bear in mind that the alternative measure that the staff is suggesting at least as a collateral or supplementary measure, M1+, grew at a 6 percent rate in the year ending in the third quarter of 1978--somewhat below the rate of growth for M1. With regard to economic considerations for setting longer-run ranges--and abstracting for the moment from ATS--I'd like to bring the following points before the Committee. Evidence continues that the demand for M1 is higher than the FOMC target implies, given built-in inflationary pressures and a reasonable growth objective for the economy, say, in a 3 to [3-1/2] percent range for real growth. For six quarters now there has been no downward drift in M1 demand, judging by the M1 demand equation of our large econometric model. That model doesn't predict everything perfectly by any manner of means but I think some attention has to be given to a period of six straight quarters where it has been predicting very well. I think this argues for raising the M1 range in the interest of realism; and I think I made this point to the Committee somewhat in vain three months ago.",599
-fomc-corpus,1978,"Completely in vain, as I recall.",9
-fomc-corpus,1978,"On the other hand, raising the M1 range may have an adverse effect on inflationary psychology. Moreover, recent overshoots in M1 growth would seem to argue at least arithmetically for lowering its range if the Committee wishes to achieve a 6 to 6-1/2 percent M1 growth over the longer run--if the Committee takes that as its objective. And I think we pointed out in the Bluebook that it would take about a 5 to 5-1/2 percent rate of growth in M1 to get you 6 to 6-1/2 percent over a period beginning with the fourth quarter of '77 on into '79. Perhaps the most important consideration in a sense now would be the relation of the range setting done by the Committee today to whatever the Administration's anti-inflationary program is. We're obviously somewhat handicapped in discussing this by a total lack of knowledge of the program, but I think I wouldn't be amiss to make three general points. If the ranges were raised and the Chairman's testimony is November 16--so that would be after the program is announced--I think this would rather [clearly] be perceived by the market as not being supportive of the program and would probably worsen inflationary psychology and prospects for the success of the program. A lowering of the ranges would seem to suggest that the Fed was moving toward monetary conditions that would, if anything, reinforce the program and in that sense might be said to increase its prospects of success--that is, if the ranges were realistic to begin with and then lowered. The third point is that maintaining the ranges I believe would be construed as more or less a neutral stance consistent with lower interest rates than might otherwise prevail if the program were to work. Let me turn now briefly to the implications of the automatic transfer service for the longer-run ranges. Of all the aggregates, it obviously adds the greatest uncertainty to M1 and suggests the need both to lower and widen the M1 range if such a range is presented at all. The range needs to be lowered because the shifts are only going to be one way, we believe--from demand deposits to savings deposits. So the direction seems to be very clear. What's less clear is the amount of shift. Because of the uncertainty involved in that, I believe it would be very desirable to widen the range and I'll make a suggestion at the summary point. The other aggregates are affected by these shifts but to a relatively minor extent. Both the suggested M1+ and M2 would be affected by the transfer service because of transfers from thrifts. We estimate an effect of only 0.4 and 0.2 of a percentage point from such transfers. M3 would hardly be affected at all unless people transferred funds out of market instruments to put them in these kinds of accounts. The issues before the Committee are particularly complex this time and, as I noted, so is the Bluebook. Therefore, I'd like to make an effort to summarize the various advantages and disadvantages in terms of a set of proposals on the aggregates. If I had real courage, I think I would suggest abandoning M1 entirely and that may be the best course. But the court hasn't met and made a decision yet. We aren't really certain about how rapidly the transfers are going to occur, so it may still be best to present an M1 range, though widened. But I would strongly recommend adding a range for [M1+] to provide collateral information with regard to the behavior of the transactions demand for money in a transition period. I would not rely only on M2 and M3 in such a period. Our research suggests that a narrow money measure, whether M1 and possibly M1 in the new environment, conveys better information about current and prospective short-run income changes than does a broader measure. In other words, it's a better monetary indicator of how to change the money markets than a broader measure. Broader aggregates are more sensitive to asset shifts and involve, of course, such non-money elements as 6-year certificates, 8-year certificates, and 4-year certificates. With regard to M1, I would suggest a range of 2 to 6 percent for the period from Q3 '78 to Q3 '79. Such a range has the following advantages: It's wide enough to reflect the uncertainties that prevail and that were discussed in the Bluebook. At one extreme it would allow for a shift out of demand deposits because of ATS by as much as 4-1/2 percentage points from the top of the FOMC's current M1 range, which I believe is the minimum realistic rate of growth in M1 and is the rate of growth used in Mr. Kichline's projections. And it would allow for a shift as low as 1/2 percentage point. I believe 4-1/2 percentage points is a highly likely amount of shift, given the analysis we have made. This range, by representing an adjustment because of ATS to the top of the FOMC's current M1 range, would establish probably a more realistic M1 range over the next year. It would also appear to the market that the Committee does not intend, in effect, to accommodate the more rapid expansion in narrowly defined money by not adjusting its target sufficiently to prospective institutional changes. And it would thus, I believe, be supportive of any anti-inflationary program. With regard to M1+, I would certainly include it as an additional aggregate and would recommend the alternative B range of 5 to 7-1/2 percent. There is much to be said for a wider range because of various uncertainties; and if the Committee wished to lean to the restrictive side, a wider range would be 4-1/2 to 7-1/2 percent. That would be 3 points, the same as the M3 range, or it could be 5 to 8 if the Committee wished to lean to the less restrictive side. I could not make up my mind which way I'd want to lean and I think the 5 to 7-1/2 percent is probably a desirable range. With regard to M2 and M3, I would see no need to change the current ranges, which are 6-1/2 to 9 and 7-1/2 to 10 percent, respectively. Relative to recent trends and prospective credit needs to finance economic expansion, these ranges appear quite taut. That's all I have, Mr. Chairman.",1319
-fomc-corpus,1978,"Thank you, Steve. There are a couple of points I would make on the long-run ranges. I could be persuaded to drop M1 but, on balance, I suspect that it might be better if we retain it in some form. I might point out that over the weekend Congress did pass the modified Humphrey-Hawkins bill, and I expect the President to sign it. That bill includes an amendment of the Federal Reserve Act to deal with our reporting to Congress on monetary policy. We had worked out the language with the Senate Banking Committee and it survived, as I understand it. It involves a process, fortunately, that keeps our cognizance with the Banking Committees and doesn't begin to confuse it with the Banking and Joint Economic Committee and other committees, which would make our life even a little more difficult because we'd constantly be in cross battles of the committees. But instead it provides for us to report twice a year instead of four times a year. Instead of asking us to [provide] independent estimates of what the economic plan should be, it merely asks us to comment on elements of the economic outlook from the Administration's plan submitted to Congress and to indicate in the first report what the FOMC's intent is as to monetary policy over the calendar year. That first report would be February 20th and that would cover our response to the President's proposed plan and give our indicated monetary policy for the calendar year of 1979. On July 20 we would testify again, giving our update of the monetary policy intended for 1979 and a first look at our policy intended for 1980. In all cases the language says that nothing in those reports would bind us to stick to that policy if circumstances changed and we felt that we should change it. It doesn't lock us into the policy; it's language that we've seen before, but I think it does get us into a fairly comfortable format, compared to earlier proposals which would have required us to [give] independent recommendations as to economic policy and to report to various and sundry committees. So that's the situation. That being so, we are going to have somewhat of a different outlook in our presentation and preparation for next February 20. In the meantime, I think we might be wise to maintain a form of M1 for this go-around until we [know] more. And I tend to agree with Steve that we ought to have a range that's wide enough, given the uncertainties involved with both the ATS and the President's program, so we could with reasonable expectations make it realistic. I don't know whether I completely agree with the 2 to 6 range; it seems awfully wide. I could live with something a little narrower, but it's reasonable. I tend to agree that we [should retain the ranges for] M2 and M3. There might be an increase in M2 because of shifts from thrifts into banks with automatic transfers but we don't know how much or what. So I would tend to leave those until we see how that works. I think we have a wide enough range that if the President's program is effective, we'll still be within it in terms of it dampening inflation. And I just believe all in all that it's fairly reasonable. Now, 5 to 7-1/2 is anybody's guess on M1+, but I think it's a reasonable place to begin this experimentation. Chuck, I believe you had--",688
-fomc-corpus,1978,"I just want to say that the Subcommittee on the Directive met yesterday and we've been struggling with this question of relating the short-run ranges or targets with the long-run targets. We reviewed the Humphrey-Hawkins legislation and, of course, it does change in some rather fundamental respects the setting of targets because there will be no sliding base. Therefore, we agree with you that it does change things enough so that it is a new ball game beginning next year. And we will have a report for the Committee by the January meeting on a recommended course of action, relating to the new system, however, rather than the old. I would point out, Mr. Chairman, that the amendment takes effect on January 1, 1979 so I agree with you in that I think we are really obligated, though it may mean nothing, to have one more year ahead in our projection of the aggregates. I think it would be misunderstood if we didn't have an M1 range but it ought to be wide enough to accommodate possibly a considerable shift into savings deposits from M1 forms [of deposits].",219
-fomc-corpus,1978,"Thank you. May I add, Chuck, one other thing? And that is that I think we shouldn't mix this up with what we may want to do on the short range.",36
-fomc-corpus,1978,"No, I agree with you.",7
-fomc-corpus,1978,"We may or may not want to use M1, so I think this is a different issue. I don't want to get involved in that now, but it seems to me for this purpose of testifying--on November 16, is it Steve?",51
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Now, I would caution one thing. We have quite a bit of time between now and the time of that event. If we should have a court decision adverse to us--a stay or something else--I think we have to come back to the FOMC and not go to the Senate Committee with something that's out of date. So I think we have to adopt something today subject to change if anything drastic happens that would make us want to fit different ranges to the outlook.",96
-fomc-corpus,1978,"Even if there is a stay, I would point out that New York has NOW accounts and that's a big state, and we would have to take that into account.",33
-fomc-corpus,1978,"Yes, we have a lot of problems.",9
-fomc-corpus,1978,"Chuck, would you elaborate on what you meant by the sliding base?",14
-fomc-corpus,1978,"Well, we now do [set ranges] for the upcoming year. So for example, this time we're considering third quarter to third quarter and last time it was second quarter to second quarter. Now the lock is on the calendar year and the re-estimate in July is on the same calendar year and the next one; so there won't be the kind of slide that there was before.",77
-fomc-corpus,1978,"There won't be the quarterly updates. Maybe there will be a new one every year. It could be a mid-course correction. Before we start the round questions, Paul, you may have something you would like to comment on this.",46
-fomc-corpus,1978,"I just had a question of Steve. If I understood him correctly, he's saying continue the present ranges of 6-1/2 to 9 and 7-1/2 to 10 for M2 and M3, but go to 5 to 7-1/2 for M1+. I'm just asking for the technical consistency. If you look at the Bluebook, it would say that the 5 to 7-1/2 would be consistent with higher M2 and M3 figures or vice versa.",108
-fomc-corpus,1978,"Yes, we centered those M2 and M3 [ranges] around the midpoints of the current [ones for] M2 and M3, which would encompass our best estimate. In alternative B, for M2 our best estimate is 8-1/4; [for M3 it's] the midpoint between 8-1/2 and 11, which is 9-3/4. That would be encompassed by the present M2 and M3 ranges. I think for policy purposes it's highly desirable not to raise the M2 and M3 ranges and to leave the current ranges, which give enough scope--even if the staff projections are right--to be within them. And they provide added scope, in case the President's program is effective, to have a lower rate of growth.",164
-fomc-corpus,1978,"It seems to me not unreasonable, Paul, to do that, although I do think there is the possibility that we'd run over the top of M2 because of the diversion of funds from thrifts to the banks. My own preference would have been for 5 to 8 on [M1+] for the same reason. I think it's very hard to estimate. And remember, M1+ will include all of the ATS accounts whether they're truly transactions accounts or idle balances. It will include any conversion from thrifts to the banks that are put in there in order to raise the minimum size of the account to the point where there are no service charges. But that is a minor problem.",138
-fomc-corpus,1978,Mark Willes.,4
-fomc-corpus,1978,"I found Steve's presentation very helpful. I'd like to follow his presentation to make a couple of statements as much by way of making sure I understand what he said as well as arguing what I think is right. If you look first at M1, for example, without adjusting for automatic transfers, there is a question as to whether or not the 6-1/2 is the right ceiling or not. If we didn't face the November 1 problem, then that's what we'd be debating, among other things. And I think we ought to treat that question separately from the question of adjustment for automatic transfers first, because some of us think 6-1/2 is still a right number and we ought to debate whether it should be 6-1/2 or 8. But second, Steve made a very interesting comment when he said that he thought a 4-1/2 percent shift was highly likely. Let's suppose that we had a 4-1/2 percent shift and we maintain an M1 range of 2 to 6 percent. Then that means that you could have, given our current environment, rather than a 6 percent growth in M1 a 1-1/2 percent growth in M1 before you've violated your ranges. So what we would in effect be doing, if you attach much probability to that kind of a shift, is that not only do we not take 6-1/2 as right, but we're willing to live with 10-1/2. And I for one would find that prospect absolutely unbearable. So in making whatever adjustment we make, it seems to me that as a technical matter it might help in terms of policy if we discuss pre-ATS [figures] to see where we come out on that and then discuss the adjustment after that. The only way we can make the adjustment is to figure out what we think the most likely adjustment is. And if you gave equal weight to 1-1/2 [and] to 4-1/2, then the most likely is 3 or whatever. [So I'd] make the adjustment on that basis and then proceed. Otherwise, it seems to me that we run a very serious risk of biasing the results and ending up with a substantial change in policy based simply on a relatively narrow technical matter.",473
-fomc-corpus,1978,"I'm confused. If you take the other side, and you have 1-1/2 as another probability, you're talking about an 8 percent M1.",33
-fomc-corpus,1978,May I comment on that?,6
-fomc-corpus,1978,"If you have 1-1/2 and you hold it at 6, then clearly you've biased it the other way. That's precisely my point. The only way that I can see to deal with that is to try and figure out what you think the most likely outcome is and then go accordingly.",61
-fomc-corpus,1978,"Well, there are two comments I would like to make. One is statistical and the other is economic. On the statistical point, it's almost impossible to deal with--pardon the jargon--two independent [variables] and to encompass all the tails of the ranges. You maybe ought to have a 10 or 12 percentage point range, and that's obviously impractical. So I think the Committee's job is to put down the range which is both reasonably likely and also will convey the correct policy. On the economic point, President Willes, I think if it was happening as you suggest, as is possible--that is, that you are getting in effect a 10-1/2 percent M1, then interest rates would have to be a lot lower for that [to occur]. The Committee would have to sanction a lot lower interest rates. And if it were developing as you suggest what I think would happen is that for, say, a 9-1/2 to 10 percent funds rate, which is our projection--and if the shift were 4-1/2 percentage points, which is our projection--[for] 6-1/2 percent the Committee would have to be running at a 2 percent M1 growth. If it weren't running at a 2 percent M1 growth but at the 6 percent M1 growth--in effect the 10-1/2 percent without transfers--then you wouldn't have the funds rate at 9-1/2; you'd have something like 7-1/2 or 6 percent. In the practical world, I don't think your outcome is very likely. Secondly, in the [real] world we would be getting data to try to monitor the extent of shifts so we will be able to report to the Committee these kinds of developments. I think the economics are very different from the arithmetic.",380
-fomc-corpus,1978,Bob Mayo.,3
-fomc-corpus,1978,"Mr. Chairman, I think we're trying too hard again. I would like to see us keep to the M1 range of 4 to 6-1/2 percent on the grounds that we really don't have much idea as to what's going to go on, not only on automatic transfers and how long it's going to take but we also don't know on New York NOW accounts. Let's keep our straight definition. We're going to change the ground rules in another few months anyway. [Let's] keep it at the 4 to 6-1/2 subject to interpretation as we learn--as we take our temperatures. I don't see any percentage for us, Mr. Chairman, in making an estimate now as to the effect of this. It could be very slow in coming. There is an awful lot of inertia. And despite advertising campaigns, I think it can be even slower than the NOW accounts in New England. So I don't see why we need to stick our necks out; I would prefer to stick to the [current] M1 definition. I'm [not] enamored of M1 but I would resist changing it now. I'd wait until we are at a better position to do that, maybe with the new system under Humphrey-Hawkins.",254
-fomc-corpus,1978,Phil Jackson.,3
-fomc-corpus,1978,"I would argue that the thing to do would be to drop M1. Several reasons lead me to that. First, we do have a new system of projecting the aggregates and, therefore, anything we do today is only going to [be in] effect, for all intents and purposes, over the next two or three months as a long-range policy guide. And in January the Committee will have to reestablish a policy guide for the future. Second, I have for a long time felt that our concepts of money on which we base policy aren't properly reflective of the underlying purposes for which they were originally designed because technical aspects of privileges of certain types of intermediaries have changed and, therefore, our underlying purposes for measuring money this way have been distorted. And it is my hope that the Committee will modify its definitions, not only of M1 but M2 and M3 all across the line. It would be my hope that we'd go forth and modify those definitions beginning with the new Humphrey- Hawkins concept of reporting--and have a good clean slate to start off. Third, as some of you may recall, it is my judgment that we have unfortunately gotten this Committee into a public relations problem. Having chosen targets that are not indicative of the relationship between nominal GNP and M1, we have been unwilling to adjust them--which a reasoned judgment would lead us to do--because of the public relations consequences. And I think dropping M1 is--pardon my language--the easiest way to go. [I'd go] out the back door instead of the front on this subject and not just change it, drop it. Therefore, the public doesn't know whether we did it or didn't do it and you don't have all these public relations [issues]. So I would argue, when you add all those up together, that [we should look at] the M1 that comes closest to defining the transactional concepts of money that M1 was originally designed to measure. With the number of variables that have already been mentioned around the table--and every time somebody speaks they mention another one I hadn't thought of--it strikes me that M1+ is the only reasonable one. I think that's the fairest to the public, to the extent that the public has asked us to address this subject in the intervening months between now and Humphrey-Hawkins, and this would provide a good transition to a new concept.",485
-fomc-corpus,1978,Phil Coldwell.,4
-fomc-corpus,1978,"Well, I like some of the things that Philip is trying to aim toward but I question whether this is the time to do it. I really don't know that ATS is going to do all that much violence to us over the next two or three months. I think there's a lethargy to this but I don't know. Consequently, it would be my suggestion to the Committee that we set our M1, M2, and M3 ranges as if there were no ATS and put a couple of memo items at the bottom of the page saying here's an M1+ and here's an M1 with ATS which could be referenced if things really changed in a major way. It would seem to me we're getting into a question of policy versus procedure. And I'd rather keep the policy separate.",157
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"Well, I agree quite a lot with Phil Jackson, but I think what we have to recognize as more important than anything else is that M1 can no longer be a control variable. There will be no way of having any precision in the estimate of the proportion of ATS that belongs in M1. What we'll get in ATS is a combination of heretofore passbook account balances and heretofore checking account balances. We could ask the banks, and we plan to ask banks, what they think the split is but, you know, that's going to be within 10 or 20 percent of an accurate number and it has no longevity. We can't ask them a month down the road and then two months and three months because they won't know. So, there is no way that we can keep M1 as a control variable for policy, assuming that ATS goes into effect. I would do what the Chairman suggested. That is, I would specify some kind of an M1 range just for the cosmetics of it, but I think what we have to say is that we don't know how to judge that range because we don't now how quickly or to what extent the ATS service will take hold. Therefore, it seems to me that we do have to have a memo item on the M1+ just in order to satisfy people that we're doing a respectable procedural job. And Mark, on your point, I think what we have to say about our M1 range is that how we will feel about where we are in that range will depend on how fast we believe that ATS is taking effect. If it's very slow, we'd expect to be toward the top of the M1 range. If it's quite fast, we might be well down in the range; we might even be below the bottom because we can't say. I have a very difficult time choosing between 1-1/2 percent and 4-1/2 percent as being the effect over the first year. Frankly, I think it will be quite low. The staff thinks it will be quite high. I just don't know. I think it would be very dangerous to try--given our total lack of knowledge about this--to estimate a center point and say that we have allowed for this amount.",455
-fomc-corpus,1978,"Especially since we're not giving up the other measure, so we are not losing--",16
-fomc-corpus,1978,We have to modify what we say about the other measure. What we will accept within this range will depend on the extent [of the ATS effect].,30
-fomc-corpus,1978,We'll keep M2 and M3 also.,9
-fomc-corpus,1978,Could I ask Chuck a question about his comment that M1 after ATS cannot be used as a target variable? Would that comment also apply to the other aggregates?,32
-fomc-corpus,1978,"No, I think you could still use M2, as we have before, because that shouldn't be affected. It's just the distribution [between M1 and M2].",34
-fomc-corpus,1978,You could pull in some funds from the thrifts but probably the magnitude is not that enormous.,19
-fomc-corpus,1978,"We'll have to make an estimate, Ernie, as time goes on to see if we feel that money is moving from the thrifts. But you could use [M2] because savings accounts have existed heretofore in that, so you'll be getting both the savings account proportion and the transactions balances; [there's just a] shift of the proportions in there.",75
-fomc-corpus,1978,I had understood you to say that M1+ likewise could not be used.,16
-fomc-corpus,1978,"No, I think it is the only control variable for a narrow money definition.",16
-fomc-corpus,1978,At this stage. John Balles.,8
-fomc-corpus,1978,"Well, first of all, Mr. Chairman, I happen to come out with the kind of recommendation that Steve started off with and that you spoke to. Keeping M2 and M3 unchanged is my fairly strong preference. I think what the debate will probably hinge on is whether to keep M1 and, if so, at what range and whether to add M1+ and, if so, at what range. I'd like to revert to Steve's analysis. At the risk of appearing ungrateful, Steve, after you threaded your way through various mine fields here, the one thing that you didn't express a view on, at least in your remarks or in the Bluebook, [relates to the weighting]. If we were to [have] both M1 and M1+, with respect to day-to-day operations within the 2-month horizon there will have to be some decision on relevant weights. And while I realize it's not a direct element in taking up the 12-month ranges, I think we should keep in front of us the fact that if we do add M1+ and keep M1, we are going to have to cross that bridge at some point. And I, for one, would be interested in what options you would offer or what your views were on the relevant weights to use.",263
-fomc-corpus,1978,"Mr. Chairman, would you prefer for me to respond to that now or at the point where you're discussing the [short-term ranges]?",27
-fomc-corpus,1978,"I'd like to see us get the long-term ranges set and we'll come to the short-term. On whether we use M1 at all, I think we can have a different decision there, John. We're dealing with this requirement to report to Congress and give these ranges and there are quite a few people who want to speak on this. I hope there's going to be a [chance] for us to focus on this. I'd like to get a straw vote as to whether people want to continue to put out some number on M1 or not and then maybe we can at least know what we're talking about. If there's an overwhelming consensus, we can cut this [discussion] a little short and we can get at that. How many of you would like to continue to use M1, [given] the factors we've heard at this stage? Seems like a pretty strong preponderance. So that means [we need make a decision on] what number. And how many of you would like to publish as a collateral item M1+?",208
-fomc-corpus,1978,What does a collateral item mean?,7
-fomc-corpus,1978,A memo item.,4
-fomc-corpus,1978,Footnote.,3
-fomc-corpus,1978,"Mr. Chairman, could you qualify it by saying as a footnote? And just as a [unintelligible] Congress will go crazy.",30
-fomc-corpus,1978,"Yes. We put these things in and the associated [developments] in M1+ would be in the footnote, yes. I gather there was a pretty strong [consensus] for that.",41
-fomc-corpus,1978,As the footnote.,5
-fomc-corpus,1978,"Do you mean [have language] in the directive like ""the associated range for M1+ and bank credit"" or in a footnote to the directive?",32
-fomc-corpus,1978,"It makes no difference to me. I don't know. We normally go through the M1, M2, and M3 and then say the [associated range for] bank credit.",37
-fomc-corpus,1978,The question is how much weight it has in the operation.,12
-fomc-corpus,1978,"Well, that's a separate question from putting it in the longer-run ranges.",15
-fomc-corpus,1978,"I don't think we ought to put it as ""the associated range."" The way that's written is that the following are our targets and these would be compatible with those targets. We don't know whether M1+ is compatible.",44
-fomc-corpus,1978,"You realize, John, there is no weight associated with these.",13
-fomc-corpus,1978,"Couldn't this be handled in the text [of your testimony], Mr. Chairman, without--",18
-fomc-corpus,1978,"Yes, it could be handled in a way that does not [characterize] it as a substitute target or tolerance range. Maybe we ought to try some language on you. I think we'll have time to circulate this before I testify, which is quite a ways off.",54
-fomc-corpus,1978,Are you saying the same thing then for M1? Is that also treated in this way?,19
-fomc-corpus,1978,"M1, I assume, would be given as a normal tolerance range. We'd have ranges for M1, M2, and M3; we'd treat bank credit as we normally do; and then we'd have some comment on M1+ by way of a [memo item].",56
-fomc-corpus,1978,Would we assume ATS in M1 in testimony or would we--,13
-fomc-corpus,1978,We're going to have to revise our targets if the ATS is [not put into effect]. We'll have to have a telephonic meeting and change our targets if ATS is blocked. That's what we'll have to do.,42
-fomc-corpus,1978,But we would not have M1+ in the directive?,12
-fomc-corpus,1978,"No, M1+ wouldn't be one of the [ranges stated there]; that's what I sensed everybody wanted.",22
-fomc-corpus,1978,But you're having M1 now in full parity with M2 and M3 in these long-term targets?,21
-fomc-corpus,1978,"M1, I think, should be downgraded.",12
-fomc-corpus,1978,I think so. Let's do it again. An M1 range is to be stated but in a downgraded mode. Is that what everybody's agreeable to?,33
-fomc-corpus,1978,M1 downgraded?,6
-fomc-corpus,1978,M1 downgraded--not eliminated but downgraded.,13
-fomc-corpus,1978,In explanatory text?,4
-fomc-corpus,1978,"Well, what I think you do is put in a qualifying phrase.",14
-fomc-corpus,1978,"A textual comment to qualify it [along the lines of]: This has uncertainties associated with it because we haven't been able to assess the effects of ATS. There's no weight on this one; this is the long-run range. This is just each individual one. So I think all you do with M1 is say that this range is set with the recognition that we have uncertainty because we don't know for sure the effect of ATS. Yes, Mark.",89
-fomc-corpus,1978,"Mr. Chairman, we have similar kinds of uncertainty when time deposits start bumping against ceilings and so on. We never qualify those. It's not at all clear to me why we are going to summarily downgrade M1 just because we have increased uncertainty of a kind that's similar to what we have often with M2 or M3.",67
-fomc-corpus,1978,"Well, I'm delighted to do it any way you want because I don't think it's going to shake the world one way on the other whether we just leave it cold or comment about it.",37
-fomc-corpus,1978,"We are just talking about one quarter, too.",10
-fomc-corpus,1978,"I have no strong feeling. I'll do what the Committee wants. But let's resolve it one way or the other. There's no problem in M2 and M3. There is no problem, apparently, in putting in M1+ as some sort of range with a comment. First, how many of you want a qualifying statement about M1 that would be of the nature of indicating that the range has been set with some degree of uncertainty about the effect of ATS? How many of you just want to state it with no comment? So it looks like we'll put in a qualifying statement.",117
-fomc-corpus,1978,Mr. Chairman.,4
-fomc-corpus,1978,"Yes sir, Roger.",5
-fomc-corpus,1978,"There was one point. Apparently around this table there is an assumption that it is wise to publish an M1+ and I would just like to raise a question about it. The work that we have done suggests that M1+ is indeed a measure or modifier to M1 as we go through this period of adjustment and uncertainty. But with respect to M1+ as any type of guide--as a replacement for M1 in terms of a measure of a narrow aggregate--it has a great deal of volatility to it because it includes all savings accounts at banks and those are interest-sensitive. As a result, it seems to me--",127
-fomc-corpus,1978,Disintermediation could affect it.,8
-fomc-corpus,1978,"Yes. It seems to me that if we now surface that and tell the public that we have another measure called M1+ and we give the definition of it, we may have a very hard time getting away from it as we move into the Humphrey-Hawkins testimony. As a result, I would prefer that we publish M1 with some recognition and qualifying statement--that the range is broadened, for example, because of uncertainty but not [introduce] a new aggregate measure called M1+. I think it's going to get us in trouble down the road. My point is that if we are going to use a narrow definition, I'm not sure it's the best definition.",137
-fomc-corpus,1978,I'll go back to our list; Larry.,9
-fomc-corpus,1978,"Well, Mr. Chairman, just a procedural suggestion. You recall some months ago I proposed to this Committee that we make more use of our economists throughout the System. It seems to me that several issues are surfacing, [such as] the Humphrey-Hawkins issue and this issue, that require or justify a certain amount of serious discussion--more time than we can give to it here. And I would ask--I don't know where that paper is--that consideration be given to having a convocation of any Reserve Bank economic staffs that want to participate, as well as any of us, within the next month or two to talk about some of these fundamental things that are occurring. We do it on membership, on automation, and on a lot of other things, and I think it would be helpful.",163
-fomc-corpus,1978,"Well, Larry, I think we can't wait until January when we're making the decision; we will have to make the decision at the February meeting. I don't know how our schedule fits with the 20th but that being [the date of the Humphrey-Hawkins testimony], I do think we do need some pre-discussion. We can't come up to the wire without this being resolved. Chuck, do you think the Subcommittee on the Directive could provide the Committee with some inputs so we get a chance to kick this around?",107
-fomc-corpus,1978,"Well, as I said, we defined our obligation, Larry, as being one where we have an investigation of these questions and report to the Committee by the January meeting or before--maybe by the December meeting.",42
-fomc-corpus,1978,Can we have something in December? Then there will be time.,13
-fomc-corpus,1978,"Now, in writing our report we are going to be using staff input and there could well be some staff contribution from staffs other than those represented by the members of our subcommittee. If there is something that can be done, Steve Axilrod is the staff director of the subcommittee and he's the one to work through. But I agree with you that there are a lot of important issues here, and I think we will have to look at them carefully. I realize there's an affection for M1, but there's no way to estimate it and have it be worth anything anymore. And the point about interest rates being frozen, Roger, the same thing is true of demand deposits. The interest rate is zero on demand deposits. And the interest rate is frozen on savings accounts at 5 percent--same condition.",162
-fomc-corpus,1978,"[I'd like to] follow up, Mr. Chairman, by saying that the staff has been under instructions to prepare alternative definitions of money. [Not only] in view of the discussion but even before the discussion, we were planning to circulate those before year-end throughout the System.",56
-fomc-corpus,1978,I think we need some lead time. I think Larry is absolutely right. None of us can digest this in one meeting or one session. We want to go back to our staffs and discuss it. Paul.,42
-fomc-corpus,1978,"I don't know where we are procedurally, Mr. Chairman. I'm ready to talk about substance if you're finished with this.",26
-fomc-corpus,1978,"Well, let's see if Frank Morris has any more on that.",13
-fomc-corpus,1978,"I agree with Phil. I wish Steve did have the courage to come out [with a recommendation] to eliminate M1. The idea that it's a better economic indicator I just don't think stands up, at least in the statistical analysis. That analysis shows that since 1966, M2 correlates better to GNP than M1. So it's not clear to me in what sense M1 is a better indicator. Also I think that a proliferation of indicators is not a healthy development for this Committee. I look back over the past couple of years and we comforted ourselves in '77 that while M2 was strong, M1 was well within our guideline. And we comforted ourselves this year that while M1 was strong, M2 has been within the guideline. If you look at both years combined, they are both way outside the guideline. I question whether a proliferation of indicators is leading us in the right direction.",186
-fomc-corpus,1978,What we need is to return to the halcyon days when the Central Bank operated in secrecy.,20
-fomc-corpus,1978,"I think we need some market input to this new concept of M1+. One possibility is that there are other things that might be included--for example, overnight RPs. I would hate to see us put M1+ in a directive until we've had some feedback from the market and from the academic world as to whether it is a reasonable alternative. Are we ready to give it any kind of official sanction?",82
-fomc-corpus,1978,I think what we ought to do is cut down that definition. I noticed they had credit union share drafts in there. Maybe we ought to just say M1+ is M1 plus savings accounts at the commercial banks for now. That picks up the NOW accounts at banks and it picks up the automatic transfers.,62
-fomc-corpus,1978,"What does that do to Mr. Axilrod's projections of the rates of growth, though?",20
-fomc-corpus,1978,Very little.,3
-fomc-corpus,1978,"Well, the credit union share drafts--",8
-fomc-corpus,1978,Just define M1+ as being M1 plus savings accounts at commercial banks.,16
-fomc-corpus,1978,"The others are pretty minor, except for the NOW accounts in New York. I'm not sure what will happen there.",23
-fomc-corpus,1978,"I meant for just now, Steve. And then for the first of the year we can talk about redefinitions.",23
-fomc-corpus,1978,"Roger, have you covered your point?",8
-fomc-corpus,1978,Yes sir.,3
-fomc-corpus,1978,"Okay, Dave Eastburn.",6
-fomc-corpus,1978,"I've voted my preferences. I'd just like to join those who would express a good deal of caution about M1+. Instead, I'd concentrate my efforts between now and February on devising a new basis for doing this and saving the consideration of M1+ until then.",53
-fomc-corpus,1978,"Well, we have heard a number of comments. Let me read you [my summary]. I think we have settled that we will publish [a range for] M1. I think that was pretty well recommended. We've had a rather large plurality in favor of footnoting or indicating something on M1+, but now we have heard some contrary arguments. Shall we reexamine that question? And we will first assume [we're talking about] M1+ as now defined, Chuck, so we don't get too many confusing things here. Do you still want to use M1+? I don't think we get bound by it. I think we can come up in January with whatever we want. I wouldn't feel personally bound by the precedent. But do you want to do it as some sort of textual indication at this point or not? Once again, let's have a show of hands on yes. We had a large number a moment ago.",190
-fomc-corpus,1978,"With downplaying, sir?",6
-fomc-corpus,1978,"Yes. [I count] 10. That's a pretty large percentage. We weren't counting. How many don't? Let's see, that's six. Now let's have the voting members. How many would like to use it? [It's] seven; we have a plurality. Okay.",56
-fomc-corpus,1978,I don't think it's a major issue if [M1] is downgraded.,17
-fomc-corpus,1978,"Yes, okay. Now we'll come back to substance, Paul, and get our ranges set in three minutes.",22
-fomc-corpus,1978,"You had a little discussion [before] the break that got into the substance of policy, and I just want to say that I want to be prudent and cautious too. I don't think we could be accused of not having been prudent and cautious and gradual. I do have some question as to whether we pitched it at the right level in the last year. I suppose I answer this question with a feeling, having looked back, that we've been a little too easy--not drastically so but we've tended to be on that side. And meanwhile inflation has gotten worse, and that's the principal problem that we face; it's the major risk to the stability of the economy. If it does accelerate, I think that's the thing that is going to produce the worst recession, not necessarily in the short run but in the long run--by which I mean two years instead of one year. I'm not looking way out in the future.",183
-fomc-corpus,1978,"I don't think inflation has accelerated since I have been at the Board, to put it bluntly. It has gone down since I've been at the Board. It was 10 percent; now it's 8 percent. So I'm not sure that I can share those sentiments. Since I've been here I've been presiding over a decline [in inflation] of 2 percentage points.",75
-fomc-corpus,1978,I was thinking of a period of probably 15 to 18 months.,15
-fomc-corpus,1978,"Well, you fellows fouled it up before! Nancy and I didn't.",15
-fomc-corpus,1978,"There is something to what you say. But I also think inflationary expectations have hardened a bit during this period even while the actual rate is going down from 11 to 8 or whatever it is now. And that is a problem. I do think this is a critical period, partly because the President's program gives us a little chance here maybe to change psychology. I think everybody is going to look at that cynically. But it does offer the only opportunity we have--I don't know of another--to change expectations a little bit. I think the principal reason people can be cynical about it--there are many reasons and many fears--is legitimate. I think that it will squeeze profits and that it will lead to controls and all the rest. But my first [concern] is that people will see this as a substitute for monetary or fiscal restraint. And I don't think we want to feed that expectation. We will legitimately maximize the effectiveness of the President's program, I think, if we show that it's not a substitute. Hopefully he will say that it is not a substitute. I know we don't know what [the President's program] will be, which gives us a little technical problem. All I know is what I read in the newspaper. If what I read in the newspaper is right, I think you can mechanically argue that our present targets, taking the midpoints of the ranges, are probably a little too high. If he's really talking about guidelines of the sort that you see--a price guideline of under 6 percent and a wage guideline of 7 percent--and we get the kind of productivity that was being implied this morning, those are not inconsistent. Now, we can be skeptical about whether he will be successful, but we are in a little peculiar position, I think, in having an easier monetary policy in some sense in terms of the aggregates than the President's program would call for. I don't know what it is, but this does leave me with the feeling that you can justify the current ranges--I'm now talking M2 and M3--though they're probably a little high. But they give us enough leeway to go down, and we don't know what the President's program is going to be. I would prefer to see those slightly lower but I can live with the present ranges.",467
-fomc-corpus,1978,"Let's try something, Paul. We do have a time constraint and everyone has this in mind. Suppose we take Steve's suggestions first. He had 2 to 6 for M1 and maintaining 6-1/2 to 9 for M2 and 7-1/2 to 10 for M3. So that M2 and M3 are the present ranges and M1 would be 2 to 6. I don't want to cut off the options, but let's just see. Let's just ask right now for the voting members to show their hands if they would be amenable to that kind of position at this point. Five.",131
-fomc-corpus,1978,"The only problem I have with it is that I don't see why the M1 is so high. It's a degraded item, but--",27
-fomc-corpus,1978,"Well, because we don't know. There might not be any automatic transfer shift at all.",18
-fomc-corpus,1978,You don't know in either direction.,7
-fomc-corpus,1978,"Yes, that's the trouble. How many did you count?",12
-fomc-corpus,1978,"I think seven, but I--",7
-fomc-corpus,1978,"Try it again. On the voting members how many would accept the proposal Steve has made? Six. Okay, how many could not? It couldn't be more than five. Three. Phil, you didn't vote, did you?",45
-fomc-corpus,1978,"No. I kind of like it both ways, M1 and M2 with [and without] ATS.",22
-fomc-corpus,1978,Pardon?,3
-fomc-corpus,1978,"I'd like an M1 with no ATS in there, too.",13
-fomc-corpus,1978,"Well, we are going to come back if there's no ATS.",13
-fomc-corpus,1978,"Well, I'm asking: Can we live with the 2 to 6 percent? I have no problem with it. Then the question is: Do you also have M1 if there's no ATS?",40
-fomc-corpus,1978,"If there's no ATS, we are going to have to have a conference call and decide what we do with the ranges.",24
-fomc-corpus,1978,What [if there are] no shifts of any substance over the next quarter?,16
-fomc-corpus,1978,We would have had the range too [low]. We would be outside our range. We wouldn't get it down to 6 percent. That's the risk of the 2 to 6 percent.,39
-fomc-corpus,1978,"Mr. Chairman, let me emphasize that these are 1-year ranges; these aren't for one quarter. Therefore, we have a lot of time to explain that we made a projection and we missed.",40
-fomc-corpus,1978,"All right, let's call the roll on that. I think we have enough, so let's call the roll. We are doing M1 at 2 to 6, but with the understanding that we will have a new meeting to decide this by telephone in case we have a block on ATS.",59
-fomc-corpus,1978,With the understanding also that M1 is substantially downgraded in the language?,16
-fomc-corpus,1978,"Yes, it's qualified. We agreed to that before. All right I'll vote for it.",18
-fomc-corpus,1978,Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Jackson Yes Governor Partee Yes Governor Teeters Yes Governor Wallich No President Willes No President Winn No,40
-fomc-corpus,1978,"Okay we have the ranges established. Thank you very much. Let's go to the next item--domestic open market operations and a report by Mr. Sternlight. You have been waiting patiently, Peter.",41
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,Thank you very much. I believe our legislation passed over the weekend and included the collateral matter. Did you know that?,24
-fomc-corpus,1978,"No, I was not aware of that.",9
-fomc-corpus,1978,So we thought we'd give you that good news.,10
-fomc-corpus,1978,I'm glad to hear that.,6
-fomc-corpus,1978,"Ken will report to us on these legislative matters at lunch. I think that will help us a bit. All right, we need the ratification of the transactions since the previous meeting; [a report on them] has been circulated. Unless I hear an objection, we will consider those ratified. Hearing none, we so order. The next item is comments by our Economist on prospective financial relationships. Steve, can you pull this one off?",89
-fomc-corpus,1978,"Well, I think I batted 50-50 on the first round. Mr. Chairman, I have only two brief comments, one of which is not quite appropriate because I'm not sure what the Committee did or didn't do with M1+. With regard to the directive, the Committee might wish to give particular consideration at this meeting to a money market directive in view of the absolutely huge uncertainties that are going to surround measurement and analysis of the monetary aggregates and also in view of the fact that the staff is forecasting growth in M1 abstracted from automatic transfers and M2 not too far from their longer-run ranges. So, as long as growth is around those ranges, it may be very desirable just to consider a narrow or restrictive money market directive without speaking out about the level of the federal funds rate that's the center of that particular directive--not have any particular movement in the funds rate from the decided level unless the aggregates are very clearly running above or below reasonable expectations. And I think alternative 1 and alternative 2 in the Bluebook on page 12 are [reasonable] relative to the long-run ranges. If automatic transfers [go into effect] on November 1, Mr. Chairman, and if people move ahead and go into those, I think M1 is absolutely worthless as an operating range. We're not going to be able to get good estimates of transfers from demand deposits. And I think it's very dangerous in operating to rely on only a single range like M2 or M1, given the uncertainties in the world. Thus, in this period, I really believe that M1+ would give you a much better basis for operations than M1, assuming there are automatic transfers. And in the short run, M2 is not subject to [much] uncertainty, as President Guffey pointed out, because we're not about to get interest rates below the ceiling rate on savings deposits in this period. So my recommendation would be to drop the 50-50 weighting of M1 and M2 as we had suggested and let the Manager take account of the behavior of M1, M1+, and M2 within ranges decided by the Committee, using his good common sense in judging how these are coming out relative to how the Committee has thought in the past and how it might express itself today. And if the Committee adopted a money market directive, I think there would have to be very clear evidence that this collection of aggregates was running well above or well below its ranges. And if automatic transfers go into effect, I would tend to reduce the weight on M1 considerably and put much more weight on M1+.",525
-fomc-corpus,1978,"Steve, thank you. I happened to come to the same conclusion in the sense that I think we're dealing with considerable uncertainties and I would prefer to have a money market directive under these conditions. However, I don't find any one of these [Bluebook alternatives] too attractive. My feeling would be that we should have a fed funds rate of 8-3/4 to 9 percent. I wouldn't like to see it go below 8-3/4 in present conditions and I'm not prepared, [given] what we've been doing in the past month with substantial increases in rates, to see it go beyond 9 percent. As to the ranges, if it's too dangerous to use just M2, then I think we really are going to have to leave the Desk a bit more latitude in looking at these various movements. I don't know what to pick for M1, just to pick something. But for M2, because there might be some shifts of funds from thrifts into bank savings accounts to get the ATS, I would tend to use the 6 to 10 percent range. M1+ I don't feel that strongly about. Again, I'm just guessing. I'd like to hear from other members, but my inclination would be to start with 8-3/4 to 9 percent and a money market directive and M2 at 6 to 10. I don't know how the others [unintelligible]. Let's run down the list and see. Paul, would you like to express your view?",307
-fomc-corpus,1978,"My inclination, more or less consistently with what I said earlier, would be to move the federal funds rate to 9 now, and maybe provide a range of 8-3/4 to 9-1/2. The M2 range for alternative [unintelligible] looks to me consistent with what we just decided for the long run. I don't know what you can say about M1 in particular. I think you can say one thing--that if it was high, it would be significant. I don't know quite what that number is, but I think we have to put the weight on M2, with the caveat that if M1 came in high--I suppose I would consider 6 or 7 percent high--against the projections and the automatic transfers, that ought to [carry] some additional weight. That's the kind of thing that would push us above the initial 9 percent that I would talk about. The projections say it wouldn't happen but if it did happen, I'd want to react.",207
-fomc-corpus,1978,Ernie.,3
-fomc-corpus,1978,"Mr. Chairman, I find alternative 2 acceptable, but I would be prepared to put the bottom of the funds rate at 8-3/4. I guess I would construe Paul's comment as pretty much embracing that. I think there's no need to elaborate further.",55
-fomc-corpus,1978,Okay. Phil.,4
-fomc-corpus,1978,"Mr. Chairman, I would get rid of M1 in this particular item and move to the money market directive. I think M2, contrary to what Steve says, ought to be our principal focus right now. It does have a heavy share of M1 in it anyway. And I agree with Paul that we ought to be watching with a great deal of care and maybe giving the Manager a bit more latitude. I would not want to see us today move to a 9-1/2 percent funds rate without some considerable discussion. My preference would be a range of 8-3/4 to 9-1/4 percent, centering on 9 and moving to 9 promptly.",142
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"I would go the money market directive. I would retain M1 but give much less weight to it and have an 8-3/4 to 9-1/4 funds range, and I too would move to 9 percent. I think it would be easy to get there and the market impact has already been accomplished with a discount rate increase.",72
-fomc-corpus,1978,8-3/4 to 9-1/4?,13
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"I didn't say, Mr. Chairman; I would prefer M2 at 5 to 9.",20
-fomc-corpus,1978,"5 to 9. Murray, did you get Dave's?",13
-fomc-corpus,1978,I'd take alternative 2.,6
-fomc-corpus,1978,Alternative 2. Thank you. Phil Jackson.,10
-fomc-corpus,1978,"I would drop M1 entirely from the operational specifications today. I would give M1+ a 3 to 7 range and M2 a 6 to 10 range. And I'd have a money market directive with an 8-3/4 to 9 percent range, going to 8-7/8 immediately. I recognize, gentlemen and lady, that that's really picking at straws and I've argued against that for a long time. I'm rising above principle.",96
-fomc-corpus,1978,"Well, I think the money market directive is most important. And I regard a range for the funds rate of 8-3/4 to 9 as staying right where we are. We are at 8-7/8 percent, I think, and that just gives us a little latitude on both sides. I would argue that we ought to stay there for the time being for several reasons. First, we do have the Administration's program coming up sometime here in the next few weeks--the next few days, perhaps--and we don't know what the program has in it. And it's presumptive for us to be moving interest rates in anticipation of something [as important as] the President's program that we don't know about. Second, Paul says we've moved very gradually this year, but we have moved 200 basis points since April, and April was only four months ago. And we haven't had time for the lag structures to work on anything. So we don't know where we stand; it's time to hold up a little to see where we are and to see what may occur. It may be that we'll need to go higher, but I think we need to get a look at it. And for the time being I think we've taken rates high enough. And third, I find that the staff projection is about the only acceptable projection we can have. It has minimal growth in the real GNP for my taste. It has too much inflation, surely, but I don't see that we can knock down that inflation greatly by our actions in this period to come. And it does assume an interest rate level not very far from where we are right now. Therefore, I think we should hold up for the time being until we can see what the shape of the future is, consistent with the staff advice we're getting in the form of a projection. As far as these aggregates are concerned, I really don't know. I guess I favor alternative 1, incidentally, not alternative 2. And I do believe we ought to have some room on M2 because we don't [know] whether there are going to be shifts into it or not in this period to come. So I'd be very much opposed to Phil Coldwell's 5 to 9 [range for M2]; I think it ought to be 6 to 10. On M1, maybe what we could do is put an upper limit on it--so long as the narrowly defined money supply does not exceed 7 percent, for example--and forget the bottom end. Maybe use it just as a one-sided [target]. I agree with Paul that it would certainly tell you something if M1 went up with ATS, and perhaps that's a way of utilizing it. I happen to agree totally with Steve that the only weekly figure we will be getting that can be a guide to the Desk--that would bear on this and isn't sullied by the ATS thing--will be for M1+. That is, we can pick up member bank savings deposits on a daily average basis as we've been doing, so we can add that to M1. And therefore, it will provide a control vehicle--the only control vehicle that makes any sense at this time below the M2 level. So I would put in an [M1+] range. I don't care [about the precise range we choose]. I think maybe I'd put in 4 to 8 but I guess 3 to 7 is all right. Who's to say in this period?",706
-fomc-corpus,1978,Nancy.,2
-fomc-corpus,1978,"Well, I would favor a money market emphasis in the directive. I would also favor a federal funds range of 8-3/4 to 9 percent. I feel very strongly that we have moved very rapidly over the past four months and it's time to sit back and see what we've done. We certainly haven't done that to date. As to the aggregates, given the uncertainties, I would favor a wide range on M2 of 6 to 10 at this point. And I think I like your idea of an upper limit on M1--if it gets above a certain point--but I'm not quite sure what that is, Chuck. Is it 9 percent or 10 percent that we begin to--",144
-fomc-corpus,1978,"Well, no, I said 7.",9
-fomc-corpus,1978,It seems to me that's a better way than giving a range.,13
-fomc-corpus,1978,"Okay, thank you. Henry.",7
-fomc-corpus,1978,"Well, I would go with the money market directive. I would keep M1 but put a low weight on it--say, 1/4--and put 3/4 weight on M2, much as I am skeptical of M2 as a general proposition. But in this situation, I don't see any other alternative. I would like to have M1+ as an additional guide. For the amounts, which are very speculative in this case, I'd go with alternative 2. On the funds rate I see the attraction of waiting and seeing what we've [achieved] when we've raised rates. [But] the aggregates aren't going to wait and see and they've been running high. If they weren't, I'd be happy to slow down on the funds rate. But as it is, I would go for the 8-3/4 to 9-1/2 percent range, go to 9, and stay asymmetrical at 9.",193
-fomc-corpus,1978,Mark.,2
-fomc-corpus,1978,"I would just like to point out [something], Mr. Chairman, again making the distinction that nobody seems to find acceptable. Pre-ATS, assuming no adjustment were going to take place, if we had a 7 percent growth in M1 for the 2-month period, given the current expectation for October of around 3-1/2 percent, it would mean that November could come in at 10-1/2 percent before we do anything. If you then add ATS on top of that and have post-ATS an M1 target of 6-1/2 or 7 percent, you're talking about growth in M1 for November of anywhere from 10 percent on up, however much shift there is. And I just can't imagine, given the report that we had on the international situation [and] our concern about inflation and all the rest of it, that we would find that acceptable. I like Chuck's notion of having a limit on M1, but I wouldn't choose 7; I'd choose something like 5. And it's not clear to me, even though there is this uncertainty, that the thing to do is to just jettison M1. We know something about M1; we can get a feel for how things happen. We're going to have at least one full month without ATS and it seems to me that maybe we're a little too quick to give [M1] up. On M2, it seems to me that for reasons Phil Coldwell stated we ought to have a 5 to 9 percent range. I don't like money market [directives]. If the Committee goes with one, which it seems clear that it will, I think we ought to have a range that goes at least to 9-1/2 and move immediately to 9. And I would say in the absence of some weakness that we don't see, we ought to move over the course of the month to 9-1/4.",398
-fomc-corpus,1978,What's your bottom on that Mark?,7
-fomc-corpus,1978,8-3/4.,6
-fomc-corpus,1978,Okay. Willis.,4
-fomc-corpus,1978,"Steve, have the TT&L changes been factored into your November estimates?",16
-fomc-corpus,1978,"We would not expect that to have any impact on the money supply. We would expect it to go into effect somewhere in the first week of November. But we expect it to have an impact on the distribution of Treasury balances between the Fed and the banks and some effect, therefore, on Alan's operations in the market in the transition. But no effect on money supply.",74
-fomc-corpus,1978,"I think my preference would be a money market [directive] with an 8-3/4 to 9-1/4 [fed funds] range and alternative 2, I suppose, [given] our lack of knowledge of what's happening.",51
-fomc-corpus,1978,Alternative 2?,4
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Okay, thank you. Next, John Balles.",11
-fomc-corpus,1978,"I like very much what Henry Wallich had to say and earlier than that, Frank Morris. I think in view of the uncertainty that we face in the near term on M1, M1+, etc., there's still an argument to be made--and I won't bother repeating it--for just placing more weight on M2. And I think that 3/4 weight would be a good thing to do at this point. As far as the federal funds rate is concerned, I'd come out with an 8-3/4 to 9-1/4 percent range, moving to 9 very quickly. And otherwise I'd take the alternate 2 recommendations. Particularly at this time, Mr. Chairman--alluding to a very important point that you made--I think that we don't want to grind the economy down by very slow monetary growth and perhaps precipitate a recession such as happened in '74. I think we're faced with an opposite kind of situation now; inflation was worse then. We did in fact in retrospect, in my view, have much too slow a pace of monetary growth when the brakes were finally landed on. But I think the objective now ought to be to prevent a monetary explosion such as the type we've had in the last couple of months--in August and September. I for one wouldn't lean toward the kind of monetary policy that in fact triggered a recession the last time around and I don't think the majority of members are talking about that kind of thing.",297
-fomc-corpus,1978,"Thank you, John. Bob Black.",8
-fomc-corpus,1978,"Mr. Chairman, I share the temptation of most people to use a money market directive. But I don't really like money market directives, even though there's a lot of uncertainty now, because I believe there would be a lot of uncertainty next time and if we do it this time, we may do it again. Despite that, I would go ahead and change--",72
-fomc-corpus,1978,You'd rise above principle also.,7
-fomc-corpus,1978,"Rise above principle? No, I'm not really going to do that. I'm going to stick with principle and say that I'd really rather go with an aggregates directive, although I don't object to anybody else feeling the other way. The problem I have is that the short-run ranges to me don't really tie in very well with our long-run targets. I've distributed a couple of times before a table that shows the rates of growth in M1 and M2 for successive yearly periods. For example, for the third quarter of '77 to the third quarter of '78, as Steve pointed out, the money supply narrowly defined grew by 8 percent. If in fact we have the amount of growth in M1 projected by the staff, for the period between the fourth quarter of '77 and the fourth quarter of '78--if you take the November figures as a good proxy for the fourth quarter--the rate of growth would be 9.2 versus the 8 percent. And I think we need to work down gradually from the 8 percent. And when you go to M2, the last figure we have would be for the third quarter of '77 to the third quarter of '78, and that comes out at 8.2. If you let the November projection be a proxy for the fourth quarter--the fourth quarter of '77 to the fourth quarter of '78 would be 8.5. So what I'm really saying is that I think the short-term objectives, or targets, or whatever you want to call them, are too high if we're to make any progress currently in moving down to a slower rate of growth over time. And I would hope that in a couple of years or so they could be down. So I would want to set those a good deal lower than that. I was hopeful that we might be able to get down as low as 7-1/2 for this yearly period, and this would call for practically no growth in M1 if we have the automatic transfers. So, using the aggregates directive, I would say -2 to +2 [for M1]. M1+ comes out to 2 to 6 and M2 to 3 to 7. I would use the federal funds range in alternative 2, 8-3/4 to 9-1/2 percent, and I'd edge it on up to 9 now.",483
-fomc-corpus,1978,"Thank you, Bob. Roger Guffey.",10
-fomc-corpus,1978,"Thank you, Mr. Chairman. I think we would adopt the ranges for M1 and M2 that are set forth in alternative 1. With respect to M1+, in view of the comments earlier, I have no objection to setting ranges for that for internal operating procedures. And if I was misunderstood before, I'd like to correct that. I have no objection to the range in alternative 1 for M1+, which is 3 to 7. It is important, in my judgment, to go with a money market directive. I think there would be some advantage to moving to the 9 percent level, with a money market directive, immediately following this meeting. And as a result, I would select a federal funds range of 8-3/4 to 9-1/4, with the understanding that any movement from 9 percent during the intermeeting period would require some consultation.",182
-fomc-corpus,1978,"Thank you, Roger. Bones.",7
-fomc-corpus,1978,"Mr. Chairman, without repeating many of the other fine points made, I think we would opt for alternative 2, a money market directive, the range for the federal funds rate, though, of 8-3/4 to 9-1/4, and moving promptly to 9.",61
-fomc-corpus,1978,"Thank you, Bones. Bob Mayo.",8
-fomc-corpus,1978,"Well, my arguments have all been given. I would come out at 8-3/4 to 9 [for the funds rate], with 3-1/2 to 6-1/2--the 3-1/2 being irrelevant--for M1. A 6 to 10 percent range is okay for M2, and I'd leave it at that. I would interpret the present rate as being 8-7/8 and if we want to go above 9, I think we ought to have another meeting.",112
-fomc-corpus,1978,Frank.,2
-fomc-corpus,1978,"I would opt for a federal funds range of 8-3/4 to 9-1/4 and move immediately to 9. I think we've got to keep probing until we find the level of rates that is going to stabilize the money supply. I also feel, given the degree of monetary restraint that now requires, that it would be associated with higher levels of interest rates than we've seen in prior cycles. I think that it would be safe, despite Steve's advice, to use a single M2 guideline of 4-1/2 to 8-1/2 percent.",120
-fomc-corpus,1978,"Thank you, Frank. Lawrence, are you clean-up hitter again?",14
-fomc-corpus,1978,"I'd say don't throw my M1 out. If we have M1, without ATS [I'd suggest a range of] 3 to 5 and for M2, 5 to 9. And I think most important of all is widening the federal funds range. If we try to stick to anything below 9-1/4 or 9-1/2, we can't possibly control the aggregates as we're trying to do. So I'd suggest 8-3/4 to 9-1/2 for the fed funds range.",110
-fomc-corpus,1978,I missed your M1. What was it?,10
-fomc-corpus,1978,3 to 5.,5
-fomc-corpus,1978,"Well, thank you all. Let's see what we have. A mess. Well, looking at the voting members, the consensus on the federal funds range is 8-3/4 to 9-1/4, I would say. There are a few 9-1/2s and there are a few 9s, but we don't have a majority of 9s without getting some 9-1/4s. On M2, it's about split between 6 and 10 and 5-1/2 to 9-1/2. Let's forget M1 for the moment and come back to that later. I can't really tell, there were so few people who really had an opinion. It sounds like the Partee dictum of a 7 percent cap might be as good [as any in terms of the] consensus that occurred, although there were some who were slightly tighter. What?",188
-fomc-corpus,1978,That seems a little high to me. I was just mumbling to myself.,16
-fomc-corpus,1978,"Well, you may be right because not many people really put a number down. So there were several drops and several passing. What is your pleasure?",30
-fomc-corpus,1978,The money market directive did win.,7
-fomc-corpus,1978,"Oh yes, I think the money market directive is clearly the consensus. And I would say using M1 in some way was a consensus, too. M2, if you want to split it, it's 5-3/4 to 9-3/4, obviously. Have you ever done that? And on the fed funds rate nobody is below 8-3/4 and [most have the top at either] 9 or 9-1/4. You [suggested] having the cap put on it, and there were two or three 9-1/2s. MR. EASTBURN(?). Mr. Chairman, did you have a consensus on moving to 9 percent? How does that come out, do you know?",156
-fomc-corpus,1978,"Well, of those who expressed [a view on] that, five expressed going to 9. That's a little less than half of the eleven [voting members]. The others didn't [say]. One of them was 8-7/8 and that was Phil Jackson. Nobody else expressed much--MR. PARTEE(?). I agree with Phil.",72
-fomc-corpus,1978,"What was yours, Ernie?",7
-fomc-corpus,1978,I did not say [anything about] going to 9 immediately but I would prefer that.,19
-fomc-corpus,1978,And I would stay at 8-7/8.,12
-fomc-corpus,1978,"We're going to have to try some go-arounds and see what we can come up with. One thing we're going to probably [agree on], if you look at the consensus, [is] the money market directive. So let's forget that; everybody or a very large preponderance seems to [prefer that]. I don't know of anyone who [favored] a monetary aggregates directive among the voting members. Let's take the M1 at a cap of 7 percent. Let's take M2 at 5-1/2 to 9-1/2. And let's take federal funds range at 8-3/4 to 9-1/4, going to 9 [promptly]. Let's get a show of hands on that directive.",153
-fomc-corpus,1978,Just the voting members?,5
-fomc-corpus,1978,Just the voting members.,5
-fomc-corpus,1978,Would you repeat that?,5
-fomc-corpus,1978,"M1, not to exceed 7; M2, 5-1/2 to 9-1/2; federal funds, 8-3/4 to 9-1/4, and going to 9. How many of the voting members would vote for that? Six. That's a majority isn't it?",68
-fomc-corpus,1978,That 7 is a little high.,8
-fomc-corpus,1978,You didn't vote in favor of this?,8
-fomc-corpus,1978,"No, just because the 7 is too high.",11
-fomc-corpus,1978,It's only because of that 7 that I agreed to the lower range on M2.,18
-fomc-corpus,1978,We need some compromise to get a broader consensus here. I assume that the weight on M1 is not equal the way it usually is on this. I assume everybody kind of agreed with that.,39
-fomc-corpus,1978,And that it would be a cap sort of thing?,11
-fomc-corpus,1978,"I don't want to take an official vote because I'd like to have more than a very thin majority. Paul, can't you see your way clear to this? It's a very reasonable proposition.",37
-fomc-corpus,1978,"Hang in there, Paul.",6
-fomc-corpus,1978,Let me just argue the other side. The 7 is awfully high when we're getting this automatic transfer.,22
-fomc-corpus,1978,"Would you prefer a 6 to 10 on M2, and 6-1/2 on M1?",24
-fomc-corpus,1978,No. I don't prefer that 6 to 10 either.,13
-fomc-corpus,1978,You just said we're getting the automatic transfer; that makes it uncertain what M2 will be. The M2 will be higher than it would otherwise be.,31
-fomc-corpus,1978,But M2 looks plenty high to me.,9
-fomc-corpus,1978,"We have a majority for this proposition but I think it's too thin and I'd like to see if we can gain some other support. Let's see. Paul didn't vote for it; Willis didn't vote for it, Nancy didn't vote for it, and Mark didn't vote for it. Well, let's try another one just for a second: [For M1] a cap of 7; for M2 a range of 6 to 10; for federal funds, 8-3/4 to 9, with [a move to] 8-7/8. How many would vote for that? Three. Phil Jackson, did you vote for the other proposition?",135
-fomc-corpus,1978,"Yes. MR. EASTBURN(?). Mr. Chairman, would you like to try what you had first with a cap of 6?",29
-fomc-corpus,1978,Then 6 to 10 on M2?,10
-fomc-corpus,1978,"No, I'd leave it 5-1/2 to 9-1/2.",19
-fomc-corpus,1978,I think you'll lose my vote.,7
-fomc-corpus,1978,"Let's just do it. If we had a cap of 6, and the others 5-1/2 to 9-1/2, and 8-3/4 to 9-1/4 going to 9, how many would vote for that? Seven. That got more votes than the other one did. Here's my final proposition. I'll give you a deal you can't turn down: M1, a cap of 6-1/2; M2, 5-1/2 to 9-1/2; and fed funds, 8-3/4 to 9-1/4, going to 9. How many would vote for that?",144
-fomc-corpus,1978,"Mr. Chairman, if you went to 9, could we then have the suggestion that there would be consultation before moving beyond 9?",28
-fomc-corpus,1978,We could have that.,5
-fomc-corpus,1978,"We wouldn't ordinarily do it anyhow, unless we're at the top of those ranges.",16
-fomc-corpus,1978,We went to the top of the range very quickly this last time.,14
-fomc-corpus,1978,We were already there.,5
-fomc-corpus,1978,We were already there last month. This month we're starting off with a much lower base.,18
-fomc-corpus,1978,It was a very biased vote--biased toward the aggregates.,12
-fomc-corpus,1978,We'll start out with 6-1/2 to see if we can get more than 7 votes.,22
-fomc-corpus,1978,"Oh all right. Don't you fellows who were for the 6 give up now. Come on vote. Seven. We lost somebody. Who'd we lose? Yes, we lost Willis.",38
-fomc-corpus,1978,"Come on, Willis, goodness gracious. All right let's call the roll on my last and final offer: 6-1/2, 5-1/2 to 9-1/2, 8-3/4 to 9-1/4 moving to 9, money market directive, and pray.",67
-fomc-corpus,1978,"Mr. Chairman, is there to be a supplemental M1+? I just want to be sure.",21
-fomc-corpus,1978,I think it would have [unintelligible]. I don't think you can watch it and be guided.,22
-fomc-corpus,1978,"Just to be clear, M1 is kind of meaningless unless it's up toward the top of this limit. There's no weight really on anything below that?",30
-fomc-corpus,1978,"No one can [unintelligible]. If it gets up above 6-1/2 for M1, then--",26
-fomc-corpus,1978,"No, we worry about it. [But] no matter how low it goes--",17
-fomc-corpus,1978,So I will vote for that.,7
-fomc-corpus,1978,Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Jackson Yes Governor Partee Yes Governor Teeters No Governor Wallich Yes President Willes No President Winn A reluctant yes. Nine.,45
-fomc-corpus,1978,"We'll have canceling dissents. Well, thank you very much. Next is confirmation of the date of our next meeting, which is Tuesday November 21. Luncheon is next. I have one other announcement. Yes.",45
-fomc-corpus,1978,"I think this Committee should decide tentatively today to reassemble the day after the President announces his anti-inflation program and address ourselves to that program and how it relates to our responsibility. [We ought to discuss] what we could do in the way of [unintelligible] a public announcement, which would undertake to underscore at least the objectives of the President's program. [We should] consider, of course, everything in our area of responsibility that could be cited as lending support to his program. I would view several possible positive things as coming out of this. One, and most important, that we are doing everything we can with everything that's available from all sources on an anti-inflation front. Two, an opportunity to try to minimize the possible boxing-in effects from the announcement with respect to freedom of action in the monetary policy area. And I would think there would be an opportunity for something to be said which may not be said in the announcement--I have no idea what the announcement will be--with respect to the importance of finding policies that will reach more effectively into this wage-price push part of the economic picture than anything that's been put forth thus far. And finally, it seems to me that such an announcement or statement or the holding of a meeting of this Committee at that point in time would probably carry some meaningful message to the international sector that this country at long last is meaningfully and unitedly attacking the inflation problem.",291
-fomc-corpus,1978,What if this Committee at long last meaningfully [unintelligible] the President's program?,20
-fomc-corpus,1978,I'm assuming that the statement will be something that either will have or can be reasonably construed to have a substantial body of economic content.,26
-fomc-corpus,1978,"I think this is a Board matter, not an FOMC matter.",15
-fomc-corpus,1978,"I think if it were done by the FOMC it would have the potential of carrying substantially more weight to the public, both domestically and internationally.",31
-fomc-corpus,1978,"May I just ask a couple of questions? If we were divided on the effectiveness of this program, I'm thinking this could backfire on us--the fact that we're meeting and it would become known.",40
-fomc-corpus,1978,"If we were not united, I wouldn't put out a statement.",13
-fomc-corpus,1978,"Then I would wonder, if we came out endorsing the program and commenting on parts of it favorably and other parts of it unfavorably, whether we politicize the FOMC. If we indicate that we really intend to take other kinds of actions that we haven't consulted with the President about, it [might] be read as counter to his program and superseding his program. Would that get us into hot water? I don't know. These are the kinds of things that I would be a little concerned about.",105
-fomc-corpus,1978,I think we all will.,6
-fomc-corpus,1978,"On that one aspect of it, it seems to me that holding such a meeting quickly after the announcement would permit us to construe anything that we were proposing to do as being supportive of this program and thereby blunt the charge that we were not being supportive or that we were going contrary to his [program].",61
-fomc-corpus,1978,"Mr. Chairman I think it's fraught with danger because, first of all, I think this will be a controversial program regardless of what the White House puts out. The first charge would be that our Chairman was sort of falling into line the next day. I think we'd lose our independence. If we want to speak out as individuals, I think we're entitled to. I know their first dog and pony show was to be in St. Louis and there has been a tremendous difference of opinion within the business community, which was asked to sponsor it, as to whether they even wanted to give credence to it. So I think it's going to be controversial and I'd hate to see us put on the spot of having to take an official stand.",148
-fomc-corpus,1978,It's true that the FOMC is not in the habit of issuing press releases on other people's business.,21
-fomc-corpus,1978,"I think this matter has considerable danger to us, Mr. Chairman. Anyway, we don't have to decide [today]. We'd better take a look at what that program is and if it's going to be desirable for us to speak out, then we ought to do it.",54
-fomc-corpus,1978,We'll probably be asked about it at the next--,10
-fomc-corpus,1978,"Yes, but there's two things, the FOMC and the Board of Governors. And if we're asked, do we opt to respond as a Board position or should it be ducked? Or are they to be individual comments or what? Those things I think have to be handled with great care. Paul.",62
-fomc-corpus,1978,"The idea of a meeting has problems, I think, which have been alluded to here. I think Ernie has hit on a very good point as to the importance of this program and its [implication] for monetary policy. But maybe the burden is the other way, I would just suggest, in the sense of any announcement. [I say that] as one Committee member, anyway, who hopes that in shaping this program they do not try to box us in our monetary policy precisely. But anything they would want to say about the need for a consistent monetary policy--in terms of the growth of the monetary aggregates being consistent with a reduction in inflation--I think we ought to applaud.",140
-fomc-corpus,1978,I think the probability is just the reverse; I think the probability is that he's going to have a statement which says this is going to be so effective that monetary policy can ease up.,37
-fomc-corpus,1978,That's precisely what I'm worried about.,7
-fomc-corpus,1978,And a statement is likely to be touchy for us.,12
-fomc-corpus,1978,"It's important that we respond to that immediately, it seems to me.",14
-fomc-corpus,1978,"Well, you can't--",5
-fomc-corpus,1978,We respond by actions and that's--,7
-fomc-corpus,1978,"Frankly, I think that we'd all be so wise if we'd learn after these FOMC meetings not to take calls from the press. You have no obligation to answer calls from the press. You get drawn into these individual comments that lead them to pick through and surmise what we're doing. And I don't think the FOMC ought to come back in and get into a public debate with anybody in Washington over whether somebody else's policy will [lead] us to do A, B, C. [That's my view] on that issue now. Now, the other issue is a broader one. If they say this will make it possible for monetary policy to be easier, I sure wouldn't want to see us go into the street the next day and say, ""Oh no, we're going to tighten up.""",162
-fomc-corpus,1978,I sure wouldn't like to see them say that in the first place.,14
-fomc-corpus,1978,"No, I'd say that we would like to see neither.",12
-fomc-corpus,1978,More likely [it will be expressed as] a hope that interest rates would be able to come down. That's more likely the kind of sense--,29
-fomc-corpus,1978,"There's no question if the President gets the wage rate down to 7 percent, then that makes it a hell of a lot easier for us.",29
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,"What I was about to say before I forget is that Larry Roos had circulated a statement, which I got just before I came in here and didn't have a chance to read, and he has asked that we put it into the record. So I wish you all would read it and it would be officially in the record.",65
-fomc-corpus,1978,"Thank you, sir. [Statement--see Appendix.]",11
-fomc-corpus,1978,"On another matter, Mr. Chairman, I've been unhappy this year with our experience with the Ms, and the meeting today convinces me that we're certainly not sure about how to measure them or what they are. I wonder if this isn't the time to reopen the question of our guidelines. Even though we've explored it and buried it a number of times, [I'd like us] to reopen the issue of some sort of reserve base aggregate to be used to guide our actions. I think it's time.",99
-fomc-corpus,1978,"What is going on, Steve, in terms of looking at the definitions of money and the aggregates?",20
-fomc-corpus,1978,"Well, on definitions of money, we plan, as I mentioned before, to have within two months new definitions taking account of the fact that the world has changed. With regard to the reserve base as an alternative guide, we've had various definitions of the reserve base which from time to time have had varying degrees of prominence in the Committee's instructions. And that's a matter that I think might be taken up by the Subcommittee on the Directive when they consider the relationship of monetary targeting to the Humphrey-Hawkins bill.",104
-fomc-corpus,1978,I don't want to duck the issue. I think it's a subject that needs exploration and I assume the Committee has done it before. It came up when I was first [appointed] to the Board of Governors. And the decision was--and I didn't have the background--that no changes be made at that time. Now we're coming up with a lot of new changes and I think we ought to restudy it.,83
-fomc-corpus,1978,I would propose to bring it up by that route if Governor Partee agrees to it.,18
-fomc-corpus,1978,"Let's not come up to our January and February meetings where we're trying to decide on our new policies without some pre-thought because all of us need to digest these things. They're too complicated and too difficult. Well, we have a 2:30 meeting with your Committee, John [Balles], and we might be a little late.",68
-fomc-corpus,1978,"Well, ladies and gentlemen, thank you for your early attendance. It may turn out that you will like this arrangement and we will continue it in the future. There is only one danger; I have found that Parkinson is right that work will expand to fill the [available] time. So if we came in at eight o'clock, I'm sure you'd still talk until one o'clock regardless of my admonitions. So maybe we'd better meet at eleven and that way we can shorten these meetings! But we have this [early] meeting for a sad reason and that is, of course, because of the loss of Steve Gardner who was certainly a gentle person and a wonderful colleague. I think we might start our meeting, if you don't mind, by perhaps just standing for a moment of respect for Steve. [Moment of silence]",165
-fomc-corpus,1978,"The first order of business is the approval of the minutes for the actions at our meeting on October 17th. And all the intervening events are included, I believe. Is that correct?",39
-fomc-corpus,1978,"Well, they're included in the Policy Record.",9
-fomc-corpus,1978,"All right, are there any corrections or changes to the minutes? Hearing none, they will stand approved. Next item: Submitted to you on November 9 was a report of the examination of the System Open Market Account. I believe all of you have received a copy. We need your acceptance of that report. Are there any questions or comments you care to make? Hearing none, we will record that as accepted by the FOMC. Now we turn to foreign currency operations, and first is a report by Scott Pardee on these operations since October 17.",113
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"We don't want to settle for that. Thank you, Scott. Well, timing is everything and the timing wasn't too bad. Now we've got to be sure that the Treasury promptly issues some of the foreign currency denominated securities, which will allow resources for intervention without expanding the money supply in other countries. That will be very popular and will be a breakthrough of policy; it's as important as anything else we've accomplished and exercised.",84
-fomc-corpus,1978,Have they established an amount on that?,8
-fomc-corpus,1978,"Yes, of course. The amount we agreed on was up to $10 billion, which would be [issued] over a year or so. In December they probably will issue two to three billion in German marks through a private placement. And we're trying to encourage them to place, probably before the middle of December, an issue of one or two billion Swiss francs at the same time, and as promptly as possible a small yen issue just to establish the principle. Once it's established, we're over the hump of the possibility of withdrawal pains and once it's done I think there is a psychological change in the Treasury. They now see this as a desirable instrument in debt management and, therefore, I think we have crossed that [hurdle]--I hope.",151
-fomc-corpus,1978,Have they reached any decisions as to the maturities?,11
-fomc-corpus,1978,"The maturities we are discussing. But the market is really for 3-to 5-year notes in Germany. And these can be placed without being termed under German law ""securities."" They would carry 6 to 6-1/2 percent interest and would probably be non-callable. And if the Treasury wanted to hedge during the period of their being outstanding, they could acquire marks to offset their obligation--if they felt the exchange rates were reasonable. And, of course, then the question is [where] to reinvest the funds and that's being worked out. Possibly [there could be] an issue from the Ministry of Finance that would allow the funds to be invested until such time as we use them because the Treasury needs to get a yield on them. In the Swiss franc market you're talking somewhat the same order of magnitude, [and that's] much easier to sell. They can do very much larger amounts if necessary and the interest rate is 2 to 2-1/2 percent. Yes, Willis.",207
-fomc-corpus,1978,"Scott, [you mentioned] the $4.6 billion of our intervention; what's the foreign intervention at the same time? The footnote in the Bluebook about $11 billion is for direct placements in foreign securities in the bill market by foreign accounts.",51
-fomc-corpus,1978,I think it probably depends on how you measure; [they're] roughly about the same over the whole period. We've taken a bigger share than we normally have. Since November 1 our share has been bigger than the others.,46
-fomc-corpus,1978,Then the $11 billion [referred to] in the footnote in the Bluebook is from a previous period?,24
-fomc-corpus,1978,"Well, [it's] the totality of central banks; a lot of central banks ended up buying dollars due to the Swedish [unintelligible] Riksbank.",35
-fomc-corpus,1978,"As you all would expect, the great difficulty in this operation has been in D-marks. I think the operation in yen and Swiss francs has gone remarkably well and the coordination has been superb. [In] our intervention in Swiss francs, Scott, we've had an equal 50 percent intervention by the Swiss National Bank in New York. They've intervened directly in addition. And, of course, we've intervened very modestly relatively in yen, and the Bank of Japan has operated very strongly. The problem [is] with the D-mark, of course; it's the [currency] that is most subject to speculative trading and testing. And because of the 24-hour market, the marshalling of a rate on the dollar or whipsawing is possible between times when certain markets close and others open. We've had a little bit of trouble in that regard, which has been attenuated in more recent days but was worrisome for a while. MR. [PARDEE]. Mr. Chairman, in response to President Winn's question, since mid-October the total foreign intervention was $5.6 billion, of which $600 million was through the Desk. And since the beginning of November the total foreign intervention was $3.3 billion, of which $500 million was through the Desk.",261
-fomc-corpus,1978,"And when we think of these numbers we must recall that the risk on our intervention through the swap line is shared 50 percent by the other parties. So our exposure, which is what Scott is giving you, on the profit [or loss] side is only half of the amounts that we intervened through our swap lines. So when you take it all into account, our intervention would be half of the $3.6 billion since November 1, right?",93
-fomc-corpus,1978,"All of our intervention in New York, which has been in German marks, is for our account. It's just in the case of the Swiss that--",30
-fomc-corpus,1978,"So our risk is half that amount; that's all I wanted to point out. So what we have in risk is not the $3.6 billion but half of that, in terms of our exposure to gains or losses. Any further discussion?",49
-fomc-corpus,1978,"Mr. Chairman, could I ask two questions? I'll put them in the form of comments that you can react to. These are both looking to the future. One, I'm assuming that the market will look to our policy to be responsive to what happens in the aggregates. That is, they will not necessarily be disappointed if interest rates don't go up further if the aggregates are soft. Second, my assumption is that as we move further toward the possibly of a recession, [our trading partners] will be increasingly concerned about the impact of that on their own economies and perhaps won't be pressing so hard for us to hold our economy down. Would you react to those?",132
-fomc-corpus,1978,"Well, on the first question, I think many people felt that one of the items in the November 1 package was a sharp rise in the federal funds rate. And to the extent that it has drifted back in the last few days, we've had a number of people calling us wondering why the Federal Reserve has trimmed this back, and there has been some comment that this has hurt the effort on the dollar. But that's policy here. As for the other question on the recession, I'm not being so receptive to the comments on this point that people from the market are making these days because I think some of them have become so frustrated and cynical that they argue that we should have a recession--that we somehow should purge our souls from all of these terrible things that we have done. And my reaction is precisely what you've said, namely that the risk is that we will not only have a recession in the United States but that we will have a broader decline or a recession in other countries as well. So they've got to be very careful of what kind of policies they're trying to push on us in the United States and on the other countries at this time. So they haven't recognized that there is this broader risk; they're still thinking in terms of some kind of purging on the part of the United States.",261
-fomc-corpus,1978,Perhaps there's a difference between the markets and the authorities with respect to that.,15
-fomc-corpus,1978,"Well, I've said the same to some of our central bank colleagues in Europe as well.",18
-fomc-corpus,1978,Thank you.,3
-fomc-corpus,1978,May we have your approval to ratify the transactions since the previous meeting in the foreign exchange markets? VICE CHAIRMAN VOLCKER(?). So moved.,32
-fomc-corpus,1978,"Any dissent? Hearing none, we will record that as approved. Now we have Alan Holmes with recommendations with respect to foreign currency operations.",27
-fomc-corpus,1978,[Statement--see Appendix.] [Secretary's note: The Manager made routine recommendations to renew maturing swap drawings.],23
-fomc-corpus,1978,"Just to make it clear, Alan, to the extent that we do acquire these currencies, we may be paying these down instead of rolling them over. So your comment was to roll them over if we had not paid them off.",46
-fomc-corpus,1978,"If we do not, yes.",7
-fomc-corpus,1978,Any comments or questions? Yes.,7
-fomc-corpus,1978,"One observation: The November 6 letter from Bill Wallace to Murray Altmann on the examination of the [System Open Market Account] had some numbers in it about a loss on foreign exchange operations, showing that as $121.7 million. If that is to be published ever, I think it would be quite important to distinguish between losses from current operations in this year [and prior periods]. Just by a phone call, we found out that it's only $27 million [this year] whereas $105 million of that was the liquidation of the Swiss franc swap going way back to 1971.",119
-fomc-corpus,1978,"I think in our published reports that is set out separately. Is that correct? MR. HOLMES(?). Yes, it is.",27
-fomc-corpus,1978,"Well, that's fine. I just want to make sure, because otherwise it would by very misleading.",20
-fomc-corpus,1978,"I think they're very distinctly separated in the public report. That's a good point, incidentally. That happened on somebody else's watch. I assume you were all here during that time; I wasn't. Any other comments? Then do we have your approval to follow the Manager's recommendations? Hearing no dissent, we'll so order. We'll turn to [the report on] our economic and financial situation.",78
-fomc-corpus,1978,"Mr. Chairman, I'm sorry, but in addition to those routine [recommendations], I have some that aren't routine.",24
-fomc-corpus,1978,"[Statement continued--see Appendix.] [Secretary's note: The Manager requested approval to renew the basic swap agreements, in either revised or old form, with the understanding that the Desk would strive for uniformity as soon as arrangements could be worked out.]",50
-fomc-corpus,1978,Any comment? Is that satisfactory to everyone?,9
-fomc-corpus,1978,[Statement continued---see Appendix.] [Secretary's note: The Manager recommended that actions taken on October 31 involving the approval of a $5 billion limit on the total open position and the suspension of the intermeeting limit be continued. No formal action required.],52
-fomc-corpus,1978,"What is the Committee's desire? Would that be satisfactory? I think the operation has been going well, and I do think we need this leeway until we stabilize.",34
-fomc-corpus,1978,[Statement continued--see Appendix.] [Secretary's note: The Manager discussed warehousing foreign currencies for the Treasury.],23
-fomc-corpus,1978,"Alan, as I recall, when I first came here this warehousing plan was approved, so you're merely reporting that it might be activated.",28
-fomc-corpus,1978,"That's right, at this stage now the Treasury may want some changes in it. There was an early exchange of letters between Secretary Simon and Chairman Burns. And while that covered warehousing in general, it related particularly to the special sterling arrangement that the Treasury shared with us back at the end of 1976.",62
-fomc-corpus,1978,"But the arrangement that was approved here in March, as I recall, was general.",17
-fomc-corpus,1978,It was general in nature. That's right.,9
-fomc-corpus,1978,As you described it.,5
-fomc-corpus,1978,Right.,2
-fomc-corpus,1978,"Chuck, did you have a question?",8
-fomc-corpus,1978,"What do we do with the currencies, Alan?",10
-fomc-corpus,1978,"Well, we invest them in whatever we can.",10
-fomc-corpus,1978,In Germany?,3
-fomc-corpus,1978,In the currency of whatever country it happens to be.,11
-fomc-corpus,1978,Whatever currency it happens to be.,7
-fomc-corpus,1978,And would we pay a rate of return to the Treasury on the warehousing?,16
-fomc-corpus,1978,"No, we would get the interest.",8
-fomc-corpus,1978,"And they take the exchange risk, Chuck.",9
-fomc-corpus,1978,"It's a way of financing for the Treasury, really.",11
-fomc-corpus,1978,"It's just so we can hold [the foreign currencies] and they have dollars, that's all.",19
-fomc-corpus,1978,"Well, I was just wondering, would we put it into some kind of short-term investment?",19
-fomc-corpus,1978,We have investing arrangements now in all three of the currencies that would be involved.,16
-fomc-corpus,1978,Because that might [amount] to quite a bit.,11
-fomc-corpus,1978,"It could be, yes.",6
-fomc-corpus,1978,The present authority would be up to $1-1/2 billion.,15
-fomc-corpus,1978,It would be counterproductive to pay off the Germans.,11
-fomc-corpus,1978,It probably would be. It just gets very complicated when you try to look at it--,18
-fomc-corpus,1978,"Accounting [is what] I was thinking of, but I think the monetary influence would be counterproductive if we pay them off. That is, you wouldn't get the advantage that the Chairman cited of borrowing abroad. And when you use it, you won't expand the money supply.",55
-fomc-corpus,1978,"Also, Chuck, we don't have a free draw on that swap; we have to consult with them. But if we have our own resources we have free leeway. If they are Treasury [resources], the Treasury can authorize us to use them, in effect. Any comments from others? Alan, thank you very much. I'm sorry I didn't let you complete your very interesting report of proposed actions and possibilities. Yes, Willis.",86
-fomc-corpus,1978,"Before we leave the area, Mr. Chairman, I wonder if [Alan or Scott] would comment on the weakness reported on the foreign exchange markets this morning.",32
-fomc-corpus,1978,"The rates are where they closed yesterday. The weakness occurred yesterday afternoon and our market is just drifting back a little bit, so at this stage it's quite [calm] and hopefully may be steady for a while. But we're prepared to operate; we did intervene late yesterday afternoon when the rate was drifting off.",62
-fomc-corpus,1978,"Well, knock on wood, so far this has been a fairly peaceful war.",16
-fomc-corpus,1978,"Very successful, I think.",6
-fomc-corpus,1978,"Very. I really expected that we'd have to use more resources, to be frank. So if we just continue [working] on the fundamentals, we can make some progress. Any other comments or questions? Then we will proceed to Jim Kichline, who has been waiting patiently to give us the news, good or otherwise, about the economy.",70
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Jim. Mark.",7
-fomc-corpus,1978,"I would like to make just one comment on Jim's comments on capital spending. It seems to me that the long-term cost of capital for business has not gone up. Bond rates, for example, went down after the November 1 announcements. So there's nothing in that which would indicate that business spending ought to be less. And what I am hearing from business people in our part of the country, at least, is that we might get even the opposite. That is to say, as expected rates of inflation come down, which they are starting to do now as [people] see the policy actions that have been taken, that reduces a little bit the uncertainty with regard to the future they face. And when you invest in long-term investments that you don't expect to come on line until 1980 or 1981 anyway, that is beyond the horizon most people seem to be concerned about. So they are talking very seriously in several companies in our area of increasing their capital appropriations and budgets over the next two years. So it seems possible, at least to me, as we work our way through this, that rather than having a decline in business spending we could actually have an increase.",239
-fomc-corpus,1978,"Could that be formulated through appropriations of spending very quickly in your area, Mark? Or would it be delayed until the last half of next year when we have a softness or slack in the forecast?",40
-fomc-corpus,1978,"Well, most of it would start to be spent in the last half of next year; it would take at least that long.",26
-fomc-corpus,1978,These are long-term expansions.,6
-fomc-corpus,1978,They are not rushing out to buy a piece of equipment. These are long-term plans for--,19
-fomc-corpus,1978,The kind that have been notoriously weak in the current expansion.,12
-fomc-corpus,1978,Any other comments or questions?,6
-fomc-corpus,1978,"I would only point out on cost of capital that I had in mind equity capital, which has risen substantially in cost. PE ratios have declined. Stock prices are down, depending on how you measure it--which exchange or over the counter--10 to 20 percent. So I was really referring to equity. I think it's quite clear long bond rates have done very well.",75
-fomc-corpus,1978,"Yes, John.",4
-fomc-corpus,1978,"Jim, have you had a chance to look at the details in most of these [projections by] private forecasters who are now forecasting on behalf of their clients a recession? [In what sectors do they] expect this to come and why? You said it's not going to happen and I hope you're right. Nevertheless, there's that [unintelligible]. What I'm seriously worried about is sort of a self-fulfilling prophecy.",89
-fomc-corpus,1978,I think we have a real risk of talking ourselves into this--a recession that we don't need.,20
-fomc-corpus,1978,"But a lot of corporations subscribe to DRI or Chase Econometrics or whatever. As you well know, they are forecasting recession. My question was: Have you had a chance to look at the details there?",42
-fomc-corpus,1978,"We've looked at some but not in great detail. I think the differences are rather widespread, but the consumer sector is one where I think a general weakness shows up. We have, relative to a number of outside forecasts, a stronger personal consumption picture than many. Housing tends to be a bit weaker in some, not all. Business fixed investment I think is a mixed bag, but in general the information coming in has led most forecasters to reduce expenditures rather than raise them. But I think personal consumption expenditures are really a key area here. If you assume that attitudes turn bearish or that the consumer decides to increase his saving substantially, you get the multiplier [effects and] a very weak economy.",139
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"Jim, you're grounding this all on the current level of restraint in terms of interest rates?",18
-fomc-corpus,1978,"Yes, and the expected impacts over time.",9
-fomc-corpus,1978,But you are not talking about additional restraint.,9
-fomc-corpus,1978,"No, that's right.",5
-fomc-corpus,1978,Or higher rates of interest than we now have.,10
-fomc-corpus,1978,"Well, we've assumed a funds rate of around 9-3/4 percent throughout 1979. So we are talking about 12 basis points or something.",33
-fomc-corpus,1978,"Well, 12 basis points; you can't be that [fine-tuned].",16
-fomc-corpus,1978,That's a smaller percentage though.,6
-fomc-corpus,1978,I think the forecast is excessively pessimistic under these conditions.,12
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"Well, reacting to what Phil said, I continue to find it difficult to see how you have this kind of soft landing with the very high inflation rates that are forecasted. And just on the other side of Mark's comment, at a recent meeting we had with business people, the view was unanimous that we are in for a recession. I think there is this kind of talk going on.",79
-fomc-corpus,1978,"Well, some of them want it. Willis.",10
-fomc-corpus,1978,"On the business [side], you get a strange dichotomy. If you ask them how their business is they'll tell you it's very good but they're told by their economists that it is going to get poor. Their own assessment is quite different from [their sense of the] general environment. On Jim's point on the consumption spending, the thing that bothers me a little bit is that if you look at the service component of personal consumption expenditures, the big factor in its growth is related to housing, as I understand it, including such things as storm windows and other things. It seems to me that we may get more fluctuations out of changes in personal consumption expenditures than we have had previously because of the real difference in mix that is going into that service component. Some I find it hard to call ""services"" but that's the way they classify them.",169
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"I just wanted to raise the same question I raised yesterday [in the Board briefing]; I think it should be raised again today. The supplement to the Greenbook points out that general merchandise stores such as Sears, Penney's, and Federated--the big department stores--added to their stocks at a $4.2 billion annual rate in September. And a chart on the subject shows that inventory/sales ratios are the highest they've been for a long, long time, and far higher than just before the '74 recession began. I wondered what comment you might have on it.",117
-fomc-corpus,1978,"I think that is clearly the one area we would point to--relatively high or, in fact, quite high inventories--as the major change across the country. As for the principal source of that large stock of inventories, we have made some calls around. I would say that the one thing that does stand out is that Sears has a particular problem. They have changed their marketing strategy and are attempting to retrench from a very aggressive pricing program that they started and the industry followed. Now Sears would like to get out and their sales have slipped substantially so they are stuck with a very large amount of inventories. But other retailers report large inventories as well. The Redbook, too, had selected comments on this; various Districts pointed to inventories being perhaps on the high side in the retail area. So I think it is something to watch. We don't get a great deal of concern from those we have talked to, but there's clearly an awareness that if sales should slip, inventories would look very excessive.",201
-fomc-corpus,1978,"It used to be, Jim, that department stores did 15 percent of their year's business in the five weeks from Thanksgiving to Christmas. I suppose, of course, that we have seasonally adjusted ratios here but for those whose inventories are now quite high, it's a very, very important season that they are moving into.",64
-fomc-corpus,1978,Frank Morris.,3
-fomc-corpus,1978,"Mr. Chairman, I think the critical assumption that underlies the projections is a rather dubious one, and that is that we will be able to have a reasonable degree of control over the money supply over the projection period at the current level of the federal funds rate. We've had a couple of weeks--say, a month and a half now--of rather pleasant readings on the aggregates. But I don't think we can conclude from that that the current level of the federal funds rate is going to do the job. Look at the rate of growth of bank credit in the past couple of weeks. It seems to me that we have a new surge of a growing demand for money. Am I interpreting these numbers wrong? I would like for Steve to comment on that.",152
-fomc-corpus,1978,"We are expecting money growth to be down in December, and if it weren't for the automatic transfers, we would have M1 growth up in the 8 to 9 percent range. Demands for credit have remained relatively strong in recent weeks. I'd also comment that we think there are some odds that we might not need a further rise in interest rates to have M1 growth at the top end of the range [with] ATS. But, again, that assumes that further downward shift in money demand, which we haven't yet seen, of about 1-1/2 percentage points. So the odds are really not any better than 50-50.",132
-fomc-corpus,1978,Ernie.,3
-fomc-corpus,1978,"In view of the comments about the disparate forecasts and that we might [talk] ourselves into a recession, I just wanted to balance the table a little bit by saying that flavor of conversation is not universal around the country. There are regions that are not seeing [a recession].",55
-fomc-corpus,1978,And they never have. I'm sitting here wondering why this might be and it occurred to me that a possible explanation is that we may have a smaller ratio of expert economists to businessmen in the population.,39
-fomc-corpus,1978,"Well, we have a very small ratio of expert anything.",12
-fomc-corpus,1978,"That depends on who's doing the judging. But I do hear reports from bankers that they are seeing some ""flaky"" real estate proposals, now suggesting instead of a weakening in the speculative interest possibly a pickup in speculative interest. I also hear reports that people are not inquiring what the interest rate is when they come to the bank for loans even on residential mortgages. The only question is can they find the money.",83
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"Two points--one on Frank Morris's [comment] about strong demands for money ahead. Of course, this may cut both ways. If we accommodate them and hold the funds rate, presumably that would call for a revision to the forecast in an upward direction. Otherwise, if we don't accommodate, then it would be a downward revision. [Unintelligible] now compared to--",77
-fomc-corpus,1978,The question is how long could you accommodate them.,10
-fomc-corpus,1978,"I am puzzled, Jim, by the dichotomy between the short-term and long-term outlook. The short outlook is quite good; everything, with some exceptions only, is strong. Longer, we've got weak indications. Isn't there a chance that the experience of good current performance is going to bring [about] quite a change in the long-run evaluation? Likewise, isn't the strong present picture conducive to increasing inflationary expectations [or] behavior even though over the hill or halfway down the valley one sees a better performance?",103
-fomc-corpus,1978,"Well, I don't think there's anything inevitable about the forecast in the sense of economic activity weakening. I would look at the current situation and say that there are elements of strength. There are also elements that cause one a little bit of concern. And I would say that retail sales are one of those areas where the reported numbers are down, but they change by huge amounts. I don't know what the revisions will do, but it's an area that I would view as a bit on the weaker side. Industrial production, particularly business equipment production, is rising at about a 4-1/2 to 5 percent annual rate. It had been going up at 14 percent annual rates for two quarters. It's a very different animal. So there are elements of weakness and items of concern. I think you are quite right, however, in noting that attitudes can change. And if indeed short-run performance is much better than many anticipate, that could give us a much stronger picture as we go on. So I don't disagree with that. I think it's just a matter of our reading of the available information and expected relationships, which suggests to us that things will be weaker. But they may well turn out to be stronger. My own view is that the odds are very low on that. I really think, even with our downward revision of the forecast, that the odds are quite high that if we are wrong, [economic activity] will be weaker rather than stronger.",292
-fomc-corpus,1978,I've cut off the list. We'll have three more comments and we will do a little go-around. Larry.,22
-fomc-corpus,1978,"Jim, has the staff addressed itself to capacity constraints in considering the possibility of a slowdown in output?",20
-fomc-corpus,1978,"We think, given our scenario, that capacity constraints will not be serious--that they are not a major factor in limiting the slowdown. The capacity constraints that we have heard most about tend to be in skilled labor rather than capital, although there are selected areas in the capital side. But given a weakening of economic activity such as this forecast now portrays, capacity constraints would not be a serious problem.",79
-fomc-corpus,1978,"It would follow, therefore, that if we felt it was necessary in monetary policy to deal with the softening that we could attempt to stimulate demand and have some productive results? In your judgment, it isn't a matter of bumping up against capacity [constraints]?",52
-fomc-corpus,1978,"Well, I think there we're reasonably close and it's hard to fine-tune these sorts of things. So if you said a number of 3 percent real growth or 2-1/2 percent real growth and it could be held there for some time, I wouldn't view that as a bad outcome, personally. If you pick a number like 4 percent, I think that does push the economy very quickly into serious capacity constraints. So there isn't a lot of room to maneuver in terms of getting the rate of real growth considerably higher than 2-1/2 or 3. [Beyond that] I really think there is a problem.",130
-fomc-corpus,1978,Thank you.,3
-fomc-corpus,1978,Bones.,2
-fomc-corpus,1978,"Mr. Chairman, we are not quite as optimistic about the price level as the staff. Looking at some individual performances, I guess we pretty much are like the Southwest. People have been reading the professional economists and are fearful of recession. But if quizzed about their individual business, they simply do not expect that business is going to be much weaker. There are few, rare exceptions--maybe textiles but that's a different [issue]. By and large, interest rates are taking their toll but there's an awful lot of commitment, full speed ahead. We're not expecting that there will be a recession and that it is inevitable in our area.",127
-fomc-corpus,1978,Nancy.,2
-fomc-corpus,1978,"Well, gentlemen, there's a reason why the econometric models are predicting a recession. They're based on history. And these are conditions in the past that have always produced a recession. Only twice, in the latter part of 1963 and in the latter half of 1966, did we ever have growth this low without having a recession. You are all sounding like the final quarter before the downturn, quite frankly. I think we should take more account of the commercial projections because the econometric models are summaries of past history and there's good reason why they've turned this way.",115
-fomc-corpus,1978,"We have been scattering the shots recently and I'm going to suggest that we give brief comments individually on how we view the economy and its key elements of real growth, the fixed-weighted price index, and unemployment for the quarters under consideration here as compared with the staff's forecast. And I think we could add any particular comments as we go around. We'll start with Paul and go around counterclockwise.",80
-fomc-corpus,1978,"Mr. Chairman, is this third quarter to third quarter?",12
-fomc-corpus,1978,"Yes. Well, no, I would like to do the fourth quarter to the fourth quarter on real GNP and also on the price index and your estimate of the unemployment rate for the fourth quarter of 1979. Those numbers by the staff are 2.1 percent for real growth, 7.4 percent on the fixed-weighted price index, and 6.4 percent on unemployment.",81
-fomc-corpus,1978,You want to do fourth to fourth rather than the third to third that's in the Greenbook? They have the policy period of Q3 '78 through Q3 '79.,35
-fomc-corpus,1978,"Well, I think it's time to start looking at the full year.",14
-fomc-corpus,1978,You want a numerical estimate.,6
-fomc-corpus,1978,Yes--or an indication.,6
-fomc-corpus,1978,I had figured out what I'd put down for the third quarter to the third quarter; I don't quite know what I'd put for fourth to fourth.,29
-fomc-corpus,1978,"Well, [tell us] third to third; we'll give you that much leeway.",18
-fomc-corpus,1978,"If you take out the fourth quarter of this year and put in the fourth quarter of next year, it could make quite a difference.",27
-fomc-corpus,1978,"Well, we might all prefer to do the policy period. Why don't we do that? [The staff's figures are] 2.6, 7.5, and 6.2.",41
-fomc-corpus,1978,"Well, Mr. Chairman, whatever numbers I have--the [unintelligible] in my mind would be considerably greater than usual. I do think there's a chance of a recession; it can't be dismissed. But I don't see why it should be large at this stage. And I don't feel any more that way this month than last month. In fact, I think the program probably stabilized expectations in a favorable way. I like the impact on the long-term bond market at least. But [I'd expect] something for the rate of growth of not much more than 2 percent third quarter to third quarter. I guess I would think the prices are going to be higher than the staff projected--maybe around 8 percent for that period. The unemployment rate doesn't change much but it would be up some--say, to 6-1/4 percent.",173
-fomc-corpus,1978,"Thank you, Paul. Chuck.",7
-fomc-corpus,1978,"I think the staff projection is reasonable, and I think they are quite correct to have put in considerable effect from the happenings of the past month or five weeks. I also believe it is plausible to think that we have moved over the watershed into a recession phase. I don't think it's bad for us to talk about recession. If we don't talk about recession, the effect is very counterproductive. Perhaps we ought not do it publicly but we ought to do it privately. As people know, I've long been a believer in the importance of the Christmas season and it seems to me that we have a situation where a poor Christmas season will bring us into a recession. And I think we are going to have a poor Christmas season because of uncertainty, concern, the behavior of the stock market, and the feeling that things are tight in the money market. And you don't know what the future may bring. Once we get that, we have enough weakness generally in the economy to develop [further weakness] in housing, plant and equipment spending, and state and local spending. Then we could have a recession, which hopefully would be just a teeny weeny one.",231
-fomc-corpus,1978,You get a tax reduction.,6
-fomc-corpus,1978,"It doesn't amount to much, Paul. I just don't think it's going to do anything. So my figure, which is a plausible scenario I think, is a real growth rate of 1/2 percent third quarter to third quarter. I think probably there will be some price effect, and I would guess [inflation] might drop to about [unintelligible] for the four quarter period rather than 7-1/2. And at the end of the period I would project an unemployment rate of 8 percent.",107
-fomc-corpus,1978,"Chuck, that's the first time I've had the Boston snow theory explained to me. They always said that the economic forecast depends on the amount of snow in Boston before Christmas and I now know why. It means a weak Christmas. I always wondered why that was. Did you ever plot the stock market against the snow in Boston? It's absolutely the greatest.",70
-fomc-corpus,1978,"I don't think this [staff forecast] is going to happen. Either we are going to slip over [into a recession] or we are going to get through it much better than this. I can't remember a period over the past twenty years in which we've foreseen a slowdown that didn't turn into a recession or we were proved absolutely wrong--mainly in the period when we had the escalation in Viet Nam. My own feeling is that we are going to turn over into a recession. The chances are much stronger on that than they are on any sort of recovery coming in. We have a very weak consumer area. And the investment plans, I think, are going to be stronger than the surveys say but they're not going to be strong enough to offset the slowdown in the consumer area. I've never projected a 1 percent growth and lived to see it. I think we're in for some trouble. It's a question in my mind as to whether we'll get through Christmas this year or whether it will hit us next fall.",203
-fomc-corpus,1978,Any numbers?,3
-fomc-corpus,1978,"Well, if we go down, I think we are going to go down lower than you do, Chuck, to a rate of negative growth. And if we recover, we'll probably [unintelligible] through it.",45
-fomc-corpus,1978,The reason I get a plus 1/2 is because of the fourth quarter. It adds quite a bit.,23
-fomc-corpus,1978,"If you take the fourth quarter out, you don't get it. Let me also point out that even though we have a tax cut coming January 1 we have a tax increase on January 1. And we have another tax increase coming in the fall of next year when the increase on the ceiling on social security payments [hits]. So you're going to get two big tax increases, which will almost offset the tax cut that's coming in January. So I'm very pessimistic.",94
-fomc-corpus,1978,Thank you. Bob.,5
-fomc-corpus,1978,"Well, Mr. Chairman, I feel that we are not going to be able to accomplish as much on the inflation front as would be desirable, so I think there's going to be less strength than other people do and that a recession is likely. Along with this, of course, there will be more unemployment. I've already indicated that I think real GNP might be 1 percent to 2 percent. I think unemployment might be in the neighborhood of 6-1/2 to 7 percent and the inflation rate at 7-1/2 to 9 percent.",116
-fomc-corpus,1978,"Thank you, Bob. Willis.",7
-fomc-corpus,1978,"I think the variables are too great to be very confident on any kind of projection. You can spell out four or five scenarios and I don't have a very strong feeling at this stage as to which one is going to happen. I think we're paying too much attention to the retail sales of the past month or so, which I think are affected by weather and differences in terms of the samples [used] in collecting the data. I think we have more variables in those numbers and I feel less confident about those than anything. I'm thankful for Christmas ahead to keep some stimulation. And if we get some of this snow in Boston, it may actually spur sales rather than handicap them.",135
-fomc-corpus,1978,At least for galoshes.,7
-fomc-corpus,1978,"Across the country. Well, coats haven't done very well either.",13
-fomc-corpus,1978,You might sell a few coats.,7
-fomc-corpus,1978,"But you can trace some scenarios here of stability. [With a] regain of confidence and a sudden purge in inflation, [we can get] output that we don't [have forecast]. On the other hand, we can coast over to a very sharp decline very quickly here by consumers pulling in their horns. I'm not sure how much [good] a yearly forecast does us at this stage with the kind of variables we're faced with. I can see inputs that would lead to this result, but there are alternative inputs that can give us quite different results.",110
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,"I would agree with Nancy and Chuck. As I indicated before, I think it would be unprecedented to have the kind of slow rates of growth that are being forecast with the very high inflation rates that also are being forecast. So I would see by this time next year some modestly negative rates of growth in GNP with higher unemployment--maybe 6-1/2 percent.",76
-fomc-corpus,1978,"Thank you, Dave. Bones.",7
-fomc-corpus,1978,"Mr. Chairman, I still think we'll have slow growth, obviously, but maybe at 1-1/2 to 2 percent. Unemployment this time next year may be about 6-1/2 percent. On prices, I'd say 7-1/2 to 8-1/2.",64
-fomc-corpus,1978,"Thank you, Bones. Larry.",7
-fomc-corpus,1978,"Where I live they predict snow on the degree of woolly worm developments, Mr. Chairman, but we don't have the resources to study that. We believe that there are certain fundamental monetary policy decisions--abruptly to hold down the [growth in the] aggregates to 4 percent or less--that would be about the only factor that would [militate] toward a recession in the true classic sense of the word. Basically we are optimistic. If monetary policy is conducted as we've set our targets, we would subscribe to Jim's figures.",109
-fomc-corpus,1978,Roger.,2
-fomc-corpus,1978,"Thank you, Mr. Chairman. We believe that the staff figures are just a bit high--in other words, growth over the third quarter to the third quarter at 1 to 2 percent, hopefully. Part of that comes, again, from the strength that is shown by the staff in the first quarter--which I believe is attributed somewhat to the tax cut--and we don't see that. But I think also the rate of growth would suggest a bit less in first quarter of '79, but getting some strength further out into the period, which gives you the 1 to 2 percent overall. Secondly, with respect to prices, I think [the staff] may be a bit optimistic; we would say 7-1/2 to 8 percent. On unemployment, [we see it] moving up to about 6-1/2 by year-end.",177
-fomc-corpus,1978,"Thank you, Roger. Bob.",7
-fomc-corpus,1978,"I find this a difficult scenario to predict at this point. There are all sorts of possibilities. Like Willis, I think we could have in this time perhaps a sharp but brief recession that would still give us 1-1/2 to 2 percent growth over the period here. I am still pessimistic on the price side. Even if we do have such a sharp dip and recovery, I don't think we can do much better than 8 percent. And we could have close to 7 percent unemployment by this time next year. We do, Mr. Roos, have facilities at the Chicago Fed for examining the woolly worms. The President does this over the weekend, and he finds that the woolly worms are very woolly--if that helps you.",155
-fomc-corpus,1978,Christmas Eve you'll get a gross of woolly worms from the St. Louis Bank!,17
-fomc-corpus,1978,"I hope that postage is prepaid. On Chuck's point, though, if the size of the crowds and the traffic jams in the shopping centers in Chicago are any indication, the pre-Thanksgiving surge in Christmas sales is tremendous. Now, that doesn't give me a very good basis for [extrapolating] it out beyond Thanksgiving. But the crowds are just terrific in this pre-Thanksgiving period.",82
-fomc-corpus,1978,"Well, Bob, it used to be that every year I looked at State Street the day after Thanksgiving. We really tried to look at it, and it always seemed that it was at capacity. And sometimes they were good years and sometimes they were bad.",51
-fomc-corpus,1978,"Well, State Street after Thanksgiving I think is a poor economic barometer because all the school kids go there.",22
-fomc-corpus,1978,They don't spend anything; they're just coming out.,10
-fomc-corpus,1978,"That's right, they don't spend anything.",8
-fomc-corpus,1978,"Anything further, Bob?",5
-fomc-corpus,1978,No.,2
-fomc-corpus,1978,Thank you. Mark.,5
-fomc-corpus,1978,"You're all talking about a class of models that I don't understand. I feel really quite comfortable with the staff forecast. We don't believe in what we refer to as the geriatric view of business cycles--that just because they're old, they die. I don't think that's necessary. We don't see anything in the current expansion that is so typical that it compels us to conclude there will be a recession. There are quite a few things about this expansion and about where we are now that are not at all typical and would seem to indicate that we could have a reduction in the rate of inflation without causing a recession. I repeat the point that I made last time about models because that, I think, is an important point. If one changes one basic assumption in most of the existing models--namely, the way expectations are formed--those very same models with the very same structure fit the history just as well, and yet have radically different implications for policy and radically different forecasts with regard to recession. So even though they fit history in the way they're built, you can build them only slightly differently and have them fit history equally as well and not generate a recession forecast. I think one reason we are not expecting a recession is because, given our view of the world, we think we have a very tightly reasoned theory which suggests that a recession is not inevitable. And we think it's not a question of our ignoring the history or ignoring what's going on. And as we talk to businessmen we get great confirmation of that. They don't see anything inevitable in the recession and this is one case where I hope they listen to their own instincts rather than their economists. I think they more likely could be right. Now, if we get a recession, everybody is going to say: ""My goodness, look what happened."" My guess is that if we get one, it's not going to be caused by the policy moves that have been taken but by a major work stoppage or by a very difficult winter or something else--and not by the things that the press is talking about at the moment. Having said all of that, we're between 2 and 3 percent for real growth, 7-1/2 to 8 percent for inflation, and around 6.2 percent for unemployment.",458
-fomc-corpus,1978,"Thank you, Mark. John.",7
-fomc-corpus,1978,"Well, like Mark, we don't believe that business expansions die of old age. We do believe they die of riotous living and we've had more than a fair amount [of that] in the last couple of years. I'm not going to rule out the possibility of a recession; I think it's a distinct possibility. We'll be lucky if we get through without one, with the distortions, imbalances, and everything else that have been created by this inflationary surge. So I don't have a great deal of confidence in the numbers that I'm going to cite for the third quarter to third quarter of about 2 percent on real GNP, 7.2 to 7.5 percent on the inflation rate, and unemployment of about 6.5 percent.",153
-fomc-corpus,1978,Thank you. Ernie.,6
-fomc-corpus,1978,"Mr. Chairman, I find the staff forecast about as acceptable as any forecast that I'm able to visualize this morning. The major difference would be that business fixed investment seems to me likely to be appreciably stronger than is incorporated in the forecast and that inflation is likely to be a bit stronger than is incorporated in the forecast. But real GNP and unemployment probably are not much different. It seems to me that there is a significant improvement in optimism--or to turn it around a diminution of pessimism--in the business sector, flowing largely at the present time from indications that the Administration is beginning to recognize the nature of the problems that they're working with, even though I do not detect a high level of confidence in their ability to handle them. But it seems to me that the mere fact that they're beginning to address them is causing businesses to feel there are improved possibilities of coming through this situation fairly well. My own personal feeling here is that if we could just find some way of slowing wage increases, then we would almost certainly have flowing from that a higher level of employment and a higher level of production than will otherwise materialize.",225
-fomc-corpus,1978,Thank you. Frank.,5
-fomc-corpus,1978,"Well, Mr. Chairman, we've been more pessimistic than the staff for a long time and we're happy to see them approaching [our view] gradually. I think, as Nancy does, that a recession is inevitable. I think the questions--the uncertainty elements--are how big it is going to be and when it will start. The one missing piece of information that I have is what the Federal Open Market Committee is going to do. I think we're going to be challenged quite severely in the next few months by a very strong upsurge in demand for money. Again, I just base this on what has been going on in bank lending very recently. We haven't had a very restrictive policy until the last few months. Sure, interest rates have gone up, but we haven't had a period in which money has not been available for mortgages for the guy who wants to buy a house, for consumer credit, or for the business community. We are now entering that phase and I think we're going to see an upsurge in demand for money and the question is: Will this Committee accommodate this upturn over the next few months? [In that] case the recession would be put off one or two more quarters, but it would be bigger when we got there. Or are we going to refuse to accommodate it, in which case the recession would come sooner and be milder. My own feeling is that the country would be better off if we take a posture of not accommodating an increase in the demand for money and have a mild recession beginning in the second quarter. That would strengthen the President's voluntary program rather than undermine it, which I think a policy of accommodation would do. And then we'd get the economy moving up again by the fourth quarter of next year. There are some uncertainties here, Mr. Chairman, reflected in my rather wide range of numbers.",373
-fomc-corpus,1978,Would you repeat why it is that there's going to be an increase in the demand for money? I didn't understand the reason for that.,27
-fomc-corpus,1978,"Well, I think, characteristically, as you enter the later stages of a boom, particularly an inflationary boom, you get a rise in demand for money.",33
-fomc-corpus,1978,"You don't mean in the monetary aggregates. I don't think you do, but that's not a fact.",20
-fomc-corpus,1978,You don't get a rise in the demand for money?,11
-fomc-corpus,1978,"In the monetary aggregates, I don't think so. In bank credit, you may.",17
-fomc-corpus,1978,"Well, I think they are very closely linked. I think to the extent that you control the aggregates by pushing interest rates up, you--",28
-fomc-corpus,1978,"In the last month we've had a 50 percent rate of increase in CDs, which are not in the monetary aggregates.",24
-fomc-corpus,1978,"Well, I think they will soon be reflected in the monetary aggregates in time. That's going to be our problem in the next three months, as I see it. So I would say, Mr. Chairman, 1 to 2 percent real growth, 6-1/2 to 7 percent inflation and 6-1/2 to 6-3/4 percent on the unemployment rate.",82
-fomc-corpus,1978,"Thank you, Frank. Phil.",7
-fomc-corpus,1978,"Well, I'm tempted to go into a long discussion, Mr. Chairman, but let me just say--",21
-fomc-corpus,1978,Resist the temptation!,5
-fomc-corpus,1978,"--2.9, 7.7, and 6.0.",16
-fomc-corpus,1978,More or less.,4
-fomc-corpus,1978,Did you round off whole numbers or was there a margin on either side?,15
-fomc-corpus,1978,Was that exactly 2.9 percent or did you round that?,14
-fomc-corpus,1978,Absolutely fine-tuned.,5
-fomc-corpus,1978,"Thank you, Phil; that was a good speech. Henry.",13
-fomc-corpus,1978,"The range of possibilities, I think, is widening. I think a growth recession is entirely possible. There is a long history of growth recessions and they don't have to turn into full recessions, although it sometimes happens. And the reason, of course, why expansions don't go on forever is not that they die of old age but that the probability of disequilibrium or maladjustments arising increases as time goes on. I think our principle maladjustment now is the inflation which threatens to bring this [expansion] to an end. But I'm very much impressed by the strength of the economy in the short run. The dire things that have been talked about for some time now aren't happening. Housing hasn't collapsed and investment spending has been quite strong. So these things may turn the economy around--in fact, may give inflation an additional [unintelligible]--and there is a wide range between the immediate recession scenario that one cannot absolutely deny and the possibility on the upside that we may face some further pressures. So, my most likely numbers would be real growth 3 percent, unemployment 6-1/4, and inflation 8 percent.",233
-fomc-corpus,1978,"You see, I knew Henry was going to give that speech for me, so I didn't have to talk.",22
-fomc-corpus,1978,"Thank you, Henry. Yes, you're very close. Well, I want to thank you all for your unanimous agreement that we are going to stay in business for four quarters. What I gather from this is that we will still be here.",48
-fomc-corpus,1978,What are your figures?,5
-fomc-corpus,1978,"For the first time, I don't have to correct the staff! I think they are in the range, with the usual margin for error that represents a fairly good probability. I've been on the low side of the staff all year and now I think they are coming into the range that I think is reasonable. What we might do now, if you don't mind, is turn to the report on open market operations and complete that before a short break. Then we'll come back and deal with our monetary policy directive. Peter Sternlight.",105
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Peter. It's rather interesting to have the November 1 action fall in the midst of a refinancing and turn out the way it did. Tricky to signal in advance so that that was not a problem. Any comments or questions? Yes, Chuck.",53
-fomc-corpus,1978,"Well, I would just offer one alternative explanation for that tipping down on long-term yields that somebody in the market must have felt. And that is that yields were likely to be reaching a peak because of the prospect or the increasing probability of a recession, rather than that there would be success in dealing with inflation as a result of the measures. That must have been [in the minds of some]. Had I been a market manager, I would have bought longs the day after, too, but not because I felt inflation would be reduced.",107
-fomc-corpus,1978,I think that could have been a reason on the part of some participants.,15
-fomc-corpus,1978,"May we have your approval to ratify the transactions by the Desk since the previous meeting? You have had the report circulated. Are there any dissents? If not, we will record that as approved. I would suggest a brief break now and we'll reconvene as quickly as we can so that we can complete our deliberations in time to make the memorial service. I think you all know that there will be transportation at the C Street entrance as soon as we finish here to take us to the memorial service at St. Alban's. Then there will be a lunch back here at 1:00 p.m. with Governor Jackson.",127
-fomc-corpus,1978,"Well, ladies and gentlemen, would you like a discussion or are you ready for the vote?",19
-fomc-corpus,1978,"Yes, let's vote.",5
-fomc-corpus,1978,[Let's turn to] Steve Axilrod. I'll give him one chance and then we will vote.,21
-fomc-corpus,1978,"Thank you, Mr. Chairman. [Secretary's note: This statement was not found in Committee records.]",21
-fomc-corpus,1978,"Did you want to say something, Paul?",9
-fomc-corpus,1978,[Unintelligible.],6
-fomc-corpus,1978,"Well, our usual practice is to go through a rather long process with everyone indicating his reasons. Let me start off by suggesting a possible directive and perhaps soliciting comments on whether or not this would be acceptable or whether variations of it are necessary. I would tend to agree with Steve that we might deal with M1 as we did last month, with an upper limit rather than a range. And if we did that, I would think that perhaps a 5-1/2 percent lid would be an appropriate number. As for M2, I rather think the 6 to 10 range would be appealing. As for M1+, I think it ought to be treated as a nonoperative shadow aggregate that we have ranges for so we can learn to watch it and deal with it. Therefore, I would say that 2 to 6 percent would be an adequate indication and a shadow comment. My preference for the fed funds rate at this point would be to use a 9-1/2 to 10 percent range and to move it to 9-3/4 percent. I'm a little open-minded on the form of the directive, but I tend to think we are still operating in a period where a money market directive might give us more flexibility. I think Steve is correct that next month and in coming months we're probably going to want to pay very close attention to the aggregates, but we are still sort of in a transition phase. I could go either way, but I think it might be just as appropriate at this time to have a money market directive. I can follow up with any comments or we can just go down the list. Phil, did you want to say something before we start down the list?",347
-fomc-corpus,1978,"I'll [wait] my turn, Mr. Chairman.",11
-fomc-corpus,1978,"Okay. Paul, would you like to add anything as Vice Chairman before we start this?",18
-fomc-corpus,1978,"Well, I guess I come out slightly differently than you do, Mr. Chairman. I really have one concern when I look ahead at the 4-week period until we meet again, and that is that we adequately back up the program that has already been announced. I think it has had a good effect internationally. I think it has had a good effect domestically in terms of--""breaking"" the inflationary psychology is much too strong a word but I think it has at least shaken thinking of the inevitability of more inflation anyway. And everybody is looking to see whether we will carry through. I don't think that implies a lot of tightening. But I do think we have to be sensitive to what goes on in the exchange markets and sensitive to what goes on in the aggregates, particularly on the high side, as Steve suggested. Just looking at the federal funds rate, I would not like to see it go below the 9-3/4 level where we are, and I frankly would like the Desk to have a little flexibility to play it immediately, depending upon the exchange market, somewhere between 9-3/4 and 10 percent. And I certainly would be prepared to go above 10 if the aggregates got [beyond] those figures that you suggested. In fact, I would put the aggregates figures down, say, 1/2 percentage point from where you suggested on the up side. And I'd be prepared to go somewhat above 10 percent if the aggregates moved up in that area. I do think the outlook, as has been the basic pattern in the past, is for high figures. Our own analysis suggests that they are going to remain high without higher levels of interest rates than we have now, a little bit in contrast to what the Board staff is suggesting. These estimates are very uncertain. I don't want to attach a lot of weight to them, but I think there is a possibility that the aggregates could remain quite high, and we ought to be alert to it at this juncture particularly. I suppose that means we should use an aggregates directive--at least a lopsided aggregates directive on the high side.",432
-fomc-corpus,1978,"Paul, of course, if we run past our aggregates [figures], we would consult--and I think we have learned to consult--with the FOMC. I'd rather have us consult in an intermeeting period than get locked into motions. It's just a personal preference. It has turned out that our communications have been fairly good. However, let's see how others feel. We will start with Ernie Baughman.",86
-fomc-corpus,1978,"Mr. Chairman, I'm rather concerned--somewhat along the line that Paul Volcker has mentioned--that if the conventionally observed policy indicators do not rather [unintelligible] continue to show support for the program that we announced in November, we will soon be discredited. And it seems to me that it's quite important that we don't run that risk at the present time, even at the risk that we might be a little tighter two months down the road, looking back on it, than we had hoped. It seems to me that if we were to accommodate something like a 10 percent growth rate in M2, it would tend to be construed that way. Also, it seems to me that a 10 percent growth rate in M2 would probably be linked to enough growth in reserves or monetary base type numbers so it would tend to provide support for people who are already suggesting that mostly what we have done is say words and not really follow up or give them substance. So my preference would be to see a lower top on the M2 growth rate. I have thought in terms of 6 to 8 there, frankly.",229
-fomc-corpus,1978,"(?) Ernie, aren't you concerned about the tendency of banks now to issue these CDs--nonnegotiable CDs--in large amounts?",28
-fomc-corpus,1978,"Well, yes. But then we carry over into bank credit and then we begin to get to the question that Frank Morris has raised and which tends to emerge in Paul's comments. We are not projecting much of a slowing in the rate of growth of bank credit for November and December. That growth rate has been pretty fast and it has been consistent through the year with an accelerating rate of inflation notwithstanding a pretty good level of real output in the economy. And it seems to me, as I say, that people are looking at us pretty closely now and trying to evaluate and construe just what our intentions are. They will be looking at bank credit along with other figures. So I would like to see a policy at the present time that would move the [funds] rate up a bit. I agree that we don't want to be really hard-nosed on it, but nevertheless move it up a bit if we see the indications of M2 and bank credit not slowing down. Our program was read by people as a declaration that we are going to get some slowing in the rate of money and credit growth in the economy for the purpose of making the Administration's program meaningful, both internationally and domestically. So it seems to me there is a lot riding on it at this point in time in terms of confidence in what we're trying to do.",268
-fomc-corpus,1978,I think we are going to run short of time now. Could we get your numbers and move on because we do have this memorial service. We have to keep an eye on [the time].,39
-fomc-corpus,1978,"My preference on M2 would be 6 to 8, and on the federal funds rate 9-3/4 to 10. The other elements of alternative B I can accept as they are presented.",43
-fomc-corpus,1978,"Okay, thank you. Phil Coldwell.",9
-fomc-corpus,1978,"Mr. Chairman the figures you gave are not far from the ones I came out with. I think we have a rather wide diversity of opinion here. I don't see a recession immediately and I think there is too much inflation involved, so I would put a cap on M1--cap it at 5 percent--put a range of 6 to 9-1/2 on M2, and 2 to 6 on M1+ as a memo item as you have suggested. On the federal funds rate I guess I find myself at a halfway house here. I think 9-5/8 to 10-1/8 would be where I would [put the range], looking at a 9-7/8 percent midpoint, which does take us up a shade but it certainly slows the rate of increase.",168
-fomc-corpus,1978,"Thank you, Phil. Dave.",7
-fomc-corpus,1978,"It seems to me that we are working 100 percent on a money market basis, so I would certainly cast the directive in those terms. I would also focus attention primarily on the funds rate and hold it at 9-3/4 percent. I'd not let it go below that but have a consultation if it looks as though the aggregates are coming in too high. I would not really fuss too much on the parameters of the aggregates because it seems to me that when--",95
-fomc-corpus,1978,What did you say on the funds rate? I'm sorry.,12
-fomc-corpus,1978,A 9-3/4 percent effective rate; a 9-1/2 to 10 percent range is fine with me.,28
-fomc-corpus,1978,Thank you. Chuck.,5
-fomc-corpus,1978,"I can agree with Dave 100 percent. I believe that this is a time when we want to stand still if we possibly can because there are so many rate relationships that have not yet adjusted. The prime rate probably has another quarter, perhaps another half to go. The mortgage rate is in the process of adjusting in most parts of the country. The long-term rates, I think, have not yet found their level, reflecting the very difficult adjustment they have to [make to] all the things entertained here. Therefore, I think what we want to do is to hold very steady on the funds rate, and 9-3/4 percent is okay with me. I like your ranges, and I certainly think a money market directive is called for. But I would agree that if something breaks loose here--either internationally as Paul fears or domestically as some people fear on the aggregates--that we should talk about it.",185
-fomc-corpus,1978,"Consult, yes. Thank you.",7
-fomc-corpus,1978,"We have a better land line now, don't we? And we can consult better.",17
-fomc-corpus,1978,"I think we are doing better on that, yes. Nancy.",13
-fomc-corpus,1978,"Well, I feel very strongly that we should stand still. I would go for a range of 9-1/2 to 10 on the funds rate and the money market directive, with not all that much attention at this point to the aggregates. However, if they begin to break loose, I think we need to consult. I want to say, though, that I would like to see the funds rate kept at 9-3/4. The past two weeks we have had a range of 9-1/2 to 9-3/4 and the funds rate was actually 9-3/4 to 10, which was higher than [in] the directive. I don't want to go to a range [with an upper limit of] 10 percent now and find that we are always at the top end of it.",173
-fomc-corpus,1978,"Okay, Nancy. Thank you very much. Henry.",11
-fomc-corpus,1978,"I am particularly concerned that we shouldn't convey a sense of easing inadvertently at a time when that has a balance of payments and dollar implication. So I would begin by starting the funds rate at 9-3/4, but be asymmetrical at 9-3/4. I'd leave it at that point, but if the aggregates come in badly, go up to 10-1/4. For the aggregates I would say M1 with a cap of 5, M2, 6 to 9, and M1+, 1 to 5.",115
-fomc-corpus,1978,"Thank you, Henry. Mark.",7
-fomc-corpus,1978,"For reasons which Paul and others have talked about, I would like a funds rate range of 9-3/4 to 10-1/4 percent and I would move promptly to 10. I think, frankly, if we don't do that, the market will be quite surprised and disappointed and it will unravel everything that we have done. For M1, I would like a maximum of 5 percent; if we have anything greater than that we're allowing growth in December excluding ATS that I think is really unduly large and, again, will have a very bad message for the market. I'd have a 6 to 9 range on M2. And I don't know what to make of M1+ so I don't have a number on that.",153
-fomc-corpus,1978,Join the parade. Thank you. Willis.,9
-fomc-corpus,1978,"I would put a cap of 5 percent on M1, a range of 6 to 9 on M2, and 9-3/4 to 10-1/4 [for the funds] rate, staying at 9-3/4 until we see what's happening here.",61
-fomc-corpus,1978,"All right, let's go through the others quickly. John.",12
-fomc-corpus,1978,"Well, for reasons that have already been spelled out--and I won't repeat--if the important bridging actions of November 1 are not sustained, we are going to lose the effect of that and the credibility. I think we are under particular observation at home and abroad on that right now. So for those reasons, I would put a cap of 5 percent on M1, 6 to 9 for M2, and 1 to 5 for M1+. I favor 9-3/4 to 10-1/4 on the federal funds rate, moving immediately to 10 with an aggregates directive.",126
-fomc-corpus,1978,"May I add, Mr. Chairman? I strongly prefer an aggregates directive.",15
-fomc-corpus,1978,"Okay, let's get that marked. Bob Black.",10
-fomc-corpus,1978,"Mr. Chairman, my position is fairly close to that of Mr. Willes and Mr. Balles. It's very important that we don't flash a signal now that we are not backing up what we did on November 1. And as I look at the figures that have been provided by the staff, even on the toughest one, alternative B, that still provides really no improvement over a longer period of time. So I think we ought to set even lower figures on the aggregates than they have there. For arithmetic reasons that I won't go into now, I come out with -1 to 3 on M1, 5 to 9 on M2, and I'd rather leave M1+ out of it. A federal funds range set as in alternative B sounds fine to me, but for the reasons that Scott Pardee mentioned in his presentation, I would go on to 10 percent now. The market has been [disappointed] that we backed off from that; they thought we were there. And I think that will reinforce their feeling that we really mean business. But I would sit there until the aggregates dictate that we should go beyond that.",232
-fomc-corpus,1978,"Thank you, Bob. Roger.",7
-fomc-corpus,1978,"Yes, Mr. Chairman. I would prefer the prescription very much as you described it earlier. I think it's not necessary to say, but maybe I will say it anyway, that we are only three weeks away from a very dramatic move in the markets. They haven't adjusted very well. It seems to me that we ought to sit right where we are--maintaining the 9-3/4 funds rate, however, to confirm that to the market. That's where they think we are on the bottom side at least. And I would take the aggregates as you suggested them, with a money market conditions directive.",123
-fomc-corpus,1978,Thank you. Bones.,5
-fomc-corpus,1978,"Mr. Chairman, I too am concerned about being discredited, but I think we might be able to consult and have no real concern about that. I would like a money market directive with essentially the numbers you have used. If I had any concern, it would be about a 9 percent ceiling on M2.",64
-fomc-corpus,1978,Bob Mayo.,3
-fomc-corpus,1978,"Mr. Chairman, I would buy the 9-1/2 to 10 [funds rate range] with the 9-3/4 midpoint. I would buy 9-3/4 to 10, for that matter, with a 9-7/8 midpoint. It's getting awfully narrow but I think this is the consolidating, so to speak, that Roger described. I would take a money market directive. I think it is a better judgment at this time, too. I don't think we are that close to the economic problems that we might dictate with an aggregates directive. I have more confidence in M2 than in either of the others, though I think I would put it at 5 to 9--a little more restrictive than alternative B. I would put a cap of 5 percent on both M1 and M1+. Although the months differ a little, the sum of the two months is essentially the same. I don't think the lower end of the range makes any more sense on M1+ than it does on M1.",218
-fomc-corpus,1978,Frank.,2
-fomc-corpus,1978,"I come out, Mr. Chairman, very close to Henry Wallich's formula of 9-3/4 to 10-1/4 on the funds rate, with the Manager instructed to stay at 9-3/4 unless we have reached the upper limit [on the aggregates]. I think the Manager ought to have at least a half point to operate with. But the only area where I diverge from Henry is that I think we ought to eliminate the M1 and M1+ figures from our objectives because I don't think we can interpret either one of these numbers. I would prefer simply to see a single range for M2 of 6 to 9 percent.",138
-fomc-corpus,1978,"Thank you, Frank. Larry.",7
-fomc-corpus,1978,"Yes sir, I would recommend a top of 5 percent for M1 and for M2 a range of 6 to 9 percent. I don't have any comment on M1+. I think it would be desirable to have a fed funds range of 9-3/4 to 10-1/4, moving to 10 right away. And I feel that an aggregates directive would be preferable.",83
-fomc-corpus,1978,"Well, thank you all very much. Looking at the voting members for a moment there seems to be a preference for a money market directive. As far as the immediate action on fed funds, there is a very high consensus for 9-3/4 percent. As far as the range is concerned, it appears to be a tossup between 9-1/2 to 10 and 9-3/4 to 10. A few are over 10 but not many. We don't seem to have that much variance on an M1 cap; 5 percent looks like the consensus. It looks like a 6 to 9-1/2 percent range on M2 would be a compromise from a scattering of around 6 to 9, 6 to 10, and 6 to 9-1/2. Let me just suggest the following: a 5 percent cap on M1, a 6 to 9-1/2 percent range on M2, a 9-3/4 percent fed funds rate--with a 9-3/4 to 10 range, but maintaining 9-3/4 as both the bottom and the midpoint for this purpose--and a money market directive. Is that something that could be supported?",261
-fomc-corpus,1978,That's tight.,3
-fomc-corpus,1978,Tight. What would you [change]?,9
-fomc-corpus,1978,"I would just point out that the M2 midpoint projection is a little over 8-1/2 percent over the two months. So it's tight. There's a good possibility that the 10 percent funds rate will have to be negotiated with a telephone conference call, but I find it acceptable.",59
-fomc-corpus,1978,"Mr. Chairman, does that mean that you are including the language on page 15 under money market emphasis--that we would add that?",28
-fomc-corpus,1978,"On page 15? Well, it would be raised or lowered within the range. That's true, because it could go up and come back down.",30
-fomc-corpus,1978,"I don't really think you need the ""in an orderly fashion"" if you only have a 1/4 point range.",25
-fomc-corpus,1978,I think that would be a great change. All of the people who would track us carefully would notice that change and figure that it has some significance. So why don't we take that out?,38
-fomc-corpus,1978,I do think we need more language in here about the international business just to reflect what has been going on.,22
-fomc-corpus,1978,"I think that's a good idea. Incidentally, I didn't even mention M1+; I think we put it in as a side note. I think 2 to 6 or something like that is maybe the best thing to do.",48
-fomc-corpus,1978,It's very hard to predict it.,7
-fomc-corpus,1978,Maybe we will just leave it out. Why don't we just leave it out and keep track of it? That will be much better. Then we won't confuse everybody. Would you buy the latest proposal?,40
-fomc-corpus,1978,"Well, I have the other--",7
-fomc-corpus,1978,"Come on now, we haven't any time for messing around.",12
-fomc-corpus,1978,Let's move the top of M2 down to 9.,12
-fomc-corpus,1978,"No, we can't. You're biasing the result.",11
-fomc-corpus,1978,I want to bias the result.,7
-fomc-corpus,1978,"Mr. Chairman, I am bothered a little bit about a freeze at 9-3/4.",21
-fomc-corpus,1978,You mean you are worried about the down side?,10
-fomc-corpus,1978,"I'm worried about both the down side and the up side. I'd rather, if we could, buy a 9-7/8 midpoint as the midpoint shown on that range you picked. Actually, I think the range is terribly narrow; 1/4 percentage point gives the Manager very little leeway.",62
-fomc-corpus,1978,That's a true money market directive.,7
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"If you really want to nail it, then I would rather nail it at 9-7/8 than 9-3/4.",29
-fomc-corpus,1978,That's a very small point.,6
-fomc-corpus,1978,"It is, but it's a small point on the other side too, Chuck.",16
-fomc-corpus,1978,"Of course, it hasn't been at 9-3/4; if we put it at 9-3/4, we have put it up from where it was. You want to put it up 1/8 point more, apparently.",51
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,Let's find out. There seemed to be quite a majority for a 9-3/4 funds rate at this point. So let's try this one on a straw vote and see what we have. How many of the voting members would accept--I'm not saying would propose but would accept--the proposition I just tried to get out of this? How many would go along with this?,77
-fomc-corpus,1978,Would you just state it again?,7
-fomc-corpus,1978,"A 5 percent cap on M1, a 6 to 9-1/2 range on M2, and a 9-3/4 to 10 range on fed funds, using 9-3/4 as the initial positioning point and a money market directive--and M1+ just tracked on the side.",68
-fomc-corpus,1978,But with a notion that it probably would be within [2] to 6 percent.,18
-fomc-corpus,1978,"Yes, tracking it to see how good we are at guessing. How many of you would support that? 1, 2, 3, 4, 5.",36
-fomc-corpus,1978,5 out of 10.,6
-fomc-corpus,1978,I didn't count myself.,5
-fomc-corpus,1978,I think it's 6.,6
-fomc-corpus,1978,"1, 2, 3, 4, 5, well--",16
-fomc-corpus,1978,"Can we buy my try at it, Mr. Chairman? Leave everything the same but put the midpoint at 9-7/8.",28
-fomc-corpus,1978,Sure put it in. The midpoint at 9-7/8. We will take a vote on that. How many would like that?,29
-fomc-corpus,1978,With 9-1/2 still on M2?,12
-fomc-corpus,1978,"Yes, everything else the same.",7
-fomc-corpus,1978,And we consult if these aggregates get high.,9
-fomc-corpus,1978,"Oh, yes. 1, 2, 3, 4, 5, 6. Okay. I think that's a majority. Now let's take a vote. Let's get the others to swing in and realize that like a convention when they are all through they say, ""Mr. Chairman, I move that it be unanimous."" There's real opportunity here.",74
-fomc-corpus,1978,"It just shows with Mark that you can't satisfy him very long. We raised [the funds rate] very substantially and he liked it, but now several weeks have gone by and we haven't raised rates anymore.",41
-fomc-corpus,1978,"Three weeks. All right, I'll vote for the Coldwell compromise.",14
-fomc-corpus,1978,Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes Present Eastburn Yes Governor Partee Yes Governor Teeters Yes Governor Wallich Yes President Willes,33
-fomc-corpus,1978,"Come on, Mark.",5
-fomc-corpus,1978,Abstain?,4
-fomc-corpus,1978,Keep with the club.,5
-fomc-corpus,1978,We've got a little bit more.,7
-fomc-corpus,1978,I didn't hear. Did he have an answer?,10
-fomc-corpus,1978,He hasn't answered yet.,5
-fomc-corpus,1978,He abstained.,4
-fomc-corpus,1978,"If we would vote for this, we would tolerate almost 12 percent growth in M1 in December before we move.",24
-fomc-corpus,1978,Assuming November is right.,6
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,Which we don't know.,5
-fomc-corpus,1978,Which we don't know.,5
-fomc-corpus,1978,"Well, just a minute now, Willis Winn.",10
-fomc-corpus,1978,I'll go along with it.,6
-fomc-corpus,1978,Now Mark.,3
-fomc-corpus,1978,"Well, it's not December, but almost. I'll vote yes.",13
-fomc-corpus,1978,A vote for Christmas. Thank you. I think that's the most marvelous vote I have had since I have been here.,24
-fomc-corpus,1978,What about the language?,5
-fomc-corpus,1978,"We did take the money market directive, didn't we?",11
-fomc-corpus,1978,We did take the money market and we did--,10
-fomc-corpus,1978,I have a proposal but I don't [know] whether it's--,13
-fomc-corpus,1978,On page 15?,5
-fomc-corpus,1978,"Well, on page 14 it refers to [the international situation].",14
-fomc-corpus,1978,"All right, let's look at page 14.",10
-fomc-corpus,1978,"Well, I just wrote in a different phrase here [beginning with] the ""while"" for the first sentence. ""In the short run, the Committee seeks to achieve bank reserve and money market conditions that are broadly consistent with the longer-run ranges for the money aggregates cited above, while supporting the objective of stabilizing the foreign exchange value of the dollar."" That is all I put in.",79
-fomc-corpus,1978,"You want to leave in ""giving due regard to developing conditions"" don't you? And add supporting--",20
-fomc-corpus,1978,"No, I just left that out and put this in as a substitute.",15
-fomc-corpus,1978,You are [not] going to risk any further rise in the dollar?,15
-fomc-corpus,1978,"Well, stabilizing--",5
-fomc-corpus,1978,"That's what you say--stabilizing the exchange value. You can stabilize both ways, Paul.",20
-fomc-corpus,1978,That's a very considerable departure from past practice.,9
-fomc-corpus,1978,"Well, that's what we just announced that we were doing.",12
-fomc-corpus,1978,I don't think the announcement said that.,8
-fomc-corpus,1978,We were countering disorder.,6
-fomc-corpus,1978,"We said we are going to call it to a halt and reverse it. Now, you could argue that we are allowing some up--",27
-fomc-corpus,1978,That's because the whole market was in considerable disorder.,10
-fomc-corpus,1978,"Why don't we just say ""support"" the value of the dollar? It might get you away from this ""stabilization.""",26
-fomc-corpus,1978,I don't want to go toward that.,8
-fomc-corpus,1978,"No, I don't want to go toward that.",10
-fomc-corpus,1978,"Mr. Chairman, ""correcting excessive exchange [market fluctuation]"" is what we used.",19
-fomc-corpus,1978,"I have no hang-up on the word ""stabilizing."" I just wrote that in there.",20
-fomc-corpus,1978,"Do we want to leave in this language ""giving due regard to developing conditions in domestic markets""?",19
-fomc-corpus,1978,"It just seems too weak to me. I have no problem [leaving] in domestic markets; I just wanted more prominence to the international. After all, this program is certainly--",37
-fomc-corpus,1978,"I'd buy Paul's wording, with the word ""support"" instead of ""stabilize.""",18
-fomc-corpus,1978,"""Giving due regard"" could mean anything you want it to.",13
-fomc-corpus,1978,The trouble is we've used it when we didn't mean much. That's the problem.,16
-fomc-corpus,1978,"Well, I think ""stabilizing"" is not helpful. I think ""supporting"" or ""strengthening"" or using the announcement [wording]--",33
-fomc-corpus,1978,"I think the word ""supporting"" doesn't go very well with a federal funds range of 1/4 point.",24
-fomc-corpus,1978,"Well, you could say while ""supporting"" the foreign exchange--or ""strengthening.""",19
-fomc-corpus,1978,What's the strengthening?,4
-fomc-corpus,1978,Strengthening instead of supporting it.,7
-fomc-corpus,1978,Strengthening what?,4
-fomc-corpus,1978,Strengthening the foreign exchange value of the dollar or giving due regard to strengthening it.,17
-fomc-corpus,1978,That's what it says here--giving due regard to strengthening the--,13
-fomc-corpus,1978,"Really ""supporting"" is a better word, isn't it?",13
-fomc-corpus,1978,"Strengthening means you are going to continue to run it up, and I don't know how far we will run it up.",25
-fomc-corpus,1978,Giving due regard to the developments in international exchange markets.,11
-fomc-corpus,1978,"Well, I think we need a little more positive statement. Support is okay. There's nothing wrong with support. I think we ought to leave something in here about the domestic markets. I really do. We shouldn't [base] our actions solely on international [markets]; that's the only point. Okay. Any other changes on page 14?",68
-fomc-corpus,1978,"Mr. Chairman, I would just suggest that the Committee be prepared to answer, when this reaches the public, whether in fact the Vice Chairman's wording means that the Committee would tighten or fail to lower the funds rate when the dollar is weakening. I think that question will inevitably come up at that time, whereas general language as is in there now or as President Mayo suggested wouldn't raise that question. I think it will be taken as an active change in policy. If that's what the Committee intends, fine. I'm not qualified to--",106
-fomc-corpus,1978,"Well, does the Committee buy the Volcker language with the word ""support""? MESSRS. PARTEE and COLDWELL. Paul, could you read it?",35
-fomc-corpus,1978,"Well, ""while giving due regard to developing conditions in domestic financial markets and supporting the value of the dollar in the foreign exchange markets."" That's the way you have it, Mr. Altmann?",39
-fomc-corpus,1978,"Well, ""strengthening"" or ""supporting"" the foreign--",14
-fomc-corpus,1978,"Yes, I think that ought to go first.",10
-fomc-corpus,1978,"""...and to developing conditions in domestic financial markets."" All right, I don't hear any dissents. On page 15 was there a problem, Steve?",31
-fomc-corpus,1978,"No, I assume we don't need ""in an orderly fashion."" And I would just like to call the Committee's attention to the last paragraph beginning on the bottom of page 15, which used to be in the directive and we have added it again in case the Committee wants to include this. It spells out what is implicit.",66
-fomc-corpus,1978,"Yes, we did it before and we took it out the last time because of the particular circumstance. I think it should go back in. Now that we have done all of this--",37
-fomc-corpus,1978,"There's an extra sentence in here if we're going to drop M1. In the middle of the page [it says ""weight is to be given to M1 if it appears to be growing at a rate close to or above]...""",47
-fomc-corpus,1978,"That whole section will come out. And we will take out the reference to M1+. Now that we have done all of this, let me ask Alan and Peter: Can you fellows live with this?",41
-fomc-corpus,1978,"It seems to be reasonably clear to me, Mr. Chairman. It's hard to be very disorderly within a 1/4 point range. The fed funds range is really quite a good one and very appropriate in the current market.",47
-fomc-corpus,1978,"Is the range too narrow for you? You're okay. Well, thank you all very much. We have a few minutes to get organized to make our trip, and I appreciate it. We will come back here for lunch. Now, we do have a meeting on December 19 for Christmas, and at that time Mark will be even mellower.",70
-fomc-corpus,1978,"Mr. Chairman, do we have a schedule for 1979?",14
-fomc-corpus,1978,"Do we have a schedule for '79 yet? We had a problem, Steve, about meetings. Chuck.",22
-fomc-corpus,1978,"We intend for the December meeting to have the report of our subcommittee on addressing the question of procedures and practices with regard to the new Humphrey-Hawkins bill. That will at a minimum require a change in the February meeting date and the July meeting date, so that we can meet sometime before we have to submit the written report, which is by the 20th of February and the 20th of July. I also think we will review the question of schedules perhaps with the view to reducing the number of meetings per year to ten. But we haven't looked at all of the pros and cons on that yet. So, we have a little--",132
-fomc-corpus,1978,Because of the timing of these special reports.,9
-fomc-corpus,1978,"That's right. And because of the special reports, we really will have a longer-term thrust, I think, in policy as a result of the Humphrey-Hawkins changes in the Federal Reserve Reform Act. So, therefore, we might not need to meet quite so frequently; it would be perhaps more on a five or six week interval rather than a four or five week interval. [We haven't] talked about it, so I really shouldn't say that much about it.",95
-fomc-corpus,1978,"Do you have enough information yet, Chuck, if we bought your proposal, to name the date for February?",22
-fomc-corpus,1978,What did we decide--the 6th?,10
-fomc-corpus,1978,We were thinking of the 6th and 7th. It might have to be a 2-day meeting.,24
-fomc-corpus,1978,We will probably have to have two days of meetings because of--,13
-fomc-corpus,1978,This report has to be out on the 20th and it's the first one so we need some time.,22
-fomc-corpus,1978,And likewise with July.,5
-fomc-corpus,1978,"If we are going to have a 2-day meeting, the sooner we get it on people's calendars--",21
-fomc-corpus,1978,"What about July, Steve?",6
-fomc-corpus,1978,I think it was--I may be off a little bit on the dates--somewhere around the 12th or 13th. I can't remember.,32
-fomc-corpus,1978,"Well, can you give us some tentative dates at lunch?",12
-fomc-corpus,1978,We really ought to know that.,7
-fomc-corpus,1978,So we can at least block out the time.,10
-fomc-corpus,1978,"Well, some of these schedules change all the dates throughout the year, so I think it might even be premature to give tentative dates.",27
-fomc-corpus,1978,"Those two we ought to be able to pin down, I think.",14
-fomc-corpus,1978,Just February and July. Let's get February tied down for sure.,13
-fomc-corpus,1978,"Good morning, ladies and gentlemen. I appreciate everyone's willingness to meet so late in the morning, given your usual preferences for early sessions. I've taken the liberty of trying to develop a format for today's meeting that I hope will prove useful and beneficial. If not, we can certainly adjust it back. I would like to experiment with some way that would accomplish all of our purposes and perhaps make it easier for the Committee to get our work done in the allotted time. What I am going to suggest is that we go directly through items 1 through 5. Item 4 we'll be hearing from the staff on the economic review and 5 we'll be hearing from our Economist on his views. Then what I would like to do is to get the round robin in, where every member of the Committee gives comments on his views of the economy--without necessitating numerical variances from staff--and indicates any important signals, regionally or nationally, seen that would cast light on our overall evaluation. But indicate at the same time what this implies from your point of view in terms of policy direction. Again, not numerically but in terms of does this imply tightening, easing, steady as we go, or substantial this or substantial that. And by the way, we can get how everyone sees it and after the coffee break perhaps we can then focus on the specifics of the directive and the guidelines and see if we can in that way streamline somewhat the process without in any way curtailing the search for inputs and comments. But by making comments on both the economy and the monetary outlook at the same time, I think it will shorten the process from going around twice. I'd like to try that today, if you are willing, and see how it works. The first order of business is to approve the minutes of the actions taken at the last meeting; they have been circulated. Are there any comments or corrections? Hearing none, we'll record those as approved. And the next item is to deal with foreign currency operations, the report on the operations since the last meeting. Scott Pardee.",415
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Scott. Any questions? Henry.",10
-fomc-corpus,1978,"It's reported that support for the dollar in Europe may flag because of the oil price increase and the desire to see that reduced in terms of their local currencies. In fact, the drop that you note in the dollar has already undone something like 1/3 of the oil price increase, as far as the countries with strong currencies are concerned. Have you heard anything on that?",75
-fomc-corpus,1978,"Yes, well, if I seem a little agitated, I've just gotten off the phone with the Bundesbank on that precise point. And all I got was a lecture. Obviously, this is not official policy on the part of the German government or any other government, but I was told it was about time that we did something on fundamentals and all that. So it's not the official policy but it's one of the things in the market that's poisoning the atmosphere and leading to further sales of the dollar. We ourselves found in our intervention yesterday that we got an unusual cluster of Middle East names.",118
-fomc-corpus,1978,What does that mean?,5
-fomc-corpus,1978,"Well, the selling was coming out of the Middle East more. The New York market itself was quiet; it was quiet from noon on. It was a heavy cluster of names that came out of the Middle East.",43
-fomc-corpus,1978,"Phil, did you have a question?",8
-fomc-corpus,1978,"Just to clarify that last comment, that's all.",10
-fomc-corpus,1978,"Yes, Dave?",4
-fomc-corpus,1978,I have a question about the Greenbook; it's on this subject and perhaps Ted could address it. The last paragraph of the Greenbook supplement talks about the prospects for the dollar in the next year and concludes that with an improvement in the trade surplus and the relative inflation performance the dollar should about hold where it is. I would have thought you'd say it might improve. Would you comment on that?,79
-fomc-corpus,1978,"Well, I think it's fair to say there's a possibility it might improve, but the consensus of the staff here was that the dollar would be about where it was--and in fact the Greenbook was written in the early part of last week.",49
-fomc-corpus,1978,Before this.,3
-fomc-corpus,1978,"Before this, so that suggests that there would be some improvement certainly from current levels. In fact, as far as the staff when we do this forecasting, it's sometimes helpful to use a number rather than words as we do in the Greenbook. So that tends to include a range of plus or minus 2 percent. Again, I think the consensus, for what it's worth, is that there would be some improvement--maybe even a 4 to 5 percent improvement from where we are today.",100
-fomc-corpus,1978,Chuck.,2
-fomc-corpus,1978,"Just to follow up on that, though, Ted: If the price rise for oil means that our trade balances are less good by a few billion dollars by the end of the year, isn't it true that other countries would be proportionately even less well off as a result? That is, we import less oil than Germany, Japan, Switzerland, or France, at least, and so I should think they would have a greater deterioration relative to previous expectations than we would.",94
-fomc-corpus,1978,"Well, you reminded me of something that I didn't say. The other thing we had not included was the OPEC price rise. For the year as a whole, that has very little effect compared to what we've been assuming before. We've estimated now maybe 3/4 of a billion dollars for the year as a whole. However, it adds to the current account deficit of the United States, we would think, about $2 billion at the end of 1979. That means that the pattern we'll have throughout the year is going to be that we may have some sort of initial improvement and then it's going to be flatter than we expected. And, in terms of what Scott was just mentioning, that does not suggest that you are going to have the kind of dramatic improvement that was embodied in the Greenbook forecast. Now, as far as the impact on the United States versus the rest of the world, the fact is that our oil bill per se is approximately twice as large as that of any other country.",203
-fomc-corpus,1978,Relative to GNP or what?,7
-fomc-corpus,1978,"No, not relative to the GNP, but in terms of the oil bill. So the figures--that $2 billion is the largest number that's around. While it is true that we have a lower dependence on imported oil than Japan or Germany, we have a large overall oil bill and, therefore, any increase will add to the psychologically important [dollar amounts.]",74
-fomc-corpus,1978,"It is also larger relative to our balance of payments, which I think is the main--",18
-fomc-corpus,1978,"Yes, I think that's more important.",8
-fomc-corpus,1978,You also have had the kind of psychological imponderables and the one that Henry raised.,18
-fomc-corpus,1978,You mean our oil bill is a larger proportion of our imports than would be the case in Germany?,20
-fomc-corpus,1978,Because our imports are small; the oil proportionate to GNP--,14
-fomc-corpus,1978,[Unintelligible.],6
-fomc-corpus,1978,That's hard to work through. Then our exports must also be smaller relative to--,16
-fomc-corpus,1978,They are.,3
-fomc-corpus,1978,Scott.,2
-fomc-corpus,1978,You also have the psychological imponderables beyond just the forecasting tools the economists normally use in terms of the expectations towards policy. Governor Wallich raised one point--that the Europeans may allow their rates to rise. And there is the feeling that perhaps the United States may let the dollar drop as a way of financing this. So it's not just taking previous trends and projecting them forward. It's this policy context we have to consider.,85
-fomc-corpus,1978,"Thank you, Scott. We need an action to ratify the transactions since the previous meeting. I think the details have been circulated. Are there comments or objections? Hearing none, we will record that as approved and move on to domestic open market operations and the report from Mr. Sternlight.",59
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,"Thank you, Peter. Questions or comments?",9
-fomc-corpus,1978,Can you elaborate on your last comment a little bit?,11
-fomc-corpus,1978,"Well, as I mentioned, the dealers had a very poor year in 1977--the worst since we have kept records of this. As a group, the primary dealers had losses on the order of $100 million. This past year was not that bad, but it was a poor year. The figures we have together at this point suggest a magnitude of roughly $30 million lost through nine months of the year. This is a volatile industry; people are used to ups and downs, but I am concerned that there are some longer-term factors at work there. I think [given] the growth in the number of dealers, they tended to be very aggressive in their competition with each other, paring down margins. They have tried to take positions because they can't make money on the spreads as much anymore. They seem to guess wrong quite frequently and take losses on positions. Just a series of factors, mostly [involving] the aggressiveness of their competition, has impaired the profit opportunity. I think the electronic means of communication that they have now has tended to [unintelligible] up the competition as they scramble to make the best possible market to customers. And then many customers are operating almost like dealers in the rapidity of their buying and selling activity in the market.",257
-fomc-corpus,1978,"Peter, have the losses been concentrated in a few dealers or are they pretty generally scattered throughout?",19
-fomc-corpus,1978,In '77 losses were very general. Only a few dealers made very slim profits and almost all of them made losses. There's been more of a scatter--more dispersion--this past year. A few have turned in a not too bad performance and some have been quite heavy losers.,56
-fomc-corpus,1978,Bob Black.,3
-fomc-corpus,1978,"What are the implications of that for monetary policy, Peter?",12
-fomc-corpus,1978,"Well, I think the Treasury depends on a vital, healthy government securities industry for the underwriting of its debt. I think market participants depend on a healthy industry just because many seek to make liquidity adjustments in the government securities market. We are dependent on it in the execution of monetary policy--having a vital market out there where we can buy and sell securities as we need to adjust reserve positions.",78
-fomc-corpus,1978,Phil.,2
-fomc-corpus,1978,"Peter, were the losses you're talking about concentrated in a few firms or is there a wide dispersion between profit and loss?",24
-fomc-corpus,1978,"Well, as I mentioned, there was wide dispersion in the '77 losses. In this past year, maybe about half of the firms have had losses. And some of the losses were quite substantial--enough to give, on balance, a loss for the industry as a whole.",57
-fomc-corpus,1978,But there is still interest in becoming a dealer bank?,11
-fomc-corpus,1978,"Less than earlier, although there are still firms that seek to get in, not because they expect to come in and make a lot of money in the government securities but because they see it as necessary to round out their activity. A large corporate underwriting firm may see this as a desirable adjunct to its business in the corporate area.",65
-fomc-corpus,1978,"Peter, many years ago there was some effort made to suggest that the Treasury should sell its securities on a commission basis and go like the stock market on the turnover in the secondary market. I haven't heard anything about this for years. Is that dead or does what you are describing here give any impetus to that discussion?",63
-fomc-corpus,1978,"Well, every once in a while one or another dealer comes up with the suggestion. I wouldn't say the Treasury might have to give it renewed consideration.",30
-fomc-corpus,1978,Are any of the dealers that have a very broad base in other parts of the securities market using the government operation as a loss leader in any way?,30
-fomc-corpus,1978,"I think one could say that to some extent, yes. I think that's part of this desire to enter an industry where the profit experience has been poor recently. They still want to get in just [for the] prestige factor because they see it as a desirable way to peddle their corporate securities.",61
-fomc-corpus,1978,"Thank you, Peter. We need an action to ratify the transactions since the previous meeting. [A report] has been circulated. Are there any comments? Are there any objections? Hearing none we'll record that as approved and move to item 4 on the agenda, which is the staff report on economic situation by Jim Kichline.",68
-fomc-corpus,1978,[Statement--see Appendix.],6
-fomc-corpus,1978,Normally I would say thank you. In this case I'm not sure I can say that.,18
-fomc-corpus,1978,What part of Las Vegas did you come from?,10
-fomc-corpus,1978,"I think with these odds, Jim, we'll call you Jimmy the what. Well, anyway I'll thank you. Before we start our discussion of this, Steve, would you give us your comments on how you see these relationships?",45
-fomc-corpus,1978,"Thank you, Mr. Chairman. [Secretary's note: This statement was not found in Committee records.]",21
-fomc-corpus,1978,"Again, can one say thanks for that clear-cut definition of policy? Thank you for outlining the choices. Before we start the go-around, are there any particular points that need clarifying? If there are technical questions that could be handled elsewhere, that might be better. But if there are any things that should be clarified here-- Yes, John?",70
-fomc-corpus,1978,"This is sort of a belated question back to Scott Pardee. You referred to the lecture that you got from the Bundesbank this morning, Scott.",31
-fomc-corpus,1978,That was after he lectured them.,8
-fomc-corpus,1978,What do you think they mean by a credible anti-inflation policy?,15
-fomc-corpus,1978,"He said higher interest rates. He said it three times. And I said, ""We've got higher interest rates."" So we got into jawboning back and forth. Let me get back to fiscal policy, the whole range of things that we've been discussing over the month. The problem is simply that the numbers haven't come through to support all of the things that we said over the months about winding down inflation and turning the trade balance around. The trade balance is improving--that [will happen] in time. But it is more a question on the inflationary front. I wouldn't accept what the Bundesbank has to say about our policy. We have to have our own deliberations. They wouldn't accept what I had to say about their policy.",149
-fomc-corpus,1978,You said Merry Christmas.,5
-fomc-corpus,1978,That's later this week.,5
-fomc-corpus,1978,"Yes, Bones.",4
-fomc-corpus,1978,"I just have a question to Jim. Did I follow, Jim, that you were suggesting that maybe because of the weather the housing growth has been borrowing from the future? You would [expect] some considerable weakening because of borrowing--",46
-fomc-corpus,1978,"That's right. I might say there's no way to understand the fact that we have had a great deal of strength in that sector. We checked with a number of major builders and there has been a suggestion that the weather has been quite good and that, combined with their expectation of generally tighter mortgage market conditions, [has led them] to try to push their starts through. To whatever extent that argument is correct, one would expect somewhat greater weakness later on.",91
-fomc-corpus,1978,"Jim, what about the seasonal adjustment in November? Could a small increase in actual starts with good weather show up as a bigger number in the seasonal adjustment?",31
-fomc-corpus,1978,I don't believe the November seasonal is that big. The December and January ones are quite big. I might note that the only area that increased in November was the North Central area. And in October that's where home sales just went through the roof; there was something like a 120 percent increase.,59
-fomc-corpus,1978,In the Northeast?,4
-fomc-corpus,1978,In the North Central region. Every other area in the country was down on the starts figures this month.,21
-fomc-corpus,1978,Sounds like a good explanation until you start adding in the future figures of the home builders and other mortgage groups that are making commitments at a faster--,29
-fomc-corpus,1978,"That's right. You can get caught with the lags in this process, as you know, and things could fall apart right quickly. I noted in reading the Redbook that sprinkled throughout each District Bank's report was essentially a tightening flavor in the mortgage market and a slackening of housing activity. But it's clearly not evident in the numbers that we have in hand.",73
-fomc-corpus,1978,Nancy.,2
-fomc-corpus,1978,You've moved up your price expectations. Is that the result of the rise in crude oil prices? Is that the major impetus behind that?,27
-fomc-corpus,1978,"No, we have had an expectation of about an 8 percent [increase in crude] prices. We haven't changed that much for 1979. It's the energy side, where I think we just underestimated the impact of natural gas prices--for example, what had been happening to gasoline prices. That's really the key. We did not change our [crude] price projection at all. In addition, I might say, we have not been encouraged by the performance of unit labor costs. The third-quarter numbers, for example, showed [initially] an increase of around 5 percent in unit labor costs. Revised figures of a week or two ago showed a 7 percent increase. Productivity is estimated to have been lower and compensation a bit higher. So the underlying patterns seem to us to have deteriorated some more.",165
-fomc-corpus,1978,But the gasoline prices started up before the OPEC price increase. You didn't think--,17
-fomc-corpus,1978,"No, that's right.",5
-fomc-corpus,1978,This doesn't include the OPEC thing.,8
-fomc-corpus,1978,"No, it does not. We had 7-1/2 percent. We are at 7-1/2 percent.",27
-fomc-corpus,1978,"Which was from January 1, incidentally. So you have to realize that it is only less in the beginning and more at the end.",29
-fomc-corpus,1978,"That's right; it's 7-1/2 versus 10. And we don't have the extra 2-1/2 percent on average, but the latter half of the year looks poor.",40
-fomc-corpus,1978,Paul.,2
-fomc-corpus,1978,"Well, after that conversation I would just offer an observation. It's hard for me to see how you get down to this 7 to 7-1/2 percent range in prices in the second half of next year unless you are putting an awful lot of weight on the President's program. But that's not my question. My question is budgetary. I think you have by the full employment measure of stimulus actually negative stimulus--if that's the right term--in the first quarter, which surprises me a little bit with the tax reduction, so any comment you would offer on that I would appreciate. But also I get the sense at least the money market analysts in New York for some reason are beginning to project a substantially larger budget deficit this year than the official estimate.",154
-fomc-corpus,1978,Which year is that---the '79 fiscal year?,11
-fomc-corpus,1978,"You get a recession, Paul.",7
-fomc-corpus,1978,"Well, it's not early enough to have-- They also have a very large one in the following year. That's maybe a recession, but I don't think a recession is the full explanation this year. All I asked for is comments from the staff about this possibility.",52
-fomc-corpus,1978,Isn't this true of the New York community generally--that they are always projecting a bigger budget deficit?,21
-fomc-corpus,1978,"What surprises me about this is that some of them have been ahead of the government in projecting a lower deficit in recent years and lower expenditures, which has turned out to be the case. Now it seems to be reversed.",44
-fomc-corpus,1978,"Well, it's hard-- Jim, let's get it back in focus. Jim, tell us about all that new employment and personal income that's going to [generate] all that revenue.",36
-fomc-corpus,1978,"Well, the question on the full employment surplus or deficit, from the fourth to the first quarter there is virtually no change, [even] with a tax cut. At the same time we have the social security tax increase, which is a partial offset; and on the expenditure side we have a fairly slow growth of expenditures related to the Commodity Credit Corporation expenditures, which have boosted this quarter a bit and we anticipate will not in the first quarter. So it's really that there are offsetting items going on within the accounts, so we don't have much change in fiscal thrust right now. With regard to the budget deficit numbers, I guess we feel fairly comfortable with what we have now.",136
-fomc-corpus,1978,Which is similar to the Administration's figure.,9
-fomc-corpus,1978,"That's right, though we would like to think that we have done our own work. We do have differences in various categories. We have some outlays a bit lower. We think there will be a little bit in the way of shortfalls, not a great deal. But we have somewhat higher interest payments so they are offsets. But in total we are quite close. I was under the impression that most of those who have higher deficit numbers are operating with different economic assumptions. That was my general impression.",101
-fomc-corpus,1978,"Well, it is also vague in the accounting. That is, the social security tax increase--even though the major part of it is an increase in the ceiling and doesn't take effect until the latter part of the year--shows up totally in the first quarter.",52
-fomc-corpus,1978,"I understand that. Still that's only half the tax reduction, or a little more than half.",19
-fomc-corpus,1978,"Ladies and gentlemen, I think we are perhaps ready to try to get your inputs individually. Through careful analysis of past meetings, it has been determined that the proper procedure today would be to start with Henry Wallich, who isn't here, and go clockwise. I suppose he is frightened about the possibility of being the lead-off!",65
-fomc-corpus,1978,"He had a very brief statement today, didn't he?",11
-fomc-corpus,1978,"I would ask for three components, or two particularly, on the economy as you see it, in terms of any variance from the staff forecast. It need not be numerical; it can be qualitative or quantitative. Also, I would particularly like each of you to comment on how you read the implications for monetary policy at the moment, particularly [regarding] the directive between now and the next meeting. So we will start with you, Phil, and when Henry comes in we will pick up.",99
-fomc-corpus,1978,"Well, Mr. Chairman, it seems to me that we have not made enough headway toward slowing this economy down. I am very sorry to see the large increase in real GNP. That sounds cruel to say, but accompanied with that is a major increase in inflation and another further jump of 0.7 percent even on the average wages. I can't in good conscience look forward to that kind of package for 1979, where we are looking at a minimum of 8 percent. And if this has to be restructured in the latter part of the year, I suspect it would be even higher. If the Committee decides to buy the idea of skipping the January meeting, then I think we need greater leeway and more flexibility to meet the shifts in January and I will address that problem later on. A basic problem to me is that inflation is not showing any slack in it whatsoever that I can see. The aggregates to me are totally unreliable. We haven't seen anything that would educate me that the staff or others who have been commenting even know which direction these things are going to move over the next few months. The ATS may have been a complicating factor; it may be something else. So I am giving my attention primarily to market conditions, loan demand, and the strength of the economy. Now on all three counts, it seems to me that we are burgeoning fast and I am very sorry we didn't catch some more of it before we hit this quarter. Consequently, in my view the staff estimate, while still credible in the sense of the GNP, I think is unsatisfactory totally in terms of the rate of inflation and I would apply considerably more restraint.",336
-fomc-corpus,1978,"Thank you, Phil. Henry, you were the lead-off man, but we skipped you. So we are going to come back to you. We are not going to omit you.",37
-fomc-corpus,1978,You want me to [comment now]?,8
-fomc-corpus,1978,Please.,2
-fomc-corpus,1978,"Well, it seems to me that the economy is now in a state of demand-pull inflation--aggregates or no. We are beginning to push against the capacity limits. The Redbook reports particular areas are filled with considerable pressure, although the general tone of the Redbook was not all that strong. We are getting inflationary rate pressures, I think, in part as a result of monetary developments that occurred quite a while back. We can't expect the present aggregates to have much influence, and I doubt that the present aggregates tell us much about the future course of the economy because there are so many reasons why they might be weak and might not be reflecting the economy. I think loan demand at banks at the present time is a better indicator; the banks are selling off securities. Individuals and businesses are buying the securities because they want to get rid of their cash balances, and what remains is strong expansion through bank credit. Now, one has to ask oneself, as Jim Kichline did, how does the present bulge carry forward into the future? The consumer seems to be borrowing from the future and there one cannot foresee much strength. But strong consumer buying can trigger temporarily inventory accumulation; and likewise pressure on capacity can induce additional investment. I don't think anybody would be investing now in order to get capacity for the next few quarters. But he would be looking beyond possibly a small dip in the economy and would realize that at last the capacity limits have been reached and he has to do something to enlarge his plant. All that suggests to me that there is some underlying strength here that we don't observe. Furthermore, I think we have been continually wrong in our evaluation of the inflationary risk. As I look at the forecast that we have made over time on inflation for this present time--namely, October or November of '78--we started out fifteen months ago with an estimate of 6.1 percent and we gradually upped it and it's coming to over 8 percent. On unemployment we have done the reverse. We thought unemployment would be 6.6 percent fifteen months or a year ago and we've gradually come to see it at 5.8.",434
-fomc-corpus,1978,How about real growth?,5
-fomc-corpus,1978,Real growth has been slower than expected also.,9
-fomc-corpus,1978,Also working down throughout the projection?,7
-fomc-corpus,1978,"Yes. That reflects the poor productivity performance [which] is another inflation factor. So I think not only have we done much better on unemployment than we expected and much worse on inflation than we expected, but we also seem to have a built-in bias toward a low inflation forecast, whatever the cause of that. When I see we are going to get down to 7.3 percent in the second half of next year, I wonder, like Paul does, if we shouldn't add a point or two and allow for a worse outcome. Well, all this pushes me in a direction of greater tightness. I think tightness is really a relative term here. With inflation expectations rising, nominal interest rates don't mean what they seem to; and to maintain real interest rates where they were, nominal interest rates have to go up. I would agree with Phil Coldwell that we should at this time look at interest rates and not look at the aggregates because they are so disturbed. So that points to a money market directive. I also agree with what Steve Axilrod said in the way of widening the funds rate range. In my case, I would want to widen it in an upward direction.",238
-fomc-corpus,1978,"Thank you, Henry. Frank.",7
-fomc-corpus,1978,"Mr. Chairman, I don't think we understand what is really going on in the economy.",18
-fomc-corpus,1978,I'll go along with that.,6
-fomc-corpus,1978,I think it's because we haven't had enough experience judging the reaction of both the consumer and the investor to an economy with a high rate of inflation.,29
-fomc-corpus,1978,That's right; we haven't had any experience.,9
-fomc-corpus,1978,"Quite clearly, the numbers coming in over the past month are vastly stronger than I had expected and I think stronger than any of us had expected. And I think it's quite possible that the fourth quarter will be even stronger than the staff has projected and perhaps the first quarter as well. At the same time, we are getting these conflicting signals between what is going on in the real economy and the behavior of the aggregates. I think it's quite clear that we are not for long going to have a very exceptionally strong economy coupled with very weak growth in the aggregates. One of these two things has to come to an end, and I don't think we are sure which one is going to give at this moment. This suggests to me that this is an extremely poor time for the Committee to be planning not to meet for seven weeks, unless we are prepared to give the Manager a lot of room on the fed funds rate to respond to changes in the aggregates. I think it would be very poor management on our part to leave for seven weeks anything like the kind of directive we gave the Manager last month. It seems to me most probable that we are going to face a bulge in the aggregates in the next three months, and I suspect it will be bigger than the bulge that Steve and his group has given us in their projections. I think both domestic and international considerations require us to move pretty promptly against the bulge in the aggregates. I think the exchange markets would certainly be carefully observing any resurgence in the rate of growth in the U.S. money supply. I realize that suggesting that we meet again in three weeks will place a big burden on the staff and I simply suggest that they respond by giving us not the full Greenbook-Bluebook treatment but some simple updating. But I think we are in a too unstable situation to consider not meeting again until February 6th.",375
-fomc-corpus,1978,"Thank you, Frank. Ernie.",8
-fomc-corpus,1978,"Mr. Chairman, I, too, am impressed with this conflicting evidence. As a result of that, I am more ambivalent than usual today in terms of policy. [Let me mention] a couple of facts that may be of interest. As you know, we have a large builder on our board who builds pretty much around the country and also a bit abroad. He reported that he recently bid an identical building in Houston to one he bid a year ago and now has it about completed. And the current bid was exactly 25 percent higher than the one a year ago. He was citing this as an indication of the rate of increase of construction costs in that area. He indicated a similar estimate for the Chicago area of 20 percent. He noted also that the ability to lease promptly is easing off as a result of these higher costs and the necessary higher leases. He expects that that will bring on a slowing in the rate of construction for that type of property. Conversations I have had recently with businessmen in a wide variety of activities suggest to me that we are probably going to see more investment, particularly in new equipment and possibly in the total of business fixed investment, than is being reported in the surveys and than is currently being projected. In fact, I would expect that the projection may be low in that particular component. Our banks are experiencing--and expect to continue to experience at least for some time--very strong loan demands. In connection with that, they are expecting to make some further upward adjustment in the prime rate. Small banks report that they are having more difficulty upstreaming loans, and large banks report that they are having more difficulty downstreaming them. I think an indication of a little tightening up in the market is that they are all getting a little closer to that situation which they will call ""loaned up."" It is interesting that drilling activity is off significantly in the Southwest in the last month or two. The explanation given is that there is a temporary localized glut in [natural] gas. And in those circumstances, where they can, they like to schedule their output to the local market as compared to moving into the international market. I simply report that; I don't know whether that is a valid explanation. That drilling activity is down, I think is a fact, but I'm not sure about the explanation. We see a few indications of the effects of higher interest rates and tighter credit on activity. Cattle feeders, for example, find that they use up their credit line with about half as many cattle in the lot now as they did when cattle were much lower in price. And in one instance a builder and operator of warehouses has reported that he has had to cut back his plant substantially because he couldn't get the volume of financing that he would like to have. But his volume is up very sharply; his business is so terribly good that he is turning away customers, with no credit to meet their needs. Well, from all of this, I come out in the total pretty close to where the staff comes out. As I have indicated, I would up the investment figures a bit, I would reduce the personal expenditures figures a bit, I'd up prices a bit, and I'd up nominal GNP somewhat. But those are not major differences. As to credit policy, I could go today either with standing where we are and observing a bit longer in view of what's happening on the aggregates--I would not be prepared to abandon them as Phil apparently would be--or I could be comfortable moving to a little higher fed funds rate. On balance, I think primarily because of foreign [exchange markets] and inflation--not because of domestic economic activity projections--I would be inclined toward a little additional restraint as reflected in the fed funds rate.",750
-fomc-corpus,1978,Thank you. John.,5
-fomc-corpus,1978,"Without repeating some of the comments that have been made by the four preceding figures that I am in agreement with, I would stress that in my judgment--and I have been arguing it for some months--we are and have been at practical full employment, both with respect to labor and plant capacity. And I think that if inflation continues as it has been for some time now, it will be a key problem in terms of a threat to a stable growth path. There's not much we can do about overshoots that have occurred in the past couple of years. They have occurred and there are long lags, in my opinion, in the impact of policy and we are beginning to see [the effects] now. Just as in football, when in doubt, punt. So having said all of that, I think we are at the stage of a cycle where if in doubt because of this inflation danger we should lean on the side of more restraint. Now that the Board staff has reduced its economic forecast somewhat for the year ahead, there is very little difference remaining between our staff and the Board staff and it's not worth going into what the fairly small differences are. The slowdown that we expect comes not only because of the distortions that have been produced by inflation but also because we can't continue a growth rate such as we have had over the past year or two in the face of having reached a practical full employment point. I do suspect--and it's no more than that--that this strength we see in the fourth quarter, which is greater than anticipated, and certainly greater than I had anticipated, is borrowing from business in the future. I'm just getting too many signals that there is a mood out there in the country of ""buy before prices go up even further."" And to a limited degree that explains the surge of consumer spending, especially on the big ticket items, but that I think is going to run out of gas sooner or later and maybe sooner. And that further reinforces the expectation that we had that going from the fourth quarter of this year to the fourth quarter of 1979 real GNP will be probably under 2 percent; 1.8 percent is what we show specifically, which is a bit less optimistic than the Board staff. Of all the imponderables we are trying to wrestle with today, I suspect the biggest one is the confidence factor and how it is going to impact both consumer and business spending in the future. [Doing what] we can do to reinforce through our posture--as it's perceived by the public, banks, businesses and consumers, and especially by foreigners--that we are going to be resolute in following a policy that will wind down inflation is about the only way we are going to get back to a more stable economy. So in view of the uncertainties in the projections, both of real magnitudes and the aggregates, and because inflation continues to be an unresolved problem that there is no visible evidence as yet of it slowing down, I'd lean on the side of a bit more restraint.",606
-fomc-corpus,1978,"Thank you, John. Mark.",7
-fomc-corpus,1978,"Thank you, Mr. Chairman. With regard to inflation, I still see about 8 percent. It's not surprising that we continue to see high numbers. It just takes a long time to [see the effects of policy tightening]. We are going to see high numbers from now until sometime fairly far into the next year and, unfortunately, we have to be just a little patient on that. With regard to real growth, [I'd say] somewhere between 2 and 3 percent. The only real difference we have with the staff on the outlook is that we still remain substantially more optimistic about business spending than the staff does. A typical comment from businessmen that I've talked to is that of a worldwide manufacturer in our District who says, ""We have gone essentially four years without major business spending and we are essentially at full capacity. We don't care what interest rates are, we've got to build the plants."" We just have a feeling that there is something there. With regard to the international situation, I think Chuck is right. The economics of that price increase should have redounded to our benefit. And because that didn't happen, I think Scott's response is also right that what people are looking at is some assumption as to the policy response rather than the economics that are involved. I guess that is the most worrisome thing. They still don't believe us when we say we are going to stick with it. They think at the least sign of trouble we are going to back off, and I think that's too bad. With regard to policy, I did the same thing that Henry did only on a slightly different issue--looking at policy moves rather than history on our forecasts of prices and unemployment. I don't know whether it's Christmas or what, but I feel as I listen to the Committee that I am rapidly turning from a hawk into a dove because I am starting to get nervous about repeating what has been a fairly typical mistake for the Committee. And that is that once it gets religion it goes too far. As anxious as I am to get [the aggregates] down, I want to get them down slowly precisely so we don't precipitate the recession that I think we can avoid if we are careful. Now having said that, intellectually--",447
-fomc-corpus,1978,You have turned soft. You are only recommending 11 percent!,13
-fomc-corpus,1978,"I am not willing to jettison the aggregates. They're imperfect but they are one of the few things that we have some strong analytical and theoretical base for. I think they are just fraught with problems. Steve mentioned the possibility of a shift in demand. If that's going on at the same time we have ATS going on, we could badly fool ourselves in looking at low numbers and think we are doing something when in fact we haven't done anything. So I think that's a very real risk. And how we hedge that against my previous concern, [which] is just to keep from going too far and causing a recession, I'm not sure I know. In the short run it seems to me that the problem is not quite as difficult because we have had such a long period of strong growth. So if we err a little bit on the side of weaker growth for a month or so, I don't think that's going to have any lasting impact. And if the international situation tells us that somehow we need to have a little further response, I wouldn't object to that. But I must say that I personally am getting very close to feeling that we need to be really careful so that we don't go too far too fast and cause a major problem.",248
-fomc-corpus,1978,Bob.,2
-fomc-corpus,1978,"Well, Mr. Chairman, we just witnessed a new form of ""Mark"" intervention! To capitalize on what John was saying a minute or so ago on the strength of the fourth quarter, I would add to consumer restlessness that prices may go up, producer restlessness--and maybe consumers, too--with regard to potential strikes and still a potential for mandatory controls, even if those mandatory controls take the form of court-enforced voluntary controls, if I may put it that way. We are going through an interesting phase of suits in this day where everybody sues everybody, testing what the executive power really is with regard to voluntary controls. I wish the President well on this. And yet I see success as being closer to the mandatory controls which we all abhor. When I add all this up, Mr. Chairman, I find that an 8 percent inflation factor for next year is unfortunately too low. I hate to be that much of a pessimist, but I feel that it may be closer to 10. I hope feverishly that I'm wrong. But I see again food doing worse than the 8 percent--worse being higher. And even though the oil figures in the cold light of day are not that much different from what had been put down in most of our assumptions, there's the psychology again. As Scott has said about the Bundesbank, I think we are getting into an emotional state on the inflationary impact here, too. It is a frustrated state rather than a constructive state, and this bothers me as much as anything. Having said that--and maybe this sounds inconsistent--although I have no real quarrel with a 1-1/2 to 2 percent increase in real GNP next year, I think the first quarter may be somewhat stronger than the staff predicts. And it may well be that we will get into a negative growth period by the end of the year. So we may have the worst of both worlds in 1979, in that inflation will not have cooled down under the impact of greater unemployment by year-end and some mild recession by year-end. But we'll have both the inflation and the soft economy looking ahead to twelve months from today. I, therefore, find it even more difficult than usual, as I guess Ernie mentioned as well, to try to interpret this for policy. Yet I think we have no alternative on the psychological side but to maintain our resolve in keeping restraint in place even at the chance that we're going to be accused of causing any recession anyway at this point. I don't say that in a defeatist attitude, but I think we still have to edge [rates] up just a little tighter partly because it's expected of us in the whole aura here of worrying about what to do about inflation. We are the last bastion in the eyes of a great many people and I think it would be a mistake just to hold still right now. There are risks but I think we have to tighten a little further--not dramatically like we did November 1, but a little further.",613
-fomc-corpus,1978,"Thank you, Bob. Roger.",7
-fomc-corpus,1978,"Mr. Chairman, with respect to our view, it's not greatly different from the staff's projections. We would be a bit less optimistic about growth in 1979 and then again about the distribution throughout the year. We think there's enough strength going into the first quarter [to be] fairly strong in '79. If we're somewhat less than the staff, this implies in the latter part of '79 that there would be more weakness than the staff implies. As far as the inflation [projection], we are a bit higher--something around 8-1/2 percent as opposed to something less than 8. And on unemployment we're about the same. It is not, I think, surprising that we are getting some fairly strong growth in the fourth quarter. As Ernie Baughman and others noted particularly in the Southwest--and it's true in the Tenth District as well--we are at full capacity, not only in terms of plant and equipment, but also human resources. There's almost no unemployment at all, at least in our part of the country. A very strong fourth quarter and a very strong first quarter of '79 seem to be in train. Having said that, and now turning to policy, I would join those who have some real concern as to how far we have moved already and how much further we should move--bearing in mind that we've moved rather dramatically in the last 60 days as far as tightening interest rates. We do have some weak showing in the aggregates, although as some others have said [it's not clear] what all that means. It's heartening so long as it doesn't last too long. I have a feeling that we're going to see some growth in the early part of 1979--perhaps much greater than the staff is projecting--and I'd like to be in a position to act against any really substantial growth in the aggregates early in '79. That implies, of course, higher rates. But for the time being, unless there's a reason dictated by the international situation that we need to go up, I would prefer that we stay essentially where we are with maybe a modest increase to 10 percent. But I'd be very hesitant to move [the funds rate] above 10 percent unless there's some dramatic event internationally that requires us to move further.",459
-fomc-corpus,1978,"Thank you, Roger. Well, we'll leap across the table to our colleague.",16
-fomc-corpus,1978,"Mr. Chairman, the trend of the economy in our District roughly parallels the staff observations. Loan demand continues to be strong and we don't see any serious indications of excessive inventory accumulation. As for Christmas retail sales, any information we can get seems to indicate they will be fairly strong. However, we base our projections of the future, as you know, on an analysis of various rates of money growth. And as surprising as it may be for any of you to hear it coming out of my mouth, I would [echo] what I believe Mark said, and that is we should keep a wary eye on the possibility of continued and perhaps excessive moderation of growth in the aggregates. The softening of aggregates growth has not prevailed long enough for me to shift gears and suggest that we abandon restraint, which certainly is a necessary element in dealing with inflation. On the other hand, if the aggregates continue to grow at a moderate or less than moderate rate through future meetings and we tolerate that, we could have serious consequences. For example, if there is an 8 percent growth of money over the next year, we think that the output growth would be upwards of 3 percent. If money--this is M1 in the old context--grows at 6 percent, we would anticipate that real GNP would grow at about 2 percent. But if we were willing to tolerate a reduction in money growth to, let's say, 4 percent, we think that we'd have almost no growth in real GNP. And we think money growth at that rate over a prolonged period--one quarter or two or three quarters--could really precipitate a serious recession. My prescription for monetary policy at this meeting would be essentially what alternative A or even alternative B provides with perhaps a widening of the fed funds range. However, I do think that we should keep a close eye on whether or not aggregate growth does continue to moderate, because I think we could be in as much trouble as a result of an excessive prolonged reduction in the rate of growth of money as we are today in terms of the inflation that has resulted from three or four years of excessive growth of the aggregates.",432
-fomc-corpus,1978,"Thank you, Larry. Bones.",7
-fomc-corpus,1978,"Mr. Chairman, it's our judgment that we would prefer to see some slight additional firming. Loan demand continues strong, but we are not observing any real likelihood of a crunch. It seems to me that funds would be available at a price. And indeed, we aren't very comfortable in feeling that the money growth moderation we have experienced recently will prove very lasting. Productive capacity and help wanted ads lead us to believe very strongly in our area that we're very close to full employment. While we would not want to suggest that we feel a recession is inevitable or not inevitable, we are alert to the fact that the consumer pull-back could be real and a continuing discussion of this as an inevitable event will be [a self-fulfilling prophecy]. We are more impressed at the moment by the fact that the nervous reaction and the lack of confidence in our foreign exchange markets need some continued attention on our part. Likewise, the domestic financial markets I think are more and more beginning to question our willingness to face the fundamentals of continuing mounting inflation. So, with what would appear to be little assurance that prices and inflation expectations are going to improve in the near term, I think we would like to see some additional firming but of a very modest amount.",249
-fomc-corpus,1978,"Thank you, Bones. Dave.",7
-fomc-corpus,1978,"Well, I would hold steady for this meeting, and I'll try to give the explanation for that position. It seems to me that until recently there have been two general scenarios about the business outlook. One is the one that's in the Greenbook, which is a gradual steady downward movement without recession. The second is that that will continue on down through the zero point and we will have a recession. A third one, which I think is gaining more currency and which I find more intriguing, is what might be called the ""last gasp"" scenario. [In that scenario] the economy is now showing strength because it's in the last phase of expansion. And it will be seeing a fair degree of strength through the rest of this quarter and the first quarter, which will lead to higher interest rates than most people are now forecasting--more along the [lines of the] Salomon Brothers forecast than the Board's flow of funds forecast--and then lead to a recession in the second half of the year. I think that is becoming a more and more likely possibility. In view of that, we have been re-examining ""Poole's rule,"" which you may remember. Bill Poole formulated the [rule] that when you have prolonged and substantial deviations of money growth from the trend rate of growth, you will have a recession. We find that we are not in danger of that at this point, but we have a concern that we might be in danger of that [soon]. And we feel that we need to be careful about further restraint and unexpected weakness in the money supply. So my position on that account would be that we ought to hold steady now and watch and see for more evidence with the aggregates. I would prefer a money market directive in that kind of situation and I would widen the funds range. As far as meeting dates are concerned, I think we can either have a shorter [intermeeting] period or have telephone conferences. I think telephone conferences probably could take care of it if necessary.",401
-fomc-corpus,1978,"Thank you, Dave. Willis.",7
-fomc-corpus,1978,"Things are rather bizarre in Cleveland. I hope you won't think that I am following the Cleveland tradition in my comment. I'd like to take a little different path. I think we are frozen in a pattern of operation that should be reexamined when you think about our focus on rates. If we examine other underlying conditions, we assume that it's going to take up to 14 to 15 percent on the [short-term] interest rate to get the braking effect that we want in terms of our present tack. I suspect we could do the same thing with maybe a 1/2 or 3/4 percentage point increase on the long-term end of the rate range. And I think maybe we ought to think that through a bit. Usually we put our brakes on at the end of a cycle and then end up with over-capacity in a number of areas. Then when we try to stimulate things, we feel equally frustrated on the other side. We are faced with looking at problems of commercial and industrial building where we probably have a 1-1/2 to 2 year run without going into over-capacity. Yet that's very interest-rate sensitive to the long-term rate, but 14 to 15 percent on short-term rates is not going to slow that a bit. And if we could effect some slowing down and braking at that end of activity, we might be able to rush that very quickly with a change in the rate level because rates are the chief cost factor in a great deal of that kind of construction activity. I wonder if we shouldn't think a little more clearly on our focus of what we are trying to achieve in terms of strength and whether a slight increase of that might avoid a very big rise in short-term rates, [which is] what I'm afraid it is going to take to accomplish our purpose. I'm thinking about not only the braking effect, but the stimulating effect that may be far more effective at that end than the [short] end where we are focusing most of our attention. The second comment I'd like to make is that the wage factor, at least in our state, is certainly starting to get out of control. [That's true of] everything from the state legislature on down, [including] the Teamsters and others. So the wage factor is a very big problem in terms of people's thinking and what they're [doing]. The third comment I'd make is that I consider the retailers the soft underbelly of the future. I'm not quite certain as to how that [sector] is going to behave. We have had sales stimulus from the pre-Christmas season but very little price cutting, as I recall. And whether we will get an after-Christmas price cutting and change attitudes or not, I don't know. But it seems to me that that's very sensitive to where we go in the future. [Let me make] two other incidental comments. Cleveland doesn't confine itself to Cleveland in terms of its investment interest. I get all kinds of danger flags pointed to the Southern California condominium real estate markets, a la the Florida markets a couple of years ago. More people have been beating my ear on the dangers happening there, which always are pointed at the other fellow, I guess.",646
-fomc-corpus,1978,Any chance of it coming to Washington?,8
-fomc-corpus,1978,"It would be welcome, I'm sure. The natural gas [situation] that Ernie mentioned is not restricted to Texas. It's also prevalent in Ohio; excesses are being reported and they have no storage space. It's partly that the winter weather has been mild in contrast to previous winters. So we do have excess showing in that area. I'm concerned that we may be closer to changes in trends than we have been previously, and I think this needs to be watched very carefully. And I share the feeling that maybe seven weeks is too long between meetings, with the international and the domestic situations. My personal feeling is that because of the psychological factors and the focus on us and the strength that I agree is prevalent throughout [the economy, it] requires further attention on our part. So I would feel that perhaps a little more modest braking would be appropriate but I'd like for us to consider the long-term end rather than the short-term end.",188
-fomc-corpus,1978,"Thank you, Willis. Bob.",7
-fomc-corpus,1978,"Mr. Chairman, we were a bit surprised by the strength in the fourth quarter. I don't think it has really altered our overall picture of next year except to push a little further in the future the weakness we thought might occur somewhere around the second or third quarter. As far as the year as a whole is concerned, we still hold our early forecast of the rate of growth in real GNP of 1-1/2 to 2-1/2 percent. We are still less optimistic than the staff regarding inflation and we put that somewhere in the neighborhood of 8 to 9 percent. We would also come out ahead in our own [forecast] on the unemployment rate at the end of the year, putting it at about 6.5 and maybe a little bit higher than that. Now, for the approach to the policy decision, we follow this procedure that we have been using for some time that I described in that memo we distributed to you. In using this, we recognize that there has been a lot of weakness or slowdown in the growth of the aggregates recently, which is very encouraging. But I think we have to bear in mind that these are low partly because of the effects of ATS. They also may be low for the reason Steve stated--that there may be a downward shift in the demand for money relative to GNP. And we also have to bear in mind that they are built upon this very rapid rate of growth in M1 early in the year. So with these points in mind, we continue to think that our main objective should be to try to bring down the long-term rate of growth in M1 somewhat gradually. We described the strategy that we've been following in that memorandum of mine. This calls for a rate of growth in the year ending the third quarter of last year of 8 percent and in the fourth quarter of this year of 7.5 percent, which incidentally looks like exactly what we'll get. The implied deceleration reflected the relatively slower [unintelligible]. Let me move on to the first quarter. We had suggested that it come out at 7 percent and we think looking back to the first quarter of last year maybe that's too much deceleration, so we raised that to 7-1/4 percent.",459
-fomc-corpus,1978,"But year-over-year, Bob?",7
-fomc-corpus,1978,"Yes, year-over-year.",6
-fomc-corpus,1978,The first quarter of '78 to the first quarter of '79.,14
-fomc-corpus,1978,"That's right. To take care of it, we raised this from the 7 percent we had to 7-1/4 percent. But even with this adjustment, we have a path of the implied growth rate in December-January of 4-1/2 percent. Against this background, the rates of growth that are the trigger points in the Bluebook are too high for us. Alternative A calls for 7-1/2 under a money market directive and alternative B calls for 7 percent. And if you put back in the effect of ATS, that means that we're willing to accept double-digit rates of growth on an old basis before we actually act. So translating that into measurements that we would use, we would favor an aggregates directive and we would put the range for growth of M1 at 1-1/2 to 5-1/2 percent. We would really rather not specify at this juncture a rate of growth in M1+ and M2 because at this stage of the cycle typically we have a slowing in these, and I think it could lull us into a sense of safety and prevent our reacting in case we do get an excessive rate of growth in M1. Turning to the fed funds rate, we would [prefer] 9-7/8 to 10-1/2 with a highly asymmetrical midpoint of 9-7/8. It is a little further on the midpoint than anyone else has suggested.",297
-fomc-corpus,1978,I think that's as asymmetrical as you can get.,11
-fomc-corpus,1978,"It's quite asymmetrical. But seriously, we don't foresee any circumstances that would suggest we ought to lower the rate below that, particularly in view of [the current] situation and the recent OPEC price action. But we do want leeway to move that rate up in case the M1 does go beyond 4-1/2 percent. Now, we really don't expect this. Our guess is that we could sit right where we are and the aggregates will come in at this lower rate. So we would anticipate remaining about where we are, but we'd like to move in case we are wrong in that.",122
-fomc-corpus,1978,"Thank you, Bob. Nancy.",7
-fomc-corpus,1978,"My view of the economy is that it's remarkably well balanced, considering the stage of the cycle that we are in. And, as you well know, I still feel very strongly that we should sit still and see what we are doing. There are very conflicting numbers--a lot of inconsistencies in the data that we have. I would strongly recommend that we stay where we are. I think we've gone far enough. We've moved dramatically in the past 60 days and we have very conflicting information coming out of the market. And I see no reason to tighten further. I find myself saying that I'm really quite gratified that the monetarists are being consistent at this point. If they really looked at the money supply--",144
-fomc-corpus,1978,Did you ever doubt? They're all on this side of the table.,14
-fomc-corpus,1978,"So my strong recommendation is that we stay where we are. We might widen the range on the fed funds. However, if you observe the actual numbers on the fed funds rate, they've been right at the top every time. You know, if you give them the range, then the rate goes to the top of the range rather than the midpoint. We didn't give much of a range this time but the rate has still been at the top of it. The weekly average has been around 9.8 percent.",103
-fomc-corpus,1978,"The midpoint is 9-7/8, which is 9.875.",17
-fomc-corpus,1978,And I would go for a market directive.,9
-fomc-corpus,1978,"All right, thanks, Nancy. Chuck.",9
-fomc-corpus,1978,"Wait, I'm not finished. I agree with Chuck that Switzerland, Germany, and Japan should have taken an action [unintelligible] in the value. There's another inconsistency out there, and that is this downward pressure on the short-term value of the dollar. However, the foreigners are coming in here and buying everything they can put their hands on, which means that their long-range evaluation of our economy has to be very different from the short-term evaluation of the economy. It seems to me there is something also inconsistent in the international situation, just as there is an inconsistency in the domestic situation. I'm done.",125
-fomc-corpus,1978,"Now, Chuck.",4
-fomc-corpus,1978,"They could be two different entities doing these two different things. Well, I was going to emphasize just briefly without a long-run go-around the very strong nature of the conflicting signals we are getting on the economy. We have an assumption, if you believe the figures, that not just durable goods but nondurables too are very strong. Attitudes are weakening quickly and we have the P&E surveys [indicating] a future weakening. But durable goods orders and indications of capital spending--and the kind of thing Ernie mentioned on the cost and volume of nonresidential building and that the Chicago economist reported--suggest great strengthening in the capital goods area. And we have employment and the nominal GNP going up like mad. And the money numbers are very weak; it's not just M1 but M2 also. In the last couple of months they have been weak, and M2 shouldn't have been affected adversely by ATS. Indeed, if anything, it should have been positive because of possible shifts from thrifts into the banking sector. So the pattern that I see is that the real numbers we have are strong and numbers that might indicate the future are weak. And I don't know what to do with it. It could be a last gasp, as Dave suggests. On the other hand, it could be a new boom, as Henry seems to suggest. Certainly, Henry's view of the process--that is, that heavy final sales could bring inventory demand, which could bring output, which could bring capital spending--is the way that the economy operates. That could easily be the case, and we might be at the beginning of a totally undesired boom in the economy. I just don't know which it is. I'm more inclined--",347
-fomc-corpus,1978,But you're going to have to vote.,8
-fomc-corpus,1978,"I have a position I'm going to take which allows me not to do that. I would say this: The trouble is that we are up against capacity constraints and this has been very bad news to have this last burst because it means we have no room on the up side. We can't make an error on the up side. If we do, we will greatly aggravate what I believe is now becoming a horrible inflation outlook. I don't think anything could have been worse than the announcement effects of the OPEC price increase. On the radio and the television around town in the last couple of days they've been pointing out that that increase is double the wage guideline that the President specified. Now, what does that lead [people] to believe? [I'd say they'd feel] that they can't settle for that wage guideline. And I think that kind of effect is going to rapidly spread. It's not just the real effects of the price increases; the announcement effect of the price increase is just terrible. I have no idea where inflation might go in the period to come. I do think that if we are going to have continued strength in the economy along the lines I've seen recently--and if we are going to have rapid price escalation, which is possible--then it's got to show up in the monetary numbers. On the other hand, if we are going to have weakness in the economy developing, it's going to have to continue to show as weak monetary numbers. Therefore, I'm strongly, strongly, directed toward looking at monetary aggregates, [weak though] they may be, because I think it's the only decent kind of steering mechanism we have in this kind of environment. I would say that we ought to be guided by the monetary aggregates. If they do explode--and they could well explode in January and February, Bob, because I think every past experience we have had would suggest that, unless this is the turn, we are going to get another mark-up in those monetary aggregates--we'll see it and react against it by raising interest rates. And if they don't explode--if they weaken further--we will see that and we can react by reducing interest rates. So, I think now is the time for the Committee to show some flexibility in interest rates on the basis of what it sees developing in the aggregates, and that would be what I would recommend.",469
-fomc-corpus,1978,"Thank you, Chuck. Paul.",7
-fomc-corpus,1978,"Well, like everybody else, I see a little more momentum in the economy than we anticipated. And I would anticipate that that would continue a while into the new year. [So I see] not much short-term danger, though I do continue to think that there's a substantial risk of an actual downturn in the latter half of 1979, let's say. But the question is where that risk comes from. How we can best minimize it? I think the risk of aggravating that chance by tight money is very small. The decline in the money supply that I see looks very temporary to me [based on] all historical experience--a temporary aberration when the economy is expanding as fast as it is. I suspect it will show up in large part as a bad seasonal adjustment factor when we get all finished with it. So, I'd want a lot more evidence before that figure frightens me into any easing of interest rates against the background of a persistently high rate of growth in the money supply. I think a much greater risk for the economy is a perpetuation of what we saw before November 1--the falling away of confidence reflected in the feeling that there was no grip on inflation or on the exchange rate. I think that is the kind of event that could not only maximize the chance of a recession but maximize the severity of a recession if and when it appears. And we have the very evident fact, which many people have commented on, that inflation is getting worse and not better. When one looks at those risks, I don't think we have any choice. I don't think we can afford to sit here passively at this time. I think we are maximizing the risks of both inflation and recession--and severe recession--if we aren't alert to moving in a somewhat more restrictive direction. I think, as other people have suggested, that we ought to be ready to move quickly if the aggregates begin moving up again, but I think we also have to move if the exchange markets suggest that necessity. I do not think we can hold this exchange market by intervention alone. I think that's purely a fatuous view of our abilities in these circumstances. When I look at this, I don't know whether we absolutely have to move immediately. But given the impact of the oil price and the effect that has on confidence, I would think a little prophylactic move might be wise, in terms of moving before the exchange market gets any worse than it has gotten in a very mild way. I'd be guided from there on with an eye both on the aggregates getting too high or the exchange markets coming under pressure. And under no circumstances would I give any sense of easing or backing away from what we have already accomplished. I think that's the worst possible action we could take at this point, regardless of what happens to the aggregates in the course of the next month.",572
-fomc-corpus,1978,"Well, ladies and gentlemen, thank you for two hours of attention. This go-around has indicated about as much unanimity as I've ever seen--namely, confusion. But one interesting point I noticed is that I don't believe anyone actually suggested easing. The discussions were around standing pat or firming or being prepared to let the results of the aggregates direct us in the coming weeks. I suggest that we take our break now and perhaps we can pick this up again with some suggestions when we come back. Let's break until ten past [the hour].",109
-fomc-corpus,1978,"Well, ladies and gentlemen, we can reconvene. I did not indicate my own position. I might say, as I said to some during the break, that the meeting this morning has a certain Biblical quality in that it seems to me the first shall be last and the last shall be first. As I read the discussion--which proves that we [must] have logic here--it seems to me that in the nine months I've been here, as you look over the difficulties from month to month [and] look overall at the objectives, there has been a definite and I think unanimous policy objective of slowing the economy and doing so while maintaining balance and doing so on a smooth basis without undue shocks. We've now seen the aggregates begin to move down. That's encouraging but the economy itself has surprised all of us, I think, with its strength in the fourth quarter; it should have continued the slowing process that had been evident in the third quarter. To be consistent with our policies, it seems to me that what is indicated is a slight degree of additional restraint with, I hope, some greater flexibility to act in the interim based on the facts--what happens in the economy and what happens to the aggregates in particular. And [we ought] to be prepared to continue the process we've been at until we find that point where there is a smooth and gradual turndown in the economy without major disruptions. It also seems to me from the sentiment expressed here that we might plan an interim consultation; I might suggest that we plan an interim consultation on January 16 by telephone, recognizing that seven weeks is too long and that a full-blown meeting a few weeks from now will probably [not be warranted]. We won't have any new data of any significance because of the nature of this time period, [but I suggest] that we make an agreement to consult again--not wait to see events but plan it so that we'll be in touch with everyone and make sure that there are no indications of new directions. Now with that in mind, I'll ask Steve to outline a proposal for your consideration--again, a little different procedure this time. If we could put before you a proposal and then ask the voting members of the Committee to indicate as we go down the list whether this is acceptable to them or whether any parts are not acceptable--and if so what they are--I think we could focus on a consensus more rapidly. Steve, will you please give your inputs?",493
-fomc-corpus,1978,"Thank you, Mr. Chairman. As a brief introduction, I would say that the data we are getting on automatic transfer seem to be giving us a reasonable handle on evaluating it and we are going to be continuing with that data [collection] through January. Therefore, I think it's possible to move back toward giving M1 more equal weight than has been given to it in recent months, particularly in light of its weakness. I would suggest returning to the period when M1 and M2 were given just about equal weight. I would suggest a range, Mr. Chairman, for M1 of 2 to 6 percent--that is taking 1 percentage point off of the top of the alternative B range. And for M2 I'd suggest a range of 5 to 9 percent, which takes 1/2 point off of the top and bottom, or a range of 5-1/2 to 9 percent. One is not far superior to the other. On the interpretation of M1, if it does happen that our ATS data are showing instead of the 2-1/2 to 3 percentage point shift that we have built into this--if the shift happens to be 5 or 6 percentage points or vice versa, of course, [if it is less than we assumed]--we would bring that promptly to your attention to indicate that the range was out of kilter. I would suggest for the Committee's consideration the fed funds rate range of alternative B but it might be desirable to interpret that as moving rather immediately to 10 percent and letting the rest of the adjustments within that range depend on developments with regard to the aggregates. With regard to those developments, I would suggest the possibility of interpreting the aggregate ranges somewhat asymmetrically--that is, that the Manager be more sensitive to movement of the aggregates toward the tops of their ranges. That is, be more willing to tighten the funds rate as the aggregates move toward the tops of the ranges and less willing, or less inclination to move promptly in easing as the aggregates move toward the bottoms of the ranges. This would be just a suggested interpretation. All of that could be accomplished with either a monetary aggregates or a money [market] directive, but I think more consistent with past Committee practice would be a monetary aggregates [directive].",465
-fomc-corpus,1978,"If you have an M1 range of 2 to 6 percent during this next period, what do you factor in as being the M1+ addition that you put in?",36
-fomc-corpus,1978,"Well, I would suggest that that would be probably at the bottom of where it is--maybe 0 to 4 or 1/2 to 4.",33
-fomc-corpus,1978,"I mean the growth rate of M1+ in, let's say, the next 4 to 5 weeks. What does it look as though that's going to be?",34
-fomc-corpus,1978,"Well, we have under alternative B a growth rate of a little over 2 percent for the December-January period. I think consistent with the suggested M1 and M2 ranges would be a growth rate just a shade under that. So I would say 1/2 to 4 percent or 0 to 4 percent.",67
-fomc-corpus,1978,"Is there a reason, Steve, that you'd stick to a range for M1 and M2 rather than just putting a cap on each of them?",30
-fomc-corpus,1978,For M1 I think the weakness of the last couple of months makes it desirable to begin to give some credence to continued weakness. Thus I think it's probably important to not only have a cap on the upper limit but to have a lower point where you may want some response--although I suggest that the response would be not prompt but delayed. You'd have to get right down to [the lower limit] to respond. That's the reason for having a range instead of simply a cap. I also think now we are beginning to get a handle on experience with ATS and can interpret it better for you.,121
-fomc-corpus,1978,Does everyone understand the proposal?,6
-fomc-corpus,1978,He didn't give a funds rate range.,8
-fomc-corpus,1978,"Yes he did, 9-3/4 to 10-1/2.",18
-fomc-corpus,1978,With a move to 10.,7
-fomc-corpus,1978,An immediate move to 10 is a suggestion. Does everybody understand this?,15
-fomc-corpus,1978,"Could I ask a question about that funds rate range? Steve, would you contemplate a reduction to 9-3/4 percent? Does the bottom of that range really mean anything?",37
-fomc-corpus,1978,"Well, I was suggesting that possibility if M1 and M2 came in at the bottom of their ranges, literally, down to 2 percent [for M1] or 5 percent in the case of M2, giving some weight to both. That is, if it was down on M1 but up on M2, no.",69
-fomc-corpus,1978,You have a money market [directive] on the down side and an aggregates on the up side.,20
-fomc-corpus,1978,"That's right. That's what I was, in effect, suggesting.",13
-fomc-corpus,1978,You have to get to the bottom limits to reduce [the funds rate] but on the tightening you can do it on the way up. It's a new Federal Reserve invention.,35
-fomc-corpus,1978,That's why I didn't know whether it was an aggregate or a money market--,15
-fomc-corpus,1978,"It's a hybrid directive. Yes, Mark?",9
-fomc-corpus,1978,Can I just make sure I understand the arithmetic?,10
-fomc-corpus,1978,"Yes, please. I want everybody to understand it before we comment on it. That's one of the rules--that we understand before we play.",29
-fomc-corpus,1978,"The forecast for December is 2 percent and if you had 3 percent ATS that would be 5 percent for December. If you had your proposed 6 percent cap on M1 for the two months, that would allow 10 percent growth in January--or if you add another 3 percent for ATS, 13 percent in January.",69
-fomc-corpus,1978,"It would say that at that rate of growth the Manager would be at the top of the funds rate range. Since I don't know that you could affect that [M1 growth] in that month, to ""allow"" is a funny word.",49
-fomc-corpus,1978,"You would move [the funds rate] before you get to the top, with an aggregates type directive.",21
-fomc-corpus,1978,I would assume that with this directive and those specs the Manager would be at the top of the funds rate range at that point.,26
-fomc-corpus,1978,"And, Mark, might I point out that December's not in the bag. I think the biggest weeks are still to come. Historically, you know, major movements occur right before Christmas and right after Christmas--the window-dressing. We have less than the normal amount of confidence in our forecast for December than for other months at this time of the month.",72
-fomc-corpus,1978,I'm not trying to delay the issue; I'm trying to understand.,13
-fomc-corpus,1978,"With those facts, if it worked out that way, I would assume that the Manager would be at the top of the funds range.",27
-fomc-corpus,1978,"So that, theoretically, you could get about 8-1/2 percent for the two months if you add ATS back in. But that would be with the funds rate moving up potentially as high as 10-1/2.",48
-fomc-corpus,1978,That would be my understanding.,6
-fomc-corpus,1978,Any other questions about the substance of the proposal? Then let me just ask how the members react to that. Paul.,24
-fomc-corpus,1978,"Well, these are my feelings. I'm nervous about any decline here, as I said. But with the asymmetrical aspect, I guess I could live with it. I would prefer having the lower parts of the ranges even lower. But I can live with it.",53
-fomc-corpus,1978,Okay. Ernie.,5
-fomc-corpus,1978,I can live with it.,6
-fomc-corpus,1978,"Mr. Chairman, I would prefer [on M1] a 1 to 6 range and the 4 to 8 range on M2. I'm willing to buy the fed funds rate but I'd like to throw in for Committee consideration a slight amendment to it. I'd agree to the 9-3/4 to 10-1/2 range and the move to 10 but I'd like to see a little device we have [used]--not recently but a year or so ago--called a zone of indifference to permit the Desk to play it in the 10 to 10-1/8 range without kicking back much. This I think provides a little more flexibility for the Manager and at the same time it does give a picture of slightly greater restraint in the initial move. The 10 to 10-1/8 would be a kind of zone of indifference in which the Manager could play.",187
-fomc-corpus,1978,What he does is he hits 10 and then errs on the side of tightness.,18
-fomc-corpus,1978,"Right, and he hits 10-1/8 and he errs on the side of ease. It allows a little more flexibility than this business of naming a single rate. I think we have been caught on that too much. It also provides a little bit of lack of knowledge to the market; maybe they won't nail it quite so tight. I guess with those changes, I'd be willing to [go] with it.",85
-fomc-corpus,1978,Sounds like you don't buy it.,7
-fomc-corpus,1978,"All right, I don't buy it if that's the way you want to interpret this. I was trying to see areas in which I could move and still--",31
-fomc-corpus,1978,"Yes, but you have substantial differences on the ranges of the aggregates, as I understood you.",19
-fomc-corpus,1978,"Well, 1 percentage point on one end of M1, and 1 point on each end of M2.",24
-fomc-corpus,1978,Thank you. Dave.,5
-fomc-corpus,1978,"As I indicated earlier, my preference would be for alternative A straight through, but I think that the proposal is acceptable. I do have a concern, as I indicated to Steve in my question, about a reduction in the funds rate given the international situation. And I'd like to suggest that if that appears to be imminent we have a consultation on that.",70
-fomc-corpus,1978,Okay. Chuck.,4
-fomc-corpus,1978,"Well, I find your proposal acceptable. I would say that I'm becoming increasingly concerned that we do not find ourselves in a lock as we begin to move into a period of weakness. I think this tends to do that because we don't really allow for any downward movement in the funds rate. That's all right with me because of the international situation but I would like it understood that if these aggregates are really weak--or if other things develop in the economy that look very unsettling--we can reconsider. I say that because I think we are going to have to start to consider the possibility of actually reducing interest rates in the economy.",124
-fomc-corpus,1978,Okay. Nancy.,4
-fomc-corpus,1978,"I find it unacceptable. I think it's absolutely the wrong time to take another increase in the tightening of credit. What it will bring about is an increase in the prime rate. I'm sure you are going to go to 10-1/2 percent within ten days on this thing. And that's going to get all the hawks sending the prime rates to 13 and 14 percent. It's just sort of verifying their action. I would recommend staying with the scenario of ""A.""",97
-fomc-corpus,1978,Okay. Henry.,4
-fomc-corpus,1978,"I think we have to focus more on the funds rate than on the aggregates. I think it's a delusion that we are steering the aggregates by means of the funds rate. The funds rate now has a special function, namely to regulate the dollar situation. So I don't think we should have any decline in the funds rate. I think we should consult if the aggregates point downwards, as has been suggested. That's a wise precaution. I would give the funds rate a wide range in terms of the aggregates: M1, 0 to 6, and M2, 4-1/2 to 8-1/2. On the funds rate itself, I'd say 10 to 10-1/2 and go to 10-1/4.",156
-fomc-corpus,1978,Okay. Mark is next.,6
-fomc-corpus,1978,"I would like first to make a commercial, Mr. Chairman, and disavow that I am a monetarist. We hold a balanced portfolio in Minneapolis.",33
-fomc-corpus,1978,He's like an Episcopalian not being a Catholic.,11
-fomc-corpus,1978,"Someday when we have more time we will explain the substantive differences between the monetarist and what's even worse, I might say, and that's a rational expectations-ist. But that's another story. I can live with the specifications that Steve gave, on the assumption that we really don't envision any circumstances where we'll let the fed funds rate drop this time and we've built in a mechanism where if the aggregates do become strong we'll move the rate up.",88
-fomc-corpus,1978,"Thank you, Mark. Willis.",7
-fomc-corpus,1978,"I can accept the suggestion made by Steve. I think I would prefer dropping the ranges to 0 to 6 on M1, 4 to 8 on the M2, and 9-3/4 to 10-1/2 [on the funds rate].",57
-fomc-corpus,1978,"But you would accept the specifications? Well, I would certainly agree that we could go with this proposal at this time. I would think that the idea of erring on the up side of 10 with a little flexibility makes a little sense. I think the Desk could see the advantage of not letting it drop below 10 again and, therefore, err a little on the positive side. It seems that there are 2, 4, 6, 7 members who would be agreeable as specified. I don't know if the others would feel, despite slightly different preferences, that they also could go with this with the one modification. Why don't we run down a vote and see?",138
-fomc-corpus,1978,I understood a semi-commitment to the suggestion--I believe it was Dave's suggestion or someone's--that we not let the funds rate drop. And I thought the inference there was below 9-7/8. Your comment I construe as indicating the inclination to not let it drop [below] 10. Could we get some clarification on that?,73
-fomc-corpus,1978,"No, no. Unless a change in the aggregates indicated a shift, if we're moving to 10 now, that 10 would be operated erring above 10. But changes would move from that point in either direction.",45
-fomc-corpus,1978,"But I think the answer is yes, that we've got to have pretty weak aggregates to drop below the 10.",23
-fomc-corpus,1978,"We would consult. We are going to consult on the 16th of January in any case, but we would consult in the meantime.",28
-fomc-corpus,1978,"Mr. Chairman, what does this move do to the economic forecast?",14
-fomc-corpus,1978,"Well, in terms of 10 percent, that's really only 12-1/2 basis points, and I think the answer is really nothing. If we begin talking about going to 10-1/2, that's really quite different; we'd be talking about a weaker economy, particularly in the second half of 1979.",67
-fomc-corpus,1978,How much weaker?,4
-fomc-corpus,1978,"Jack, do you remember? I think you're talking, I don't know, about 1/4 or 1/2 percentage point. We are already taking a couple of tenths off because of the OPEC effect in the second half. So you're talking about an economy that in our view would be less than 1 percent real growth.",69
-fomc-corpus,1978,And what do you think the probability of two quarters of negative growth would be if we went to 10-1/2?,26
-fomc-corpus,1978,One [in] three.,6
-fomc-corpus,1978,"Governor Teeters, I think one factor you'd want to consider in this is how permanent that 10-1/2 is. It's a question of whether or not Jim is talking on the assumption that it goes to 10-1/2 and stays there. It would be a somewhat different outlook, I'm sure, if it went to 10-1/2 and came back down in a few weeks.",83
-fomc-corpus,1978,"Well, I haven't seen anything come back down since I've been here.",14
-fomc-corpus,1978,I'm just adding that as a point.,8
-fomc-corpus,1978,"Look at the roller coaster, what I call Mount Everest. It came back down.",17
-fomc-corpus,1978,Even the economy hasn't gone down.,7
-fomc-corpus,1978,"One of the problems is that growth was supposed to be about 3-1/2 percent in the fourth quarter and it's over 4 percent. That's one of the problems, unfortunately. Well, let's run down your check list. I will vote for that proposal.",54
-fomc-corpus,1978,Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Partee Yes Governor Teeters No Governor Wallich No President Willes Yes President Winn Yes The vote is 8 to 2.,46
-fomc-corpus,1978,Thank you very much. We completed that action at 11:40; we are doing very well. I don't know if you liked that procedure or not but I think that we got all the comments. Perhaps you can give me privately your evaluation of whether that's going to be a better way to do it or not. We now need to move to a few other important matters. Item 8 is the consideration of the Manager's recommendation with respect to foreign currency operations. Alan Holmes.,97
-fomc-corpus,1978,"Mr. Chairman, my recommendations will fall in three categories: routine swap rollovers, the System open position, and the System's warehousing facility for the Treasury. The System has seven D-mark drawings totaling $451 million equivalent and six Swiss franc drawings totaling $114 million maturing between December 30 and January 26. All are first renewals and I recommend that they be rolled over at maturity should we not be able to pay them off. Now, if the January meeting is cancelled, then we would need approval at this time, I think, of the rollover of an additional $2.04 billion D-mark swaps, $350-odd million Swiss franc swaps, and $85 million Japanese yen swaps, which mature by mid-February. Those approvals would normally be done at the regular January meeting.",162
-fomc-corpus,1978,"We'd have a February meeting before February 15, wouldn't we?",14
-fomc-corpus,1978,"Yes, we have one on the 6th.",11
-fomc-corpus,1978,"Typically, we have asked for renewals covering a period after the next Committee meeting. It gives us a little opportunity to work out repayments ahead of time.",31
-fomc-corpus,1978,But Chuck was pointing out that some of those come due after our next meeting.,16
-fomc-corpus,1978,"That's right, but typically we ask for renewals of [any swaps maturing] a week to 10 days after the next Committee meeting.",29
-fomc-corpus,1978,There's very little [likelihood] that we are going to pay off--what was it--over $2 billion?,24
-fomc-corpus,1978,"Two billion, 40 million.",7
-fomc-corpus,1978,The answer is that we have to roll them over. The authorization would be to roll them over in the absence of acquiring the currencies with which to repay.,31
-fomc-corpus,1978,That's right.,3
-fomc-corpus,1978,"May we have your approval for that proposal? Hearing no dissent, it is so ordered. You have other proposals?",23
-fomc-corpus,1978,"Yes, Mr. Chairman. Our heavy intervention in the exchange market brought our open position to within less than $200 million of the $5 billion authorized by the Committee last Thursday. An intermeeting rise in that limit would have required publication this Friday, and given the speculation both in the market and in the press about U.S. use of its foreign exchange availability, it seemed desirable to avoid the possible announcement effect. In these circumstances, the Treasury agreed with the Chairman's suggestion that they provide from their own account any marks needed for intervention Friday until this Committee meeting, until the Committee had a chance to consider the question.",124
-fomc-corpus,1978,"So this was a period of 100 percent funding by the Treasury which, as you know, is unusual and it should be noted.",27
-fomc-corpus,1978,For two days.,4
-fomc-corpus,1978,For two days.,4
-fomc-corpus,1978,"Mr. Chairman, I think a good case can be made for suspending the overall open limit authorization. Such action would underscore the System's commitment to the November 1 program and particularly avoid the need for an intermeeting change in the authorization that might [cause] a market misreading because early release of that information would be required. I'd prefer this course of action. But I think the same objectives can be achieved by a sufficiently large increase in the open limit. An $8 billion open limit would permit the full use of our D-mark swap line--we only have $2 billion left in that line--and also allow for an additional $1 billion for intervention in Swiss francs and in yen. That seems to me to be reasonably acceptable, although I'd prefer a suspension [of the limit].",159
-fomc-corpus,1978,"Well, this is a point on which we don't have strong feelings. I might say that we've been somewhat concerned about a series of [announced] actions that would allow foreign currency traders to track what our intervention has been. Therefore, one of the reasons for a larger open position than we normally would like for control purposes has been to give us flexibility to maintain confidentiality on the degree and the extent of our intervention. So for the same reason, we could go one of the two ways. Recognizing that the limits of the swap agreements themselves provide the outside limit, we could just have no specified limit. We recognize that the Desk is in very close consultation with the Subcommittee, which is really tracking this carefully. Or we could do as Alan suggests and put in some limit that gives us leeway of about $3 billion until the next meeting. Now, we really have no strong feelings. If there's any preference on the Committee, we could go either direction. Henry.",195
-fomc-corpus,1978,"Well, either way is possible. I think naming a number like $8 billion tips off the market in an undesirable way. However, suspending the limit entirely, even though we certainly would maintain very close consultation, I think is not ideal in principle. So I'd look for an alternative way. We could suspend the [limits on] intermeeting changes, which now are $100 million on the overall open position in any one day and $300 million for the intermeeting period. We could suspend that in particular for the intermeeting period, bearing in mind that every dollar number here is multiplied by two because we're now going 50-50 with the Treasury. And we would not, as I understand it--subject to being better informed--have to publish any of what we do in this area because it comes under the procedural instructions, which we don't publish, [whereas] any [change] in the authorization does have to be made public. Furthermore, even if it were to be published, the intermeeting limit wouldn't tip off the market; it wouldn't tell the market [anything about] the accumulated magnitude of past or future operations.",228
-fomc-corpus,1978,But we would still have to suspend the aggregate limit.,11
-fomc-corpus,1978,"No, you can't do that.",7
-fomc-corpus,1978,"No, they are different things.",7
-fomc-corpus,1978,You'd have to give [the Desk] room on the aggregates.,14
-fomc-corpus,1978,We either have to give a specific number or a suspension.,12
-fomc-corpus,1978,Are you suggesting that you can take the aggregate limit and put it under the procedural instructions?,18
-fomc-corpus,1978,The aggregate limit would disappear under this proposal. You would not be without some control.,17
-fomc-corpus,1978,"Mr. Chairman, I think it's not [a good idea] to eliminate the [limit on the] aggregate open position. (A) I don't think it's desirable from a public relations standpoint; and (B) I don't think it's desirable from the Committee's standpoint.",54
-fomc-corpus,1978,"I happen to have a preference along with Governor Coldwell on this. This is the basic limit and I think the Committee probably ought to have one. I would swallow the public relations disadvantage and make sure it's big enough, but I could go either way in the end.",54
-fomc-corpus,1978,"As I say, there's no strong feeling. If there's any sentiment for setting an $8 billion limit--the previous one was $5 billion--we'll move it to $8 billion. That would be perfectly fine. It will be disclosed; whether that will create any concern or not, I don't know. It shouldn't. It would indicate to people we've gone over $5 billion. Any sentiment?",80
-fomc-corpus,1978,I favor the $8 billion.,7
-fomc-corpus,1978,"I think I have some preference for a limit, but I think we [unintelligible] and if it turns out--",26
-fomc-corpus,1978,"Why don't we then consider the proposal to move the limit to $8 billion? Are there any comments or dissents? Hearing none, we will approve that. Oh, incidentally, I should say because Henry said it, but I'm not sure it was disclosed properly and perhaps you are [not aware], our relations with Treasury from here on are going to be on a 50-50 basis. We have arranged that with them. Now they have resources. Alan, you have further recommendations?",99
-fomc-corpus,1978,"Mr. Chairman, I'd also like to recommend that the authorization to warehouse foreign exchange for the Treasury be raised from $1-3/4 billion, which the Committee approved last week, to $3-1/2 billion. That increase in the authorization last week accommodated the successful sale of $1.6 billion Treasury D-mark bonds last week. The Treasury plans to proceed with the Swiss franc offering in January and is considering a second D-mark offering and a Japanese yen offering early next year. It would seem prudent, at least for the time being, for the Treasury to retain maximum flexibility by keeping the foreign exchange proceeds of these bond sales available for us for intervention if it's needed. Warehousing accommodates that need for flexibility without involving the Federal Reserve in any exchange risk. Warehousing does have an impact on reserves in the banking system, but since that impact is known in advance, it can be offset by domestic open market operations whenever necessary. It's just another reserve factor.",194
-fomc-corpus,1978,It reverses out when we use the D-mark for intervention.,13
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,So moved.,3
-fomc-corpus,1978,Any other discussion?,4
-fomc-corpus,1978,Is $3-1/2 billion enough?,10
-fomc-corpus,1978,I think so for this stage. We have to do some rethinking with the Treasury over the next few months.,23
-fomc-corpus,1978,We'd probably have to raise it if they go to the market again in February.,17
-fomc-corpus,1978,This will take them through several months.,8
-fomc-corpus,1978,"Well, we have $1.6 billion already and what's the Swiss franc sale--$1.2 billion?",23
-fomc-corpus,1978,"It's not finally decided, but about that level. We probably would need another increase. We could go to $5 billion now. That would be one way of handling the second D-mark [offering]. We could do that now if the Committee so desires.",52
-fomc-corpus,1978,Either way.,3
-fomc-corpus,1978,"This has the effect of transferring income from us to the Treasury, doesn't it? But it's income that we would be transferring anyway.",26
-fomc-corpus,1978,It all comes out of the same pot before we get through.,13
-fomc-corpus,1978,"If it were $5 billion, you're talking about maybe 4 percent or so, so that's $200 million in income.",25
-fomc-corpus,1978,We would lose because we would hold lower-yielding--,12
-fomc-corpus,1978,Which we don't have and we transfer to them so they take it directly. It's the same difference.,20
-fomc-corpus,1978,The magnitude would be approximately--,6
-fomc-corpus,1978,Debt management.,3
-fomc-corpus,1978,Very much so. Henry.,6
-fomc-corpus,1978,"I hope this doesn't sound too esoteric. We are making a very fundamental decision here. We're getting to be like every other country that has foreign exchange reserves. In the past, we only had gold and SDR. Here we have foreign exchange reserves and we are now making a decision on how to finance these reserves. For all countries this is a very important decision. It tends to affect their money supply--their domestic monetary management. So we should be well aware of what it is we are doing. The reserves belong to the Treasury. This is one very important decision, which I guess is set by law in our country, although not necessarily. The Treasury owns the gold and the SDR, but we could own the exchange reserves; it makes a great deal of difference in a country who does [own them] because the balance of power between the central bank and Treasury is influenced thereby. We seem to be in the present framework the financier of the balance. We supply the money, we face the money market consequences, which seem easy so long as all we have to do is offset a few billion by open market sales that we give to the Treasury, and we compensate that by selling our own securities to the market. But some day it could be different. It could be large relative to our portfolio. So I think we ought to first think about what it is we are doing on a structural basis. Second, until we've arrived at a better understanding, I would argue for a small increase in the warehousing limit. It gives us time to think; it gives us time to talk to the Treasury again about this. If there should ever be a problem, the limit would tend to give us a chance to review the situation.",345
-fomc-corpus,1978,"I have been going on the assumption that at this stage of discussion this Committee did not want to buy that foreign currency position and own it for its own account and for its own risk. I may have misread that; some day that might be a decision we'd like to take. At the moment I think if we did that, we'd be accused of moving the potential foreign currency exchange risk outside of the budgetary process, where it now resides with the Treasury. See, we are taking up foreign exchange; if there is a loss here, it will be a Treasury loss in their accounting under the appropriations procedure. So I've assumed that. I'm not saying it wouldn't be good policy for this nation for us to own those reserves. But I think we want to do a lot of homework and a lot of preparation before we make that decision because it has some political repercussions.",174
-fomc-corpus,1978,"You're not speaking about owning foreign exchange, I think, Henry, but rather of developing a position where one of our assets is an exchange rate guaranteed, non-U.S. security. That [involves] proportionately fewer U.S. securities in our portfolio and that might sometime become large. I agree with the principle you are expressing, but we more or less participated and agreed and urged Treasury financing--say, a $10 billion figure. And it seems to me that having been so prominent in the discussion of that, it's up to us to be prepared to finance up to $10 billion in that. It won't get that large because we'll probably use up some. So, although I agree with your principle, I don't see any problem with the $5 billion figure that's been suggested because we'll reach it soon and I can't imagine that we would say to the Treasury, ""don't go to Japan; we were wrong back in the fall.""",188
-fomc-corpus,1978,Especially since we urged it so hard.,8
-fomc-corpus,1978,"Yes, so I don't see--",7
-fomc-corpus,1978,"Well, at some point we might want to raise the point of who is to own these reserves. This is very important.",25
-fomc-corpus,1978,That's a question that's coming--to consider downstream. Dave Eastburn has been trying to get his word in edge-wise.,24
-fomc-corpus,1978,"I think this is a very good point. I had worried about it when that wire came through about the warehousing procedure. I just wonder whether one way to tackle this would be to have a staff paper on this, Mr. Chairman, which lays out the alternatives and the implications for the moment of the various ways to go.",66
-fomc-corpus,1978,"Yes, we certainly can.",6
-fomc-corpus,1978,"Mr. Chairman, may I just point out that at this particular moment the United States is not faced with the problem of having net holdings of foreign exchange. We're still relatively short at the moment, and so all the foreign exchange assets we have could be used to repay debt.",55
-fomc-corpus,1978,"To repay debt. It seems appropriate to me--in fact, [if we do not], I think it would be somewhat of a breach of faith since we're the proponents of this process, which is essential if we're going to finance our current account deficit in a way the deficit nation should do--to make this policy shift. And for the central bank to make it more difficult or more inconvenient for the Treasury I don't think is an appropriate way to go. On the other hand, I think it's a big issue. I think it would take a lot of study and a lot of staff papers to decide that we would want to become the holder of foreign currency reserves ourselves. So I'm not saying we shouldn't look at that. Anybody else?",147
-fomc-corpus,1978,"I would subscribe to Henry's view in a way; I think we ought to have a look down the road. I agree with you, however, that there's no way we can't support this in this initial phase. But I think we ought to look at the longer-range implications of this and who is going to hold the funds and what financing is done. So I'd like to go ahead and raise our warehousing limit. If it takes $5 billion, that's all right with me. But I do think the study needs to be made.",108
-fomc-corpus,1978,That's all.,3
-fomc-corpus,1978,"All right. Now we move to a kind of pro forma subject, item 9, the discussion of the report of the Subcommittee on the Directive. Chuck. Excuse me?",37
-fomc-corpus,1978,"There was an additional thing that the Committee may or may not want to take up with regard to this warehousing. Unless action is taken, half of it will have to be renewed in six months and then the other half in one year. Under the current circumstances, the simplest thing might just be to have it renewed in one year, rather than going through a 6-month and then a 1-year procedure.",83
-fomc-corpus,1978,"Oh, I think that makes sense because it will be used in the meantime. Certainly some of it will be used.",24
-fomc-corpus,1978,It does have the advantage of bringing it back to our attention in six months.,16
-fomc-corpus,1978,"Well, we have to simply divide it up in half. As this builds up whatever half is going to be in six months the Committee will simply have to take an action to roll it over for another six months. It's purely a housekeeping procedure, and it's a question of whether the Committee wants to go through that housekeeping business in six months or one year.",71
-fomc-corpus,1978,"Well, it's housekeeping only if we don't make a decision to change the direction in terms of ownership.",20
-fomc-corpus,1978,It seems inconceivable to me that we wouldn't hold their currency.,14
-fomc-corpus,1978,"No, I'm not saying that. If we decided as a result of a long-range study that we are going to hold these ourselves, not Treasury, it will matter. We'd have the flexibility in six months.",42
-fomc-corpus,1978,I don't think we'll have any problem in buying them.,11
-fomc-corpus,1978,That leaves it then that half of this comes due in some sense in six months and half of it comes due in one year.,26
-fomc-corpus,1978,"Well, my preference is to go for the year, so we don't have this [twice]. We are going to study some things in the meantime. I think if we go to the Treasury with a proposal or plan, they would be perfectly amenable to a plan. But my preference at least is not to have these housekeeping issues keep rolling in here. What is the preference?",77
-fomc-corpus,1978,You'd rather have a year.,7
-fomc-corpus,1978,"Yes, I would rather have a year.",9
-fomc-corpus,1978,I think that's right. There's no possibility in six months unless there's a--,15
-fomc-corpus,1978,"No, I think we have to do so much homework with the Congress before we'd want to hold these because of the implications to us. We might be bringing ourselves under the appropriations process by starting this.",41
-fomc-corpus,1978,"Well, we have swaps.",6
-fomc-corpus,1978,Would the loss be the Treasury's?,8
-fomc-corpus,1978,"Yes, we'd take this from the Treasury, you see.",12
-fomc-corpus,1978,Would it be chargeable to the budget or would it be chargeable to the Exchange Stabilization Fund?,21
-fomc-corpus,1978,"It's chargeable to the current account. That was one of the big legal and accounting decisions that had to be taken to get them to agree to do this. If they had to charge it to the Exchange Stabilization Fund, they were out of resources. If there is any currency exchange loss, it will be booked as you go as an additional interest cost, in effect--an additional cost of holding a resource.",83
-fomc-corpus,1978,It will be a realized loss?,7
-fomc-corpus,1978,"I think they'll follow the process of realized and unrealized so that they'll put it into the quarters as they go by. They'll follow FASB, and count it on a realized or unrealized basis, which makes sense, because otherwise you build up a big blob and it may come all at once. This way it goes in [currently]. And it can go either way. You can have an interest reduction or an interest increase. The cost of these initial ones was quite satisfactory, I thought: 5.95 percent for 3-year notes and 6.2 percent for the 4-year. So you already have roughly a 3 percent cushion on the exchange risk that would bring you out even. Well, what is the preference? I don't have a strong preference. Would you prefer six months or twelve months? Incidentally, the deal before was half and half. How many would prefer to go all the way to one year for the whole thing and let's work it out? That would be my preference, I think. How many would prefer six months? Looks like the twelve months have it. Is that all, Steve and Alan? I didn't mean to cut that off--",239
-fomc-corpus,1978,Any dissents?,4
-fomc-corpus,1978,"Oh, this is a vote?",7
-fomc-corpus,1978,Do you want to be recorded as dissenting or would you join the [majority]?,18
-fomc-corpus,1978,"Oh, I'll join.",5
-fomc-corpus,1978,"Now we turn, Chuck, to your directive.",10
-fomc-corpus,1978,"Mr. Chairman, may I just ask a question before Chuck gets into this about how you intend to proceed in considering this issue? It is certainly of enormous importance; it's something your predecessor had planned to place before this Committee for consideration. I am talking about how we conduct policy. It affects the way we go about either cooperating or not with the Humphrey-Hawkins proposal. The proposal and the memorandum reached us on Friday morning and I don't think it reached any of the other Reserve Banks [earlier]. I don't know of anybody who got it before Friday, which meant that there was, in effect, only one workday in which to consider it if we were traveling Monday. My question is: Is this going to be taken up for action today or is there a way that after it's presented and discussed more time could be made available to really consider this with our research people and others and react to it? I think it's vitally important.",190
-fomc-corpus,1978,"It depends on the issue. For example, if the Committee agrees to the proposed meeting schedule, then there won't be any January meeting. And then I think we will have to do in February--in terms of a report--what is suggested here because there won't be any meeting prior to February to change the thing. Some other issues could be delayed.",70
-fomc-corpus,1978,"If anyone shares my feeling on the importance of this, that might be an argument to have a January meeting devoted in the main to an in-depth consideration of this. I think it's terribly important and nothing that should be decided without a lot of thought being given to it.",54
-fomc-corpus,1978,"Let me answer your question very simply: It's the will of the Committee. If the Committee is comfortable making a decision today, I think that will be the process. If it isn't, we'll have to schedule sessions as necessary or alternative means to get us to where we need to be. We do need by February 6 to have at least a conclusion on how we will handle it for our February 20 report. It would be a precedent and could be hard to unlock it. So we ought to make a very conscientious decision. But I think it's the will of the Committee. If there's a general feeling that this needs another meeting for further discussion, we'll have to find a way to arrange that.",140
-fomc-corpus,1978,Many of these proposals follow directly [the requirements] of the Humphrey-Hawkins Act; we haven't got much choice. They're presented as a decision of the Subcommittee on the Directive but they're really just translating the Act into what we have to do.,51
-fomc-corpus,1978,"Well, Paul, we at least worked on it over the weekend and I think there are some--",20
-fomc-corpus,1978,That's not true of every one but it's true of many.,12
-fomc-corpus,1978,"Well, let's give the subcommittee a chance to present it and we'll see how it goes. We'll see how good they've done their homework. There are, however, five members of this subcommittee and we only have two dissents within the group, so probably that means--",55
-fomc-corpus,1978,"Well, Mr. Chairman, I might say that we did, of course, consider this with some time pressure because it's something that has to be instituted very shortly into the new year. But it seemed to me, and I think to the other members of the committee, that many of these decisions were procedural in nature. They had to be taken but they were procedural. Where we had quite fundamental issues--for example, running on nonborrowed reserves as an operating variable--we did not take them up because there just was not sufficient time. That certainly could be discussed at a later date. Although it has been discussed time and time again for the last decade, it could be discussed once again. We do have a couple of dissents, as everybody can see because we've put them very prominently in the beginning of the material. And we also presented the material in a way so that we could go through these eight recommendations one by one. They start on page 2 of the memo. And I think that's the best way to do this, to go recommendation by recommendation.",215
-fomc-corpus,1978,Wouldn't it be wise to see if there is unanimous approval of any recommendation? Let's get that one out of the way.,25
-fomc-corpus,1978,"Well, recommendation 1 is simply expressing as the Committee's intent what the law requires us to do. It says that we have to specify [long-term growth ranges for the] money and credit aggregates for the calendar year. And recommendation 1 is simply an expression of the Committee's intention to do that. So I don't think there could be much dispute about that recommendation.",75
-fomc-corpus,1978,"Is there a different interpretation? I'm asking for sheer knowledge, because I've not had a chance, as you know, to even look at this with any care.",32
-fomc-corpus,1978,"For some reason, Phil didn't get it.",9
-fomc-corpus,1978,"I didn't get a copy until Monday, Larry, so--",12
-fomc-corpus,1978,That's because he was nearby.,6
-fomc-corpus,1978,"That's because I was too close. You have in effect said, I think, that the law says we must do it for the calendar year. My question is: Does that mean a different interpretation [is possible]? Say you do this in February; does that mean that calendar year or does the law say that the July meeting has to look at the next calendar year?",74
-fomc-corpus,1978,Both.,2
-fomc-corpus,1978,It does require both in the law.,8
-fomc-corpus,1978,"The law replaces old Concurrent Resolution 133, so it's the--",13
-fomc-corpus,1978,"We tried to sell a revision midyear just in the current year; they wouldn't buy it. And instead of much worse things, the compromise was for the revision of the current year plus a preliminary look at the next year.",45
-fomc-corpus,1978,What were you talking about? Who were you trying to sell? I haven't gotten caught up with this.,21
-fomc-corpus,1978,"I would say, Phil, the expression is very general; it's monetary and credit aggregates. You could conceivably drop M1, drop M2, have nothing but credit, or have different credit aggregates. There's good flexibility but specification of an aggregate for the current calendar year and in a tentative way for the forthcoming calendar year in the July meeting seems to me to be required by the law.",79
-fomc-corpus,1978,"Well, this one is procedure. Does anyone have any problem with this?",15
-fomc-corpus,1978,"Excuse me. There is one decision, isn't there--whether it is to be year-over-year?",21
-fomc-corpus,1978,That's recommendation 2. That's later on.,9
-fomc-corpus,1978,"Yes, Willis.",4
-fomc-corpus,1978,"Isn't this just a reporting requirement, not an operating requirement? In other words, we have to report twice a year on this basis but there is nothing to prevent you from looking or acting in the interim period when conditions change.",46
-fomc-corpus,1978,"That's correct, that's specifically in the law; it says that our--",14
-fomc-corpus,1978,"It's a reporting requirement, not an operating requirement.",10
-fomc-corpus,1978,That's correct.,3
-fomc-corpus,1978,But you've got to tell why in July you didn't come out the way you started.,17
-fomc-corpus,1978,"That's still a reporting requirement, not an operating requirement.",11
-fomc-corpus,1978,"That's correct. We can change it at any time and we could go broader than that, I think. Well, we could report this to the Congress and be operating on something entirely different, but--",40
-fomc-corpus,1978,That would be a little deceitful.,8
-fomc-corpus,1978,I really think that that is getting too complicated.,10
-fomc-corpus,1978,"We'd have to keep too many books. One second, Larry needs the floor.",17
-fomc-corpus,1978,"I would suggest, though, that Congress isn't going to be lying in a docile posture--letting us switch our processes and our signals to meet our own needs. I would agree with Nancy that we've got to think of the Congressional relations aspect. If they think we're trying to dodge the intent or the spirit of the Humphrey-Hawkins bill, I think all whatnot will break loose and we'll really be forced to do things that we don't want to.",93
-fomc-corpus,1978,"I think we have to report our intentions and we should report them honestly; there's no question about that. But if we are reporting intentions, and if there is a big strike in the interim or if there is an oil boycott, we would change our program. And we would say that's why we had done it. That's what you're talking about.",69
-fomc-corpus,1978,Otherwise we are locked in the ages-long controversy between automation and judgment as a policy.,17
-fomc-corpus,1978,"If there's a big overshoot, you have to show it.",13
-fomc-corpus,1978,"One final question on the first point, Chuck. You have used the word ""targets."" Is this advisedly [or] required in the law?",30
-fomc-corpus,1978,"The word ""targets""?",5
-fomc-corpus,1978,"Yes, rather than ""guidelines"" or ""ranges.""",12
-fomc-corpus,1978,"""Ranges"" is the word in the law.",10
-fomc-corpus,1978,"The word ""targets"" is used in your next to last line on the first page.",18
-fomc-corpus,1978,"The first [sentence] is right, though.",10
-fomc-corpus,1978,I was just hoping we'd stay away from that word.,11
-fomc-corpus,1978,"Well, it says the objectives and plans with respect to the ranges of growth.",16
-fomc-corpus,1978,"In the past, we've tried to stay away from the word target, if possible. [I'd start that sentence with] ""These ranges or guides should..."" It's semantics, I know.",37
-fomc-corpus,1978,"These ranges or guides. Sure, why not? And the next [sentence] says ""ranges."" Okay. Do you want to move to proposal 2, Chuck?",34
-fomc-corpus,1978,"Well, proposal 2 does get to the question of how we define the calendar year. There seem to be three possibilities. One could say that it's December to December. Well, I suppose one could say it's the last day of December to the last day of December, but in practical terms it's the month of December to the month of December. We rejected that on the grounds that the base is too unstable, especially since December is such a volatile month. One could say it's the quarterly average--the fourth quarter to the fourth quarter; that's consistent with the way we look at GNP and quite a few other numbers in the economy and it gives you the effect of the passage in time. That's our committee's proposal. One could also say a calendar year average to a calendar year average. For example, the Germans use that, I noticed. The difficulty we see with that is that, in effect, the averaging procedure is so much more elongated since you really pick up the whole profile of the previous calendar year in determining the base. And after that it becomes very difficult to affect very much the figure you specify for a calendar year; once you're into it [there's] hardly any time at all. For some purposes we might want to use the average year over average year in terms of references. But we think what is consistent with the way people report and analyze and use our data and the GNP data is to make it fourth quarter-to-fourth quarter. That's all the second recommendation is.",300
-fomc-corpus,1978,"May I speak to that? I'm not speaking with any great knowledge because, again, I haven't thought this out. But I'm wondering, Chuck, in terms of the midyear report where you've gone through half of the year and know what that average has been, at least in preliminary terms, and you have the remainder of that year to forecast. You're coming back, in your terms, to a quarterly average of the fourth quarter of the prior year and the fourth quarter of the year you are in. I wonder if, in the July reporting period, it doesn't give a little better picture of the year in which you're doing this to have an average over the whole year.",134
-fomc-corpus,1978,"Or, alternatively, to have both of them.",10
-fomc-corpus,1978,"I just don't know. I must say, as an economist who has been forecasting for a long time, that I can't even remember a year average on anything. I just never use it in analytic terms myself; maybe some people do. I think it's a very interesting device to create confusion because the year-over-year average is always different than the developments of the year as it goes on. I think where it might be used, Phil, is let's say in July you have an [overshoot] and you don't think you can get it down or that it is inappropriate to get it down within the year to the range you had set earlier. Then I think you use the next year, which you are permitted to do in July. That is, you could say we are running over for various reasons and you cite them.",164
-fomc-corpus,1978,You would adjust the current year upward.,8
-fomc-corpus,1978,You would adjust the current year upward and you could very well say we'll have a more gradual adjustment period that would run into the following year. That's the way I would use it rather than to take the yearly average.,43
-fomc-corpus,1978,"I was trying to think of your comment in relation to the GNP number. If you use the GNP number, [after] the first [half] of the year, you know what your first half GNP has been. I guess forecaster minds work differently, but it seems to me that after I get past the first half I have some idea what that first half has accomplished already and then I look at the second half and add to it. And it's a cumulative figure moving ahead.",100
-fomc-corpus,1978,You mean so you get an average. I just never do that myself.,15
-fomc-corpus,1978,"Chuck, you say you never do it. Almost all of the GNP figures that are discussed at this time of the year are yearly figures.",29
-fomc-corpus,1978,I never discuss the yearly figures; I think they're highly misleading.,13
-fomc-corpus,1978,You can't read the newspaper without reading that number.,10
-fomc-corpus,1978,I think it's become much more common to talk fourth quarter-to-fourth quarter. That's the way the Council [of Economic Advisers] presents their estimates of the GNP.,35
-fomc-corpus,1978,"As a matter of fact, they're presented both ways. They still are. The budget document has year-over-year and the Council report has fourth quarter-to-fourth quarter. And they are a consistent set of numbers. I think people do them differently.",50
-fomc-corpus,1978,"Jim, what do you use in the Greenbook?",11
-fomc-corpus,1978,"Well, we present both but generally in the presentations here we talk about fourth-to-fourth.",19
-fomc-corpus,1978,"And this Bluebook change figure, you use fourth quarter-to-fourth quarter rather than the average?",20
-fomc-corpus,1978,"That's right--or third-to-third, say. In terms of the policy period, for example, it's the third quarter over the third quarter.",29
-fomc-corpus,1978,"Those are all quarters, depending on the time period, Governor Coldwell, third-to-third, fourth-to-fourth, third-to-fourth. They're all quarter-to-quarter.",35
-fomc-corpus,1978,"Well, point-to-point is just too sloppy. So it's some sort of period to another period. What is the sentiment here? Is this an issue on which there is a difference of opinion?",39
-fomc-corpus,1978,Do you contemplate that in the July report you would cast the discussion largely in terms of the change from the fourth quarter to the second quarter?,28
-fomc-corpus,1978,What's happened so far and what that implies for--,10
-fomc-corpus,1978,We wouldn't start one of these new periods from a base in July; we would go back to the fourth quarter of the prior year.,27
-fomc-corpus,1978,Would you tend to cast the conversation in terms of quarterly averages all the way through as compared with when you're reporting in July maybe getting hung up in a lengthy conversation of June?,35
-fomc-corpus,1978,"Well, it seems to me that it will be in the report. We haven't written the report; and the Chairman will testify and he hasn't testified. But it seems to me that he would talk about how the year has developed thus far and the implications of that for the second half of the year--that is, the second to the fourth quarter--and whether that has implications for the coming year.",80
-fomc-corpus,1978,"But there's an inference, I think, in picking fourth quarter-to-fourth quarter that there is not a shorter period that's really meaningful to talk about. No shorter than a quarter, or about three months.",41
-fomc-corpus,1978,"[No shorter] than a quarter? Well, I sort of agree with that. That bears on one of our later recommendations.",26
-fomc-corpus,1978,What is the will of the Committee--to approve this proposal or to disapprove it? John.,20
-fomc-corpus,1978,"Mr. Chairman, there is another aspect of this that I would like to spend a minute on. Personally, I'm in favor of Chuck's view that a more meaningful way of measuring the change is from fourth quarter-to-fourth quarter rather than year-over-year. But another consideration that would influence how I would come out on this has to do with the following. Under the current procedures, we've got a certain spread of percentage points [on the ranges] for M1, M2, etc. On M1, it's a 4 percentage point spread, with 2 to 6 percent; on M2, it's a 2-1/2 percentage point spread--6-1/2 to 9. But in terms of actual operational ranges, in fact there is a much narrower spread because it depends on our practice to update these targets each quarter. And so the range, in practice, I think has been only one-fourth as wide as the 4 percentage point spread on M1 and the 2-1/2 percentage point spread on M2. As far as I'm concerned, if we were to retain the same practice of having these present percentage point spreads and go on for a full year, the ranges would be far too wide for me to personally be comfortable with. [Given] the very short time available to think about this, I would suggest as a kind of compromise that we narrow the ranges if we are going to go from fourth quarter-to-fourth quarter to a 1 percent spread for M2 and 1-1/2 for M1. I'll give you some illustrations: from 3-1/4 to 4-3/4 would have the same midpoint, namely 4 percent, as the present 2 to 6 percent range. An M2 range of 7-1/4 to 8-1/4 for a year ahead, fourth quarter-to-fourth quarter, [has] the same 7-3/4 percent midpoint as our present 6-1/2 to 9 percent range. But the issue I'm concerned with is that in practice the 4 percentage point spread we allow ourselves for M1, and the 2-1/2 for M2 are not really that wide because we update them every quarter. And I think we would have too much sloppiness in the steering mechanism here if we allowed those same percentage point spreads to exist in our specified ranges for a full year ahead.",501
-fomc-corpus,1978,"Well, I would like to reserve judgment on that. I don't think it really comes up at this point. And I think actually the 4 percentage point spread we have now is a special one. We've had 2-1/2 point spreads on M1, from 4 to 6-1/2. And if you would look at that out for a year, you are still talking about the same scatter; you can be only 1-1/4 percentage points off of your midpoint after a year. And cutting it down to a quarter doesn't change that. It just means that on a shorter period of time you could be 1-1/4 percentage points off. So, I would have strong reservations because I'm the one who will have to explain why we don't hit these things. And the narrower the target, the more we're going to miss it.",177
-fomc-corpus,1978,That's a very good point; the cone gets wider as you go up.,15
-fomc-corpus,1978,"Well, we slip the base every quarter now.",10
-fomc-corpus,1978,"That's the problem. Where we get the problem now is slipping the base. If we stuck by our original one-year projection and had a 2-1/2 point spread-- Now, we are off the subject, but we may want to create a band rather than a cone. There is a lot to be said for that. But I think that's a separate question.",75
-fomc-corpus,1978,I do think this is a separate issue. [MR. COLDWELL(?).] What other recommendations do you have?,26
-fomc-corpus,1978,"Well, there's recommendation 4, which has a great deal to do with the question of whether we can say that what the Committee has done has some relationship with what the President wants done. And I think [following] your suggestion would make it less likely that we'd consider it consistent.",57
-fomc-corpus,1978,And that comes up in recommendation 4?,9
-fomc-corpus,1978,I think it does.,5
-fomc-corpus,1978,"In any case, it comes up in February.",10
-fomc-corpus,1978,It comes up every meeting because I don't know that you can bind future FOMCs to having only certain spreads. I think any FOMC can put on any spread they want. New people come on and change their minds.,46
-fomc-corpus,1978,"Chuck, is your base drift on this question?",10
-fomc-corpus,1978,"The only base drift I see has to be very publicly reported. It has to be that we have given up our original expectations per se on 1979 and either intend or don't intend to make up for it in 1980. That's the kind of base drift there will be, an annual base drift.",62
-fomc-corpus,1978,No base drift in July against our February?,9
-fomc-corpus,1978,"No, you go back to the fourth quarter-to-fourth quarter. You just change--",18
-fomc-corpus,1978,It would be an annual base drift.,8
-fomc-corpus,1978,"Yes, an annual base drift.",7
-fomc-corpus,1978,[Unintelligible.],6
-fomc-corpus,1978,Annually there would be a base drift but during the year I think we'd merely move our targets if we decide to change them. We would reaffirm them or say we've moved them up or down; we'd have to admit we were wrong.,47
-fomc-corpus,1978,"To put it in slightly different terms, the base drift would become more overt and less covert.",19
-fomc-corpus,1978,"Yes, being spread out so that you--",9
-fomc-corpus,1978,It's one of the few real virtues of Humphrey-Hawkins.,14
-fomc-corpus,1978,"Just on the narrow point, do you want to go fourth quarter-to-fourth quarter? Can we get that one solved?",25
-fomc-corpus,1978,Can we have the happy medium of fourth-to-fourth on the February and July and an average in July also? Or would that be a problem?,30
-fomc-corpus,1978,"I think that would be a problem. If we shift between February and July [how we define] the year the way you're talking about, I think the [Congressional] committee could very reasonably say that we're trying to obscure what's happening.",48
-fomc-corpus,1978,"Well, actually, if you have fourth quarter-to-fourth quarter, you've got an implicit [number for] year-over-year. By July you're there, and it seems to me that if we're asked, we should give the calendar year [objective].",50
-fomc-corpus,1978,"Going, going, gone. What's number 3?",11
-fomc-corpus,1978,"Recommendation 3 has to do with meeting periods--a rather sensitive subject. There are really two aspects to this recommendation. One is that we feel it's necessary for the Committee to change its February and July meeting dates so that it will meet at a time in February, for example, when the staff has been able to analyze the President's objectives and yet in time for the report to be written. In July there will be a midyear budget review and perhaps some new specifications or objectives; and in any event a report has to be written and delivered by July 20th. At the minimum we think we have to change the February and July dates as we specified here to February 6 and July 11. February 6 is farther from the deadline of February 20 because we figure it will be a harder report to write. July 11 is closer to the deadline, July 20, because we think it will be easier and, in any event, to have it a week earlier would interfere with the Fourth of July. So, those two changes we thought we had to make. In addition, we made two changes in dates from the calendar previously sent out to you just to even out a little bit the time intervals. We had to change the May date from the 15th to the 22nd and the August date from the 21st to the 14th. Otherwise, we left all the dates the same. It's on the table here. You'll see that we changed May to the 22nd and that we backed up August a week in order to give us two 5-week intervals rather than a 6-week and a 4-week interval. In future years, I think we could do better with this but we felt some obligation to try to [stay] as closely as we could to what had previously been suggested to you as tentative dates. Now, the third aspect of this calendar is that it proposes excluding formal physical meeting dates in January and June because they would necessarily have to be at times that would involve only 3-week intervals. We felt that, in view of the fact that a full review of our situation was coming up and the reports would be written and all that, it would be better to skip those and have 7-week intervals, understanding of course, that there could be telephone conferences. In the future, I believe that we will never be able to avoid [a 7-week interval] in the December-January period--assuming we don't want to meet between Christmas and New Year's Day, and I assume we don't. But for the July meeting, I think in the future we'll be able to cut that to a 6-week interval rather than the 7-week period we now have. So there is first the change in the February and July meeting dates; second, the changes that we made in the May and August dates; and third, the question of skipping the January and June meetings.",591
-fomc-corpus,1978,What is the pleasure of the Committee?,8
-fomc-corpus,1978,"Mr. Chairman, could I [ask] whether we could consider changing the May meeting to the 30th? You have seven weeks between the May and July meetings and five weeks between the May and April meetings.",43
-fomc-corpus,1978,You would rather go to six and six?,9
-fomc-corpus,1978,I'd rather go to six and six.,8
-fomc-corpus,1978,The only reason we didn't do it was because Memorial Day is a holiday.,15
-fomc-corpus,1978,Won't most people observe Memorial Day on the 28th?,13
-fomc-corpus,1978,"Well, apparently that's not true in every state.",10
-fomc-corpus,1978,Some places observe it on the 30th.,10
-fomc-corpus,1978,We have Confederate Memorial Day in Virginia.,8
-fomc-corpus,1978,"I seriously considered that and, as a matter of fact, if it had been my choice alone, I would have moved that date.",27
-fomc-corpus,1978,"Mr. Chairman, I think the arrangement the committee has suggested would be worthwhile. I would suggest, as we've already heard in today's discussion, that we opt for telephone updates in the January and [June] periods.",43
-fomc-corpus,1978,"Mr. Chairman, this is a troubling recommendation to me in that, among other things, it is cutting the meeting dates from twelve to ten and lengthening the intervals between meeting dates--particularly as we move into 1979. It's going to be a tough year, as demonstrated by the discussion around this table today, it seems to me. There also appears to be an alternative that may or may not have been considered by the committee but seems to be a reasonable one as far as I'm concerned. And that is that we move all of the meeting dates to the second Tuesday instead of the third Tuesday of the month, thus maintaining a full 12-month schedule and having no interval between meeting dates greater than five weeks--very much the way we have done it in past years. Because of the shortness in coming into this procedure I think we might still adopt the recommendation of a telephone meeting for January, but nonetheless a full-blown meeting in January by telephone.",193
-fomc-corpus,1978,"I have a note here from Murray Altmann that one of our difficulties is that the BIS meeting is every second Monday and, therefore, we would have to make it the second Wednesday, or our people who go to BIS meetings can't get back. Even then it's not all that good to bring them back from Switzerland immediately to an Open Market Committee meeting. We've taken a look at almost every combination, Roger. If you take the first Tuesday, which also might be proposed, then you would wind up with very little new economic data for the month because it isn't out yet. I don't know, but I guess we didn't really look at the fourth Tuesday; that wouldn't fit the need anyway of the July and February dates.",143
-fomc-corpus,1978,Have you considered going back to quarterly meetings?,9
-fomc-corpus,1978,"No, not seriously, although some people may think that moving from twelve meetings to ten is a tendency in that direction.",24
-fomc-corpus,1978,The second Wednesday--isn't that a possibility?,10
-fomc-corpus,1978,"Well, except that it means that Paul or Henry and staff--Scott or Alan--will be very tired.",22
-fomc-corpus,1978,"The [second] Tuesday doesn't come early enough in February and July, I suspect.",17
-fomc-corpus,1978,"Yes, I think it does.",7
-fomc-corpus,1978,It does in July but we could make an exception.,11
-fomc-corpus,1978,"Maybe in this particular year, but it wouldn't regularly.",11
-fomc-corpus,1978,"Well, we've heard sentiments around. How many would accept this schedule for 1979 with or without the Coldwell codicil, which is the telephone meeting?",33
-fomc-corpus,1978,Everybody or voting members?,5
-fomc-corpus,1978,"Everybody. Okay, that looks like it. Is anybody unhappy with that?",15
-fomc-corpus,1978,"Mr. Chairman, there is just one element of unhappiness about Memorial Day. I don't know if anybody observes Memorial Day on--",26
-fomc-corpus,1978,We will refer the Memorial Day issue to the subcommittee; this will get our schedule going for February.,21
-fomc-corpus,1978,"Yes, although we will have to do it soon, because people like to get their calendars [scheduled].",21
-fomc-corpus,1978,"May I offer another amendment? The official holiday is on Monday the 28th and the natural holiday is Wednesday the 30th. And then there's the 31st, which is a Thursday. You might think of putting the May meeting on that Thursday, the 31st.",57
-fomc-corpus,1978,So you want to cancel the May meeting?,9
-fomc-corpus,1978,You'll just not have as good input from me if you have it on that day.,17
-fomc-corpus,1978,You'll have a hangover on Memorial Day?,9
-fomc-corpus,1978,"Not a hangover, but I've got some complications.",11
-fomc-corpus,1978,"What will you have, a Memorial Day [unintelligible]?",14
-fomc-corpus,1978,We don't observe it except in spirit; we don't actually leave the Bank. And there is logic to making these intervals six weeks instead of five and seven. I wouldn't have brought it up if there wasn't.,41
-fomc-corpus,1978,"Bob, you've lost that one, come on.",10
-fomc-corpus,1978,We can go another week more and have it on June 5.,14
-fomc-corpus,1978,"I would just raise the question with respect to January, in view of the uncertainties that are prevalent. I'm wondering what the public relations aspect of it is, even though we hold it by telephone, to say that there is not a meeting in January.",50
-fomc-corpus,1978,"Wild enthusiasm, I would think.",7
-fomc-corpus,1978,I think we are missing the market aspect of this.,11
-fomc-corpus,1978,"Well, I do think we can discuss it really quite well.",13
-fomc-corpus,1978,I don't think anybody will know the difference unless we--,11
-fomc-corpus,1978,"Well, not having the January meeting, we won't release the policy record for today's meeting until a little later. Other than that, I can't see--",30
-fomc-corpus,1978,"Well, why would that necessarily follow, Chuck? Would that necessarily--",14
-fomc-corpus,1978,"Yes, I think so.",6
-fomc-corpus,1978,The release is three days after the next meeting.,10
-fomc-corpus,1978,The reason we release it when we do is because until then there is an operational instruction.,18
-fomc-corpus,1978,But wouldn't you consider a telephone meeting in January a meeting?,12
-fomc-corpus,1978,I would rather not.,5
-fomc-corpus,1978,"Well, that's the problem. I think it should be considered a meeting. If we are going to have it, I'd consider that we are going to spend several hours.",34
-fomc-corpus,1978,"You know, we do have telephone meetings that--perhaps I should defer to the Secretary.",18
-fomc-corpus,1978,But they are different. This would be a mandatory meeting on a [specified] date.,18
-fomc-corpus,1978,It's not mandatory. I think the Chairman said that he had every intention at this moment of calling you up on the 16th.,27
-fomc-corpus,1978,"That's right, to consult on that date. So we wouldn't have an official meeting or we wouldn't have problems with new policy directives and the release of the other--",32
-fomc-corpus,1978,Any actions taken at that time would be reported in the policy record [for today's meeting].,18
-fomc-corpus,1978,"Just as we do when we have a meeting by telephone late [in the intermeeting period], it's reported maybe a week or ten days later.",29
-fomc-corpus,1978,I think Willis has a good point. I hope we don't advertise that we are skipping--,18
-fomc-corpus,1978,"If anybody asks about it, don't you tell the truth? It's that we are having it a couple of weeks [later] because we have to prepare for the new presentation to Congress and we have to wait until we get the budget to do it.",50
-fomc-corpus,1978,I think we ought to go ahead and say that because they are going to be waiting for the policy record three days later.,25
-fomc-corpus,1978,"I'd inform everybody. My first reaction is that I don't think there will be any feeling of letdown because it's very logical. If we have to report on the 20th of February, we don't have the data until quite late in January. It's hard for us to do otherwise.",57
-fomc-corpus,1978,"Mr. Chairman, our practice has been to respond to questions about the date of the [next] regularly scheduled meeting. We have always given out that date. We don't give out this proposed schedule, for example; it's not regarded as a fixed schedule.",51
-fomc-corpus,1978,We do give out the schedule; we have for the last couple of years.,16
-fomc-corpus,1978,"Well, Joe, all you have to do in giving out the schedule is to add a paragraph to your release saying that this has been scheduled at this time to permit preparation for the new reporting required under Humphrey-Hawkins. Okay, where do we stand on meetings? There seemed to be acceptance of the proposal, with I guess a careful hope that you do something about Memorial Day--perhaps cancel it.",82
-fomc-corpus,1978,I don't know; the careful hope came from both directions.,12
-fomc-corpus,1978,I am prepared to move in either direction; it's that particular time that causes me a problem.,19
-fomc-corpus,1978,"The Board does have to deal with the question of how we organize to be responsive to the mandate of Congress. It is a question we all have raised. First of all, there is nothing in that bill that calls upon the Committee to adopt explicit economic objectives for the calendar year [or] for the two calendar years and we would recommend that the Committee avoid doing so. We in general would; Nancy may want to say something here. Secondly, there is nothing here that requires that the Committee develop monetary paths that it considers most probably quite consistent with the objectives that the President has set. And we would propose that the staff not be directed to develop that path that would be most consistent with the President's objectives. Rather, we propose that the staff be prepared to talk about the probabilities regarding whether or not the ranges specified for the monetary alternatives for the year are [consistent with or how they are] related to the President's objectives and also the question of the consistency among the objectives. In other words, at this point we are not proposing a major change in the way the staff material is prepared for the Committee nor are we proposing a major change in the way the Committee specifies its objectives. We simply suggest that the staff have in mind in its collective wisdom what it thinks the relationships are between the monetary alternatives and the economic objectives stated by the President. That's our committee's recommendation. I think Nancy ought to be permitted to speak on this for a minute and I think you might want to hear from Jim Kichline, who is really going to have to organize the research that backs up the Committee's [decisions].",323
-fomc-corpus,1978,"Well, that is my dissent, as I am sure you all have [seen]. I feel very strongly that the object of policy should be toward [achieving] what I consider to be the ultimate goals for policy, mainly output, employment, and prices--and one that we have no control over, which is an acceptable distribution of income. I feel that money is really one of the tools and not the end of the policy and that we should start moving toward focusing the policymaking on our ultimate objectives rather than on an intermediate, in-between type of objective. And it seems to me that one of the major objectives of the Full Employment [and Balanced Growth] Humphrey-Hawkins Act was basically to improve public understanding of economic policymaking and to lay out what it is we want to accomplish rather than to get ourselves hung up on M1 or M2 or something of the sort. Now, part of the reason that I think we need to do this is that I think there are inconsistencies going on at the present time in the policymaking. One of them is the tendency of the Administration to opt for the most optimistic possible economic forecast that they think they can get by with. And there is also an inconsistency in the conduct of monetary policy because I think there has been a tendency to opt for the lowest rates of growth in the money supply--that [they] can get so low that you can't achieve them and achieve your other objectives. And one thing that I think Humphrey-Hawkins may do is to force both sides to face up to the inconsistencies as they are presenting them to the American public. So I would opt for going forward with saying that here is what it takes to meet the President's objectives and then be very forward in saying we are not going to achieve those objectives because we can't live with the amount of money supply that is implied by the objectives [the Administration] is trying to get to. I'd do it in a probability form because the econometric models are not perfect. I don't know a single econometric model that does not have a great deal of somebody's judgment in it. I know that you are not going to get it directly on the nose as you go through here. But I think it's a mistake to formulate all our policy strictly in terms of money.",464
-fomc-corpus,1978,"I'm not sure I understand this issue. Under the Humphrey-Hawkins we are to make our report with respect to the ranges of growth or diminution of monetary and credit aggregates, taking account of past and prospective developments in employment and unemployment, etc. So, won't we have to look at the prospective [developments] as we see them?",69
-fomc-corpus,1978,But the President will have specific short-run objectives for the economy.,13
-fomc-corpus,1978,But we'd say here's our monetary policy and it is based on the fact that we expect unemployment to be slightly different or substantially different [than the President's objective]. Won't we have to say that?,40
-fomc-corpus,1978,If we think it will be.,7
-fomc-corpus,1978,"So are you arguing about what you know in advance [as to] whether we are? Because if it happens to be consistent, Nancy, we have covered your point, haven't we?",37
-fomc-corpus,1978,Not the point. The President will present a rather full-blown economic forecast and you can read this Act in such a way that the Federal Reserve is to look at that forecast and say what kind of growth in the money and credit aggregates will be necessary to achieve it. And it may be that the--,61
-fomc-corpus,1978,"No, I don't read it that way. Do I misread it?",15
-fomc-corpus,1978,"It's really point 3, I think, Mr. Chairman. The relationship of the aforesaid--",21
-fomc-corpus,1978,"Yes, first we say what our plans are--the objectives and plans of the Board of Governors and the FOMC.",25
-fomc-corpus,1978,And that has to do with the monetary aggregates.,10
-fomc-corpus,1978,"[It says] the ""relationship."" It doesn't say that we tell what it takes to get the President's [objectives]. We say what we are going to do, and then we give the relationship to the President's [goals]. Either it's going to be consistent or inconsistent.",58
-fomc-corpus,1978,I don't think it necessarily implies forecasting a Committee forecast.,11
-fomc-corpus,1978,[It says] taking into account the prospective relationship of our objectives and plans. Take into account [prospectively].,24
-fomc-corpus,1978,"We can take account of the future, but we don't have to say this policy will produce X GNP.",22
-fomc-corpus,1978,"No, but you can't hardly say that you have taken into account prospective employment unless you have taken it into account.",23
-fomc-corpus,1978,I think we have a real danger here. We may very well be in a situation where we will state our monetary policy and it's only going to take the outsiders about two seconds to figure out that because of our monetary policy the President can't achieve his objectives.,51
-fomc-corpus,1978,"If that's the case, we ought to be saying so under three.",14
-fomc-corpus,1978,"I think that's right, if it is obviously that [inconsistent]. I don't think that it is. Many times before, the outsiders have said that the monetary policy was not consistent with general objectives, and in fact it turned out to be consistent. So who knows?",54
-fomc-corpus,1978,"But our reports to the Congress this year have rather consistently been at variance with the Administration on growth of the economy, for example. We said here are our ranges and we expect the economy to grow at this rate and it was always less than the Administration's. I don't think that will [lead to] any particular crises.",65
-fomc-corpus,1978,"It may lead to more of a crisis in this period [unintelligible] because then the [Congressional] committee will make its recommendations for different policies to the Congress, so Congress could instruct us to do this.",45
-fomc-corpus,1978,But most of the time it will be in the range of uncertainty anyway. Nobody can say with full conviction whether it's consistent or inconsistent.,27
-fomc-corpus,1978,"I'm just trying to reconcile this difference of opinion. It seems to me, having decided what our objectives and plans were, if we then came to the point of what is their relationship to those in the President's economic report and found a variance, I think we would have to report that.",58
-fomc-corpus,1978,Which means then you would have to give your forecast. Yes.,13
-fomc-corpus,1978,"No, if you're at variance. If you're not at variance, you're really saying you are consistent with that forecast.",23
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"Have we actually, in our own practices, ever discussed or agreed upon what our ultimate economic objectives would be and then attempted to make our monetary policy decisions consistent with the achievement of those objectives? Or have we really sort of played around with our monetary policy and then asked our people to project what they think will be the result of that monetary policy. This has disturbed me.",74
-fomc-corpus,1978,"I don't [know], Larry. We may have gone procedurally one way or the other. But it has been my experience that we have been adopting monetary policy for the conscious purpose of achieving a slower growth rate in the economy than was in the Administration's forecast. And we have been reporting this publicly all year.",64
-fomc-corpus,1978,But we haven't been prepared to say that the Committee's economic--,13
-fomc-corpus,1978,"Oh yes, I understand. What we have said is that I have listened to everybody and I've said what I think. That's correct.",27
-fomc-corpus,1978,You remember we passed that through.,7
-fomc-corpus,1978,That's what we contemplate continuing.,6
-fomc-corpus,1978,"Okay, I see. Now I'm getting the point.",11
-fomc-corpus,1978,And then furthermore not directing the staff to develop an economic plan that would be consistent with the President's but to develop reasonable alternative economic and monetary plans and then talk about what the relationship [to the President's economic goals] might be.,47
-fomc-corpus,1978,"Well, this language ""the apparent consistency or inconsistency of alternative monetary growth rates with the President's economic goals""--isn't quite clear to me, Chuck, just semantically. In the discussion I think we made clear that what we did not want the staff doing is coming in and saying that X is consistent and Y is inconsistent. Then if we get asked, we'd have to quote that.",79
-fomc-corpus,1978,Dave.,2
-fomc-corpus,1978,My point has been covered.,6
-fomc-corpus,1978,Are we covered? Anybody else?,7
-fomc-corpus,1978,"Well, is Jim going to describe how he proposes to do this?",14
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,"I think our intent is to use the econometric model more intensively to sort out the impacts of alternative monetary policies. So there would be more extensive and in-depth analyses of the alternatives on the real side and price side of the economy, given rates of growth of the aggregates that would be in the Bluebook. And in that process we'd be sure that we have covered in one of the alternatives or one of the ranges explicitly the forecast of the Administration, so that qualitatively we'd be able to talk about where that fits. We are talking about aggregate ranges ultimately so I think in most cases we won't have a great deal of difficulty. I would perceive much of the difficulty not to rest with rates of growth in nominal GNP but probably in the real and price split; I view that as being a potential source of problems. So within the ranges we would anticipate that we will cover and provide the Committee with information that would discuss explicitly the nature of the Administration's forecast for the next two years I guess it is. We have tended to go out, as you know, three years or so using the econometric model. We would want to give a somewhat longer flavor to that exercise using the model.",240
-fomc-corpus,1978,"Jim, say for instance that we had a range of 4 to 6-1/2. Would you then indicate how 4 and 6-1/2 would be implemented [relative to] the President's program?",47
-fomc-corpus,1978,That's what we have now.,6
-fomc-corpus,1978,"So if you found that the President's program fell within that range, that would be the conclusion to be drawn.",23
-fomc-corpus,1978,That it's reasonably consistent.,5
-fomc-corpus,1978,"If we found that it fell outside, we'd tell the truth. But are we sufficiently sure to be able to assert that the President's program is unachievable by our policies? I doubt very much--",41
-fomc-corpus,1978,"I think any nominal GNP is achievable. I think it's the price/real [GNP] relationship that comes to [unintelligible]. If he said he wanted a 20 percent increase in nominal GNP, I'm sure you could achieve it with monetary policy. Then he might say it would be 8 percent real and 12 percent prices. We might think it would be 4 percent real and 16 percent prices.",88
-fomc-corpus,1978,Then there are real possibilities. Suppose he proposes a 20 percent nominal increase. Wouldn't we then say we don't want to pursue that objective?,29
-fomc-corpus,1978,"It seems to me that the other thing generally that you can do on this is to state that you are not going to hit it 100 percent. Jim this morning was using some probabilities as to what the chances of a recession are, for example. And it seems to me that we would want to use that route in order to convey the degree of uncertainty that I think is still associated with this sort of thing.",83
-fomc-corpus,1978,"Well, I think very much we should convey the degree of uncertainty because our model results are just one point in a wide spectrum.",26
-fomc-corpus,1978,It depends on how wide a spectrum.,8
-fomc-corpus,1978,"I might note that in this exercise that I reported today on probability distributions we would hope to do some more experimenting. But in the future, obviously, we can talk a little bit about confidence intervals associated with the model forecast. We do have the standard errors. And we can indicate the uncertainty of a point forecast.",63
-fomc-corpus,1978,Mark.,2
-fomc-corpus,1978,"I'd just like to point out--I think it supports the subcommittee's recommendation--that we do not currently have any place that I know of in the country, let alone in the Federal Reserve System, an econometric model that can be used with any great confidence through the kind of simulation that we are talking about. So while we go through the exercises, I think the real point we ought to understand is that there is no way we can say on the basis of those exercises whether our proposed policy is consistent or inconsistent with the President's programs. So in a way we have a dilemma that isn't as bad as we think because we don't have to lie or anything else. We really don't know based on those models whether we are inconsistent or not. It's an entirely different kind of discussion than I think would be implied by what we have been talking about so far. My fear is that we are going to mislead ourselves into thinking that we can determine with more precision than we can exactly what the options are that we face. We hope to have for the Committee, in a few months, some simulation views in the MTS model to indicate that there is really nothing we can say about the breakdown in nominal GNP between prices and real output, with any degree of confidence at all, based on the way that model is currently working. And that's not a criticism of that model any more than any other. It's just a fundamental difficulty we are having [in] how these things are being done.",299
-fomc-corpus,1978,"We are going to face some serious problems on our first go-around because the Administration's plan will face the dilemma of whether it's opportune to forecast more inflation and therefore to have a lower budget deficit. It is an interesting dilemma because the more inflation they forecast, the more they meet their target on the fiscal deficit. And the more they are optimistic on inflation, the more their deficit will go up.",81
-fomc-corpus,1978,"However, there is a lag. The entire inflation catches up about 18 months later on the expenditure side.",22
-fomc-corpus,1978,"Well, is it okay if this first time we go about it the way that is described here?",20
-fomc-corpus,1978,"Well, we will have to see.",8
-fomc-corpus,1978,"Yes, I think this will have to be a probing thing.",13
-fomc-corpus,1978,We may have to spend all day on the 6th.,13
-fomc-corpus,1978,"Well, number 5, I think is pretty easy.",12
-fomc-corpus,1978,You said that about the [meeting] dates!,10
-fomc-corpus,1978,"We went out of [order]; I lost my page. Oh, there it is. We just have [proposed] some minor word changes in the directive to conform to the expressions used in the Humphrey-Hawkins Act. It might be possible also, in the future, to discard the first several paragraphs of the directive. The [rest of the] committee impressed on me the wisdom of waiting until we find out what the Merrill decision is before we decide on that. So this involves just a few minor word changes.",106
-fomc-corpus,1978,"This is on the ranges only, not the directive in the--",13
-fomc-corpus,1978,"Yes, really the main thing is the phrase used in expressing our long-term monetary objectives, which follows the Humphrey-Hawkins language. A couple of other word changes [are suggested] because of other factors; we are talking about annual rather than moving 12-month targets. So I don't think there should be any discussion.",66
-fomc-corpus,1978,"Anybody have any problem on 6? Larry, do you have something? [Unintelligible] can't believe it.",25
-fomc-corpus,1978,"I always have been, Mr. Chairman. Some of them don't fly well. But 6 is where I have really very serious concerns and I'd like to express them. In 6 the recommendation the subcommittee made, in effect, provides that the long-term aggregates decisions and the short-term decisions on targeting the fed funds rate really need not be related by a fixed rule. I feel that the spirit of the Humphrey-Hawkins Act is--even if it isn't written into law, it is the intent of this Act--to call on us to set specific annual aggregate target ranges. And I believe that our ability or inability to accomplish those ranges, at least under ordinary circumstances, will be judged very critically by the Congress. Certainly if you look back, our record in setting ranges and staying within them has been rather spotty since 1975 when we had the Concurrent Joint Resolution 133. We have computed that out of 44 attempts to stay within certain short-term aggregate ranges we missed 22--50 percent of the time. I don't think in this new Humphrey-Hawkins arrangement, we are going to be able to remain as invisible or as unaccountable in this regard as we have in the past. And in order to achieve the objective that we read into Humphrey-Hawkins, I think the short-run aggregates targets must be closely tied to these longer-run objectives. And I think that we must be prepared--whether it's on a fixed basis or on an automatic basis--to do everything humanly possible to see that the funds rate is adjusted almost automatically whenever aggregate growth deviates from the prescribed ranges. This is the fundamental disagreement we have had.",336
-fomc-corpus,1978,"I think it is fundamental. I think the last sentence of recommendation 6 is the one to read. We wanted to assist you in saying what the Committee decisions ought to be from meeting to meeting by tracking what has been happening in a very explicit way and by having the staff provide alternative feasible routes for getting back [within the ranges]. We had in mind maybe a 3-month adjustment period and a 6-month adjustment period. That may have to vary some, but we don't want to be caught with a fixed rule that forces the Manager to do something between meetings that hadn't been anticipated. And that's all we are saying here.",126
-fomc-corpus,1978,"Chuck, I would agree totally with the wording of your last sentence; however, it's the early part with which I strongly disagree. And if it's in order, Mr. Chairman, I'd just like to either circulate or read a very brief substitute in wording that I would recommend for the early part of Chuck's number 6. It would read, unless I am out of order, sir--",78
-fomc-corpus,1978,"No, please read it.",6
-fomc-corpus,1978,"""The spirit of the new law clearly requires changes in the present procedure for formulating short-term tolerance ranges. The change in the formulation of the long-term ranges will tend to focus greater attention on actual performance relative to these ranges when setting short-term policy objectives. Therefore, we endorse proposals to relate short-term tolerance ranges to the long-term growth ranges by a mechanism that would ensure that the agreed-upon long-term ranges are achieved on an annual basis."" And then we would follow the exact wording of the last sentence. I will be glad--",107
-fomc-corpus,1978,"Well, I think that ought to be subject to a straight vote, Mr. Chairman. He is suggesting changing the recommendation to the inverse of whether or not that's--",33
-fomc-corpus,1978,"I think that might be said about this recommendation, Mr. Chairman. We did look at this thing entirely aside from Humphrey-Hawkins. These last six months, however, have reflected some considerable thinking by the Subcommittee on the Directive, right or wrong, as to what the substance of this should be apart from Humphrey-Hawkins.",70
-fomc-corpus,1978,"Dave, you have [a comment]?",8
-fomc-corpus,1978,"Yes, if I may speak just briefly.",9
-fomc-corpus,1978,"Yes, please.",4
-fomc-corpus,1978,"A good deal of what Paul referred to was produced in the Philadelphia Bank because we were concerned about the slippage between short-term and long-term [objectives]. We did a good deal of research on this and we were persuaded that the only way discipline could be introduced into the process was to have some very direct linkage between the short- and long-term ranges. However, Humphrey-Hawkins came along just about the time we were in the midst of this discussion. And in considering the impact of Humphrey-Hawkins on this, I am persuaded that that itself introduces enough discipline into the process that I don't think we need to do it by mechanical means. Now, I may wish a year from now that I felt the way I used to feel about this. But I think that we do have that kind of discipline in the Humphrey-Hawkins process and that we don't need that [automatic] kind of mechanism. And that mechanism does have other disadvantages.",194
-fomc-corpus,1978,"Well, how many prefer the--",7
-fomc-corpus,1978,"May I ask a question before you take the vote, Mr. Chairman? May I ask what in your view, Chuck, Humphrey-Hawkins actually does require? You started out your comment that the new law ""does not require"" and Larry started his with the spirit of the new law ""clearly requires."" Maybe you could say literally that yours is correct and his is, too, if the difference is that he's looking at the spirit and you are looking at the literal parts of the law.",101
-fomc-corpus,1978,"Well, he changes a sentence in another part of it. But I think what the new law requires us to do basically is to say what kind of economic results we are going to have--not what kind of monetary aggregates [in terms of] target estimates, but what kind of monetary aggregates we have in mind as a means in the process of getting to the general economic results [we want]. And I think, since we won't be slipping the base, that is what it requires us to do and what I would expect the Chairman to say--",109
-fomc-corpus,1978,What do you expect me to say?,8
-fomc-corpus,1978,"Many [times in the] middle of the year it doesn't look as if we are going to have monetary aggregates for the year that we thought in February were appropriate. And the reason is that the way things have developed they are no longer appropriate and, therefore, we are changing our target for the year. I think that is quite a different thing than saying we are going to live by a fixed monetary rule, which is really what Larry is suggesting.",90
-fomc-corpus,1978,Is this required? Do we have to have this one way or the other on this matter?,19
-fomc-corpus,1978,It's subject to change at any time.,8
-fomc-corpus,1978,I understand that.,4
-fomc-corpus,1978,But I think there needs to be some understanding on how we are going to be operating.,18
-fomc-corpus,1978,"If we are going to have a fixed rule, we have to have it in place in February.",20
-fomc-corpus,1978,"I'm certainly not prepared to vote for a fixed rule, but I'm not sure I'm prepared to vote for the other one either.",25
-fomc-corpus,1978,"Would there be a way--and this is what I was driving at earlier--whereby those of us who saw fit could communicate to Chuck in writing a point of view on this? [I ask] because I always feel that we have mass resources in our research departments and I would like to have some of our professionals, who can articulate this a hell of a lot better than I, put something down in writing before this decision is made. And they didn't have time to do it. I think this is a very gutsy decision that we will have to live with.",115
-fomc-corpus,1978,"I have trouble with it on two counts. I don't see how the Committee can lay down a rule that requires future Committee members to vote a certain vote. I don't see how you can do that. As a matter of procedure, I don't see how you can vote today and say that next July every member of this Committee is now committed to a certain mechanical process. Even if you voted that, I don't think it would be valid. Members could throw it out because it's just wrong procedure. No Committee can bind a future meeting--",106
-fomc-corpus,1978,How we perform in February in setting the directive will be affected materially by what our attitude is on an issue such as this. All I am saying is that we should have as much background as possible made available to the Committee prior to taking whatever action it takes in February.,54
-fomc-corpus,1978,"Yes, that's fine. It seems to me that what is being suggested is that at each meeting of the FOMC there will be available data as to a track that could return us to our range, if we are off it. And at that point members of the Committee can vote to get on the track or vote not to get on it. I think that's the only procedure we can accept. We will have new members; we will have two new Governors coming on. They can't be bound to vote [a certain way] later.",108
-fomc-corpus,1978,"Also, Mr. Chairman, there's a question of what we decide at the meeting as to what we authorize the Manager to do. We think the time for the decisions is at the Committee meetings and not--",41
-fomc-corpus,1978,"But if you present the choice, the Committee has a choice to decide to return on a 1-month basis, a 3-month basis, a 6-month basis, or to say in its reports that we have decided for factors that have come up to change our long-range objective.",58
-fomc-corpus,1978,"But, Mr. Chairman--and I'll promise I'll hush up after this--",15
-fomc-corpus,1978,"No, this is very important. Don't hush up.",11
-fomc-corpus,1978,"It seems to me that the very reason that Chuck's committee developed this paper was to give some guidance to this process even though they can't bind future FOMCs. And if there's a purpose in this memorandum being circulated, I think there's a purpose in certain aspects of the memorandum being debated even though we can't bind anybody. That's my only point.",69
-fomc-corpus,1978,"Yes. Well, I think the point has certainly [been made]. I think Ernie Baughman had a [comment].",26
-fomc-corpus,1978,"Mr. Chairman, it seems to me that a way of handling this today--and I would propose a motion unless there is already one on the table--is to accept number 6 as an interim posture but not as a policy action at this point in time. That will leave the door open for continuing exploration.",63
-fomc-corpus,1978,"Yes, I think that's right.",7
-fomc-corpus,1978,"[Unintelligible] and a number of others, which I suggested in the conversation. In fact, I'll have to admit that as I read the discussion pertaining to 6, I found it on balance a little more persuasive to come out a little differently on it than this specific recommendation. It seems to me there is something there and we need to keep the door open for further exploration, but at the same time we must move ahead to get a February statement out.",95
-fomc-corpus,1978,Paul.,2
-fomc-corpus,1978,"Well, I think this comment of Ernie's makes half the point I was going to make. I think there was a lot of sympathy, which should not be overlooked, on the subcommittee for paying more attention to the long-term averages. I felt that and I think some others did. That may not come through here very strongly because you read the [conclusion] of rejecting the mechanical [link] and I think that is precisely what the subcommittee did. It had sympathy for paying a lot more attention to the long range but it followed a different track in saying any of the mechanical devices we fooled around with have flaws and we shouldn't be bound by a particular mechanical device. And that's precisely where I came out: We should pay more attention, just don't have a particular mechanical device. And I would say semantically in this proposal of Larry's that I just don't agree that the spirit of the new law clearly requires changes in the present procedures. As a matter of fact, I don't know of anything in the new law or in the discussion that implies that. It may be a good idea to change them, but I don't think we can refer back to the spirit of the law.",239
-fomc-corpus,1978,"Well, what is your pleasure here? Do you want to vote on this or do you want to keep it as an open and continuing discussion from meeting to meeting? Or do you want to settle one?",41
-fomc-corpus,1978,I like Ernie's proposal.,7
-fomc-corpus,1978,"I do too, Mr. Chairman. And I must say, going back at least three years ago, I have been harping on this lack of getting from the short run to the long run. And one time I suggested a mechanical rule, which got sympathy but no action, and a number of other people around the table have subsequently come up with various devices. But when everything else is said and done, we really have had such big overshoots--or undershoots, as the case may be--because we haven't disciplined ourselves sufficiently on this Committee to get from the short-term to the long-term [objectives]. If we can do that by a means other than a strictly mechanical rule, that's fine. But I think we have to do it by one means or another and, therefore, I support Ernie's general proposal that we leave the matter open for further discussion. I think it is one of the most important procedural aspects of this whole shooting match.",195
-fomc-corpus,1978,Would that be satisfactory to everyone?,7
-fomc-corpus,1978,"It's a big step forward, I think, Mr. Chairman.",13
-fomc-corpus,1978,To keep it open?,5
-fomc-corpus,1978,"Well, no. To work in the direction that Chuck's committee has given us here.",18
-fomc-corpus,1978,"I think that's absolutely right. And in any case, we will be getting options before us in every meeting. All right, we will proceed to 7--before we have another dissent.",38
-fomc-corpus,1978,"I would like to dissent on number 6, Mr. Chairman.",14
-fomc-corpus,1978,You dissent on keeping it--,6
-fomc-corpus,1978,I'm not prepared to vote on that matter yet.,10
-fomc-corpus,1978,"I don't think number 7 has to be decided. What it means, in effect, if we don't decide it, is that in February we will continue as we have today to have a short-run 2-month growth range that is the trigger range for determining action. We tried simply here to develop an arithmetic equivalent that will be more stable for cosmetic public relations purposes. It wasn't to have any effect on the way the Manager responded or the speed with which he responded to changes but simply to give something that would reduce the amount of instability in the reported monetary aggregates we are looking at as our specialized targets. But there is disagreement. President Volcker doesn't care for it too much; I really pushed this in part because of the people, like President Eastburn, who wanted to have a long-run profile for the Committee, but he's not sure about it. So I would suggest that we just drop this.",181
-fomc-corpus,1978,"Before you do that, I'd like to strongly support that. Going back to the predecessor committee on which I served and the ideas that surfaced, we had all sorts of conversations about the instability you get in looking at a 2-month horizon. Not only the weekly numbers but even the monthly numbers are 90 percent random fluctuation. In all the statistical tests we made, you have to go to something like the 3-month average to get some idea of the true underlying trend. I think this is a great step forward and I would recommend not to deep six it.",114
-fomc-corpus,1978,"I feel much the same way, Mr. Chairman. I would say if number 6 was a great step forward, this is even a greater step forward.",32
-fomc-corpus,1978,Paul Volcker. Go ahead.,7
-fomc-corpus,1978,"I don't want to prolong this, but I think there's a certain confusion here. I agree that looking at the trend over a period of time is the only way to make sense out of the way these numbers are moving. The question here, as I see it, is what you are looking at in a particular decision at a particular Committee meeting. And what you are looking at then is what will happen before you can make another decision next month. And I think the typical question that you are asking is the one that Mark asked earlier, and which somebody asks at almost all these meetings: Should we react to a 10 percent rate of growth in the money supply next month or should we react in the other direction if it only goes up 2 percent? What is that relevant range? Now, mechanically these things come out the same. I just think it's a little more confusing in the communication among ourselves to obscure the next month by this long-term averaging the chairman of the subcommittee referred to. Where we are discussing annual averages or quarterly averages, the trouble with the averaging procedure is that it is so elongated that there is very little time left to affect the average. That's precisely the problem.",238
-fomc-corpus,1978,"Let me add, the baloney is what the baloney is, no matter how you slice it.",21
-fomc-corpus,1978,I won't say anything about [unintelligible]. Frank Morris.,14
-fomc-corpus,1978,"I want to support John Balles. I think this recommendation represents a big step forward. I think it will not only improve our performance and prospective monetary policy by adding a longer period for the short-term objective, but I think it will also make communications to the public much easier to understand.",58
-fomc-corpus,1978,That is the main intent.,6
-fomc-corpus,1978,"For example, at the current meeting, the 6 to 10 on M2 in the directive for the 2-month period means [something] like 6 to 7-1/2 on the 3-month period. I submit that the latter will be much [easier] for the public to understand and will give us a better perspective of what we are doing than the 6 to 10. So I really strongly believe that's the best thing in the whole report.",98
-fomc-corpus,1978,The [subcommittee] chairman was about to throw it out.,13
-fomc-corpus,1978,Yes.,2
-fomc-corpus,1978,Steve.,2
-fomc-corpus,1978,"Mr. Chairman, I consider the [unintelligible] for M1 as against [M2] at the end--",26
-fomc-corpus,1978,I was talking about M2.,7
-fomc-corpus,1978,"Yes, I understand, but it doesn't always come out the favorable way. And without speaking for or against one approach or another, I just wanted to be sure that the Committee understands that there is absolutely no difference between the two approaches. If we have done our math right, the Committee is going to be reacting in absolutely the same way as it reacted in the past with absolutely the same weight. We have adjusted the ranges, given the projections now. This is not something that makes any substantive difference in the procedures.",103
-fomc-corpus,1978,"I beg to differ on that point. And the reason is this. In the 3-month period you have three pieces of information plus one guess. That is, you have the one month that's known, the second month where we have a lot of information, and then the third month, which is sheer guess work and for which the information value is extremely low. Now, I submit that is better than having one month for which we have some information. For example, we don't know much information about December; we have a little information on it but our December projections could be way off.",118
-fomc-corpus,1978,"There is nothing in this procedure that affects how much information you have. You know every past month, you know half of the present month, and you don't know the next month. Whether you add it up together or not, that's what you know.",50
-fomc-corpus,1978,It's like putting a constant in an equation; it doesn't make any difference.,15
-fomc-corpus,1978,"I think the difference is that the longer the short-run guideline and the more months of information we have in that guideline, the more likely the Committee is to make up for any past undershoots or overshoots. And that I think is--",50
-fomc-corpus,1978,Dave has been trying to get the floor.,9
-fomc-corpus,1978,"I would just like to say that I did, as Chuck indicated, have sympathy to this at the outset. I've had some reservation since and it seems to me it is not central to the whole Humphrey-Hawkins process and procedure. And I would suggest, given the differences that there are, that we not pass it at this time and come back to it.",74
-fomc-corpus,1978,Why not even bring it right up into this text here?,12
-fomc-corpus,1978,"Well, we'll bring it up into the text, then.",12
-fomc-corpus,1978,"All right, now I want to hear from Bones.",11
-fomc-corpus,1978,"Mr. Chairman, many of the regional Banks have [unintelligible] but we, too, heartily support this. I guess if there's anything that hasn't been said, it's that we feel any significant developments during that period would tend to balance out. Any one monthly variation would not have the significant impact, so we do support [this]; some of our staff did some work early this spring related to this, so we are supporting it.",90
-fomc-corpus,1978,"Well, for something that is being tossed out, it sounds like there is a lot of support. Steve, do you have any preference?",28
-fomc-corpus,1978,"I don't have any preference. I really believe strongly--and we thought about this [hard but] I don't know how to get it through to the Committee--that it makes not one bit of difference. We're narrowing the range to make up for the averaging process. The different multiplication, if we have done our math correctly, should [result in] the same degree of responsiveness.",76
-fomc-corpus,1978,"Were you saying that if the aggregates are too high, a longer period will keep them high longer?",20
-fomc-corpus,1978,"No, it won't go as high, but they will be not as high longer.",17
-fomc-corpus,1978,Bob Mayo.,3
-fomc-corpus,1978,"Mr. Chairman, I think it makes two bits of difference, if I may use the phrase, with regard to Frank's point on communications with the public. I think that is the main advantage of this. I hope we are all smart enough around this table that we can divide by 2 and divide by 3. [If] not, we are in trouble.",75
-fomc-corpus,1978,"It isn't all that clear, because for example this time your M1 would be a very low range. You'd have to explain to the public that really, we are letting the growth in, but the growth is going to be in January. But it's going to be below because we are averaging January with a low November and December; you have that slight problem.",73
-fomc-corpus,1978,"But we always have this problem. Again, I'd rather use it that way--the bigger figure.",20
-fomc-corpus,1978,I move that we not pass 7.,9
-fomc-corpus,1978,"Is everybody more or less willing to accept that at the moment, despite the preferences?",17
-fomc-corpus,1978,Just so it doesn't die.,6
-fomc-corpus,1978,"It's not going to die; it's going to be immaterial. All right, put it in the Bluebook someplace.",24
-fomc-corpus,1978,"The last recommendation, Mr. Chairman, is a non-recommendation. It had been proposed by some that we add to the long-term targets specified under the Humphrey-Hawkins bill something like reserves or the monetary base or one of the basic monetary aggregates. We can see no particular purpose for doing so because whatever problems there are in specifying the long-term money numbers for M1, M2, M1+, and M3, and so forth, will exist also in specifying the monetary base. So we don't see any advantage to doing that.",111
-fomc-corpus,1978,"Mr. Chairman, my stomach is too empty to argue vehemently, but I'd like to express a weak disagreement with Chuck.",26
-fomc-corpus,1978,"I'm surprised it's weak. It's only physically weak. Does anybody else have any comment on that? Yes, Willis.",23
-fomc-corpus,1978,"I, too, would share the feeling that this is sort of a back-of-the-hand treatment to a problem. I grant that it's not a good guide and I don't insist that it be in the targets or ranges, but I think we have made a mistake in the past in ignoring the supplemental information that this provides for us. And I'd like to see an examination in somewhat more detail of whether this supplemental information tells us something about what's going on in the aggregates, particularly with respect to the future, that we have chosen to ignore. I don't advocate that it be part of the specs.",118
-fomc-corpus,1978,"Mr. Chairman, if I may make a suggestion. We have been somewhat neglectful recently in the analysis of reserves and the monetary base in the Bluebook. And actually I think it might be desirable to put, without specific figures even, some analysis of what's going on in there.",57
-fomc-corpus,1978,That's really all I'm talking about.,7
-fomc-corpus,1978,"Bob, you had a point.",7
-fomc-corpus,1978,"I was just going to say that I agree the committee didn't have time to address this. But I would hope that it would continue to push on and address it not so much as a target but as an operating variable in lieu of, or in combination with, the fed funds rate.",57
-fomc-corpus,1978,We have been trying to do that. And I must say it's a very complex question.,18
-fomc-corpus,1978,I know it is. But there's a substantial volume of opinion that this will be a better way to [operate] and I think we need to explore it.,32
-fomc-corpus,1978,Henry.,2
-fomc-corpus,1978,"I'd like to register some sympathy for reserves, not for the base. Particularly if we should have the Merrill decision going against us, I think we'd have to take a serious look at this.",38
-fomc-corpus,1978,As an operating variable.,5
-fomc-corpus,1978,As an operator.,4
-fomc-corpus,1978,"We are going to look at the use of reserves as the operational variable, are we not, Mr. Chairman?",23
-fomc-corpus,1978,"Your committee is going to be looking at that. That's very nice. Bob, is the memo that you circulated being handled in any way?",28
-fomc-corpus,1978,"Well, I think this addresses many of the same questions.",12
-fomc-corpus,1978,That's what I was wondering.,6
-fomc-corpus,1978,And I really prefer this method of doing it. The reason I couched it in the form we had it before is that that's the way we've been discussing it.,33
-fomc-corpus,1978,Do you feel they are making progress on your viewpoints?,11
-fomc-corpus,1978,"Oh, yes.",4
-fomc-corpus,1978,Okay.,2
-fomc-corpus,1978,"In Larry's case, the mechanistic tying of the short-term [growth] rates with the long-term rates did not bother me quite as much because I do think it will force out into the open a more conscious consideration [of the] relationship. [Secretary's note: The raw transcript ended at this point. It seems likely that the meeting ended here, but there may have been additional discussion.]",80
-fomc-corpus,1979,"Good morning, ladies and gentlemen. Welcome to our historic meeting. It's not only earlier [in the month than usual] but also involves for the first time the new Humphrey-Hawkins process. I assume that doesn't mean much [will be different], but it does mean, [since we cancelled our regularly scheduled meeting in January], that we haven't met as frequently. So if I forget your names, it's because I haven't seen you for so long! We do have a couple of absentees because of our rescheduling. Willis Winn is not able to be here, and I understand that Bob Mayo will be voting as his alternate. Is that correct?",132
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"Okay. And Mr. Kimbrel is not able to attend. So from the Cleveland and Atlanta Federal Reserve Banks, we have First Vice Presidents Walter MacDonald and Kyle Fossum here. I think all the Reserve Banks are covered. I have a very sad chore to face--it's happened to me twice in my short tour here, which is historic in my experience--and that is to inform you that we have lost another of our close associates. I wonder if we could take just a moment in memory of Tom O'Connell. [Pause] Thank you. Our first order of business this morning is to deal with the minutes of the last meeting, which was on December 19. They have been circulated. Are there any corrections or additions? If not, we will record them as approved. The next item on the agenda is the report on foreign currency operations from Scott Pardee.",178
-fomc-corpus,1979,"Thank you, Mr. Chairman. [Statement--see Appendix.1",14
-fomc-corpus,1979,"Thank you, Scott. Any questions OX comments?",11
-fomc-corpus,1979,Mr. Chairman.,4
-fomc-corpus,1979,"Yes, Ernie.",5
-fomc-corpus,1979,"This may not be the appropriate place for this question, but do you see anything [in] the international developments that are affecting currency [flows] that would help explain what we are seeing in the measures of the domestic monetary aggregates?",46
-fomc-corpus,1979,"I don't think I am qualified to answer that, but I don't know of anything.",17
-fomc-corpus,1979,"I'm not sure anybody is, Scott. We have not been able to draw any very close connection between the two, Ernie. It may be there, but we have not been able to find it.",41
-fomc-corpus,1979,"Yes, Dave.",4
-fomc-corpus,1979,"Scott, what conditions would be necessary to permit a decline in the funds rate without a serious impact on the dollar? I presume that a decline at this time would have adverse effects on the dollar.",39
-fomc-corpus,1979,"Yes, I think it would. Perhaps more time with a sense of stability in the market and a less jittery atmosphere [would help]. We had a very jittery atmosphere in January. The dollar has shown more resilency over the weeks since January 1. It was able to absorb the impact of the measures taken by the German monetary authorities. S o it's a matter of [some additional] weeks of stability in the market; and, of course, it would help to have some improved fundamentals. Nevertheless, I was surprised myself that the market weathered the German actions as well as it did.",121
-fomc-corpus,1979,Would it require obvious indications of a weakening in our economy?,12
-fomc-corpus,1979,"Dave, there are a number of factors on the fundamental side, including an improvement in the trade deficit, perhaps a sign of real moderation in the economy and, of course, less inflation, which nobody expects in the short run. All those things 1 think would take the onus off a decline in the funds rate.",65
-fomc-corpus,1979,I was trying to find out to what extent they really want us to have a recession.,18
-fomc-corpus,1979,"The knee-jerk reaction at the moment in exchange markets is to respond positively to any indication that the U.S. economy is a little less buoyant. After the decline in the leading indicators, there was some buying of dollars. So, any indication that the economy is cooling off is seen as bullish for the dollar by some market participants who are willing [to buy dollars] just after the numbers come through.",83
-fomc-corpus,1979,"Scott, suppose we only had continued weakness in the aggregates and we edged the fed funds rate down. Do you think we would still get the kind of reaction you are talking about?",36
-fomc-corpus,1979,It depends on what else is going on in other places. The same numbers can have a different effect if they come through one day [versus another day].,32
-fomc-corpus,1979,"If it happens on the same day that there is a large strike in the Baltimore Canyon, the answer is that it would have no effect on the dollar.",31
-fomc-corpus,1979,"But I was really asking, other things equal, would the market think [weak money growth] was sufficient reason for our lowering the federal funds rate?",30
-fomc-corpus,1979,"When the Germans tightened, they first had their vice president give a speech that made everybody mad and had people expecting a very sharp tightening of monetary policy. When they did tighten, it was less [than expected1 and a lot of people had to scramble to cover positions. So it depends on how it's done and what the context is at the time.",70
-fomc-corpus,1979,Larry.,2
-fomc-corpus,1979,"If whatever policy we adopted were publicly [announced] by the Chairman or whomever as having certain specific objectives, wouldn't that help clear the air? In other words, do the exchange markets have to function shrouded in mystery about all of this? If we were to let the fed funds rate drift down, why couldn't we make clear to the world why we are doing that?",78
-fomc-corpus,1979,"It's a question of credibility. We have gone for so many months trying to establish credibility and it is a very, very slender reed at this stage. As I said, the initial reaction to the statements coming out of Washington was negative, or skeptical. It was filtered through the various news services. Chairman Miller in his speech to the Economics Club in New York managed to talk directly to market participants and finally they [understood] what he has been saying rather than having it filtered through the press. So if it's just a statement of what you are doing, that won't satisfy people unless you can really impress them.",122
-fomc-corpus,1979,"Thank you, Scott. Our next step is to ratify, if you are willing, the transactions since the previous meeting. Is there any objection? Hearing none, we will approve those transactions. Next we have the report on domestic open market operations. Peter Sternlight.",54
-fomc-corpus,1979,"Thank you, Mr. Chairman. [Statement--see Appendix. ]",14
-fomc-corpus,1979,"Diversity is the spice of life. [In some respects] it's too bad that it's a good thing. Peter, I guess there will be four times a year now when the period between meetings will be a little different than in the past. Should we put your [intermeeting leeway] authority on a per week or per month basis? Would that help or would it add to the problem?",80
-fomc-corpus,1979,"It depends so much on what one expects the particular factors affecting reserves to do that I don't know whether it would be logical to tie [that authority] merely to the length of the intermeeting periods. Maybe we should undertake some further study of it and, if it seems appropriate, come back with a recommendation for a possible increase in that standard leeway.",71
-fomc-corpus,1979,All right. Questions or comments? Phil,8
-fomc-corpus,1979,"Mr. Chairman, I think we ought to keep the [intermeeting leeway] at $5 billion if there is a substantial possibility that--CHAIRMAN MILLER It's $3 billion, not--",41
-fomc-corpus,1979,$ 3 billion is the standard.,8
-fomc-corpus,1979,"I know. I'm saying that we ought to keep it at the $5 billion [we authorized for this past intermeeting period1 because I think there is a possibility that we may get a very sharp movement in float, especially if the weather happens to clear up, and the Desk will need to do some rather sizable offsetting purchases. And, anyway, this is a 6-week intermeeting period. So I would suggest we keep it at $5 billion.",93
-fomc-corpus,1979,"I think that's a good idea. I really don't know what great 1-elevance it has, and we certainly can raise it easily enough, but I think Phil's right. It's a 6-week interval and there is a lot of churning in the market. We don't know what the weather is going to be. Why not make it $5 billion?",73
-fomc-corpus,1979,"Well, we had [increased it to $5 billion and then raised it $1 billion more, which] put it at S 6 billion. So, when you say ""keep it,"" YOU really mean ""set it"" at $5 billion.",52
-fomc-corpus,1979,Set it at $5 billion.,7
-fomc-corpus,1979,You remember we had it at $5 billion and then we raised it.,15
-fomc-corpus,1979,We raised it another $1 billion.,8
-fomc-corpus,1979,Any other comments or questions? Shall we authorize $5 billion between now and the next meeting? Will that be satisfactory?,24
-fomc-corpus,1979,So moved.,3
-fomc-corpus,1979,"So moved and seconded. All in favor say ""Aye."" Opposed? So voted. We also need to ratify the transactions since the previous meeting. Is there any dissent from approving those actions as reported to you in the usual [written] report plus the verbal report? Hearing none, we will approve that. Thank you very much, Peter. Now we turn to the longer-run ranges for the monetary aggregates. A number of presidents and governors mentioned after the last meeting that they liked the experiment we tried of combining the discussion of one's viewpoint on the economy with its policy implications. As I said at the time, if that turned out to be something that people felt was a more useful way to [approach our policy deliberations], we would continue it. We may have to modify it at this meeting because we're dealing with both long- and short-range issues, but I'll take into account the general reaction I got to our effort to lean in that direction and see if we can continue that sort of [approach]. To get into the subject this morning of our long-run ranges for the monetary aggregates, we're going to start off with some reports from Jim Kichline, Jerry Zeisel, and Ted Truman. Jim. MESSRS. KICHLINE, ZEISEL, and TRUMAN. [Statements--see Appendix.I",270
-fomc-corpus,1979,"I suggest that we take a few minutes to see if there are any questions of Jim or [his colleagues]. Yes, Larry.",26
-fomc-corpus,1979,"I have a question. Jim, on the last page of the monetary policy alternatives section, where you show projected growth in Ml of 6-114 percent, the footnote indicates that that is in the absence of ATS accounts. In other words, if you included ATS accounts, that 6-114 percent would be considerably higher?",67
-fomc-corpus,1979,"I'm sorry, the footnote perhaps is misleading It would be something like 3 percent growth in observed M1.",23
-fomc-corpus,1979,"In other words, it's really adjusted.",8
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,Okay.,2
-fomc-corpus,1979,Bob Mayo.,3
-fomc-corpus,1979,"Jerry, 1 find myself quite comfortable with almost every page of this fine presentation except the unit cost indicators. I'm just wondering if you're whistling [in the dark] a bit both on compensation per hour and on productivity. On the trend in productivity, I suppose there's a natural inclination to say: Well, we really don't understand It, so let's level it out. Yet there's also a natural tendency, if things continue tight this year, as projected in other parts of this forecast, for output per hour to decline further. And, of course, if both compensation and productivity should move in the wrong direction, unit labor costs are going to look rather sick.",133
-fomc-corpus,1979,"You're absolutely right. And, of course, this is one of those areas, among others, about which we know relatively little. We know almost nothing about this, particularly recently. We have an assumption of a 1 percent rate of increase [in productivity]; our feeling is that under the pressures of rapidly rising wages, businessmen will be doing what they can to keep their costs under control. In fact, we're in a sense building in a slight adjustment of employment-to-production levels. We feel that this has gotten out of hand to some extent over the last year, and [that efforts will be directed toward] somewhat more effective control of the size of the labor force and labor costs in 1979 and 1980. But, as you know, it's not a terribly optimistic forecast at 1 percent for growth of productivity.",166
-fomc-corpus,1979,"I find it optimistic. That's my problem, I guess. I hope you're right, but I don't believe it at this point.",26
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,"Jim or Jerry, in an otherwise exceptionally well done presentation, I was startled by only one thing and that was your figures with respect to the impact of fiscal policy. You have a chart that shows the full employment surplus for this fiscal year at $8.7 billion, which is a startling contrast to the Administration's high employment deficit figure of $23 billion. In fiscal 1980, the Administration's so-called high employment deficit, based on a 5.1 percent high employment unemployment rate, is $ 8 billion and you show a [full employment] surplus of $23 billion. Your expenditure and income figures are moderately different but not enough to account for that vast difference. I'd like you to explain that if you will.",147
-fomc-corpus,1979,"All right. There are differences between our estimates of the change in the high employment surplus/deficit and those of the Council [of Economic Advisers]. These are not projections of levels; we specifically did not project levels because there is a pretty universal sense that one can get almost any level one likes depending upon the assumptions used. And, in economic terns or analytic terms, a change in the full employment surplus or deficit is more significant. But even taking that into consideration, for 1979 the numbers from the Council suggest a somewhat more stimulative situation than we have [in our forecast]. We have looked into this very carefully and have talked to them in great detail. Part of the answer is that we have higher inflation assumptions than they do, but that's only part of it. The rest is apparently a rather technical problem involving the fourth quarter of 1978 and the first quarter of 1979 in the sense that they got locked into a fourth-quarter estimate of GNP which turned out to be weak, as you will recall. They were assuming something like 4 percent, and we got 6 percent. They had built up their high employment levels from that and then brought them down. I won't go into the details, but basically we feel we're right for 1979. We're trying to work it out. For 1980, we're really not very far off; the change is in the same direction and the differences are not major.",292
-fomc-corpus,1979,"Well thanks, Jerry. If you happen to have an explanatory memo on the technical details--we don't have time to go into it now--1, for one, would be very pleased to see it.",41
-fomc-corpus,1979,I have three.,4
-fomc-corpus,1979,Which one do you want?,6
-fomc-corpus,1979,"It really does have a bearing [on our decisions] because if fiscal policy is going to be on the restrictive side--and you may well be right, I'm not challenging you--that obviously has some implications for what we can do on the monetary policy side. So I'm going to be very interested in seeing how you got these different answers.",68
-fomc-corpus,1979,"When you say '""change,"" Jerry. you mean that there's an improvement in each year from 1976 through 1980. You're just bringing them up.",32
-fomc-corpus,1979,There's a movement toward [restraint] in each year by differing amounts.,15
-fomc-corpus,1979,"I see. Well, I hadn't quite noticed that earlier.",12
-fomc-corpus,1979,"From stimulus to restraint, yes. Mark Willes.",11
-fomc-corpus,1979,"Thank you, Mr. Chairman. I'd just like to ask one question about the monetary policy assumption. Up until the fourth quarter of 1978, money grew on average about 8 percent. You have an assumption of 6-1/4 percent, adjusting for ATS. Does that also include any adjustment for the 2 percent shift in the demand for money?",74
-fomc-corpus,1979,"Yes, it does. It's consistent with the Bluebook; in effect, you add 2 percent to the 6-1/4 percent. A s you know, in the fourth quarter--and apparently in the current quarter, the way things are shaping up--the money demand function has begun to differ from actual experience. We're picking up some of the drift that Steve Axilrod had assumed a year ago. It didn't show up for 3 quarters, but we held on to that assumption and it eventually showed up. So we do add 2 percent to the 6-1/4 percent.",123
-fomc-corpus,1979,"It's not quite believeable, but we did assume 6 months ago, even 9 months ago, that we would begin to get this drift around the fourth quarter of 1978. It has begun to develop; whether it will continue or not we can't be certain, but we had assumed it and we have continued to assume it.",68
-fomc-corpus,1979,"When you say add 2 percent, what I'm trying to figure out is what measured M1 growth will be consistent with this. We can take 3 percent off for ATS?",36
-fomc-corpus,1979,"Right, about 3-1/4 percent. That's all.",14
-fomc-corpus,1979,"That's all. Now, what about the shift in demand for NOWS?",15
-fomc-corpus,1979,"Well, if we don't get that 2 percent shift, then at the level of interest rates assumed the actual growth will turn out to be 5-1/4 percent if we're right about the ATS [effect].",44
-fomc-corpus,1979,"Another way of viewing it, in terms of what you're suggesting, is that the observed 3-1/4 percent rate of growth in money in pre-1974 days has the power of 5-1/4 percent money because of the effect of [the shift].",56
-fomc-corpus,1979,"That's how they get rates as low as they did. If we didn't have that shift in demand for money, interest rates would be higher.",28
-fomc-corpus,1979,"And another way of saying it is that if measured money adjusting for ATS is 6-1/4 percent, without the shift it's really 8-1/4 percent.",36
-fomc-corpus,1979,"For this level of interest rates, if we don't get the shift we'd have 8-1/4 percent.",23
-fomc-corpus,1979,"For this level of interest rates--which in effect means if that shift takes place, then there'd be no change in monetary policy in terms of M 1 from the past two years on your assumption for the forecast period. Right? If that shift takes place, then you're not assuming any additional restriction in monetary policy from what we have had over the last two years.",74
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,I think that's correct. The only caveat that I would note is that this isn't a new assumption. We have essentially been assuming that this shift would take place at this time.,36
-fomc-corpus,1979,It wasn't taking place last year.,7
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,And we got 8 percent growth.,8
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,"If we get 6 percent growth plus the 2 percent, then we're essentially where we were in '78 and most of '77.",28
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,"All right, thank you.",6
-fomc-corpus,1979,Except that we're substituting some velocity for some money supply. MR. AXILROD(?). Yes. That's right.,25
-fomc-corpus,1979,That's what we've been doing.,6
-fomc-corpus,1979,So the published figures are going to come out--,10
-fomc-corpus,1979,3 percent.,3
-fomc-corpus,1979,"Yes, that's right. In other words, we're sticking our necks out a little on some velocity estimates. We need to pay a little more attention to them this time, if we read the Bluebook literally, than we have before.",48
-fomc-corpus,1979,That's one way of putting it. It's the other side of the demand for money.,17
-fomc-corpus,1979,Let us proceed then to ask Steve Axilrod to give his comments and recommendations on the longer-run ranges. Then we'll go around and have each of you give us your input on how you see the economy and the policy implications in tenns of how you see the long-run ranges.,58
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"[What about] bank credit, Steve?",9
-fomc-corpus,1979,"Well, I think I would stay with the alternative B range, which is 1 percentage point lower than what we now have; that would seem to me quite consistent with the slowing in growth.",39
-fomc-corpus,1979,"I would just like to remind everyone--as you know since we've talked about the Humphrey-Hawkins legislation and Steve mentioned this--that what we're really talking about involves one important difference in setting long-term ranges. And that is that we will not in this calendar year have new ranges based upon new base periods. we are now going to operate for the whole year on a fourth quarter-to-fourth quarter basis. So these ranges will not have the famous Henry Wallich base drift that has allowed us to go with the times. We will have [the opportunity for] a mid-course correction; in July we're supposed to report on any changes we think appropriate for the ranges for this year. That does not mean updating the base to the second quarter or [adopting a range] for the third quarter of '79 to the third quarter of '80. It means relooking at the ranges set for the fourth quarter of '78 to the fourth quarter of '79. And we'll be asked to give at that time the first indications of our policy objectives for the calendar year 1 9 8 0 . So that's an important difference. Specifically, in our report, which the Board of Governors will file in time for us to testify on the 20th of February, we'll need to report on ""the objectives and plans of the FOMC with respect to the ranges of growth or diminution in the monetary and credit aggregates for this calendar year, taking account of past and prospective developments in employment, unemployment, production, investment, real income, productivity, international trade and payments, and prices."" We also need to provide the relationship of these objectives to the short-term goals set forth in the President's Economic Report. So this is what we're going to be doing. what I think might be most helpful, having had Steve's recommendation, is to go around the table and have each of you make any comments you wish about the economic outlook and your views on how that should be translated into these ranges. Then we'll be able to see if we can synthesize some decision from that. I think last time we started in this direction [around the table] so this time why don't we start the other way.",443
-fomc-corpus,1979,May I ask a question?,6
-fomc-corpus,1979,Larry.,2
-fomc-corpus,1979,"Excuse me. Obviously, we're all very much interested in the recent behavior of the aggregates, and I was very much impressed with Steve's eloquence in describing what he considers to be some of the reasons for that behavior. But I don't have the intellectual capacity, Steve, to absorb all this as you say it. Would it be proper procedure to ask Steve to send me at least, and anybody else who wants it, the first part of your report in writing? [I would like to see in writing] your rationalization for why this behavior is occurring because it would be helpful to us.",120
-fomc-corpus,1979,Too bad we didn't have a tape recorder on.,10
-fomc-corpus,1979,[Unintelligible] if that's how it works.,12
-fomc-corpus,1979,"Actually, I think we did have the tape recorder on. Certainly we can have it transcribed and sent to you. That's no problem at all.",30
-fomc-corpus,1979,Thanks.,2
-fomc-corpus,1979,"I forgot that there's no green light [in front of me, as there is at Board meetings, to indicate that the tape recorder is on]. But we have the recorder on without a green light at the FOMC meetings. So, we'll start with Paul.",53
-fomc-corpus,1979,"Well, so far as the economy is concerned, I have been interested in whether the higher numbers of the fourth quarter are being carried over into a mood of more business buoyancy than we have had in recent months. I have contacted [several people in] the business community recently and they suggest that that is the case. I don't know whether that's just a lagging indicator or whether it's significant. One has the feeling that, without doing anything very dramatic, people may be reaffirming their capital spending intentions anyway and that there's a little less certainty in people's minds that we're going to have a recession. I continue to feel that we could have a recession, but it's by no means certain. I wouldn't rule one out, by any means, in the second half of the year. But in terms of the recession outlook itself, I think the number one problem continues to be the concern about the price level. The greatest risk to the economy, as well as [to actual] inflation, is people having the feeling that prices are getting out of control. I think the tenor of our policy should still be in the direction of reinforcing and building on the degree of credibility that has been gained in recent months, both in the Administration and in the Federal Reserve. That should be our first priority. I don't think we can do much about the uncertainty on the business side by a gesture toward easing policy at this point; I think that would be a mistake. It would probably increase the risks of recession. When I l o o k at these long-term ranges, let me say that there is one influence on the aggregates recently that hasn't been mentioned and that people at my Bank think might be quite important. And that is the increase in Federal Reserve float; it has been quite sharp and unprecedented. Whether it has had an influence or not depends upon how corporations in particular look upon their bank balances and whether they're operating in effect off their own check book or off the amount of money the bank tells them they have in the bank. If it is the latter--and I'm sure that's true of a lot of corporations--the increase in float has the perverse effect of pushing down the reported money supply in a way that isn't real.",442
-fomc-corpus,1979,"Well, the recipient of the check has less, according to the bank.",15
-fomc-corpus,1979,The recipient couldn't have less. He has the same as he would otherwise have. He cashes the check but--,23
-fomc-corpus,1979,But the Federal Reserve--,5
-fomc-corpus,1979,The fellow who writes the check has more and he spends the money.,14
-fomc-corpus,1979,The Federal Reserve grants the credit.,7
-fomc-corpus,1979,That's assuming that the bank gives credit for funds not received.,12
-fomc-corpus,1979,They do that.,4
-fomc-corpus,1979,They certainly don't give me credit!,7
-fomc-corpus,1979,But they do to big corporations.,7
-fomc-corpus,1979,"President Volcker, we've looked into that with your staff. There may be a lot of biases in the money supply. To get a measured bias from what you're talking about, it appears that it has to be transferred between two zero balance corporate accounts. So we don't believe the effect would be very large.",61
-fomc-corpus,1979,"Well, my staff pretty well convinced me that it goes in this direction. Nobody knows, but the change in float has been so big that I think it might have had an [effect]. We'll see when float goes down what it is.",48
-fomc-corpus,1979,"I assume we're going to get float down, aren't we?",12
-fomc-corpus,1979,Then we'll have the reverse effect if this explanation is right.,12
-fomc-corpus,1979,I hope you're right because it certainly would help to explain January if you are right.,17
-fomc-corpus,1979,"In any event, this makes it particularly difficult. We've had this big increase in money market funds along the lines of a change in appraisals of cash balances versus other media. But, in looking at numbers for the long-term aggregates, I come up with ranges for M2 and M3 about like those in alternative A, but the M1 range in ""A"" looks too high to me. Just adding the 3 percent for ATS produces an upper limit that seems much too high to me. I would suggest something like 1 to 4 percent for M1. So, these numbers that I'm suggesting are about 1 percentage point lower than what Mr. Axilrod just suggested.",140
-fomc-corpus,1979,It sounds like alternative B.,6
-fomc-corpus,1979,"Well, it's more like ""B"" for M1, but I would go along with "" A "" for M2 and M3.",28
-fomc-corpus,1979,"Thank you, Paul. Chuck.",7
-fomc-corpus,1979,"Well, we're going to have to address a number of issues and make a number of linkages to get to these long-range aggregates. The first is the question of the correctness of the staff's economic projection. I can't say that I see anything much wrong with it except that I was reminded of Governor Shepardson's comment one time many years ago after a chart show like this. There is a tendency, which I noticed throughout your charts, for the dotted lines on the right hand side of the charts, [representing your projection], to be a lot more stable than the solid lines on the left side [depicting actual data for the past]. And I wonder why that is!",138
-fomc-corpus,1979,"Well, I think the staff can guarantee that their dotted lines will not be achieved.",17
-fomc-corpus,1979,"In a way, that's the problem here. Because although I understand why the dotted lines are fairly straight, the line for the rate of growth in the real economy is straight at an extraordinarily low level. That is, for 6 quarters running the line shows an increase in real GNP of around 1-1/2 percent.",67
-fomc-corpus,1979,Plus or minus 3 percent.,7
-fomc-corpus,1979,"And the staff has 6 quarters of industrial production increases of 1-1/2 percent or thereabouts. Similarly, for consumption and investment and business inventories, the [growth] rate numbers are all very stable and really quite moderate. The question I suppose a business cycle economist would have to ask is whether we can have 6 quarters of such low growth without something happening--either [the economy1 tipping into recession because of a lack of momentum or something coming, say, from the international area in military preparedness [spending] or something like that which would in some way speed up the [expansion] process. I have to say that I'm inclined to think that we'll tip into recession during this period. But even if we do [not] tip into recession, there is a second problem as I see it. And that is that if the staff forecast is correct--and I still think it's on the optimistic side rather than the pessimistic side from the standpoint of real activity--it is below the Administration's goals, particularly for 1 9 8 0 , and we do have to associate what we're doing with the short-run goals of the Administration. I looked it up, Nancy, and it is clearly two years.",249
-fomc-corpus,1979,At this time?,4
-fomc-corpus,1979,"Yes, at this time we have to say what the relationship of our policy for the next year is to the 2-year short-run goals [of the Administration].",33
-fomc-corpus,1979,[Unintelligible.],6
-fomc-corpus,1979,"No. It's clear if you read the language of the Act, as I did yesterday afternoon.",19
-fomc-corpus,1979,"Well, Chuck, I think that's another issue. I have the language right here and we are to give our objectives onl\l for 1 9 7 9 .",37
-fomc-corpus,1979,We are to give our monetary objectives--,8
-fomc-corpus,1979,And we're to say what the relationship is to the [Administration's] short-term goals--the relationship for 1 9 8 0 would be my guess.,34
-fomc-corpus,1979,"But you see, maybe this [requirement] was somewhat deliberate on the presumption that monetary policy has a leading effect on the economy. If you look at this [forecast], you see that although we're not far [from the Administration] for 1 9 7 9 on the real and the nominal, in 1980 we depart quite a bit further. And the reason for that is that in the second half of 1 9 7 9 when the Administration goal shows a recovery in housing we don't have one. It's one of the biggest single differences. Therefore, I'm inclined to think that unless policy does something on the real side, we're going to run short of the stated goals of the Administration. Now, it could be argued--and perhaps this is the best thing to do--that we're also going to miss their goals on the inflation side because it certainly seems improbable that the rate of inflation will decline to the extent that they have in their projections. But one of the developments that takes place when we're talking as we are about such a very low rate of increase in the economy is a rise in the unemployment rate. And that gets the unemployment rate to a fairly significant level--over 7 percent in the staff projection--by the end of the forecast period. In my view it will get to 7 percent by the end of this year, not next year. I think the economy is that much weaker. S o we do have that problem. Now, with ATS and velocity and shifts in the demand schedule and all that, we can probably assert that almost anything we put down is consistent with the objectives of Humphrey-Hawkins and indeed it may be because the range of variation and experience on, say, the demand schedule alone is larger than the kinds of variations that we talk about in the growth of the aggregates. But we do have this additional problem, as You said in the beginning, Mr.Chairman, that we're going to have to stick with these ranges throughout the year. And, therefore, they will become a little more binding than before. I think 2 to 5 percent or even 2 to 4-112 percent on M1 is okay, but we ought to say we're assuming that ATS and NOW accounts will continue to come in at something like their recent rate, which has had an effect of about 3 percentage points on the observed growth rate in M1. Then, if that changes, which in my opinion it might well do, we will be able to say it has changed and therefore the recorded numbers have changed. But on M2 and M3, I'm inclined to want somewhat higher growth ranges than might otherwise be indicated by the present situation because I think it will be very difficult to say we're going to have substantially lower growth in M2 and M3 as well as M1 in this period to come. So I would take the risk of having a wider range, even though it might result in some criticism from the Congress. I would pick the numbers that Steve last mentioned--5-1/2 to 8-112 percent for M2, believing myself that it's more likely to be 5-112 than 8-112, and 6-112 to 9-112 percent for M3, believing that it's likely to be 6-112. And, as I say, I'd choose 2 to 4-112 percent or something on that order for M1. I think we stand a fair chance of being able to live within those ranges as the year goes on.",718
-fomc-corpus,1979,"Thank you, Chuck. Nancy.",7
-fomc-corpus,1979,"Well, I have the same problem with the staff forecast. The economy is either going to recover or we're going to have a recession. I think the probabilities are on the side of a recession, but I don't see it occurring until the end of this year and the early part of next year. Part of the reason that we deviate from the Administration's forecast for 1980 has to do with the statement in the very opening paragraphs [of Part 1 of the Greenbook] where it says ""and we assume that interest rates will not be changed over the forecast period."" I know that the Administration has forecast, for the first time on record, a decline in interest rates over the coming two years. So in a way they've really put the monkey on our backs. If we relax interest rates we get better results; we get closer to the Administration's projections though we don't make it completely. There's no combination that we've looked at that resulted in a complete reconciliation of the inflation and unemployment goals of the Administration. On the other hand, it seems to me that the unemployment rates [in the staff's forecast] are going to be politically unacceptable. If we force them up, the Congress will force upon us an extremely [expansionary] fiscal policy, which I really don't think we need at this point. As a result, I guess I'm more willing to ease a little on interest rates and let the money supply grow. If you look at Appendix I of the Bluebook, the funds rate associated with alternative B rises from the current 10 percent to 10-314 percent; in alternative [C] it goes from the current 10 percent to 11-3/8 percent. I don't think we need that. In the current situation, with the continuing strength that's carrying forward in the beginning part of this year, I don't think we need rising interest rates. On the other hand, I'm not at all convinced that we should lower interest rates. So, I would go for a policy that would keep the funds rate at about 10 percent, knowing that in [July]. when the FOMC meets again on Humphrey-Hawkins, we can change the ranges. We can't change the base, but we can change the ranges in the middle of the year. And we'll have a lot better idea about where we're going by midyear. That is always true; the world is always clearer six months down the line. So I would opt for 2 to 5 percent for M1, 6 to 8-1/2 or maybe 5-1/2 to 8-1/2 percent for M2, and 7 to 9-1/2 or 6-1/2 to 9-1/2 percent for M3, with the idea that we will keep the federal funds rate at or slightly below 10 percent.",581
-fomc-corpus,1979,"Thank you, Nancy. Bob.",7
-fomc-corpus,1979,"Our assessment of the economy pretty much parallels what I think Paul Volcker was saying. We come out with about the same growth in real GNP as the Board staff but we feel that the inflation rate is going to be above the staff's estimate. We expect the rate for the full year to run somewhere around 8-1/2 to 9 percent. So far as the economy for the year is concerned, I have a lot of sympathy with the views expressed by both Chuck and Nancy. I can't view with equanimity even the lower inflation rate that is forecast by the staff because with that kind of rate it seems to me that the economy is bound to develop excesses either domestically or internationally that might well tip it downward. But for the time being I come back to Paul's original statement that inflation is the main problem at the moment. So we would advocate the same policy that we've been suggesting for the last several meetings of a gradual deceleration in the rate of growth in the aggregates. We have couched this more in terms of M1 and would suggest edging the growth of M1 down in the four quarters ending in each quarter of the year. And for the fourth quarter of last year we had hoped M1 growth would be down to 7 - l / 2 percent before adjusting for ATS accounts and about 7.2 percent after. As luck would have it, we ended up almost exactly at that point.",289
-fomc-corpus,1979,Good planning!,3
-fomc-corpus,1979,"Well, an accident really. But we would now suggest that for the fourth quarter of '78 to the fourth quarter of ' 7 9 , we ought to be thinking in terms of 6 percent [Ml growth1 before ATS. Of course, the question of what we really want depends on the estimate of what ATS accounts will do. We think the staff is about right with its estimate of a 3 to 3-1/2 percent [effect on that growth] rate, so we would favor about a 3 percent midpoint [in the range] for growth in Ml. This leads us to favor the range under alternative B of 1-1/2 to 4-1/2 percent. We have a lot more trouble with M2 because there is so much uncertainty surrounding it, as has been mentioned by several people. The growth in money market funds may be the main factor at work here, but we have [uncertainties regarding] unit trust accounts, C D s , Eurodollars, money market C D s [at] S&Ls, and Treasury bills. All these things make this very difficult to figure out. But we think M2 clearly ought to come down and we can't think of anything better than what the staff has put down, so we would buy the 4-1/2 to 7-1/2 percent M2 range in ""B."" We would also buy the staff's ""B"" ranges on M3 and bank credit.",303
-fomc-corpus,1979,"Thank you, Bob. Walter.",7
-fomc-corpus,1979,"Following in Bob's vein, let me say that business activity is relatively strong in our District. Many businessmen, however, are apprehensive about [the economy] later in the year. People are especially concerned about the consumer being over-extended in the housing market. The strengths in our District include steel and machine tools, but inflation continues to be the overriding source of concern for everybody from the consumer to the manufacturer. Among the unknowns are energy, the Iranian situation, and wage settlements coming up this year. For these reasons I would not suggest easing policy; I'd wait until we can better judge the economy and the slowdown in the Ms. I agree with President Volcker on a 1 to 4 percent M1 range and a 4 to I percent M2 range, and [then] following alternative B in the Bluebook.",168
-fomc-corpus,1979,"Thank you, Walter. Dave.",7
-fomc-corpus,1979,"Well, Chuck has expressed my views about the projections--the lowness and the smoothness of the dotted lines--very well and I won't repeat that. I would say, however, that the often [repeated] statement that we have no imbalances in the economy overlooks the fact that we have an 8 to 10 percent inflation rate, and I think that's a severe imbalance. I suspect we'll have a recession toward the end of the year. A s far as the long-run ranges are concerned, I think we need to give evidence that we are proceeding on a course of systematically cutting back our ranges to deal with inflation over a longer-term period, yet not cutting them back so drastically as to precipitate a recession. That's because I think that a recession could be in the long run the most inflationary thing we could do. I have no strong feelings about the specific numbers that have been cited. But I like Steve's alternate suggestion on M2 and M3 much better than alternative B. Because there is such great uncertainty about what's really going on and what's going to happen to the demand for money, I'd be inclined to be on the upper side. One way to handle this would be simply to knock 112 percentage point off our current ranges as an indication of proceeding on a systematic course of getting [the ranges down]. That would come close to what Steve has suggested with the expection of M1, which would then be 1-112 to 5-1/2 percent. I think that might be a good middle position.",312
-fomc-corpus,1979,"Thank you, Dave. Kyle.",7
-fomc-corpus,1979,"We certainly see no signs of impending recession in the Sixth District, and this view is supported by almost all of our directors at our head office and branches who seem by and large to feel that their own areas of business are apt to fare better than the national economy. This attitude is particularly prevalent in Florida which, unlike the situation in '73 and ' 7 4 . has seen little or no speculation or overbuilding. I would add our voice to Bob Mayo's, however, in that our projections on the economic outlook are somewhat less optimistic than the Greenbook's. We expect real growth more in the 1 to 1-1/2 percent range and we think 6-1/2 to 6-3/4 percent on unemployment seems more likely. But our chief disagreement would be on the inflation outlook where we see it somewhat worse than the Board's staff; we estimate that it will probably be in the 8-112 to 9 percent range. As for the long-term ranges, for M1 we would be inclined to go with the 1 to 4 percent that Paul Volcker and others have suggested. But we'd be inclined to support the ranges in alternative C for the other aggregates; those somewhat higher ranges I think would be consistent with our appraisal of the outlook.",262
-fomc-corpus,1979,Alternative C for M2 and M3?,9
-fomc-corpus,1979,"Yes, for M2, M3, and bank credit.",13
-fomc-corpus,1979,"Thank you, Kyle. Larry.",7
-fomc-corpus,1979,"Mr. Chairman, we just concluded a series of meetings with the chief executive officers of major industrial companies in our area and, as many others have said, we saw practically no evidence of anything but a strong economy. They were almost unanimous in that point of view. However, while the economy is strong, at least in our part of the world, we do have some concern about the abruptness and extent of the decline in the basic money supply over the past three months. Our concern arises from a belief that if the money supply were to be reduced abruptly for several quarters from an 8 percent rate to a 4 percent rate or less--those rates being for the old M1--we would indeed have a recession. We also feel, of course, that through monetary policy we are capable of guiding the extent of the decline in the money supply. The recent decline could be attributed to what Peter pointed out, that we have been sellers of a significant amount of dollars--$5 billion plus--out of our portfolio as a means, I would assume, of pegging our fed funds rate at a rate of 10 percent or slightly above. What I am driving at is that, although the jury is still out, I think we should very carefully watch these money trends in the next two to three months. I really am more concerned right now with the fact that if we set the lower level for the M1 range at something like 1 percent and add 3 percentage points to it [for the ATS effect], in round figures we could be reducing the rate of money growth rather quickly from 8 percent to 4 percent. And I think that could precipitate the type of recession that all of us would like to avoid. So specifically, I would suggest a narrowing of the M1 range to perhaps 2-112 to 4 percent. I would very strongly urge that we permit the fed funds rate to drift down, if necessary, in order to attain the growth in the aggregates that we prescribe. To do that I would welcome, and in fact would recommend, a widening of the fed funds rate range. I wouldn't even be concerned--although you will probably feel this is a radical point of view--about a fed funds target of something like 9 to 10-1/2 percent and a narrowing of our attention to the aggregates, with specific concern on the lower parts of the ranges for those aggregates. As far as M2 and M3 are concerned, I could live with the alternative A specifications proposed by the staff.",511
-fomc-corpus,1979,"Thank you, Larry. We'll hop across the table to Roger.",13
-fomc-corpus,1979,"Thank you, Mr. Chairman. With respect to 1919, we agree rather closely with the staff's projections, except that we think the first quarter may not be quite as strong as suggested by the staff. But f o r the year as a whole we are fairly close--perhaps a bit more pessimistic but in a range that probably doesn't make much difference. In meetings with businessmen and others in our part of the country, the sentiment is fairly strong that we will escape a recession in 1979--that these straight lines projected by the dots might really come true. Philosophically they believe that there is a little better chance that that will be the case [than not]. With regard to the aggregates, I noticed that Steve mentioned the possibility of some political problem with widening the ranges from what he put into the Bluebook. But he ended up with a range of 3 percentage points range rather than 4; he went from a range of [2 to 61 percent to a range of 2 to 5 percent. But there are a lot of uncertainties about M1 specifically that have been mentioned around the table. One, for example, is the shift in demand for money; that might amount to 2 percent. Another relates to the effect of ATS accounts, about which we know very little--we are 3 months into this--and the projection is that it could be as much as 3 percent. Given these uncertainties, it seems to me that even under the new Humphrey-Hawkins bill there would be some advantage to having an M1 range a bit wider than 3 percentage points; perhaps we should maintain the 4 percentage point width that we went with in October because of uncertainty. So, I would like to see the width of the M1 range at 4 percentage points, with a range of 1 to 5 percent. Hopefully, as we get more experience with ATS accounts we can narrow it a bit. But I don't see that there will be a great deal of criticism in maintaining that 4 percentage point span for M1. With respect to M2 and M3, I would agree with those around the table who would like to see the numbers increased a bit from those in alternative B of the Bluebook, again because of various uncertainties. A s a result, I'd have an M2 range of 5 to 8 percent, which again is a 3-point band, and an M3 range of 6 to 9 percent.",503
-fomc-corpus,1979,"Thank you, Roger. My list says ""Boy"" Mayo, but I think it's supposed to be Bob.",22
-fomc-corpus,1979,"Thank you, Mr. Chairman. As one of the elder people around the table, I do indeed thank you! First, my answer to Chuck on the Shepardson phenomenon is that this merely indicates again that people on the staff are more comfortable with actuals than they are with estimates, and my solution is to make the solid lines straighter instead of putting more jiggles in the dotted lines.",79
-fomc-corpus,1979,A little seasonal adjusting.,5
-fomc-corpus,1979,"Right. I find that this phenomenon is typical of a lot of businessmen, too. That is, they say: Well, we might have a recession, but I don't see it in my business; I'm not going to have one. And by gum you can go back to 1973 and 1974 and they were saying exactly the same thing. So they have a dotted line problem as well; it isn't just us economists. I have one question and one observation before we get to the figures. The question, Steve, relates to the assumption of a 3 percentage point adjustment f o r ATS accounts--and I assume New York NOWs--throughout 1979. What is your feel on this? I would have come to the conclusion independently, without doing any real work on it, that this would be a declining percentage during 1979 and that by the end of the year it might only be 1 or 1-1/2 percent. But I don't know what I am talking about; it's just a feel.",210
-fomc-corpus,1979,"We have it declining in 1980. At the end of 1979 ATS accounts in total are, on our assumption, around [$26] billion. If half of that comes out of demand deposits that's about $13 billion. The total amount of deposits that are eligible about that time is $100 billion. So it's fairly modest if you look at it that way. It's a little more than 12 percent of the total that can be transferred. So I don't feel too bad about it as an estimate. In part, the reason I recommended 2 to 5 percent as a possibility to consider is that my instinct is a bit like yours. It may be wrong, but my instinct is that in the 3 to 3-1/2 percent area it's more likely to be 3 percent or a perhaps shade under.",168
-fomc-corpus,1979,"That's all it could be at this time, that's true. My other point is an observation on the President's Economic Report. It's terribly obvious, at least to me, that the Council was trying very hard to come up with figures that somehow will tie in with the Humphrey-Hawkins goals down the line and has concluded that it is impossible. This is more evident, obviously, in '81 and '82 than it is in their look at '79 and '80. But to me that explains why we are a little more pessimistic.",110
-fomc-corpus,1979,"I think, Bob, that '79 and '80 are legitimate projections and the next three years are nothing but a straight line [extension].",28
-fomc-corpus,1979,"Well, that's true. But even in '80 I think one of the main reasons we are more pessimistic than the Council relates to their attempt to have a dotted line again.",36
-fomc-corpus,1979,They're aware that it's an election year also.,9
-fomc-corpus,1979,"I have heard about that, yes! My second observation on the Council report, which hasn't been mentioned here, is that there is a [notable] lack of discussion in the report of the whole capital investment problem, and investment is one of the items in Humphrey-Hawkins that gets a pretty high priority as I read the Act. I sympathize with the Council's inability to figure out what can be done to achieve a proper level of investment and productivity, but they really haven't come up with anything. ~ To turn to the issue of the moment, I have no real objections to Steve's prescription for M1 of a 2 to 5 percent range. I originally thought we could perhaps get away with 2 to 4 percent, but I think narrowing the range by 1 percentage point is about all the discipline we should enforce on ourselves with the lesser flexibility in our goal-setting procedure than has been the case under the joint resolution. So, 2 to 5 percent is all right with me. I feel a little differently than Steve does, though, on M2 and M3. I think once we deviate from the range we might just as well not be timid about it. I'd deviate a little more and not just by 1/2 percentage point as he suggested. So, I would go to 5 to 8 percent on M2 and 6 to 9 percent on M3. The importance of the analysis in the eyes of the public, in the eyes of the market, and in the eyes of the Congressmen is perhaps a 10 to 1 on emphasis on M1; that's the critical measure. They will accept our reasoning more logically on M2 and M3 if indeed [the ranges] do turn out that [way]; some would criticize us for, in effect, undermining the housing market and so forth by goals that were too low on M2 or M3.",391
-fomc-corpus,1979,"Thank you, Bob. Mark",6
-fomc-corpus,1979,"Thank you, Mr. Chairman. I won't quibble with the staff's forecast. I would simply point out that we think they have done an incredibly good job on a horrendously difficult task. In terms of the probabilities, there is the possibility that the economy could be stronger as well as weaker. If businessmen really were convinced that we were doing something about inflation, then those business numbers could come in significantly stronger. That's what we keep hearing in some of our Districts at least. They are telling us that's a possibility. with regard to policy, I have been fascinated by the discussion today. Humphrey-Hawkins presents both a major dilemma and a major opportunity, it seems to me. I feel very shaky about simulating econometric models out into 1980. In fact, [at our Bank] we happen to feel shaky about simulating them period. We are not sure they work. But, clearly--and I think the staff would agree--they work less well for 1980 than they do for 1979. On the other hand, given our view of the world, if we were to announce and then follow through on a credible policy, our feeling is that we can have a very salutary impact on what happens in 1980. Without boring you with all the gory details, our theory would tell us that we can in fact have less inflation without more unemployment in 1980 if we have policies in 1979 that are consistent with that [objective]--policies that are firmly held to so that people really believe we are going to follow through on them. That suggests to me that while the staff's forecast for 1980 shows relatively little [improvement] on price performance and rising unemployment--and I think that may well be the case--we have the possibility in 1979 to lay the groundwork for a much better performance on prices. That better performance would not depend on slack in the economy but on the way people operate given what they think is going to happen with government policy on inflation. In our view, then, that makes what we do with the long-run ranges this time absolutely critical because this is when we announce them to the world and then have to deliver on them. Ignoring the politics for a minute--1 know I play these numbers games and somehow they seem very important to me and maybe not so important to other people--let's look at the range that Steve gave for M1, which was 2 to 5 percent. If you take the 5 percent, add 3 percentage points for ATS and 2 percentage points for a downward shift in the demand for money, that's a potential maximum growth of 10 percent. If you take the midpoint of 3-1/2 percent [in Steve's range], which presumably would be our target, and add those 5 percentage points for the same reasons, that would give us an 8-1/2 percent target for 1979. That's exactly [the growth] we had in '77 and '78, and I think that was too expansionary. We got too much inflation by allowing money to grow on average at around 8 percent. So I, for one, would feel very uncomfortable with a target of 3-1/2 percent. If we just follow through the logic for a minute without thinking of the politics, which I am not equipped to do, a desirable range for M1 would be something like 0 to 3 percent. That would give us a midpoint of 1-1/2 percent; and if the assumptions on ATS and the shift in the demand for money are right, then we get 6-1/2 percent growth at the midpoint.",753
-fomc-corpus,1979,What if they are wrong?,6
-fomc-corpus,1979,"Well, I'm getting to that. If they are wrong--if all we get is ATS, for example, and not the downward shift in the demand for money--we then move up to the top part of the range which would be 3 percent plus the ATS, which is again 6-1/2 percent. If there is a greater shift in the demand for money then, of course, it would go the other way. We are all guessing at this point but there seems to be the possibility that the shift could be greater as well as smaller. So it seems to me that if we want to change policy--and maybe we don't--from the 8 percent growth we have had, then we have to move the M1 range down to something below what anybody to this point has suggested. I would suggest that the range be 0 to 3 percent which in my mind says, given the most likely set of assumptions, that we would really be going from 8 percent to 6-1/2 percent under the old rule. For M2, whatever you all decide is fine with me; I can't understand M2 or M3 or any of the other aggregates, with due apologies to my friends from San Francisco.",250
-fomc-corpus,1979,But you do understand M1.,7
-fomc-corpus,1979,"Well, with a rather wide range of uncertainty.",10
-fomc-corpus,1979,"I'll just send you that M2 [study], Mark. Maybe Frank will do the same thing.",20
-fomc-corpus,1979,"Thank you, Mark. John.",7
-fomc-corpus,1979,"With regard to the business situation, our staff forecast is quite similar to the Board staff forecast in broad outline. The differences are not worth talking about because they are all within the range of the forecasting errors. So we have no problems there. Given that essential agreement, the issue comes down to the appropriate posture for monetary policy. When I first took a look at the Bluebook, Steve, I got quite a jolt. I thought you might really be arguing for what was in alternative B or even alternative A. But in summarizing the advantages and disadvantages of different ranges here, I think you have landed by coincidence or mental telepathy or something else almost exactly where I came out in wrestling with this. On M1 I would perhaps be inclined to go down to the alternative B level, given the staff's estimate on the ATS effects, which I have no reason to quarrel with and I know that's a difficult estimate to make. I could settle for either 1-1/2 to 4-1/2 percent as in alternative B or what you suggested, Steve, which was 2 to 5 percent. And for much the same reasons, which I won't take up your time to repeat, I think we would be well advised to come out with the [other] specifications Steve ended up with on balance--and considering what he called the PR effects or the Congressional relations effects--6 to 8-1/2 percent on M2 and 7 to 9-1/2 percent on M3. Among other things, Steve may remember that I tend to be one of the doubting Thomases around the table on shifts in money demand. such a shift is plausible and possible; it may even be a fact. But the trouble is, as we all know, that we don't know for sure until after the game is over. Sometimes we are wrong and sometimes we are right. It's a difficult bet to make. So, I concur with the way Steve came out as a means of hedging our bet. I think we would be well advised to do that, particularly in view of Steve's remarks that if we make too radical a downward shift in the ranges--even though policy within those ranges may, and I hope will, remain relatively on the tight side in view of the inflation problem--we could get some very severe public reactions, setting in train a whole new set of expectations of a credit crunch. So that's why I come out where I do, Mr. Chairman.",503
-fomc-corpus,1979,"Thank you, John. Ernie.",8
-fomc-corpus,1979,"Mr. Chairman, on the general economic picture I think the staff projections are about as defensible a set of projections a s one can put together at the present time, and I would not pick on any particular aspect of them. I have made a concerted effort since our last meeting, in view of my judgment that the prospects were rather good that we would have greater capital expenditures in ' I 9 than was being forecast or than the surveys were suggesting, to engage businessmen in discussion on this point. I have to report that I was unable to persuade even one of them that the prospects for capital expenditures are higher than are currently being forecast.",129
-fomc-corpus,1979,In the Dallas area?,5
-fomc-corpus,1979,"That's where I had most of my conservations. And this is on the grounds that they are playing their cards close to their chests. They would much rather fix up, patch up, or put in a new machine when an old one breaks down and in fact go to overtime on their labor costs as compared with expanding basic capacity. It leaves them in a much more flexible situation. Also, they are able to pass on cost and price increases without much difficulty. The market takes it. So they just feel that's the better way to go in the present environment. That substantially increases the possibility that we may have a sustained low growth situation, at least until that attitude is changed, because that seems to me to be a key element in [downturns]. And a major determinant of periods of economic expansion has been a surge in capital investment, which has brought very heavy pressure on the labor markets, materials markets, and credit markets. we do not see that at this time and, if our forecast is reasonably dependable, we are not projecting that we will see it for some time yet to come. There is another element in the picture that seems to increase the possibility [of a low growth outlook], and that is that neither consumers nor businessmen nor financial managers have yet fully adjusted to an expected ongoing rate of inflation somewhere near what we have forecast and, therefore, I think we will see a continued rapid buildup of debt. I'm concerned that the debt structure will become increasingly shaky and that to me is one of the bad aspects of a sustained period of either high optimism or rapid inflation. It means that when [inflation] does come to an end, we will have much more widespread debt distress and a much more difficult economic problem to handle. But it seems to me that we are likely to see that [buildup of debt1 continue for the next couple of years before we get into the painful adjustment part of it. One other general comment is that I think a set of economic programs and policies proposed by the government, which contemplates I to 8 percent ongoing inflation, is quite inadequate and quite unacceptable, particularly in this country. I believe there is a set of policies that could enable us to move promptly to wring inflation out of the economy without going through a recession and without substantially increasing unemployment, but thus far we seem to be committed to the idea that we must disavow using it. Well, having accepted the economic prospects and what seems to be a consistent set of monetary data along with them, I would opt for alternative B. Nevertheless, I am somewhat concerned about the sort of thing that Mark Willes mentioned--namely, that it's possible if we were at the top of the range on M1 to have growth that I think would be too much. That's all I have, Mr. Chainan.",567
-fomc-corpus,1979,"Thank you, Ernie. Frank.",8
-fomc-corpus,1979,"Mr. Chairman, I have a very different perception of the economy than the staff has presented to us. I would like to think we could fine-tune the economy as nicely as our projection. But it seems to me that in the past month we have seen a very unusual combination of numbers. We've seen indicators not only in December but continuing in January that suggest the economy is coming on very strong. At the same time we have had an unusual deceleration in the growth of the monetary aggregates and bank credit. And the latest unusual phenomenon to add to these other two is that we have seen, despite a steady federal funds rate, a decline in short-term money rates. Now, this combination of a very strong economy, very weak monetary growth, and a decline in short-term money rates is rare. I looked back in history to find out when we usually get this combination, and I find that it typically occurs in months immediately preceding a business cycle peak. I think the closest parallel was January, 1 9 6 0 , when the economy was charging ahead following the resumption of steel production. Everybody was talking about the sizzling ' 6 0 s . Both monetary and fiscal policy were moving toward restraint. And to me the first indicator of the 1960 recession was the surprising weakness in short-term money rates in January of that year. So I have concluded that the most probable expectation is a cycle peak in the second quarter and a mild recession in the last half of this year. Now, in that environment, I think the projected decline in the demand for money is not going to happen. So, Mark, I don't think you have to worry too much about that 2 percent. I was concerned, too, when I looked at the Bluebook. I think we should lower the ranges modestly. But the Bluebook reductions looked awfully big to me, given my expectations. But Steve has saved the day, after writing the Bluebook, by immediately disavowing it as imprudent. I think the numbers that Steve--",412
-fomc-corpus,1979,He just wanted to check to see whether you read it!,12
-fomc-corpus,1979,Yes. I think the numbers he came up with [today] are very prudent; I would like to see a widening of the M 2 and M3 ranges to 5 - 1 / 2 to 8 - 1 / 2 percent and 6 - 1 / 2 to 9-1/2 percent but [otherwise] I think his suggested ranges are very appropriate.,82
-fomc-corpus,1979,"Thank you, Frank. Phil",6
-fomc-corpus,1979,"Mr. Chairman, I guess I have a bit of a biased view of the world at the moment.",21
-fomc-corpus,1979,Join the others!,4
-fomc-corpus,1979,"The prospects are highly uncertain but still couched on the favorable side. The hard evidence we have had to date is for a strong economy with a very high rate of inflation. As for the monetary aggregates, I must admit I have never had much hope for them. And what they're showing right now I would say is of doubtful validity. We are uncertain as to the implications and we can't even describe why the changes are occurring. The information we have about the Administration's estimates for 1979-80 suggest that those projections are unrealistic. I don't think we are going to get a reduction in the rate of inflation, the rate of unemployment being held down, and a resumption of growth as promptly as they show. Even our own staff's forecasts I would quarrel with in terms of the rate of inflation; I don't think it will go down that smoothly. In my view the possibility is high that our rate of inflation will be in the 9 percent range. On net, then, the result is that we may face a problem of communication with the Congress, a little communications gap. In terms of [our objectives], I hope the Committee comes out somewhere in the area of 1 to 4 percent on M1, 5 to 8 percent on M2, and 6 to 9 percent on M3. I'm coppering my bets a bit but I wouldn't go as far as Mark has. I don't think it is desirable to hold out to the rest of the world that there is the potential of a 6 to 10 percent increase in M1 if we are going to tell them that we have a 3 percent shift because of ATS and another 2 percent downward shift; that I think is unrealistic. I don't like the idea of narrowing the ranges in a period of extreme uncertainty.",364
-fomc-corpus,1979,"Thank you, Phil. Henry.",7
-fomc-corpus,1979,"Everything that can be said is bound to have been said. I'm impressed by the fact that in the two quarters before what must be the best advertised and predicted recession, if it comes, the economy has been growing well above potential--at 6 percent and 4 percent rates--and we have had a steady pattern of underpredicting inflation. The rate of inflation is always worse than we think it is. We have, as we have learned from the Economic Report, far less room on the up side in terms of where the potential limits are than we thought. The Council cut that from 5 or 5-1/2 percent, I think to 2-1/2 percent. The outlook may well be as the staff describes, but I have the impression that outside forecasters are postponing the timing of the recession, pushing it ahead. As for the signals that frequently are implicit in the soft money supply or weak aggregates that Frank Morris referred to, while I think our staff reads those too, those signals seem to me to have been somewhat disavowed by the course of events. Meanwhile the dollar is still very vulnerable even though it has improved. And on the financial side we are told by many observers that monetary policy really isn't biting. I personally think that real interest rates are barely positive and they're negative after taxes. Nonprice terms of lending are gradually being tightened, but that's the main biting element, though some restraint may be coming from the weak liquidity position of corporations. Those are the elements of restraint that I see. Well, in the light of this, I think we do have considerable risks on the up side. more on inflation than on GNP. I'd like to fix the aggregates accordingly, and I share the numerology that Mark Willes engages in. I see three factors of shift, as it were. One is the A T S shift of 3-1/4 percent: two seems to be the demand curve shift. The third, which of course others have recognized too, is the increase in velocity that comes with rising interest rates. so these three things really have to be factored in. When you are concerned about where this added velocity is coming from, bear in mind all the quasi-monies that are being increasingly used now--the Euro markets, RPs, and money market funds. We overlook what are sources either of money or of increases in velocity which make that 2 percent shift not at all that ambitious, it seems to me. So my numbers would be 1/2 to 3-l/2 percent on M1--this is alternative C, which I have modified just a little--4 to 7 percent on M2 and 5-1/2 to 8-1/2 percent on M3.",560
-fomc-corpus,1979,"Thank you, Henry, and thank you all. I would suggest, before we try to synthesize this and before I give you my own reaction, that we take our coffee break. The coffee has been cooling EURor the last half hour. S o , why don't we do that and then we will resume.",63
-fomc-corpus,1979,"Let's see, are most of us here? A l l those who count are. Well, let's see if we can resolve the problems that we face on these long-run ranges. I was first guided by the eloquence of the discussion that has already occurred. Then to be practical I looked at the numbers that come out on paper and the eloquence goes away and the practicality comes out. I don't think we will be able to bracket everyone's first desire and have numbers that will be supportable. Perhaps we should try to do something unusual, and that is concentrate first on M1. If we throw out a lot of numbers. we may get confused. It seems to me that I heard perhaps less immediate concern about--or firmness in people's views on--the ranges for M2 and M3. If you are agreeable, I would like to see if those of us on the Committee could [reach a consensus] on what we should use for M1 and then see if we can adapt the M2 and M3 to it. Will that be all right with everyone? That's an unusual procedure, I know. AS I looked down the numbers [you suggested] and then asked myself what I think is desirable, considering the probabilities on A T S and a shift in the demand function of money, it seems to me that 1-1/2 to 4-1/2 percent brackets most people's views [for Ml] and is probably a range that we could live with in terms of our own objectives. Now, there are a few people outside that range but that seems to be most compatible with [the preferences of] most of the members. I'd like to try that out and see if it is supportable. It happens to be exactly consistent with Ernie Baughman's suggestion. He's the only one, I guess, who had the right number! The rest were bracketed around that.",382
-fomc-corpus,1979,But maybe for the wrong reason!,7
-fomc-corpus,1979,Chuck came close with 2 to 4-1/2 percent. I don't know whether he's willing to drop his bottom number to 1-1/2 percent.,35
-fomc-corpus,1979,"Gentlemen, may I point out that that implies rising interest rates on our--",17
-fomc-corpus,1979,1 - 1 / 2 percent?,9
-fomc-corpus,1979,The 1-1/2 to 4-112 percent.,14
-fomc-corpus,1979,"The [lower] end of that, yes, but it depends. If we are at the upper end of that and if some of these other things take place, our money rate growth will be faster than it has been.",45
-fomc-corpus,1979,That's right,2
-fomc-corpus,1979,"On the up side [Ml growth] will be faster than it has been: on the down side it could be consistent with what we have had or it could be lower. So, what we are really doing is widening the [range], which just means I will catch a little devil from the Chairmen of the [Banking] Committees, but I am willing to do that. They won't like this spread, but if we take this spread plus the variables and add them, we have a range of minus something to plus 10 percent. That's how I read it, as I look at the mathmetics or make certain assumptions. That's why it seems to me to be a range we can live with. Now. I also believe that we have to be sincere about being willing to rearrange these ranges at midyear. At that point we may be wise to begin to narrow them because we will have six months of actual data and we will be looking at what we should do for the balance of the year within the same cone. Whether the cone should go out and then close in after midyear when we've seen [some data], I don't know. Anyway, how many of the voting members could support a range of 1 - 1 / 2 to 4 - l / 2 percent now?",264
-fomc-corpus,1979,"I would point out, Nancy, that there was no reference made to this table on page 1 4 [of the Bluebook].",28
-fomc-corpus,1979,"We should [adopt] that, I think, although that's short term.",16
-fomc-corpus,1979,"The midpoint of it, yes, but not really [the whole range].",15
-fomc-corpus,1979,It looks to the fourth quarter.,7
-fomc-corpus,1979,"It looks to June and to the middle of the fourth quarter. It tells us how much growth we have to have in the future to make up what has happened to date. And I believe the midpoint of the ~1 range is what's now being proposed [as our objective], isn't it?",58
-fomc-corpus,1979,That's correct,2
-fomc-corpus,1979,"So, to get up to the midpoint of the proposed long-term range--",15
-fomc-corpus,1979,Which is the 1-1/2 to 4 - 1 / 2 percent.,20
-fomc-corpus,1979,--we'd have to have 8 . 3 percent growth between now and March and 5.1 percent between now and June. And those are--,32
-fomc-corpus,1979,That's only because we had negative rates of growth for--,11
-fomc-corpus,1979,"I understand that, but we've got that behind us.",11
-fomc-corpus,1979,"Yes, and that's why it can grow faster from here on.",13
-fomc-corpus,1979,"I don't think the comment you made that it implies higher interest rates is necessarily true, Nancy. It depends on the economy. If the economy is strong and we get a lot of inflation, they probably would go higher; but otherwise I think it is fairly neutral.",53
-fomc-corpus,1979,"The [projected funds rate] ranges [shown in Appendix I of the Bluebook] are 10 to 10-1/2 percent for the first quarter, 10 to 10-314 for the second quarter, 9-3/4 to 10-3/4 for the third, and 9-1/2 to 10-1/2 for the fourth.",81
-fomc-corpus,1979,That may not be the most reliable projection.,9
-fomc-corpus,1979,"Well, I don't think any of these projections is reliable, Paul.",14
-fomc-corpus,1979,"If I may say s o , Mr. Chairman, on our projected interest rates perhaps we've swung too much to giving ranges. We thought they would be helpful. But, Governor Teeters, while we have allowed for some increase. it's the midpoints that we think are the most likely [for the funds rate] and the midpoints are 10-1/4 and 10-3/8 percent [for the first and second quarters respectivelyl. We've allowed for the possibility of some upward drift in the midpoint because we think the economy looks stronger in the first half than in the second half. Basically, the staff feels that interest rates would be essentially unchanged ov@r the year, with a possibility of a little upward drift in the first half and a little downward drift in the second half. That's how we have been interpreting it. If we had just put down the midpoints down, that table would read 10-1/4, 10-3/8, [10-1/41, and 10 percent, in essence.",213
-fomc-corpus,1979,"Well, Steve, in my limited experience on the Board I have found that the interest rates are always at the top of the range.",27
-fomc-corpus,1979,Your experience only covers a very short period.,9
-fomc-corpus,1979,"That's right. I thoroughly agree with you, but--",11
-fomc-corpus,1979,"Well, these ranges have been created from the fourth quarter, without the expectations of the low rate of growth we have had in the aggregates so far in the year. Is that correct?",37
-fomc-corpus,1979,"Well, no, the interest rate assumptions take all of that into account. They were merely meant to express the staff's view that if interest rates were going to go anywhere, it is more likely to be up than down in the first half and more likely to be down than up in the second half given the GNP projections. This was just meant to give that sense to the Committee.",78
-fomc-corpus,1979,"All right. Let's try the 1-1/2 to 4-112 percent again. How many of the voting members would be willing to support that? I saw Paul's hand, and I count Chuck, Ernie, Bob, Dave, Phil, myself--oh and Nancy. How many is that? Okay, thank you. How many would not? I count two. That sounds like a pretty overwhelming concensus. Now we will have to work on the other two members to get them straightened out so we can have a unanimous vote! Before we decide on that, however, let's look at M2 and M3. It's hard to make much of the figures and it's tough to come up with the right numbers. The question of widening the ranges is with us again. If we were willing to widen them, Steve's suggestion, if I interpret it correctly, was for ranges of 5-112 to 8 percent and 6-112 to 9-112 percent.",200
-fomc-corpus,1979,"No, it was 5-1/2 to 8-1/2 percent.",19
-fomc-corpus,1979,"Excuse me, did I say something wrong? It was 5-1/2 to 8-1/2 percent and 6-112 to 9-112 percent. Jot those down. Put along side them two alternatives of 5 to 8 and 6 to 9 . That is shaded down just 1/2 point. How many of the voting members would like the widened Axilrod numbers of 5-112 to 8-1/2 percent and 6-112 to 9-112 percent? Two members. How many would like the 5 to 8 percent and 6 to 9 percent? Three. How many could accept it? Four, and I could accept that, so it's five. Five and two is seven. Apparently three want something else. Is that right?",170
-fomc-corpus,1979,"Mark, I think, wants it much lower",9
-fomc-corpus,1979,"I'm just looking [at my notes]. You would want something lower, [Mark]. Who didn't vote? Dave, what would you like?",28
-fomc-corpus,1979,I'd prefer something a little higher,6
-fomc-corpus,1979,So you ought to be put at least in the Axilrod group.,15
-fomc-corpus,1979,I would prefer Steve's original [suggestion].,10
-fomc-corpus,1979,"Given the presumption, M r . Chairman, that we have a consistent set of numbers in alternative B, so far as one can argue there's consistency there.",32
-fomc-corpus,1979,"I just want to get the votes again. These were straw votes. There were two for the wider Axilrod ranges and five for the slightly lower ones. [One] would like to be higher than either of these and I gather the other two would like to be lower, is that right? Having heard all of that, let's put together another proposal of 1-112 to 4-112 percent for M1, 5 to 8 percent for M2, and 6 to 9 percent for M3, with an associated range of 7-1/2 to 10-1/2 percent for bank credit. Maybe I should have left that off. We can come to that separately, if you like. I didn't find anybody differing from what Steve suggested [on bank credit]. Well, in fact there was only one suggestion that was different. Kyle, I think you suggested shading it a bit. But I think everybody else either accepted it or ignored it. Now, forgetting bank credit, just taking M1, M2, and M3, let's do a tentative vote by roll call to see if we could get support for that. I would support that package.",241
-fomc-corpus,1979,What interest rates go with this?,7
-fomc-corpus,1979,"Well, it's for a whole year. We can't really tell.",13
-fomc-corpus,1979,I mean what does it imply?,7
-fomc-corpus,1979,"For the upper end of the ranges, it could imply, I would assume it would imply the higher--",21
-fomc-corpus,1979,"The staff thinks that the interest rates in Appendix I go with it, assuming that their GNP projection is right.",23
-fomc-corpus,1979,Except that we have M2 and M3--,10
-fomc-corpus,1979,A little higher.,4
-fomc-corpus,1979,"--a little higher than the staff's "" B . """,12
-fomc-corpus,1979,"With the M1 range, I think we can get to 10 or 10-1/2 percent growth here, which is equal to nominal GNP growth and therefore would require no rise in interest rates. I'm talking about 10 percent, not the midpoints.",55
-fomc-corpus,1979,"On the other hand, if we get a cyclical decline of the kind Frank was talking about--",20
-fomc-corpus,1979,We'll have lower rates.,5
-fomc-corpus,1979,--rates are going to come down.,8
-fomc-corpus,1979,"Mr. Chairman, are you planning to elaborate on the adjustments in M1 as has been discussed at the staff level? Or are we going to go public, in effect, with these M1 figures, making some allusion to the ATS effects in the--",52
-fomc-corpus,1979,"These will be disclosed publicly in the written report to Congress. That will be the first and only public disclosure. It is contemplated that the report will make it very clear that the M1 numbers are based upon an adjustment for ATS and it will say something about velocity and demand, but I don't think--",60
-fomc-corpus,1979,We're hopeful that velocity will grow more than normal but we won't put that in those numbers.,18
-fomc-corpus,1979,Will the 3 percent figure be described or the 5 percent on the--,16
-fomc-corpus,1979,"I don't think the 5 percent will be but 3 percent will get discussed because if it isn't in the report I will be asked specifically what we have assumed. We can't be deceitful about it; we have to tell them the truth. The truth is that on the basis of [our estimate of the effects of] ATS accounts, forgeting any change in demand curve, we have 4-1/2 to 7-1/2 percent for MI.",95
-fomc-corpus,1979,Which is an increase.,5
-fomc-corpus,1979,"Which is what we were trying to do before, so we could get within it.",17
-fomc-corpus,1979,The prior M1 range was 4-1/2 to 6 percent.,17
-fomc-corpus,1979,"No, 4 to 6-1/2",11
-fomc-corpus,1979,And we were taking 6-1/4.,11
-fomc-corpus,1979,We were going from 4 to 6-1/2 percent and we were always on the upper side or out of the range.,28
-fomc-corpus,1979,We were essentially ratcheting it up by first going to the upper side of it and then by chosing a range that would make the upper side fall in the middle.,35
-fomc-corpus,1979,"Assuming that ATS accounts continue to grow. MR. ALTMA"". Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Partee oh, I guess so Governor Teeters Yes Governor Wallich NO President Willes No President Mayo Yes",55
-fomc-corpus,1979,Now let's take an official vote.,7
-fomc-corpus,1979,Do you want me to call the roll again?,10
-fomc-corpus,1979,No. Does anyone wish to change his or her vote from that?,14
-fomc-corpus,1979,"I'll change my ""I guess so"" to ""yes.""",12
-fomc-corpus,1979,"Okay, thank you. That was a pause brought to an affirmative.",14
-fomc-corpus,1979,"Is it appropriate to ask, Mr. Chairman, whether this dissent would cause you any serious inconvenience in the hearing?",23
-fomc-corpus,1979,"Well, I don't think so. We should operate on a rule that everyone votes as they see fit; that has been our policy. We are in a time when we see foolish stories about this sort of thing in the press that people love to play on, but I don't think we should let that change our desire to vote our conscience. I don't see any embarrassment. It always is better to have stronger support, but it isn't essential.",88
-fomc-corpus,1979,Thank you very much.,5
-fomc-corpus,1979,"May I ask Scott a question, sir?",9
-fomc-corpus,1979,You certainly may.,4
-fomc-corpus,1979,"When the Chairman describes the adjustment for ATS accounts and so forth, if that is perceived as being a more expansive policy than the one we had last year, would that have a depressing effect on the dollar?",41
-fomc-corpus,1979,"If it is perceived that way, but I'm not sure it would be written that way.",18
-fomc-corpus,1979,"All these numbers are lower than before, and the foreigners might perceive it--",15
-fomc-corpus,1979,"Well, no matter what we say about M1, the fact is that M2 and M3 are lower. So in that sense the people who don't want to listen to us on M1 are people who just don't want to listen, because we are just getting a more logical M1 range consistent with monetary restraint and the other ranges are coming down. S o if they are willing to give us even the first opening statement, they have to see this as a posture that is consistent with what we have been trying to do.",106
-fomc-corpus,1979,What these numbers say is that we can go as low as 1-1/2 percent and as high as 9-1/2 percent and still be within the range.,37
-fomc-corpus,1979,"No, it means we can go as low as minus 5 percent.",15
-fomc-corpus,1979,"No, we won't publish it, but if we add the 3 percent plus the 2 percent shift, that gets it to 9-1/2 percent.",34
-fomc-corpus,1979,1-1/2 percent is not the bottom.,11
-fomc-corpus,1979,"If we don't get either one of those it could go to 1-1/2 percent, so I say the range is 1-1/2--",33
-fomc-corpus,1979,No it's a minus--,5
-fomc-corpus,1979,It's below that because we might have a negative on the demand shift.,14
-fomc-corpus,1979,"Yes, I think that's right. The ATS doesn't go the other way but we could get--",19
-fomc-corpus,1979,"The ATS won't reverse; it can stop, but it won't reverse.",14
-fomc-corpus,1979,So we are talking 0 to 9 percent.,11
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,That's what I said when I introduced the subject. I said we have widened the range. The probability of hitting it is better.,26
-fomc-corpus,1979,"This kind of a range, of course, is just for discussion inside this room.",17
-fomc-corpus,1979,"Of course. I hope we don't hear about it elsewhere or in any other way. Dave, do you have a question?",25
-fomc-corpus,1979,"Yes. Can I assume, in the part of the report that asks us to talk about the consistency between [our objectives] and the Administration's program, that this will pose no problem of inconsistency?",41
-fomc-corpus,1979,"Well, the question is not the consistency, but the relationship.",13
-fomc-corpus,1979,"All right, the relationship.",6
-fomc-corpus,1979,"If one looks at the Administration's short-range goals, I would say based on our own [projections] that for 'I9 those goals could be achieved within this [set of ranges]. Now, I think that we have more possibility of divergence in 1980, but we have not yet locked in our 1980 ranges. And, therefore, I think our report can indicate that kind of posture.",83
-fomc-corpus,1979,I think we can say it's supportive but that we will have to review it as time goes on.,20
-fomc-corpus,1979,"And it depends, of course, upon real events in the economy over the period of time as distinguished from goals. They have changed and shifted a little, of course. We have been talking about our projections of what will happen under certain assumptions. But our comments are to be against what the Administration might be intending to accomplish. And they may not be able to achieve what they are hoping.",78
-fomc-corpus,1979,It's goals rather than projections on their part.,9
-fomc-corpus,1979,That's right. So they have an out. They can say well that's what we tried to do and then we got higher or lower--,27
-fomc-corpus,1979,I'd tell them it's unrealistic even to try.,9
-fomc-corpus,1979,"Well, we will get into the report next week. Did we have any final shifts one way or the other? We didn't pick up any more positive votes. All right then, that's a vote. Let's turn to the next subject on my agenda which is to deal with current monetary policy and the domestic policy directive. We will turn to Steve again for his recommendation. As you know, [on the long-run decision] we have been referring to the alternatives as ""A,"" ""B,"" and ""C."" We now will go through alternatives ""I,""""11,""and ""III"" on page 11, which is also relevant to page 14.",132
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,S o are you suggesting alternative I for M1 or are you suggesting 4 to 9 percent?,21
-fomc-corpus,1979,I would think about 4 to 9.,10
-fomc-corpus,1979,And leaving the fed funds range where is is. Is that what you're saying?,16
-fomc-corpus,1979,"And an asymmetrical interpretation of the directive--that is, to permit tightening if growth moves above the midpoint of the 4 to 9 percent range but not easing until growth got to the bottom of the range. That was [the bias] the Committee adopted last time in its directive at the December meeting.",62
-fomc-corpus,1979,"May I ask the Committee, all members, whether there is any sentiment for the alternate directive, which would deal with the proposition of not reducing the funds rate between now and the next meeting but would look to the possibility of raising it? That is, in effect, putting upper side limits on M1 and M2 and upper limits on the fed funds rate. This is the alternative [directive wording1 that's on page 21 in the Bluebook. If there is a sentiment for that, we should go into depth on it; if there is not we might turn back to the more--",118
-fomc-corpus,1979,I like it.,4
-fomc-corpus,1979,I would prefer the other.,6
-fomc-corpus,1979,Would you raise your hand if you are interested in this [alternative language] on page 21 and then we will see who is not.,28
-fomc-corpus,1979,Voting members only?,4
-fomc-corpus,1979,"Well, let's just get everybody's sentiment for the moment.",12
-fomc-corpus,1979,"What are we voting on right now, sir?",10
-fomc-corpus,1979,"Just whether you'd be interested in--not that you are voting for it--what's on page 21. If there is no reason to discuss it, we needn't waste our time. One, two, three, four, five. How many would not be interested in it? Okay. We'd better do that again with voting members, hadn't we? HOW many voting members would not be interested in the directive type on page 21? One, two, three, four, five. That's going to make it tough. Why don't we see if we can work out the other [directive formulation] to everyone's satisfaction? If I could give you a little guidance, my preference, if we go for the directive language on page 19, is to have the same sort of asymmetrical directive we had last time. My reasons are simply that all of the discussion today, taking into account both domestic and international considerations and the confusion about what the real economy's performance means in relation to the performance of the aggregates, would indicate that we should be in an even keel stance until we see some reason to change. Or to put it another way, when you don't know what to do, do it very cautiously. Therefore, that would be my approach. Do you want to say something, Chuck? I was going to say if that is the case, then I think Steve's suggestions of 4 to 9 percent for M1 and 5 to 9 percent [for M21, looking at the possibilities indicated on page 14, would seem to be reasonable. That would mean that if we got toward the upper end of those ranges we'd be looking at tightening; but we'd have to go to the bottom and through it before we thought of relaxing. I would also like to say that, considering the time between this meeting and the next, if there is any real reason to shift policy, it seems to me that we should have a telephone conversation. I feel that we shouldn't get ourselves too locked into these numbers with the situation so fluid. We have a good telephone set-up now--it seems to work well--so it's not so hard to get everybody on [a conference call] to discuss [a policy move]. Now, if we do what I've just described, the question I'd like to hear discussed is: Should we leave the fed funds range at 9-3/4 to 10-1/2 percent or should we change it to 9-3/4 to 10-1/4 percent, looking at the fact that an even keel approach means we're not going to be putting much room on either side. Why don't we just get inputs.",535
-fomc-corpus,1979,"I was simply going to point out that I agree totally with what you said about even keel--that is, I think this is a time for a sticky funds rate unless we see something big happening. But then your specific proposal was a biased proposal, that we raise the funds rate if the aggregates are strong in the range and not [reduce] it if they are low. I see no reason for that asymmetrical treatment when, looking at that table on page 14, we are well below the lower end and indeed won't be getting up to the midpoint of the [longer-run] range by March unless we are at the very top of the [February-March] M1 range. I'm speaking of M1 now. So it seems to me that the idea at this stage of the cycle of an unbiased approach to rate-setting, depending on the performance of the aggregates is the one--",179
-fomc-corpus,1979,"Yes, Chuck, I'm probably influenced a bit by the concern that if we reduce the fed funds rate in the next few weeks--unless something is happening that we can explain--I'd be worried about the international situation",42
-fomc-corpus,1979,"I agree with that, but I don't see why we should raise the funds rate if the aggregates are strong.",22
-fomc-corpus,1979,Paul.,2
-fomc-corpus,1979,"Well, I suspect that is the issue more than any particular numbers we put down. I would want to be biased, so I'm on the opposite side of this from Mr. Partee. I might just interject that I consulted very carefully with my resident monetarist guru in New York and he assured me that he is not worried about the money supply figures at all at this time; [this weakness] would have to go on for several more months.",92
-fomc-corpus,1979,He is absolutely purist.,6
-fomc-corpus,1979,He is absolutely purist. He is as pure as he can be. He looked back at historical experience and these one-quarter deviations don't mean anything.,30
-fomc-corpus,1979,Only on the up side.,6
-fomc-corpus,1979,I think this is precisely the point. We have had a pattern where the deviations on the down side have not been a one-quarter deviation but a one-cycle deviation. And we now have a one-quarter deviation on the down side and I want to be asymmetrical.,53
-fomc-corpus,1979,Bob Black.,3
-fomc-corpus,1979,"Mr. Chairman, I was just going to ask for some clarification and maybe offer an alternative solution. If I understood what Steve was saying, we would treat it on the down side as a money market directive; that is, we would ease the funds rate down if the rate of growth in the aggregates came in below 4 percent. Now, at the top, if we used a money market directive, that would not trigger [action] until [Ml growth reached1 9 percent. But if we treated that as if it were an aggregates directive, the midpoint would be 6-1/2 percent and it would trigger action at 7-1/2 percent. So as an alternative, it seems to me that if we took a straight money market directive, using 4 to 7-1/2 percent [for the M1 range], we wouldn't have to think about treating it asymmetrically. Action would be triggered at the top and the lower points at the two extremes.",201
-fomc-corpus,1979,"Thank you, Bob. Dave.",7
-fomc-corpus,1979,"It seems to me that we get caught up in the formality of our system here as against the reality of the way we operate. In reality, the way we operate is that we have a federal funds rate that we more or less peg. We've been pegging it at 10 percent plus. If I interpret your recommendation right--and I would agree with you that we should keep it there--it seems to me that we can put any ranges in here that we want and we're going to peg the funds rate at 10 percent plus and we're going to have a telephone call if it varies.",120
-fomc-corpus,1979,"Our directive would be even keel and we would [have a conference] call if we think a change [is needed]. That solves our directive because it gets us ready for the Merrill case. If we lose the Merrill case, that will be our directive for the future. Go forth and do well and we'll be in touch.",65
-fomc-corpus,1979,I think that's more of a description of how the Committee feels about all of these ranges because it seems to me that if we have a telephone meeting it will take something really tremendous to trigger us off the 10 percent [funds rate] in the next few weeks.,54
-fomc-corpus,1979,"That's not a bad point. Maybe we ought to have a directive that says we will even keel it and if there are any significant changes, we'll consult.",31
-fomc-corpus,1979,"Well, if Steve is right, we should have a month of very large increases [in monetary growth]. And it seems to me that that might very well trigger either a telephone conversation or--",38
-fomc-corpus,1979,"It would. I have great confidence in Steve but, on the other hand, there just isn't a wisp of evidence of what he's predicting.",29
-fomc-corpus,1979,"On average Steve is always right, but not from month to month. Larry.",16
-fomc-corpus,1979,"I just can't resist pointing out that, as I read this, there isn't very much sentiment within this group to use the Humphrey-Hawkins situation to signal a relatively important change in how we [handle] this--in other words, to widen the fed funds ranges significantly. By doing so we can be masters of the aggregates' destinies to a greater extent than we are. Apparently a great majority of us is still committed to pretty much sticking to doing business as we have in the past on these fundamentals.",103
-fomc-corpus,1979,"Well, Larry, I don't know what the sentiment is. but I have a bit of a trouble thinking that we know enough about these aggregates and their stability to operate that way. We have this phenomenon that at some point, for some reasons, the money function shifts around on us. And how one measures that in a particular week or at a particular time I think is a very tricky business.",79
-fomc-corpus,1979,Your St. Louis guru would suggest targeting more on the base but--,14
-fomc-corpus,1979,"Yes, but you keep adjusting the base so that you go back to a constant situation and give no effect to the shifting around of the demand function of money. I would have very deep trouble [with that] because that isn't what is happening in the economy. The economy is shifting its preference as to how it holds these funds. If we say we're going to ignore that, yes we can operate that way. But I think we'd be out of touch with reality.",93
-fomc-corpus,1979,And there is a significance attached internationally to what happens to the funds rate.,15
-fomc-corpus,1979,Absolutely.,2
-fomc-corpus,1979,"I will shut up [after this], Mr. Chairman, but I think there are a lot of sophisticated people who are trading in the dollar foreign exchange market who are aware of the realities of the aggregates too and who are somewhat suspicious [of our commitment to these ranges], due to the fact that our past practice has permitted the aggregates to overshoot. And I believe those people would welcome, in a dollar-supportive manner, some basic shift in our manner of functioning, although I perceive that we don't feel now is really the time to do that.",110
-fomc-corpus,1979,"Well, if we want to put reserve requirements on mutual money market funds, that would be one place to start in order to get our aggregates back under the same definition and so forth. Mark.",39
-fomc-corpus,1979,"I have a feeling that I'm about to vote for a money market directive, which means that in the years I've contested with this Committee the Committee has won and I've given in.",35
-fomc-corpus,1979,If we could only get other members to give in we would--,13
-fomc-corpus,1979,"I would like to say that I'm very sympathetic to the suggestion Dave made; I think that's probably right. But I wonder if we ought not have some concrete notion just among ourselves as to what magnitude of growth in the aggregates would tend to precipitate a call. I say that because if Steve is right on the shift in demand for money in the first quarter at 3 percentage points and we have the ATS effect at 3-1/2 percentage points, we could have zero growth in measured MI for the first quarter and [in effect] M1 would still be growing at 6-1/2 percent. So if M1 growth were coming in at 6 percent on average during the first quarter, that would be [equivalent to growth of1 12-1/2 percent, and I don't think that's what we want.",170
-fomc-corpus,1979,Which is what the nominal GNP is; that's how it gets there.,15
-fomc-corpus,1979,"I understand. I just think we ought to have a notion--CHAIR"" MILLER. Well, we ought to have an understanding and I don't know how best to articulate that understanding. Each of you sees the money numbers as they are published each Thursday. Having seen them, if we haven't called a meeting and you think we need to talk, just call us. I think we can leave it to communication; if anybody feels that it's time to talk, we'll talk. That's one way to do it. Then we don't have to [set] numbers.",112
-fomc-corpus,1979,You're talking about a real money market directive without any aggregates specified. It has been a long time since- -,22
-fomc-corpus,1979,"Has anybody thought about ""tone and feel of the market ? CH?+IR"" MILLER. No, we haven't thought of that",27
-fomc-corpus,1979,"May I suggest, if the Committee's sentiment is moving that way, that you might want to reconsider the virtues of the optional paragraph we put [in the Bluebook]. It's quite consistent with holding [current conditions in] the money market but it permits some tightening, which I assume the Committee wouldn't object to, if the aggregates were exceptionally strong. The Committee merely has to m a k e a decision in advance of what [exceptionally strong] is. And that language would be quite consistent with reconvening through a telephone conference if the aggregates [were weak]. It really doesn't specify how weak they would have to be, but that could certainly be developed with the Committee.",135
-fomc-corpus,1979,"Steve, that doesn't give us any leeway if they are exceptionally weak.",15
-fomc-corpus,1979,"No, but as I say, if--",9
-fomc-corpus,1979,It s@ems to me that we'd want to have both options at this time.,17
-fomc-corpus,1979,We're talking about discussing either direction.,7
-fomc-corpus,1979,"I think we want to look even-handed, too, and that [Bluebook] directive would not look even-handed.",24
-fomc-corpus,1979,I don't want to look even-handed.,8
-fomc-corpus,1979,"There is a strong reason for not letting the rate drop if we think the dollar is vulnerable. So I think we ought to limit that possibility--not cut it off absolutely, but not allow it without further discussion. We can make that decision, but it shouldn't come about through the automatic workings of our instructions.",62
-fomc-corpus,1979,"But it's equally true, Henry, that there is a strong reason for not letting the rate rise if we think the economy is vulnerable, and I think the economy is vulnerable.",35
-fomc-corpus,1979,"Well, if the directive were even keel, then we would not have any change from that even keel unless there were the votes for that. So it's decided by whether more people think [the funds rate should be moved] in one direction or the other.",51
-fomc-corpus,1979,"I think it would be a mistake at the present time to adopt a directive, which would then be published, that does not have a reference to monetary aggregates. It will touch off a wave of speculation and concern as to what this group is doing and what changes we have made either in our mode of operation or our concept of how the system works. That would be unfortunate. Even if we are not going to pay attention to them, I think our statement should incorporate some aggregates.",96
-fomc-corpus,1979,It's going to have the long-term ranges in there and it makes some reference to--,17
-fomc-corpus,1979,I mean the short-term ranges.,7
-fomc-corpus,1979,We could refer to the improved telephonic system.,10
-fomc-corpus,1979,Bob,1
-fomc-corpus,1979,"M r . Chairman, Mark has said that he would go for a money market directive and I dislike them as much as he does. But to me something like 4 or 4-1/2 to 7-1/2 percent would make sense, so that we wouldn't let the aggregate fall below 4 or 4-1/2 percent without doing something about it. I think that's really the crucial issue on the low end at this time. If they should grow at 1-1/2 percent, in view of the [recent] weakness we would still be pretty much around that 3 percent long-run growth path that we projected; in fact we wouldn't be up to the midpoint.",143
-fomc-corpus,1979,"Well, there is no reason we can't design a money market directive in the traditional sense with the understanding that if we get near the [limits] on either side [of the ranges] we won't really move until we consult. It's very simple. That will serve everybody's purpose, and then if something is happening in the economy or something is happening that we don't understand, we can have a telephone conference. How would you all like that?",88
-fomc-corpus,1979,Not too well. That definitely seems a little too neutral. I like that less than just saying that we're going to stick with [a funds rate of] around 10 percent.,36
-fomc-corpus,1979,"Well, we are going to even keel and we're going to have a money market directive, but we're going to have an understanding that we are not going to move the funds rate until we talk to each other.",42
-fomc-corpus,1979,"In practice, I'm not sure it makes a lot of difference; obviously it's not going to be published for another month anyway.",25
-fomc-corpus,1979,"That raises another problem, though. You're testifying on the 20th of February, and I'm sure you're going to be questioned fairly closely.",29
-fomc-corpus,1979,"Well, this information will not be published. They never have bothered us on that.",17
-fomc-corpus,1979,They never bother you on the short-term rates?,10
-fomc-corpus,1979,No. they really haven't: they've been very good about that.,13
-fomc-corpus,1979,My problem is that there is a reference [to neutrality] in the directive but the fact is that I don't feel neutral. And to word the directive like that sounds as if we're operating entirely biased against any change at all and that the only thing that's going to [trigger a] change is the aggregates. It ignores the foreign exchange market aspects entirely and ignores the fact that the risks to the domestic economy are on the inflationary side anyway. And we should be able to--,95
-fomc-corpus,1979,"I'm not sure I follow that. If this were a regular directive with ranges for fed funds and ranges for M1 and M2, why would it seem neutral?",33
-fomc-corpus,1979,Because it tells me that--,6
-fomc-corpus,1979,It's tied in to the aggregates.,7
-fomc-corpus,1979,"Well, that's my problem. My problem is that it's tied entirely to the aggregates when I'm not indifferent on whether [the funds rate] goes up or down. I think the adverse risks of [the funds rate] going down are greater, due to the foreign exchange situation, than the adverse risks of it going up.",64
-fomc-corpus,1979,"The trouble with that argument, Paul, is that we have a directive out now that has the same characteristic. [Money growth is] below the bottom of the range we published and yet we haven't reduced the fed funds.",44
-fomc-corpus,1979,Is the directive we have out now symmetrical or is it written in this asymmetrical way?,18
-fomc-corpus,1979,We've ignored the asymmetry. It was written with asymmetrical wording.,14
-fomc-corpus,1979,I understand we've ignored the bottom limit but it has some asymmetrical language.,15
-fomc-corpus,1979,It's money market on the down side and [refers to the] aggregates on the other.,19
-fomc-corpus,1979,Okay. That sounds all right to me. I'd want to repeat that performance.,16
-fomc-corpus,1979,"All right. Let's go around to the voting members and ask what you want to do. I'm not talking about the range now but I think we need to crystalize this one way or the other. Are we going to have a money market directive, are we going to have just an understanding, or are we going to have an asymmetrical directive or what? Let me go right down the list. Ernie.",83
-fomc-corpus,1979,"I could go either with the suggestion Bob Black made, which seems to me to capture--",18
-fomc-corpus,1979,"Okay, that would be a money market.",9
-fomc-corpus,1979,A money market directive with a 7-1/2 percent top on the range.,18
-fomc-corpus,1979,We'll come to the top of the ranges in just one second.,13
-fomc-corpus,1979,Or I can go with the biased alternative where we have essentially a money market on the down side and aggregates on the up side.,26
-fomc-corpus,1979,"Okay, the type we had last month. Dave.",11
-fomc-corpus,1979,"Well, I would hold the funds rate at 10 percent plus and consult if any of us feels that the aggregates are getting out of hand.",29
-fomc-corpus,1979,"I'm sorry, I skipped Phil Coldwell; I just missed the initials here.",16
-fomc-corpus,1979,"I would revise it upward, Mr. Chairman. I would go with 10 to 10-1/4 percent as a range for the federal funds rate in the coming months primarily because I think now is the time we run the greatest danger of an additional inflationary problem. Down the road we may have some chance to reduce [the funds rate range].",72
-fomc-corpus,1979,You have a narrow bias upward. Chuck.,9
-fomc-corpus,1979,"Well, I would like an unbiased money market directive. I would accept some language about taking account of foreign exchange market developments but that's as much of a bias as I would want.",36
-fomc-corpus,1979,Nancy.,2
-fomc-corpus,1979,I would take a money market directive with a funds rate range of 9-3/4 to 10-1/4 percent and consultation if the aggregates really get out of hand either way. I'd also have an eye on the foreign exchange market but [act] only upon consultation.,58
-fomc-corpus,1979,"And, Paul, you've expressed the view that you would prefer the asymmetric directive. Henry.",18
-fomc-corpus,1979,Right.,2
-fomc-corpus,1979,"I'd like something that, if the aggregates strengthen, would quickly raise the rate into the 10 to 10-3/4 percent range and wouldn't trigger [action] on the down side. So my preference, if it has to be done in an asymmetrical form, would be a money market directive on the down side--and I'd want a very low limit--and aggregates on the up side. That would suit me.",86
-fomc-corpus,1979,Mark,1
-fomc-corpus,1979,I think I'd like an unbiased--,7
-fomc-corpus,1979,An unbiased money market directive?,6
-fomc-corpus,1979,--but I'd like to retract what I said earlier; I think we have to have some aggregates in it.,22
-fomc-corpus,1979,Bob Mayo.,3
-fomc-corpus,1979,"Surprisingly, I agree with Mark for a change. I think it would be a mistake, Mr. Chairman, to cut [the upper limit of the funds range1 from 10-1/2 to 10-1/4 percent. When it is published, it would give a wrong signal.",62
-fomc-corpus,1979,"Well, if I read this right, Ernie would accept the money market alternative, Dave would prefer just the consultation--",24
-fomc-corpus,1979,I have no particular concern about how we express this as long as the policy action--,17
-fomc-corpus,1979,"Nancy was for a money market directive, as were Mark and Bob, and Chuck--one, two, three, four, five, six. I think that's the way we're going to have to go if we are going to hang this together. Can we just look at this and see if we can get some agreement on the ranges and a money market directive? The suggestion that Steve made was 4 to 9 percent on M1, 5 to 9 percent on M2, and the present range for fed funds, which is 9-3/4 to 10-1/2 percent. Perhaps I'd better have another go-around now that we've decided what we're going to do [on the directive wording]. Assuming we're going with a money market directive, what is the sentiment on those ranges?",162
-fomc-corpus,1979,Too high on the aggregate ranges.,7
-fomc-corpus,1979,Ernie?,3
-fomc-corpus,1979,I share that feeling; I think 9 or 9-1/2 percent [money growth] is too high for a money market directive.,30
-fomc-corpus,1979,Phil.,2
-fomc-corpus,1979,Too high.,3
-fomc-corpus,1979,Dave.,2
-fomc-corpus,1979,I would buy these.,5
-fomc-corpus,1979,Chuck.,2
-fomc-corpus,1979,"I would take a somewhat lower range on M1 and M2 than those suggested, but I would want to cut the funds range to 10-1/4 percent, [not retain] the 9-3/4 to 10-1/2 percent. I'd focus on aggregates around those ranges, which I think is very close to what Dave proposed to us.",76
-fomc-corpus,1979,Nancy.,2
-fomc-corpus,1979,I would buy 4 to 9 percent and 5 to 9 percent for M1 and M2 and cutting the upper limit on the funds range to 10-1/4 percent.,40
-fomc-corpus,1979,Henry.,2
-fomc-corpus,1979,"The aggregate ranges are too high for me, particularly the midpoints.",14
-fomc-corpus,1979,Mark.,2
-fomc-corpus,1979,"I agree with what Chuck said, assuming he meant a low enough range on the aggregates.",18
-fomc-corpus,1979,HOW low is low?,5
-fomc-corpus,1979,I was thinking of cutting a point off,8
-fomc-corpus,1979,Both ends or just on top?,7
-fomc-corpus,1979,Both ends.,3
-fomc-corpus,1979,3 to 8 and 4 to 8 percent.,12
-fomc-corpus,1979,All right. Bob.,5
-fomc-corpus,1979,I would buy the 3 to 8 and 4 to 8 but I would stick to the 9-3/4 to 10-1/2 percent funds rate range.,39
-fomc-corpus,1979,Okay. Now. we're in good shape. Let's leave the rate question; the rate question sounds as if it's whether to leave the top side at 10-1/2 percent or cut it back to 10-1/4 percent. What we're going to do now is see if there's a majority who will accept 3 to 8 percent and 4 to 8 percent.,78
-fomc-corpus,1979,"Sorry, Mr. Chairman, may I just ask a question? I'm not sure what Steve is assuming in these numbers about the demand shift for the first quarter.",32
-fomc-corpus,1979,A lot--3-1/2 percent.,10
-fomc-corpus,1979,"So if we got 8 percent growth for the 2 months, what would that be for the quarter if we get the 3-1/2 percent shift?",34
-fomc-corpus,1979,"The quarter is about 3/4 percent, so add 3-1/2 to that plus 3 percent [for A T S J . if you want to put it in those terms.",41
-fomc-corpus,1979,So we'd get 6-1/2 to I-1/2 percent.,17
-fomc-corpus,1979,Somewhere on that order.,6
-fomc-corpus,1979,"I must say, Mark, that I really do think we're talking about an arithmetic--",17
-fomc-corpus,1979,"I'm just trying to understand, Chuck, what the numbers are. I think we're talking about policy and not arithmetic.",23
-fomc-corpus,1979,"Well, Steve is frank to say that he is expecting these aggregates to pop back up and adjust this process. He is very frank to say so and is worried about dealing with that, right?",39
-fomc-corpus,1979,"Well, also, a considerable pop back up is needed to get them back on the Committee's path.",21
-fomc-corpus,1979,Yes. we're way below.,6
-fomc-corpus,1979,Good.,2
-fomc-corpus,1979,We had a lot of sentiment going for ranges of 3 to 8 percent and 4 to 8 percent. We had at least 3 or 4 folks who said they would buy that.,41
-fomc-corpus,1979,"May I ask a question? If we went with that, what would that do to the funds rate? Does that continue to make the ranges consistent with a funds rate of around 10 percent?",39
-fomc-corpus,1979,"We think a 10 percent funds rate will yield about a 7 percent growth rate [for Ml]. The odds on that are not extremely high, so what the Committee is discussing is where it may wish to trigger a funds rate movement. I would interpret this [Ml] range to mean that if M1 were growing at a rate close to 7 percent or above, the Desk would probably be raising the funds rate.",85
-fomc-corpus,1979,"Well, I want to be sure we understand that we're going to consult before we move [the funds rate]; we're going to do that in any case. So these are triggering consultation more than they are triggering action, and I think that should be borne in mind in trying to resolve this.",58
-fomc-corpus,1979,"That's why I think we ought to cut the funds rate range to a range [centered] around where we are, [by going to] 9-3/4 to 10-1/4 percent. I must say my notion for accepting these lower aggregates is associated with [the presumption of a centeredl funds rate--with the idea that [we will consult] if we run up toward the high end or down toward the low end.",92
-fomc-corpus,1979,How would you like 9-7/8 to 10-3/8 percent?,19
-fomc-corpus,1979,Where is it exactly now?,6
-fomc-corpus,1979,About 10 percent or a little above.,9
-fomc-corpus,1979,What are you suggesting?,5
-fomc-corpus,1979,9-7/8 to 10-3/8 percent--1/8th on either side to play with--,25
-fomc-corpus,1979,I would be much more liberal.,7
-fomc-corpus,1979,I'll bid 3/53.,7
-fomc-corpus,1979,"Well, all this not very important if we're going to have a consultation before we move.",18
-fomc-corpus,1979,"Here is a proposal, and you've got 3 minutes to decide and then we're going to lunch. Steve is suggesting that we could say this: ""System open market operations are to be directed at maintaining the weekly average funds rate at about the current level, provided that over the February-March period the annual rates of growth of M1 and M2, given approximately equal weight, appear to be within ranges of 3 to 7 percent and 5 to 9 percent, respectively. If growth of M1 and M2 for the two-month period appears to be outside the indicated ranges, the Manager will promptly notify the Chairman, who will then consult with the Committee for supplemental instructions.""",138
-fomc-corpus,1979,So we use the full range of 3 to 7 percent?,14
-fomc-corpus,1979,Yes. And there is no fed funds range,9
-fomc-corpus,1979,But he has 5 to 9 instead of 4 to 8 percent [for M21.,21
-fomc-corpus,1979,But he compromised; he gave you 3 to I.,12
-fomc-corpus,1979,On MI..,3
-fomc-corpus,1979,This says we don't do anything while they are within the range but consult when [either] is outside.,21
-fomc-corpus,1979,"And if any of you wants to consult earlier, give me a call. I'm a very good consulter; I'll consult with the Committee on whether the situation calls for supplementary instructions.",35
-fomc-corpus,1979,And leave the funds rate alone.,7
-fomc-corpus,1979,Did you specify a range or not?,8
-fomc-corpus,1979,"No range on fed funds; leave it alone and if we're within these ranges, we hang in there. If growth moves out of those ranges we consult with the Committee to see if anybody wants to supplement the instructions. This is known as ""copping out.""",52
-fomc-corpus,1979,With the general understanding that we expect the rates to stay approximately where they are right now.,18
-fomc-corpus,1979,"Well, the instruction would be to do that.",10
-fomc-corpus,1979,Maintain about the current rate.,6
-fomc-corpus,1979,"Alan, do you have any problems with that?",10
-fomc-corpus,1979,"None at all, Mr. Chairman.",8
-fomc-corpus,1979,"Well, we could have said it in fewer words, couldn't we? Let's call the roll. I'll vote for that, which is known as the Axilrod compromise.",34
-fomc-corpus,1979,"There is no mention of the federal funds rate in here at all except it says we stay where we are. MR. ALTMA"". Maintain the funds rate.",32
-fomc-corpus,1979,"It [sounds] a slightly ominous note because it suggests that if the aggregates behave for another period of time as they have behaved so far, then we'll make a decision to ignore them.",38
-fomc-corpus,1979,Just as we've done in the last seven weeks.,10
-fomc-corpus,1979,That's what one can read into that.,8
-fomc-corpus,1979,"What we can read now is that we've decided after our consultation not to lower the rate despite the aggregates. If anybody wants to read that the reverse is true now, they haven't read recent history. I'll vote for it anyway. MR. ALTMA"". Vice Chairman Volcker No President Baughman Yes Governor Coldwell No President Eastburn Yes Governor Partee Yes Governor Teeters Yes Governor Wallich Yes President Willes Yes President Mayo Yes",87
-fomc-corpus,1979,"Okay, we have two recalcitrants who can finally redeem themselves by shifting their votes.",19
-fomc-corpus,1979,[I'd like to] get a little more language in there about foreign exchange. It's in there but as such it says we look at the foreign exchange market.,32
-fomc-corpus,1979,We'll give you up to 6 words to improve that if you change your vote.,17
-fomc-corpus,1979,We might improve it just by eliminating the words that follow the foreign exchange--those on the domestic financial markets.,22
-fomc-corpus,1979,"Who cares about the domestic economy? We're only concerned about the foreign exchange rates! CHAIRMAN MILLER Well, what it says is ""while giving due regard to the program supporting the foreign exchange value of the dollar, to developing conditions in domestic financial markets, and to uncertainties associated with the introduction of ATS.""",62
-fomc-corpus,1979,"M r . Chairman, could I just ask if we shouldn't elaborate beyond ATS and also mention money market funds? That has been a very powerful force.",30
-fomc-corpus,1979,"Well, we could say ""to the uncertainties associated with the introduction of ATS and other shifts""--",19
-fomc-corpus,1979,I really think we could do away with that whole phrase.,12
-fomc-corpus,1979,"That phrase could be left out, really.",9
-fomc-corpus,1979,Leave out everything except the foreign exchange market.,9
-fomc-corpus,1979,"We probably should take out the reference to ATS; I think you're right, Bob. We're singling out something that's a dead horse. We can just say ""due to uncertainties,"" the fact that we don't really know. Phil, we're up to you. Did you shift your vote?",57
-fomc-corpus,1979,Where are we? Did we leave out these phrases or what?,13
-fomc-corpus,1979,"While you're thinking about it, we'll go on to consideration of the Manager's recommendation with respect to foreign currency operations. Alan Holmes.",26
-fomc-corpus,1979,[Statement--seeAppendix.] [Secretary's note: Mr. Holmes recommended an increase from $150 to $500 million in the Committee's informal limit on foreign currency holdings.],36
-fomc-corpus,1979,"Alan, as I understand it, this informal limit i s really a limit [within the formal amount] of what otherwise could be held under the Foreign Currency Authorization. So what we're doing is saying that if we're on the long side, it will be less than the total allowable position--which could be bigger if we were on the short side. And I think that's a reasonable proposition, particularly if it is to be coupled with your proposal to bring us a memorandum on this so we can give it more careful attention. I don't think we run a risk during the period until you submit that memorandum, at the next meeting or so, in contemplating that we could hold up to $500 million of currencies. Does anybody feel differently?",145
-fomc-corpus,1979,I would guess that we wouldn't get to that amount. But the markets are so volatile these days.,20
-fomc-corpus,1979,I don't think we will either. But we have [acquired] a billion dollars of D-marks in a couple of days which was very favorable to us. And we might have other occasions where we want to continue--,45
-fomc-corpus,1979,"Well, I don't think we ought to get ourselves into a substantial long exposure willy nilly, but I think what Alan is suggesting is within the range of operating necessity. Nevertheless, I would hate to see us acquiring $500 million, [going] up to $1 billion and then to $1.5 billion. Those things sometimes happen.",70
-fomc-corpus,1979,"Also, we don't want to make such a decision unless we intend to look at it in depth; this is not something we are trying to sneak up on. I just think we need some operating room.",41
-fomc-corpus,1979,But we do need to look at this in depth at some point because we are getting to the point where we are operating in foreign currencies.,28
-fomc-corpus,1979,Absolutely,1
-fomc-corpus,1979,We have to look at this question; I don't think this $500 million implies that we've answered it.,21
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,"Well, Mr. Chairman, I'd be satisfied as long as we don't get beyond the debt we now owe in any single currency.",26
-fomc-corpus,1979,Then you are going to be long.,8
-fomc-corpus,1979,"Well, we're buying right now.",7
-fomc-corpus,1979,We have yen and we don't have any [yen] debt.,13
-fomc-corpus,1979,I meant in terms of the $500 million cumulatively.,12
-fomc-corpus,1979,You mean overall total debt equal to total balances. We have a large D-mark debt and we have yen balances. The $500 million will be much smaller than the D-mark debt.,37
-fomc-corpus,1979,"Well, that would be true for today, assuming we come back to this subject.",17
-fomc-corpus,1979,"?my other comments? Alan, we need approval on the rollover of some our maturing swaps, right?",22
-fomc-corpus,1979,I recommend that they be rolled over on maturity if we can't pay them off before.,17
-fomc-corpus,1979,"Is everyone familiar with this? [Information on] this has been circulated. May we have approval of that? Hearing no dissents, it is so approved. I must say the vote on our short-range specifications in the directive was 9 to 1. We had a famous switch for the final count.",62
-fomc-corpus,1979,Who switched?,3
-fomc-corpus,1979,Paul switched; Phil decided to be lonely. I thank you all for your patience. It has been a very difficult task to cope with this and we're breaking some new ground. I hope we can continue to make the process work to your satisfaction. We will now adjourn for lunch.,57
-fomc-corpus,1979,"Good morning, ladies and gentlemen. The time has arrived for our annual meeting. This is a special meeting because it completes the 12-month cycle [for Reserve Bank Presidents to serve as voting members]. Spring comes and the FOMC is reconstituted. I don't know if that is supposed to be a coincidence, but we are one day ahead of time, aren't we? Tomorrow is the first day of spring. I guess we don't need to pursue that. So, the first order of business, at least from my point of view, is to welcome the new voting members. I believe you have all been elected to your new responsibilities without too many dissents. Paul Volcker, you were re-elected. Well, thank goodness! Bob Black, Bob Mayo, Bones Kimbrel, and John Balles will serve as members, with your alternates in line. I don't think that requires action, but we do note it. The first item on the regular [agenda] is to approve the election of officers. For that purpose I will turn over the meeting to Henry Wallich to see if he has any suggestions for Chairman or Vice Chairman. I hope he has the right ones!",240
-fomc-corpus,1979,I would propose [William Miller as Chairman and Paul Volcker as Vice Chairman].,16
-fomc-corpus,1979,"Could you elicit a second, Henry?",9
-fomc-corpus,1979,I second.,3
-fomc-corpus,1979,I think you need to get a vote.,9
-fomc-corpus,1979,Would you like to approve the slate as proposed? Any objections?,13
-fomc-corpus,1979,"No objections? The way you put the question the answer is ""no"" they wouldn't like to but ""yes"" they would! Now we will get down to something serious, the other officers DO you all have a list before you? No? I do. All right, I will ask the Secretary to read the list of proposed officers. MR. ALTMA"". Secretary, Murray Altmann; Assistant Secretary, Normand Bernard; General Counsel, Neil Peterson; Deputy General Counsel, James Oltman; Assistant General Counsel, Robert Mannion; Economist, Steve Axilrod; Associate Economists from the Board: Edward Ettin; George Henry; Peter Keir; James Kichline; Edwin Truman; and Joseph Zeisel. Associate Economists from the Banks: Harry Brandt from Atlanta: Richard Davis from New York; Michael Keran from San Francisco: James Parthemos from Richmond: and Karl Scheld from Chicago.",187
-fomc-corpus,1979,"Are there any other suggestions or qualifications? All those in favor say ""Aye."" SEVERAL. Aye.",24
-fomc-corpus,1979,"Opposed? S o voted. Now, before the meeting, a number of items were sent to you that involve the continuation of various authorities [in their existing form], with the request that you indicate to us if you wished any of these to be placed on the agenda. We received no such indication and, unless I hear a contrary view, we will assume that those items have been approved. Does anybody have any problem with any of those items? Hearing none, we will proceed to item 2 on your printed agenda, which is the selection of a Federal Reserve Bank to execute transactions for the System Open Market Account. This has been and is proposed to be the Federal Reserve Bank of New York. Is there any dissent from that? Hearing none, that will be approved. Next is the selection of the Manager of the System Open Market Account, the Deputy Manager for Domestic Operations, and the Deputy Manager for Foreign Operations. We are proposing for those positions Alan Holmes, Peter Sternlight, and Scott Pardee, respectively. Are those acceptable to the Committee? Hearing no dissent, we will approve those. Next is the approval of the minutes of the meeting on February 6 and of the telephone meeting on March 2, which have been circulated to you. [Secretary's note: No transcript of the telephone conference of March 2 exists in the Committee's files.] Any comments, corrections, or suggestions? Hearing none, we will report those as approved and move to foreign currency operations with a report from Scott Pardee.",304
-fomc-corpus,1979,"Thank you, Mr. Chairman. [Statement--see Appendix.1",14
-fomc-corpus,1979,"Thank you, Scott. I should have mentioned at the outset, and will now, that we are pleased to have you here, Tom Gainor, for Mark Willes. I hope you will join in at any time in the discussion. At this point are there any questions or comments on Scott's report? Henry.",64
-fomc-corpus,1979,"Scott, you mentioned the reaction that if the dollar goes down, the Fed steps in and if the dollar goes up, the Bundesbank steps in. Do you think the market views the rate as pegged in some sense? Are expectations built on that?",51
-fomc-corpus,1979,"I don't think there is any sense that the market feels we have fixed rates. There is a sense in the market that at current levels there is a great deal of resistance. I haven't heard anybody saying ""pegged"" as such. They just notice that if the rate [moves] 50 points, there is considerable resistance--quite often not by the central bank--and shortly thereafter the central bank might be in. But I don't hear anybody complaining that we are pegging at the moment.",100
-fomc-corpus,1979,Do you think they perceive this as a conflict among the national policies?,14
-fomc-corpus,1979,"Some people feel there is, yes.",8
-fomc-corpus,1979,Thank you.,3
-fomc-corpus,1979,"Any other comments or questions? Thank you, Scott. We need a vote to ratify the transactions since the previous meeting. I understand [reports] have been circulated or are available. Is there any question? If there is no dissent, we will record the ratification of those transactions and move on to the domestic open market operations and a report from Peter Sternlight.",74
-fomc-corpus,1979,"Thank you, Mr. Chairman. [Statement--see Appendix.I",13
-fomc-corpus,1979,"Thank you, Peter. Any questions or comments? Yes, Chuck.",14
-fomc-corpus,1979,"Peter, the funds rate did average 10.21 percent in the week of March 14, according to the Bluebook. So do you think the market now perceives that as just an erroneously high number and is thinking of a 10 percent rate as again being the level--?",59
-fomc-corpus,1979,I would say that the thinking is back to 10 percent to slightly higher.,16
-fomc-corpus,1979,Right where it was before. You [at the Desk] have overcome this entirely.,17
-fomc-corpus,1979,"I think we have, yes.",7
-fomc-corpus,1979,"Any other comments? We also need to ratify the transactions on the domestic side since the last meeting. The reports have been circulated. Any questions or comments? Hearing no dissent, we will record them as approved. Now, in December the procedure we followed worked extremely well and I thought we might try it again today. In the intervening meeting we had the more complicated issue of setting long-run ranges: today we are dealing [only] with the directive. I am going to suggest that we try the system where we ask Jim Kichline to make his report on the economic situation and then get comments on policy from Steve Axilrod. Then we'll do a go-around to get the comments from each of you on your views of the economy and your feelings as to the policy implications. I'm looking not necessarily for quantitative but qualitative views on where monetary policy should be going in the intermeeting period. Then after the break we can get down to the specifics of the directive. I think that worked extremely well before and we will try it again if you are agreeable. So, we will start off with Jim's report.",224
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Thank you very much, Jim. Are there questions of Jim before we turn to Steve?",18
-fomc-corpus,1979,"May I ask just one, M r . Chairman? Jim, you mentioned the decline in contract awards. I presume you mean nonresidential.",29
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,Is it considerable and what kind is it? Is it in some [particular] kind of building? There is an offsetting development in the strength of durable goods orders. That's why I wanted to pursue it a bit.,45
-fomc-corpus,1979,"Yes. It's quite widespread. As you know, the series is highly erratic; it sometimes shows 50 percent increases or 40 percent declines. We had a 3 percent decline in December and a further 3 percent decline in January. And the fourth quarter in total in current dollars was only up 4 percent. So in real terms it--",71
-fomc-corpus,1979,It's drifting off.,4
-fomc-corpus,1979,"--has been drifting down. In general we have no [firm] idea of whether or not this reflects temporary developments, but it is something that we are paying attention to. We are quite cautious about the [outlook in the] general structures area which, as you know, had been coming along.",61
-fomc-corpus,1979,"It is in the structures area, not in electric generating or something like that in the nonbuilding area.",21
-fomc-corpus,1979,"No, it's in industrial structures. It's not the shopping centers.",13
-fomc-corpus,1979,Other questions? Let's turn to Steve.,8
-fomc-corpus,1979,"Thank you, Mr. Chairman. I thought it might be useful for the Committee's discussion to analyze a little more closely recent developments in the money supply and bank credit. Basically, they appear to be giving somewhat conflicting signals. Growth in all the aggregates has slowed considerably--[the levels have] actually declined--in the first quarter, and bank credit has accelerated. To set the stage a bit--and focusing on M1 for convenience--Ml growth for the third quarter was about 8 percent and for the fourth quarter it was 4 - I f 2 percent on a quarterly average basis. And in the first quarter the figure is probably going to be something like minus 2 percent with January and February showing a decline on average of a little over 4 percent. Bank credit, on the other hand, had grown at a 9 . 8 percent annual rate in the third quarter and dropped off to a rate of 7.3 percent in the fourth quarter. In the first quarter it will probably be back up to about a 9.7 percent annual rate, with January and February growing at rates averaging a little over 12 percent. So its growth has been very rapid, with loan growth picking up some. Unfortunately, neither of these aggregates is an [unequivocal] indicator for policy--in the case of the money aggregates to ease, or in the case of bank credit to tighten. I think it is very important to adjust the slow growth in M1, and even that of the broader aggregates, for the demand shift that we believe is occurring in the public's willingness to hold money. If you will pardon a technical expression, we think a lot of the behavior reflects not the fact that interest rates are rising and therefore that people are willing to hold less cash and moving along a demand curve but that the whole demand curve for money is shifting at given interest rates and people are willing to finance their transactions with less money. There are two ways to look at this. One is to look at the alternative assets to money to see if there is any unusual behavior in those assets that people may be holding. John Paulus and I made some estimates on that in '75 and '76 and the staff has reviewed them recently. bringing them up to date. The second way is to look at what is technically called the residual in our equation in the quarterly model, which tracks the demand for money against GNP and interest rates. Both [approaches] have their dangers, but putting the two together may give us some idea of the extent of the shift that is occurring. In terms of other closely related assets, we've estimated, of course, that the ATS effect will add about 3 percentage points to M1 growth in the first quarter. We then made estimates of that portion of the increase in money market funds and R P s that might have come from demand deposits, placing that arbitrarily at around 25 percent. In the case of money market funds we believe the bulk of the increase was coming from savings deposits and in the case of R P s from other market instruments. I would add about another 2 percentage points at an annual rate. So that would raise M1 growth in the first quarter from minus 2 to around plus 3 percent. It also raises growth in the fourth quarter from around 4-1/2 to around 7 percent. If you look at the residuals in the models of the growth rate for M1--if you take those literally, and I don't believe you should over a short period--the model has been overpredicting M1 growth by a large amount in both the fourth quarter and the first quarter. The amount of overprediction, setting aside or allowing for ATS, is about 2 percentage points in the fourth quarter and 6-1/2 percentage points in the first quarter. As I say, I wouldn't advocate adding in that 6-1/2 percentage points and taking that as fact because, after all, itrs an error in the model that we are using to indicate something. But if we took that 6-1/2 points as an outer limit and added the 3 percentage points for ATS, that gets us to [more than] 9 percentage points, and we would be having growth at about a 7 percent annual rate in the first quarter. Now, to give a little perspective to that, in 1975 and 1976 when the model overpredicted money for 11 straight quarters beginning in the third quarter of 1974 that gave us a little more confidence in using the residuals as a rough indication of the amount of demand shift and, therefore, confidence in using that adjustment to give us the economic impact of what was happening to M1. If we had literally taken the model Iresultsl--and again it would be an overstatement--the growth in M1 in '75 and '76, which was between 5 and 6 percent, would instead have been between 9-1/2 and 10 percent. That in my view is probably a better analysis, economically, of what that low rate of growth in the literal reading of the M1 numbers meant in ' 7 5 and '76. But as I say, to the degree that we use the model in this way, I would caution that this may be an overstatement rather than an understatement. On the other hand, with regard to bank credit, if anything, I would tend to subtract from that acceleration. The bank credit growth that we've seen in the first quarter has not been accompanied by any acceleration in total credit raised. In fact, there appears to be in our flow of funds accounts a drop in total funds raised by nonfinancial sectors in the economy of around 10 to 15 percent. Much of that drop has to do with funds [raised] for the U . S . government and foreigners. The drop is quite small--more on the order of 1-1/2 percent--for private domestic nonfinancial sectors, the area which may be more closely related to economic activity. That's a very small drop. So I don't think the bank credit number is an indicator of a strengthening in total credit; on the other hand, the credit flows to domestic nonfinancial sectors remain generally strong. Another factor strengthening bank credit has been that it is displacing other sources of funds raised. A considerable amount of the funds raised in our market in the fourth quarter was funds supplied by foreign governments --monetary authorities buying U.S. government securities in view of the weakness in the dollar. This has come to a halt in the first quarter; it has been reversed. And that sharp turnaround in funds supplied has been made up in part by the banks supplying funds to the market, in [effect] a reflow of funds from abroad. In February, on the basis of fragmentary data, it looks as if about $4-1/2 billion of the $9 billion increase in bank credit was supplied by a reduction in bank lending to their foreign branches. So this would be the other side of the support operation. The dollar became stronger and the money is coming back home in this way. That kind of reflow is not associated with any kind of money supply liabilities. It simply involves a bank reducing its lending to [foreign] branches and increasing its lending in the domestic market. So, we would not see that on RP or fed funds type liabilities on the domestic bank. Well, Mr. Chairman, the conclusion I would draw from all of this--and I present this to the Committee for its consideration--is that the behavior of the monetary aggregates when interpreted in light of ongoing demand shifts is certainly not in itself a signal for easing. And if one believes the extreme estimate on the amount of demand shift, the aggregates might weigh slightly, or be not inconsistent with, moving in the direction of tightening if the Committee thought the behavior of the real economy required it. On the other hand, the behavior of bank credit--when interpreted in light of overall credit flows and the diminished credit flows in mortgages and corporate bonds that is occurring to offset the business loan expansion--certainly doesn't give a clear signal for tightening. Nor do I believe these data are very consistent with easing. So I am afraid the conclusion can't be unequivocal in any way. 1f I were asked to give odds on whether these conflicting signals were most consistent with tightening, easing, or staying the same, I would say they were least consistent with easing. In my judgment, the case for that conclusion is the weakest. And the strongest conclusion I can give is that they are most consistent with staying the same, but not inconsistent, of course, with tightening.",1759
-fomc-corpus,1979,Thanks a lot!,4
-fomc-corpus,1979,"Thank you for your decisiveness! Are there questions of Steve, besides what did he say? Dave.",21
-fomc-corpus,1979,"I think I understood. I'm not sure I agree. Steve, we did calculations similar to the ones you did, although not as sophisticated. trying to find what these other sources of funds might add to the aggregates--the money market funds, the RPs, and the ATS. We added them back in different ways and just didn't find enough money there to add to the actual figures for either M1 or M2 to make that look as if it could be the full explanation. Then the question is: What is left? My inclination is to look at what happens to money as an indicator of what is happening to the real economy. If one looks at the shortfall in that respect, I think one might come to a different weighting of these policy conclusions than you did. My own conclusion, even after all these adjustments one might want to make, is that the weak money supply is telling us that the economy is going to be weaker in the future, and that that would call for a different policy prescription.",202
-fomc-corpus,1979,"President Eastburn, that may or may not be. The point that I would like to make on these measurement problems is that in 1975 and 1976, as an example, when we added back in 1-1/2 to 2 percentage points because we included the business saving accounts and all that in evaluating the money supply, I think that was wrong. I believe that understated what was happening because when the public decides that the existing stock of deposits is too large--that they're going to take deposits and put them somewhere else--there'sno reason to think that that money necessarily is going to go into very close substitutes. It could just as well go into Treasury securities and items like that. So I think adding up the very liquid assets will tend to underestimate the demand shift. At the same time, I wouldn't say that the residuals in equations are the perfect measure. But in '75 and '76, Dave, I think they were a convincing argument that the demand shift was greater than we would have gotten by simply adding up the money substitutes. And to a degree I think they're probably telling us something close to the same thing in the first quarter. Of course, even so, we may not get to so rapid a rate of growth.",254
-fomc-corpus,1979,Could I follow up with one more question?,9
-fomc-corpus,1979,Certainly.,2
-fomc-corpus,1979,The other part of my question is: How much validity is there to the idea that what is happening to money is supply induced and not demand induced?,30
-fomc-corpus,1979,"Well, it's very difficult to give an answer to that, President Eastburn, because we don't control the supply of money and we make no effort to control it.",33
-fomc-corpus,1979,Supply in the real economy [sense or] just weakness in the--,14
-fomc-corpus,1979,"May I interrupt this dialogue to give you a flash? We always like to have some drama in these meetings! So if you turn to page 8 in part I of your Greenbook, I have data that have just flown in. The second column on page 8 shows the [nominal] GNP number at 15.0 percent for the fourth quarter of 1978; that has just been revised by the Commerce Department to 15.6 percent. If you go across the columns to real GNP in the fourth column, it shows 6.4 percent, which was the last estimate we had; that has been revised to 6.9 percent. And the fixed weight business deflator was maintained at the 8.0 percent shown. If you go down one line to the data for the first quarter of 1979, we have the first estimate of the Commerce Department for quarter one.",185
-fomc-corpus,1979,It's a projection really.,5
-fomc-corpus,1979,"A projection, excuse me. It's not an estimate but a projection, for whatever it's worth. As you can see, the staff has 1 2 . 2 percent for nominal GNP; the Commerce Department is saying 10.6 percent. If you go across to the fourth column, the staff is now saying 3.0 percent [for real GNP]; the Commerce Department projection is 1.4 percent. If you go across to the deflator, the staff has 9.6 percent and Commerce is now saying 10.0 percent. Now you can pursue your question, Dave. I didn't want you to get trapped, you see.",135
-fomc-corpus,1979,I wouldn't have been if you hadn't given the figures !,11
-fomc-corpus,1979,"President Eastburn, the only way I think I can answer is to say that, as you know, the System does no more than accommodate to whatever amount of money the public wants to hold at today's interest rates. So in that sense we could always have more money [growth] if the System were to provide reserves more aggressively and let interest rates go down in the short run. That's the way I would answer. [As for] whether it's a demand or a supply phenomenon, it's very difficult to disassociate the two.",105
-fomc-corpus,1979,I have John Balles next [on my list] and then Larry Roos.,17
-fomc-corpus,1979,"I'll just pick up for a minute on the comment that Dave made. We've looked at these same numbers, Steve, and frankly, we come out more on Dave's side than yours. We have here an array of the different Ms going up to M7. And in a nutshell what the facts seem to say is that they've all been decelerating since last fall, though to varying degrees, of course. Even if we look at the latest monthly growth numbers on MI, which includes all these money market funds, RPs, commercial paper, and so forth, the percentage growth now is less than half--or at least it's no bigger than half--what it was last fall. And in some cases growth is about a third as big as it was last fall. So I don't see a simple tradeoff between, say, M1 and M2 and something in M7. The bottom line is that this is a very difficult and slippery area, as you well know, and judgments can differ looking at a set of facts. From my standpoint, I suspect that you may be overestimating the shift in the demand for money. I'm not at all sure it's going on to the degree that would seem to be implied by your analysis, and I say that with all due respect. Judgments can differ on these things. The alternative explanation is that we've simply been very stingy in the provision of reserves. I think some combination of those two might explain where we're coming out. But as I say, if one looks at the actual components of what goes into the so-called substitutes for money, it's true that money market funds have surged, but the RPs have not. They haven't grown proportionately any more than they did in 1974. And the sum of those two has not grown proportionately any more than it did in 1974, based on our look at the data. S o , I have to register some skepticism, to put it mildly, on the extent of the shift in the demand for money. It remains a judgment rather than a fact, as far as I'm concerned.",422
-fomc-corpus,1979,"I have no quarrel with that, President Balles. In terms of dimension, I would feel very confident that a minus 2 percent M1 in the first quarter is plus 1 percent, because I add the 3 percentage points for ATS. I feel reasonably confident that it's probably as much as plus 3 percentage points: and I have diminishing confidence as I go above 3 up to I percent.",83
-fomc-corpus,1979,Larry.,2
-fomc-corpus,1979,My questioning was going to parallel somewhat what John Balles said.,13
-fomc-corpus,1979,Bob.,2
-fomc-corpus,1979,"To follow up on this, I keep forgetting Steve, MS still doesn't include money market funds or RPs, does it?",25
-fomc-corpus,1979,Yes it does.,4
-fomc-corpus,1979,Both?,2
-fomc-corpus,1979,"Well, it ought to include them, netting out the CDs the money market funds hold. I'm not convinced that we've got it all measured exactly right.",31
-fomc-corpus,1979,"Your footnotes and documents say that it includes both, Steve. Am I wrong?",17
-fomc-corpus,1979,"Yes, netting out their certificates, and they mainly hold CDs. Of course, that's double counting not to net out the CDs .",27
-fomc-corpus,1979,"Right, they should net them out",7
-fomc-corpus,1979,"Well, why don't we do a go-around before our break. As I said, I'd ask you to give your own ideas of how the economy is going and what you think the policy implications are. I forgot where we started last time so we'll just start with Paul and go around that way.",59
-fomc-corpus,1979,"How far do you want to take this, Mr. Chairman--up to the point of giving specifications?",21
-fomc-corpus,1979,"NO, at this point, it's the qualitative direction you think [on policy] rather than specifications. Then after the break we'll come to those.",29
-fomc-corpus,1979,"Right, short of specifications",5
-fomc-corpus,1979,"Well, if I look far enough ahead, Mr. Chairman, meaning through the year, I think the odds are better than 5 0 / 5 0 that we're going to run into a recession by [year-end], and I've thought that for some time. I think the odds are being increased by the oil situation and by what's going on in inflation generally. Having said that, I don't think we can change that much by any modest adjustments in monetary policy. I believe a real easing in monetary policy is likely to make things worse. My reasoning is that in the short run--and I'm mainly impressed by the evidence of the last six weeks or so--1 think we're much more up against capacity [constraints] and growing shortages, caused in part by those GNP figures you just read and the continuous upward revisions in those figures for the fourth quarter. I don't see that the economy has any real margin to grow here without seriously aggravating our inflationary problem. I think the growth we had late last year is already aggravating our inflationary problem. And I believe an attempt to [induce] very fast growth here would increase the odds not only of a recession but a more serious recession as we go along. One doesn't have to speculate to see that inflation is a lot worse. In my view we'll be lucky if that Commerce figure stays at 10 percent for the first quarter when the final number comes out. Commodity prices are rising; through the latest information we have them rising at alarming rates. I suspect the oil price increase that the staff has projected in a very uncertain situation is, if anything, low; and it might be substantially low. Essentially, I think we're in retreat on the inflation side; if there's not a complete rout, it's close to it. And in my view that poses the major danger to the stability of the economy as we proceed. It's an obvious danger for international stability despite the welcome respite we've had in the last three or four months. That remains a major problem not only in terms of economic stability but in the dimensions beyond that if the dollar stability should give way not just to an erosion but the panicky situation we had earlier. So, without getting into any more details, there's no doubt in my mind that even if we didn't look at the aggregates at all, this is the time for some firming rather than the reverse. I think we are at a critical point in the inflation program, with the tide against us. ~f we don't show any response at all, we are giving an unfortunate signal in my judgment. I believe those concerned about inflation would find no response during this period almost inexplicable in terms of what we say regarding our worries about inflation. I do think there is some risk of a boomlet. I don't think it would go very far in real terms because I doubt the economy has the capacity to meet it. But it could add to those inflationary pressures, lead to excess ordering, and potentially to excess inventory building that would only make a recession worse if indeed we are going to have a recession later this year or in early [19801. So, without getting into the real complications caused by the money supply figures, but noting that I pretty much share M r . Axilrod's conclusions in that respect, it seems to me that the real factors point in the direction I've indicated.",674
-fomc-corpus,1979,Chuck.,2
-fomc-corpus,1979,"Mr. Chairman, last week I appeared before the House Subcommittee on Monetary Affairs to discuss monetary policy in the context of our Humphrey-Hawkins report, but the discussion soon turned to current monetary policy. Steve and I did our best to defend current monetary policy before the Subcommittee. The reason I mention this is that I'm obliged to report to you that the Chairman of the Subcommittee, Parren Mitchell, wants the FOMC to know that he is concerned. He says he's concerned not as an economist because he isn't an economist, not as a monetarist because he doesn't understand the arcane area of monetarism, but as an historian because he has noted that every time there is substantial and sustained weakness in the money supply, a recession follows. He wonders why the current situation would differ from previous situations. Now, I must say that I'm not a monetarist either, but I do have some sympathy with Chairman Mitchell's view of this. It does seem to me that we've had a sustained period of weakness in the money supply. It has been five months, October through February. Perhaps that's marginal; it may need another couple of months to be truly sustained, but it's getting pretty close to a sustained weakness now. I think it is also true that the weakness in money supply growth is substantial. If one makes the adjustment for ATS and NOW accounts, which I think is appropriate, one gets about a 1-1/2 percent average rate of increase in the narrow money supply over this five month period, compared with the 8 percent rate of increase recorded for a good many of the preceding months. That is a significant step down in the rate of expansion. I don't really believe much in taking these developments such as money market funds and money market certificates and RPs and that kind of thing as an explanation because they have occurred in the past. That's simply the reflection of what happens when interest rates are high; the rate of return on cash money is zero and people try to find substitutes. It's the process of finding substitutes, as I said on the phone the other day, that we're really describing when we look at this. Turning to the economic situation, I, too, think there are indications that we are in the last stage of a boom. Consumer spending has flattened; it has declined in real terms since the first of the year. There's a little push in car sales, but that's simply a matter of clearing out the small cars because of the prospect that gas prices will certainly be higher and gas may be in short supply. Housing has clearly turned down. I don't think there's any way one can read the decline of the last two months as being an entirely weather-related phenomenon because those developments are too widespread. There are too many other indications of weakness developing in that area, and we've just taken an action that will assure that the big lenders are not going to have as much money as they did before to put into the mortgage market. I don't think capital spending is going anywhere. I'm quite impressed by the decline in contracts; I think all we've had is a little bubble in new orders for capital equipment that isn't going to last very long and can, after all, be reversed by cancellations. One should always remember about those new orders that a great many of them are subject to cancellation; many orders were cancelled after there was a bubble in '74 and then the recession of '75. So, that can happen. It is conceivable that we will have a period of rapid business inventory accumulation and we may have some scare buying of materials; that seems to have been going on, but I don't think it will last very long. So, I would have to say, looking at the real economy as well as the monetary numbers, that I now believe a recession is very likely--a recession which at this point the Federal Reserve will have done nothing about. We will have made no effort to block it in any way. We will have sat here again, seeing very weak monetary aggregates as a precedent to the recession phase. I believe we're in considerable danger of that happening. You often ask us to give our views on [economic] growth over the policy period [relative to the staff's views], which are at the bottom of page 8 [of the Summary and Outlook part of the Greenbook]. I don't think we're going to have 1.7 percent real growth this year. It could possibly be a bit above zero, but not very much. I don't think we're going to have 8.7 percent inflation. I think the staff has finally managed to predict a number that is higher than the one we will realize. That's partly because of my weaker scenario, but partly because I'm also very convinced that businesses are raising prices in anticipation of wage and price controls. And whether or not wage and price controls occur, these firms have taken their action and there will be a moderation in those markups in the period to come. And, of course, I don't expect the unemployment rate to be 6.3 percent at the end of the year: I think it will be 7 percent or above. So, that's the situation as I see it.",1038
-fomc-corpus,1979,"Thank you, Chuck. Nancy.",7
-fomc-corpus,1979,"Mr. Chairman, I've looked over the numbers and I've looked over the projections and I also think we're in the final quarters of the boom. I had the staff put together for me a variety of indicators in the last three quarters before a peak. One thing that stands out is that they're never the same. There is very little similarity between the various peaks that we've had. We seem to do better [predicting] troughs and recoveries than we do with [the end of] expansions. I think we're headed toward a recession. As I look at the data and the projections, I think the disintermediation and its impact on housing are finally taking place. However, I won't feel comfortable until I see a March housing starts number [in trying to determine] where we really are in that area. The other elements of the economy still appear to be relatively well balanced. With the possibility that we could dip into a recession and the high costs of that in a variety of areas, I would take the position that we ought to wait another month until we have some better data. The first quarterly estimate by the Commerce Department is notoriously bad. It can bounce from here to over yonder in a month's time: in another month's time we'll have some more real numbers on the economy and that would be an appropriate time to move. I don't think we need additional restraint at the present time. For heavens sakes, our policies are finally beginning to work. Now is the time to sit back and let them work and not make it seem as if we're panicking about what's going on in the economy currently, which I think some people are doing. Also, I doubt that most of the spot prices are going to hold; some of them have been pushed up and are now beginning to recede somewhat. So, my recommendation is no change in policy at the present time.",374
-fomc-corpus,1979,"Thank you, Nancy. Bob.",7
-fomc-corpus,1979,"Mr. Chairman, I come out somewhat less optimistic than the staff. Like many, we've been impressed by the strength we've had in the economy. It has been much greater up until now, as far as the statistics show, than we had expected. But I'm becoming increasingly concerned by the appearance of scattered signs that we frequently do see before a major downturn. The Redbook mentioned a number of these, [including] a lengthening of delivery times, high capacity utilization, tight supplies in the market for skilled labor, and the inventory figures. The last inventory figure, though partly explainable, coupled with an apparently heavy shift toward short-term borrowing on the part of businesses is certainly the sort of thing one might expect. And I'm especially concerned about the probability that in view of the petroleum situation we'll have some spawning of a general shortage psychology, which will lead to inventory buildups and probably heavy demands for short-term credit. And that will make it pretty difficult to keep M1 under control without pushing interest rates up rather high. Coupling this with the latest price data and the impending labor negotiations, I have to rate the possibility of stagflation or worse as pretty high. So my figures would come out lower than the staff's, somewhere in the neighborhood of what Chuck Partee said. Turning to the policy question, I think we have a difficult choice this morning. The weakness in the aggregates has persisted for about five months and this weakness has been a source of increasing concern to many of us, both within and [outside] the System. It seems to me that one could make a pretty good case for some easing this morning. But on the other side of the coin, there are three reasons why maybe we ought not take any action this morning. One, of course, is that we really don't know what those aggregates are saying. We, like so many others--John Balles and Dave Eastburn as well as Steve Axilrod--have tried to see what we could do by adding back in the things that might have been reducing the aggregates. And some of the arguments that people have made don't seem to us to hold water. But I don't think we can rule out the possibility, indeed the probability, that there has been a downward shift in the demand for money. If so, that's an important reason for not doing anything at this particular time. The second point is that historically we often have had a burst in the aggregates in April because of faulty seasonal adjustments, and I don't think we can rule that out. We could also have a temporary spurt in economic activity. And finally, the improvement in the dollar in the foreign exchange markets has been so fragile that I think any reversal of policy now could certainly jeopardize that. That gets me to the point where we work on [the specifics of] policy, and I won't say anything about that until after the break.",578
-fomc-corpus,1979,"Thank you, Bob. Willis.",7
-fomc-corpus,1979,"M r . Chairman, a sobering exercise at a time like this is to go back to the first quarter of last year and use our models or any other approach and ask oneself what conditions would produce a negative rate of growth in money supply in the first quarter of this year. We get astronomical interest rates and a lot of other things that we really haven't seen. So then we ask ourselves, given that everybody is expecting weakness at this time--and that's certainly the news--where do we find it? Again, if we follow our models, they may not work out quite this way. Having spent the winter falling into potholes, I take a pothole approach to economic forecasting. One of the potholes, of course, is in the energy area, with tremendous problems with respect to refining capacity. I really don't see how we can get out of this on any short-term basis. What this means for the consumer is that he may find he can't buy, beg, or steal gasoline.",199
-fomc-corpus,1979,The latter they can always do.,7
-fomc-corpus,1979,"Okay. Then we divert more of our oil supplies to producing electricity; with the shutdown of the atomic plants in this area, I don't quite know what this means. Another pothole I would call to your attention is the fact that we focus pretty much on the domestic scene in terms of our analysis. Now, the international situation looks a little better at the moment, but as I travel around and see the diversions of some of these economies into the military side, I get concerned about what this means down the road. If a country puts that much of its [economic resources] into the military, the tendency is to use it in one form or another. How this will turn out, I don't know, but we certainly can see trouble in Yemen and lots of other places that aren't in the headlines at the moment. The third point is the confidence factor on the international side and the tremendous flows that occur. And I look at confidence in another area--at many of our so-called monetary mechanisms. Take the credit unions and look at their loan/deposit ratios and their lack of cash; yet they're in the share draft business. What does it mean if customers really step up their demands for [withdrawing] their money from some of these [institutions] or want to transfer it? So, I would project the potential for weakness that everybody's talking about, and then I'm raising the question of whether there are other possible developments. The only real weakness I can find at the moment in the District is the coal situation, but in other areas such as cement there is strength. A number of the raw materials producers are at capacity. Steel is running flat out. There's just isn't any [more capacity]. If we get demand for steel in excess of [the current level], we will really be faced with a blow-up the other way. Now, it may not occur.",375
-fomc-corpus,1979,Did you say the demand for coal is weak?,10
-fomc-corpus,1979,"Yes, weak",3
-fomc-corpus,1979,That's the one place where it's quite weak.,9
-fomc-corpus,1979,I would say I end up confused in my outlook; I think the uncertainty level is really quite high.,21
-fomc-corpus,1979,"Thank you, Willis. So far it has been a very cheerful report! Now we come to Dave.",21
-fomc-corpus,1979,"Mr. Chairman, before I start, could I ask you a question? Is there anything that you would care to say about the discussions going on in the Administration currently?",34
-fomc-corpus,1979,"I don't know that there's anything I am able to say. The President is giving very careful consideration to making some decisions about energy. He hopes to do so by the end of the month and then announce them. I think he is perhaps trying to bite off an awfully large number of issues. I don't know whether he'll end up doing that. Of course, the core one is whether he will do something about decontrol or not. But there's a whole series of other things. He has not made any decision so far; it's a question of options. On the economic side, I think the main concern is whether the wage and price standards program can hang together. There is good compliance by the major corporations, but there's a feeling that medium and small corporations are ignoring it. They are going to put some effort, I think. to [change] that. They're also doing some technical things. They're sweating it out as to whether they can get to fall into compliance, but it has been extremely difficult.",201
-fomc-corpus,1979,"I was impressed by the Vice President's comment, I believe over the weekend, in which he mentioned monetary policy and continued restraint on the monetary front as being important. I wondered if the Administration might be starting to put us in the forefront of--",49
-fomc-corpus,1979,"I think the Administration is frustrated. There's nothing much they can do in the fiscal area now that would have much impact [in 19791. The deficit for this year is going to be less in any case, mainly because inflation is higher and, therefore, revenue flows will be higher. And there has been some shortfall of spending so that the deficit is now projected to be $33 billion [in fiscal 19791. I wouldn't be surprised to see it near $30 billion. And yet if they begin to cut back their $29 billion deficit projected for next year, that's the short-term problem. So I think they look with great anxiety over to 20th Street and Constitution Avenue to see whether we can contribute to a solution. I don't think they have any particular views on what, if anything, we can do.",167
-fomc-corpus,1979,"Well, my view could be summarized by reporting on a meeting that we had last week with some business people and [other contacts]. The discussion around the table was very optimistic about current conditions, almost uniformly so, until I took a [poll] asking who thought there would be a recession this year. And about three-fourths of the hands went up. And that's where I come out. I agree very much with the analysis Chuck gave. I think the staff's projections are too optimistic. I'm also skeptical about the Bluebook projection that the money supply will bounce back in the next month or so. I think that the slow growth of money is telling us something about the real economy and that that has implications for policy. I would dearly hope that we could hold the funds rate where it is in the next month but I would like to have policy tilted so that if the aggregates continue to be weak, we could edge that rate down.",187
-fomc-corpus,1979,Thank you very much. Bones.,7
-fomc-corpus,1979,"M r . Chairman, I, too, share the feeling that some business weakness, but not anything major, is likely early next year. I recognize that no two periods are exactly parallel, but history suggests that some things we experienced in '73 and '74 are coming back. Certainly, we are seeing a lot of anxiety about the prices of oil and food. We're seeing capacity constraint difficulties that have already been [mentioned]. There is the feeling that inventory building cannot be very far behind and some concern that the labor growth we have seen may be related as much as anything else to additional people entering the labor force [in an effort] to offset [the effects of] inflation. Indeed, [inflation] is the number one concern that we continue to hear about and it's taking its toll. We would be reluctant to put much emphasis at the moment on movements in the aggregates because they are confusing, both to us and to the market as a matter of fact. It would appear that the markets are expecting some slight firming. I feel that our failure to do that might very well raise some unnecessary and unneeded questions at the moment. It would seem that foreign exchange markets also would probably welcome a touch of firmness. Finally, while our projections are pretty close to most of the Board staff's projections, I want to make [clear my1 feeling that the staff probably has not projected a rate of price increases as high as we think it will be; we expect that to be more like 9 percent or probably above 9 percent.",308
-fomc-corpus,1979,"Thank you, Bones. Larry.",7
-fomc-corpus,1979,"Mr. Chairman, my position is essentially reflected on this button that I'm wearing which reads--",18
-fomc-corpus,1979,"I must need glasses, I guess. All my life I've never had glasses but I can't quite make that out.",23
-fomc-corpus,1979,"Well, I stole a page out of the MIT buttons and this reads ""MB 10-5 + 1Q = R."" Translating that, it says that when the monetary base decreases from 10 percent to 5 percent and remains that way for one more quarter, there is a very real probability of a recession. Inasmuch as we're flooding the Midwest with these buttons, I'll be glad to present this to you, sir, at the end of the meeting because it is historic.",100
-fomc-corpus,1979,MB 10-5? I could read that as more bunk for 10 minutes instead of 5.,22
-fomc-corpus,1979,"In spite of that, I'll proceed! As we analyze the behavior of money, and of course we do place a great deal of weight on the behavior of money, we observe that from December of 1977 through October of 1978, the monetary base grew at about a 10 percent rate. Since October of last year to the present there has been an abrupt decline in that rate to an average of about 6-l/2 percent, with it being close to 5 percent recently. Growth in bank reserves, which we think is important, has declined to a negative figure since October--less than zero as compared to a 10.2 percent rate of increase from December 1977 through October of last year. Mr. Chairman, in spite of the confusion that some of my colleagues have expressed, if we look back in history, most of the postwar recessions that have occurred--with the exception of [the one precipated by] unusual circumstances with the oil situation in '73 and '74--have been preceded by an abrupt reduction in the rate of money growth that has persisted for two or more quarters. For example, what happened prior to the recession in 1970 was that from mid-1968 through the end of 1968 money was growing at about a 9 percent rate. Early in 1969, monetary policymakers permitted that rate to fall to about a 3 percent rate; it persisted at 3 percent for a couple of quarters and there was a recession. Look at graphs. Whenever this phenomenon--an abrupt drop in the rate of money growth--has occurred and has persisted, there has been a recession. So based on that analysis, which is not one to be taken lightly, I think if we're going to err, we should err at this time in the direction of moving toward slightly expanded growth in the monetary aggregates rather than anything of a restrictive nature. We should certainly watch this very carefully this month and next month because if [the weakness] persists, we're going to be in trouble. I would just add in closing that there is an old saying that politics makes strange bedfollows, and I'm glad to be in bed with my strange bedfellow Governor Partee on this issue!",450
-fomc-corpus,1979,"It's an historic occasion! Thank you, Larry. Roger.",12
-fomc-corpus,1979,"Thank you, Mr. Chairman. I think I'm also falling into bed with some people that normally I would not have associated with in the past. We have done some of the same work that Steve has described this morning and a couple of conclusions are apparent to me at least. One is that M1 is totally unreadable now and, as a result, I don't think we should put a great deal of weight on it. But by the same token, the impact on M2 is not nearly as great. It has been rather readable. In any event, if one looks at all of the aggregates, it's fairly clear that there has been a substantial deceleration in their growth. And given the environment, most people, including myself, would look for recession some time later this year or early [19801. It seems appropriate that we be careful not to worsen that [prospect] in the sense of doing any further tightening at this time. If we're going to move at all over the upcoming month, then I would prefer to skew our ranges and targets in such a way that we would, indeed, move [the funds rate] down a bit. Whatever we do today is not going to have an impact on bringing inflation down further, it seems to me. We have rather strong constraints in place now as we have had starting last May. To do anything further at this point would not have an impact on inflation for some period out but would ensure a recession. As a result, I would prefer, for this month at least, to hold about where we are but to adopt a policy that will permit us to move back a little if indeed the aggregates continue [to growl at a low rate through the month of March.",346
-fomc-corpus,1979,"Thank you, Roger. Bob.",7
-fomc-corpus,1979,"Mr. Chairman, I still see considerable economic strength. Though the signs are increasing that we may now have some of the characteristics of the last stages of the boom, I don't think they are as strong as they have been at comparable times in the past. But I still would not be surprised at all if we have a couple of quarters of zero [GNP] growth at the tail end of this year and early 1980. I don't get terribly distraught about that prospect because I think it is a function of a monetary policy that, despite all our picking at it, has been a fairly successful one over the last year or so given the circumstances we had to deal with. We are in a trap. I think we all recognize that; if we don't, we should. The business of [being accused of] overstaying our [policy of] restraint is still true; that will be true inevitably each time we come to this pattern, regardless of what we do. And I say that advisedly because part of our job description is to be a convenient whipping boy. I don't say that with any bitterness; I think this is part of the function of the Federal Reserve System. We are handy [as a scapecoatl. We can portray an image that is very greatly oversimplified in the public mind--to the extent that they pay attention to us at all--and I am willing to suffer with that. Even our best efforts at economic education seem unable to put a dent in that. So I think we are in for some problems later this year, but I don't feel any sense of panic about that. To the extent that we have an influence, and we certainly do, I think we are part of the creation of the leveling out--1 hate to use the word recession. I won't be like Fred Kahn and make it a banana much less a kumquat, which I gather has succeeded the banana. We have some concern, and properly so, about a very low level of economic activity. But I view it as something that we can build on, not something to be afraid of. I find Steve's analysis very good. Sure, he is in a position, given his job description, to have to overly quantify some things that are extremely difficult to quantify in order to be as helpful as he can. But I think the tenor of his remarks is basically sound, and I interpret [his remarks as supportive of] my own feelings that it is too early for any easing. I would prefer to stay where we are and lean a bit toward--and really just a little--more pressure because I don't think it would do any harm. On the international side, although I'm not as pessimistic as Paul is, I think the basic tenor of his remarks is correct: We still do have a very serious problem in maintaining the value of the dollar. The improvement that we are seeing now, the ""stability"" in the value of the dollar, I think is going to continue partly for a very negative reason--that there is more concern about the stability of the Deutschemark, the yen, and the Swiss franc. That is damning with faint praise. But I think this will help us stabilize the dollar, even though it seems to some people that we're all going down together. We are still looked upon as a leader in terms of [unintelligible] government action. To overstate it or simplify it, we are seen as the Rock of Gibraltar. I would prefer to see us stand up and take the rap, since we're going to get it anyway, and keep the pressure on a bit longer.",730
-fomc-corpus,1979,"Thank you, Bob. Tom.",7
-fomc-corpus,1979,"Mr. Chairman, the Ninth District economy has been very strong and continues strong. Our District's unemployment rate is lower than that for the country, at 4.4 percent versus 5 . 8 percent. Our help wanted advertising is at a record high in the Twin Cities area. Farm income in our District is up sharply. The inflation rate in the Twin Cities was 11-1/2 percent for the last year, considerably higher than for the country. The only negative factor in our otherwise positive picture is housing starts; they are down. And at least in Minnesota we're not willing to say that that isn't weather-related this year.",129
-fomc-corpus,1979,I wouldn't think you'd build anything in that weather !,10
-fomc-corpus,1979,They built two houses!,5
-fomc-corpus,1979,"On the national level, we continue to be very concerned about inflation. Of course we're uncertain, as everyone is, about the impact of the oil shortage, and we don't fully understand the current state of the monetary aggregates. So in view of the uncertainty about oil, housing, and the aggregates, we would favor holding the line for this month.",69
-fomc-corpus,1979,"Thank you, Tom. John",6
-fomc-corpus,1979,"I hope Chuck has a king size bed because I would like to crawl into it too! There is no sense in reviewing in detail the way I come out because essentially I'm in agreement with Chuck's analysis; we were apparently reading the same tea leaves. If that analysis is right, then the strategic problem for us now is how to get a soft landing. We can't stuff the genie back into the bottle as far as inflation is concerned. We shouldn't expect instant results from the tightening that we've engaged in since last November 1. We all know about lags in policy and, unfortunately, they seem to be longer on the price side than on the real economy side. So we're going through that usual agonizing period when the bad news comes now in terms of the damping the economy and the good news comes later--perhaps as much as a year later--when monetary restraint begins to show through on the price front. The real danger at the moment, therefore, is overstaying restraint. I fully understood and concurred in the moves we made on November 1; in effect, since that time we've been targeting interest rates. It was done almost under crisis conditions because of the potential for international economic and financial disruption at a time when the dollar was going down like a rock. But we've done that and now we've seen some extremely slow monetary growth, even after adjustment for ATS and NOW accounts and so forth. And given the fact that the staff forecast for money has been way over the mark for 5 months in a row now--and as Steve well knows I'm not being critical because this is a very slippery business--I will bet you a drink or dinner, Steve, that the actual March numbers will be about as weak. I suspect they will be down several percentage points from your present forecast, as they have been in October through February. So I am getting an increasingly uneasy feeling about overstaying restraint and I would begin to hedge our bets by a slight tilt toward a lower funds rate, trying to get money growth back up a little closer to what we declare to be our 12-month objective.",419
-fomc-corpus,1979,"Thank you very much, John. Ernie.",10
-fomc-corpus,1979,"Mr. Chairman, I suppose I'm as confused as anyone else. A nice warm bed is always attractive but--",22
-fomc-corpus,1979,I didn't know it was so warm!,8
-fomc-corpus,1979,"--that particular bed is rather crowded right now anyway. We have worked the numbers, as presumably everyone else has, and come to fairly inconclusive conclusions. By inquiring around I have attempted to get some impression of the activity in mutual fund accounts because, as you know, one can draw checks on most of them but the minimum size, though it varies, is very often $ 5 0 0 . And it doesn't take a very large number of $500 transactions to equal the number of checks over $500. Now, the very small proportion of total checks in the system over $500 does account for a very high proportion of the total volume of expenditures handled through the check mechanism. So if there were some fairly persuasive evidence that we were getting a significant number of transactions through these money market funds--and after all it is expenditures not balances that move the economic machine--then there might be some basis for feeling a little less distressed about the indicated slow growth in [bank] balances. I take some comfort also in the indicated resurgence in demand for bank credit; I hadn't been inclined to downplay it to the extent that Steve has in his analysis this morning, although there may be justification for that. I hear generally from bankers that they see quite a strengthening of demand for credit from their customers and across a broad array of types of activities. Just an incidental point: There's a good deal of resentment in the western part of our District with respect to the very large amounts of emergency credit the government is injecting into agriculture [because] the evidence is that fair amounts of these funds are being diverted into conspicuous consumption on the part of the borrowers.",330
-fomc-corpus,1979,I didn't know anything was conspicuous in Texas !,10
-fomc-corpus,1979,We should have had Ernie here to view those large tractors.,13
-fomc-corpus,1979,"I can see them all back home! It is interesting that we have had a fairly persistent decline in the number of rotary rigs in operation. The decline has been significantly more in Texas and to some extent in Louisiana than in the country as a whole. And this [is occurring] in an environment of obviously short supply of the items they would drill for. I also hear more reports at the present time than I have heard at any time previously relative to ""shut in"" supplies. As I say, this is a somewhat puzzling situation. I have raised questions with people engaged in this business as to why. The explanation given is almost universally weak prices and excess supplies of natural gas within the Texas market, When one asks, given the gestation period of bringing a well into production and given the trend in supplies and prospective demands for oil and gas, why a temporary price weakness in a given location should result in a significant reduction in the amount of drilling activity, [the shutdowns] seem to make a lot of sense to the people I've talked to, although I've had difficulty fitting it together in my own mind. The weakness in housing in Texas at the present time I think is a phenomenon of usury ceilings. I would raise a question as to whether the national figures have been looked at state-by-state in connection with the usury ceilings to see whether that might be a significant factor--that such states might account for enough of the [weakness in] total housing starts that it would be important. AS I say, I think it is the dominant element in the picture in Texas, particularly for single-family housing at the present time. I believe the demand is there; we've seen no indication of resistance to interest rates. It's simply that with the legal ceilings and the legal question about points as well as the difficult aspects of points in the financing process that lenders have stopped making commitments on one-family dwellings. Of course, the fact that the legislature is in session and is considering this matter [of the usury ceiling] may be contributing to the shut-off of commitments at the present time as compared with lenders making more intensive efforts to try to work around the ceiling if that were not the case. I've raised questions with everyone I've come into contact with who would seem to be in a position to know whether in the current circumstances there is something in the international arrangements which might be an explanation for the high volume of expenditures in this country from what appears to be a falling or a low volume of balances. Again, [that effort] has not been very productive. I haven't uncovered anything there but I'll have to admit it still seems to me that something may well be there which we have not discovered or documented. It seems to me--",547
-fomc-corpus,1979,We're running a little low on time and I wonder if you could just conclude.,16
-fomc-corpus,1979,"It seems to me, although based on historical experience it would be a very high risk position, that we should maintain the position we have had in recent months with respect to monetary policy.",37
-fomc-corpus,1979,Thank you very much. Frank.,7
-fomc-corpus,1979,"Mr. Chairman, I think we're facing an emerging conflict between the domestic and international requirements of monetary policy. In the past year they've been nicely in harmony but, quite clearly, we're moving into a period where they are going to be in conflict, because I think we're approaching a cyclical peak in the economy some time around midyear for the reasons cited by Chuck Partee. I would simply add one more point: In the month of January, when we had no increase in industrial production, we had a whopping increase in inventories, which suggests that final demand was extremely weak. Now, this picture of an approaching cyclical peak is not conclusive and, of course, it won't be conclusive until the peak is three or four months behind us. And that is why monetary policy has always lagged in the past. If we're waiting f o r conclusive evidence, we'll inevitably lag again. But if we change policy now in the face of inconclusive evidence, it means that we have to be prepared to shift again if it appears that the economy is somehow getting a second wind, which I think is unlikely but possible. In my view, we don't know much about the demand for money; we used to think we did a few years back. But we do know something about the supply of money. And one thing we know is that we're not going to get much of a supply if bank reserves don't grow, and they haven't grown for the past six months. If it's our objective to avoid a recession, I think we have to move today; I don't think we can wait for another month. One thing I've found around this table is that one can always make an impressive case for waiting for another month. But the evidence suggests to me that the time to move is now. I think the issue is whether we seriously are concerned about avoiding a recession or not. Paul, I think, is resigned to a recession; I think the international constraint may be more of a factor in his thinking than he let on.",403
-fomc-corpus,1979,Inflation is a factor in my thinking.,9
-fomc-corpus,1979,"But the issue is whether we will be better off in 1980 with a 7 percent unemployment rate or an 8 percent unemployment rate. I'm inclined to believe that in the long run we will be better off with a 7 percent unemployment rate simply because that is likely to be more conducive to the maintenance of the kind of conservative fiscal policies that are now being talked about in the Congress. I'm a little concerned--as I was about Nancy's idea of waiting a month--about John Balles's phrase ""slight tilt,"" which implies a move to 9-7/8 percent or something like that [on the funds rate]. It seems to me that if we're going to move, we're going to get some flack no matter how much we move. We're going to get just as much flack moving to 9-7/8 as we would to 9-1/2 percent.",183
-fomc-corpus,1979,My slight [tilt] was to 9-3/4 percent.,16
-fomc-corpus,1979,I think we ought to move at least to 9-1/2 percent and we ought to move now.,23
-fomc-corpus,1979,"Thank you, Frank. Phil.",7
-fomc-corpus,1979,"Mr. Chairman, I've listened to a lot of wisdom around this table and--",16
-fomc-corpus,1979,Do you agree with any of it?,8
-fomc-corpus,1979,"Yes, a good share of what has been said on both sides. I thought after the first two speakers that we had a very well defined two-camp arrangement. The subsequent speakers have blurred it somewhat. I look at this by trying to nail down, at least in my mind, a couple of points. First. looking at the economy, I think we do have [some strength] in labor markets, new orders, capital spending, business inventories, and loans. There is perhaps some weakness showing up in personal income--although I'm not quite ready to concede that--and in housing and industrial production. But the primary weakness in this economy right now is that it's [experiencing] an inflationary surge and there's concern about oil prices and uncertainty on the international political scene. My interpretation of all this leads me to feel that we are near capacity in effective labor and in several industries, so I don't really expect industrial production to be able to grow very fast unless we find some way to push a magic button and improve our productivity. On inflation, I think the surge is in food, raw materials, and energy. I give very little [weight] to the aggregates these days because they are totally confusing; I think we're utilizing some stock we built up in the latter part of last year. Whether they will take off under the new set of rules I don't know. From a policy standpoint, I think we have to balance some of the risks. Are we willing to risk a further surge in inflation, carrying it up beyond the 10 percent the Commerce Department is talking about in the first quarter and perhaps even up to a figure in the 15 percent area? I would view that [development] as perhaps one of the most debilitating to our entire economy of anything [that could happen]. The other risk, of course, is a potential recession. And the balancing of these risks is what I think the Open Market Committee's decision is all about today.",391
-fomc-corpus,1979,Thanks. Did you indicate which direction?,8
-fomc-corpus,1979,"I did not, Mr. Chairman. I'll wait until after the [break].",16
-fomc-corpus,1979,"Thank you, Phil. Henry.",7
-fomc-corpus,1979,"I think we're in imminent danger of building into the economy a higher rate of inflation and of putting ourselves into a position, with or without a subsequent recession, of having to work that off and starting from a higher level with less chance [of success] than we had the last time around. It's not true that we can't work off inflation; we did it after the experience of '74 and ' 1 5 , But we've done very poorly of late and our surprises have always been that we've found more boominess in the economy and more inflation than we expected up through the last forecast which shaded the boominess a little. So, I see our main risk on the side of inflation. And I fear that we're in some danger of validating the increase in the price of oil and accepting that as inevitable. I think we ought not to do that; I'd accommodate this kind of outside shock only partly. It seems clear that the economy is much closer to capacity than we had thought. That is, I think, accountable for a good part of the pressures we're getting. Whether or not a recession is in the works is probably something that is beyond the power of monetary policy now to remedy. I think we have more chances of doing something about inflation than doing something about a recession. If there is a recession, it is likely to be a moderate and short one. I have that reaction because of the fact that it's so widely advertised and, in the face of that, business behavior has been to step up plant and equipment expenditures. It seems to me they're looking beyond the valley; they can't possibly be planning to put much [capacity] in place before some kind of a slowdown occurs. Meanwhile, the inflation pressure is threatening the President's wage and price program and if that collapses, we've lost one further instrument. It threatens the dollar and if something happens to [weaken] the dollar, we will have more inflation. All this suggests to me that the dangers are more on the side of inflation than on the side of the real sector. I don't want to minimize those real sector risks; I think they are real. I might add that people who are concerned about excessive boominess and excessive inflation are not just a small minority. I'm surprised how much support one sees around the country, even in the Congress and even among economists whom we have listened to and not usually found on the restrictive side--and even, if I may say s o , amony some people in the Administration. So if we are talking about beds, there are some prospects for unusual bedfellows here. A s for the aggregates, I have much sympathy for Steve's analysis. I think it is reasonably persuasive except perhaps the magnitude. I would l o o k at bank credit at the present time as something like a proxy for the aggregates, realizing that it's not a very good measure of total credit. S o that brings me to what I should say about policy. I think if we fail to do something that recognizes the threat of greater inflation, we will really add to that inflation. A demonstration [of our anti-inflationary resolve] is needed. At a minimum, I would not relax the funds rate for that reason. I'm very reluctant to push it up because I can see that six months from now we might regret having done that if the economy has weakened. I think some demonstration--an action on reserve requirements or the discount rate--might be more [appropriate], within a broader program than this Committee would ordinarily deal with. On the funds rate, I would like to hear the rest of the discussion.",720
-fomc-corpus,1979,"Thank you very much, Henry. Well, this has been very helpful. I think the best thing to do is to take a break for a few minutes and come back as near to 11:30 a.m. as we can and see if we can wind this up.",56
-fomc-corpus,1979,"Let me make a couple of observations. One is that in the course of these four years of business expansion, we've had all the elements of a long expansion. And we've had some new territory to explore since we've had only one other period in our lifetimes when there has been high inflation during peacetime in the United States. We've had it in the whole decade but it's higher than even the ridiculous rates of 6 percent we had in the ' I 3 to '75 timeframe. We don't have much in our models to help us understand those periods. There were peculiarities in that period related first to the aftermath of mandatory controls and then the oil boycott, so we can't crank that into our model and assume that that was an experience or a base from which all future periods of like rates will track. In this particular cycle we've had an usual experience where we have alarmed the public about inflation in order to get policy changes and they reacted by finding out that inflation is a danger, which makes our policy direction more difficult. Nonetheless, without alerting them, we couldn't get the policy changes. And one of the things that consumers did in the face of this was to engage in preferring goods to money and, therefore, there was anticipatory buying which worked against our efforts to cool the economy. And businesses, having been burned so badly in 1973-74, have behaved extremely cautiously during this period. Their investments in either capital or inventories have been cautious. On a net investment basis, after replacement, we are not back to where we were at the prior peak. [Business firms] are actually investing less today than they were at the peak of the last cycle on a net basis. So there has been nothing exuberant about business behavior. They've been quite prudent, I think. We now have recently [unintelligible]. And the question before the house is: Does this mean that businesses also have begun to cave in to the inflation psychology and have begun to opt for goods over money? And will this create a speculative boom that [produces] another peak of sustained inflation, which then will result in a bigger bust? Well, the data appear to be confusing. To the extent that any business decisions currently represent capital commitments, I would say that we should have little concern. Number one, the actual expenditures will be spread over a time [period] that we all predict to be soft economically at any case. In terms of material actually bought and paid for and labor actually employed, it will come at a time when there's not excessive economic activity. To the extent that it works on the supply side and deals with increasing capacity and modernization and reduces unit costs and contributes to productivity, we should all be applauding and encouraging it. To the extent that it represents inventory accumulation, on the other hand, it could be dangerous because it could result in excess stocks, leading later to cutbacks in production, thereby exacerbating the slowdown and tipping the economy into unnecessary recession. So one has to analyze that. Now, to the degree that stocks are being replenished because of [final sales] in the fourth quarter being stronger than expected, that's part of the solution. To the extent that stocks are being accumulated because of the fear that there may be a trucker's strike or a rubber strike, one has to admit that that's not speculative behavior but a prudent hedge which has an impact on the economy later but does not represent a shift. To the extent that the accumulation represents a fear that the energy situation is a problem in terms of availability and cost--[if that fear] is rippling through the world again and feedstocks and petro-based products of all types and materials related to that are being bid up--if that is either hoarding or a hedge or a speculation, we have a problem. And to what degree that's all happening [I don't think] any of us can judge. In any case, what we do today is unlikely in my opinion to have much impact on the real behavior of the economy for the next two months. Therefore, what we should be doing today is thinking about what our policy direction should be as the year progresses, thereby being more consistent with our longer-tern view that the monetary aggregates affect the economy over time. We could send up red flags or white flags or yellow flags and people are probably going to behave pretty much based on these other factors. How they view the energy situation is probably more overwhelming right now than anything else. S o with all that, I would ask you to turn first to page 7 of the Bluebook and thumb through to page 13. Look first at the staff's suggested alternatives for our directive for the period. Then look at page 13 where we can see [the projected outcomes relative to our long-run ranges1 if, for example, we took alternative B and were within the growth ranges contemplated for the aggregates for the next 2 months under alternative B. If we were pursuing M1 in the 4 to 9 percent range and we hit the top of it, we would get growth back up to just within our long-term range. We'd still be below on M 2 , at the top of our range on M3, and we would be just touching the bottom of our [Ml] growth range; on bank credit we'd be at the upper bracket. The Bluebook also continues to present to you the rates of growth for monetary aggregates that would be required to get back to the [upper limit], the midpoint, or the [lower limit] of our own target ranges over a period of time. Those I believe are shown on page 10. With all of that, my thought would be that the right posture now is one of seeking to [guide] the aggregates back toward our ranges, but not doing so with undue acceleration or signals of undue concern by moving too rapidly. I would be more patient for the reason that I think the economy is going to pursue its own course right now. Nor do I think we ought to start to send any particular signals of unusual tightening or monetary restraint because that wouldn't do much in the short term and in the long term it would work against our desire, if we believe in our own ranges and the objective of getting back inside the ranges. For that reason I would be inclined to take a moderate course of more or less even keeling where we are; I'd [put] our objectives for M1 and M2 in the 4 to 8 or 4 to 9 percent area [unintelligible]. Those are just my personal observations. I would appreciate having inputs from each of you. I might say that on the thrust of policy the score card reads as follows: John Balles, slight tilt toward a lower funds rate; Bob Black, no action now; Phil Coldwell will tell us later; Bones Kimbrel, some firming; Bob Mayo, hold the current position, although I gather from what Bob said that a trifle more restraint would be acceptable; Chuck Partee, what he said was that it's time to do something and reading between the lines I think he'd like to ease. Nancy Teeters, no change in policy; Paul Volcker, some firming; Henry Wallich, hold is what he actually said, but to demonstrate in some other ways that we are continuing our concern about inflation, which we obviously are; Ernie Baughman, maintain policy; Dave Eastburn, maintain the funds rate but tilt policy to ease; Roger Guffey, if anything, move in the direction of ease; Frank Morris, 9-112 percent today--",1530
-fomc-corpus,1979,Tomorrow would be all right.,6
-fomc-corpus,1979,"Larry Roos, err on the side of moving toward ease; Willis Winn. I'm not sure what you came down on, Willis.",27
-fomc-corpus,1979,Hold steady.,3
-fomc-corpus,1979,"And Tom Gainor, hold the line. So that's the rundown. Now let's see what you'd really like to do. John Balles.",28
-fomc-corpus,1979,"Well, in my tilt toward less restraint--1 certainly wouldn't call it ease--on the specifications I would land somewhere between alternative A and alternative B. Specifically, on M1, the 4 to 9 percent range would be acceptable to me. On M2, I would make the range 5 to 9 percent based on my view that we shouldn't let M2 fall further below the lower end of our 12-month range. That's why the 3-1/2 percent in the Bluebook bothers me. And on the funds rate, I would like to see a range of 9-1/4 to 10-1/4 percent with an immediate move to 9-3/4 percent. One reason in particular for tilting toward a lower funds rate at this time is the point I referred to in my earlier remarks about the consistent over-forecasting by several percentage points on both M1 and M2 that has been going on for five months now. If that over-forecast continued in March, which is my full expectation, we're going to see some more very low numbers in the growth of the monetary aggregates in the month of March. That would make a full six months and that begins to worry me. We really have a dilemma in the sense that the announcement effects could be counterproductive both with respect to the value of the dollar and the public's perception of what we're up to. But realizing that there are lags in the impact of policy, as I continue to stress, and given my expectation of a recession by the middle of the year, I think it's now time to begin to unwind this posture we've been in since November.",336
-fomc-corpus,1979,"Thank you, John. Bob Black.",8
-fomc-corpus,1979,"Mr. Chairman, I guess it's most accurate to say that I want a foot in each bed. I'm worried about both inflation and recession. I'm worried about what a recession might do in speeding up inflation later by causing us to throw in all our chips. So I think we have to be sensitive to both concerns in reaching a policy decision and I believe we ought to let the behavior of the aggregates guide what we do in the weeks just ahead. We [at the Richmond Federal Reserve Bank] tend to do that more than perhaps most people around the table. I believe we could do this pretty well with alternative B coupled with an aggregates directive. As I read this, that would give us a midpoint [on M11 of 6-1/2 percent and would trigger some action to lower the federal funds rate if the aggregate came in at 5-1/2 percent or lower. Growth at that rate would mean--if we look at this on a 3-month moving average basis, which is the way we like to do it--no further deviation of M1 from the path that we've set from the fourth quarter of last year to the fourth quarter of this year; it would continue to be about as much below the path as it has been. For a change, I'm less concerned on the up side and wouldn't be bothered if we hit a 9 or 9-l/2 percent rate of growth in M1. I suppose what I said is tantamount to saying I want an aggregates directive on the bottom and a money market directive on the top. The M2 range in alternative B would suit me fine, but I have even less faith in that than in M1 because I think the tightening of money has depressed M2 more. The money market funds have been coming mostly out of M2, I think, rather than M1. So far as the federal funds range is concerned, I would prefer to see that stay at 9-3/4 to 10-1/2 percent.",405
-fomc-corpus,1979,"That's "" B . """,5
-fomc-corpus,1979,"That would be ""B."" I'd buy those specifications.",11
-fomc-corpus,1979,Thank you. Phil Coldwell.,7
-fomc-corpus,1979,"Mr. Chairman, I would prefer to do some of what Bob is suggesting, but with a tilt to it. I took your specifications to a degree: for M1, 4 to 8 percent; for M2, 3 to 7 percent; and for federal funds, 10 to 10-1/2 percent, with a midpoint of 10-1/4 percent. A zone to play with between 10-1/8 and 10-3/8 percent will enable the Desk to move around a bit. And if the aggregates come in extremely weak again, I would expect consultation by the Committee.",129
-fomc-corpus,1979,"Thank you, Phil. Bones.",7
-fomc-corpus,1979,"Mr. Chairman, I think Governor Coldwell has just spoken my piece. I would favor exactly the numbers [he proposed1 of 4 to 8, 3 to 7, and 10 to 10-1/2 percent. I would not like to see the funds rate drop below 10 percent; I think that clearly would be misunderstood. In my view the danger is on the side of inflation. And with our visibility in the markets, both domestic and international, any failure to recognize this danger of inflation could indeed cause us problems. I would like to see us with alternative B and those numbers.",125
-fomc-corpus,1979,Thank you very much. Bob Mayo.,8
-fomc-corpus,1979,"It so happens that I've also jotted down 10 to 10-1/2 percent on federal funds. I would treat it asymmetrically, rather than jump immediately to 10-1/4 percent. But if the market urge tended to push it toward 10-1/4 percent, I wouldn't resist it. For M1 4 to 8 percent is fine and 4 to 8 percent is all right for M2, although I don't feel strongly about that versus the 3-1/2 to I-1/2 percent. I would do a money market directive.",123
-fomc-corpus,1979,"Thank you, Bob. Chuck Partee.",9
-fomc-corpus,1979,"Well, if I had the nerve, I would suggest what Frank Morris did because I think that is what's really required if we're to have any chance of avoiding a recession. And [even] that might not do it, but it's a start. But I do think there is more of a signal hazard in the current rate of inflation than that policy would make appropriate. I believe that we have lost a lot of ground with reference to the projections that we gave to the Congress just six weeks ago and we don't have a sliding base or anything of that kind any more. So I would hate to see us lose any ground relative to those presumed growth rates in the aggregates, unless we could say to Congress that we're doing that because the business outlook is really very much stronger than we expected, and that's not the case. If anything, it's very much weaker than we anticipated or than we said was consistent with our policy. I think it's important to look at the aggregates and I would go to an aggregates directive. I could live with 4 to 8 percent [for Ml]. If you look at [the chart on1 page 13, 4 percent picks the growth up just a bit and 8 percent would get us to about the lower limit, so I could live with 4 to 8 percent in the spirit of compromise. I would like to raise M2 to 4 to 8 percent also because I think it's very difficult to interpret what may happen in terms of the distribution of money market certificates between banks and thrifts when there is no differential and that is going to tend to favor the banks over the thrifts. Therefore, I would lift that range just slightly in order to allow for that contingency. So 4 to 8 percent on both M1 and M2 I think would be satisfactory. On the funds rate range, I would like to tilt it downward a bit, though not as much as John Balles would. I can't visualize within those aggregate ranges any reason at all for taking the funds rate over 10-1/4 percent. So I think 10-1/4 percent ought to be the top and 9-1/2 percent ought to be the bottom. And I would treat [the range1 asymmetrically; that is, I'd leave the funds rate at 10 percent or a tad above where it is now until the aggregates begin to move. If they begin to show weakness within their ranges--toward the lower end of the ranges or below--1 would then move the funds rate down. I think the time has come to do that, if in fact we have another month where the aggregates are quite weak. Now, the staff is predicting that they won't be: and if the staff is right, there wouldn't be any easing. But if the staff is wrong, there would be an easing. So my preference would be 9-1/2 to 10-1/4 percent with a midpoint of 10 percent from the standpoint of current Desk operations.",608
-fomc-corpus,1979,"Thank you, Chuck. Nancy.",7
-fomc-corpus,1979,"Well, I can live with a 4 to 8 percent range on M1. And I don't think 4 to 8 percent on M2 would make too much difference; I happen to agree with Phil that if things begin to come apart, we will need to have a meeting. I would like simply to stay where we are and would recommend a federal funds range of 9-1/2 to 10-1/2 percent. If there's any question on economic developments, the funds rate should be shaded down. I notice that we seem always to end up at the top of whatever our range is in the actual operations of the market, and I would like to see the funds rate on the low side of 10 percent, but certainly not above 10 percent at the present time.",162
-fomc-corpus,1979,"Thank you, Nancy. Paul",6
-fomc-corpus,1979,"I do think we need to make some move in recognition of what has been happening on the inflation front. And I think it's good for the stability of the economy in the long run, as I said earlier. In terms of getting back into the longer-range targets, these figures on page 10 don't look particularly frightening to me in terms of what it would take to get back [into the ranges] by the third quarter. It seems fairly natural; it's only a 6 percent rate of growth in M1. I'm not sure we wouldn't get that, or maybe even exceed it, in the ordinary course of events. I don't know. I don't think that target itself, though written in our records, is written in heaven, given all the uncertainties that we had when we set it. But it doesn't look to me as if we're out of sight of it completely when I look at what it takes to come back. I also think we're in a much better position in terms of any easing move that we might want to make as time wears on. If these concerns about a recession, which I share to some degree, are true, we're going to want to be easing at some point; we're going to have to. I would rather make a small gesture now toward some firming and have a little more credibility when the case for easing is clear without upsetting the whole psychology of our basic anti-inflation program. I think we'd be a little better off. Looking at it in terms of the funds rate, I would be happiest going to 10-1/2 percent, which is a fairly small move when it becomes visible. I could live with the figures that Mr. Coldwell or Mr. Kimbrel cited certainly, which would involve a very modest move to 10-1/4 percent and putting the range at 10 to 10-1/2 percent. I've been sitting here thinking about whether the money market or aggregates approach is better. With that kind of range and with some modest initial move, I could live with the aggregates approach easily enough, although I was originally thinking of a money market [directive]. Any of the ranges that have been mentioned for the aggregates seem a little on the high side to me except for the M2 range of 3 to I percent, which doesn't bother me at all. For M1, 8 percent on the high side does worry me and I'd rather go with something like 2 to I percent and make sure we stay at 10-1/4 percent [on the funds rate] or move slightly higher if M1 actually gets up to the I percent area. I recognize that we have the telephone conference alternative at all times too, so the exact level of the aggregates isn't quite as important to me as the movement on the funds rate. I'd like to make some gesture there immediately.",573
-fomc-corpus,1979,"Thank you, Paul. Henry.",7
-fomc-corpus,1979,"Well, I question the meaning of the aggregates. I think we have to add something to them, both for ATS and for shift in the demand curve, so I believe they are much higher than they look on paper. I would, therefore, take the C alternative, 3-1/2 to 8-1/2 percent for M1 and 3 to I percent for M2. And somewhere in the directive I would make reference to the view that the aggregates are being interfered with by technological developments due to ATS and other factors, which I think should also be reflected in our one-year targets. There's no sense running after those if we have good reason to believe that something has happened to the demand for money that makes a given amount of money go further than we thought it would. On the funds rate, I would like to push it up just a little to 10-1/4 percent and go to a range of 10 to 10-1/2 percent. But I do think the inflationary environment calls for some other kind of action, so I would say that the Board should move on reserve requirements or the discount rate or some combination of these in a moderate way. AS far as the nature of the directive is concerned, I'd like to have a money market directive with the range of 10 to 10-1/2 percent and, as I said, move to the midpoint of 10-1/4 percent with reasonable promptness.",299
-fomc-corpus,1979,"Thank you, Henry. Ernie.",8
-fomc-corpus,1979,"Mr. Chairman, alternative B as presented in the Bluebook is an acceptable prescription for me.",19
-fomc-corpus,1979,"Thank you, Ernie. Dave.",8
-fomc-corpus,1979,"I would keep the funds rate where it is and I would use the bottom of the alternative A range [for Mll as the guide. I'd accept any growth in the aggregates above that bottom. And if the aggregates started to break through that bottom, I would have a telephone conference call.",58
-fomc-corpus,1979,"Thank you, Dave. Roger",6
-fomc-corpus,1979,"I would prefer ranges for both M1 and M2 of 4 to 8 percent--paying little attention to M1 but more to M2. in which I have somewhat more confidence--with a funds range of 9-314 to 10-114 percent, centering on 10 percent, which may or may not be a perceptible move downward. That is 10 or 15 basis points that perhaps the market would read. And I would favor going to 10 percent immediately.",102
-fomc-corpus,1979,"Thank you, Roger. Frank.",7
-fomc-corpus,1979,"Mr. Chairman, as I said earlier, I would move to 9-l/2 percent on the funds rate. When that has been recognized in the marketplace, I think the Chairman ought to hold a press conference and explain this unprecedented development of the Fed moving the funds rate down before we're actually in a recession.",63
-fomc-corpus,1979,We don't know that for sure. We might actually be in one.,14
-fomc-corpus,1979,"We might actually be in it, yes.",9
-fomc-corpus,1979,We don't actually know there's going to be one.,10
-fomc-corpus,1979,"But it would be an unprecedented move and I think we would have to explain to the market that with a 10 percent funds rate, we've had no increase in bank reserves in six months and, therefore, no increase in the money supply. We need to explain that although our concern about inflation has not diminished, we also have concerns about the economy and want to keep it on a slow growth path rather than send it into a recession. We should note that if our concerns about the economy should change--if it turns out that the current trend toward a softening in the economy tends to be a short-term phenomenon--we will be quite prepared to move the funds rate back up to 10 percent. At least we'd have a head start on the job that I think we're going to have to do later on anyway.",163
-fomc-corpus,1979,"Thank you, Frank. Larry.",7
-fomc-corpus,1979,"If our concern, Mr. Chairman, is to avoid or at least minimize the recession, and if our concern is about continuing to undershoot the growth ranges for the aggregates we had projected, I think there's no way we should tolerate a range that could possibly entail M1 growth at a rate as slow as 4-114 or 4-112 percent. So I would recommend raising the lower end of alternative A, if you will, to 6 percent so that under no circumstances could M1 growth continue at 4 to 4-112 percent. The M2 range is satisfactory as shown and in order to have the greatest opportunity of avoiding a continued undershoot of the aggregates, I think we should widen the fed funds range and allow the possibility that the rate could be reduced significantly. If the signal problem is difficult, let's make the range 9-1/4 to 10-114 percent. I think we should have an aggregates directive and an understanding that the Desk should keep an eagle eye on these aggregates and not permit them to sag by concentrating on maintaining the funds rate near the upper end of its target range.",227
-fomc-corpus,1979,"Thank you, Larry. Willis.",7
-fomc-corpus,1979,"Mr. Chairman, I'd take generally alternative B with a 4 to 8 percent range on both the M1 and M2 ranges and an aggregates directive.",32
-fomc-corpus,1979,Thank you. Tom.,5
-fomc-corpus,1979,"Mr. Chairman, we would favor alternative B.",10
-fomc-corpus,1979,"Okay. As usual we have complete unanimity! For M1, 4 to 8 percent seems to be the most popular range, with six [members]. And we have for M2 four who said 4 to 8 and four who said 3 to 7; we had one for 3-1/2 to 7-112 and one for 5 to 9. For the funds rate, 5 people want 10 to 10-1/2 percent--six, I guess.",106
-fomc-corpus,1979,Of the voting members?,5
-fomc-corpus,1979,"I'm talking just about the voting members. Well, I have Phil Coldwell, Bones Kimbrel, Bob Mayo, Paul Volcker and Henry Wallich. That's five. I miscounted, excuse me. ME1. COLDWELL. The 10-1/2 percent is at least a ceiling on all the ranges.",69
-fomc-corpus,1979,"Yes, nobody was over 10-112 percent.",11
-fomc-corpus,1979,"There was variation on the bottom, though.",9
-fomc-corpus,1979,"Yes, one of us, Nancy, had a 10-112 percent top limit but that was with a 9-112 percent bottom. Chuck had 9-112 to 10-1/4, Bob Black had 9-3/4 to 10-112, and John Balles had 9-1/4 to 10-1/4. But on the low side we had five with a lower limit of 10, two at 9-1/2, and one each at 9-3/4 and 9-1/4 percent. I haven't said anything yet.",127
-fomc-corpus,1979,It averages Out to 9-314.,9
-fomc-corpus,1979,"Yes. It looks to me as if we could cut this on a 4 to 8 percent on M1. I don't know quite what to make of M2, but 3-1/2 to 7 - 1 1 2 percent looks to be a mid-range [preference] And the compromise area might be 10 to 10-1/4 percent on fed funds.",83
-fomc-corpus,1979,And then just have a money market directive.,9
-fomc-corpus,1979,"Yes, and just have a money market directive--stay or more less where we are. That's what would seem [to be closest to a consensusl. How many would favor that?",37
-fomc-corpus,1979,"A question first, Mr. Chairman: What is your reading on the consensus view for the midpoint of the federal funds range?",25
-fomc-corpus,1979,"As I look at this, I'd say the consensus is to stay at about the prevailing rate, which is 10 percent plus. Five were for the prevailing rate. One--that was you--was for a lower rate. And Phil and Bones were for just a slight firming--I would say something a little over 10, maybe 10-1/8 percent. Some wanted higher.",80
-fomc-corpus,1979,"It is just four weeks until the next meeting, is that right?",14
-fomc-corpus,1979,"That's correct. Well, let's try that one in a quick straw vote: On MI, 4 to 8; on M2, 3-1/2 to 7-1/2; on the fed funds rate, continue in a 10 percent plus mode. It has really been about 10-1/8 percent, hasn't it? So let's say around 10 or 10-1/8 percent, in that range. Paul, how would you feel about that?",101
-fomc-corpus,1979,No. I can buy the ranges for the aggregates but the one for the funds rate I can't.,20
-fomc-corpus,1979,"You can't buy the funds range, all right. But you can buy the aggregates. John?",19
-fomc-corpus,1979,"If we're talking about preferences, it's a little too tighz for me. I would say no.",21
-fomc-corpus,1979,The aggregates bother you?,5
-fomc-corpus,1979,The aggregates directive is what I'd like and I failed to mention that.,14
-fomc-corpus,1979,I mean do the aggregates numbers that were suggested concern you also?,13
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Okay. Bob Black.,5
-fomc-corpus,1979,"I would go along with it, Mr. Chairman. I would like to point out that with the 4 to 8 percent M1 range and a money market [directive], we would not do anything until we got a rate as low as 4 percent on M1. I'd rather see that [trigger] a little higher, but I can live with it. If one looks at those charts, that's not--",84
-fomc-corpus,1979,It shows a tick up.,6
-fomc-corpus,1979,"It's a tick up, but I'd go with it.",11
-fomc-corpus,1979,Phil.,2
-fomc-corpus,1979,"No, I think the ceiling on the funds rate is too low.",14
-fomc-corpus,1979,Bones.,2
-fomc-corpus,1979,"I find it a little difficult too, Mr. Chairman.",12
-fomc-corpus,1979,Which part of it didn't you like?,8
-fomc-corpus,1979,The funds range is just entirely too narrow. I think the aggregates ranges are fine.,17
-fomc-corpus,1979,Bob Mayo.,3
-fomc-corpus,1979,I'd prefer the 10-112 percent upper limit. I don't care that much about the 9-112 versus 9-314 percent [on the bottom].,33
-fomc-corpus,1979,Chuck.,2
-fomc-corpus,1979,"Well, I would buy it for four weeks, but I find it too tight.",17
-fomc-corpus,1979,Nancy.,2
-fomc-corpus,1979,I could buy it. I think we should stay just where we are at this point.,18
-fomc-corpus,1979,Henry.,2
-fomc-corpus,1979,"No, I can live with the aggregates, but I'd like to see the funds rate a little higher.",21
-fomc-corpus,1979,"It looks as if we're going to have a very close vote today because we have those who think this is too tight and those who think it's too loose. We have three who indicated they could accept it and five who indicated they couldn't. Of those, John, you would prefer it to be less restrictive?",61
-fomc-corpus,1979,Let me say something here because I realize we have to have a compromise between those who feel the current proposal is too easy and those who feel it's too tight. The one thing that could be changed so I could go along with it would be to move from a money market directive to an aggregates directive. At least that would--,65
-fomc-corpus,1979,With a quarter point range on the funds rate?,10
-fomc-corpus,1979,Well--,2
-fomc-corpus,1979,It changes the trigger point.,6
-fomc-corpus,1979,"Yes, but not much.",6
-fomc-corpus,1979,What would we do in the case of a tie?,11
-fomc-corpus,1979,"The Chairman decides, obviously.",6
-fomc-corpus,1979,A plurality--,3
-fomc-corpus,1979,Maybe the thing to do is to stay with 9-3/4 and 10-112 percent with the understanding that we can consult. That would get both ends of the spectrum.,38
-fomc-corpus,1979,You mean just continue the present fed funds range?,10
-fomc-corpus,1979,"But you said widen the range. M S . TEETERS. No, [retain] the one we've been operating with, the 9-3/4 to 10-1/2 percent, which gets both ends of the spectrm.",50
-fomc-corpus,1979,"Yes, that would make a lot of sense.",10
-fomc-corpus,1979,"I think so, too.",6
-fomc-corpus,1979,"All right, let's try 9-3/4 to 10-1/2 percent. Is that where we are now? M S . TEETERS. Yes.",35
-fomc-corpus,1979,"What was our directive last time? MR. ALTMA"". We didn't have a range. We had ""maintaining"" the prevailing rate provided the aggregates stayed within their ranges.",35
-fomc-corpus,1979,That's what I thought.,5
-fomc-corpus,1979,"Oh, really? I thought we had a range.",11
-fomc-corpus,1979,"No, we had no range. It's one of the few times when we had no range at all. However, let's try it with a 9-3/4 to 10-1/2 percent range now.",45
-fomc-corpus,1979,Is this with a money market directive?,8
-fomc-corpus,1979,"From what 1 hear, let's try this on an aggregates directive first.",15
-fomc-corpus,1979,And that means no change in the prevailing federal funds rate?,12
-fomc-corpus,1979,"That means we stay where we are, the prevailing rate. We have 4 to 8 percent for M1, 3-l/2 to 7-1/2 percent for M2, 9-3/4 to 10-1/2 percent for the funds range and we stay around 10 percent plus--10 to 10-1/8 is the maneuvering room--and an aggregates directive. Let's try it again. Paul. Vice Chairman Volcker NO President Balles Yes President Black Yes Governor Coldwell NO President Kimbrel NO President Mayo Yes Governor Partee Yes Governor Teeters yes Governor Wallich NO",130
-fomc-corpus,1979,"I would vote for that, which means we would have a 6 to 4 vote. Okay, let's take a final vote. Secretary, would you read what it is we're proposing? MR. ALTMA"". The M1 range is 4 to 8 percent and the M2 range is 3-1/2 to 7-1/2 percent; the funds range is 9-3/4 to 10-1/2 percent, with the initial objective at the prevailing rate of 10 to 10-1/8 percent.",114
-fomc-corpus,1979,And a money market directive?,6
-fomc-corpus,1979,An aggregates directive.,4
-fomc-corpus,1979,Chairman Miller Yes Vice Chairman Volcke!r NO President Balles Yes President Black Yes Governor Coldwell No President Kimbrel NO President Mayo Yes Governor Partee Yes Governor Teeters Yes Goveror Wallich NO,43
-fomc-corpus,1979,"Okay, we have a vote. There's some other business for the meeting, I think. MR. ALTMA"". Yes.",25
-fomc-corpus,1979,The next item is the consideration of the Manager's recommendation with respect to foreign currency operations. Alan Holmes.,21
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Thank you very much, Alan. Any questions or comments? Henry.",14
-fomc-corpus,1979,"Alan, do you have the feeling that the Germans would want us to use Treasury funds raised in their market to repay swaps rather than go to a second renewal?",32
-fomc-corpus,1979,"Yes, I think the Germans would like it and the Treasury would not; so there's a bit of an impasse there.",25
-fomc-corpus,1979,"Yes, I wouldn't either. I think the Treasury is right.",13
-fomc-corpus,1979,Any other questions or comments?,6
-fomc-corpus,1979,"What would be the effect of that anyway, Henry?",11
-fomc-corpus,1979,"Well, we use up the easily disposable money where nobody can say ""no""when we want to use it and we put ourselves in their hands. And they can restrain us--",37
-fomc-corpus,1979,We can draw on the swap but we have to get their concurrence.,14
-fomc-corpus,1979,I see.,3
-fomc-corpus,1979,It cuts down our flexibility.,6
-fomc-corpus,1979,I agree with you. It's undesirable.,8
-fomc-corpus,1979,Particularly in light of the,6
-fomc-corpus,1979,"Other questions or comments to Alan? Next, we have distributed a memorandum from Peter Sternlight and Bob Mannion on the Lending of Securities. Unless there are any comments or dissents, we could approve that.",42
-fomc-corpus,1979,"May I raise a question, Mr. Chairman?",10
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"In view of the rising volume in the lending area it seems to me that we ought to be raising our interest rates on this, perhaps to a 2 to 10 percent range instead of the current range.",42
-fomc-corpus,1979,"Well, we have a differential now, Governor, and I think it's one that generally induces the dealers to look elsewhere before they come to us, although as you mentioned there has been an increase this past year. I think that is largely just because of general shortages of collateral in the market.",58
-fomc-corpus,1979,"What is that differential customarily, Peter?",9
-fomc-corpus,1979,We are charging about double what they would have to pay elsewhere.,13
-fomc-corpus,1979,About double?,3
-fomc-corpus,1979,And with an escalating scale if they don't pay off [on time]; that's the point. MR. COLDWELL(?). My only point is that we are starting to see an enlargement of this and I would raise questions as to the desirability of our providing more and more [of these securities loans]. I think we can provide a little more disincentive to borrow by raising that rate slightly. Two percent is not a large change.,90
-fomc-corpus,1979,"I'd like to support this, because it seems to me it would induce greater effort on the part of the market to find collateral in advance and be prepared [to meet obligations]. It would also be helpful should the float become very large again, so we're not a cheap lender of last resort anyway.",59
-fomc-corpus,1979,"Well, we're not a lender of last resort, Governor Wallich; as you know, we will lend only in the case of a failure to a dealer. They just can't come and borrow from us for any purpose.",44
-fomc-corpus,1979,"Yes, I see your point",6
-fomc-corpus,1979,But they do come and borrow. The question is the degree to which they push to try to cover [their shorts1 before they come to us. A little more price disincentive might--,40
-fomc-corpus,1979,"Well, the difference between 3/4 percent and 1-1/2 percent is already a substantial incentive for dealers to try to find collateral anywhere. I think over this past year, with the growth in the use of the repurchase agreement by banks, there has just been that much less collateral in the market. I don't think that's a lasting situation; at least I hope it's not.",80
-fomc-corpus,1979,"I don't know that this is a religious issue. I can see charging a little more but it's perhaps a peculiarly bad time, given the unfortunate profitability situation of government securities dealers for some time now. I wonder whether we couldn't go along as we are now without throwing a rock in the bucket.",60
-fomc-corpus,1979,Do you want to review this in six months instead of a year? Why don't we put it on the agenda for a 6-month review and approve it the way it is instead of waiting for the full year? And we will see how it goes.,51
-fomc-corpus,1979,I would like to have a little study done on the question of what [a rate change] would perhaps do.,23
-fomc-corpus,1979,"Quantify the idea of raising the margin, and see what the effect would be.",17
-fomc-corpus,1979,"Okay, on that basis, may we have your approval? Thank you very much. The next item is a review of the Authorization for Domestic Open Market Operations. Has that been distributed?",37
-fomc-corpus,1979,"Yes, it's attached to the--",7
-fomc-corpus,1979,"Is there any change? Is there any dissent from approving it? Hearing none, we will approve it. Item 14 of the agenda involves a, b, c, and d--the review of the Authorization for Foreign Currency Operations, the Foreign Currency Directive, the Procedural Instructions with Respect to Foreign Currency Operations, and the Special Authorization. No changes are proposed in ""a"" and ""d"" and minor changes are proposed in ""b."" Are there any questions about those?",96
-fomc-corpus,1979,We have reached the alternate procedural 1imits--,10
-fomc-corpus,1979,"That's ""c"" and we will come to that in just a second. Any problems on agenda items 14a, b, and d? There are minor changes in ""b."" But the changes involve taking out the word ""proposed,""which used to be before the words ""IMF article IV."" That's because it's no longer proposed; it's now effective. That's a big change! I hope you all will go along with that. On those three documents are there any problems? May we approve them? Yes, Bob.",106
-fomc-corpus,1979,"I have just one slight worry, though I'm not going to oppose approval. In "" a ""I have no objection to the $300 million on any day, but I think this is--",38
-fomc-corpus,1979,"No, we are not there yet.",8
-fomc-corpus,1979,"Oh, we are not on '""a""?",9
-fomc-corpus,1979,"Isn't that ""c""? Have you changed them on me?",13
-fomc-corpus,1979,"It's attachment A; that is the '""A""[he's referring to], Mr. Chairman.",19
-fomc-corpus,1979,"All right, then let's take the one that has several proposed changes, the Procedural Instructions with respect to Foreign Currency Operations, and deal with that. Then we'll pick up the others, which don't have changes, other than the minor one that I mentioned. Alan, do you or Steve want to comment on this?",63
-fomc-corpus,1979,"Well, I think the memo that we put out ought to be self explanatory. I am not one who particularly likes daily limits on operations, but I can see why members of the Committee would like them, and I think those that are being proposed are ones we can live with for the time being. If we do run into problems operating under them, we will certainly come back to the Subcommittee and to the Committee. I don't foresee any problems at the moment.",93
-fomc-corpus,1979,"Steve, any comment?",5
-fomc-corpus,1979,"NO, I have nothing to add.",8
-fomc-corpus,1979,Are you all familiar with what is being proposed? We went without limits for a while except the $ 8 billion limit on the total position. What's being proposed now is that we limit the changes between meetings. Would you review it for me?,49
-fomc-corpus,1979,"Under the procedural instructions, paragraph 1A says that the Manager shall clear with the Subcommittee, or with the Chairman if the Chairman believes that consultation with the Subcommittee is not feasible in the time available, any operation that would result in a change in the System's overall open position in foreign currencies exceeding $100 million on any day or $300 million since the most recent meeting. The proposal would be to increase those two limits--to raise the daily figure from $100 to $300 million and to raise the figure for the change since the most recent regular meeting from $300 million to $1 billion. In paragraph 1B. which has to do with changes in the net position in a single currency, the daily limit would be raised from $100 million to $150 million and from $150 million to $300 million when the operation is associated with repayment of swap drawings, and the intermeeting limit would be dropped. Paragraph 2 has to do with operations going beyond those limits, which would have to go to the Committee for approval. It says that the Manager shall clear with the Committee or with the Subcommittee if the Subcommittee believes consultation with the full Committee is not feasible in the time available and so forth ""any operation that would result in a change in the System's overall open position in foreign currencies exceeding' the limit. The old limit was $500 million and the proposed alternative is $1-1/2 billion. That's for the change since the most recent regular meeting. Anything beyond that would have to go to the full Committee. Those are the proposed changes.",318
-fomc-corpus,1979,"I think you all have had a chance to review [this memo]. Are there questions now? Bob, you had a question.",26
-fomc-corpus,1979,"Yes, my only question is on paragraph l A , Mr. Chairman. The $300 million on any one day doesn't bother me; I'm a little uneasy about the $1 billion since the most recent meeting. This is a very volatile [market] and I guess my question is, Alan: Do you really need that much room on the cumulative amount?",71
-fomc-corpus,1979,Without contacting the Subcommittee?,6
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"I would think, Mr. Chairman, that if we have an opportunity to pay a billion dollars in Deutschemark debt between Committee meetings, we ought to go ahead and do it. Now, if we are intervening heavily on the other side, obviously, we are going to be reporting this [intervention] regularly to the Subcommittee and to the Committee generally. But I would like that larger leeway for the time being because our main effort now will be directed at repaying debt, and I think we ought to do that as rapidly as we can.",112
-fomc-corpus,1979,"That's not the question, though, Alan. The question is: Is it the Manager's prerogative to carry this up to a full $1 billion without consultation even with the Subcommittee?",39
-fomc-corpus,1979,"Well, as you know, we report daily to the Subcommittee on what we have done. We are not without surveillance on any of this.",29
-fomc-corpus,1979,If I may add to this--,7
-fomc-corpus,1979,"Yes, Henry.",4
-fomc-corpus,1979,"Mr. Chairman, there is pretty close contact [between the Manager and the Subcommittee]. I would certainly expect, if operations of that order of magnitude or anything remotely resembling that were in prospect, that prior conversations would have taken place. So--",49
-fomc-corpus,1979,"Then why not make it subject to prior approval, if there have been prior conversations?",17
-fomc-corpus,1979,Because the Subcommittee is sometimes hard to get together.,11
-fomc-corpus,1979,"In that case, the Chairman--",7
-fomc-corpus,1979,The Chairman can act [for] the Subcommittee.,11
-fomc-corpus,1979,That's what it says.,5
-fomc-corpus,1979,"We can do that. I think that reduces the flexibility somewhat. The Chairman, too, may not be easily accessible so I don't see a great deal of risk here.",34
-fomc-corpus,1979,"If the Chairman is not accessible, does somebody substitute for the Chairman?",14
-fomc-corpus,1979,Yes,1
-fomc-corpus,1979,I guess that's the Vice Chairman,6
-fomc-corpus,1979,"If you can't, [then] you get the Subcommittee or the Vice Chairman. You could have the Chairman not there and the rest of the Subcommittee [available], couldn't you? MR. ALTMA"". We've had one occasion when the Chairman of the Committee was not available and, as a matter of the fact, the Vice Chairman of the Committee was not available. And we went to the Vice Chairman of the Board who is able to act as Chairman of the Committee.",95
-fomc-corpus,1979,But in the first instance if the Chairman wasn't there and the rest of the Subcommittee were available--,20
-fomc-corpus,1979,"Are you all clear on what we are talking about now? There could be no more than $300 million in one day, right? And we are talking about a cumulation of $1 billion between meetings. We couldn't run this up [to $1 billion] in one day, Phil, because at $300 million a day we would need three full days, or more precisely 3 and 1/3 days, of maximum operation to get there. So it would have to be getting up there and we watch it every day. I think the Committee would really be doing something wrong if we were not [aware] because we are in touch with this not [only] by the day but by the hour often.",145
-fomc-corpus,1979,"If $300 million is right for the daily limit, and I think they need something like that flexibility by the day, it's hard to see that three days of operations [could occur1 without formally figuring the--",42
-fomc-corpus,1979,"We will do whatever the Committee wants. We can cut this back to $500 million or whatever you think, but I don't think it represents a serious problem.",32
-fomc-corpus,1979,"Well, I don't either, Mr. Chairman. I just wanted to hear this sort of discussion. It has helped me.",25
-fomc-corpus,1979,I think it's procedurally poor.,8
-fomc-corpus,1979,"I think it is, too, but it's even worse on the next page. I don't think it's desirable for the Subcommittee to authorize an open position above $1 billion. The full Committee ought to look at an open position change above $1 billion.",51
-fomc-corpus,1979,"I just have to disagree because we have had to suspend these rules when we got into difficulty. Now you want to put them in so we can suspend them again if we get into difficulty. The only way we could operate on the day we did $1 billion dollars in one day was to have some authority to do s o . So on that day we did suspend the rules. You're kidding yourself about your procedures because when we got into the real heat of battle you had to give us complete authority. Now you are saying while we don't have the heat of battle put the limit down tight; and when we have the hear of battle and the real danger comes and the authority could be abused, we'll take it off completely. That's poor procedure in my view.",151
-fomc-corpus,1979,"Well, I don't disagree with $1-112 billion, Mr. Chairman, but I think the Subcommittee ought to be formally involved before we get to $1 billion, maybe at $600 million.",41
-fomc-corpus,1979,Do you want to cut it to $750 million?,11
-fomc-corpus,1979,"Say $ 6 0 0 million, or 2 days--",15
-fomc-corpus,1979,"Okay, two days or $600 million is fine. Does that suit everybody?",16
-fomc-corpus,1979,"We can live with almost anything, but if we run into trouble, we'll come back. The thing that frightens me the most, Mr. Chairman, is that if we get a sudden huge capital conversion and the Germans come in and offer us, say, $350 million, I would much prefer to be able to say yes right then and there--and [not] say I have to wait and consult first--because [the $350 million] might not be there when I get back.",100
-fomc-corpus,1979,"Well, Alan, when it goes up to $ 3 0 0 or $400 million after one day's operation, it would be possible to go to the Subcommittee and get prior approval.",40
-fomc-corpus,1979,I think we can do it.,7
-fomc-corpus,1979,"I think that's all right. We keep some leeway. We can operate that way. With that amendment, to $600 million, may we have your approval? Any other questions or comments? I don't want to cut this short, but hearing none--",51
-fomc-corpus,1979,I will not vote for the $1-1/2 billion.,14
-fomc-corpus,1979,"Does anyone else feel negatively about that? Certainly, if we get back into really active trading again, it could run that [much].",27
-fomc-corpus,1979,"I, for one, would feel that they need the leeway because it's just too cumbersome to get the Committee together when caught in the heat of battle. We can't get into that kind of--",39
-fomc-corpus,1979,"Are there any other questions on that? All those in favor say ""aye."" SEVERAL. Aye.",23
-fomc-corpus,1979,Opposed?,3
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,"So voted. I believe that we have only one other item unless there were questions on the other three parts of agenda item 14. I assume that those with no changes and this one little minor change are acceptable. Is that correct? Hearing no dissent, that's approved. The next thing is to confirm that our next meeting is on April 17 and to adjourn for lunch, which will be in the usual place. Thank you all very much.",90
-fomc-corpus,1979,"At least promptness is worth something. Accordingly, we will proceed with the agenda. The first item of business is to approve the minutes of the last meeting. I believe they have been circulated. Are there any corrections or comments? Hearing none, we will report those as approved. Turning to foreign currency operations, Scott has been taken suddenly ill and Alan, therefore, will report on the foreign currency operations.",81
-fomc-corpus,1979,I'm sorry Scott can't be here to make this report because it's very near and dear to his heart. It's rather historic. [Statement--seeAppendix.],31
-fomc-corpus,1979,"Thank you very much, Alan. Questions or comments? Chuck.",13
-fomc-corpus,1979,"Alan, had there not been all this intervention, do you believe that the dollar would have been substantially higher?",22
-fomc-corpus,1979,"Substantially higher, yes indeed",7
-fomc-corpus,1979,"That is, it wasn't supply bringing forth its own demand?",12
-fomc-corpus,1979,The fact that we were there and willing to [intervene] probably increased the flow. But I think we would have had a substantially different exchange rate effect if we had not been intervening at all and if the Europeans had not been intervening at all.,52
-fomc-corpus,1979,"So speculators against the dollar might have been squeezed in the absence of this intervention, I suppose.",20
-fomc-corpus,1979,"Yes, they might have been squeezed more if we had not intervened.",15
-fomc-corpus,1979,Henry.,2
-fomc-corpus,1979,"Alan, in terms of the possible magnitudes of these movements, you remember what happened to the United Kingdom a couple of years ago: There was a tremendous inflow into sterling and they held the rate [for a time]; eventually, after taking in $10 or $15 billion in reserves, they had to let the rate go. Do you see any possible parallel for the United States?",78
-fomc-corpus,1979,"Well, there's always a possible parallel. If we try to put a complete lid on the rate, one or two things will happen: Either we will have to acquire a lot of currencies or we will so convince the market that there is no upside risk in the dollar that the flows will stop. I'm not quite clear which would happen; it could well be a combination of the two.",77
-fomc-corpus,1979,Bob Black.,3
-fomc-corpus,1979,"Alan, what do you think the reaction would be in exchange markets if the aggregates should come in weak and we nudged the federal funds rate down a little?",32
-fomc-corpus,1979,"I think the market has been quite favorably impressed by the fact that, despite weak aggregates, the System has stayed steady in the boat as far as the funds rate is concerned. I think a change in that pattern would have a negative effect on the exchange market. How big it would be I really don't know.",63
-fomc-corpus,1979,"You think they would pay more attention to the federal funds rate, though, than the behavior of the aggregates?",22
-fomc-corpus,1979,I think they would. The market is more geared to interest rates than it is to aggregates because interest rates have a real meaning for currency flows.,29
-fomc-corpus,1979,Phil Coldwell.,4
-fomc-corpus,1979,"Alan, what theory of intervention are you working under now? Do you just buy back enough to pay off [foreign currency debt], peg the rate, or bend with market forces? What sort of strategy are you working under?",45
-fomc-corpus,1979,"Let me tell you what strategy Alan is working under. It has been a consistent one from November 1 [of last year], which is that we would move in depth in both directions to avoid disorderliness in the market. That's what we have been doing consistently, despite people who pressure us from time to time to do something else.",67
-fomc-corpus,1979,Would you say that there would have been disorderly strength in the dollar?,15
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"Yes, I think it would have been a disorderly market on the up side, which is clearly possible.",22
-fomc-corpus,1979,"Well, it's a breakthrough then.",7
-fomc-corpus,1979,"Yes, indeed. Notice what happened when the Bank of Japan raised its discount rate. The yen weakened against the powerful dollar. I'm sorry to interrupt but I wouldn't want Alan to have to defend his own posture because it's one that he has been working under in coordination with us. And this is what we have been trying to accomplish. Other questions or comments?",71
-fomc-corpus,1979,Mr. Chairman.,4
-fomc-corpus,1979,"Yes, Nancy.",4
-fomc-corpus,1979,Where do you think the dollar is going now? Do you expect it to stabilize or do you expect the upward pressures to continue?,26
-fomc-corpus,1979,"Well, in the last week or so the flows slowed. There has been no new impetus to it. Part of the reason was the fact that the market got the perception that the Germans didn't want to see the dollar appreciate any more against the mark. That may be overcome, depending on what happens, and we may again get a reoccurrence of very large flows back into the dollar. But it has slowed down in the last week.",88
-fomc-corpus,1979,"Thank you very much. We now need to ratify the transactions since the last meeting. I believe you all have the reports. Are there any comments or questions or objections? Hearing none, we will record the ratification of those transactions. Now we will turn to domestic operations. Of course, we have had great drama in this area since the last meeting. We've come as close as the nation could come to defaulting on its debt. So Peter undoubtedly will likewise have an exciting report.",98
-fomc-corpus,1979,"I don't know if I will live up to the excitement of that billing, Mr. Chairman, although the delay in [raising] the debt ceiling certainly did have an impact on operations and on Treasury financing during the month. [Statement--see Appendix. 1",52
-fomc-corpus,1979,"Thank you, Peter. Questions or comments? Henry.",11
-fomc-corpus,1979,"With the new wider distribution of Treasury bills, do you feel that the dangers of inadequate collateral for RPs are substantially reduced?",25
-fomc-corpus,1979,"At the moment there is certainly ample collateral around, but some of those bills will be maturing later this week and next week, so we could get back into a situation of scarce collateral.",38
-fomc-corpus,1979,Nancy,1
-fomc-corpus,1979,was the heavy sell-off of foreign holdings for the swap operations or was it also to provide funds for that market?,23
-fomc-corpus,1979,"Both were going on. There were swap repayments, but also foreign countries were undertaking intervention and, as I understand it, they had to liquidate holdings of Treasury bills to raise the dollars they needed.",40
-fomc-corpus,1979,Most of the $5-1/2 billion was for the intervention?,15
-fomc-corpus,1979,"The greater part of it was for intervention, yes.",11
-fomc-corpus,1979,Chuck.,2
-fomc-corpus,1979,"Peter, after these fluctuations over the last six weeks or so, how would you characterize the short-term markets--the short-term government market and the short-term private market--in relationship to the funds rate? That is, do you think the relationship is about normal or are rates high or low relative to the funds rate?",64
-fomc-corpus,1979,"At the moment there's a temporary bulge in dealers' holdings of very short-term issues, particularly of Treasury bills, so I think the day-to-day financing costs are toward the high end of some range of variation. But I expect that to be transitory; those rates will probably come down in the next couple of weeks.",65
-fomc-corpus,1979,"So the government rates may be a little high relative to the funds rate, but the private rates--those on commercial paper and CDs and so forth--are low, aren't they?",36
-fomc-corpus,1979,"CDs have been under some special influence because banks have been willing to pay off CDs, and they have obtained more of their financing recently from Eurodollar takedowns. The commercial paper rate seems to me to be about in a normal relationship to the funds rate.",54
-fomc-corpus,1979,"Thank you all. Again we need a vote to ratify the transactions. The reports have been circulated. Are there questions, comments, or reservations? Hearing none, we will record those as approved. We will turn now to the staff report on the economic situation. Jim Kichline.",58
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Thank you, Jim. Let's take a few moments to see if there are any questions about this before we turn to Steve. Yes, Phil.",29
-fomc-corpus,1979,"In the forecast of federal and state expenditures, Jim, would you give me a little more explanation than I have seen on the negatives and positives in the first and second quarters? Are there some offsetting jumps of sizable magnitude?",45
-fomc-corpus,1979,"We think the developments in the state and local area reflect largely a weather effect related to a slowdown in construction expenditures and capital outlays. Employment in the state and local sector declined, or was very weak at least, in the first two months and picked up in March. So I think what is happening here is a transitory factor that will shift activity out of the first quarter and into the second. On the federal side, I must say I think we're talking about these miserable CCC payments, which tend to accelerate federal purchases in one quarter and disappear in the next and get revised away. S o , we are not talking about anything that is a major factor; it's largely the sort of thing where we have higher expenditures in the first quarter and then a sharp drop in the second quarter, which is a paydown of CCC loans.",166
-fomc-corpus,1979,"Just looking at your pattern, you have a positive on federal expenditures in the first quarter and a heavy negative on state and local [spending] and the reverse of that in the second quarter, with a heavy negative on the federal side and a pretty heavy positive on [state and local]. They just happen to cancel out.",65
-fomc-corpus,1979,State and local is weather-related and federal reflects CCC payments.,12
-fomc-corpus,1979,There was a big CCC payout in the fourth quarter--I'm sorry.,14
-fomc-corpus,1979,"No, go ahead Jerry",5
-fomc-corpus,1979,"This kind of sawtooth pattern drives us insane, but it is very common.",17
-fomc-corpus,1979,Mark.,2
-fomc-corpus,1979,Thank you. I just wanted to ask how you treated the impact of decontrol of oil prices and how that fed through to the forecast for inflation. Was it any different than you would have treated it if the same amount of increase came simply as a result of an OPEC [price] increase? Is my question clear?,65
-fomc-corpus,1979,"We did not treat it differently in terms of the price impact. On the real side, there are important differences. I believe I know what you are getting at. I think the question is what the percentage passthrough is and whether or not we are simply talking about shifting profits from refiners to crude oil producers, or how much do prices actually go up. And that's a major area of conflict. I might say we have treated it roughly the same; the Administration has treated it somewhat differently and assumed that only two-thirds of the costs get passed through.",112
-fomc-corpus,1979,We show more inflation impact than the Administration does?,10
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,"I have used 0.5, which is what you've used. They have used much less, I believe.",23
-fomc-corpus,1979,[They have used] 0 . 3 .,11
-fomc-corpus,1979,"Well, in addition to that, there is another factor and I don't pretend to know exactly how to [take it into account]. When OPEC increases its prices, it does so without an increase in supply. In the case of decontrol there's at least a hope that it is going to have a supply-side effect. When one works that through the system, it's not clear whether in general--though clearly energy prices will go up--the inflation rate will go up.",94
-fomc-corpus,1979,"Yes, because of the lag effect.",8
-fomc-corpus,1979,"One of the issues involved, which is very important, particularly as we get into the ' ~ O S , is that we have assumed some lag in the supply-side effects. We are talking about partial decontrol in 1979--it's very limited--and it's bigger in 1980. But by the end of 1980, decontrol in domestic prices is only about 55 percent completed. So I think the longer-run effects on the supply side are quite important.",96
-fomc-corpus,1979,Willis.,3
-fomc-corpus,1979,"Jim, in the last three weeks we've been getting a little more evidence that disintermediation is starting to take place. We see it in terms of traffic in the Bank--direct purchases of [Treasury] securities--and we see it in looking at some of the institutional outflows. Parallel to that is the fact that long-term rates are starting to increase, particularly for the financing of office buildings and other such things. I get a reading that across the country for the first time [builders] are really starting to look very hard at costs and that a number of projects have suddenly been pulled back in April. Are we starting to see the bite of the policies that have been in train for some time? If that's true, then one gets a little different outlook than you projected for some of these things.",163
-fomc-corpus,1979,"Well, on the thrift institution side, for mutual savings banks the numbers available through early April indicate a substantial decline in rates of inflow. For S&Ls, the March data show inflows up a little.",43
-fomc-corpus,1979,"That's right, but the April data--",8
-fomc-corpus,1979,"We have scattered reports for April and we have been picking up the same sort of thing. Our own forecast, however, is not for a sharp deceleration of inflows but rather a gradual slowing. We don't have any massive change there. I might note, though, that in the mortgage market on the financing side we have been picking up increasing reports of stringency in various parts of the country. So if one looks at the mortgage picture, it has been much tighter both in price and nonprice lending terms. On the construction side, I don't have any reliable information that I could point to regarding recent changes that may be under way.",128
-fomc-corpus,1979,"Willis, I might just say that it took a little while for this money market certificate change to take hold. There were various cut-off dates. The credit unions didn't [get] cut off until the end of the month. In one city in Alabama we let every [institution] go to the end of the month. It took a while to get all that adjusted out, but the intention--and the expectation--is to do away with that differential, which will shift some flows from the thrifts to the banks.",105
-fomc-corpus,1979,I wonder if the flows are going to go into market investments?,13
-fomc-corpus,1979,"They might because, after all, the compounding effect was cut back, so there is also a greater disadvantage compared with the market than there was.",30
-fomc-corpus,1979,I think we are going to see more.,9
-fomc-corpus,1979,We'll just go [unintelligible]. Paul.,11
-fomc-corpus,1979,"All I have is the GNP deflator in your forecast, which I think is 9.4 percent this year. What would that be in terms of consumer prices?",35
-fomc-corpus,1979,"We don't forecast the CPI directly; we do forecast [the deflator for1 personal consumption expenditures, which is a close approximation for the CPI. For 1979 we have them virtually the same--about 9 - 1 / 4 percent for personal consumption expenditures and the deflator.",59
-fomc-corpus,1979,"We are going to have to have a pretty low rate of price increase in the second half of the year to make 9-1/4 percent, given this first quarter.",36
-fomc-corpus,1979,"Yes, by the time we get into the summer, say July or August, if we don't begin to see substantially slower rates of increase in the CPI, then this inflation forecast is clearly at risk of being too low.",44
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Thank you, Steve. Yes, Larry, we'll have a time for questions.",16
-fomc-corpus,1979,"I'd like to ask one clarifying question and also a question after that. Early in your statement I believe I heard you say, Steve, that the slower growth of the monetary aggregates reflects slower demand for goods and services. Then further on I understood you to say, if I understood correctly, that in an inflationary economy such as we have people tend to increase their demands or purchases of goods and services. Is there a conflict in--?",88
-fomc-corpus,1979,"There's a slight conflict, you're quite right. I said early on that the slower growth [in the monetary aggregates] we're now having is consistent with our staff projections of a slowing later on in economic activity. But then I went on to say that the slow [monetary] growth we're having was sufficient to finance this rapid expansion in nominal activity. And the rapid expansion in nominal activity mainly reflects, of course, the rate of inflation and only to a minor extent expansion in real output. Real output was low in the first quarter; it increased at only a 1-1/2 percent rate and the rate of inflation was up close to 10 percent.",133
-fomc-corpus,1979,"Could I just ask one further question, Mr. Chairman? What factors mitigate, in your thinking, the view that there will be a rebound in the monetary aggregates in the period ahead? What evidence would there be to justify your point of view other than wishful thinking?",54
-fomc-corpus,1979,"We only have two [pieces] of evidence. One is that the most recent week's data show a slowdown in the [decline] in the outstanding amount of savings deposits at commercial banks. That decline has gone on for five months; savings deposits have been dropping very sharply since late last fall. I think that mainly [reflects] a shift of those deposits into other kinds of assets, maybe even into goods, and [that process] has slowed. Therefore, we possibly are reaching the point where the stock outstanding has been shifted and [the process] is ending. That in itself will increase rates of growth as [it is now1 subtracting [from them]. It involves taking away a negative factor. And then there have been slight indications in very recent data of some uptick in M1. But, again, President ROOS, I don't feel the least bit [confident] that I could guarantee the Committee that there's going to be a rebound in M1 growth this month, next month, or the month after that because I don't know how long this kind of demand shift is going to last. In history we have not had periods with such rapid rises of velocity as we've experienced in the [last] three quarters in a row, including this second quarter. S o on that ground alone, one might think velocity is going to drop and money will rise.",275
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,"Thanks, Mr. Chairman. I always find it difficult to disagree with Steve, particularly after such a lucid exposition as the one he has just gone through. I do have to quarrel though, Steve, with the conclusion that Larry has already addressed. What is the evidence that money will rebound? Last month, you may remember, I called attention to the fact that for the five months running through February the Bluebook forecast has proven to be considerably over the mark month by month for both M1 and M2. To add a little interest to this debate--of course, it's always easier to be a Monday morning quarterback--1 gave my own forecast in qualitative terms. And my guess was that given this consistent pattern the March figures would probably come in significantly below what you were then forecasting. And with apologies for sounding like ""I told you so,"" your March forecast for MI was an increase of 5.7 percent and, as you know, it came in at .75 percent. I consider that significant. There was a better record on M2; the forecast then was 4.9 percent and its growth now is said to have been 3 . 6 percent in March. To try to get my arms around what seems to be the problem, I had my staff prepare a memorandum, which I have handed out here, and I would like to take just a minute, Mr. Chairman, to run through a few of the highlights. There has been this pattern now for six months in a row, October through March, of a significant overforecasting of money growth month by month. That is shown on table 1 by months for M2 and M1; those [variances] are in percentage points. The average overforecast for M1 for those six months was 5.1 percentage points and the average overforecast for M2 was 2 . 8 percentage points, as shown in table 1. Chart 1, which is on the next page, is rather revealing. These monthly errors are just bound to be big. If anybody asked me if I could do better than Steve, I'd say ""no I couldn't.'' This is a darn difficult job. Usually what happens, though, is that large errors in any given month will be offset by errors in the opposite direction in the next month. AS shown on Chart 1, about half of the time or in a good part of 1975 and 1976 that is what in fact happened. But when we got near a trough in interest rates in the latter part of 1976 and into 1977, the errors were all on one side. The staff was underforecasting money, as shown by the black areas below the zero line. We got into a period of rising interest rates in 1978 and the errors shown in the black shaded part were pretty much random. From late 1978 moving into 1979 the errors have again been systematic; they seem to occur at or near troughs or peaks in interest rates. Therefore, Steve, I must say to you again, as I did last month, that [I question1 the forecast in the April Bluebook, which shows M1 growth coming in at 6.75 percent-this is assuming alternative B and an unchanged funds rate--in May after 3.3 percent [in April], for an average of the two months of 5.5 percent. I suspect that's going to be several points too high when we get the actual numbers. I'd say ditto on M2, where the Bluebook shows M2 growth in April at an estimated 7.5 percent rate and in May at a projected 5.2 percent, for a two-month average of 6 . 3 5 percent. I think that's going to be several points too high. Now, if that's what the Committee wants to do, if that's the outcome we're looking for, fine. But we shouldn't walk into it accidentally. I'm beginning in my own mind to make some mental adjustments in deflating these current [Bluebook] figures until I see evidence that money is in fact rebounding at current interest rate levels. I'm afraid the evidence in the last six months gives me little comfort on that [score], Steve, and therefore I suspect that we may be unintentionally, as it were, leaning too hard and getting aggregate growth that in retrospect may prove to have been our undoing. My fear of this risk is compounded by the fact that, contrary to the Board's staff, we expect at least a mild recession beginning in the second half of this year. Without throwing in any detail, I expect it will probably be the classic inventory-type recession, hopefully short and mild.",952
-fomc-corpus,1979,"I think we have ""Balles rule number one"" now: That near troughs and peaks forecasts of money are wrong in the wrong direction.",29
-fomc-corpus,1979,"Well, in short, Mr. Chairman, those are my misgivings. And I say that with apologies to the staff because I know this forecasting is a tough j o b . But when we detect systematic errors that run on as long as these have, I for one feel that we've got to make some mental adjustments. This to me says that it would certainly be a mistake to tighten right now by raising the federal funds rate. I think we can overdo that restraint and actually bring about a recession, or exacerbate one that may be in the works in any event. I'm very leery about overdoing it on the monetary policy side. I think there are limits--and we've spoken of this from time to time, Mr. Chairman--about how much can be accomplished by monetary restraint. Therefore, without getting into details on the specifications for the current period, I have a very strong bias against tightening and possibly will make a case for a bit of easing.",194
-fomc-corpus,1979,"John, thank you for those inputs. Chuck.",10
-fomc-corpus,1979,"Well, I just want to comment on what John said. I have some sympathy with that, John. The fact is that I might admit that [what you talked about] used to be one of my inside devices for forecasting if we had extended misses in the staff projections. Incidentally, Steve doesn't really do those. In his position I used to find that if the extended misses were in one direction, it was an indication of a change. But what one has to examine is the reason for that. Is it that the staff is assuming there will not be a substantial change in the relationship between activity and money growth? The issue right now, I think, is whether there has been a change in the relationship that is not indicative of the future but indicative of a change in the demand function. So when you point out that the staff has misforecast over the last six months, all you're pointing out is that there has been some kind of change in the relationship, which the staff increasingly has come to believe is a change in the demand function. S o it doesn't really answer--in case this has happened and I'm inclined to think it has happened to a degree at least--the aggregate [unintelligible]. You would have to be a strict monetarist to believe that there can't be a change in the demand function of money and, therefore, [that money] must be a forecast of the future.",283
-fomc-corpus,1979,"Well, I think your point is well taken, Chuck. I'm not a strict monetarist and I'm not a strict Keynesian either. I don't know what that makes me--a non-monetarist and a non-Keynesian. Eclectic is one word. I used that word recently to a friend and he said: Did you say epileptic? In any event, there is a plausible case, and the staff has made it well, for a change in the demand for money. I am still somewhat skeptical that the whole outcome has in fact been because there's been a change in the demand for money. That's because we looked pretty closely this past month at what has been going on in money market mutual funds--which have been rapidly accelerating--and at RPs, which have been practically flat for some months now. And the two of them together have not been accelerating. [But that's what1 they'd have to do, I would think, to explain the very sluggish growth in M1 and M2. I have a hunch that we may have seen both the combination of some downward shift in the demand for money and also, because we have been on a federal funds target--for pretty good reasons starting November 1, given the international crisis--the shrinking effect of that on bank reserves. [ S o I think] the very sluggish growth in bank reserves, or in some ways even the negative growth quite recently, also explains some of the outcome.",294
-fomc-corpus,1979,We'll have Henry Wallich's question and then start the go-around and see where we really come out.,21
-fomc-corpus,1979,"I wanted to ask Steve what his reasons were for placing much confidence on the existing relationship. As Chuck said, there is at least a possibility that that relationship has changed. It has changed, I think, for two years running and has led us to an overprediction of $30 billion in that time, if I remember. People are now looking at what they consider to be inflation of 10 to 12 percent and that is a tremendous incentive to hold down not only Ml balances but also lower-yielding savings and time deposit balances. I really think that under these conditions we have to assume that there is a change in the relationship and, therefore, I don't see much basis for predicting a rebound. I think this shift can go on at a substantial rate f o r a long time. If I were to look at any monetary aggregate now, it would be more nearly bank credit plus commercial paper plus finance company lending. In any event I am aware that the monetarists are divided now, with some taking the point of view that the aggregates are moving too slowly and others arguing that the relationship has changed. I'm trying to ask Steve: What is the reason for thinking we'll get back on track with the relationship?",244
-fomc-corpus,1979,"Well, Governor Wallich, I really don't know and I don't think anyone knows when exactly we'll get back on the relationship. AS YOU said, in the early stages of this expansion beginning around the end of ' 7 4 it took us 2-1/2 years to so-called ""get back on the relationship."" We have always assumed that this demand shift is not going to last as long because so much [of it] had occurred earlier and there is just that much less cash to use up. It was because of the uncertainty about the aggregates, as you point out, that I tried to stress as much as I did the kind of analysis one would go through in assessing the restrictiveness or non-restrictiveness of the present level of market rates. In that way I think one gets down to what is going to be a very judgmental factor, and that is assessing what really is the expected real return on capital. That is, if inflation expectations are accelerating, that could be offset by declining expectations in the real return of capital. One just expects to make less profit on any given investment. And that would tend, in so far as [assessing] restrictiveness, to offset the impact of accelerating inflation. S o I really do believe under present circumstances that that kind of judgment is critical to policy, more so than a judgment--if I may put it this way without meaning it prejudicially--about a mechanical application of rules with regard to the aggregates. That's the more critical judgment now; it's essentially a judgment about the future economic outlook.",315
-fomc-corpus,1979,I agree.,3
-fomc-corpus,1979,"Well, ladies and gentlemen, I think it might be appropriate now to start on item six [on our agenda], which is a Committee discussion of the economic situation and policy implications. What we've been doing recently is asking for you briefly to give your views on the economy, if they involve any significant differences from the staff projection, and the monetary policy implications this might have in general terms. After our break then we'll come back and look at the details and the specifications that might go into a directive. Murray Altmann has straightened me out finally on my random walk theory and, based on his straightening me out, I think we will start with Larry today and come around clockwise from there.",138
-fomc-corpus,1979,"Mr. Chairman, I think we're in an almost no-win situation today. We're in a posture that was of our own making, in that we're reaping what we sowed 2 or 3 years ago by refusing to face up to the fact that by stabilizing interest rates we were permitting the aggregates to grow much too quickly. I think concerning ourselves with the subject of demand shifts is somewhat of an exercise in futility because I don't think we, in our monetary policy function, can control shifts in demand. We're not able to do that. I think the problem is on the supply side. Whereas the aggregates have grown excessively for nearly three years, we're in serious danger of repeating mistakes we've made in the past--and this is at least a near monetarist speaking. For us to jam on the brakes to permit the growth of the aggregates to drop as abruptly as they have and to continue to tolerate that is almost certainly an assurance of a recessionary result. I would just like to emphasize again that at no time did any monetarist ever suggest that there should be an abrupt pulling down of the rate of money growth from a high level to a low level. That is what is happening. I think our main decision today has to be whether we are going to expand the growth of money temporarily in order to ease at least the extent of the recession or whether we are going to knowingly--and if we do it knowingly, we have to accept part of the responsibility--permit monetary growth to continue to be quite low and, at least as we see it, assure the advent of a recession.",321
-fomc-corpus,1979,"Thank you, Larry. Bones",6
-fomc-corpus,1979,"Mr. Chairman, [after] listening to our own directors on Friday and [based on1 our own testing of the activity and the sentiment in our District during recent days, we are more nearly attuned to the [analysis] by the staff this morning than we've been in some time. We recognize the enormous uncertainties about prices, the aggregates, and business growth, and I find it almost useless to belabor this since we are very close to the staff's [projections] this morning.",99
-fomc-corpus,1979,Thank you very much. Jim.,7
-fomc-corpus,1979,"Yesterday in meeting with my own staff on this, I think I suffered an information overload. One of the alternatives that was presented to me was called ""the pure ignorance theory"" That is, we don't know how the economy got here and we don't know where it's going. And I must say that I felt embarrassingly comfortable with that view. Nevertheless--",71
-fomc-corpus,1979,That is the most honest comment we've had today !,10
-fomc-corpus,1979,"Nevertheless, I have to agree with Bones in that we can find no major area of disagreement with anything the staff has said at this point; we have minor points of difference, but nothing dramatic. If one can abstract from this horrible inflation problem, things don't appear to be out of kilter. [The economic expansion is] slowing down-I think the way we would like--and, therefore, in general terms our view would be to stay roughly where we are.",93
-fomc-corpus,1979,Thank you very much. Willis.,7
-fomc-corpus,1979,"I hate to see such unanimity over there. I don't want to be a counterforce today. The inflation situation is still very bad. It seems to me that any easing would be misinterpreted and could only be counterproductive. On the [plus] side, it seems to me that the transfer mechanisms really are at work, both from the budget side and the food side. [As for] the oil side, we really don't know what that means. I have a feeling that our policies are really starting to work; they've been slow to take hold, but [monetary policy] is not a quick fix. And to be impatient at this stage would be a mistake. So I end up right in the middle--[no change].",151
-fomc-corpus,1979,"Fantastic. I've never seen this happen at these FOMC meetings before! Bob, you must have some different view.",24
-fomc-corpus,1979,"There has to be one in every group! I have more doubts than usual about the staff's forecast, which is really one of stagflation for eight or so quarters. I don't deny that there's a possibility that can happen, but to me the weight of past evidence suggests that we're more likely to get cumulative effects and slip into a recession [than to achieve] the kind of soft landing that the staff is projecting. My own feeling is that we're probably near the end of the current expansion and fairly close to a turning point. Inflation has [contributed to1 a pretty severe attrition, I think, of real incomes and wealth positions. We see some convincing signs of this in the behavior of consumer and residential outlays. Some people take comfort in the strength that appears to be developing in the investment sector of business, but that is a lagging indicator and I don't think we can take much comfort in that. I'm more impressed with the scattered signs that are reported throughout the Redbook of lengthening delivery times, of some anticipatory inventory building, and a strong current preference of businesses for short-term versus long-term debt. When one talks to those in the business community there is an unusual unanimity in their views. They all seem to say that things are very good now, but they are scared as the devil about the future. I suppose that translates, Steve, into a belief that the real rate of return on capital is probably dropping. So, I think we've arrived at the point in policy where we have to be seriously concerned about the steepness of the deceleration that is taking place in the rate of growth in the aggregates. Some slowing of the excessive growth that we experienced in 1976, 1977, and a good part of 1978 was clearly needed in an effort to have an effective anti-inflationary policy. I hoped we could bring the rate of expansion down, but at a more gradual rate of perhaps 1 to 1-1/2 percentage points a year. I thought it was the best way in which to wring inflation out of the economy and I still think so. But the deceleration that we've experienced since September has not been gradual. Even after allowing for ATS, NOWs, and a likely downward shift in the demand for money, in my view this has been an overly steep decline. If this is allowed to continue, I think we risk aggravating any recession that may be impending. If my feeling that a recession is close at hand has any merit at all, then at this stage I think we have to face up to the question of whether we want to risk adding to its severity by reacting to the recent inflationary figures. I have doubts about [the wisdom of taking that risk] for two reasons. In the first place, I think we probably will see some abatement in inflation as a result of the past slowing in the aggregates. Secondly, I'm not at all convinced that a severe recession would add significantly more to the reduction of inflation than a mild recession. And as a matter of political reality, if the recession is more serious than it otherwise might be, I think the political system is such that we're likely to have the kind of fiscal policy fallout that will aggravate inflation rather than help.",657
-fomc-corpus,1979,"Thank you very much, Bob. Nancy.",9
-fomc-corpus,1979,"I would like to draw the attention of the Committee to the change in our perception of what has been going on out there. Three or four months ago we were looking at a projection for the first quarter--I'm not criticizing staff, my own perceptions have changed markedly as we've gotten more data--of a rate of growth in GNP of 3 percent. It's now under 1.3 percent. We were expecting to have 3 percent growth in consumption. It's now negative; purchases of goods actually turned down. A whole range of estimates have come in considerably lower than we thought they were going to. The only indicator that seems to be up in real terms is employment. And I would point out to you that employment is not a leading indicator; it generally [comes] in fairly strong around the final point of a cyclical expansion. A l s o , two major reasons that we have used in the past to increase restrictiveness were an excessively rapid growth of the money supply and the need to maintain the international value of the dollar. Now both of those reasons have apparently disappeared. In fact, both of those would almost suggest that we should ease monetary policy at the present time. However, I also feel that anything we do at this point would be mainly psychological. It will have its impact six to nine months down the road and [at this point it] will primarily be for show rather than for any real impact. Finally, I'm quite concerned that if we tighten, within two months we will have to turn around and undo it. In my view the economy is slowing down and it would be a mistake to tighten credit further. However, given the rate of inflation, I think it also would be a mistake to loosen at the present time. So I would come out for maintaining the present policy.",361
-fomc-corpus,1979,"Thank you, Nancy. Chuck.",7
-fomc-corpus,1979,"Well, I think the picture is mixed. It seemed to me possible that we could have one final surge of activity and I've been quite worried over the last six weeks or so that that might be developing in the business sector in business equipment and in inventories. Whether right or not, I've become rather more calm about inventories in the last couple of weeks. For one, the February numbers were better; retail inventories were down. For another, there do seem to be some explanations--Jim cited quite a list--for the inventory accumulation. The Teamster's strike, the possibility of a rubber strike, the automobile situation, and so forth may have accounted for the unusual inventory accumulation that was reflected in the Redbook and for the raw materials price figures in the first part of this year. So I'm prepared broadly to accept the staff's forecast except that I, of course, think that the economy is going to weaken further and we'll have a recession toward the end of this year and [into] early next year. But let me say that for the time being the staff's forecast looks reasonable to me. Another problem that we're all struggling with is the aggregates and how to interpret them. It seems to me that it has almost reached the point where it may just be a matter of one's predilection. Some people say we ought to tighten regardless of the aggregates because they're no good anymore and other people say the aggregates are just as potent as they used to be and are terribly important. Trying to sort through all this, I've been looking at the various credit numbers. Bank credit, which had shown some strength, seems to have been weakening as the quarter progressed as have other credit numbers. M5, for example, has been weakening steadily. But that measure doesn't include RPs and money market funds and things like that. One of the difficulties we have at this time when interest rates are very high--we've had it before--is that there's a good deal of grossing up in credit flows. And it's easy to double count credit flows. For example, if a money market mutual fund expands rapidly in size and buys bank CDS, you can't count both the bank CDs in the bank sector and the money market mutual fund on the other side because that's double counting. That's not really demand for credit or a credit flow. If a savings and loan or a mutual savings bank issues a money market certificate and buys a bank CD, the same is true. There is excessive grossing, which doesn't really have anything to do with the economy.",505
-fomc-corpus,1979,"They're netted out in M 7 aren't they, Chuck?",13
-fomc-corpus,1979,"They are, but we don't really [track that]. I've found, for example, that our Bluebook doesn't have M I . But they are netted out in another way. That is, the f l o w of funds accounts have a line for funds raised by nonfinancial sectors. That is like final demand in the GNP, if you will. In looking at that and relating it to GNP, I think I have found something of significance for the Committee to focus on. That number has been quite high over the last six quarters. It was lower in the earlier part of the recovery and expanded sharply in the last half of ' 7 7 and the first three quarters of ' 7 8 . Going through those five quarters, for example, the numbers were 2 0 . 4 , 1 8 . 7 , 1 8 . 8 , 1 8 . 3 , and 19.1 percent. The average is a high number; it's distinctly higher than it had been before. In the fourth quarter of ' 7 8 funds raised as a percentage of GNP dropped from 1 9 . 1 to 1 7 . 6 percent. And in the first quarter of this year the estimate of our flow of funds people is that it dropped further to 1 4 . 2 percent. That's a rather marked drop--almost 5 percentage points in two quarters--carrying it well below where it was earlier in the recovery phase. And I think it is indicative of the fact that for some reason the demand for credit isn't there. It may be [because of1 interest rates, it may be nonprice terms, or it may be as Steve suggested that the expected rate of return on capital is dropping. But f o r some reason [that demand] isn't there. And I think it does indicate in a very real sense that in the financial sector of the economy a fading is occurring that is consistent with very slow growth if not a downturn in the economy shortly. And I believe we ought to keep that very much in mind as we talk about making these [decisions] that affect the demand for credit and make credit even more restrictive or less restrictive.",454
-fomc-corpus,1979,"Thank you, Chuck. Paul.",7
-fomc-corpus,1979,"Let me make a couple of observations. I sit here listening to all this about the aggregates and it seems to me that the only reasonable conclusion is not to put much weight on the aggregates. We see relationships that go way out of the range of historical experience. We haven't any idea of the validity of the forecast [for the monetary aggregates], I'm afraid, and the combination of those two events does not make me want to linger over the aggregates. When I look at the outlook for real GNP, it does seem to me that the staff forecast of six quarters of approximately 1 percent growth in GNP per quarter is inherently improbable. I don't think that has ever happened.",135
-fomc-corpus,1979,Plus or minus 3 percent,6
-fomc-corpus,1979,"That is precisely the difficulty. The reason they have come up with this forecast is that one doesn't know whether the 3 percent error will in fact be plus or minus. I must say in talking about projection errors that I am much more concerned about the persistent errors in the projections of the inflation rate than I am about the recent errors in the projections of the monetary aggregates. The inflation projections have been consistently on the low side. And I'm not just talking about the staff's projections; I think that has been true of most forecasters. And [inflation] clearly remains our problem. In any longer-range or indeed shorter-range perspective, the inflationary momentum has been increasing. In terms of economic stability in the future that is what is likely to give us the most problems and create the biggest recession. And the difficulty in getting out of a recession, if we succeed, is that it conveys an impression that we are not dealing with inflation. I'm afraid that is the impression that we are conveying. We talk about gradually decelerating the rate of inflation over a series of years. In fact, it has been accelerating over a series of years and hasn't yet shown any signs of reversing. I devoutly hope that it will in the second half of this year, but I think the staff is probably being too optimistic on what it will show in the normal course of events. I think the economy is essentially at full capacity and there is a real chance that the concern about a recession will be justified. But I also think there's some possibility we will have more of a boom for a longer period of time than we hope. I think it's clear that real interest rates are falling and the rate of inflation is up.",342
-fomc-corpus,1979,It depends on the expected rate of inflation.,9
-fomc-corpus,1979,"That is right. My observation would be that the expected rate of inflation has increased somewhat in the last six months and the nominal rate of interest has not. Therefore, the real rate of interest has declined. I don't see any reason why the profitability of investment under present conditions would be declining in Mr. Axilrod's terms, so I think policy has probably gotten somewhat easier. We may be one month closer to a recession than we were last month and I think we are late [in tightening], but I still am of the view that some greater degree of restriction would be more appropriate than the reverse [and] more appropriate than standing still.",129
-fomc-corpus,1979,"Thank you, Paul. Henry.",7
-fomc-corpus,1979,"I think we are in a very difficult situation. The real sector points down. Inflation points up. And the question is whether we can do anything about the downturn of the real sector without aggravating the inflation. I think the answer is no. It is very probable that a slowdown is ahead after four years of cyclical expansion. It would be really astonishing if we didn't get a cyclical peak after such a long expansion. The circumstances we observe are not those we've seen at other peaks. Unemployment is still relatively high. Capacity utilization isn't all that high. But the economy has changed. Six percent [unemployment] is now what 4 or 4-1/2 percent used to be, and 84 or 85 percent capacity utilization is probably what 87 or 88 used to be after all the obsolescence in the capital stock that changing price relationships must have caused. S o I think we have all the makings of a cyclical peak; we don't know whether we will descend into a recession or just a slowdown. I see no similarity, however, to 1974. There's no comparable buildup and there's no financial crunch. Meanwhile, inflation and inflation expectations are clearly mounting. I think something like 1/2 percent per month or every two months is being built into expectations. If I believe Art Okun, every 1 percentage point in the inflation rate costs $200 billion to remove by orthodox means, and I don't know of any other good means. I think that's greatly exaggerated, but I'd like to alert you to the very high cost, in terms of an inflation correction, we're incurring if all we're doing now is postponing that slightly. It is in any event probably inevitable. Actually, I think the choice we have is between a mild turndown now, in the second half of 1979, or a more severe one later after having suffered some more inflation. I don't think the choices are an obvious or foregone conclusion. As far as the aggregates are concerned, I don't need the aggregates at this time to tell me that the economy may be heading for a slowdown. I think the aggregates have become very weak because of what seems to be a shift in demand. I see that as plausible because the equations by which we're guided don't really encompass expectations of inflation of the kind that we now see, where expectations have moved from the 8 to 10 percent range to the 10 to 12 percent range. I think Paul is right that real interest rates have declined. In fact, they're probably no longer positive. And in a situation like the present, the only halfway plausible guide is to aim at positive real interest rates. I'm not even talking about after taxes because after tax real interest rates are very demonstrably negative except for nontaxable holders. So looking at this combination of a possibility of a downturn, or even of recession, and almost certainty continued inflation at an accelerating rate if we don't act, I come out for some tightening of monetary policy.",605
-fomc-corpus,1979,"Thank you, Henry. Phil.",7
-fomc-corpus,1979,"Mr. Chairman, I see no reason to prolong what you've heard from Paul Volcker and Henry Wallich. I agree with their positions. I would point out to the Committee that we've had several months now of status quo and in that several months we've had at least a 3 percentage point increase in the inflation rate. And I can see some more if we don't act.",75
-fomc-corpus,1979,Thank you. Jim.,5
-fomc-corpus,1979,"Mr. Chairman, if one were to array the 8 or 10 most prominent forecasts, including the Greenbook forecast, clearly the Greenbook forecast with its rather heroic estimates of plus 1 percent real growth in six quarters would come up on the optimistic end of the array. Our own view is that we are heading toward a recession later this year, and that view is shared by most other forecasts. We don't see the case for tightening at this time, particularly since it doesn't buy us anything on the price front in 1979--and perhaps much of 1980--because of the lags. We think the choice is between easing or staying pat. Historically the Federal Reserve has had a tendency to overstay its policy at peaks and troughs, and itrs our fear that we're about to repeat that performance. Therefore, we would argue in favor of a modest move in the direction of ease at this time in the interest of moderating the impact of the recession that we're [expecting].",201
-fomc-corpus,1979,"Thank you, Jim. Ernie.",8
-fomc-corpus,1979,"Mr. Chairman, I have no particular quarrel with the staff forecast. It's interesting, however, that the discussion--with just a couple of exceptions--tends to suggest that the risk is on the down side rather than the up side. It seems to me that the evidence is probably increasing that we have a fair amount of risk on the up side, at least for a temporary period here. Business conditions are very strong in the Southwest and labor markets are very tight. Even in that tight labor market there is heavy recruiting going on from rather distant areas. The only rationality I can see in that is that these out-of-area recruiters feel there's a significant element in that labor market that is familiar with the jobs in aircraft factories because certainly they shouldn't be attempting to pull people out of our market on the grounds of any significant amount of unemployment. We're unable to see any indications of tightness in credit, with the exception of housing. And in that particular market the tightness in credit is a function of legal ceilings on interest rates. In fact it appears increasingly that what we're seeing in the monetary aggregates is the old [pattern] we saw under price ceilings on commodities in WWII. We found the price ceiling on the commodity disappears when there are alternative uses for the resources that will bring higher returns. And we've seen [such] alternatives develop with closer and closer characteristics of money. S o if we keep the price ceiling on, it seems possible to me that M1 as we describe it at the present time is going to disappear. Foreign investments continue to come into our area in significant volume. A natural disaster struck recently, which physically removed one bank. Other bank buildings in the area were not seriously damaged. But all the banks are operating. It is resulting in a substantial demand for currency. It did reveal, however, that a few people in the population still use the mattress. Reportedly one party brought in some $5,000 of $50 and $100 bills and said that he had decided the bank was a safer place than the mattress.",410
-fomc-corpus,1979,"Because of the tornado, that's true.",8
-fomc-corpus,1979,Was that a nonmember bank?,7
-fomc-corpus,1979,"A national bank. I assume that it could be characterized as an involuntary member. Well, we immediately sent people to the area [affected by the tornado] to indicate that we were prepared to do what we could to assist. They reported that there were long lines of people drawing currency from the banks. One question I asked them was whether there were any indications that it was a run type of situation or simply a matter that in the circumstances people needed currency to continue doing whatever they were trying to do. And the report was that it was mixed. People had some questions as to whether the bank that was severely damaged--as I say, the above ground portion just disappeared--would survive. But other banks in town were accepting checks on that bank and I think that helped to reestablish confidence. Coming to policy, the recitations by Mr. Volcker and Mr. Wallich, with which Mr. Coldwell concurred, captured my feeling of the present situation more closely than other commentary. I think we should at a minimum stand with present interest rates, but indications are that those rates are dropping behind other developments in the economy and, therefore, probably should be nudged up some.",239
-fomc-corpus,1979,"Thank you, Ernie. John",7
-fomc-corpus,1979,"Just to add briefly, Mr. Chairman, to what I said before, we should not have a dilemma, especially for those of us who expect a downturn, hopefully mild, sometime this year and going into early 1980. Intuitively, one is tempted, of course, to tamp a bit harder on the credit brakes because of the recent news on inflation. Having taken a good hard look at what we might get out of that, I doubt if an increase in the funds rate would really give us any quick fix. Certainly it wouldn't do anything that I can see in the foreseeable future to affect the things that have been especially important in [causing] the recent increase in prices--namely what has been going on in food and in oil. And if we did increase the funds rate at the moment, given the lag that I think exists between such an action and [when] it flows through to the real world, it would be some time in 1980 before that would have much of an impact. Secondly, any move toward a further slowdown in money--looking at the other side now--I'm afraid would simply exacerbate the recession that we probably are going to see in any event. The flattening out of retail sales for the past three months in my opinion suggests, as was said earlier around this table, that much of the growth in real GNP in the first quarter, modest as it was, was in the form of inventory accumulation. And while inventories don't appear to be out of line now, that picture, as I've discovered to my sorrow many times before, can change very quickly if final sales remain weak. The recent slowdown in personal income growth and the heavy debt position of consumers suggest to me that we can't look to the consumer sector for any real strength over the balance of this year. The trend toward austerity--if that's the right word for it--or less expansion in federal, state, and local government spending doesn't indicate that sector as a great source of strength in the year ahead. Although capital spending is now a source of strength, in my opinion it's simply too small and too volatile to support any broad-based increase in final sales. And I expect before this year is over [such capital spending will] be swamped by inventories going the other way. So given the outlook on the real side, to tighten monetary policy further now would, I fear, seriously risk the repetition of 1974. In my view the Fed held interest rates too high, too long, and certainly exacerbated that recession. Finally, I would add that the case for tightening to support the dollar is much weaker now than it was several months ago in view of what we heard earlier in the report from the Desk. There was good reason starting last November to adopt the [policy] that we did and I have no regrets about it. Now that the dollar is strong, I think there is more freedom to consider what we ought to be doing in view of the domestic outlook. So where I come out is strongly against any tightening and with some leaning toward a little easing. That's because of my personal view, as I said to Steve, that his estimates of monetary growth will be too high on both MI and M2 for the April-May period. That's too much restraint for me and I think it's going to make the recession somewhat worse.",672
-fomc-corpus,1979,"Thank you, John. Mark.",7
-fomc-corpus,1979,"Thank you, Mr. Chairman. When economic theory and data appear to be in such disarray, it seems to me that we ought to introduce real factors. AS exhibit A I would like to show the Committee the last shoe I was able to purchase, which cost me $559. It was made in Nebraska, which is someone else's District, I'm happy to say. But it's a clear demonstration of the fact that inflation is a real problem and that when guidelines are imposed, quality just goes to pot.",101
-fomc-corpus,1979,"Well, I'm glad to get facts back into this [discussion1!",14
-fomc-corpus,1979,"I would simply like to say, when I see all these arguments about real interest rates coming back to haunt me, that I'm beginning to wonder why I did that. Inflation numbers in the first half have been very bad; I don't think that should surprise any of us. They've been a little worse than we expected, I guess, but we did expect bad numbers. I think the second half is going to look better. Whereas last year I was anxious for strong and aggressive action, this year--two operations later--I'm painfully convinced that slow and steady as she goes is the appropriate policy.",118
-fomc-corpus,1979,"Thank you, Mark. Bob.",7
-fomc-corpus,1979,"M r . Chairman, I think the Board staff's forecast is a very good one though improbable. I agree with Mr. Volcker; it never happens that way. But to make it have jiggles is even more improbable. S o let's keep our balance on the improbability theory. Like so many others, I feel that if anything the Board staff's forecast is too high on the real side and too low on the price side, unfortunately. But I am not saying that we are going into a significant recession. We may get awfully close to zero, though, before this calendar year is over. In the Midwest, inventories are not excessive at the moment, although I grant the point that they can turn around very fast. I think the risk is still much greater on the inflation side than on the recession side. I am getting sick and tired, though, of hearing market analysts and the press blow up the fact that we are having so much difficulty at the Federal Reserve interpreting the monetary figures and, therefore, we feel we don't know what we're doing. It is getting ridiculous. As a non-monetarist to start with, I've been having trouble interpreting the monetary figures for the last ten years and I don't see that this is any worse. Really, I'm serious! I think the emphasis on the confusion has done us harm. We have tended to feed it and we should stop if we can, simply because our ability to be precise on the monetary aggregates--a precision that I feel was never [possible]--has been exaggerated. So I'd come out and say that we do know what is happening to the aggregates within the usual guidelines of our interpretation here. I might even go so far as to stick my neck out and say that I think monetary policy has done a good job in the last six or nine months in terms of achieving some slowing in the aggregates--not as exaggerated a slowing as the published figures on M1 show. But given the environment in which we had to work I think we have a [good] record. Having said that, I feel it would be premature to ease because of a fear of recession. It would exacerbate the inflation problem, so I would not like to see us ease. Any tightening we do should be no more than 1/8 point or so at the most. To change our basic [posture] from alternative B, or from where we are right now, would risk a very bad result. I don't want to cut off any strength in the dollar by easing at this point. I don't think we need to accentuate the strength of the dollar by tightening. so at this particular juncture I'm as much in favor of standing pat as I've ever been. CHAIR"" MILLER. Thank you, Bob. Roger.",559
-fomc-corpus,1979,"Thank you, Mr. Chairman. I'm at the end of the table and perhaps everything has been said. I look forward to these meetings. [I was pleased1 particularly this morning to learn that we have a new industry in Nebraska and they're apparently very persuasive if they can sell that shoe for $559 to Mark Willes! As for the Board staff's Greenbook forecast, we agree generally with it, with a bit of exception to a couple of areas. ~f you look carefully at it, they have a [rebound] in GNP in the second quarter which, as far as our staff can tell, does not have any basis other than a hope that GNP will increase to a more acceptable level in quarter two of 1979. Also, we'd suggest that housing starts and consumer spending may not be quite as strong as they're projecting. Thus, we would say that their forecast is a bit on the optimistic side, but [the difference] is narrow; we feel the economy might be just a bit weaker. Turning then to the aggregates, everything has been said about the aggregates. To be sure, all of them, including bank credit, have weakened measurably [even] with all the technical explanation that Steve has given. That, taken together with at least our outlook for the economy--and I think it would be true of the Board staff's outlook--the fact is that the restraint that has been put in place by monetary policy in the past is beginning to take effect. Looking forward to 1979, the risks certainly are on the down side. A recession--hopefully a moderate one--is quite likely sometime late in 1979 or early 1980. As for inflation, there's no question that it has been accelerating over the past months, but largely as a result of factors that we cannot control with monetary policy. That is, oil, food, and other such price increases will not be affected, at least in the short run, by anything we do here today. Thus, I would prefer that we stay where we are at the moment. I think a tightening would insure a recession. I don't think that's the way out. As a result, I'd stay where we are and be prepared to move to a bit easier stance if we find that, indeed, the economy in the second quarter is coming in somewhat weaker than the staff is forecasting and if the aggregates remain weak. I'd give greater emphasis to M2 than M1 because M1 does not seem to have much value at the moment. [Unintelligible] all of the measures are weak [andl so long as M1 remains weak with the rest, it seems to me we can throw it out and probably focus on M2 and bank credit a bit more. And I'd be prepared to move to a bit easier stance if the economy does indeed continue to be weak.",577
-fomc-corpus,1979,"Thank you very much, Roger, and thank you all. Those were very interesting inputs. I would suggest that we take a 15 minute break and reconvene.",33
-fomc-corpus,1979,"While we're waiting, I'll merely say that my impression prior to joining this Committee was that it was just a social gathering of folks who enjoyed getting together once a month. But this meeting almost makes me believe that you've earned your pay--excessive though it may be! I'm talking of the Governors, of course! I think we're all back; Jim will be here in a moment I guess. Let me make two observations. We've done a fast computer plot on your comments and it appears that we have a perfect bell curve. The Secretary was predicting to me that we'd have a 5 to 5 vote and for the first time in history there would be no new directive. That would mean that the Desk could go on doing whatever it is doing now, [even though] nobody knows what it is. However, just on the chance that we can break the 5 to 5--",178
-fomc-corpus,1979,I wonder what would happen if we didn't have a [new] directive. I guess we would continue on the old directive.,25
-fomc-corpus,1979,"We continue with the old directive. I call your attention to page 5 of the Bluebook on which you see the three alternatives the staff has laid out. Having looked at that, hold your finger there and I call your attention to page 9. If one [starts] from the present position of Ml and M2 and plots out the ranges, in the case of alternative B the staff didn't update their charts. They changed their minds on this after they printed [the chart on page 91 so, instead of 2-1/2 to 7-1/2 percent, alternative B is actually 3 to 7 percent [in the table on page 51. But that's all right; you get the point. The new dotted line is an innovation that I thought would be helpful. It plots from the last data the trend six months ahead to get back to the midpoint--to show us how we're going to get back on track. This is known as the ""Black amendment."" Bob has been pushing us to do this--to try to give us a graphic way of glancing at it. So, M1 would need to grow at a 6 - 1 / 2 percent rate for six months to get back to the midpoint [of its long-run range]. Obviously, we can't get back on track in one month or two months without being too erratic but [this shows howl to trend back. On M 2 the ranges for alternative B are 4 - l / 2 to 8-1/2 percent, and it would take a 9 - 1 / 2 percent trend [growth] for six months to get us back to the midpoint of the [long-run M2] range we established. Page 10 shows the same sort of thing for M3; we'd have to have a 9 percent rate [of growth to reach the midpoint] and an M3 range consistent with alternative B would be 5 to 9 percent. Bank credit of 6 to 8 percent is consistent [with alternative Bl, and there the midpoint of that 2-month 6 to 8 percent range happens to be consistent with getting back [to the middle of our long-run range] in six months. Let me give you a couple of personal observations. One, I hope very much that we can develop a public view of the FOMC that we perfom for substance and not for form: That we don't do things because they have some announcement value but because they have real effects on the economy. [Second,] I hope very much that we can establish the view that we're going to take action because it directs us toward where we intend to go and not because somebody this week or this month has some transitory idea. The more we get the idea [across] that we have ranges [and] we're going to get within them--if they're wrong we will change them--the more we do ourselves a service. That will diffuse the short-range idea that monetary policy can somehow affect the concurrent operation of the economy, which in my opinion it cannot do. It's false for us to think that it can and it's more important that we begin to educate the public that if there is monetary action, it will have an effect in subsequent quarters. It should be looked upon as a leading policy direction rather than something that's going to affect today's activity. I've been personally somewhat bemused by the use of the media to send us a message that there are those who would like us to take certain monetary policy actions. There are limits to monetary policy, limits to what we can do. There are frustrations in other parts of the government where their own policies have been disturbed by events that they perhaps cannot control, and that may cause them to look for monetary policy to do that which it cannot do. It cannot change prices this month or next month. It cannot change the real activity of the economy. Having looked at that and looked at our staff projections, I would say that I view these projections as consistent with the data I see on the general direction of the economy. The staff does not [pretend] that the quarterly figures can be achieved precisely. There's too much motion in the economy and the economy will bounce around from quarter to quarter. But I do believe their trend is correct--that is, that the economy is in a slowing mode. Whether it will slow into a recession or a low level [of growth], we'll see. The action we take now will influence that real activity six to nine months from now. That's what we're going to be doing today. Looking at all of the factors, which you've recited so well, if we were really ready to bite the bullet [we could1 say that the Federal Reserve knows what affects [economic] growth, we know how to measure [the effects of1 our actions, and in our opinion the growth of money and credit has been restrained because of our prior action. TO say we've done nothing about inflation is to overlook the fact that we went to considerable effort for a period of time to restrain the growth of money and credit through the actions that we took, which have resulted in those aggregates growing more slowly. Now, some of you say that's because of a demand shift. Well, that comes about because we got the interest rates to the point where demand would shift. [After all], how did it come about? It's just that we've gotten [rates] in a range where [demand] would shift; and having gotten them there, to say we're going to ignore it is rather peculiar to me because we are the ones who brought it about. We raised interest rates 3 , 4 percentage points. And we are getting the restraint in terms of getting people to do something else with their money instead of buying things. We are beginning to get the impact, as Willis pointed out. So it would be rather peculiar if we should then begin, as we have often done historically, to abandon our own thinking and be affected by the transitory world around us and take an action [as if it would affect the economy] for today instead of the action [appropriate] for six or nine months down stream. If we were really geared up to do it, we would probably fall in line with those who suggest that we begin to [consider easing] in order to fulfill our commitment to the public on the levels we expect these aggregates to be. If we really believed our own monetary policy recommendations, that's what we would do. We're not prepared to do that because we fear the expectations [effects]--thepsychology--because we haven't yet educated the public to look upon us as doing something [now that will have an impact1 in six months. We've tended to educate them, perhaps for our own egos, to think that what we do today [has a] powerful [effect] in the economy. And, therefore, we ourselves have made our task somewhat more difficult by giving the impression that what we are is somehow the bulwark in the fight against inflation and we're going to change three price components that have been out of control--namely, the cost of food, energy, and housing. We're going to lower those by tightening. That makes no sense at all. We're going to lower them by bringing the economy down to a lower rate of growth and damping demand and letting that work itself through the system in the 6, 12, or 18 months that it always has taken. We're certainly not going to lower housing costs by raising mortgage rates; that's going to change them up. So it seems to me that we would do ourselves a great service if we would ignore all the static and keep on what I think under all the circumstances is the wisest course. And that is to keep a steady hand, stay where we are, keep the aggregates under restraint over time. I do think that we have not prepared the public for the concept of easing at this point. And I think it would be a policy mistake to take action now that would exacerbate the economic slowness later; that in my opinion would only cause us to [face] a series of other transitory pressures to do something else equally as unacceptable. So I recommend to you that we follow alternative B and perhaps use a money market directive to maintain the funds rate about where it is now. With that recitation, perhaps we can go down the list and see how you all see it. John Balles.",1708
-fomc-corpus,1979,"Well, if we're expressing preferences for the first go-around, Mr. Chairman, I'd have to say I lean toward the specs of alternative A as far as M1 and M2 are concerned. I would not make the federal funds range as low as is shown under alternative A; I would suggest 9-1/2 to 10-1/4 percent. And I would like to see some easing within that range from where we've been for most of the past two months or so.",99
-fomc-corpus,1979,"Thank you very much, John. Bob Black.",10
-fomc-corpus,1979,"Mr. Chairman, given my views of the economy and how I perceive monetary policy to work, strangely enough, I think all these aggregates ranges are really too low. I'd prefer for M1 a range of 5 to 9 percent--which would trigger action under a strict monetary aggregates directive if the rate came in under 6 percent--and perhaps 6 to 10 percent for M2, which would trigger action at I percent. I emphasize that strict monetary aggregates interpretation because I would not move initially. I would sit right where we are until we see something happening. If we adopted these specifications, we might well see the funds rate move down a little before the next meeting. I'm aware of the risks of that, but it does seem to me that the recent action proposed on reserve requirements might have at least some offsetting effect. Lest some of my more hawkish friends around the table think that I'm a late-hatching dove, I would hasten to add that if I'm fooled on this and the aggregates begin to grow rapidly, I would be just as quick to move the rate up a little, too. But I would sit still until we got some evidence.",236
-fomc-corpus,1979,"You'd keep the fed funds where it is. Yes, John?",14
-fomc-corpus,1979,"Excuse me, I forgot to add that I would prefer the monetary aggregates directive. Excuse me, Bob.",23
-fomc-corpus,1979,"Bob you were finished, weren't you?",8
-fomc-corpus,1979,"Yes, I was.",5
-fomc-corpus,1979,Okay. Phil,3
-fomc-corpus,1979,"MI. Chairman, the view of the world that you portrayed in your initial [comments] just doesn't happen to square with my view of what monetary policy can do nor with my belief in the desirability of public policy [moving] to restrain inflation. So I still would advocate that we put additional restraint in this package. I'd prefer ranges of 2 to 7 percent for M1 and 3 to 8 percent for M2, and a federal funds intermeeting range of 10 to 10-1/2 percent.",108
-fomc-corpus,1979,And where would you put the funds rate now? Leave it where it is?,16
-fomc-corpus,1979,"At 10-1/4 percent, the midpoint.",12
-fomc-corpus,1979,Bones Kimbrel.,5
-fomc-corpus,1979,"Mr. Chairman, I would much prefer at this particular juncture to see [policy] cast in terms of a money market directive. I have trouble with these [Bluebook] ranges. I personally would not like to see them change, so I'd like roughly 2 to 6 percent on M1 and 4 to 8 percent O h M2. I would very much dislike having the fed funds rate drop below 10 percent during this intermeeting period. At the same time, I'm not very anxious to see it move up very much--maybe a shade to 10-1/8 percent with a range of perhaps 10 to 10-1/2. I'm not a subscriber to such a narrow range, but in this environment it may flow reasonably well. So I'd go with 10 to 10-l/2 percent with probably 10-1/8 at the moment.",182
-fomc-corpus,1979,"Okay, thank you. Bob Mayo.",8
-fomc-corpus,1979,"Mr. Chairman, I would stick with alternative B. I would not object, however, to a tightening of 1/8 point or so, which would bring us closer to 10-1/4 percent [on the funds rate]. I think that could give a sign of resoluteness without getting us in trouble of over-reacting. Again, I would follow it as we go along and to some extent see what the market is telling us; I would accept a 10-1/4 percent rate if the market seemed to be telling us that. Otherwise I'd leave it where it is. I have no particular quarrel with the digits on M1 and M2, and I could buy either type of directive. A monetary aggregates directive might be a little better this time.",159
-fomc-corpus,1979,"Thank you, Bob. Chuck.",7
-fomc-corpus,1979,"Mr. Chairman, I think we really ought to be easing. It's past time. We've already gotten ourselves into considerable difficulty with respect to the behavior of the real economy. And I agree that there isn't much we can do to restrain the kind of inflation we have now other than to encourage moderate demand over the long pull. That's really the only instrument we have available to us to affect prices. The difficulty with easing now is that the public perception is wrong. In fact, all these newspaper articles and so forth have trapped us, or at least they have trapped me. I can't quite ease in the face of that. Also, I have a modest concern yet about the March employment numbers--I'd like to see another month's figures--and the possibility of an inventory hump. I think the latter is still possible, but less likely than it seemed before. So for the time being I would favor an unchanged policy but in an easing mode, one might say. And for that purpose we might as we11 have a money market directive because that certainly is what we've had all year. It doesn't make any difference what those aggregates have been. We've kept the funds rate unchanged and we ought to do it again. And if we are going to do that, it seems to me that [our decisions] ought to begin to reflect something of the longer-term strategy that you've indicated here--relating to these charts that have to do with our Humphrey-Hawkins pledge so to speak. I think 3 to I percent is too low for M1 if we intend to move back on track at all. I would make that 4 to 8 percent, as I think somebody else suggested. Well, there were a number of suggestions along that line. And I think we need to raise M2, which is going to miss the range even more. In that case, 5 to 9 percent would be a [step] on the way to that. That's within the context of the money market directive. That doesn't necessarily mean we would move, but we ought to try, to the extent that it is at all feasible, to have short-range target growth rates that are not inconsistent with moving back into the [long-run1 bands that we have specified. Otherwise we ought to decide to change the bands and so inform the Congress. So, I would raise those two specs a little but with an unchanged funds rate of 9 - 3 1 4 percent. I'd be happy with a range of 9-3/4 to 10-1/4 percent. I don't know why the range needs to go up to 10-1/2 percent; we're not going to move there, I hope, in the period to come.",551
-fomc-corpus,1979,"Thank you, Chuck. Nancy.",7
-fomc-corpus,1979,I would counsel that we stay unchanged. My [view] is that we should probably be easing. But again I don't think we're quite to the point where we should be doing it and [worsen] inflation. I think it would be the wrong move. I have no quarrel with the specifications of alternative B and I would go for a money market directive.,74
-fomc-corpus,1979,"Thank you, Nancy. Paul.",7
-fomc-corpus,1979,"I think you were very eloquent, Mr. Chairman, and I agree with a good deal of what you had to say, but overlooked was the fact that inflation has tended to get worse and that the economy is very much at capacity and ought to slow down. So I find myself very much with Mr. Coldwell in terms of the specifications.",70
-fomc-corpus,1979,Thank you. Henry.,5
-fomc-corpus,1979,"I share your views, Mr. Chairman, about what monetary policy can do with respect to the real sector; I don't think we can do anything that will affect it very much very soon. But monetary policy certainly can affect expectations and prices; prices can be changed overnight because of inflation expectations and I think that's what is happening now. So I think we can do something on inflation and we should. I'd go largely with alternative C. For M1 I'd have a range of 2-1/2 to 6-1/2 percent as in ""C."" I see no point in trying to get back on track in six months. Chuck's thought that we should change the track and notify Congress might be one thing we can do to favorably influence expectations, because for M1 to grow over six months at that'rate of speed we'd have to have--adding 2-1/2 percentage points for ATS--it growing at 9 percent for six months. I think that would be very inflationary and very alarming to the public. Continuing with the specifications, for M2 I'd say 4 to 8 percent. I would say 10-1/4 to 10-3/4 percent [for the funds range], go to the midpoint of 10-1/2 percent and not go below that without a telephone call. If the aggregates are very weak, then we should reexamine. And I'd go with a money market conditions directive.",296
-fomc-corpus,1979,A money market directive. Ernie.,8
-fomc-corpus,1979,"Mr. Chairman, my preference is for the specifications of alternative C except for the funds rate range. I would [lower] that down some to, say, 10 to 10-3/4 percent, with the idea that we would move during the first week to above 10 percent and by the end of the week probably to 10-1/4 percent depending somewhat on market developments.",81
-fomc-corpus,1979,And which way [on the directive]?,8
-fomc-corpus,1979,With an aggregates directive.,5
-fomc-corpus,1979,Alternative C and an aggregates directive. Thank you. Roger.,12
-fomc-corpus,1979,"Thank you, Mr. Chairman. I would opt for alternative B straight down the line including the funds rate range. On the funds rate I'd remain where we are unless we see the aggregates moving outside the lower end of the ranges.",46
-fomc-corpus,1979,Did you say an aggregates directive?,7
-fomc-corpus,1979,A money market directive.,5
-fomc-corpus,1979,"Thank you, Roger. Larry.",7
-fomc-corpus,1979,"Mr. Chairman, I would opt for alternative A, for easing. If that were done, I would urge the Chairman to explain the rationale that this is not a permanent softening of our anti-inflation emphasis--that we are really doing it temporarily to try to reduce the impact of a recession. Sometimes our tendency is not to state our reasons publicly. I think we could probably counteract a certain amount of the inflationary expectations that this signal might cause. Finally, I'd like to compliment you, sir, for your emphasis on establishing and announcing longer-range strategies and sticking with them, and abandoning our month-to-month fine-tuning over an 1/8 percentage point on the federal funds rate. That comes like a breath of fresh air. It's the best news I've heard for three years!",160
-fomc-corpus,1979,"Well, thank you, I think. Mark.",10
-fomc-corpus,1979,"I'm afraid it comes too late, M r . Chairman, since I'm no longer a voting member. But I like both your recitation and your specifications and I would go with those.",37
-fomc-corpus,1979,I knew I'd get you someday! Willis.,9
-fomc-corpus,1979,"I have no quarrel with alternative B. I just wonder, in view of the discussion, if there's some symbolism that could be effected without really much change in market conditions, such as a 114 point increase in the discount rate. Reserve requirements might be expanded on some other items such as on Eurodollars and other [components where we know of] problems. I don't know whether this is the appropriate time--",83
-fomc-corpus,1979,Those are certainly things we have to consider.,9
-fomc-corpus,1979,"I meant to mention those, too. I think that is correct.",14
-fomc-corpus,1979,"Thank you, Willis. Jim.",7
-fomc-corpus,1979,"Mr. Chairman, we certainly agree with your comments with respect to adopting a policy that seems to be appropriate given the lags in our forecasts. We'd opt for either ""A"" as proposed or for the modification suggested by John Balles.",48
-fomc-corpus,1979,"Thank you, Jim. Dick.",7
-fomc-corpus,1979,"I don't know whether it's a fact of whom I'm sitting between today but I find myself in amazing agreement with them on certain points. We would prefer alternative B. We would not quibble about a 118 point increase in the federal funds rate although we don't think it's required. As far as [raising] the discount rate, that's another possibility we had considered. That might merit some consideration if the funds rate rises at all. But fundamentally, alternative B is fine.",93
-fomc-corpus,1979,"Okay, thank you all. Let's see what we have. Bob did you have a range for the fed funds rate?",24
-fomc-corpus,1979,"I neglected to say it, M r . Chairman. I had 9-314 to 10-1/4 percent, but I could leave it unchanged without much quarrel, really.",39
-fomc-corpus,1979,What is it now?,5
-fomc-corpus,1979,"It's 9-314 to 10-112 percent, but I wouldn't want to use the top quarter.",22
-fomc-corpus,1979,"I had the same specs as you did, Mr. Chairman.",13
-fomc-corpus,1979,"We have a very mixed bag. Paul, did you want a money market or an aggregates directive?",20
-fomc-corpus,1979,"[Given] the fact that we've been operating with a money market [directive], I presume we would continue to do so almost regardless of what we say here today.",33
-fomc-corpus,1979,"We keep saying we're doing something else, but we keep going with a money market directive, don't we?",21
-fomc-corpus,1979,"I think that would be appropriate, yes.",9
-fomc-corpus,1979,"Well, it's going to be hard to make anything out of this. Five have the bottom of the fed funds range at 9-3/4 percent--1 told you it would be five to five--and one has it at 9-1/2 percent. John, you said 9-1/2 percent on the bottom side?",71
-fomc-corpus,1979,Yes sir.,3
-fomc-corpus,1979,Could we get you up to 9-3/4 percent? Then we'll have six.,19
-fomc-corpus,1979,"Well, I'm a reasonable guy.",7
-fomc-corpus,1979,"On the top side we have three at 10-1/4 percent and everybody else is at 10-1/2 save Henry, who is at 10-3/4 percent. Have I misstated anyone's views? I think Henry is the only one at 10-3/4. As modified, John, you're 9-3/4 to 10-1/4; Bob [Black] had the same, 9-3/4 to 10-1/4. Phil and Bones had 10 to 10-1/2. Bob Mayo had the "" B "" range, which is the [current one of] 9-3/4 to 10-1/2 percent. Chuck had 9-3/4 to 10-1/4; Nancy, 9-3/4 to 10-1/2; Paul, 10 to 10-1/2; and Henry 10-1/4 to 10-3/4. That would indicate that something like 9-3/4 to 10-1/2 percent might fly. Let's put that down tentatively. There are lots of 10-1/2s on the up side; we're bracketing everybody, you see. We have nobody below [lo-1/2 percent] and only one over it. We're going to have very little room for dissent when we're through here!",298
-fomc-corpus,1979,Henry's safe!,4
-fomc-corpus,1979,"We have one member for easing some and we have five for prevailing [conditions]. Now, if John Balles is a reasonable man, he'll stick with prevailing and we'd have six for that.",38
-fomc-corpus,1979,"I'm sorry, Mr. Chairman, will you say that again?",13
-fomc-corpus,1979,"We have a range for the fed funds rate and now the question is, do we keep the present [rate] or move it up or down. You suggested we move down. Five other members of the Committee suggested the prevailing rate. And four others suggested going up, although Bones did not; he said 10-1/8 percent and that's where we are now, more or less.",79
-fomc-corpus,1979,Right.,2
-fomc-corpus,1979,"Where we are is 10 to 10-1/8 percent, so you are pretty much for the prevailing--",24
-fomc-corpus,1979,I'm for prevailing also.,5
-fomc-corpus,1979,"Well, we have [a majority for] the prevailing rate, obviously. Now for the ranges. For M1, there's a definite split. Let's put down 3 to 8 percent. We have two for 3 to I , one for 4 to 8, one for 5 to 9, and a couple for 2 to 7 percent. Help me with my mathematics. It looks as if we need something lower to catch some who are interested in that possibility and something higher to catch others.",105
-fomc-corpus,1979,HOW about 3 to 9 percent?,9
-fomc-corpus,1979,"Well, we need two 3 to 8 percent ranges--3 to 8 on M1 and on M2. That's the answer! Actually, we need 3 to 8-1/2 percent on M2. don't we? Or 4 to 8-1/2 percent. You all wouldn't stick with anything reasonable. You had to have all this individuality.",78
-fomc-corpus,1979,We were reasonable; we just weren't persuasive.,9
-fomc-corpus,1979,"Eight are calling for that directly and one is near it. Put down 4 to 8-1/2 percent. There seemed to be a majority for a money market directive, which means it's all an exercise anyway.",45
-fomc-corpus,1979,Is it 4 to 8-1/2 percent for both M1 and M2?,20
-fomc-corpus,1979,"Let me see if I can read what I have here. This is very hard. Let's say a fed funds range of 9-3/4 to 10-1/2 percent and maintain the prevailing rate, which now is 10 to 10-1/8 percent--is that correct, Peter?",64
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Would you repeat that midpoint?,6
-fomc-corpus,1979,"The midpoint would be 10 to 10-1/8 percent, the prevailing level. The midpoint is slightly off center--asymmetric if you want to be technical. The rest is: M1, 3 to 8 percent; M2, 4 to 8-1/2 percent; and a money market directive. How many of the voting members do we have for that?",81
-fomc-corpus,1979,An indication?,3
-fomc-corpus,1979,"An indication only MR. ALTMA"". None.",10
-fomc-corpus,1979,"None. Zero. I knew we weren't going to get a vote today! I told you we were going to keep [the existing directive]. Let's go [through] this. How many are happy with the 9-3/4 to 10-1/2 percent [funds range] with the prevailing [funds rate initially]? We seemed to have 6 or 7 for that before. I don't know what happened. Because nobody likes the whole thing, I have to know what's wrong with it. That [funds range] seemed to have a majority. There were about 6 or 7 people who wanted that. Seven. Okay, that takes care of that.",139
-fomc-corpus,1979,What about the aggregates?,5
-fomc-corpus,1979,"Obviously, it's the aggregates that are wrong. All right, nobody wanted any of the aggregates [ranges I cited]. Let's go back down the list. John, what do you want for M1 on a compromise? You didn't get your 5 to 9 percent the first time around. You were [not] the only one who went as high as 9, because Bob [Black] outdid you--he went to 10 percent.",90
-fomc-corpus,1979,"Mr. Chairman, I think I said the 5 to 9 percent.",16
-fomc-corpus,1979,"Oh, we got them mixed up here.",9
-fomc-corpus,1979,I don't want him to get the credit!,9
-fomc-corpus,1979,What I have down here is that John had 5 to 9 percent. What did you really say before?,23
-fomc-corpus,1979,I said 3-1/2 to 7-1/2 percent.,17
-fomc-corpus,1979,"I'm sorry, I'm talking M2",7
-fomc-corpus,1979,It was the specs of alternative A on M1 and M2.,14
-fomc-corpus,1979,"You had 3-1/2 to 7-1/2 percent, right?",19
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,And you don't buy 3 to 8 percent. Or do you? It's a half percentage point each way--very precise tuning.,27
-fomc-corpus,1979,"Mr. Chairman, I would take the revised specs that you indicated of 3 to 8 percent on M1 and 4 to 8-1/2 percent on M2. I do it with great reluctance in view of the money market directive, however. That's my hang-up.",60
-fomc-corpus,1979,"Okay. Let's go down [the list] again. Bob, you had much higher ranges: you had 5 to 9 and 6 to 10 percent.",34
-fomc-corpus,1979,I could come down to 4 to 8 percent on M1. M2 doesn't make a lot of difference to me really.,27
-fomc-corpus,1979,Could you live with 4 to 8-1/2?,14
-fomc-corpus,1979,"Oh yes, I'd like that even better.",9
-fomc-corpus,1979,That's the M2 [you proposed].,8
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"I can live with that part of it, but I--",12
-fomc-corpus,1979,You need 4 to 8 percent on M1.,12
-fomc-corpus,1979,"If we have a money market directive, I would want it that high. If we have an aggregates directive, I could go with 3 to 8 percent, I guess.",36
-fomc-corpus,1979,"All right. Phil Coldwell, you had 2 to 7 and 3 to 8 .",21
-fomc-corpus,1979,"Well, what I think is important to look at here is the upper part of the M1 range. Seven percent is the peak for alternative B, and if we're going to maintain a steady directive I think we ought to keep some balance. I lowered [the bottom of the M1 range] to 2 percent just to give a little balance, hut I'm willing to go with a 3 to 7 percent range on M1.",88
-fomc-corpus,1979,"Okay. Bones, you had 2 to 6 and 4 to 8 .",18
-fomc-corpus,1979,"I like the 3 to 7 percent much better and, obviously, 4 to 8-1/2 percent is fine, particularly if we're going to have a money market directive.",39
-fomc-corpus,1979,"Okay. Bob Mayo, you had 3 to 7 and 4-1/2 to 8-1/2.",27
-fomc-corpus,1979,I'm flexible within a 1/2 point on those.,12
-fomc-corpus,1979,Okay. Then you really can be bracketed. And you had an aggregates directive.,17
-fomc-corpus,1979,"I had aggregates. But Paul is right: In effect, we're using a money market directive.",19
-fomc-corpus,1979,"That's what we've been doing, yes. Chuck, you had 4 to 8. You don't like 3 to 8? m . PARTEE. Well, I really do believe we ought to have something that brackets the path for getting back within the longer-run ranges.",56
-fomc-corpus,1979,"And 3 to 8 percent didn't do that? m . PARTEE. No. The 4 to 8 is close--6-1/2 percent is the midpoint that is specified on that chart over the six months--so even that's a little short. It really ought to be what Bob suggested, 5 to 9 percent. But, I, of course--",77
-fomc-corpus,1979,"Nancy, you had--",5
-fomc-corpus,1979,I had 3 to 7 and 4-1/2 to 8-1/2.,22
-fomc-corpus,1979,"Yes, 3 to 7 and 4-1/2 to 8-1/2. Paul, YOU had the 2 to 7 and 3 to 8 that Phil had specified.",43
-fomc-corpus,1979,I don't feel very sensitive to these ranges when the figure bounces around plus or minus 5 percentage points. I can't worry about a half percentage point on either end.,34
-fomc-corpus,1979,"Henry, you had 2-1/2 to 6-1/2 and 4 to 8 as the ranges.",27
-fomc-corpus,1979,I have a hard time because I add 2-1/2 percentage points to each of these and it gets very high for M1. M2 wouldn't worry me so much.,37
-fomc-corpus,1979,"All right, let's try it again. Where did we come out? Murray, you're supposed to do the rest! I think we can sell 4 to 8-1/2 percent on M2.",42
-fomc-corpus,1979,How about 3 to 7-1/2 percent on Ml?,15
-fomc-corpus,1979,"With 3 to 7-1/2. you didn't pick up Mr. Partee, did you?",23
-fomc-corpus,1979,"No, you certainly didn't. Of course, you're not looking with us on the money market-- [Laughter]",23
-fomc-corpus,1979,"Yes, we have to look at the 7 and who wants the--",15
-fomc-corpus,1979,1'11 go with your aggregates if you go with my interest rate. You can go another half percent--,22
-fomc-corpus,1979,"We have to resolve this. How do I do it? I have to take some votes here on several options. Just on M1, I'm going to try 3 to 8, 4 to 8, and 3 to 7. Let's start with 3 to 7. How many of those who vote would buy 3 to 1 percent? One, two, three, four, five. I'll buy it, which makes six. Well, wait a minute; I may not. Count five. Who wants 3 to 8 percent? Anybody?",117
-fomc-corpus,1979,In preference to 3 to 7 ?,9
-fomc-corpus,1979,"Which one of the three--3 to 7, 3 to 8 , or 4 to 8. We're going to use those three choices for a moment; take only one. At 3 to 7 percent, I had five hands up. All right now 3 to 8 percent. John.",65
-fomc-corpus,1979,1'11 [change] to 3 to 8.,13
-fomc-corpus,1979,"All right, we'll change it; we have 4 for 3 to 7 percent. Right? And 3 to 8 percent suits me. That's two. Okay, let's try 4 to 8 percent. That's two. That adds up to 8, so two people didn't vote; two people want something different. All you folks at 3 to 7 go to 3 to 8, and all you folks at 4 to 8 go to 3 to 8. Okay? Now, 4 to 8-1/2 percent on M2 seemed all right. [Let's assume for Ml] 3 to 8 percent--that everybody went in the middle. So now it's 9-3/4 to 10-1/2 percent for the funds range, maintaining the present rate of 10 to 10-1/8 percent, with an M1 range of 3 to 8 percent, an M2 range of 4 to 8-1/2 percent, and a money market directive.",216
-fomc-corpus,1979,Isn't that right where we started Out?,9
-fomc-corpus,1979,"No, it's changed; it's absolutely changed. How many tentatively [can accept that], without voting [officially]. Paul.",26
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,John.,2
-fomc-corpus,1979,"No, but for the other reason.",8
-fomc-corpus,1979,Which reason?,3
-fomc-corpus,1979,The money market directive,4
-fomc-corpus,1979,Okay. Bob?,4
-fomc-corpus,1979,"I agree with John, Mr. Chairman",8
-fomc-corpus,1979,Phil Coldwell.,4
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,Bones Kimbrel.,5
-fomc-corpus,1979,Yes sir.,3
-fomc-corpus,1979,Bob Mayo.,3
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Yes. M S . TEETERS. Yes.,10
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,So it's four and five. What if we change it to an aggregates directive? Let's try again with an aggregates directive.,24
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Yes,1
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,"There we are again! I suggest we go to the next subject and have lunch. I knew we were going to have no directive today! Okay. The next agenda item is--. I forgot to tell you that I have some information that will not be public until this afternoon so you're not to disclose it, but the housing starts for February have been revised to 1,384,000,and for March the number is 1,793,000. The staff had 2 million in their estimate, so the March number is lower than their estimate. The permits for March are 1,579,000. Jim, any comment?",128
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,No news to you.,5
-fomc-corpus,1979,Maybe after that we can reach a consensus.,9
-fomc-corpus,1979,Do you want to vote again?,7
-fomc-corpus,1979,What would it take to get two aggregates directive people on line for the [money market] directive?,20
-fomc-corpus,1979,Four is the lower limit for me.,8
-fomc-corpus,1979,What is? Four?,5
-fomc-corpus,1979,That's certainly better.,4
-fomc-corpus,1979,"All right, let's try that one. I knew we'd get a compromise here. I threatened to leave it [and stay with the existing directive].",29
-fomc-corpus,1979,You're going to try 4 to 8 percent on Ml?,13
-fomc-corpus,1979,"Murray, we're going to take one more stab at a vote. Then we're going on to the next topic. We're going to use the same fed funds range, which is 9-3/4 to 10-1/2 percent and [initially] we're going to maintain the present fed funds rate of 10 to 10-1/8 percent; we're going to have M1 at 4 to 8 percent and M2 at 4 to 8-1/2 percent; and we're going to have a money market directive. Okay. Paul, you're just a constant no. MR. ALTMA"". Vice Chairman Volcker No President Balles Yes President Black Yes Governor Coldwell No President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Teeters Yes Governor Wallich No",164
-fomc-corpus,1979,"I'll vote yes, so the vote is 7 to 3. It's sort of simple! Would any of the dissenters like to change their minds?",31
-fomc-corpus,1979,Do you have an April housing starts figure for me?,11
-fomc-corpus,1979,"This is the water shed. The fever has broken and next month we will have a unanimous vote. Now we will go to the next subject, which is consideration of the Manager's recommendation with respect to foreign currency operations. Alan Holmes .",47
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Thank you very much, Alan. Quite an unwinding job. Now we need to have a discussion of the question that was brought before the Committee previously and that is holding balances in foreign currencies. The Committee previously authorized the holding of up to $500 million in foreign currencies. But it was the desire of the Committee to have the question of whether we should hold larger amounts or none at all [studied by the staff]. Developed for your consideration was a memorandum submitted jointly by Steve Axilrod and Alan Holmes, with supporting memos from the Board's International Division and from the New York Bank on possible recommendations. I might ask Steve and Alan to comment on this and we will open it up for discussion. Steve.",144
-fomc-corpus,1979,"Mr. Chairman, I believe the two supporting memoranda provide the Committee with the various arguments in some depth--with some differing points of view--and I don't feel it is necessary to review those arguments orally. Mr. Holmes and I have recommended raising the informal limit on balances to the neighborhood of $2 billion for the four reasons that we have outlined [in the memo]. One thing I would like to highlight is [something I've learned1 in the relatively brief time I have been involved in this area. It's a rather practical approach. And that is, if you are going to play in the game, you've got to have chips. Playing in the game means not only with relation to the rest of the U . S . government but with foreign central banks. So, our holding balances [of foreign currencies] would seem to me very crucial in order to have a degree of flexibility in dealing with these groups. If the Federal Reserve is to have what I think will be a necessary input into the decisions that are made in this international game of affecting foreign exchange market operations, I believe we need to hold some balances. And I would simply stress that view, Mr. Chairman.",235
-fomc-corpus,1979,"Do you have a question for Steve, before we hear from Alan?",14
-fomc-corpus,1979,"No sir, I'll wait.",6
-fomc-corpus,1979,"Mr. Chairman, I don't have very much to add. The only thing I would stress is that because we have been in the forefront of this activity for a very short period of time we were able to buy $2-3/4 billion in foreign currency. Now, that type of period may not repeat itself, yet it could. So to give us flexibility I would feel much happier if we had more than the $1/2 billion of leeway, of which we have already used half at the moment. Establishing a limit of $2 billion does not preclude us, in my view, from doing what we may eventually want to do, but I feel we have to wait for time, experience, and some testing of markets and other thinking. I believe the memos are fairly self-explanatory and I have nothing more to add.",172
-fomc-corpus,1979,"Fine. Thank you very much, Alan. Now, Larry, we will come back to your question or comment.",23
-fomc-corpus,1979,"Mr. Chairman, I'm concerned about one bit of verbiage where reference is made to two possible policies. One says u . S . policy is aimed at countering short-run disorderly market conditions. Then there is explicit wording in the Morton-Truman memo which says that if U.S. policy is also designed to resist exchange market movements that carry the dollar's value beyond levels that are deemed to be reasonable in either direction, the United States might want to be prepared to accumulate substantial holdings. My question is this: In terms of the rules of the game that we are playing, are we contemplating going beyond just reacting to disorderly conditions and actually trying to peg [the value of the dollar]?",140
-fomc-corpus,1979,"I don't think anyone is suggesting pegging, but the whole November program was based on the thought that the dollar had gotten out of line, it had gone [down] too far. Now, that is a very rough judgment. It's not pegging.",51
-fomc-corpus,1979,"Whose judgment is that, Alan?",8
-fomc-corpus,1979,"I think that was a collective judgment of the Administration, the Treasury, and the Federal Reserve.",19
-fomc-corpus,1979,"I might mention, Larry, that at Henry's suggestion the staff prepared some data on a series of currencies, looking from 1973 to date at price adjusted exchange rate indices. In other words, the weighted average [exchange rates] would be adjusted by CPI indices. It might be worth sending this to the members of the Committee just for their information. It's very helpful. One way to look at it is that the difference between inflation rates of two countries should be taken into account in terms of where those currencies ought to be over a period of time. One could also, in my opinion, look at it in relation to the opportunity [costs of] holding those currencies in terms of interest rate differentials. That would tell you whether the rates were being maintained in relation to [their respective] purchasing power. What will you be able to buy at the end of the year--or after two years--by holding one currency over 12 months as compared to holding another currency over that 12-month period? None of these ways is perfect, but they are indications. I think what Alan and Steve and others are getting at here is that if there were a real departure from anything that could be rationalized by inflation or interest rate differentials, we might want to say, well, there is just total disorder in the market. And we'd have to do something as we did on November 1 to get it back in line. We hope that doesn't happen again, but it can happen; basically it happens when we have failed to keep up with the situation for too long.",316
-fomc-corpus,1979,I see.,3
-fomc-corpus,1979,"Next [on my list of people who want to comment] is Chuck, then Bones, Phil, and Henry. Chuck.",25
-fomc-corpus,1979,"Mr. Chairman, I have real concern about the Federal Reserve holding substantial foreign currency balances. I don't think it's the appropriate thing for us to do. I've never liked the idea of U.S. institutions in general holding large foreign balances. [It means they] aren't financing their primary activity of spending or investment or whatever it is. I think we have a swap system that is perfectly adequate; it was developed over time. I found the reasoning in both memos very strained as to what the advantages would be in terms of being able to operate without the blessing of the Bundesbank or whatever. That's because, in fact, when we spend marks--whether we borrow and spend them or we [hold them and] just spend them--the Germans are going to have the same liquidity problem. We're going to have the same tolerance of their sentiments as we would otherwise. Also, let me mention that we seem to get a good deal lower rate of return on these [balances], at least in the case of Germany and I guess Switzerland and [Japan]. I was interested to see that apparently my concern was shared by the framers of the Federal Reserve [Act] because both memos specify that the Federal Reserve Act says that it is against the law for the Federal Reserve to hold foreign currency securities. Then they go on to--",264
-fomc-corpus,1979,Government securities.,3
-fomc-corpus,1979,"The one [reference] says government securities; the other doesn't. The other says foreign currency securities. Then [the memo1 goes on to say that we can get around the law. I don't think that's an appropriate thing for the Federal Reserve to do--to find a way to get around the law. If we have a need for relatively small working balances, that's one thing. But if we're going to develop [a program for1 large amounts of foreign currency holdings, that's another. I also noticed with interest that the memo from Messrs. Holmes and Pardee says on page 9 that a good cushion to begin with would be two or three days' worth of heavy intervention. That signals to me an intent here and a very possible threat of building up large balances. So I must say I oppose it.",163
-fomc-corpus,1979,Could we have some clarification of the legal point?,10
-fomc-corpus,1979,What is the legal point? Paul is asking about the legal point of holding foreign currencies.,18
-fomc-corpus,1979,We cannot hold foreign government liabilities,6
-fomc-corpus,1979,"Just government, right?",5
-fomc-corpus,1979,We can hold private--,5
-fomc-corpus,1979,"My assumption always has been that [the authority to hold foreign government securities] was not put in the Act originally because in those days there was not much deficit financing; there weren't many foreign government securities. What [central banks] held in those days were acceptances, deposits or some other form. Am I wrong about that?",65
-fomc-corpus,1979,I am not a lawyer but my impression is that the Act described what was typically held by a central bank and it has not been revised over these many years.,32
-fomc-corpus,1979,"Well, why the prohibition on foreign government securities if it is--",13
-fomc-corpus,1979,There weren't any.,4
-fomc-corpus,1979,It just wasn't listed.,5
-fomc-corpus,1979,Did they prohibit everything that there wasn't anything of?,10
-fomc-corpus,1979,They listed what we could hold. Is that what you're saying?,13
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,It's the absence of a security that didn't exist. It didn't exist so it's not on the list.,20
-fomc-corpus,1979,Oh. so they didn't prohibit it?,8
-fomc-corpus,1979,"It's not prohibited. It's just not listed as one of the assets that we might hold, primarily I think because none [existed] at the time the Act was written.",35
-fomc-corpus,1979,"That's quite different, I think. There was no expressed desire to prohibit. There were just no such securities around, so they didn't list them.",29
-fomc-corpus,1979,I think it's that simple.,6
-fomc-corpus,1979,Bones.,2
-fomc-corpus,1979,"Mr. Chairman, maybe I'm [approaching] the problem from a slightly different angle but I think it may be prudent action to acquire some of these [currencies]. My question, though, is that I'm not sure I followed Alan when he was suggesting the dimensions. The numbers you suggested were $500 million and then $2 billion. I'm not sure what you're thinking now.",76
-fomc-corpus,1979,"As you recall--1 think it was at the February meeting--we had been running with an informal limit of $150 million. There was nothing formal about that [limit], but it was an informal one that we had always respected at the Desk. In February I noted that we were making some progress in repaying [our swap debt] and I suggested that the Committee might want to consider [acquiring] $500 million and the Committee [approved that]. Now we're suggesting, since we have made such tremendous progress repaying swap debt and since there may be opportunities to acquire some more [foreign currency balances] in the future--heaven knows if there really will be--that $2 billion does not seem an inappropriate amount. I would note that at the peak of our swap borrowing we had risks on the other side of several times that amount.",170
-fomc-corpus,1979,"That, of course, was built up when the dollar was weak. Now we're going to build up a risk when the dollar is strong.",28
-fomc-corpus,1979,That's right. We're trying to be a little more symmetrical on our asset and liability sides.,18
-fomc-corpus,1979,Phil Coldwell.,4
-fomc-corpus,1979,"Mr. Chairman, I don't resist the idea of building up a small kitty. I do have some resistance to the idea of an excessive amount in a single currency. So I think we ought to limit the amount in a single currency to a billion dollars, partly to limit potential exchange losses and partly to avoid pressures in terms of the currency status of some of these countries. Also, we ought to limit our holdings to major currencies. I'm certain that the Desk isn't going to play in or something like that, but I think we ought to have that well understood. I believe we need political and Treasury clearance and I assume that that will be done before we jump into any major stockpiling. We ought to have a slow rate of accumulation, assuming we don't have masses dumped on us, Alan. Then finally, I'm a little disturbed about what I hear in terms of intervention policy. [Under] the first of November ground rules, we're going to try to resist further downward movement [in the exchange rate of the dollar]. Well, now we have upward movement. Theoretically, I guess that first of November policy was established by somebody believing the dollar to be undervalued at that time. I don't know whether the dollar is valued correctly, overvalued, or undervalued now. But it seems to me that we ought to have some sort of policy that permits some rate increases along with increases in balances. We do not attempt to peg or limit changes in exchange rates. Those are my comments, Mr. Chairman.",306
-fomc-corpus,1979,"Thank you, Phil. Henry.",7
-fomc-corpus,1979,"Well, I believe we should think very carefully about what we're doing here; $2 billion is not a large amount and can be a perfectly good means of enhancing our operations. It could be the first step into a totally different world. If we ever got to a very bullish dollar situation, which is not inconceivable, and we wanted to restrain the dollar from going up very sharply--not peg it--[because] we would lose our trade competitiveness, we might find ourselves authorizing $5 billion a week. And after a few weeks of that we might throw in the sponge, as the British did. If that were to happen, I don't think we should do that. We still have to think about what the reactions of other central banks will be; we don't want to promote countries into reserve currency status if they don't want that. We don't want to get them in the frame of mind where they throw all the burden of intervention on us. We've already attracted to ourselves more of the burden of intervention. The New York market has increased in scope; I would guess it has become a better market because there is a strong supplier of D-mark in it and we will be attracting an increasing burden. I'd like to be sure that what we do here remains small unless we carefully consider what we should do in the other direction. If we do go in the other direction, I hope we could find some way of using S D R s and not individual foreign currencies. There are technical difficulties but we might overcome those. Meanwhile I'd convey to foreign central banks as we accumulate [these balances]--provided they agree--that we by no means intend to make a total change in our predominant use of the swaps. We don't intend first to use the reserves and then the swap lines; and we don't want to expose ourselves to their saying that when we've drawn on the swap we pay that off out of reserves that we've accumulated rather than give us the money outright as we have done sometimes [in the past]. These are some of the market strategy considerations that I think will come to [unintelligible] and we ought to lay [the ground rules] out with foreign central banks very cautiously.",439
-fomc-corpus,1979,"Thank you, Henry. Paul.",7
-fomc-corpus,1979,"Well, what I have to say is more or less along the lines of what Henry was just talking about. Let me state it perhaps slightly differently. I don't see this as an issue at this point. It may be a nice issue but I assume we're not being asked now to go out and acquire a substantial amount of foreign currencies to hold more or less indefinitely. What I see as a problem here, which is a byproduct of intervention, is that when we run out of indebtedness--if that's the way to put it--if we don't hold any foreign currencies, we can't intervene on the side of the market in which we are now intervening. That may be inconvenient if we're not prepared to hold foreign currencies. I don't think intervention policies should be controlled by an inability to hold foreign currencies. Also, it makes sense to be symmetrical. If we're willing to go into debt, we ought to be willing to go long on the other side. And something like $2 billion may allow us a reasonable amount of leeway around zero, but [I don't see that] as a permanent holding. That's the way I view this and on that basis I would support it. I am not ready to support a permanent massive holding at this point.",250
-fomc-corpus,1979,"It seems to me that what has been recommended is by no means a suggestion that we become symmetrical. When we were talking about going short we were talking about some $20 billion dollars--more than that actually [including] the Treasury and ourselves--that we would borrow and have to pay back. If we were being symmetrical, we would want to authorize a $30 billion package on the [long side].",81
-fomc-corpus,1979,Between the Treasury and the Federal Reserve- -,9
-fomc-corpus,1979,"We would have $30 billion on one side and $30 billion on the other side, a $60 billion band. No one would want to do that. I don't have a strong feeling on this, but the question before the Committee is: Do we at least want to deal in what is less than one swap line--in a series of currencies on the long side--as a way of continuing the operation of moving in depth to counter swings in the dollar, which is very strong again today? And we're not trying to peg it. As I say, we have had static occasionally from our [counterparts] about pegging or whatnot, but we have not tried to do that. Alan has consistently taken the view--sometimes with a few bruises--to let [the dollar] go a little and move in as it goes up and cushion it. S o it probably wouldn't mean the end of the world today whether we approve this or we don't. I think some of the things Phil said are very worthwhile. If we do this, we might well want to put a limit of a billion dollars for any currency and we certainly want to list the currencies we're talking about [acquiring], which would be only the major currencies. At the moment we're only talking about three currencies but we might want to add to that. I don't know that we even need to add guilders or anything else at the moment.",284
-fomc-corpus,1979,"M r . Chairman, our suggestion was that at the moment we would be contemplating three currencies. But we would assume that the possibility of the Desk holding minor amounts of other currencies would not be excluded.",40
-fomc-corpus,1979,"But it wouldn't be the world's mix of currencies, I take it.",14
-fomc-corpus,1979,"Mr. Chairman, it would be the currencies that the Desk is now authorized to hold, i.e. the currencies of our swap partners.",28
-fomc-corpus,1979,They are all listed here. It's a limited list of about 10 or 12--,18
-fomc-corpus,1979,It's [14].,4
-fomc-corpus,1979,"They include the Austrian shilling, the Belgian franc, the Canadian dollar--",15
-fomc-corpus,1979,I'm not saying we'd hold them all but--,9
-fomc-corpus,1979,"No, no. But this is the list: Austrian schillings, Belgian francs, Canadian dollars, Danish kroner, British [pounds] sterling, French francs, German marks, Italian lire, Japanese yen, Mexican pesos, Netherlands guilders, Norwegian kroner, Swedish kronor, and Swiss francs.",60
-fomc-corpus,1979,These are our swap partners.,6
-fomc-corpus,1979,"Yes. That's the list. We could do anything else we want. I think the point of limiting it to a billion dollars in any one currency is a wise one. And I [agree] that even if we want to do this, we would be very wise to have consulted with the Hill and with the Administration before we [proceed]. I think those are very good comments.",77
-fomc-corpus,1979,"Let me say something about that. It may not fit the market situation; it may make no sense, for instance, to accumulate yen.",28
-fomc-corpus,1979,I was assuming we'd accumulate marks.,7
-fomc-corpus,1979,"We would probably, predominantly. That is the big intervention currency. I see your point of limiting risk but I think it would be better to limit risk by limiting the overall amount and then leave it to the Manager [to decide] what is useful in these relatively small amounts. I'd prefer that rather than have the Desk get to the limit of marks and say now we can make the market orderly by working in yen even though it's really the D-mark market that isn't orderly.",94
-fomc-corpus,1979,"Well, can't we work around that through BIS and some other procedures to get hold of--",18
-fomc-corpus,1979,We could limit it to $1 billion without prior permission from the Committee.,15
-fomc-corpus,1979,"Well, I just think we have a possible exchange loss and we would be putting on some reserve currency pressure and ought to be very careful about that.",30
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,"On balance, without going through all the arguments, I have to join Chuck in opposing this. I think the disadvantages outweigh the advantages. I'm really concerned about the point of departure being one which could fairly easily get us away from countering disorderly conditions and into imposing an official view of what the dollar '""oughtto be worth."" That's a pretty risky game and I don't think we're ready for it.",80
-fomc-corpus,1979,"Bob, did you want t o comment?",9
-fomc-corpus,1979,"I find myself supportive of it, Mr. Chairman. It seems to me that it does give us another tool. And I certainly trust this Committee and even more I trust the Manager that in the intermeeting periods the spirit of this would not be violated.",51
-fomc-corpus,1979,We lose Managers if the spirit gets violated!,9
-fomc-corpus,1979,"I agree with John that I don't want to see this used as a super intervention tool or--well, he didn't say this--as a way to throw our weight around or something like that. But I think it can be quite supportive of additional flexibility in monetary policy in a broad sense. Like Phil, I think we have to be very careful in how we do it, not only with the Hill and the Treasury but also in our relations with other central banks. But that's why we have such a capable Manager and that's part of his job. So I would vote for this.",116
-fomc-corpus,1979,Thank you. Ernie Baughman.,9
-fomc-corpus,1979,"Mr. Chairman, I don't have a voice in this matter today, but if I did it would be on the negative side. It seems to me the potential disadvantages tend to outweigh prospective advantages.",39
-fomc-corpus,1979,Thank you. Chuck.,5
-fomc-corpus,1979,"I just want to make one additional comment on another aspect that perhaps Committee members haven't thought of. I have agreed to talk to the farmers who circled the building a few weeks ago and who want to borrow from the Federal Reserve at a low rate. I will tell them that we can't use Federal Reserve credit for that purpose because it's used to run the monetary system and all we do is invest in government securities and try to provide the right amount of reserves. A few years ago we took the same position with New York City when they wanted to borrow--that it wasn't a proper use of Federal Reserve credit. But we are talking about using up to $2 billion of Federal Reserve credit to support the mark or the yen, or the Swiss franc at a low rate of return. And I think that reduces our ability to resist these other demands for the use of--",172
-fomc-corpus,1979,I thought we were doing it so the crops would sell better abroad and maybe get more money on the farm. That's what I thought we were doing. That's what Henry has been teaching me.,38
-fomc-corpus,1979,It's pretty hard to do that with the agricultural bloc they have in Europe.,15
-fomc-corpus,1979,"It's still our biggest export. MR. HOLMES(?). Well, I would not view this as supporting the mark or other currencies at a low rate but as maintaining an appropriate rate for the dollar if we can agree that there is such a thing.",50
-fomc-corpus,1979,"Oh, so it isn't disorderly conditions. It's an appropriate rate for the dollar.",17
-fomc-corpus,1979,"I think [it's helpful] if we can accomplish an appropriate rate for the dollar. For example, suppose this afternoon the mark goes to 2 - l / 2 marks per dollar. Is that good for the United States? I'm taking an exaggerated--",51
-fomc-corpus,1979,"I have exactly three minutes to wind up this meeting so we can get across the street for lunch. I hope we will have time for discussion, particularly of the monetary improvement program, at lunch.",39
-fomc-corpus,1979,May I make just one comment? There is no government or central bank in the world that doesn't have this power. We are the only one; we have gold.,33
-fomc-corpus,1979,"Let's quickly check [vial a tentative vote on this proposition to indicate an agreement in principle--not on the details. If there is a sentiment in favor holding up to $2 billion, let's come back at another meeting with the details worked out and some specific proposals. We don't need to work on that proposal if there is no sentiment for it. So tentatively, Paul, how would you vote?",81
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,Bob Black,2
-fomc-corpus,1979,"Yes, Mr. Chairman, up to that [ $ 2 billion] point.",17
-fomc-corpus,1979,Phil Coldwell.,4
-fomc-corpus,1979,With the intervention limits and limits per currency.,9
-fomc-corpus,1979,If those details came in to your satisfaction. Bones.,11
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,Yes,1
-fomc-corpus,1979,Yes,1
-fomc-corpus,1979,And I think I would favor it. That means we have 8 to 2 [in favor]. And we can have a unanimous vote if we can get John and Chuck to straighten up and fly right! How about those who are not voting members? I'd just be curious because I would like to know what the general feeling is. Ernie?,70
-fomc-corpus,1979,I'm negative.,3
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,NO.,2
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,And we have First Vice Presidents McIntosh and Smoot.,13
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Yes,1
-fomc-corpus,1979,"I think there is a sentiment, then, to come back with a specific proposal, Steve and A l a n . Thank you very much. Unless there is further business we will confirm our meeting on May 22 when the fever will have broken, everything will be cool and you will vote unanimously for sound monetary policy!",64
-fomc-corpus,1979,"Good morning, ladies and gentlemen. Welcome to our FOMC meeting. Initially I would like to inform YOU--I think everyone knows this--of the passing of Angus Powell last Saturday. He Certainly was a dedicated [Reserve Bank] Chairman and was courageous during his years of illness. And we certainly shall miss him. Second, I would like to call to your attention something that happened in the [intermeeting period] that is of concern to me and I hope is of concern to you. My experience so far at the Federal Reserve has been rather impressive in terms of the security with which our deliberations are handled, but on May 1 there was an article in the Washinaton POSt where two different reporters independently had received information about FOMC proceedings which they quoted as from Federal Reserve sources. T believe they are reliable reporters and I believe they could be expected to be accurate in that respect. The fact that either through inadvertence or sloppiness or deliberate disclosure any activities of the FOMC were reported to the press is of considerable concern to me. One of the reporters is James Rowe. who now works for the Washinaton POSt in New York, though he was in Washington for a long time. His source may not have been from the New York Bank--I'm not saying that--but he got his information while serving in New York. The other reporter is John Berry, who is here in Washington. The first reported that there was [an intermeeting] vote. That information was inaccurate, so whoever the Federal Reserve source was it apparently was not someone who is directly involved in the FOMC or if so that person was disguising his or her comments. But it would appear more likely that these sources are people on our staff someplace who have picked up information from conversations or reports and have translated that somehow in responding to reporters. [Let me cite some examples from the articles.] ""Informed sources said that today the Board apparently was concerned with world financial markets."" That wasn't even discussed in the telephone consultation, as I recall. So that's incorrect. They reported that there was a vote, which is [also] incorrect. ""Sources said the Fed's policymaking Open Market Committee held a special telephone meeting last Friday."" Well, that's true; it was a consultation. ""The Federal Open Market Committee was closely divided on the question during the telephone meeting."" ""Fed sources said the agency does not believe the $4.1 billion jump tin M11 is cause for alarm."" Other examples include: ""One source noted...;"" ""however, sources explain that the action.. . ; ""which sources said...;"" etcetera. I think this means that all of us have an obligation to somehow tighten up on our discipline about this sort of thing. It would be very upsetting if we were to get into a posture of trying to imitate other irresponsible agencies of government that do not have any way to maintain confidential information. [ A s for how this could happen], there seem to be several possibilities. One is just sloppiness in terms of with whom conversations are held and under what circumstances--too often speaking freely in front of those who are not and should not be privy to FOMC [materials or deliberations]. Another is that there seems to be a tremendous American sensitivity to [a perceived1 responsibility to answer any reporter. And that's just false. No reporter has a right to place a call and get you or any of your people on the line: he can be ignored. Here. any reporter who calls my office is referred to Joe Coyne. If it is a legitimate question and it would be appropriate to respond, we arrange to do it. Also, we have found that there are con artists. There are people who call secretaries--and we have had instances of this occurring recently--where consequent information gets out by the caller using a false name and by creating with the secretary the impression that he has some knowledge [about what is going on at the Federal Reserve]. By doing that, suddenly information may get spilled out, because the secretary thinks, ""Well, if you know that, you might as well know the rest of it."" I just hope that you share my concern and will be willing to look at how, either through education or better discipline, we can avoid [a recurrence of] this sort of thing. Next, I want to report that when I was visiting the Federal Reserve Bank of Cleveland recently, Willis Winn had the effrontery to present me with a gift. The thing that impressed me about it, if you look at it [closelyl, is that I decided Willis had a message. So the message is that when he speaks today, I will turn this [hourglass] over and there will be no sand to run, so he will immediately be cut off from speaking. And for those of you who behave, I will give you your 3 minutes with the other one. But this one is for you, Willis!",1005
-fomc-corpus,1979,"In proper interbank rivalry, Mr. Chairman, I am deeply hurt that you didn't bring the T-shirt that we gave you.",26
-fomc-corpus,1979,"Oh, yes, I must bring in the T-shirt. But I haven't got it because immediately when I brought it home my wife confiscated it. And she said she wanted one from every Federal Reserve Bank so she could have 1 through 12, or A through L or whatever it is. Is it L or K? What's San Francisco? It's L. I thought I was right the first time. So I must follow that up.",89
-fomc-corpus,1979,I must add for the benefit of everyone else that this T-shirt is being offered to member banks for $ 2 . 0 0 and to nonmembers for $10.00. It's part of our improvement of service!,46
-fomc-corpus,1979,That's a reversal of policy. We have been r u i n g the Fed for a long time offering things to nonmembers for $ 2 . 0 0 and to members for $10.00.,43
-fomc-corpus,1979,"Mr. Chairman, most of us don't have as much fat in our budgets as Chicago does to buy these T-shirts!",24
-fomc-corpus,1979,"Mr. Black, I shouldn't admit this, but the T-shirt was issued by our credit union, which is independent.",24
-fomc-corpus,1979,"Well, let's move on to our meeting. Our first action is to approve the minutes of the meeting of April 1 7 . These have been circulated. Are there any changes or corrections? Hearing none, we will record those as approved. Second is a report on foreign currency operations since the last meeting, and Gretchen Greene is here today to give us that report.",75
-fomc-corpus,1979,[Statement--seeAppendix.],7
-fomc-corpus,1979,"Thank you, Gretchen. Any questions? Yes, Dave.",13
-fomc-corpus,1979,"Take Henry's question first, because I have a question for Ted Truman.",15
-fomc-corpus,1979,"Gretchen, when you operate as agent for the Bank of Japan, can you tell anything from the way the orders are given and what rate indications are given about how forceful they want to be in defending the yen?",45
-fomc-corpus,1979,"Not completely because their instruction is based on their close in Toyko. And how that relates to rates in New York depends very much on what has happened between the time of the close in Toyko and our opening in New York. In general I would say their instruction has been to limit the further weakening of the yen in New York, with the greater burden for intervention on them in Toyko rather than in New York.",84
-fomc-corpus,1979,Dave.,2
-fomc-corpus,1979,"This question comes out of the Greenbook Supplement, so I would like to ask Ted if I may. With the improvement of the balance of payments position, why don't you expect a better performance of the dollar?",42
-fomc-corpus,1979,"The improved balance of payments position does give us encouragement, as Gretchen has pointed out. But our feeling is that we probably have some ways to go. The United States current account position still is in deficit in a world where Japan, Germany, and Switzerland still have--[though it's1 less substantial--a surplus. So the feeling is that under current conditions we probably need a surplus to be out of the woods. That's the first point. The second point is that we need the exchange rate adjustment to be maintained in order to get us there. As you know, our staff forecast does show a current account surplus beginning in the first half of 1980. [Another] point though, as Gretchen mentioned, is that inflation rates have come up abroad on average. Taking a longer-term perspective and putting that together with our forecast, inflation rates abroad are still below ours on average and are expected to be below ours over the forecast period. In those conditions a stable dollar in nominal terms will in fact mean some real appreciation. So too much more of that would tend to make the market think we would not quite get there in terms of adjustment. For what it's worth, the forecast for the dollar as [implied by] the forward rate would suggest a 1 to 2 percent depreciation over the next year or so. So we are in some sense more optimistic than that reading of the market.",281
-fomc-corpus,1979,Chuck.,2
-fomc-corpus,1979,"Gretchen, I've been interested in the strength of the gold price during this same interval when the dollar has been strong. What do you hear about that or what is your view on the movement in the gold price?",44
-fomc-corpus,1979,"Well, there is a variety of factors: demand, supply, and psychological. On the supply side, of course, is the fact that the Treasury has announced a halving of its [gold] auction [amounts] and the IMF has announced a modest scale-back in the amount it will auction. There appears to be some lesser willingness on the part of the Russians to sell gold, and that has been going on much of the year. S o the supply picture is tighter than it had been. Industrial demand appears to be quite good, even at these higher prices. And, of course, gold reacts very [strongly] in an environment in which there is a sense of scarcity of certain important strategic commodities. It is also reacting strongly to substantial demand for other precious metals, particularly silver. The relationship between silver and gold is extremely important in our [unintelligible] here. So, even as the dollar has improved, the price of gold has continued to go up.",198
-fomc-corpus,1979,"It could also be consistent with your comment that it's not so much that people have improved their opinion of the outlook in the United States but that the outlook has deteriorated everywhere else. So all currencies are looking almost equally bad, which leaves gold as the alternative.",52
-fomc-corpus,1979,"Well, the demand for gold is quite strong, interestingly enough, in Zurich and in Paris, too.",22
-fomc-corpus,1979,Zurich and Paris?,5
-fomc-corpus,1979,Where in fact the price of the local currency has gone up much more [than the dollar].,19
-fomc-corpus,1979,Phil.,2
-fomc-corpus,1979,"Gretchen, what is the level of our yen balance at the moment?",16
-fomc-corpus,1979,"It's just under $200 million, about $195 mil 1ion.",15
-fomc-corpus,1979,Are we participating in yen intervention?,7
-fomc-corpus,1979,We haven't in recent weeks. We have not for some time. We have not purchased any yen since the last FOMC meeting.,27
-fomc-corpus,1979,"[Our earlier purchases amounted to] $185 million [equivalent], as I recall. Of course, [their dollar value] changes with the value of the yen, doesn't it? So I'm not sure [what it is] from day to day. Our next order of business is to ratify the transactions in foreign currency operations since the last meeting. I suppose a historic note on paying off all of our swap debt is in order. You have received the [written] report, I believe. Are there any comments or questions? If there's no dissent, we will ratify the transactions. Thank you very much, Gretchen. Let's move to the report on domestic open market operations from Peter Sternlight.",142
-fomc-corpus,1979,[Statement--seeAppendix.],7
-fomc-corpus,1979,"Thank you very much, Peter. Questions or comments? Henry.",13
-fomc-corpus,1979,"Peter, you mentioned that prior to the Treasury financing there was a change in the funds rate [objective] and you moved expeditiously so that the market would be apprized of that. How important do you regard it generally, other than in circumstances associated with a Treasury financing, that the market be apprized of exactly what the objective is?",69
-fomc-corpus,1979,"Well, the System has its objective and I think we want that objective to be apparent to the market. We felt at the time that it was particularly important that the message get through clearly and quickly or it might otherwise have [been an issue as the Treasury auction] approached. Sometimes it's convenient to let the market tighten on its own if that is the [desired] direction of change and just step in to indicate the bounds of any change that might be indicated. But in this case the change was made on a Friday and the Treasury's auctions were going to be on Tuesday and Wednesday. We wanted to make it known that we were aiming for something higher and, since our initial step would be in the direction of pushing the funds rate higher, we wanted to be sure we would have time to indicate to the market just how high--to indicate an upper bound as well. I'd say it's ordinarily important to let the market know what we want, but at times like that it is particularly important to let it know very promptly.",204
-fomc-corpus,1979,"Well, Peter, thank you very much. Excuse me, Phil, [did you have a question]?",22
-fomc-corpus,1979,"Peter, in your visits with the dealers what is your reading now of the dealer market? Are they becoming pessimistic about developments in the economy and market prospects?",32
-fomc-corpus,1979,"I'd say they've become more conscious of the flattening or softening in the economy at least for the near term. Whereas a few weeks ago there was a fair amount of sentiment that rates were likely to push higher in the near term, I'd say that is not the expectation at the moment. At least there is a feeling that for the near term there is likely to be little change, though many people in the market still feel that over a little longer horizon, say the next several months as against a shorter outlook of only the next month or so, there might well be a need for higher rates because of persisting inflationary pressures. The sentiment among quite a few in the market is that the economy has not reached a peak and might well continue on a strengthening course, although only moderately gaining strength.",160
-fomc-corpus,1979,I haven't looked over [the data] but have they followed that questioning judgment in terms of their portfolios?,21
-fomc-corpus,1979,"They have. There had been a tendency to keep their inventories of securities very low or modestly short until the time of this last refunding. In that refunding they took on a substantial supply of the 10-year and 30-year issues. As I mentioned, the distribution of those issues was quite slow, although it would appear that even when some retail demand developed some of the dealers at any rate were not all that eager to get rid of their supply. Some apparently are a little more willing now to hold on to their supply in the anticipation that maybe those securities will rise in price. I wouldn't call that--",124
-fomc-corpus,1979,Have they been building their long positions?,8
-fomc-corpus,1979,"In the longer area there is a net long position, which was not true a month ago. What they did was to take on a long position--this is in the over 5-year area--with the refunding and it has been whittled down some. But they still have a net long position.",63
-fomc-corpus,1979,"Would they have a negative carry on that, Peter?",11
-fomc-corpus,1979,"Just about even at this point, I would think, or maybe slightly negative.",16
-fomc-corpus,1979,"Peter, could I ask you a question about the discount rate? Is the market now in a mood to make a distinction between a technical adjustment of, say, 1/4 point and not confuse that with a signal for tighter money?",48
-fomc-corpus,1979,"It might well be because I think there is an appreciation [of the current situation] among market players. Even though they don't see the grounds for a general push to higher rates, they are conscious of the growth in the volume of borrowing, and they are aware that borrowing has gotten up to the level that on some past occasions has triggered a rate increase. So I think that might be a fair characterization.",81
-fomc-corpus,1979,"Thank you. Our next action is to ratify the transactions on the domestic side since the previous meeting. You have the reports. Are there any comments or questions? If there is no dissent, we will record the transactions as approved. I asked Murray Altmann at the last meeting to give me a rundown on how we've been doing with our individual forecasts. Did you distribute this to everyone? Well, I must arrange for you to get this [tabulation], which has your forecasts from March of last year when we looked at the period from quarter four '77 to quarter four '78. It turned out that the actual increase in real GNP was 4.3 percent. The staff had 4.4 percent. So, Jim, I must say that's fairly close. However, only 5 of those governors and presidents who were then participating had c4.31 percent within their ranges. Now. on prices, the actual increase was 8.8 percent. The staff had 6 . 6 percent, not so close. Nobody had a figure as high as 8.8 percent. The highest were our perennial optimists, Henry Wallich and Willis Winn, who had 8 percent as the top of their ranges. But they were the only ones with an 8 even showing.",262
-fomc-corpus,1979,What period are you talking about?,7
-fomc-corpus,1979,"This was the fourth quarter of 1978 over the fourth quarter of 1977. We were meeting in March of [19781 and [since] that time we haven't done any update. Unemployment at the end of the period, in the 4th quarter of 1978, was 5.8 percent. The staff had forecast 5.9 percent. And five of the participants had 5 . 8 percent within their ranges. Now, in June [of 19781, we looked at the [first] quarter of '78 to the [first] quarter of '79. The growth in real GNP was 3.1 percent and not a single person came in that low, nor did the staff. Everybody was higher. The staff had 3.8 percent. No one was as low as 3.1 percent. Prices rose by 9.1 percent. No one even came close. The staff had 7.3 percent. And the unemployment figure was 5.9 percent and, of course, the staff was at 5.9 percent, having figured that precisely!",229
-fomc-corpus,1979,But not knowing the real GNP!,8
-fomc-corpus,1979,"There were four of us who had that also. In the future when you consider the staff forecasts and criticize them, remember they're not too bad compared to those made by the rest of us. So we turn to you now, Jim, for your new forecast and how you see things.",57
-fomc-corpus,1979,I don't know what to do after that!,9
-fomc-corpus,1979,I assume the staff put these figures together!,9
-fomc-corpus,1979,"No, we didn't want the staff [of the Research Division] to do this; Murray did it so we'd have an objective [observer]. The other members of the staff didn't even know it was being done.",42
-fomc-corpus,1979,"[Statement--seeAppendix.] That completes my presentation, Mr. Chairman.",16
-fomc-corpus,1979,"Thank you, Jim. Are there any questions before we go on? Yes, Larry.",18
-fomc-corpus,1979,"Jim, do you have any specific figure that you are using to reflect the effect of energy price increases on inflation? Have you quantified that even in a rough way?",33
-fomc-corpus,1979,You're talking about in something like the deflator?,10
-fomc-corpus,1979,Yes. What has happened?,6
-fomc-corpus,1979,"Well, in the second quarter of this year, for example, our estimate of the business product deflator in total is 10.3 percent. If we exclude food prices, in the second quarter of this year it goes down to 10 percent. Excluding food and energy, it's 8-1/4 percent. So the energy component [accounts for] about 1-3/4 percentage points in the second quarter alone on the aggregate inflation rate. Energy in these accounts are only worth something like 7 percent by weight, but we're getting increases of 40 to 50 percent at an annual rate in many of the energy components.",131
-fomc-corpus,1979,Phil Coldwell,3
-fomc-corpus,1979,"Jim, I assume you saw that note sent to me concerning the parallelism between 1973-74 and 1978-79 on retail sales and real sales versus the peaks and troughs. How do you interpret that?",46
-fomc-corpus,1979,Sent by whom?,4
-fomc-corpus,1979,It was sent to me by one of the members of Jim's staff in response to a question I asked at a Board meeting.,26
-fomc-corpus,1979,"I think it has been distributed to all the Governors. I would interpret the data with some degree of confusion, I guess, in the sense that there are a number of major differences. A s I believe the memo pointed out, retail sales peaked in February of 1973--",56
-fomc-corpus,1979,On a real basis,4
-fomc-corpus,1979,"--on a real basis, which was about 10 months before the trough in economic activity. The peak in real terms [in the current cycle] would be December of 1978, so we've experienced four months of declining sales. But there are a number of major differences. One is the behavior of consumers. In that earlier period, the saving rate was considerably higher and consumers seemed much less willing to take on goods and spend as freely as they have this time around. So I'm a little disturbed about trying to make that comparison because of different consumer behavior. Secondly, though the energy situation was a bit similar as 1973 went on, that was a period when we had the storage situation by early 1974 combined with very rapid price increases. And it strikes us that at this point the situation is considerably different from what we experienced in 1973.",173
-fomc-corpus,1979,"One point that struck me was the percent of real disposable income being devoted to energy and food. The data show a quantum jump in '73 and it looks as if we're getting another one now, although the figures aren't complete nor are they [measured] in precisely the same fashion.",57
-fomc-corpus,1979,But what is really impressive is the reduction over the years in the fraction [of disposable income] people have to spend on food and gasoline. Since the ' 6 0 s standards of living have risen enormously in that respect and what's happening now is just a small catch-up.,56
-fomc-corpus,1979,"Well, we need higher prices for food!",9
-fomc-corpus,1979,Higher for [food] and for gas.,9
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,"Jim, we've had this unexpected bad news for the first quarter in terms of real growth at about . 4 percent. It's evident that real final demand actually declined and that what skimpy growth we had was in fact in inventories. In view of that and of the weak news we've gotten so far for the second quarter for those series for which we have data--1 don't think there's a single strong report out so far that I'm aware of--what is the case for a bounceback of real GNP in the second quarter? I must admit I'm getting pretty skeptical. This is a devil's advocate type of question, but there are weak spots in the economy and that is spreading--",136
-fomc-corpus,1979,"John, you mean a bounceback to 2.2 percent?",14
-fomc-corpus,1979,"Yes, a bounceback.",6
-fomc-corpus,1979,A hop?,3
-fomc-corpus,1979,"One major area to point to is business fixed investment. The first quarter was quite depressed in the construction area [but] the March numbers came roaring along with a bounceback. I would suspect that in the second quarter both shipments and, importantly, nonresidential construction activity will average substantially above the pace in the first quarter. That's one area. Housing may well turn out to be less of a negative in terms of expenditures in the second quarter compared to the first. It's not that I expect it to be rising and contributing to growth, but it may well be less of a drag on average for the quarter. Consumer spending, I think, is a very questionable area. We do anticipate a bounceback, but it is by no means a certainty. [If we don't begin to see that,] 'I would say that over time one would have to get concerned about that. State and local construction activity is also an area that was depressed in the first quarter due to weather effects. The evidence seemed to suggest a bit of an increase in March, but not a great deal. We are banking on the view that that sector will perform similarly to business fixed investment, particularly the construction part. The bounceback that we have forecast is nothing like that in the first quarter of 1978, when [GDP growth went from1 about zero to 9 percent. We're really talking about fairly small changes. Also, I think the infomation coming in has to be discounted to some extent. Industrial production is a clear case where we know the nature of some of the problems. But, as this [reported weakness] goes on, I'd say one would have to be more concerned about the possibility of a weaker picture than a stronger one.",346
-fomc-corpus,1979,"Jim, the information on durable goods orders will be released at 2:30 today. Do you have those data yet?",25
-fomc-corpus,1979,No. We've tried--unsuccessfully--forthe last two months to get them and have not been able to.,24
-fomc-corpus,1979,They will show a significant decline in orders in April.,11
-fomc-corpus,1979,Including defense?,3
-fomc-corpus,1979,I don't have the details. Overall it is quite a significant decline. Bob Mayo.,17
-fomc-corpus,1979,"Thank you, Mr. Chairman. Jim, to what extent do your figures embrace the latest increases in crude [oil] prices by the individual OPEC countries? And, secondly, do you allow anything for the increased pressure on the oil companies to deal in effect in the black market on the spot market?",61
-fomc-corpus,1979,"well, let me [defer to] Ted to answer the first question. With regard to your second one, I don't know quite how to answer that. Implicitly we have built in huge increases in crude oil prices and we have also built in a change in Department of Energy regulations on the pricing as well as pricing between various grades of gasoline. Putting all that together makes us come out with a big number. That's the sort of thing we've done. It's very clear that the gasoline that is being imported directly has gone up substantially in price. There are reports now of gasoline reaching New York that has an Amsterdam spot price of 85 to 87 cents a gallon. So if you're talking about dealing in the spot market in that way, at the margin it is very expensive crude and very expensive in terms of refined products.",166
-fomc-corpus,1979,But you feel that has already been built into your forecast?,12
-fomc-corpus,1979,"I was going to answer that in part, President Mayo. The forecast went to bed a little over ten days ago or so, and in the Greenbook we had forecast a fourth quarter-over-fourth quarter increase of 23-1/2 percent on the O P E C market for crude adjusted, compared with a little under 21 percent in the previous [Greenbook]. The announcements have come out since the Greenbook forecast was finalized, so essentially [what has happened] in the last week would add another 1 percent [or maybe a little less] to that.",116
-fomc-corpus,1979,That's all?,3
-fomc-corpus,1979,"Well, to the extent that we've kept track of the increase in the surcharge, which we've tried to do, [that is our estimate]. CHAIRMAN MILLER. Frank",35
-fomc-corpus,1979,"Mr. Chairman, I just want to say that I am pleased that Jim had such a good record last year because I have a very strong feeling that his record is not going to be as good in the next twelve months. It seems to me that we have--CHAIRMAN MILLER. Do you want me to tell you your record?",69
-fomc-corpus,1979,"It wasn't so good in the last twelve months. It seems to me that we have a classic cyclical decline; the [evidence] is almost overwhelming. And I think the latest piece of evidence that you cited--that there was a [big] decline in durable goods orders is the last straw. Now, the staff projection does assume--as it has all along--a 6 percent rate of growth in M1 adjusted for ATS, and we have not gotten that for seven months.",99
-fomc-corpus,1979,Except for April,3
-fomc-corpus,1979,"Yes, there was one month. But that was generated by the IRS and not the FRB. So I think we have not created the financial climate that you've been predicting. Would you want to comment on that?",43
-fomc-corpus,1979,"Sure. I'd make two comments. One is that in terms of a concern about the cyclical turn, I could perceive three possible scenarios right now. One is that we will have a situation of continued very strong growth that presses against resource availability and intensifies inflation. I would say that the information coming in tends to weaken that case, if not remove it. The second possibility is that we have a situation with serious distortions and one would anticipate either a deep or a prolonged 5/22/79 -11-contraction in activity. I don't think we have those sorts of distortions. So what I am left with then is the middle course, which we believe is reasonable at this time; it involves small real growth. Now, whether or not that will turn out to be a technical recession in the sense of two consecutive negative quarters, where those negatives are very small, is not really a big issue as far as we're concerned. It's the general pattern of what happens that is important, and we think the economy is in for that kind of period of small real growth. But it may well slip into a mild contraction in the technical sense. With regard to the monetary aggregates, one of the things we have been getting that we did not anticipate is a further downward shift in the money demand function. So what we have in effect with the slower growth of the aggregates is interest rates that have been about on track with our forecast for some time. In addition, we've assumed that the rate of growth for M1 at 6 percent adjusted for ATS was over a fourth-quarter-to-fourth-quarterperiod so that if there were shortfalls we would get back within the ranges and stay on track. Hence, to the extent there was a difficulty, we assumed it would be very short-lived and we'd have a resurgence of growth.",365
-fomc-corpus,1979,Henry,1
-fomc-corpus,1979,"Jim, am I right in thinking that among the various price indexes--the deflator, the business fixed weight deflator, and the CPI--there has been an unusually wide discrepancy in the recent months? I see the CPI increase for the first quarter of this year was 13 percent. The other indexes are in the 10 to 11 percent range.",72
-fomc-corpus,1979,I think mortgage interest rates probably played a part in the differential. They have a heavier weight in the CPI and are driving that measure up; they don't play that kind of role in the gross business fixed weight price index. I think the difference in weighting is probably the most significant variable.,57
-fomc-corpus,1979,"It does make a difference whether the rate of inflation was 10 percent or 13 percent over the last three months, even if we give it the usual Federal Reserve discount.",35
-fomc-corpus,1979,Was it a 13 percent increase on average over the [first] quarter?,16
-fomc-corpus,1979,"No, it was [measured] end-of-quarter to end-of quarter.",16
-fomc-corpus,1979,"Well, that's one difference.",6
-fomc-corpus,1979,"That accounts for some of it, probably.",9
-fomc-corpus,1979,Chuck.,2
-fomc-corpus,1979,"I just wanted to say that I think Jim gave an admirable answer to Frank on probabilities except that we do have the energy situation, which is very, very difficult to [judge]. It is such a new factor. Obviously it's going to lead to more inflation than otherwise. It's also obviously going to lead to less spending than otherwise. But how far either will move, I just don't think there's any way of knowing. One can imagine that the inflation effect will fan out because it will show up in wage demands and automatic cost-of-living increases and that kind of thing, and we may get as much secondary effect from it as initial effect. One can imagine on the spending side that not only will people have to lower spending for other necessities, but that it will have a great psychological effect on spending, as you say, for durables, for housing, for vacation homes, and for tourist travel. We're getting into the summer season when tourist travel is a very important element in budgets. Who knows what's going to happen? So there's an unusual amount of uncertainty connected with the energy situation today. But I think it's on the negative side.",227
-fomc-corpus,1979,Nancy,1
-fomc-corpus,1979,"Have you evaluated the economic impact of sharply rising interest rates, Jim? Have you looked at what the Wall Street Journal or [people on] Wall Street have said? Suppose the prime rate went to 13 percent. What would be the effect of that on your forecast?",54
-fomc-corpus,1979,"Well, if it went to 13 percent, one would have to ask why. If it went to 13 percent because all these numbers are wrong and we have a rip-roaring economy under way, that's a different situation than if it went to 13 percent as a result of policy actions. But I don't see a rip-roaring economy in the cards. Given available information, I'd presume we'd be talking about a substantial increase in the funds rate to get the prime to 13 percent. And I think we would be talking about a substantial downward push on real activity over the period ahead and some improvement in our inflation forecast--but for the time period of a year and a half, relatively little on the inflation side.",145
-fomc-corpus,1979,My other question is: Is there a reason for the peculiar pattern that you have on real disposable income? It seems to have a quarterly pattern that comes and goes.,33
-fomc-corpus,1979,It comes and goes with social--,7
-fomc-corpus,1979,It's the July 1 factor.,7
-fomc-corpus,1979,The social security?,4
-fomc-corpus,1979,"It's social security, which is worth about $ 9 . 8 billion in July. So there's a third-quarter blip upward--",27
-fomc-corpus,1979,That will fill many columns of newspapers in July. Willis Winn.,13
-fomc-corpus,1979,"May I borrow a little sand to feed my machinery? I still get the reading that the financing of [housing] has been turned off almost absolutely. And there is about a 3-month lag between financing and starts. O n that basis, starts should [fall] very sharply starting by the end of June. Insurance industries, in contrast with the banks, report very little demand for financing at the moment, which is rather surprising. All of that leads me to feel that commercial construction is in for a rather sharp decline, though maybe not until the third quarter. The other comment I'd make is that the trucking industry reports rather sizable declines in the last two weeks. Now, whether that's the adjustment to the after-strike effect or whether there's something basic happening, I don't really know.",157
-fomc-corpus,1979,Thank you all for your questions and comments. Let's turn now to Steve for his observations. Then we'll do our go-around.,25
-fomc-corpus,1979,"Mr. Chairman, [we've had] stability in the federal funds rate and short-term rates in general since the beginning of the year, except for the most recent 25 basis point increase in the funds rate. [However], an apparent worsening of inflation and inflationary expectations presumably would have the effect of reducing real rates of interest. These two factors together raise questions about how to interpret monetary policy with regard to [whether] it is restrictive or not in relation to credit markets. The Committee, of course, has worried in the past about interpreting M1 and M2, but there are similar problems I believe in interpreting the credit markets. It might be helpful in that context to review what might be elements of restraint and elements of nonrestraint, so to speak, in the credit markets. If you accept the proposition that market interest rates have been declining in real terms because of increases in rates of inflation, I think you have to look for elements of restraint in lender and borrower attitudes in relation to those interest rates. And I believe several elements of restraint have emerged since the beginning of the year and even since the last meeting. The most evident one perhaps is in the mortgage markets, as Jim has mentioned, and probably stems in part from the action taken in mid-March to eliminate the differential on money market certificates. In the six months prior to April, inflows to savings and loan associations for the most part had been running at annual rates over 10 percent, generally between 10 and 12 percent. In April, the annual rate of increase in deposits at S&Ls was 3-112 percent and our estimate is that it will be around 6-1/2 percent in May. So that rate of inflow halved from around 10 percent to 5 percent, and there has been a similar change at mutual savings banks. We don't have the latest commitment data, but in view of this [reduced deposit inflow] and the need for S&Ls to rely more heavily on Home Loan Bank borrowing, it's unlikely that we're going to have an increase in outstanding commitments in any lasting way. The declining trend in commitments that has been in evidence since November probably will continue. I would also point out that at smaller banks, loan to deposit ratios have been rising steadily thus far in this expansion. We don't have data beyond the end of 1978, but at that point they were well above the ratios in the 1973-74 period. There's not a marked cyclical trend in such ratios at small banks, but after being flat they had been going up steadily in this expansion. And I think that's beginning to imply some restraint on availability [of funds at1 these banks, which of course have less access to the money market than larger banks. Their [reduced] access would in [turn] cut down on federal funds sales to large banks. With regard to other factors affecting attitudes, these [developments] affect the attitudes not only of suppliers but also of borrowers. The debt burden on consumers, [taking into account] both mortgage debt and consumer credit debt, is well above what it was in the 1 9 7 3 - 7 4 period. Of course, that [concern] is in part alleviated--[analytically at leastl--by inflation expectations, which make the debt burden seem light. On the other hand, any uncertainties about future income will make it seem very heavy. Furthermore, we've had very recently a continued step-up in the deterioration in business liquidity; the ratio of liquid assets to current liabilities of businesses is approaching very closely its ' 7 3 - ' I 4 lows. Another ratio, short-term debt to total debt, is pretty much at its high of the ' 1 3 - ' I 4 period. So in that area too we're now getting what might be characterized under more ordinary circumstances as a strained situation in business liquidity. Its actual impact on spending will depend, of course, on how businesses assess their future cash flow. Finally, I would add that attitudes toward credit may also be being influenced by the impact of the gasoline shortage. Whether that would dissipate if, through a miracle of bureaucratic manipulation, the gas shortage turns out to be transitory, [I don't know]. In any event at the moment I believe it's making people very conservative with regard to spending, and thus borrowing would not appear attractive or needed at current interest rates. Offsetting those elements of restraint is the general point that there has been no change in private short rates. There's considerable availability of bank credit at current prices and bank credit has been strong, as large banks have been able to borrow through fed funds, RPs, and Eurodollars. And corporate bond yields are up since year-end by about 6 0 basis points. I would estimate that a third of that is because of the nuclear power plant failures, which have made lenders more cautious with regard to financing utilities. But I would guess that most of that increase probably reflects the worsening of inflation and should not be interpreted as a tightening of the bond markets. I would venture the judgment, Mr. Chairman, that on balance one can say that nominal interest rates have not become more restrictive since the beginning of the year, or even since the small action taken a couple weeks ago. However, I would say that lender and borrower attitudes toward credit have worsened in a sense and that given the level of interest rates and those attitudes, the posture in credit markets should be characterized as somewhat more restrictive. That is, it seems to me that there's less of an inclination to use credit and more of an inclination on the part of certain institutions to restrict the supply of credit at current interest rates. One approach to policy when there are uncertainties about interpreting credit [conditions] is to put a lot more reliance on the aggregates. That is the reverse of the other approach, which is to look at credit when there's uncertainty about the aggregates. The aggregates have their problems, but perhaps they're gradually being resolved. I would point out that M1 now has moved back up into the 1-1/2 to 4 - l / 2 percent range that the Committee has adopted, as can be seen on the charts on page 10 of the Bluebook. M2 has moved up close to the bottom [of its range]. And if the staff's forecast for the May-June period is in the right direction, M1 will be moving up closer to the middle of its range and M2 might actually touch the bottom or move up into the range. I think it continues to be the better part of wisdom for the Committee to take account of both credit market conditions and the aggregates in its policy deliberations and instructions to the Manager. And in view of the recent developments in the aggregates and the uncertainties about credit conditions, one approach might be to have a rather wide range for the aggregates--that is, not to take any tightening actions unless the aggregates were moving close to the middle of their long-run ranges or above, and not to take any easing actions unless they were falling clearly below the bottom of the long-run ranges. One way to do that would be to widen the ranges from the 4 to 4-1/2 percentage points that the Committee has been using to 5 or 5 - 1 / 2 or even 6 points, and to put most of that widening on the upper ends and not on the lower ends of the ranges. This could be accomplished with either a money market directive or a monetary aggregates directive, depending on how sensitive the Committee wants to be to changes in the aggregates. Under current circumstances, and [given] my interpretation of the restrictiveness of credit conditions, I would recommend a money market directive.",1569
-fomc-corpus,1979,"Thank you, Steve. I would suggest we begin to go around the table. I think last time we started with Larry [Roos], didn't we? We'll switch over this time and start with Roger [Guffeyl and come around the other way. I think the procedure we've been using recently has been helpful and I would suggest that we follow it again. That is, let's limit comments on the economy to any variance from what has been projected by the staff. Then each of us should give a general indication of the policy posture that should be followed without specifying the exact numbers. Just say generally whether it implies steady as we go, a tightening or easing up, or any other thing. So let's start with Roger and go around.",148
-fomc-corpus,1979,"Thank you, Mr. Chairman. First of all, we have very little quarrel with the staff projections, particularly as to the pattern, but our forecast is perhaps a bit weaker in the latter part of 1979. Our analysis suggests that the housing figures might be weaker in 1979. In talking with some savings and loan people in our District, the impact of this money market certificate change has been very dramatic. That, coupled with usury rate ceilings that apply in several of the states in the High Plains region, essentially has closed down any future housing commitments by the savings and loans. There is apparently nothing in the works that would pick up that slack. Thus, we would anticipate that overall the housing projection by the staff might still be a bit high, even after the adjustment they made this time. In looking at the Board's model and trying to work through the housing starts and the potential for a bit of an increase in the saving rate, the [growth] drops off very quickly it seems. So our best judgment would be that in the latter part of 1979 and into 1980 we would have somewhat lower growth than the staff has projected. With respect to policy, [my view is] cast against the background of growth in the aggregates being very slow. Given the numbers that have been published for the first quarter and what the April numbers now show, there is not a great deal of strength--even if the April numbers are adjusted. It would be my judgment that now is certainly not the time to take any additional tightening actions. And perhaps not until we see the figures in May and June would it be time to consider easing. As a result, it seems to me that for policy purposes we ought to be looking at [maintaining] the interest rate level and adopting [a directive based on] money market conditions without regard to where the ranges may be. I've not thought about Steve's proposal for wider ranges. ~t is not very attractive to me at the moment. Nonetheless, I'd like to see interest rate levels stabilized as they have been in the recent past. I'd also like to endorse a proposal that I think [was implied in] Dave Eastburn's question. And that is that it is tine for the Board to consider an increase of 114 percentage point in the discount rate, which is merely an alignment. We're seeing considerable pressure. Loan to deposit ratios are increasing in our part of the world, and understandably so. It's that time of the year. But I think the pressures are getting fairly strong. Lastly, if one looks at bank credit, which some apparently are prone to do, our information, as best as we can track it down, is that a great deal of the support for bank credit may be coming through the Eurodollar market. And if there is an increase in the reserve requirements for RPs, as the Board has proposed, it's going to make the Eurodollar market much more attractive--a cheaper source of funds. Unless there's some way to police the movement of funds offshore that come back in through the Eurodollar market, I think we would just be worsening that problem rather than making it better with that [proposal], M r . Chairman.",646
-fomc-corpus,1979,"Thank you, Roger. Bob.",7
-fomc-corpus,1979,"Well, I'll start off where Roger left off. I, too, feel that an increase in the discount rate would not be inconsistent with a policy position that is essentially a stable one. I think it would have some announcement effect in terms of our continued concern about inflation without really having a substantive effect, if I make myself clear. I think we have passed a [cyclical] peak in this current quarter. My guess, for what it's worth, is that in the years to come the National Bureau of Economic Research will record this quarter as the turning point. It has all of the ingredients, without some of the distortions, of the early '74 period. Credit expansion and many of the aspects of the real economy, as pointed out by the staff, indicate a turning point. I'm not ready, however, to see us respond to a recognition of that turning point--even if all of us agree that it is here--by a significant move toward easing. I think that would be premature because of our continued very high levels of inflation. It would be misinterpreted. I'm not sure yet whether I buy Steve's widening of the range for M1. I'm more inclined to narrow it and be willing to jiggle [the funds rate] up another eighth of a point or so if indeed the aggregates come in strong in the rest of May and June, although I don't expect them to do so. I am more ready than I have been in many months to see us ease, but I'm not ready to do so today. Let me put it this way: I have opened my mind a little more in that direction.",327
-fomc-corpus,1979,"Thank you, Bob. Mark.",7
-fomc-corpus,1979,"Thank you, Mr. Chairman. I'd like Murray's record to show that we agree substantially with all of the portions of Jim's forecast that are correct and disagree violently with those portions that are incorrect!",40
-fomc-corpus,1979,That's pretty good. Keep going.,7
-fomc-corpus,1979,And give us the wisdom to know the difference.,10
-fomc-corpus,1979,And let us pray.,5
-fomc-corpus,1979,"Well, somebody told me that's [all] we're left with! I just have a couple of quick comments. We're very much in the staff's camp with regard to business spending. We still think that it could turn out to be a plus for the year and could be the sector that will carry us through with positive real growth. I must say that your report on new orders doesn't sound very consistent with that. I hope that turns out to be a fluke. On the inflation side, we think a case can be made that is slightly more optimistic than the staff's--not in the near term but in the longer term. If you think as we do that the basic rate of inflation is determined primarily by the size and direction of the federal deficit and by the stance of monetary policy, both of those basically have been moving in the right direction. That would suggest that the long-run outlook for inflation is a little better than we might suppose. Food and OPEC and all these other things somehow keep making life less orderly than we would like. But even s o , our feeling is that we may be moderately pleasantly surprised on the inflation side. As for policy, we certainly wouldn't want to tighten up, whatever that means. I'd like to suggest that a tightening of monetary policy can be done in a number of ways, in our view at least, including a change in the rules of the game. And we would put the application of reserve requirements on RPs and things like that as a change in the rules of the game that would have a tightening effect. so we hope that will not be done. In terms of interest rates, I agree with what Steve said. In terms of the aggregates, I almost thought he was going to say that given what has been happening we could start to give more credibility to M1 and, therefore, we could narrow the range. He went in the opposite direction and he lost me. So, I'd like to think about that for a minute.",397
-fomc-corpus,1979,"Thank you, Mark. John.",7
-fomc-corpus,1979,"Well, when I asked the question of Jim Kichline about what the case is for a bounceback in the second quarter, I probably tipped my own hand as to my increasing skepticism. I'm afraid that what I see is pretty much what Bob Mayo sees in terms of a probable cyclical peak in this quarter. As a matter of fact, our forecast for some time has been showing a short, shallow recession beginning in the second half of this year and going into the first quarter of 1980. But that's obviously just as judgmental as yours, Jim, and I don't know that it's any better than yours. Nevertheless, it is different. The recent news that has come in for the second quarter when we were expecting what I mistakenly called a bounceback and was corrected by the Chairman--it's more of a little hop, if anything--gives me some real concern. This is the time in the business cycle when we could get some very unpleasant surprises. We certainly got one in the first quarter and I would be prepared to see one in the second quarter, I'm afraid. As for what to make of this troublesome development whereby bank credit has been growing more rapidly than the aggregates, our staff has recently updated their analysis in that area. I must say, after looking at it, that I don't really think the strong growth of bank credit proves very much. If we look back at earlier cycles, we find that bank credit tends to be more or less coincident with the cycle. It peaks very shortly before a downturn. That was certainly true in the ' 7 3 - ' 7 4 recession where the deceleration of monetary growth preceded the peak in that business cycle and the formal recession by quite a few months. There are all sorts of reasons why bank credit would accelerate at this time in the cycle. Corporate liquidity is down, as Steve has correctly pointed out, and corporations wish to avoid locking themselves into high long-term rates. Hence, they turn to their banks for credit accommodation and try to wait out the period of high rates and plan to do some funding when long-term interest rates are coming down. So on balance I'm really not impressed at all by the fact that bank credit has been growing faster than the monetary aggregates. During April we fought the ""battle of the bulge,"" as I call it, on M1. It is said to have gone up at a 11 percent annual rate. [But] as the staff knows well, in view of the history of earlier Aprils, in our monetary theories it's tremendously difficult to compute seasonal factors for the month of April. I sympathize with the staff on this. But 17 percent could later turn out to be 8-1/2 percent or something like that. If we look at Aprils of preceding years, seasonal factor corrections have been made following the benchmark revisions and have involved some pretty [big] downward revisions. Whether that will occur for this April remains to be seen. But it's probably the most unreliable month in the year in terms of getting a good fix on what is really happening. Since the May figures as now projected by the staff--correct me if I'm wrong, Steve--show a 1 percent rate of growth for M1 and a 5.4 percent rate for M2. I wonder if it isn't time to unwind the snugging up of the funds rate that we did in April. We were leaning against what at that time appeared in the best judgment of the staff to be a bulge in the money supply. In view of the figures that we already have for April and those projected for May I wonder if we should inch the federal funds rate downward a bit. In short, based on my perceptions of spreading weaknesses in the economy and on the long cumulative impact of monetary growth well below the target range, even considering the April figures--and with May coming in on the weak side and the June projections weak--in my opinion this is no time to be snugging up any further. If anything, I would lean toward reversing the April action on the funds rate. That's all, Mr. Chairman.",826
-fomc-corpus,1979,"Thank you, John. Ernie.",8
-fomc-corpus,1979,"Mr. Chairman, I, too, missed the turn in Steve's comments. I thought it was [going to be a recommendation] to lean more on the aggregates and he winded up [suggesting] a wider range on the aggregates. But I assume--",53
-fomc-corpus,1979,"If I may, President Baughman, I did want to lean more on the aggregates but I didn't want to [suggest] that the Committee should tighten with growth rates as low as they are under these alternatives. That's why I [proposed] a wider range on the high side.",58
-fomc-corpus,1979,"I'd like to toss in a couple of points which seem to suggest something a little different than some of the points that have been made thus far. One, we were advised that Sears Roebuck recently sent out mailings to most of its credit customers raising their [credit limits]. Sears apparently inspected its records and discovered that a high proportion of [its cardholders] were at the maximum amount authorized. It has been reported that they got a nice response, which I construed as indicating that those consumers at least were still willing to use credit that was made conveniently available to them. I have also encountered--and it seems impressive, possibly because it's surprising to me--a number of instances of what I would call small speculators on houses. People are acquiring ownership of several units of housing. Frequently a part of the explanation given is the recent increase to $100,000 in the amount of capital gains. I don't know how they're going to hitch that to gains on more than one unit, but in their minds they seem to be able to do it. A development that I am still unable to explain is the persistent decline in the number of active drilling rigs. In an attempt to check into that, we heard a whole array of what seem to me rather peripheral explanations. In total I suppose they have to add up to the fact that for increasing numbers of owners of these rigs--most of them are for lease--people who would hire them apparently are not willing to accept the risks and the costs involved in drilling. But that seems to me to be an incongruous development. The housing bounceback that I've been inclined to expect in Texas in particular, with the revision of the usury law which seemed to be moving through the legislature satisfactorily, may not now materialize. We have a phenomenon in Texas at the present time which has been rather colorfully characterized as the ""killer bees"" where a miniority interest in the state legislature--but a group still large enough so as to prevent a quorum from being constituted--has simply absented themselves from the chamber. That has consequently stopped the forward motion of legislative action.",424
-fomc-corpus,1979,Where else but in Texas would the legislators be fugitives from justice?,14
-fomc-corpus,1979,"Well, the speaker of the Senate under his interpretation of the law has called the Texas Rangers into action and sent them out to find these fugitives and bring them back. But it's reported that they have crossed the border. And unless he's willing to create an international incident, he probably cannot reach them. I have no particular quarrel with the staff's projection. It seems to me about as reasonable as can be made in the circumstances. However, in our discussion I think it might be appropriate for us not to focus exclusively on whether real economic activity is going to be a small plus or a small minus--the difference is possibly not very great--but to continue to focus a little more on inflation. Inflation is probably doing more damage now and has more potential to do damage to our economy than whether the rate of economic growth is a small positive or a small negative. That's all I have, Mr. Chairman.",182
-fomc-corpus,1979,"Thank you very much, Ernie. Frank",9
-fomc-corpus,1979,"Mr. Chairman, as I indicated earlier, I think we are close to a cyclical peak. Conceivably, it may already be behind us, with weakness in consumption and housing being covered up temporarily by inventory accumulation, the classic form of a peak. I don't think we should casually assume that the recession is going to be very mild. We talk about the lack of imbalances in the economy. Very often we don't recognize the imbalances until sometime into a recession. For example, in late ' 1 3 , I think no one forecast as severe a recession as we had in '74-'75. If we are seeking a soft landing, then I think we've got to move monetary policy now in a less restrictive direction. If we're going to recognize the lags of monetary policy, we have to do what we've never done before and that is to move before the evidence is overwhelming that we are in a recession. Now, this would take some explaining to the public because it would represent a radical departure from the past practice of always overstaying a policy of either ease or restraint. That has been the record of the past 15 years and I would hope that in this go-around we could break out of that cycle. [To do sol it seems to me that we have to move toward ease at this meeting. A modest easing in rates now, although coming at a time when inflation is very high, could very well forestall a need for very sharp declines in interest rates later on. So I think the moment is now. I'm sure I won't get much support for this proposition, but I feel very strongly that now is the time.",331
-fomc-corpus,1979,"Thank you, Frank. Phil.",7
-fomc-corpus,1979,"Mr. Chairman, I am delighted to see the slowing in the economy. I've been hoping for it for a year. I think we're getting some reduction in the level of activity and I hope it continues for a while longer. I think we need to look at our basic objectives here because we have a problem of whether we are aiming to maintain a semblance of real growth or to contain inflation or a combination thereof. It seems to me that our current posture has some elements of restraint but those elements of restraint are coming in the housing field, largely in the usury ceilings and the thrift flows, which of course are the traditional ways. I think we run a risk on two sides. We run a risk of recession, of course, and we run a risk of some acceleration in inflation. The latter stems primarily from what I'd call an energy tax, because we are being hit with a very sizable tax thrown at us by energy costs. I suspect we can weather the food cost problem, especially to the extent that we can open up our borders to further imports, if there is anything to bring in. But I don't think the energy cost impact is going to go away and it is going to [spread] throughout our economy. You may recall the last time around that it took several months if not a year or more [for the energy shock] to [exert] its full impact. I suspect that the retail sales picture is giving us the signal that things are being slowed by energy costs and agricultural or food costs. Frankly, I welcome the slowdown. I'd prefer it hadn't come from further energy cost increases, but maybe over the long haul this will do us a favor and force us into some actions we should have taken six or seven years ago. A s for our monetary policy posture, I still believe that inflation will be our principal problem in the coming months and years. Whether we can achieve a reduction in inflation by a nice slow pattern is something we have not yet proved. I suspect it's going to require more strenuous efforts than have been mounted so far.",413
-fomc-corpus,1979,"Thank you, Phil. Henry.",7
-fomc-corpus,1979,"I share Phil Coldwell's feeling. I think we're in some danger of excessive preoccupation with the business cycle. rt matters much more whether we come down from I percent to .4 percent growth than whether we go from . 4 to -1 or -2 percent. So in that sense an important move is already behind us. I think inflationary expectations have increased substantially in the last quarter. The leading models have raised their projections of inflation for the next two years by about 1 percentage point. And as we know, we've always been below on our projections. I think we're now building inflation into the economy to a degree that we've never had it; consumer behavior shows that. We also have evidence that inflation in the American economy is much less variable than it is in other countries and is, therefore, much harder to bring down. what we see in our own forecast is that at best we have to look forward to a period of a very slow deceleration of inflation. I think that will be regarded as unsatisfactory. And I expect that this situation is going to cause us to adopt wage and price controls sometime this year or next year. people are sufficiently excited about the inflation and sufficiently disenchanted with the actions in the fiscal and monetary fields. If we don't succeed in bringing inflation down, then the predictable pattern is that after a mild dip we'll go into a renewed expansion starting from an inflation base of 8 to 10 percent, whereas last time we started at 5 percent. And that will land us in an area where not even Italy is today. We are now the country with the most inflation among the major countries except Italy, I believe. As far as monetary policy is concerned, I think we still believe that somehow there's a free lunch--that we can accomplish our objective of reducing inflation at no cost--and I believe that's no longer true. We will have some costs, either in terms of much more inflation or in terms of reduced economic activity and a less than soft landing. I agree with Steve that real interest rates are falling; and that I think is the basic stance of monetary policy. We are [now] accommodating an external shock from food and oil. It's no longer the view of the economics profession that external shocks should always be accommodated, but our policy is doing that. It's not surprising, therefore, that in the ranking of inflation fighters we find ourselves near the bottom of the scale, as the Redbook among other things shows. As is obvious from my remarks, I would urge a tightening, even though it is late in the game. I think the impact on the real sector would be very slight. The real sector is going its own way with little benefit from monetary policy. [A tightening] will have some favorable effect on expectations. I think we have to look at interest rates at this time. The aggregates have become so unstable; for six months there has been no growth [in M11 and then we get 17 percent in one month. Why should we allow our funds rate decisions to be triggered by that kind of mechanism? So I would agree with Steve to have a wider range--1 think that is fine--and a money market target, with a rise immediately in the rate. Thank you, Mr. Chairman.",656
-fomc-corpus,1979,"Thank you, Henry. Paul.",7
-fomc-corpus,1979,"I have heard a great deal of wisdom even without our getting around the rest of the table, Mr. Chairman. I'm not sure it has yet resolved all of the uncertainties in my own mind. I do share a lot of the feeling that has just been expressed about inflation; I think we tend to duck that issue. Something was said earlier about there not being much precedent for bringing down the rate of inflation rapidly. I'm afraid there isn't much precedent for bringing it down slowly over a number of years either, which is a measure of the difficulty of our problem. I'm impressed by the degree that inflation is now built into thinking in terms of the business outlook. I'm also impressed--the supporting factor--by the degree with which capacity problems and backlogs exist. But certainly the outlook is uncertain. The recent news hasn't been very buoyant. So I would conclude that the time is not very propitious for much of a change in either direction. There's a fair amount of time before our next meeting.",199
-fomc-corpus,1979,When is our next meeting?,6
-fomc-corpus,1979,July [ill.,4
-fomc-corpus,1979,"I would think that with either new financial or monetary data or business news, the Chairman might see an occasion for at least a telephone consultation some time in that interim.",33
-fomc-corpus,1979,"Paul, there's some sentiment that we should act like Congress and go home for six months and everything would get better!",23
-fomc-corpus,1979,"Well, I sometimes agree with that, particularly if the Committee were to make precisely the decision that I'd like; then, I'd like to go home for 6 months, too. I can't foresee that. Frank Morris said that we can't casually assume the recession will be mild. I suppose we can't casually assume it, although it looks that way to me now--if we're going to have one. But we can't always be looking at the worst. If we're going to balance these risks of inflation and recession we have to run not too scared that the recession is going to be worse than we expect. So it is a question of bringing about a balance. A s I thought about what to do, I arrived at the same conclusion that Steve did up to a point--that maybe for lack of anything better we should go back and look at the aggregates a bit. I certainly think we ought to widen the range. I just don't see how we can operate on a narrower range even with less than the extreme volatility that Henry just mentioned. My disagreement with Steve would be that I was thinking of widening the range mostly in the downward direction rather than widening it on the up side. But I do think that's a reasonable approach as we watch both the aggregates and the business news in the next six weeks.",258
-fomc-corpus,1979,"Well, I come to exactly the opposite conclusion that Steve did. I think we ought to pay careful attention to the aggregates and the growth in the aggregates in the period ahead. I'd widen the range on the funds rate and guard to see that we don't have undue weakness in the aggregates. There's a good chance that the turn has already occurred in the economy, that March will have been the high in industrial production and that the second quarter--and we're two-thirds through the second quarter--will be the high in real terms. There is a very good chance that that's true. We've always, with no exception that I can recall, had great difficulty keeping the aggregates growing in the early stages of a recession. To go to an interest rate target now at this turning point in the economy would be exactly the wrong prescription for the Committee to follow. S o , I would say that we ought to have an aggregates target with modest growth. What we ought to do to fight inflation is to see that we have only modest growth in the aggregates over a sustained period of time, not crunch the economy into what--1 agree with Frank--could be a very serious recession. I think we could be in a much more serious recession this year than the one in '74-'75. So I would like to see quite modest growth in the aggregates over a sustained period, and I think that probably means that we ought to have a wider funds rate range. If I could echo what was said I guess by John Balles, it may be that a somewhat lower funds rate would be consistent with the discount rate.",318
-fomc-corpus,1979,"Thank you, Chuck. Nancy.",7
-fomc-corpus,1979,"I find it interesting that everyone is saying that they agree with the staff projection but we're all, almost to a person, talking recession for the first time. I don't see the strength from the consumer side to keep [the economy] going at the rate that is being projected by the staff. These low levels of disposable personal income are such that they won't support an expansion in that range. In essence, I think we have accomplished much of what we started out to do last fall, which was to slow the growth in nominal GNP. Now, it came out of real growth and not inflation, but that shouldn't surprise any of us given the action by OPEC. I also think a move to tighten at this time is just out of the question as far as the domestic economy is concerned. And it would be the wrong prescription for the international situation; I think it would make things worse in trying to keep the [exchange] values of the yen, the mark, the Swiss franc, and the dollar all together. Evidence of further tightening here would just lead to a further appreciation of the dollar in the international market. However, I'm not quite ready to back down [completely]. I think we should be backing down a little. And the only reason I think we should move [the funds rate] down a bit is that it's six weeks until the next [meeting]. I believe the rest of the information coming in over the quarter is going to be poor. But we do have our telephone network. Consequently, I would recommend staying where we are and, if anything, I would probably widen the fed funds range. And if I understand it, I can understand why [Steve was] calling for a widening of the ranges on the monetary aggregates.",349
-fomc-corpus,1979,"Thank you, Nancy. Bob.",7
-fomc-corpus,1979,"M r . Chairman, we have various [developments], all of which have been mentioned but in slightly different combinations. For some months now we have been fearing that [the economy] might be near a turning point, and we could argue that conceivably we might have passed it now. We could see a little more weakness in consumer spending because of attrition in real income and less [strength] in residential construction. This flurry of indicators that we have had, ending with a decline in new orders that you reported to us, creates more than just a mere suspicion that the economy has weakened significantly. So, our guess is that it is right at a turning point or even beyond it. Now, having said that, I end up in roughly the same position as Governors Coldwell and Wallich in saying that I think inflation is still the major policy problem that we have to confront. I think it's good to bear in mind the fact that following the November 1973 turning point inflation accelerated for some time, credit demand expanded, there was a lot of upward pressure on interest rates, and M1 grew fairly rapidly. So I think we've got to be concerned about this and, as Chuck was suggesting a while ago, our objective ought to be to get the rate of growth in the aggregates down--gradually, but nevertheless down. So far as the discount rate is concerned, M r . Chairman, I recognize the arguments posed by the current spread [between the discount rate and the funds rate]. I wish that in the past we had adjusted the discount rate more promptly to keep it more closely in alignment with the federal funds rate, but we have not done that. If at this particular juncture we are in fact near a turning point, [to move the discount rate up now] would l o o k rather bad on the record, so I would not favor it for that reason.",381
-fomc-corpus,1979,"Thank you, Bob. Willis.",7
-fomc-corpus,1979,"Mr. Chairman, I sense a growing ugly mood in our society. I don't know whether the reaction is going to be in the political sector or in the economic sector or in the racial area, but I suspect it won't be a moderate reaction. So I think we are in for some rather volatile times ahead that could throw these estimates off, but I certainly don't want to predict them. My feeling would be that this is not the time to tighten. But in view of the uncertainties and the inflation problem and other problems, I would say that we would be well advised to stay where we are in terms of the current status of policy. I would favor a slight increase in the discount rate because of the position of the banks; the inviting differential there is hard for them to resist.",156
-fomc-corpus,1979,"Thank you, Willis. Dave.",7
-fomc-corpus,1979,"I continue to think that we are going to have a recession of probably moderate dimensions and I believe we may be pretty close to a turning point if not there. I would agree with Frank that ordinarily we should be anticipating that and should not run the risk of overstaying the expansion as we have often done. In view of that, I have spent a little time trying to think through the strategy for the next year or so. In thinking about that I am assuming that we will continue to have substantial inflation and that the dollar will continue to be in some jeopardy. And if we do have a recession, even of relatively modest proportions, the budget situation will turn around and we'll see increased deficits. So we will be getting more stimulus from fiscal policy. Given the characteristics of the situation that we will be confronted with in the next year, I think we should probably have less easing in monetary policy than we ordinarily would in a recessionary environment. This leads me to feel that we should not be as hasty to ease as we ordinarily might be. And when we do ease, we should perhaps not be overzealous in easing and should strive for what Chuck has suggested--the kind of moderate increases in the aggregates that we need to have for some sustained period of time. With that kind of a strategy f o r the longer range, it seems to me that the message for today is that we ought to hold where we are. I'd watch [developments] and not be hasty to ease. So, I would stay where we are.",309
-fomc-corpus,1979,"Thank you, Dave. Monroe.",7
-fomc-corpus,1979,"Mr. Chairman, we have just concluded a series of meetings with business leaders around the District and two impressions continued to come through almost monotonously. One was the fear of continuing and even escalating inflation and the other was concern about the supply of gasoline. Coming from those meetings I guess we have more reason to believe that we are now in or very near some business slowdown. I'm not saying that that's bad; it may be bad or it may be timely. Frankly, we have reason to hope it's true and that the slowdown will be moderate and last for some modest period of time. Our projections are pretty close to those of the staff. We [agree with1 those generally. Moving [on to other1 concerns that we heard in these discussions, many related particularly to the recreational field. Cruise ships are altering drastically their pattern of going to ports where they cannot be refueled. For the first time since it opened, Opryland in Nashville, Tennessee had motel rooms available over the weekend before last. Travel in the area is limited over the weekends, not because gasoline is unavailable but because people fear that it may not be available. The coal operators that we talked with characterized [their business] as a disaster area. Inventories are tremendous; even at reduced [prices] there are no markets available. Some of the mines are simply discontinuing operations temporarily. In the natural gas area they are talking of abundant supplies and no limit until maybe it all comes to a screeching halt in late '81 or '82. Residential activity, particularly in South Florida, is of boom proportions. The activity there is just unbelievable, with much of it coming from offshore Caribbean interests that are buying not one, but four or five units at a time. Some are occupying units and some are not even bothering to occupy them. There is no restraint for funds that we detect from the banks; however, we are beginning to learn more and more of some restraints at the thrift institutions. In terms of the major feeling that came through in our discussions with these people, it was not one of recession but rather a modest [slowdown]. We are inclined to believe that the widening of the ranges that Steve is suggesting is fine; we don't have any difficulty with that. But, frankly, we would be very anxious to maintain the present posture with regard to the funds rate. We rather like it where it is and think it is taking its toll. If we had any strong feeling, it would definitely be against any downward drift [in rates]. We think that would be wrong and would be interpreted in the market as a feeling that we are giving up to some extent on our tug against inflation. As for the discount rate, we would favor a slight increase simply as an adjustment move.",555
-fomc-corpus,1979,"Thank you very much, Bones. Larry.",9
-fomc-corpus,1979,"Mr. Chairman, those of us who watch the longer-term behavior of the aggregates are not in the slightest surprised by the fact that we are seeing a softening in the economy. There is absolutely no question in our mind that this problem is with us; the only questions that we see are how deep the downturn or recession will be and how long it will persist. Of course, we believe that the key to how deep this recession will be and how long it will persist lies in the control of growth in the aggregates. We do not believe that the aggregates have a life of their own; we think they are controllable. We believe that as long as the Committee continues to attempt to stabilize the federal funds rate, we are going to have the volatility in the behavior of the aggregates to which some of the preceding speakers have referred. If we were controlling and concentrating on aggregate growth, we would seek a 2 to 3 percent rate of growth in M1; that may be [equivalent to] a 6 percent rate in the old pre-ATS days. We don't think the upturn in M1 in April is necessarily conclusive evidence that growth will continue. We should watch it. The way we see it, any one month uptick or downtick in the monetary aggregates is not very indicative of anything. If we had our druthers--and we don't have our druthers--and were really concentrating on control of the aggregates, we would encourage a widening of the fed funds range and a narrowing of the target ranges for the aggregates. Finally, in anticipation of the inevitable tendency to swing [policy] around the other way and become expansive if a recession occurs--and we think one will occur--1 would hope that in the calm of this day we can resolve not to repeat past errors. Let's resolve not to panic at that time, not to move aggressively toward expansion or to respond to the political pressures to get ourselves out of a softened economy. Basically, I think we ought to be firm. I'd like to see us target on the aggregates; I don't think I will live to see it, but that would be our prescription, M r . Chairman.",438
-fomc-corpus,1979,"With life expectancies what they are today, Larry, who knows? Thank you all very much. With that degree of wisdom--I cannot say unanimity--perhaps we should take a break and think about it. We can come back in 15 or 20 minutes and make a decision. Is that all right with everybody? We will recess now.",71
-fomc-corpus,1979,"Are we all back? Anyone who is not here please speak up! We are missing Phil. Are any other chairs vacant? The durable orders figures are now available; they will be released at 2 : 3 0 p.m. so we should keep them confidential until then. I haven't seen the details but you now have them, Jim, so why don't you just give us the rundown.",80
-fomc-corpus,1979,Durable goods orders are down 8-314 percent in total.,14
-fomc-corpus,1979,This is April over March?,6
-fomc-corpus,1979,"Right, and this is the advance number. As you know, the numbers have been bouncing around.",20
-fomc-corpus,1979,"March was revised, incidentally.",7
-fomc-corpus,1979,"That's right, March is now up 2-314 percent. I don't have the earlier number with me, but that is not a big change. primary metals are down 8-1/2 percent; they were up 1-3/4 percent in March. Most importantly, nondefense capital goods orders are reported in this advance number as down 13-1/2 percent for April and they were up 6-1/4 percent for March. Even if one strips out aircraft, the numbers are very weak; so [the total1 is not bouncing around because of aircraft orders. It is a general picture of negatives across the board.",133
-fomc-corpus,1979,"Thank you, Jim. To proceed with our discussion of current monetary policy and the domestic policy directive, I have asked Steve to take his unpopular theory, which didn't exactly gain wide support and enthusiastic applause, and reduce it to something specific so at least we can start off this discussion with something before us.",60
-fomc-corpus,1979,"Thank you, Mr. Chairman. I would recommend for Committee consideration the alternative B range for the federal funds rate, which is 10 to 10-1/2 percent centered at 10-l/4 percent--the prevailing federal funds rate. With regard to the aggregates, I would suggest an M1 range of 0 to 5-1/2 percent, which is a wide range, with more of an increase on the up side compared with alternative B than on the down side. That would mean, if the Committee adopted a money market directive as I would also suggest, that easing would occur until M1 got above the midpoint of the long-run range. With regard to M2, in view of recent events and to provide some room for the shifting of funds to banks because of the regulation Q action taken in the spring, I would recommend a range of 4 to 9 percent, one percentage point higher on the upper end than the alternative B range. In terms of M2 then, no tightening would occur until M2 was well into its long-run range. And as I indicated, M r . Chairman, I believe that a money market directive is desirable under the current circumstances.",242
-fomc-corpus,1979,"Steve, thank you. I think it might be helpful for the Committee to turn to page 10 of the Bluebook. There you have, in effect, a display of the alternative B ranges. Jot down in pencil that the alternative B range for the federal funds rate is 10 to 10-1/2 percent. All the other data for alternative B are there. You will recall that Steve is suggesting 0 to 5-1/2 percent [for the M1 range] but alternative B as printed is 1-1/2 to 4-1/2 percent; and the dotted line shows that 3-1/2 percent is the rate of growth we would need in M1 from April for six months to get us to the midpoint of our long-term range. Likewise, for M2 the alternative B range shown is 4 to 8 percent and Steve is suggesting 4 to 9 percent. Again, the dotted line--going out to 8 percent in the future--is the rate at which M2 would have to grow for six months to be at the midpoint of our long-term range. Why don't we start with our Vice Chairman. Paul, what would be your suggestion?",249
-fomc-corpus,1979,I just want to raise a technical question and make a technical point. You estimate that about 10 percent of the April growth was due to the tax business?,32
-fomc-corpus,1979,"Yes, that's right.",5
-fomc-corpus,1979,You have assumed that will be washed out in the next month or so?,15
-fomc-corpus,1979,"That's right. We have a little stronger growth rate on average for April and May together than we think is the underlying trend. June itself. at around 5 percent, is closer to what we think is the underlying trend, even though that's a shade above it. S o we washed out the April--",61
-fomc-corpus,1979,These numbers that we're looking at for May and June are really below normal in some sense.,18
-fomc-corpus,1979,"Well, we have zero for May. At current interest rates we think the normal rate would be more like 3-112 to 4 percent on average if the ATS stays as it is.",39
-fomc-corpus,1979,"I wouldn't be all that far from wheEe Steve is. On the funds rate, I have no problem. AS I suggested earlier, taking account of the unwinding of the tax effects, I would prefer to see the M1 range go from a minus number up to 4-112 percent: and I'd keep the M2 range near where it is. I would treat it during the period very much as Steve suggested: If [money growth] really goes down, I'd lower the funds rate; and if it goes to the up side, I'd move up pending some dramatic business news. Each meeting we get: [at least] one piece of disappointing news. Housing starts [are disapointingl; durable goods are even more so.",150
-fomc-corpus,1979,"Thank you, Paul. Did you say you would agree with the money market directive?",17
-fomc-corpus,1979,I could go either way on that.,8
-fomc-corpus,1979,Now let's start alphabetically. John Balles.,10
-fomc-corpus,1979,"I wonder if I could ask first, Mr. Chairman, for a clarification by Steve to make sure I understand the ground rules regarding how this money market directive would work within the broader ranges that we're talking about. I'm not sure I got that.",49
-fomc-corpus,1979,"As I would understand it, President Balles, the Manager would raise the funds rate from 10-114 toward 10-1/2 percent, at as deliberate a speed as the market could bear, when M1 and M2 on average got toward the top of their ranges. There would be a degree of flexibility as to whether he would start moving with M1 at either 5 or 5-112 percent. If it was over the range, he would then have to be at the top of the federal funds rate and would have to come back to the Committee for instructions. It's symmetrical reasoning, of course, on the down side. So a money market directive would imply a less prompt movement relative to the aggregates than a monetary aggregates directive.",152
-fomc-corpus,1979,You mean an old money market directive instead of the managed money market directive we've been using.,18
-fomc-corpus,1979,"Yes, that's correct.",5
-fomc-corpus,1979,"I thought I understood you to say, Steve, with respect to your 0 to 5-1/2 percent M1 range that no easing would occur until M1 got down to the zero.",41
-fomc-corpus,1979,That's right. But zero or half--,8
-fomc-corpus,1979,Close to it at least.,6
-fomc-corpus,1979,"Yes, that's right. That would get [Ml] to the bottom end of the long-run range.",21
-fomc-corpus,1979,"No tightening would occur, however, until M1 was growing at around 5-1/2 percent. I wish you hadn't called on me first. I could think about it.",37
-fomc-corpus,1979,Do you want us to skip you for a moment?,11
-fomc-corpus,1979,May I?,3
-fomc-corpus,1979,Sure. Bob Black.,5
-fomc-corpus,1979,"I'll be glad to help him out, Mr. Chairman! It seems likely to me that any further tightening could certainly aggravate any recession that might be developing. At the same time, I don't think we ought to abdicate to the forces of inflation. So I think Steve has done remarkably well in choosing the proper ranges. Though mine were slightly different, I can buy his ranges completely.",78
-fomc-corpus,1979,That is helpful. I didn't think I'd see that.,11
-fomc-corpus,1979,"Well, it's for unusual reasons; I didn't get there by the same route he traveled.",18
-fomc-corpus,1979,Phil.,2
-fomc-corpus,1979,"Mr. Chairman, the ranges Steve suggested are just about one half point off my suggestion. I thought we ought to go from 0 to 5 percent on M1. On M2 I had 4 to 8 percent rather than the 4 to 9 percent; I could accept 8-1/2 percent. It seems to me that the 10 to 10-1/2 percent range on federal funds is a bit narrow, but given the way we are consulting I guess it doesn't matter if we're going to move it up [as necessary].",115
-fomc-corpus,1979,Why don't we just do away with the Desk and have a daily conference?,15
-fomc-corpus,1979,"That's a possibility! I do want to understand a little more [precisely], Steve, whether we're talking about the Desk not moving until we reach the 5 percent or the 8 percent levels or conversely the 0 or 4 percent levels. That means we're using up the entire range on the aggregates before there is any move off the 10-1/4 percent funds rate, which is the midpoint of the funds range you're talking about.",92
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"In other words, we hold the market steady until we hit the outer bounds, whatever they may be.",21
-fomc-corpus,1979,Or are very close to them.,7
-fomc-corpus,1979,A 16th or a 32nd of a point?,13
-fomc-corpus,1979,Within 1/2 percentage point.,8
-fomc-corpus,1979,"I think within 1/2 point, [as] in the past, depending on how much certainty we have regarding the data on the aggregates.",30
-fomc-corpus,1979,"Well, I just wanted the ground rules straight this time so we don't have another--",17
-fomc-corpus,1979,That's with the money market directive.,7
-fomc-corpus,1979,That's all I have. I'd go with a money market directive.,13
-fomc-corpus,1979,"Thank you, Phil. Bones.",7
-fomc-corpus,1979,"I like the idea of a money market directive. I, too, had in mind for M1 that maybe a range of 0 to 5 percent would be fine. And for M2 I had thought maybe 4 to 8 percent--",50
-fomc-corpus,1979,And otherwise the same? The fed funds range is okay as proposed?,14
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"Thank you very much, Bones. Bob Mayo.",10
-fomc-corpus,1979,"I don't have any particular problem if we use a money market directive in going with 0 to 5 percent. On M2 I'm indifferent on whether the range is 4 to 8 or 4 to 9 percent. If we did go to a monetary aggregates directive, I would narrow the ranges on both M1 and M2. There is a little quirk here that probably should be mentioned, but it may not be of any importance. And that is that our present directive has a fed funds range of 9-3/4 to 10-1/2 percent. Granted, we don't let out the new information until after the next meeting, which is a long time from now. But I'm just wondering if it would l o o k as if the Committee had indeed tightened up from 9-3/4 to 10 percent on the lower bound of our funds rate range. So I'd prefer an asymmetrical midpoint of 10-1/4 percent and I'd keep the 9-3/4 percent as the lower bound.",213
-fomc-corpus,1979,"Thank you, Bob. Chuck.",7
-fomc-corpus,1979,"I think that's an important point you made, Bob, about the funds rate range having been at 9-3/4 to 10-1/2 percent, so there would be an appearance of tightening if we went to 10 to 10-1/2 percent. Of course my view, as I expressed before, is that we ought to ease. So I would put the funds range at 9-1/2 to 10-1/2 percent, making it a little easier than last time. There has been plenty in the news to justify an immediate reduction of a quarter point in the funds rate. I'm referring not only to the new orders figures, which are going to hit like a ton of bricks, but also to housing starts, which were disappointing, and to industrial production, employment, and retail sales data. All those data have come out since the last meeting of the Committee and in addition we have the fuel shortage. In effect, it's all new news that we're looking at in today's meeting. So I would take 9-1/2 to 10-1/2 percent as the range, with a 10 percent midpoint and a prompt move to the 10 percent. On the aggregates, just judging from this longer-term chart, I would not like to see M1 as low as zero for the two months, which would put it below the bottom end of the range again. So I would suggest 1 to 5 percent for M1. On M2 I think we ought to recognize that money market certificates are doing much better in the banks because of our success in getting rid of the differential, and for M2 I think we ought to have 5 to 9 percent, which would also move us about to the bottom--perhaps just slightly above the bottom--of the range by the end of the projection period. And as I said before, I would take the aggregates directive. I think it's much more clearly indicated now than it has been at any time in the last six months.",411
-fomc-corpus,1979,"Thank you, Chuck. Nancy.",7
-fomc-corpus,1979,"I'd keep the funds range at 9-3/4 to 10-112 percent because if we do need to [ease policy], that gives us more leeway to do it. Also, I think Bob's point is right: I don't think we want even the appearance of tightening at this point. And I have no preference on the ranges for the monetary aggregates: 0 to 5-112 percent is fine and 4 to 9 percent is fine. I would go with a money market directive.",104
-fomc-corpus,1979,"Thank you, Nancy. Henry.",7
-fomc-corpus,1979,"Well, the news isn't very conducive to [focusing on1 what I think is important. The news that we hear is all about the business cycle and very little about inflation. I think monetary policy at this time doesn't do very much to the real sector: it doesn't shape expectations. So I would go for a mild tightening. I agree with Steve on a widening of the ranges but I'd widen them at the lower side so as not to trigger a reduction [in the funds rate] if the very unreliable aggregates should come out [on the low side]. On M1 I'd say -1 to 4 percent and on M2 2 to I percent. I'd move the federal funds rate up to 10-1/2 percent within a range of 10-1/4 to 10-3/4 percent and adopt a money market directive.",172
-fomc-corpus,1979,"Thank you, Henry. Ernie",7
-fomc-corpus,1979,"Mr. Chairman, I would prefer alternative B as specified in the Bluebook and with an aggregates directive.",21
-fomc-corpus,1979,"Thank you, Ernie. Dave.",8
-fomc-corpus,1979,I would agree with Steve's proposal.,8
-fomc-corpus,1979,Thank you. Roger.,5
-fomc-corpus,1979,"Mr. Chairman, I would go for an M1 range of 1 to 5 percent rather than zero on the bottom with the anticipation that we may get weak growth that would trigger a downward movement [in the federal funds rate]. I'd go with 4 to 9 percent on M2 and 10 to 10-112 percent on the funds rate with a money market directive.",78
-fomc-corpus,1979,"Thank you, Roger. Frank.",7
-fomc-corpus,1979,"Mr. Chairman, I agree with Chuck Partee's aggregates of 1 to 5 percent and 5 to 9 percent but I think his federal funds range is a bit too timid. History tells us that in a recession it's very difficult to get monetary aggregates to grow unless we push interest rates down. So I think the funds range ought to be 9-112 to 10 percent with a move to 9-314.",88
-fomc-corpus,1979,"Of course, Frank. if the aggregates come in really low--if they come in minus, say--we'd have to take another look.",29
-fomc-corpus,1979,"Do we have another month coming up like April, where we don't know what the seasonals are?",20
-fomc-corpus,1979,Every month is that way!,6
-fomc-corpus,1979,The next month that's like that [typically] has been July.,13
-fomc-corpus,1979,Larry.,2
-fomc-corpus,1979,"I would prefer alternative B with a wider federal funds range of 9-314 to 10-112 percent. And in order to help the unreliable aggregates become a mite more reliable, I'd go with an aggregates directive.",44
-fomc-corpus,1979,Thank you. Mark.,5
-fomc-corpus,1979,"I have a preference for ""B"" as it stands.",12
-fomc-corpus,1979,Okay. Willis.,4
-fomc-corpus,1979,I support Steve's recommendation.,6
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,"I've wrestled with Steve's compromise because I have great respect for his recommendations. When everything is said and done, I do like a couple of things he recommended. I like the money market directive and the widening of the ranges. But to be true to my own convictions with respect to M1, I really have to be in favor of a 1 to 5 percent range and on M2 5 to 10 percent. The lower number of 5 percent is with a view to not driving [M21 further below our long-range target. On the federal funds range, my preference would be 9-112 to 10-112 percent with an immediate move to 10.",139
-fomc-corpus,1979,"It's another one of those months! Looking at fed funds, six voting members have indicated a preference for leaving the fed funds rate at 10-114 percent. Of those, four want to have the range at 10 to 10-112. Two members want to move the rate immediately down to 10 percent and one wants to move it immediately up to 10-1/2 percent. Those who want to move down to 10 percent also want a range of 9-112 to 10-112 percent. And Governor Wallich wants to move the range up to 10-114 to 10-314 percent. As far as [preferences on] the ranges go, there's a mix. [For Ml] zero is the bottom on five of them. There are ones and minus ones. I don't know if we can synthesize this or not. It looks easier to do the fed funds range than the aggregates ranges.",189
-fomc-corpus,1979,I suspect you could do it by testing Committee sentiment on the boundaries. Take the boundaries on the top and bottom: 10 versus 9-3/4 percent; 0 versus 1 percent; and 5 versus 6 percent.,49
-fomc-corpus,1979,"Well, nobody suggested 6 percent.",8
-fomc-corpus,1979,I thought Bob Mayo came out with 0 to 6 percent.,14
-fomc-corpus,1979,"Bob Mayo, according to my list, had 0 to 5 percent. Did I get that right?",22
-fomc-corpus,1979,"Yes, I think [most] were for 0 or 1 percent on the bottom and 4 or 5 percent on the top.",29
-fomc-corpus,1979,"Well, 4-1/2 to 5 percent. Let's try to specify [the ranges] for a moment. People have different [preferences but] let's still try 0 to 5 percent. That seems to be the most predominant one. The next most predominant one seems to be 4 to 8-1/2 or 9 percent [for M21. On the fed funds range, the midpoint seems to be predominantly 10-1/4 percent. And one could make a case that if we combine those who want lower with those who want higher [limitsl, we might maintain the 9-3/4 to 10-1/2 percent range and have an asymmetrical midpoint. I'm not sure that fits anybody's definition but we might try that in terms of a tentative look.",166
-fomc-corpus,1979,"Mr. Chairman, may I make one suggestion? If it's a question of the publicity of [a change from] 9-3/4 to 10-1/2 percent, as I believe both President Mayo and Governor Teeters mentioned, you could marry that with the 10 to 10-1/2 percent by simply indicating that there might be a telephone conference if the rate got down to 10 percent--before a move to 9-3/4.",97
-fomc-corpus,1979,"In other words, we could leave the 9-3/4 percent [lower limit] and merely say that we'd have a call if it got down--",32
-fomc-corpus,1979,That way you wouldn't have--,6
-fomc-corpus,1979,"We'd have an understanding to that effect. Well, it looks as if we'll probably have a telephone conversation anyway. With that caveat, let's see who would buy that: Aggregates ranges of 0 to 5 and 4 to 9 percent, and 9-3/4 to 10-1/2 for the funds rate, with the 10-1/4 percent rate maintained for the time being and a conference call if it gets to 10 percent and is going down. what would be the sentiment on that? MR. ALTMA"". Do you want a show of hands or do you want me to call the roll?",132
-fomc-corpus,1979,"Why don't you just call the others; don't call me. MR. ALTMA"". Vice Chairman Volcker.",22
-fomc-corpus,1979,"Well, I guess this is within my limits of tolerance. If we go down to 9-3/4 percent on the funds rate, we ought to go to 8-1/2 percent on M2. That would make me a little happier but you're right about the understanding on the funds rate. MR. ALTMA"". President Balles.",72
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,President Black.,3
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Governor Coldwell.,4
-fomc-corpus,1979,I agree with Paul. I prefer 8-1/2 percent [on M2] but the rest of it is acceptable.,27
-fomc-corpus,1979,President Kimbrel.,5
-fomc-corpus,1979,"I could buy it, but I would prefer the 8-1/2 percent also. MR. ALTMA"". President Mayo",26
-fomc-corpus,1979,"I also would prefer the 8-1/2. M R . ALTMA"". Governor Partee.",22
-fomc-corpus,1979,"I can't support it. MR. ALTMA"". Governor Teeters.",14
-fomc-corpus,1979,"I can support it. MR. ALTMA"". Governor Wallich.",14
-fomc-corpus,1979,NO.,2
-fomc-corpus,1979,"Do the same thing with 8-1/2 percent. MR. ALTMA"". Vice Chairman Volcker Yes President Balles No President Black Yes Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee No Governor Teeters Yes Governor Wallich No",54
-fomc-corpus,1979,"Well, John, to make it acceptable to you what changes would need to be made?",18
-fomc-corpus,1979,"Some that are not acceptable to the clear majority. I have felt for several months now, and have so recommended, that we should be edging down on the funds rate. And I think this time I've got to stick to my guns.",47
-fomc-corpus,1979,Okay. Chuck what change would you need to be satisfied?,12
-fomc-corpus,1979,I could accept it a l l if we had a monetary aggregates directive.,15
-fomc-corpus,1979,"All right, we'll test that. Henry, you're [in a position similar to that of] John Balles, I suppose. You want to tighten and he wants to go lower and you can't change your philosophical position I suppose.",46
-fomc-corpus,1979,"I could compromise on a small increase in the funds rate, to 10-3/8 percent, but I don't see anybody who is much inclined to go that way.",35
-fomc-corpus,1979,"Well, let's just see what the vote would be if it were an aggregates directive instead, with 0 to 5, 4 to 8-1/2, and 9-3/4 to 10-1/2 percent.",51
-fomc-corpus,1979,Would the aggregates directive be consistent or inconsistent with the Axilrod caveat?,16
-fomc-corpus,1979,"Oh, no it can't be consistent with that.",10
-fomc-corpus,1979,No. then it's a money market directive.,9
-fomc-corpus,1979,[Unintelligible.],6
-fomc-corpus,1979,We'd have to get rid of that.,9
-fomc-corpus,1979,He said we wouldn't go below 10 percent--,10
-fomc-corpus,1979,Without consulting.,3
-fomc-corpus,1979,"With a monetary aggregates directive, if the aggregates are weak, we're going to go below 10 percent.",21
-fomc-corpus,1979,"The caveat was ""without consulting.'",8
-fomc-corpus,1979,"But if we go to a [monetary aggregates] directive, Steve's scenario would change. How would it change?",25
-fomc-corpus,1979,Yes. we would move the funds rate up or down well before the aggregates got to the outer limits of the ranges. We'd move more promptly.,29
-fomc-corpus,1979,"If the aggregates are strong, we would tighten sooner; and if they are weak, we would ease sooner without consulting until the funds rate gets to 10 percent and then we'd consult.",37
-fomc-corpus,1979,But these [aggregates] are very unreliable now. I don't know why we should expose ourselves to that.,22
-fomc-corpus,1979,"Well, that's just the sentiment--",7
-fomc-corpus,1979,I don't know why you say they're so unreliable. They haven't been unreliable at all except for one month--April. They've been very reliably weak every month.,31
-fomc-corpus,1979,"If you want to tighten, that's not reliable !",10
-fomc-corpus,1979,"I don't think it's quite as good, but I can go along with it.",16
-fomc-corpus,1979,John?,2
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,"Still ""no."" Bob Black?",7
-fomc-corpus,1979,"I cannot [agree to it], Mr. Chairman, if I interpret it correctly that this would mean we would raise the federal funds rate if M1 started coming in at 3-112 percent. That would be a tightening. If we had a money market directive on the top and an aggregates directive on the bottom, I could live with it a lot better. I would not want to tighten. If we tighten [with growth in M11 at 3-1/2 percent, we don't even approach--",103
-fomc-corpus,1979,"All we would do is move the funds rate 118 point at 3-112 percent [on M11. That's right at the borderline isn't it, Steve?",33
-fomc-corpus,1979,"Yes. The usual zone of indifference has been that or sometimes a little larger, depending on the uncertainty we feel about the aggregates.",27
-fomc-corpus,1979,"And M2 would [have to] be up there, too.",14
-fomc-corpus,1979,"At 6-114 percent, the way I figure it.",13
-fomc-corpus,1979,About a 4 point zone of indifference.,10
-fomc-corpus,1979,"Anyway, Bob, your sentiment would be--",9
-fomc-corpus,1979,"I would vote against that, Mr. Chairman. As I interpret an aggregates directive, this is much tighter on the top side and it's easy on the down side. I'm more concerned about the weakness in the economy and I wouldn't want to tighten that soon.",51
-fomc-corpus,1979,Phil.,2
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Bones.,2
-fomc-corpus,1979,I really don't like it.,6
-fomc-corpus,1979,"We're losing ground, Chuck. We gained your vote and lost three. Stop the count: let's forget it.",22
-fomc-corpus,1979,I thought it was clever.,6
-fomc-corpus,1979,Not clever enough. Have you another suggestion?,9
-fomc-corpus,1979,"No, I don't. I'd rather cut the funds rate to 10 percent right now, so I feel unhappy if I'm not permitted to do that. I would rather [vote against] the directive if that is not called for.",46
-fomc-corpus,1979,"Well, we have a majority, I gather, of six to three. I wish we could narrow that spread. Is there anybody here from the State Department who knows how to put Israel and Egypt together?",41
-fomc-corpus,1979,We're not doing very well.,6
-fomc-corpus,1979,Couldn't we promise Henry that at the proper time we will tighten and promise Chuck that at the appropriate time we will ease?,24
-fomc-corpus,1979,That's good. Let's leave it there.,8
-fomc-corpus,1979,And get the vote on that.,7
-fomc-corpus,1979,"How do we know when the appropriate time is, M r . Chairman?",15
-fomc-corpus,1979,"Leave it up to the Chairman! Well, I think we better conclude this so we can go to lunch. We now have before us a proposal, which we are going to vote on officially. Maybe somebody will be kind and at the last moment switch. The range for M1 would be 0 to 5 percent and the range for M2 would be 4 to 8-1/2 percent. The fed funds rate would initially be at 10-1/4 percent and would move in a range of 9-3/4 to 10-1/2 percent but not below 10 percent without consultation. And the movement within the range would be based upon a money market directive. I shall vote for that. MR. AL""N. Vice Chairman Volcker Yes President Balles NO President Black Yes Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee NO Governor Teeters Yes Governor Wallich I wish I could but I can't.",197
-fomc-corpus,1979,"Put down a maybe! Thank you very much, I think. I suppose we will be calling up for a new directive in the interim period.",29
-fomc-corpus,1979,Especially with a I-week interval.,7
-fomc-corpus,1979,"Yes, I'm sure we will be. Now we'll move to consideration of the Manager's recommendations with respect to foreign currency operations. I'm very sorry that we have no swaps to renew this month, Alan!",40
-fomc-corpus,1979,That's exactly what I was going to say!,9
-fomc-corpus,1979,"Well, I'm sorry.",5
-fomc-corpus,1979,It is rather nice to be out of swap debt for the first time in almost ten years--the first time going back to the pre-71 period [unintelligible] Swiss franc debt.,40
-fomc-corpus,1979,You're not going to retire on that note!,9
-fomc-corpus,1979,"No, I don't think that will be possible. It might be worthwhile, M r . Chairman, to say a few words about our market operations on behalf of the Treasury as well as the Federal Reserve. As you know, earlier this year we were sharing with the Treasury any purchases of Deutschmarks that we made in the market, typically on a 50/50 basis, although different proportions were used at different times. After the Treasury was able to repay its remaining swap debt to the Bundesbank in late March, all March purchases, as noted, were for System account and were used to repay swap debt. After April 27 when that [swap] debt was finally repaid, all purchases have been to cover the Treasury's Carter bond indebtedness. A total of 5-1/2 billion Deutschmarks were involved in that and the Treasury had spent 1.2 billion of that amount in intervention earlier this year. The Treasury has already covered a billion of that amount. That means they only have about 210 million Deutschmarks to go. Once that has been accomplished, I think there would be a real possibility of the System once again sharing with the Treasury any Deutschmark purchases. That's all I have, Mr. Chairman.",247
-fomc-corpus,1979,Any comments or questions?,5
-fomc-corpus,1979,What do you mean by once again sharing Deutschmark purchases? We have shared them in the past?,19
-fomc-corpus,1979,"Oh, yes.",4
-fomc-corpus,1979,Deutschmark purchases?,4
-fomc-corpus,1979,"Yes. All year, up until the time the Treasury got out of debt, we were sharing.",20
-fomc-corpus,1979,I see.,3
-fomc-corpus,1979,Does that mean that we'll be accumulating D-mark balances?,11
-fomc-corpus,1979,"That would mean we would be accumulating. The amount, of course, would depend on what the Committee decides.",22
-fomc-corpus,1979,"Alan, could you recapitulate quickly how much the Treasury accumulated over what period of time so that one can get an idea of how fast this accumulation occurred?",32
-fomc-corpus,1979,"The accumulation comes very fast on some days and then it just disappears. So I think one can't really take an average that's meaningful here. But the billion Deutschmarks have been accumulated since April 21, including purchases on April 27.",47
-fomc-corpus,1979,"Is there some flexibility, if we should be [approaching1 our limits on that accumulation, of pushing more of the intervention on the Bundesbank? My impression is that they have been reaching for it anyway.",42
-fomc-corpus,1979,I don't think there is any problem in pushing the Bundesbank to sell dollars. They are quite happy to do that.,24
-fomc-corpus,1979,Until they reach a liquidity constraint problem which--,9
-fomc-corpus,1979,Which is [some distance] away yet.,9
-fomc-corpus,1979,We could find ourselves accumulating in a couple of weeks an amount that we have debated about over a month on whether we should or should not. I just would like us to be aware of that.,39
-fomc-corpus,1979,"Well, we have [agenda item] number 9 coming right up for debate again.",18
-fomc-corpus,1979,"It could easily amount to a couple hundred million dollars a week, couldn't it?",16
-fomc-corpus,1979,Easily. It could be that in a day,10
-fomc-corpus,1979,"The alternate choice is to have a strong dollar and, therefore, cut our inflationary pressures in this country. That would be rather unfortunate because it would show that we're interested in fighting inflation!",38
-fomc-corpus,1979,That's our only hope now.,6
-fomc-corpus,1979,"Well, shall we move to item 9 ? We have [on the agenda] a discussion of the System's holdings of foreign currency balances. We have a memo, which I assume has been circulated to everyone. It's a very short memo. Steve and Alan will you [introduce the subject]?",60
-fomc-corpus,1979,"M r . Chairman, the Committee had a discussion of three memos [on this issue] at the last meeting. Following that discussion, the Committee asked us to present a specific proposal. This memo, briefly put, is our specific proposal. I have nothing further to add. Mr. Holmes?",60
-fomc-corpus,1979,"Mr. Chairman, I might just say a word about our current understanding with the Germans on the accumulation of Deutschmarks. At the very beginning the Germans At the May BIS meeting, however, Chairman Miller and Dr. Emminger agreed that it I understand, too, that Under Secretary Solomon reached an agreement with the German finance ministry just last week for the United States That's for the United States, either the Treasury or the Federal Reserve. I'm not sure that all these agreements are engraved in stone and there seems to be some uncertainty as to who agreed to what. But I believe that is the position.",120
-fomc-corpus,1979,There's no misunderstanding on the 4.1 billion.,11
-fomc-corpus,1979,The 2 billion I think--,7
-fomc-corpus,1979,The 2 billion is news to me.,9
-fomc-corpus,1979,"It's news to the Bundesbank, too. So I think that is left to be discussed. But in general the Germans are agreeable to the United States--the Treasury or the Fed--building up a certain amount of balances.",45
-fomc-corpus,1979,Are there similar agreements with the Japanese?,8
-fomc-corpus,1979,"No, we're going to come to that in a second.",12
-fomc-corpus,1979,"Well, Chuck, there are policy issues. And there is also a question of buying [marks] without any place to invest them, which isn't very attractive. So we need a little cooperation because having the Treasury holding sterile balances of marks is not attractive.",51
-fomc-corpus,1979,Now we have reinvestment facilities for--,9
-fomc-corpus,1979,They can deny [us the use of] these investment facilities.,13
-fomc-corpus,1979,We could invest in the Euro market.,8
-fomc-corpus,1979,"Yes, but that creates all kinds of [complications]. We've already agreed not to [do] that, so it's more complicated. There is no problem on the 4.1 billion, which just brings the Treasury back to where it was on November 1. The policy memo presented sets forth the recommendation of our task group that we authorize the Federal Reserve System to hold up to $2 billion in foreign currencies concentrated in the principal currencies of DM, yen, and Swiss francs, with no more than $1 billion in any one currency and only relatively modest holdings of any other currencies that might be useful in transactions. Now, as for the Germans, as far as I know we have no understanding or commitment to accumulate balances at the moment for the Federal Reserve.",153
-fomc-corpus,1979,I think the Bundesbank has said that they have no problems if it's a small amount.,18
-fomc-corpus,1979,"But we haven't crossed that bridge in terms of [understandings with1 us. The Japanese government, both their ministry of finance and their central bank, have been urging that we go into joint intervention with them to show a force in the marketplace. The Treasury has been urging this upon us. We have been consulting with the Japanese as to whether a package could be put together that would be directed toward strengthening the yen, which seems to have depreciated too much and may result in aggravating surplus problems again later this year or next year. We originally had consulted to see what could be in such a package. They have taken some initiatives on their own to give guidance on capital outflows. They also have taken some liberalizing steps at the same time. That may [produce] countervailing forces but at least their consultations with their banking system now would begin to [set a] program schedule [relating to1 some of these outflows [that will] take a little pressure off. They still desire that we announce a program of joint intervention with them--a program designed to counter the excessive depreciation of the yen and assure an orderly market. The scale of such an intervention would be governed by [our decisions regarding the recommendations in] this memo. [Under this proposal] the most we could accumulate in yen would be $1 billion, which means that the most that we could accumulate beyond what we now have is about $813 million. The Treasury is prepared to intervene to the tune of $200 million in aggregate. It would seem to me that if we were interested in doing this, it would have a desirable market effect. Then we should limit our intervention to 10 percent of the aggregate. So if we were doing $1.2 billion, there would be $12 billion of total intervention before we did $1.2 billion, and the Japanese would do all the rest. We would not be running each account in that ratio but we'd be balancing out week to week to make sure that that relative ratio was maintained. Alan or Gretchen, do you have any views on how effective this would be in the market or whether it would be desirable?",433
-fomc-corpus,1979,"I think the idea of the joint intervention probably would be impressive to the market. I start with that. As far as the operational side is concerned, if we can really work out a flexible system where we keep to the right proportions but not day by day, I think we can do it. But, Gretchen, you may have more operational problems with this than I'm suggesting. There are operational problems, but I think they're manageable. We were able to do that before with the Japanese when we were intervening on the other side--when we were acquiring yen we had joint intervention--and I think it can be done.",125
-fomc-corpus,1979,"Gretchen, any particular comment?",8
-fomc-corpus,1979,I just wanted to say that on a day-by-day basis we are going to need operating flexibility because these formulae are very difficult to maintain in an ongoing operation.,33
-fomc-corpus,1979,Also with respect to the Treasury's share there would need to be flexibility.,15
-fomc-corpus,1979,"Yes, Henry, I'm afraid we do need that. We've come into a tremendous amount of paperwork problems, particularly when the proportions are so tight as 10 percent and 20 percent.",37
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"Now, there are two questions before the Committee. I'm told by our Secretary that on the first one what we need is an understanding that the policy set forth in this memo is acceptable. We have not before had formal votes and Mr. Altmann's recommendation is that we not have a formal vote but have an understanding that we will abide by this policy. Is that correct? MR. ALTMA"". That's correct. We've had informal understandings about limits within the overall $ 8 billion open position allowable under the Foreign Currency Authorization.",106
-fomc-corpus,1979,We have an authorization for $8 billion; this is a policy decision we would follow if the Committee agrees. The second issue is whether we should enter into an understanding with the Bank of Japan on this joint program and announce that we would be operating for our own account--the Treasury and the Fed--in coordination with the Japanese. We wouldn't put the percent in such an announcement; we'd merely say we will operate together.,84
-fomc-corpus,1979,Can't we separate these two issues?,7
-fomc-corpus,1979,"Surely. As I said, we're going to have two issues--",14
-fomc-corpus,1979,"Well, my point is perhaps a little different from what you're thinking. I might be prepared to undertake a joint operation with the Japanese. But that's separate from the question of how much open position we can have in currencies, absent the special arrangements such as that.",52
-fomc-corpus,1979,"Sure, we can decide not to have the--",10
-fomc-corpus,1979,We could stay with the $500 million [limit] on one [currency] and then have an additional $1 billion approved in a special arrangement. I just want to indicate that that's the way I probably would come out. I didn't want to--,50
-fomc-corpus,1979,"Yes, Paul.",4
-fomc-corpus,1979,"I'm not sure it is going to help chuck, but it may help me. I have no problems with the first understanding, but I want to make explicit what seems to me implicit here. And that is that the balances we acquire we don't acquire for the sake of acquiring balances but mostly as the by-product of what we want to do in intervention.",70
-fomc-corpus,1979,That's the only reason to acquire them--to counter the appreciatiation and work on both sides of the market.,23
-fomc-corpus,1979,Whatever [side] it happens to be.,9
-fomc-corpus,1979,May I ask a question? Does the 10 percent refer to total United States participation--Treasury and Federal Reserve--or is it 10 percent for [each]?,34
-fomc-corpus,1979,As I understand it--,5
-fomc-corpus,1979,"Both. U.S. intervention would be a maximum of $1.2 billion. If the Committee wants to do a billion dollars, the Treasury is merely indicating [a willingness to do $200 million]. Why does the Treasury want to go in for such a small amount? Is it because they already have a large--",64
-fomc-corpus,1979,They have large amounts of yen already.,8
-fomc-corpus,1979,They got them through the sale of SDRs and through the IMF drawings. So it isn't that they're declining to hold yen balances; they really are showing good faith. They already have yen balances and that's why they would do a smaller amount at this point. Phil.,53
-fomc-corpus,1979,"M r . Chairman, I'm agreeable to the Committee approach [outlinedl in this memo. I would be much less happy with the Japanese approach because I'm not at all convinced that the Japanese yen is undervalued and I'm not at all sure I want to jump into a joint intervention for the purpose of improving the Japanese yen position.",66
-fomc-corpus,1979,"Well, why don't we separate the issues? First let's see what the sentiment of the Committee is regarding the recommendation on the agenda. I think the best thing is just to get a vote on it. MR. ALTMA"". A vote?",48
-fomc-corpus,1979,"I mean a count on whether we agree on the policy, not a vote.",16
-fomc-corpus,1979,This is on going to $ 2 billion [on outright holdings] and with these limits [on individual currencies]?,23
-fomc-corpus,1979,"Chuck, if you want to Suggest a modification You may.",12
-fomc-corpus,1979,"Well, my preference would be $500 million. I think there's a great deal of exposure involved here. I believe the dollar may be considerably undervalued and that there could be a very considerable appreciation of the dollar over the next year, and I wouldn't like to see us lose this much money. I also have a feeling that the shoe ought to be pretty binding on the other side. That is, when a currency is declining as sharply as ours did last year, it ought to be up to the country involved--",104
-fomc-corpus,1979,I'm laughing because all during the year up until November 1 we said it was up to the foreigners to straighten out the dollar.,26
-fomc-corpus,1979,"Well, that's right. It finally went so far that I agreed to it. I think a country has its reservation points. And it seems to me that it ought to be the concern of the country as to what that reservation point [is when its currency is] on the decline.",57
-fomc-corpus,1979,"Chuck, I didn't mean you had that atttitude; I meant that as a nation we were taking that attitude.",24
-fomc-corpus,1979,"Well, I had that attitude, too. I was very much opposed to it until [the dollar's weakness] went so far that I knew it was oversold.",34
-fomc-corpus,1979,"Let's run down [the list] and ask the members if they are for the policy and if so, if they have a preference for the $1 billion or the $500 million limit per currency.",40
-fomc-corpus,1979,[I would agree] with the memo.,8
-fomc-corpus,1979,"The maximum is $2 billion in any case, but the question is whether you want a maximum of $1 billion per currency or $ 5 0 0 million.",35
-fomc-corpus,1979,I meant I wanted the $ 5 0 0 million in the aggregate.,17
-fomc-corpus,1979,"In the aggregate? Oh, I misunderstood you. well, then we'll have to ask again.",19
-fomc-corpus,1979,That's what we have now.,6
-fomc-corpus,1979,"Yes, we already have that. In other words, you would not want to expand it to $2 billion. Then the question is: Do you like the proposal in the memo? Paul.",39
-fomc-corpus,1979,"Yes, it is reasonable. MR. AL""N. President Balles.",15
-fomc-corpus,1979,"I share Chuck's view. I have real reservations about going up to $2 billion, based on a very skeptical attitude regarding decisions on what constitutes excessive movements one way or another vis-a-vis what the market is saying. I'd keep it where it is.",51
-fomc-corpus,1979,"Okay. MR. ALTMA"". President Black.",10
-fomc-corpus,1979,"Mr. Chairman, I'd rather cut it in half. I worry about the Constitutional issues on this since the executive branch of the government clearly has the responsibility in the foreign area. And I worry about the point that Chuck raised about criticism we would get from taking any losses on this.",56
-fomc-corpus,1979,May I come back with an argument?,8
-fomc-corpus,1979,"Well, it's not necessary. The Treasury is with us on this; we're working with the Treasury. MR. ALTMA"". Governor Coldwell.",29
-fomc-corpus,1979,I'd be willing to go with the billion dollars. And I guess I could be talked into the half billion dollar limit on individual currencies.,27
-fomc-corpus,1979,"In other words, you are going with the Black proposal. Anybody for the White proposal? MR. ALTMA"". President Kimbrel.",28
-fomc-corpus,1979,"Yes. MR. ALTMA"". President Mayo.",10
-fomc-corpus,1979,"Yes. MR. ALTMA"". Governor Partee.",11
-fomc-corpus,1979,"No, I would remain with $500 million. MR. ALTMA"". Governor Teeters.",19
-fomc-corpus,1979,I would go with this proposal.,7
-fomc-corpus,1979,Governor Wallich.,4
-fomc-corpus,1979,"I would remind you that we didn't flinch when were short $6 billion but here suddenly, when we're gong to be long, $500 million gives us pause. I go with the [proposal in the1 memo.",44
-fomc-corpus,1979,"We have 5 votes in favor and there are 10 members. That makes it very neat, doesn't it? They're not really votes but sentiments. I have a swing ""vote""but I really don't think this sort of policy ought to be followed unless we're fairly uniform. Could we all agree on doing $1 billion with a $500 million limit at least to keep this [going] and then we can review it from time to time? I don't think this is the sort of policy we ought to pursue on a split [opinion]. Does everybody agree to that?",115
-fomc-corpus,1979,That's a $1 billion total limit?,8
-fomc-corpus,1979,"Yes, for the total limit and $500 million per currency, except that which is approved outside of this. [Hearing no objection] let's turn now to Japan and take that as a discrete item. Apart from the authority we just granted, would it be your sentiment to enter into the program with Japan? Go down the list again. MR. ALTMA"". Vice Chairman Volcker.",78
-fomc-corpus,1979,"Yes, I would like to give that authority but we [now] have the limit so small.",20
-fomc-corpus,1979,This would be a separate understanding.,7
-fomc-corpus,1979,This is separate from the $1 billion?,9
-fomc-corpus,1979,"This would mean [only] as to Japanese yen. we would go to $1 billion and be outside the authority, but no other yen would be held. We wouldn't add the $1 billion here and the $500 million and have [$1.5 billion]. This would be the sole authority for the yen.",63
-fomc-corpus,1979,We are making an exception to the policy just adopted.,11
-fomc-corpus,1979,This would be for yen [only]; and no yen would be held under the other policy.,19
-fomc-corpus,1979,I think that's a good way.,7
-fomc-corpus,1979,"This would also be an exception to the total. MR. ALTMA"". The current balances?",19
-fomc-corpus,1979,Including the present balances.,5
-fomc-corpus,1979,"It would also be an exception to the total. That is, if the Manager had a billion dollars in yen he could still have $500 million in DM.",32
-fomc-corpus,1979,The first policy we just approved would no longer include yen. We'll pull yen out of that and approve a specific--,23
-fomc-corpus,1979,"What are the amounts involved for Japan, Mr. Chairman?",12
-fomc-corpus,1979,A maximum of $1 billion of balances [held by] the Federal Reserve.,16
-fomc-corpus,1979,Of which we have roughly $200 million.,9
-fomc-corpus,1979,"It's $187 million, or about $200 million now.",12
-fomc-corpus,1979,So $800 million more--,6
-fomc-corpus,1979,It's $800 million.,5
-fomc-corpus,1979,"And a couple of hundred million for the Treasury, so it's about $1.2 billion",18
-fomc-corpus,1979,In the program we described. Paul,7
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,President Balles.,4
-fomc-corpus,1979,"Yes. MR. ALTMA"". President Black.",10
-fomc-corpus,1979,I'd rather not go this far.,7
-fomc-corpus,1979,Governor Coldwell.,4
-fomc-corpus,1979,"NO. MR. ALTMA"". President Kimbrel.",12
-fomc-corpus,1979,"Yes. MR. ALTMA"". President Mayo.",10
-fomc-corpus,1979,"Yes. MR. ALTMA"". Governor Partee",10
-fomc-corpus,1979,"This would be in concert with the Japanese? They would be in, doing 10 times what we're doing?",22
-fomc-corpus,1979,Ten times what this nation is doing--a combination of the Treasury [and the Federal Reserve].,19
-fomc-corpus,1979,"That's your biggest exposure, Chuck.",7
-fomc-corpus,1979,"Well, I know. On the other hand they've had quite a decline in their currency. So, yes. MR. ALTMA"". Governor Teeters.",31
-fomc-corpus,1979,I have one question. Does this give us any idea at what level we're going to support the yen? Are we going down to the two hundred--,30
-fomc-corpus,1979,That I don't know. But certainly the Japanese feel that the yen has depreciated far too much. It's back toward the 2 0 0 level. Whether 2 0 0 is the [right] level I think one has to judge from what happens in the market.,58
-fomc-corpus,1979,"Nancy, I don't think we can peg it. In the present market conditions I think it would be desirable to get it in the 200 to 2 1 0 area. But that's subject to [conditions] changing. I wouldn't hold to that if we felt there were a really massive change because there is no use fighting it if it's really massive.",72
-fomc-corpus,1979,I'm a little concerned that the Japanese seem to be pegging it. They sort of put out a target and I don't want to be dragged in unless we're really sure we want to do it.,39
-fomc-corpus,1979,"Well, although the Prime Minister said ""go back to 200,"" they found they couldn't do it. And they spent billions.",26
-fomc-corpus,1979,"They're accumulating massive profits now because they've sold their products on the 200 basis. If they don't get it down again, we're going to see price cutting in yen and we're going to have another flood of Japanese imports. We're going to have that problem all over again with surpluses. That's the problem.",61
-fomc-corpus,1979,That's the basic underlying problem.,6
-fomc-corpus,1979,"I would approve then. MR. ALTMA"". Governor Wallich.",14
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"Okay, I'll approve it then also. I think we have a fairly strong sentiment to do that. We'll circulate to the governors a suggested statement that might be made with the Japanese perhaps at the beginning of next week. That is the end of our   meeting unless there is other business. The date of our next    meeting is July 11, which is a Wednesday. That's an odd one.     That was worked out because of the BIS meeting. well, thank you all.     We'll have our luncheon immediately, and we're on time!",108
-fomc-corpus,1979,"Good morning, ladies and gentlemen. I believe we should start right away because we have a rather difficult task ahead this morning--to resolve all the midcourse corrections and short-term directives. Let me start out by welcoming Emmett Rice to, I think, his first FOMC meeting. You'll be the swing vote, you will be happy to know. It's nice to have you back in the Federal Reserve fold. I believe you spent some years with the Federal Reserve Bank of New York when it was--1 won't say in its prime but--at a high level of achievement. We're delighted to have you here.",123
-fomc-corpus,1979,We're glad to contribute some people to the Board.,10
-fomc-corpus,1979,"Before we start on the agenda, I have the sad duty of having to call to your attention what I consider to be a serious and recurring matter. And that is that somehow the tradition and what I consider commitment to keep the deliberations of the Federal Open Market Committee confidential is being breached each month. Yesterday, we had The Wall Street Journal saying that it was learned from sources that at our last meeting, in May, two members of the Committee called for tightening the credit spigot. The article mentions ""sources."" And this is a different reporter [than last time]. And as I've said, my experience is that reporters don't cite sources unless they've talked to someone in the organization. This is to me a recurrence of what we talked about last time and it is very, very disturbing. It's spreading to [discussion of] the attitudes of international bankers. Henry, we've just had a report that ""sources"" tell us what the central bankers in the BIS [meetings] talk about and how they instruct the United States on monetary policy. I consider that inappropriate. I wonder if we should bring that to the attention of the Chairman [of the BISI.",231
-fomc-corpus,1979,I'd like to see what [the reporter] says here. There has been no change in the Basle procedures that [I'm aware of].,28
-fomc-corpus,1979,"Well, the quote in the newspapers is that sources from that meeting were telling us what our monetary policy should be and were telling what was discussed in the [BISI meeting.",35
-fomc-corpus,1979,That's very disturbing because there's an understanding that that doesn't happen.,12
-fomc-corpus,1979,"I think we ought to get the clippings and perhaps call it to the attention of Chairman Zjlstra and see if we can't tighten up those procedures. I just don't think it is appropriate to go to the BIS and discuss in confidence our policies and have people go outside and start saying confidentially off the record--but for publication, just not for [attribution]--this is what we discussed. This article says that sources noted what was talked about and the United States was urged to do a, b, and c. I just don't think that's proper. This is just one; there were other articles in other newspapers. I would again ask members of the FOMC to give their attention to this. What is wrong with our system? Why are we getting sources quoted in the newspaper? In this case, [the leak] could be from the people attending or it could be from people who have seen the directive or the draft of the minutes because this is actually an accurate statement. But it indicates that people who are reporting to [the press] have access to the FOMC meetings or its documents. So what do we do? Do we change the way we distribute the drafts [and] the directives? Do we have to go through some educational process? Do we have to restrict attendance? What do we have to do? I won't ask for your answer now, but I wish you would give this serious consideration. This seems to be a trend and if we continue to ignore it, I think it will be read in the System as a new policy where anybody can go out and give their personal appraisal [of policy deliberations and decisions]. A lot of egos will be appealed to by the press and we will have an endless problem. Well, to turn to the meeting itself, we need first to approve the minutes of the actions taken at the last meeting on May 22. I think those have been circulated. Are there any corrections or additions? If there are none, we will record them as approved and we will turn to Scott Pardee for a report on foreign currency operations since the meeting of May 22.",429
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Thank you, Scott. Any questions or comments?",10
-fomc-corpus,1979,"Could I ask Scott for a judgment? If we had used, say, a discount rate increase or a small federal funds rate increase in lieu of the market operations, would your guess be that we would have had similar results or better results or none at all?",52
-fomc-corpus,1979,"I think they would have been better. It depends on the timing--when [an action was taken] during the course of these weeks. That would have helped, but we still would have had to intervene. There is a lot of negative sentiment, particularly with regard to the energy situation.",58
-fomc-corpus,1979,Phil.,2
-fomc-corpus,1979,"Scott, you said in your comments that this lays to rest the policy of the Bundesbank. Without debating that question, do you have a sense of the Bundesbank position? Would they be willing to let the dollar rate go below 180?",49
-fomc-corpus,1979,"If it gets down there, I think they would. Their approach is not to peg the rate at any particular level. AS I indicated, we did have They have been very forceful in the last week or so and they were forceful this morning. But we are living in a world of floating exchange rates, and I myself am not sure I would advocate holding it at 180 if the pressures mounted that much.",84
-fomc-corpus,1979,And 185 on the up side?,8
-fomc-corpus,1979,"Well,--",2
-fomc-corpus,1979,"If they want the rate to be [unintelligible] and if the fundamentals won't support that, to try to keep them from doing that would seem to be a very wasteful exercise.",39
-fomc-corpus,1979,Larry.,2
-fomc-corpus,1979,"Scott, you mentioned ""fundamentals"" at the end of your report. Isn't the recent expansion of the aggregates, and its portending a less than effective determination to deal with inflation, very fundamental regardless of energy and these other things? Doesn't that come into the minds of these traders?",58
-fomc-corpus,1979,"It's in the minds of some people. You talk to different people, you get different answers. Some people have mentioned that.",25
-fomc-corpus,1979,I suppose I should call attention to John Balles' memo that was circulated [on] the question of to what degree rate differentials affect us. I guess you have all seen that. Dave.,40
-fomc-corpus,1979,"Scott, perhaps you've said all you can say on this but let me try [a different question]. What kind of money policy do you think would satisfy?",31
-fomc-corpus,1979,Satisfy whom?,5
-fomc-corpus,1979,The people who are bearish on the dollar,8
-fomc-corpus,1979,"Again, it differs with different people. Certainly we have plenty of free advice and you can guess what it is. These are financial people; they're interested in financial flows. And we do have a phenomenon going on in Europe and a ratcheting up of interest rates by the central banks and in the markets. It's partly related to the EMS in that it's very difficult now for these countries to make adjustments in exchange rates within the EMS; and a number of countries have raised their discount rates recently simply to protect themselves within that context. Now, the interplay of forces between the dollar/mark and then the mark and the other currencies leads to combined strains. So if the European interest rates are going up, then they turn and look at us. Again, I am very chary of talking too much about these things because at some stage, we have to turn around and tell the market that we're only part of the economy and the rest of the economy has to be considered.",194
-fomc-corpus,1979,Did you answer the question?,6
-fomc-corpus,1979,"Some people in the market would like higher interest rates and they will tell us so, and they'll tell you so. But you have to consider the broader picture.",32
-fomc-corpus,1979,Frank.,2
-fomc-corpus,1979,Is there a perception in the market that we're headed for a pretty serious recession in this country and that that's likely to improve our fundamentals on the trade side?,31
-fomc-corpus,1979,"Some will admit it. But then again, people I'm referring to are more interested in what's going to happen in the next 15 minutes, the next few days, or next month than over the next 6 months.",44
-fomc-corpus,1979,"They are looking at their portfolios, not at the economy. Well, we need to ratify the transactions since the previous meeting. Not only have you heard Scott's report but I believe you have been furnished with a copy of a report on these transactions. Is there concurrence in the ratification? Any dissent? Hearing none, that's approved. We probably will discuss international issues more before the day is over but let's move on to the domestic open market operations and ask for the report since the last meeting from Peter Sternlight.",104
-fomc-corpus,1979,[Statement--seeAppendix.],7
-fomc-corpus,1979,"Thank you, Peter. Any questions or comments? Phil.",12
-fomc-corpus,1979,"Peter, as you've worked through this period and the seeming expectational swing of bringing rates down in the short area but up in the mortgage area, have you found any kind of fundamental thrust in this package? Or is this just sheer reaction on day-to-day operations?",53
-fomc-corpus,1979,"Well, the downward movement was more than in just the short-term area. If anything it seemed to me the mortgage area was rather an exception in moving up a little further. We had rate declines in the long-term sector as well as in the short-term. I think it was more than just a day-to-day phenomenon. There was a feeling that the economy is likely to be weakening and that at some point the [long] rates are likely to be lower, although I would not say that there was an expectation of an imminent easing throughout [the yield curve]--just in terms of, say, the fed funds rate.",126
-fomc-corpus,1979,It was just a happy coincidence that they happened to have securities to sell at a higher price.,19
-fomc-corpus,1979,"Well, some dealers had them, but for the most part they were keeping fairly low inventories. I don't think the dealers made any great killing on this rally because they've been so cautious right along. Taking the dealers as a group they've held rather a lean inventory. They've stocked up when a new issue came along but then they've wanted to sell out their holdings quite soon. They've been caught too many times recently waiting for that great rally and have been disappointed in it.",92
-fomc-corpus,1979,Is this true of all the dealers?,8
-fomc-corpus,1979,"No, I was speaking of them as a group. Some have done reasonably well, but as a group they have not held large inventories at the time when prices rose substantially.",35
-fomc-corpus,1979,Henry.,2
-fomc-corpus,1979,During the period since the last meeting there probably have been expectations of an increase in the expected rate of inflation. Do you see this expressed in any way in interest rates?,34
-fomc-corpus,1979,"I have not in this recent period. I think that has often been a factor, particularly in the longer-term markets; but it almost seemed notable for its absence during the past month.",37
-fomc-corpus,1979,Would you interpret that as saying that interest rates in real terms actually have fallen more than the appearance of the nominal change implies?,25
-fomc-corpus,1979,"Well, that's the implication of the arithmetic; yes, I think that would follow.",17
-fomc-corpus,1979,"Well, we also need here to ratify the transactions since the last meeting. You've had a report. Are there any questions or comments? Are there any dissents from approving those transactions? Hearing none, we will record the ratification of the domestic transactions since the previous meeting. Now we turn to our more delicate issue today and that's the longer-run ranges for monetary aggregates, the new Humphrey-Hawkins bill. It gives us the opportunity to make mid-year corrections and to [unintelligible]. MESSRS. KICHLINE, ZEISEL, and TRUMAN. [Statements--see Appendix.1",126
-fomc-corpus,1979,"Before we turn to any comments on long-run ranges, we might just pause for a moment to see if there are questions about this presentation. Henry.",30
-fomc-corpus,1979,"I wonder, Jim, whether your estimates of future inflation and wage increases couldn't be considerably low. This, of course, has been our experience all along. Here we have 13 percent CPI inflation and somehow we seem to assume that that has a minimal, maybe 1 percent, effect on compensation. That seems to me to imply a very strong effect on wages from rising unemployment and really a very tough government fiscal and monetary policy.",86
-fomc-corpus,1979,"Well, I guess there are several comments to be made. One, the record is clear: We have underestimated inflation. The record, I think, is also fairly clear that we have tended to run high on inflation relative to many forecasts, which says that most economic forecasters--not all, but most--have tended to underestimate inflation, certainly in the current period. Relative to the Administration's forecast for inflation for 1980, we are considerably higher; and with regard to other forecasts, I think the staff forecast of inflation is also relatively high. The assumptions in the forecast, in my view at least, do imply restraint on the part of monetary policy and certainly fiscal policy. The full employment budget surplus is moving into substantial surplus. It involves further tightening if you take that measure or other measures, simply in that we have not assumed any fiscal initiative, which has clearly accompanied this sort of pattern of activity in the past. S o we have a tight policy here in our view. In addition, I would say that there are important exogenous forces, as Jerry Zeisel pointed out, with regard to energy and food. At times I think forecasting energy and food prices is like a craps game, but at this point in time what we have assumed for OPEC would clearly suggest that 1979 is the bad year. Also, our forecast for 1980 on inflation is much higher than we had shown to the Committee a month and a half ago; we have tried to take account of developments since then. I personally would feel rather comfortable with this forecast as a particular number in terms of not underestimating likely developments.",327
-fomc-corpus,1979,Larry.,2
-fomc-corpus,1979,"Jim, what weight do you give to monetary induced inflation, the part of inflation that is a reflection of monetary policy versus food and energy? Let's assume we have a deflator increase of 10 percent, just in broad brush. Sometimes I think we like to believe that we are prisoners of exogenous factors. What part of that 10 percent is a reflection of monetary policy and what part is a reflection of energy and food prices?",87
-fomc-corpus,1979,"Well, I don't think I can answer that question directly. The way the staff has looked at this is to view monetary policy as affecting the markets and economic activity. If we had an ""easier""monetary policy, as indexed by faster rates of growth of M1, it would show up in our thinking in higher rates of expansion in real GNP in the short run--assuming we're not at capacity--tighter markets, and with some lag, more inflation. Trying to sort out particularly how much more inflation in this forecast is difficult. I really haven't thought of it in that way.",121
-fomc-corpus,1979,"Well, let me rephrase it, if I may. Our economists tell me that if one were going to quantify this, that perhaps 70 percent of our inflation is money policy induced, or a direct reflection of our monetary policy, that energy at its present dimension may be responsible for 1 percentage point of [the deflator] and food 1-1/2 to 2 percentage points. That would mean, if that is a valid assumption. that we still are in a position to affect this in a very real fashion by the decisions we make today. Are these guys way off base, do you think?",125
-fomc-corpus,1979,"Well, I know some of those guys--",9
-fomc-corpus,1979,It's perfectly all right to take the fifth!,9
-fomc-corpus,1979,"No, that's all right. I think I know some of the people from St. Louis in a way that transcends what I might say here. All I can say to that is that my view is simply that monetary policy has an important role to play. The difficulty in this exercise is looking at alternatives within what I would consider to be a ""reasonable range,"" given past monetary policy responses. If, for example, one option were to reduce the stock of money 10 percent and run that way for 3 or 4 years, I would say we'd get tremendous impacts on the price front. We'd also have a depression, in my view. So, what is missing in this linkage is what happens to the real side and what happens to markets. It's that sort of thing that makes it difficult for me just to translate M1 numbers into rates of inflation. I certainly would not say that I believe money has no influence on prices. That's clearly not our view. It's really a longer-term effect in the way that we look at money affecting activity, which works through markets. And it's quite clear to us that if we had lower rates of money growth over an extended period of time, we would get lower rates of inflation. We'd also have other things happening, such as [effects on1 unemployment and real GNP, and I would presume other policy responses outside the control of the Fed.",279
-fomc-corpus,1979,Chuck.,2
-fomc-corpus,1979,"Well, I was going to ask Governor Wallich's question on the other side. I note that the total price index excluding food and energy shows very little decline as a result of the recession. The chart that you have here doesn't show us what happened in the '74-'75 [period], but I have the impression that there was more reaction in those price indexes in that recession. And when I look at corporate profits in the Greenbook I find that they're very well maintained rather than dropping rather sharply, as I would have expected them to do. So I wonder whether there isn't a possibility that in fact you've overstated the price increase.",128
-fomc-corpus,1979,There's always a possibility. I've been humbled over the years in performing these sorts of exercises.,18
-fomc-corpus,1979,"Do you k n o w what happened in ' 7 5 ? W a s there, in fact, a decline in the base rate of inflation?",32
-fomc-corpus,1979,"Oh yes, very much so.",7
-fomc-corpus,1979,Excluding energy and food?,6
-fomc-corpus,1979,"Yes. I think the fundamental question though, if you want to go back to '73, '74, '75, is what sort of forecast do we have overall relative to that period. It's very different. Real GNP declines by a very small amount relative to that which occurred in '74-'75; I think it's about 113 the size. And that I think is very important. S o we don't have sluggish markets in any way comparable to the '74-'75 period. I think a second factor is that the performance in '74 and early '75 was influenced importantly by large speculative demands--the build-up of inventories, the worldwide boom, a run-up of raw materials prices, and the big collapse as real final sales declined. Then we had a dumping of inventories and more price breaks on the down side. We don't perceive basic conditions in the economy to be similar to that and hence we wouldn't expect to get the same price response from very weak markets. Also, one of the difficulties is that in the current environment we have more indexation of wage contracts than we had 5 or 6 years ago. In my view, there has been much more of an attempt to cope with inflation that would give us stronger feedback effects of current rates of inflation on future wage rates and that I think is an important adverse factor. That certainly has influenced our forecast because for 1980 we believe the price performance hinges very importantly on developments this year.",293
-fomc-corpus,1979,Paul.,2
-fomc-corpus,1979,"Well, I'm not inclined to raise the question of whether the staff have overestimated the rate of price increase; I doubt that that's the case. But in looking at the general scenario and listening to you, you have forecast a relatively mild recession, as YOU suggested, at least by comparison with the previous recession. But it's a very unusual recession, I think, and you can confirm this for me. You get practically no change in the government deficit and no increase in income coming out of the government in that sense. You have very little change in the financial ratios, very little improvement in liquidity or debt positions, which leads me to a very general question and may [involve your] repeating yourself. What keeps the recession so mild? And particularly what gets us out of it when the saving rate doesn't change much? It doesn't go up and then we don't have the room for it to go down. What are the mechanisms to reverse this process once it starts?",192
-fomc-corpus,1979,Could I share the wealth and let Jerry answer that question? He presented that part of the forecast.,20
-fomc-corpus,1979,"I'm responsible for the recovery! It's true that the contraction is a rather sluggish one and our assumption of the lack of fiscal initiatives involves less stimulus from government activity--other than the automatic stabilizers operating, which are an offset in effect.",47
-fomc-corpus,1979,You haven't even got much of that.,8
-fomc-corpus,1979,"True, we don't get much of that because of the inflation effect, but we get some--possibly an $8 billion swing in that direction in 1980. But, as I pointed out earlier, we perceive this--other than the OPEC effects--as being a rather sluggish slide into a softer economy without the kind of major distortions that were in place in 1973, preceding that [recession]. And it seems to us that under those circumstances, there is the potential for not only a moderate decline but the beginnings of recovery as well, in business fixed investment for example. We get some help also from the net export side, as Ted Truman mentioned earlier. I might point out, though, as you are no doubt aware, that the recovery we are talking about is about as sluggish as the recession we have predicted. We are talking about a fairly protracted period of very little growth; in a sense it's what we were projecting a couple of months ago overlaid by the effect of the OPEC price increases pushing consumption down and bringing the level down to below where we had it before.",222
-fomc-corpus,1979,Frank.,2
-fomc-corpus,1979,"Mr. Chairman, I suppose 1'11 get the same answer to this question, but it seems to me that the interest rate pattern projected is not very believable in the sense that the staff is suggesting under alternative B that we could maintain a 6 percent rate of growth in M 1 with only a very modest decline in the fed funds rate to 9-1/2 percent at the low point. If this were to occur, it would be the only recession that I can recall, large or small, in which we were able to maintain money growth during the recession with very little change in the fed funds rate. And I find that a little incredible.",134
-fomc-corpus,1979,"President Morris, it may or may or not occur as projected, of course, but there is an enormous rate of inflation built in and an increase in nominal GNP of substantial size even though there is a recession. And our evidence thus far, particularly in the second quarter, is that the downward shift in money demand that appeared in the fourth and first quarters doesn't really appear in the second quarter to any real extent. If that has abated and we have the substantial increase in nominal GNP, even in the face of recession, we've got to finance it. S o our assumption has been that money will be called out, so to speak, by the economy. That may not develop, as you point out, but I think it's not an unreasonable assumption given the high rate of inflation that's built into these projections.",163
-fomc-corpus,1979,"Well, I guess where I really differ is in my expectation that the recession is going to be much more severe than you're projecting.",26
-fomc-corpus,1979,"Well, in that instance you'd be talking about weaker money demand. Many times in the past we've had no growth in nominal GNP in the quarters in which real GNP was dropping or was in fact negative when we had massive inventory liquidation. And at those times money demand fell dramatically. But in this forecast we have very different nominal rates of increase, given the price picture that we foresee.",78
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,"Paul Volcker and Frank Morris have already anticipated most of my questions, as a matter of fact, but maybe I can ask the last part of my final question, Jim. I'm also concerned about the possibility of this recession being deeper and longer and more severe than both you and my own staff are predicting. Our staff view is now pretty close to the one you have. I'll challenge you with the same question I asked them: What is there in this current situation and outlook that makes it different from the experience we had in 1973-74--that leads to a fairly mild recession instead of a deep and severe one such as we had 5 years ago? In other words, how big are the risks? Another way of putting it is: What do you consider to be the downside risks in your present forecast? What could go wrong?",169
-fomc-corpus,1979,"There are downside risks. In terms of the odds we would place on our forecast, I think we would judge it to have a 40 to 50 percent probability of coming true. I can see a situation where the odds are significant that it might turn out to be better than that. I think it is very difficult, for example, to sort out the extent to which the second quarter was adversely influenced by gasoline lines. And if that fades, we may be talking about underlying demands that are stronger than most people would anticipate at this time. On the other hand, whenever we get into this situation of weak activity we tend to have cumulative effects and it's very difficult to judge how far that may run. It could set off adverse expectations, which would drive the economy down much deeper. I think the 1973-74 [experience] is not closely comparable to the current one. Clearly, from that earlier OPEC situation we can gain some lessons from looking at what happened at that time. But three very important factors [differ]. One would be the collapse of the worldwide boom. We have not envisaged a collapse in economic activity abroad. That should assist the U.S. economy. The second is this speculation and stockpiling--the hoarding of labor, raw materials, whatever--that led to the big bubble in inventories and the collapse. Our reading of the current data available is that we may have a moderate problem of involuntary inventory accumulation, but it's limited. Businesses have behaved very differently this time around than in that earlier time. And the third factor that to me is of a good deal of importance involves developments on the monetary policy and the financial side. We have not assumed conditions that approximate those in 1914--a crunch. We don't have widespread financial difficulties. And that's very different in terms of the lagged impacts of monetary policy actions over the past year or so and what that may portend for later this year and 1980.",395
-fomc-corpus,1979,"Well, thank you. That's a good answer. I guess the one big imponderable I'm still concerned about is the confidence factor in the economy. None of us can really make a judgment on that but my own hunch is that, if anything, the spreading uncertainty in the minds of both consumers and the business community could lead to somewhat worse results than we see here, but I can't prove that.",81
-fomc-corpus,1979,"1'11 just close the list. We'll go through the remaining questions and then turn to Steve. You'll all get a chance, of course. Mark.",31
-fomc-corpus,1979,"Thank you, M r . Chairman. Jim, implicit in your inflation forecast on the table in the last sheet of the handout and, in fact, explicitly in your responses to Larry and Chuck, is a belief that there is a short-run tradeoff between inflation and unemployment. Can you tell me what data there are in the last decade that make you think that such a tradeoff even exists?",80
-fomc-corpus,1979,"There's very little. I know that most people like to believe the short-run Phillips curve is dead. The Board's model essentially has that construction and it's one of the few models that has worked very well on both prices and unemployment in the last year. If we as a staff had believed it, we would have been right on [the mark] in terms of the inflation forecast and also the strength of unemployment. It's a very difficult area. Frankly, I think one has to look at information from a variety of sources. I do, in fact, believe that there is a tradeoff. At the same time, I believe that expectations are very important. And what will happen in 1980 hinges very importantly, I think, on inflationary expectations, confidence, and market structure. It's difficult to model those sorts of things. So the tradeoff that I think is still there may be waning, frankly. But until there's very strong evidence to the contrary, I would still believe that one has to sacrifice some real performance to get much improvement in prices using aggregate demand management policy.",218
-fomc-corpus,1979,"Well, taking a different tack than Chuck did: If people really believed that the policy response this time were going to be different than it has been in the past--that fiscal policy would not be tremendously stimulative and monetary policy would not be tremendously stimulative--how possible would it be in your mind, then, that we could in fact have lower inflation than you predicted without substantially higher [unemployment]?",81
-fomc-corpus,1979,Let me just say that I agree that that's a possible outcome. I really don't know that I can quantify it.,23
-fomc-corpus,1979,Phil Coldwell.,4
-fomc-corpus,1979,"Mr. Chairman, maybe I'll just skip [some of my questions in light of] the responses Jim has been giving. The one fundamental question I have on my mind was raised by the Board's staff in the [pre-I FOMC briefing yesterday and that is: Do we fund the price increases of OPEC?",64
-fomc-corpus,1979,DO YOU fund them?,5
-fomc-corpus,1979,Yes. do we provide the financing to meet them?,11
-fomc-corpus,1979,[Fund] the nominal level of GNP.,10
-fomc-corpus,1979,"The monetary policy assumption that we have maintained in this forecast is the same as the one that has been running for the last several months. S o , with higher prices in effect and the same nominal rate of growth of M1, you are implicitly running a tighter policy and not permitting a complete validation of OPEC price increases. So it's a maintenance of the same policy despite an exogenous change in the price outlook.",83
-fomc-corpus,1979,"Well, it's a bit difficult for me to accept that on face value, given the rate of change in M1 in the first quarter of the year versus the rate of change in M1 now and the changes in the OPEC and [other] price structures that have been developing over the first half of this year.",64
-fomc-corpus,1979,"All I can say is that the assumption built in for monetary policy is t.hemidpoint of alternative B on average for 1979-1980. That is, you can run below or you can run over, but for QIV '78 to QIV '79 we have assumed 6 percent, allowing for the shift between ATS accounts and demand deposits. You're right that M1 was strong in QII and it was weak in QI; it all hinges on what happens between now and the next two quarters to determine whether or not the assumption we have will turn out to be correct.",121
-fomc-corpus,1979,We'll find out next year. Dave.,8
-fomc-corpus,1979,"Reverting to the questions asked earlier about the shallow saucer that you have and the sluggish recovery, Jim--",22
-fomc-corpus,1979,"Shallow, long saucer.",7
-fomc-corpus,1979,"Yes, shallow, long saucer. It has been said that the way to lick inflation is to have moderate growth for some period of time. 3 to 5 years or something like that. Have you done any work or do you have any views as to how long this type of pattern would have to be continued to have some impact [in the sense that] Mark was talking about?",79
-fomc-corpus,1979,"We have run a variety of simulations Using different monetary policies, fiscal policies, and other options that have extended into 1982. And in most of those, except for policies that have expansive monetary and fiscal policies for an extended period of time, by the time we got to 1982 we were seeing substantial price improvement. I might note that one of the major difficulties--I didn't comment on it this time--is that in 1981 the models would be showing much reduced rates of inflation, but there are two important outside factors in 1981. In January we have the largest increase scheduled for payroll taxes and social security of the whole package; it's double the effect of 1979. And in October 1981 is the largest slug of domestic decontrol of crude oil to the then-current world price. If we [take] those out of 1981, we're showing in the forecast substantial price improvement.",185
-fomc-corpus,1979,Bob Mayo.,3
-fomc-corpus,1979,"Jim, I have a little problem with your statement that one of the reasons the recession may be milder this time, or that we won't have a great problem this time, is that there might not be an identity this time of recession abroad and here. I would take some issue with the latter statement. Some of the tea leaves tell me--and it's more than tea leaves, I guess--that we may be forced into a situation again with an identity of recession throughout the free world, not just here. That would tend to make me a little more worried about the shallow saucer projections. Also, although this gets into the financial side, I would say that while we don't have REITS this time, there is much more concern about the volume of foreign bank loans by American banks at this point and whether we are getting too close to the saturation point on handling the recycling of the 80 percent increase in OPEC prices. This gives me an additional concern that hasn't been mentioned here yet.",199
-fomc-corpus,1979,"Well, Bob was our clean-up hitter on this round of questions. I think it might be appropriate to turn to Steve Axilrod to give his comments on longer-run ranges and then we'll turn to the whole Committee.",44
-fomc-corpus,1979,"Mr. Chairman, we are passing out a table that I hope will make my comments clear on this complicated problem facing the Committee. The decision before the FOMC on the long-run ranges is clearly much more difficult than usual. The impact on the ranges of an actual, or impending. recession has to be balanced against a higher rate of inflation, with the increased rate above expectations caused in large part by exogenous factors such as energy conditions that do not respond readily, if at all, to monetary policy. Additionally, the demand for money, given GNP, seems no more certain than usual and perhaps even less so as it will depend in part on Congressional and judicial decisions yet to come that will affect interest-bearing transactions accounts. [Moreover,] at this meeting, the Committee is asked to look further ahead than it ever has before, giving its first public indication of ranges for the monetary aggregates more than one year ahead. In this case, that means the ranges for 1980 as well as 1979. Growth rates of the money aggregates thus far in 1979, as noted in paragraph 9 of the Bluebook, are within the ranges adopted in February for the year, and near the low ends of the ranges, especially for M2 and M3. Thus, on the face of it there would not appear to be a serious need for the Committee to consider adjustments in the ranges for 1979 to allow for any initial mis-specification of them. However, there probably has been a mis-specification of the current range for M1, as explained in the Bluebook, because the retarding effect of ATS accounts on M1 growth appears to have been overestimated. Last February we estimated this effect as 3 percentage points, which did in fact turn out to be the first-quarter impact. But growth in ATS accounts has subsequently slowed. M1 growth was retarded by only 1-1/2 percentage points in the second quarter from this source. And we estimate that the retarding effect for the year 1979 will average out to 1-1/2 to 1-3/4 percentage points. This technical factor would argue for an upward readjustment in the measured M1 range for 1979. We can expect an even smaller retarding effect from ATS accounts in 1980, but obviously uncertainties are vast because of the clouded legislative and judicial outlook. With regard to economic factors affecting the aggregates, the economy is weaker and this might argue for more stimulation. On the other hand, inflation is stronger, which tends to argue for more restraint to curb the pace of price increases. But since much of the greater-than-expected price increase has been due to a one-time energy price shock, there is also an argument for being at least partly accommodative by providing somewhat more money during a transition period. In any event, the staff expects some acceleration in growth of the aggregates in the second half of 1979, given the GNP projections, partly because of greater demand relative to income as the recent downward shift in money demand abates, and partly because of a slight easing in interest rates. Taking these various factors into account--and also giving weight to the view that the ranges for this year should be narrowed because the results for half of the 1979 policy period are already known and therefore the outcome for the year as a whole is more certain--1 would suggest that the Committee consider the following ranges for the monetary aggregates for 1979: 3 to 5-1/2 percent for M1; 5-1/2 to 8 percent for M2; and 6-1/2 to 9 percent for M3. These proposed ranges are shown in the middle column of the upper panel of the table before you. And they're shown in the second, third, and fourth lines of the upper panel. The top line, in order to make the economic implications clearer, shows the consistent measure of M1 adjusted to include the amount of deposits that were transferred into ATS accounts. As you can see from that line, the proposal for M1 represents a policy that is no easier after adjustment for ATS transfers than does the current range. That is, they're both centered on 6 percent, assuming of course that our estimate for the ATS effect is correct. For M2 and M3 the proposed ranges are 1/2 point higher on the bottom end than the current ones and therefore a little more clearly allow for the greater growth of the aggregates that is expected by the staff to occur in the second half of this year. Turning to ranges for 1980, arguments can be made both for lowering and for raising the ranges relative to those for 1979. On the one hand, the need to make progress over time in reducing the rate of inflation and in breaking inflationary psychology argues for adopting slower growth rates in 1980 than in 1979. On the other hand, the continuation into next year of exogenous upward price pressures related to the energy situation and the need to contain the apparent weakening in real economic activity argue for raising the ranges for 1980 and then lowering them gradually in later years. On balance, taking account of these conflicting arguments, the following monetary ranges for 1980 might be considered--and they're shown in the last column of the upper panel: M1, 3 to 6 percent; M2, 5 to 8 percent; and M3, 6 to 9 percent. The bottom line of that upper panel has a proposal for the bank credit range that is simply a smooth version of the alternative B/B' projection of the Bluebook. The monetary ranges suggested for 1980 are wider than those proposed for 1919 because of the greater uncertainties in projecting 18 months ahead. The ranges also encompass some further technical upward adjustment of the measured Ml range to allow for the gradual re-emergence of more normal demands for money following the introduction of ATS accounts late last year. Finally, these ranges retain an upper limit high enough to allow for the probability that the aggregates next year may in practice grow somewhat more rapidly than this year, given the inflation built into the economy and our assumption of some growth in economic activity. The bottom panel of the table compares midpoints of these proposals with the growth of the aggregates in recent years to provide the Committee with some perspective on the ranges. As can be seen, the odds are pretty good, given what has already transpired this year, that growth of the aggregates in 1979 will slow for the second consecutive year--looking at either measured M1 or M1 adjusted to include ATS transfers. The growth rate was at something of a recent peak in ' 1 7 , was lower in '78 and will very likely be lower in 'I9 [than in] '78. This is true for all of the aggregates shown. Except for measured M1, the midpoints of the proposed ranges for 1980 would imply a further slowing and thus might have some beneficial announcement effect. However, there is some reasonable probability, as just noted, that actual growth would be in the upper halves of the proposed 1980 ranges. Even so, the proposal for 1980 implies a policy of restraint on money growth relative to demands and, therefore, rising interest rates [over] the course of the year. Thank you.",1492
-fomc-corpus,1979,"Thank you, Steve. A statistical question? All right.",12
-fomc-corpus,1979,"Steve or Jim, do you happen to have the 1973 and 1974 figures that would [compare with] those in the bottom part of this table for Ml and bank credit?",38
-fomc-corpus,1979,For '73 and '74? Let's all write these numbers down.,14
-fomc-corpus,1979,"For '73 the rate of growth in Ml was 6.2 percent and for '74 it was 5.1 percent. Bank credit growth for '73 and '74 was 15 percent and 10.2 percent. M2 for ' 1 3 was 8.8 percent and for '74, 1.7 percent.",72
-fomc-corpus,1979,Are these fourth-quarter-to-fourth-quarter in all cases?,12
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"One comment I should have made on the supplemental table that Jim called to your attention comparing the [forecasts of the] staff and the Administration: I know you realize all the figures here are confidential but these are particularly sensitive because they will not be released by the Administration until Friday. And the Administration would be very upset if any [disclosure] of these took place before that time. They are quite sensitive, and I just wanted you to know that. Now, before we break, I would suggest that we try to do a go-around on your views. My suggestion is that you give us any thoughts you have on the economy if significantly different from the staff's. We don't need detail but I'd like to get the flavor [of your thinking]. And then [indicate] what policy implications you see and also what would be your recommendation for the longer-term ranges--a mid-course correction for 1979 or for the 1979 ranges to be maintained--and what you see for 1980. I think we will have to take each of those up separately later but I'd at least like to get down in black and white how each of you sees it. As an opening observation, I feel that what has happened since earlier this year--the unexpected degree of oil price increases by OPEC and others has been quite a blow to our anti-inflation efforts. We've probably been set back by a year or two in the program to wind down inflation. And that makes our problem particularly difficult because what was already a need for a multi-year sustained effort becomes an even longer effort, and we cannot yet predict what policy responses the Administration will make in the energy area or otherwise. But whatever they [do], there's a lag time of policy getting implemented into action and it seems to me that we're going to have a much longer course to go. We are going to be on trial and have a test in this country for a longer period of time on whether we have the will and the capacity to wind this [inflation] down. I rather think that there is a more sober sense of the urgency and the peril [involved]--amore sober sense that we're all going to have to give up something. There is going to have to be some loss of real income in the short term if we're ever going to get real income going up again in the long term. But that remains to be seen. My ouiji board tells me, based on what we did at the last few meetings, that we probably should be starting with Henry going clockwise this time. I think the last time we started with Roger and went this way and the last time [we started on] the other side. So we will start with Henry and go around this way.",552
-fomc-corpus,1979,"Well, I'm not as well prepared as I should be, having just come back last night from Basle. I continue to think that we may be underestimating inflation. For the first three months [of this year] we didn't have very much OPEC input into this inflation and nevertheless the CPI was going up at 13 percent. Now, that was food [prices], which have improved. But we see the food area deteriorating again because of Russian import needs and I am fearful that food inflation will actually be higher. Second, I very much agree with what the Chairman said just now. Bringing inflation down under these deteriorating circumstances is not just a question of taking more time to do it but it will be more costly in terms of real income. And the cost of that real income means less growth, higher unemployment. It need not mean more social problems from unemployment, if that's properly compensated, but it does mean less output. On the recession, I [agree] with those who think there are many reasons to believe it will not be deep; there are none of the antecedents we had in '73 and '14. There are no very powerful things to pull us out of it unless we make a mistake stepping on the gas very hard, but my concern is more that we should achieve some lasting effect on inflation. Finally, as for accommodation of the exogenously imposed inflation, I sense a growing consensus outside this body that we should do much less accommodating than we did in 1973-74 when we accommodated in terms of money supply, in terms of financing payments, and in terms of trying to offset the domestic recessionary effects of the oil price increase. Wherever I go I sense that there is less willingness this time around to accommodate the OPEC shock monetarily. AS far as the aggregates are concerned, I have a very strong suspicion that we are dealing here with numbers that don't encompass reality. We know about RPs; we know about the Euro-market. I understand that the staff is on the track of some new kind of overnight deposit device in the Cayman Islands, which if we integrate it into M1 would account for a good part of the failure of M1 to grow for the first half of the year, although I'm not fully up on the latest data on this research. We have other variables such as money market funds. We have devices that individuals now can use outside money market funds to keep money outside of M1, such as Merrill Lynch-type cash accounts. All this suggests to me that the numbers we have here are simply too low and that the true money supply--if it could only be made to stand up--would be a great deal higher than these numbers show.",544
-fomc-corpus,1979,Do you have any specifications that you--,8
-fomc-corpus,1979,"Well, under those conditions, Mr. Chairman, I lean toward keeping the specifications that we have now. They may seem very low, given what--",30
-fomc-corpus,1979,"What would you do for 1980 then, Henry?",12
-fomc-corpus,1979,"I find that a real quandary. I am very reluctant, however, to indicate that we are going to raise the rate of money growth. We can still [change the 1980 ranges later]; we are not casting this in cement.",49
-fomc-corpus,1979,"NO, we will do another [review] in January.",12
-fomc-corpus,1979,"But I would be very reluctant, unless convinced by the discussion here that we should, to raise the rates of money growth.",25
-fomc-corpus,1979,So you would keep the same ones we now have for '79 and [carry them forward for] ' 8 0 ?,26
-fomc-corpus,1979,Yes,1
-fomc-corpus,1979,Thank you very much. Phil.,7
-fomc-corpus,1979,"Well, Mr. Chairman, I agree with much of what Henry said. There are a couple of outside points I would like to make. Much of the discussion here has been about exogenous factors, outside influences. I still think our fundamental policy response is responsible for some of this inflation and I wish we had been tighter. A policy response now to fund some of the OPEC move I think would be a mistake; I'd prefer not to fund as much. In regard to Jim's comment about inventory, I think what is going on is an inventory of labor--not the normal [concept of] inventory, but an inventory of people. The sense I get out of this forecast is almost a sense of hopelessness. There's nothing anybody can do. We have a high rate of inflation, a rising rate of unemployment, and a low rate of growth. And you tell me that you want to hold this for three to five years. I don't think that's politically [feasible]. I strongly doubt that this country is willing to stand still for five years, much less a year. So I guess my answer, Mr. Chairman, is that it may take some more difficult medicine than what we have on the horizon right now. Whether this body wishes to contribute its share of that castor oil or leave that to the political side of life, I don't know. I wish we knew what the President will be coming out with in his proposals; I think those might have an important bearing.",297
-fomc-corpus,1979,"Well, you see, he cancelled his speech because he wanted to hear what the FOMC would do! Everyone was wondering what the reason was.",30
-fomc-corpus,1979,"If he wants to play the game that way then I'm perfectly willing to step up to the policy [plate] and say that it's time for us to quit--not validate these things. My preferences for the '79 long-term growth ranges would be 3 to 5 percent on M1 and 5 to 7 percent on M2. I would hold bank credit down. I think it may slow but I don't have any confidence that it is going to slow at all. On 1980 there is a possibility we could edge [the ranges] down and I would prefer to go another step further, perhaps to 2-1/2 to 5 percent [on Ml], leaving the possibility of a lower range of growth. I admit this is likely to exacerbate some of the recessionary tendencies in the economy [but] I'm not yet convinced that we're heading toward the doom and gloom that some people are portraying.",186
-fomc-corpus,1979,"Thank you, Phil. Frank.",7
-fomc-corpus,1979,"Well, Mr. Chairman, as I indicated earlier, I think we're facing a bigger recession than the staff has projected, primarily because of the consumer sector. When Jim talked about the other sectors that were not as vulnerable, he neglected to suggest that we have a major sector that is more vulnerable. And that is the consumer sector, where the debt burdens of the consumer are substantially higher than they were going into the '74 recession. The staff's projections show that the bulk of the consumer adjustment is already behind us in the second quarter and that hereafter the consumer is going to play a pretty much neutral role in the recession. That's where I would differ. I think we are going to see a rising saving rate. We are beginning to see it now; we've been very surprised to see in the last few weeks an upturn in ordinary savings accounts after a long period of steady decline. So I think the move toward a higher saving rate has already started. I believe we could see the unemployment rate go as high as 9 percent next year rather than the 8 percent the staff has projected. In my view that would be counterproductive to the long-run anti-inflation fight. If we have that big a recession, the hope of keeping some constraint on fiscal policy is going to be diminished, inevitably. I would like to postpone my comments on what we ought to do in the short term. As far as the long-term ranges are concerned, I would be happy with Steve's proposals.",299
-fomc-corpus,1979,Steve's proposals for both years?,7
-fomc-corpus,1979,For both years,3
-fomc-corpus,1979,"Thank you, Frank. Ernie.",8
-fomc-corpus,1979,"Mr. Chairman, [let me mention] a couple of elements on the economy that might be of interest. We are beginning now to see a little pickup in drilling activities, after a fairly long period of accumulating idle rigs. CHAIR"" MILLER. Is this for oil or for gas?",59
-fomc-corpus,1979,"It's both, but with gas being the strong end of it. And we're told by a few firms that they are making plans for a further significant step-up in that area, even to the extent that firms that normally do not own or control rigs but for the most part use leased rigs are anticipating enough shortage of supply of rigs about 6 months down the pike that they are now undertaking to acquire control so they will be able to get good rigs at that time. The other thing I'd mentioned in terms of a local situation is that we are seeing indications of very strong retail sales in El Paso and San Antonio. And this is attributed to heavy buying by Mexican nationals who are coming back into those markets in substantial numbers at the present time, after a period when such buying had been fairly low. Those are the only two markets on which I have some data. I guess similar comments on other markets [unintelligible]. As for local labor markets, they are almost in disarray. There's raiding and bidding away [of workers] and job hopping, which is distressing. It's a hard market to work in. We've passed the 50 percent annual rate of turnover in the Houston area--which is not a big increase from where it has been--but [employers] are having difficulty staffing. The electronic firms in the area are having great difficulties staffing. One of them characterized the market to me recently as follows: For electronic engineers the standard offer--the offer they make to engineers currently employed in other shops--is whatever you're getting now plus 20 percent, if you will come on over.",323
-fomc-corpus,1979,"Three job changes and you're in pretty good shape, aren't you?",13
-fomc-corpus,1979,"It's even reached the point now where firms are considering setting up shops in residential areas so these people won't have to travel more than 5 minutes to work as compared to 20 minutes. As to the general economic outlook, [my views] don't differ substantially from what the staff has projected. I recognize the possibility, of course, that their projection can be off and I would share the view that Jim Kichline mentioned that it could be off in either direction. I think there's a possibility that looking back 6 to 9 months from now we'll be talking in terms of a rolling adjustment as compared with just slipping into a recession. I wouldn't give it a high probability, but I think it's a possibility we should keep in the back of our minds. As to monetary policy--what it has been, what it may be now, and what it should be--my thought process was pretty well outlined by Henry Wallich. It seems to me that we have not seen the usual indications of credit stringency and monetary tightness that we get in a full employment economy. And consequently, I think the numbers that we are looking at are not capturing what's really been happening [judged by1 the effect of the money stock. Bankers continue to talk almost universally in terms of no credit restraint. They have money to lend and, of course, the figures on bank credit are showing the results of this. It seems to me that there are two major factors in the picture: One, the continued prohibition of outright interest on demand deposits and continued low ceilings on savings deposits; and second the ongoing strength in inflation, which has stimulated people to find ways of circumventing the effects of these restraints to a degree we have not previously known. This leads me to [favor] on the [ranges] for '79 Henry Wallich's suggestion to stick with what we have and for 1980 to go with alternative C in the Bluebook.",387
-fomc-corpus,1979,"Thank you, Ernie. John.",8
-fomc-corpus,1979,"I'm reminded of sitting here in '74 and '75 through the deepest and longest recession in the postwar period and my friend Mr. Baughman kept raising the question, ""What recession?""",39
-fomc-corpus,1979,"Well, it's nice to live in Dallas.",9
-fomc-corpus,1979,"A s a matter of fact, we didn't feel it as badly on the West Coast as Messrs. Willis Winn and Bob Mayo.",27
-fomc-corpus,1979,It was just a regional recession,6
-fomc-corpus,1979,"In any event, as far as the national outlook is concerned, despite my ""doubting Thomas"" type questions to Jim a little while ago, I agree that the most probable outcome is the scenario of a one-year long, fairly brief, and fairly mild recession. But if there are any risks in that, they're probably on the down side, in my view, although I'm not quite as pessimistic as Frank [Morris]. Turning to the appropriate monetary policy in view of this, my specifications would be very similar to those that Steve laid out, with two qualifications. I think I would go further than he would in narrowing the ranges for the rest of this year for the same reason he would narrow them. We have half of the year behind us and unless we do narrow the ranges, we would allow for the possibility of some pretty extreme growth numbers during the second half of the year, as high as 15 percent and as low as 5 percent or thereabouts. S o I think there might be some merit in giving assurance to the market that we're not going to go off the deep end in either direction. To be quite specific, for the second half of 79, I would like to see the M1 range at, say, 3-3/4 to 5-1/4 percent and the M2 range at 5-3/4 to 7-114 percent. I'm just carrying Steve's [suggestion] one step further. And as far as the rest of the specs that he set forth, while they are a little different than the ones I came in with, they would be acceptable to me.",332
-fomc-corpus,1979,"Thank you, John. Mark.",7
-fomc-corpus,1979,"I think Henry and Phil have put their finger on the basic decision we have to make and that is: Do we bite the bullet and really try to do something about inflation or do we get deflected by a host of other problems? I would like to assert, without taking the time to prove it--because the Committee has neither the time nor the patience--that there is very little evidence that monetary policy can do anything to offset an oil price increase in terms of ameliorating its real effects on the economy. In our judgment, there is little if anything we can do systematically to offset increases in unemployment or to offset declines in real growth. Therefore, the one thing we can have a systematic impact on, and should have a systematic impact on, is the rate of inflation, and that should be our primary objective. And I think we can do that without making unemployment worse than it would otherwise be. That's the assertion. The implication of that is that I very much agree with what Henry said for the long-run range for 1979. I was going to argue that we ought to lift the bottom of that range so that we don't let money grow too slowly but he scared me away from that with his reference to whatever staff investigation is going on that has identified some other factors and if that's right, that would worry me. I would just point out that even if we keep the existing ranges and assume 1 percent for ATS we could have money growth between now and the end of the year at 6-1/2 percent and still fall within the 4-1/2 percent ceiling range, which I think would be an appropriate rate of growth for the second half of the year. If we took what was alternative B in the Bluebook, we could have money growth--with ATS--at 10 percent between now and the end of the year, which I think clearly would be the wrong response in the face of the inflation problem that we have. With regard to 1980, heaven only knows. I guess without information of the kind that Henry was talking about, I'd be inclined at this point to keep ' 8 0 the same as '79 until we figure out a bit more about what's going on.",448
-fomc-corpus,1979,"Thank you, Mark. Perhaps I should pause to make a couple of comments. One is that if we make any change in the ranges for '79, it would be a restatement for the whole year, fourth quarter to fourth quarter. We are not rebasing; I think everyone understands that. And my intention in dealing with ' 8 0 in our report to the Congress--1 hope it's the staff's intention--is to do so in the text and not present a graph because then we would have to find a base point. And that we don't want to do, if you follow me. No chart, in other words. We'll say we are going to have this range for '79 and here is the chart for '79. But for 1980, then, we are going to have a range of so-and-so and it's just going to be in the text. We will not, therefore, pick the point from which we have that growth. I think that will give us a little less trouble when we set the ranges firmly in January or February when we do it for the year. Then we present it as our real target for the year and now we are just giving a preliminary indication. So I think that will be helpful. Bob Mayo.",255
-fomc-corpus,1979,I find Mark's assertion congenial and I--,10
-fomc-corpus,1979,You're not going to prove it either.,8
-fomc-corpus,1979,We are prepared to prove it.,7
-fomc-corpus,1979,"Yes, I think it can be proved, but I will make the same caveat that Mark did. Although the staff forecast is a reasonable one, I find myself a little more pessimistic. I am concerned about both the likelihood of less real growth and more inflation. I really feel at this point that if we can beat 12 percent this year we will be lucky on the inflation side. I think we will improve on that next year, but I don't hold much hope for getting materially under 12 percent for this year as a whole. Having said that, and having agreed with Mark's basic assertion, I find the 3 to 6 percent range for M1 this year a pretty good range. I wouldn't change that. For next year, if we have to do something--which we do--intellectually I would say that we should widen the range and make it 2 to 7 percent. I would go the other direction from some of the others. But I don't think it is a practical approach.",206
-fomc-corpus,1979,I still have some confusion. For the M1 measure you said 3 to 6 percent.,20
-fomc-corpus,1979,"Yes, 3 to 6 percent for '79 or 3 to 5-1/2 percent --I wouldn't quarrel with that.",30
-fomc-corpus,1979,Why not 1-1/2 to 4-l/2 percent? That's what it is now.,22
-fomc-corpus,1979,He's adjusting it for ATS.,6
-fomc-corpus,1979,I'm adjusting it.,4
-fomc-corpus,1979,That's what I had in mind.,7
-fomc-corpus,1979,"I am talking about the second line in the material distributed--the ""M1 measure,"" as it is called here.",24
-fomc-corpus,1979,"For '79, it's 1-1/2 to 4-1/2 percent now.",21
-fomc-corpus,1979,It's 1-1/2 to 4-1/2 now and it would be 3 to 6--,25
-fomc-corpus,1979,For '79.,4
-fomc-corpus,1979,"You said leave it unchanged, and then you said you would--",13
-fomc-corpus,1979,"Well, that's [no] change. It's the way Steve has it down here.",17
-fomc-corpus,1979,I was interpreting such a move as unchanged because the midpoint remains 6 percent after [adjustment] for ATS.,23
-fomc-corpus,1979,And that's the way I am looking at it--through the old ATS.,15
-fomc-corpus,1979,You are accepting the upward adjustment in the average.,10
-fomc-corpus,1979,Sure.,2
-fomc-corpus,1979,But 3 to 6 and not 3 to 5-1/2 percent.,19
-fomc-corpus,1979,"I prefer the 3 to 6 percent, but I find that a minor point of difference. Now, since we are required to go out to 1980, I would say that if 3 to 6 percent is okay for '79, intellectually the range should be something like 2 to I percent for ' 8 0 because [it seems logical to1 widen the band. But I find this insulting to the process that we are being asked to do. It's sort of a throw-away bid. So with that in mind, I would find 3 to 6 more congenial again--or 3 to 5-1/2--for 1980. I see no reason to try to encourage a lot of journalists to interpret whether a half percent more or less has any significance for 1980. I think that's foolishness. So whatever we come up with for '79, I'd leave it that way for our first stab at ' 8 0 .",200
-fomc-corpus,1979,"Thank you, Bob. Roger.",7
-fomc-corpus,1979,"Thank you, Mr. Chairman. First of all, I think it's perhaps difficult to quarrel with the staff projection for the economy. But our independent look at the same figures they apparently are looking at--with some of the assumptions different, however--would suggest that we may have a bit less strength in the economy than in the staff projection, particularly starting in the 3rd quarter and running on into the 4th quarter. And just to throw another variable into it, there is a very good possibility that we will be facing an auto strike starting in September or sometime in early October, and that could further weaken retail sales and thus turn the economy down further than even we would project. Secondly, we would have some quarrel with what I believe to be the staff's assumption that there will be no substantial inventory reduction. We believe that there may be one--short-lived to be sure, but nonetheless rather sharp. With those very few exceptions to the staff's forecast, it seems to me as far as policy is concerned that monetary policy has to work against the inflationary aspects of our economy, much as Mark Willes has described essentially. On the other hand, in view of the weakness of the economy that I have just described, it doesn't seem to me that we should go overboard even through the remainder of 1979. I would also suggest that the chances are that we will not get the growth in the aggregates, particularly M1, at the midpoint [unintelligible]. Thus I have no reason to quarrel with Steve's suggestion for the ranges for 1979. And to agree with Bob Mayo, I don't understand the exercise for 1980. So what Steve has suggested is perfectly all right.",348
-fomc-corpus,1979,"Thank you, Roger. Larry.",7
-fomc-corpus,1979,"Yes sir, Mr. Chairman. I find this an extremely interesting exercise because we are looking ahead and we are trying to function on a longer-term basis. I also find most interesting the handout from the staff on past and prospective rates of growth in the monetary aggregates. And I think those figures, to a great extent, explain what has happened. We had money growth [in] '77 and '78 significantly in excess of 7 percent and we are reaping some of the inflationary consequences of that rate of money growth. We jammed on the [brakes]--therate of money growth dropped significantly early this year--so we should not be in any way surprised by the recession that we are experiencing. The recent and continued upsurge in the rate of money growth also would signal quite clearly that probably this recession will be a ""shallow saucer"" configured recession. As regards what we should do, I believe very sincerely that what we do--in spite of what OPEC does or has done--can have a very real effect on future price levels. I think it can have a 70 to 75 percent effect, with energy maybe affecting this scenario somewhat--maybe 10 percent on a scale of a 100. I would have to respectfully disagree with you, Mr. Chairman. If we really were determined to [clamp] down on inflation gradually, we should feel greatly frustrated by the OPEC action--1 think it's a contributing factor--but I think it would be a shame to feel ourselves inhibited in monetary policymaking by that occurrence.",317
-fomc-corpus,1979,I didn't realize I had said that.,8
-fomc-corpus,1979,"Well, I thought earlier that you--",8
-fomc-corpus,1979,I thought I said it would put us back by adding to inflation; we start from a higher base.,21
-fomc-corpus,1979,"Well, all right. Specifically, I believe that inflation is still our most serious problem. If we are able to signal to the world that we are determined to do something about inflation, I think that will have a very real and salutary effect on our dollar exchange problem. I think it will stimulate much needed capital investment in this country. So, I think our number one long-term objective must be to wind down inflation on a gradual basis. I find the alternative C scenarios preferable, both in terms of the policy for the remainder of this year and for 1980, assuming we can--and I believe we can if we want to--in a very real manner affect money growth. I don't think we [ought] merely to respond to how money grows due to something that people outside of this room do. If we hold money growth--and perhaps this involves a widening of the fed funds range, which I know is heresy--close to the midpoint of the alternative C ranges, I think we will have struck a real blow for freedom. I think we can do it and that would be my preference, sir.",225
-fomc-corpus,1979,Bones.,2
-fomc-corpus,1979,"Mr. Chairman, several segments of the economy in our District are reflecting unusual strength. But I think the composite would come out not significantly different from that described in the other [Districts] and as envisioned by the staff. If anything, we are impressed by both bankers and businessmen in their escalating frustration with the regulatory environment. That seems to be spilling over into consumer pessimism and if anything we read that as somewhat more [prevalent] than the staff has reflected. At the same time we detect also a sense of considerably more willingness to accept some restraint to try to deal with our inflation difficulties. Against that background, I would very much prefer, for both international and domestic reasons, to attempt to accomplish some stability. And it's my feeling that the ranges suggested by Steve Axilrod would involve maintaining something [close to] our present posture and for that reason I would accept completely the numbers proposed by him.",183
-fomc-corpus,1979,Thank you very much. Dave.,7
-fomc-corpus,1979,"My guesses on the economy are about the same as the staff's. The exception is that it's my sense that the staff may have underestimated the fiscal stimulus that might be coming along. In that context, I think the statement to the Congress should reaffirm our intention to move the monetary growth rates down in a consistent, gradual way. And I think the specifics that Steve has suggested would conform with that kind of general thrust, so I would agree with them.",90
-fomc-corpus,1979,"Thank you, Dave. Willis.",7
-fomc-corpus,1979,"I haven't any quarrel with the staff's projections and I have only two comments on that. One is that the continuing inflation may force greater financial problems for some of our public bodies--schools, cities, and so forth--and we may get some reactions in that area that aren't really factored into the formula. Second, there is a potential that energy and some of the other problems may be a greater stimulus to real investment on the part of the corporate sector--if the growing recession talk doesn't scare them off on that score--so that might be a potential stimulus. On the aggregates, I would certainly like to echo Henry's comments on the meaning of these numbers and our not getting trapped by putting too much emphasis on these as we make our projections because of changes [occurring] everywhere. Maybe it's all these other [financial instruments] getting into those aggregates measures. I have trouble with drift. And I have trouble trying to explain April and June in spite of the [staff's] explanations. I don't find them very satisfactory as to what really has happened, which makes me uncertain as to the future. I would stay with the recommendations of Steve Axilrod; I would go perhaps a little lower in 1980 because of the uncertainties with respect to what's happening to ATS plus the growth and magnitudes of these other numbers. So I would be more cautious with the '80 number I think than he was, but I have no quarrel with extending the ' I 9 ranges.",299
-fomc-corpus,1979,"Thank you, Willis. Bob Black.",8
-fomc-corpus,1979,"Mr. Chairman, for some months we have felt that a turning point was near and I think we would buy what seems to be the consensus forecast, or the assessment that we have passed that point. So far as severity is concerned, I think the developments in the petroleum market do strongly enhance the possibility that this could be a worldwide downturn. And if this is true, I think our downturn may well be more severe than the staff is projecting. I would also add to that Frank Morris's fear that the consumer will be another source of weakness here. So, given our inflationary problem and the recent emergence of the downward pressure on the dollar, we of course have to be very careful in trying to cope with this downturn. In particular, we have to avoid any conclusion on the part of the markets here or abroad that we have thrown in the towel on inflation. I would be especially concerned if the downturn did turn out to be an international [one]. I'm remembering back to '15 and ' I 6 when the recovery began and Japan and Germany opted for a slower recovery than we did and we pumped in more money in late 'I1 and ' 7 8 ; I think that has exacerbated the problem we have had with the dollar. In a similar situation I think we can count on the Germans, the Japanese--maybe with a change in government--the British, and the Canadians too, to exert more restraint in trying to come out of the recession. If that scenario should develop, and if we adopt overly vigorous anti-recession policies, we could have a very, very serious foreign exchange situation. So when we get to the long-run part of [our decision], I think what Steve has suggested is just about what we view as appropriate. We had slightly different figures in mind. We agree that we ought to adjust the old targets because of the revisions in the estimates on the ATS and NOW effect. Our original thought was that we would simply accept those specifications for 1979 outlined in alternative B. I say that but I also express the hope that we are not creating another form of base drift here. And if we do get enabling legislation, I hope that we will be just as quick in reducing those [adjustments] on the other side. The 1980 targets pose a particular problem because we don't know what the base is, but I think the main effect of those is really psychological at this point. So I think we ought to be very careful to point out as we explain the '79 objectives that they have been raised because of a mechanical problem and that we have not raised our targets at all. Similarly, I believe it's important that the '80 targets be somewhat lower than those we had for '79. So our feeling was that it would be best just to take 1/2 percentage point off the alternative B specifications for 1980. But, again, we could live with Steve's specifications quite well, though I might want to play around with that 6 percent top on the range he has on M1. People will look at that and not go beyond it to find the explanation of why it really represents a 5-1/2 percent midpoint excluding ATS transfers, as compared with a 6 percent midpoint in '79.",658
-fomc-corpus,1979,"Thank you, Bob. Emmett.",8
-fomc-corpus,1979,"Mr. Chairman, consistent with my tenure on the Board, I will be brief. Generally, I agree with the projection of the staff: it seems to me that almost all of the data now point to a recession. I would expect a more serious recession than the staff seems to expect. I believe the effect of inflation on household balance sheets and liquidity will probably produce a somewhat steeper recession than is projected. In other words, the saucer will be somewhat deeper but not nearly as deep as '74-'75. I, too, would like to see a policy that is as effective as possible against inflation. I think we should do all we can to resist a high inflation rate but, as has been observed by some others, there seems to be a limit to the effectiveness of monetary policy as an anti-inflationary instrument given the kind of inflation we are facing at the present time. Because we are in a situation now that is turning toward recesssion but obviously with very strong employment figures--as a matter of fact employment is still rising, though not as rapidly as in April and the first quarter, and unemployment actually seems to be declining somewhat--1 would favor holding with the current ranges for 1979. That is, since we are some distance into 1979, since the data still show a great deal of strength in employment, and since the inflation rate is very high, I would favor for 1979 staying with the current ranges, which is alternative B.",299
-fomc-corpus,1979,Current ranges?,3
-fomc-corpus,1979,"Yes, the current ranges. That was alternative B, I believe, in the Bluebook. However, for 1980, I find it hard to imagine that we would want to follow a more restrictive monetary policy in a situation of recession than we followed when we were resisting inflation in a booming economy. I would prefer to see us be prepared to follow an easier policy in such circumstances. I would, therefore, be inclined to follow alternative A for 1980, recognizing that it's very difficult to make meaningful projections or to have meaningful notions about what the proper ranges should be out that far ahead. Nevertheless, I think our posture should be one that contemplates some easing. I would like to emphasize that our current monetary policy is still a restrictive one and alternative A in 1980 will still be a restrictive monetary policy.",165
-fomc-corpus,1979,Thank you. Nancy.,5
-fomc-corpus,1979,"Well, on the long-run ranges, I don't have any trouble accepting the staff's projection as long as we adjust them for ATS. If we stick to 1-1/2 to 4-1/2 percent, that implies a tightening short-run monetary policy and I don't think we need that at all at the present time. So, I strongly favor adjusting the MI [range] to take account of our changed projection on the automatic transfer effect. I do have some sympathy with Emmett's point of view that we should probably be signaling in our long-term ranges a slightly easier policy next year. I'll come back to that when we talk about short-term policy. It seems to me that it's only a matter of time--when to give the signal and when to do something--and that our first move toward ease probably will be our most important one. We should give thought to the timing and how much we are going to do rather than [unintelligible] when and where we have the most effect. [The question is] whether we [signal] it more strongly with these long-term ranges by putting them up a nominal amount for the off year or by other actions in our short-term policy. So I would endorse the staff's ranges at this point.",256
-fomc-corpus,1979,"Thank you, Nancy. Chuck.",7
-fomc-corpus,1979,"Well, I think we ought to hold with our current ranges for 1979 in a rather strict sense. And I think we ought to say that we are adjusting them simply for our changed ATS estimate. As I understand it, [that estimate] is down from about 3 percent to about 1-l/2 percent. And I would state that in the document. I'd say that the assumption is now a 1-1/2 percent rate of increase rather than a 3 percent rate of increase, and I would then adjust M1 literally to 3 to 6 percent. That would be [the equivalent of] 1-1/2 to 4-1/2 percent or whatever it was--plus 1-1/2 on each side. I think M2 ought to remain at 5 to 8 percent, and I would leave the M3 range at 6 to 9 percent. And I don't think I would change the bank credit numbers, although that's not very significant and that could very well be done. For 1980, I agree--1 think it was Bob Black who said this--that it is more PR than anything else at this stage. It's very, very provisional. I would prefer to say that we would hope to have or we would expect that we could have monetary growth within about the same ranges in 1980 as in 1979. I'd make some very general statement like that. One of the reasons I think we need to be provisional about [the 1980 ranges] is that there has been very little attention to this hand-out that shows our forecast against the Administration's forecast. And that does indeed create a considerable problem. That is, we have to indicate whether our policy is reasonably consistent with the Administration's goals, and it doesn't look as if it is in 1980. Therefore, I think we have to be somewhat provisional to be consistent with those goals. I also think we have to be very careful about 1980 because this recession that's being projected is an unusual one for two reasons. The first is that, as I understand it, given a fundamental shift in consumption that is being predicted, I don't think there is enough accelerator principle effect--that is, the reverse accelerator effect on the business side. That is to say, [the downturn] may well turn out to be deeper. Secondly, I know of no previous instance where at this '""goingin"" stage--in the face of a major change in income distribution and loss in income as well as a significant external increase in the rate of inflation--there is no adjustment in either fiscal or monetary policy to accommodate to that. And if that in fact occurs--that is, if we don't have a $20 billion tax cut to consumers to offset the loss [of income] from petroleum shifting to OPEC, and we don't have a high rate of growth in the money supply--1 think the recession could be much deeper and much longer, and we may well have to have an adjustment later on. So, right now we ought to be concerned about the appearance of these ranges for the aggregates that we show to the public. I would think that we ought to make just that simple adjustment in 1979, and I wouldn't want to alarm the market or anybody with talk about an easing, although it may well occur, Emmett.",681
-fomc-corpus,1979,You're not talking to the market?,7
-fomc-corpus,1979,"Yes, but we are going to be talking publicly here about our projections for 1980 and I just think it would alarm the market. I would rather do it in January when, in fact, we could see how deep the recession is likely to be.",52
-fomc-corpus,1979,"Thank you, Chuck. Paul.",7
-fomc-corpus,1979,"Well, let me be very quick on the business side. A lot of people have talked about the risks of a recession, and I think they are there. There are also some risks of financial disturbances arising perhaps out of some nonfinancial companies. I think there are risks in the balance of payments and on the dollar side. I just mention those to say that I recognize them. But I believe the overwhelming purpose we should have in mind now, which seems to me to be shared from the comments that I have heard around the table, is that [our policy] should in substance and appearance be steady. I might say in terms of the risk of a larger recession, if some policy initiative became necessarily desirable, I'd rather see it myself on the fiscal side than on the monetary side--specifically on the tax reduction side, not on the expenditure side. I think that could have some long-range benefits despite an adverse effect on the budget in the short run. But I do think in substance and appearance that we ought to be steady. What I'm disturbed about is that while the tone of many people's comments seems to say that, their precise recommendations don't seem to convey it. I frankly think the numbers that have been put before us by Mr. Axilrod would be confusing to the market. The market would only interpret this as an easing of policy. We're raising some numbers on the bottom side of our ranges and [growth is1 already running toward the bottom, so we must be saying that we want to get easier. The M1 number is clearly higher on the surface than at present in any event. I think it would convey the wrong impression. What are we trying to do here? As I understand it, we are reviewing some projections we set forth early in the year. Has something happened to change our minds about what we thought about then? It seems to me that the answer we should be trying to give is ""no."" We happen to be within the ranges. Why change them? And that is the message we want to give. And I would leave M1 unchanged, too. Now there is this technical argument about the NOW accounts and ATS--",432
-fomc-corpus,1979,It's not a [matter of substance]; it's a measurement [issue]. It's [how it is] measured.,22
-fomc-corpus,1979,"Well, it's measurement. But I have this feeling that this is [only] one technical factor affecting the measurement of M1. Meanwhile, money market funds payable by check are going up $ 3 billion a month, which nobody anticipated at the beginning of the year and must have had a bigger effect on M1 than ATS. Well, it must have had an effect, will you grant me that?",81
-fomc-corpus,1979,May.,2
-fomc-corpus,1979,I think it has almost none on transactions balances.,10
-fomc-corpus,1979,"Well, you ought to talk to my wife. But you know, there are other factors--RPs and other things that Henry mentioned. And it just seems to me a mistake to react to this one technical factor at the risk of confusing people, when the basic message we want to give is: We have looked at our targets, we are within our targets, we are not changing policy at this point, and we are reiterating our figures. So I would urge that that be the approach we take. As for next year, I agree with all the comments that it is much more uncertain. And I am happy to rest on the same figures but with a more general comment of the kind that you made. We do have the ~1 legislative uncertainty even there. If we want to widen the range for next year, I have no problem with that. I don't think we [should] make a major change; we ought to signal essentially a steady policy. But I do think it would be a mistake to change the ranges for this year; I think it's going to confuse the issue, if indeed we want to convey the notion that I assume [we do, which is] that we are basically holding steady. MR. ALTMA"". Same [for all] three?",256
-fomc-corpus,1979,Same ranges as we have at present.,8
-fomc-corpus,1979,In ' 8 0 ?,7
-fomc-corpus,1979,"Well, for '80 as well, [though] maybe widening M1 to recognize those [uncertainties]--",24
-fomc-corpus,1979,"In order to be consistent between M1 and M2, we may have to shade the M2 downward a little. I haven't really examined that.",30
-fomc-corpus,1979,"Well, today we are going to have to come up with some precise answers. Before we break, let me just make sure we have the right numbers down here. Let me read what Murray has down for each of you. I am going to do ' 7 9 only. For John Balles he has: M1, 3-3/4 to 5-114; M2, 5-3/4 to 7 - 1 / 4 ; and M3, 6 - 1 / 2 to 9 . Is that correct?",118
-fomc-corpus,1979,"[For M31 6 to 9 percent, Mr. Chairman.",15
-fomc-corpus,1979,"Okay, 6 to 9 . That's why I want to [check] these. Bob Black was 3 to 6, 5 to 8, and 6 to 9 .",40
-fomc-corpus,1979,That's correct.,3
-fomc-corpus,1979,For Phil Coldwell I have 3 to 5 and 5 to 7 and I didn't get M3.,24
-fomc-corpus,1979,I didn't specify.,4
-fomc-corpus,1979,"All right. Bones is 3 to 5 - 1 / 2 , 5 - 1 / 2 to 8, and 6-1/2 to 9 . Bob Mayo is 3 to 6 on M1, and we don't have M2 OL M3.",62
-fomc-corpus,1979,5 to 8 and 6 to 9 .,11
-fomc-corpus,1979,"Chuck is 3 to 6, 5 to 8 , 6 to 9 . Emmett is 3 to 6, 5 to 8 , 6 to 9 . Nancy is 3 to 5 - 1 / 2 , 5-1/2 to 8 , 6 - 1 / 2 to 9 .",77
-fomc-corpus,1979,"Could I change that to 3 to 6 , 5 to 8 , and 6 to 9?",24
-fomc-corpus,1979,"Sure. That's why I wanted to get these down. So that's 3 to 6 , 5 to 8 , and 6 to 9 .",32
-fomc-corpus,1979,"Yes, I changed them.",6
-fomc-corpus,1979,"And Paul Volcker is 1 - 1 / 2 to 4 - 1 / 2 , 5 t o 8, and 6 to 9. Henry is 1 - 1 / 2 to 4 - 1 / 2 . 5 to 8 , and 6 to 9.",70
-fomc-corpus,1979,"Yes, I may want to shade my M2 to bring it more nearly in line with M1, but I have to check the numbers.",29
-fomc-corpus,1979,"I am going to go through the others. Ernie, 1 - 1 / 2 to 4 - 1 / 2 , 5 to 8 , and 6 to 9 . Dave, 3 t o 5 - 1 / 2 , 5 - 1 / 2 to 8 , and 6-1/2 to 9 . Roger Guffey, 3 to 5 - 1 / 2 , 5 - 1 / 2 to 8 , and 6 - 1 / 2 to 9 . Frank Morris, 3 to 5 - 1 / 2 , 5 - 1 / 2 to 8 , and 6 - l / 2 to 9 . That's a pretty good team; they are all together there. Larry, 2-1/2 to 5 - 1 / 2 , 4 - 1 / 2 to 7 - 1 / 2 , and 5 - 1 / 2 to 8-1/2. Correct me if I'm wrong. Mark, 1-1/2 to 4-1/2, 5 to 8 , and 6 to 9 . Willis, 3 to 5 - 1 / 2 , 5-1/2 to 8 , and 6-1/2 to 9 . Do I have them all right? Let's break for twenty minutes and come back at noon.",315
-fomc-corpus,1979,"Let's pick up from what we did just before the break. We looked at M2 and M3 for which there are no adjustments because of this ATS matter. It would appear that among voting members there's a rather overwhelming sentiment for staying where we are for '79. In the case of M2 only three of you indicated any variation from staying where we are now at 5 to 8 percent. John Balles suggested 5-3/4 to 7-1/4, Phil Coldwell suggested 5 to 7, and Bones Kimbrel suggested 5-1/2 to 8, all of which are still not terribly far off from the 5 to 8. On M3, we had one abstention and only one person who indicated anything other than maintaining the 6 to 9--Bones, you suggested moving up the bottom to 6 - 1 / 2 . I don't know how you all want to proceed on this, but just looking at it, there's an overwhelming [preference] to stay where we are on M2 and M3.",222
-fomc-corpus,1979,"Mr. Chairman, just a point of clarification there. Paul Volcker's comments left an impression that we were not going to be staying the same if we used the numbers that Steve Axilrod had suggested. During the break I spoke to Steve Axilrod and I really would like to be reassured that indeed we are staying the same by [using the numbers he suggested]. So I guess I'm trying to reconcile [the comments of] Volcker and Axilrod.",95
-fomc-corpus,1979,"Let me take a stab at reconciling them and see what you think. I'm coming to M1 last because, as you know, it has this question of an adjustment that has to do with changes in the estimates of the effects of ATS accounts. There again if we just go by the numbers, it looks as if all but two of the voting members indicated that they would make the technical adjustment for the change in ATS. Paul Volcker and Henry Wallich suggested we make no such adjustment; everyone else suggested we make an adjustment and there are two very minor variations on what that adjustment should be. My suggestion as to a way to handle this is as follows: The intention of an adjustment is not to change the course of the ranges for M1 in a substantive, bottom line, sense. But in these kinds of announcements we deal not only with the analysts who understand that, but with those who want to [use] every excuse to effect their own personal preferences and would read this kind of adjustment as some change in policy. And when I hear it discussed around here, I see how many people have a hard time coming to grips with explaining that adjustment even to other professionals, so I wonder how it's going to sound publicly. So, it seems to me that an alternate way to do it would be to stick with our present range on M1 and say in our report to the Congress that this range was set on the basis of a 3 percent ATS effect [but] it now appears that it will be less. In guiding monetary policy we're going to be looking at it on the same basis we were always looking at it, but the result is that the actual measured number may be high in the range or outside the range depending on how ATS comes out. We don't have to predict [that effect]; we don't have to give them a number; we can just say that with the ATS adjustment we are going to stay where we were in substance.",392
-fomc-corpus,1979,[We'll be] high in the range or above the range if ATS slows or stops.,18
-fomc-corpus,1979,"But we'd come out the same on an adjusted basis as we would have previously. Now, that's one way to approach it. We've made the full disclosure but haven't got the press putting out new numbers with all the confusion that goes with them. I don't know whether that's satisfactory or not [but it's1 a possibility.",63
-fomc-corpus,1979,"Aren't we just delaying the explanation? When we get to next January and we're 1-l/2 percent above where we said we were going to be, then we're going to have to give the same explanation. And in the meantime we're going to get all the adverse press on having been outside the long-term ranges.",65
-fomc-corpus,1979,"Well, that could be. I don't know. Every period of time has its problems and I agree with you that no time will be good to explain these complicated things. My second assumption is that, with the pending legislation and the pending redefinition of the aggregates, it would best at this point to say that for 1980, given the uncertainties, our current posture is to be within the same general brackets of growth [as this] year, adjusted for any changes in definitions or accounts. And we don't give numbers. Then when we come to February, if we agree to redefine the aggregates, we would have a whole set of numbers that are different anyway. We wouldn't have a set of numbers that changes twice. We would only have one new set that is based on something that we can look at then. Now we are liable to say that we are going to have [a certain range for] M1 next year and adjusted it's going to be a little different and then we will redefine M1 and then we will have another set of figures. I think it adds to the confusion. Now. this is just a suggestion; I am not wedded to it. We are trying to think through what the risk is of this being misread. M2 and M3 won't be misread if everybody seems to feel that we should stay pat. But if M1 is misread, what's the risk? I think the main risk is that it comes at a time when there is uncertainty and unsettlement in the foreign exchange markets and I think there are people looking for excuses to believe that the United States is changing its policy. And whether we are going to change our policy [is] something we want to keep close to our chest, as far as allowing that to be used against us to create a rate for the dollar. I wouldn't be very happy to have that happen right now. I don't know if any of you who deal with foreign exchange markets have any views on that. We haven't asked you, but--",405
-fomc-corpus,1979,It sounds sound to me.,6
-fomc-corpus,1979,Pardon me?,4
-fomc-corpus,1979,It's more a question of the impressions that people have rather than some [number of] basis points.,20
-fomc-corpus,1979,"I don't think foreign exchange traders are analysts. I don't think they care about facts. They care if they can use the device to maneuver a market in order to make a profit. Ted, do you have any view on it?",46
-fomc-corpus,1979,"Well, I think 1 agree that the first impression of the market, if you didn't adjust [the M1 range], would be negative and that could lead to [unintelligible] basically because they're looking for what comes across the ticker first.",51
-fomc-corpus,1979,Henry.,2
-fomc-corpus,1979,"I would think that staying with the same ranges in the face of higher inflation is something that people will understand. They will see that there's resistance, non-accommodation, [to that higher inflation]. I think it ought to have a good response.",49
-fomc-corpus,1979,"But I would do this only on the basis that we follow the majority will here. And I'd indicate in our report to Congress that we are going to guide our policy based on the original viewpoint that 1-1/2 to 4 [ - 1 / 2 1 percent was 4-112 to I - 1 / 2 percent on an adjusted basis, and it stays that way. Mark.",85
-fomc-corpus,1979,"I'm just wondering if it would be consistent with what you suggested, which I think is a move in the right direction, if we indicated that what we would look at would be adjustments for ATS and other things that might influence the demand for money. The market is very concerned and some of us are very concerned about some of those other things.",68
-fomc-corpus,1979,We didn't cut the money growth [ranges] for the other things.,14
-fomc-corpus,1979,But we allowed substantially lower growth in the first half because of those other things.,16
-fomc-corpus,1979,Dave.,2
-fomc-corpus,1979,"I think these are very real concerns. The main concern on the other side, drawing from our experience with these targets in the past, is that once we get locked into a certain range it's very difficult to change. And the longer we go without changing, the more difficult it is to change. So if we go this way, I think we should do so with the understanding that if policy has to change, we will change the numbers. Let's not find ourselves locked into that same old situation as in the past. If we suspect at all that there's a danger of getting locked into that, there's some advantage in changing the numbers simply for technical reasons just to change the numbers.",135
-fomc-corpus,1979,"Yes, that's the other side of it.",9
-fomc-corpus,1979,"Mr. Chairman, it seems to me that given the uncertainties--the idea that we started out with a 3 percent adjustment earlier this year and it's now down to 1-1/2 percent--. I don't know what the staff was actually forecasting--",52
-fomc-corpus,1979,It may be something else by the end of the year. That's one of the problems.,18
-fomc-corpus,1979,Maybe. It may be back up to 5 percent. I don't know which way this [adjustment] could turn.,25
-fomc-corpus,1979,That's what bothers me. We could end up with something we did [not expect] and be fouled up again.,24
-fomc-corpus,1979,"That's why I wonder if it isn't possible just to use 1-1/2 to 4-l/2 percent and then in parenthesis say ""adjusted for ATS . """,37
-fomc-corpus,1979,"Sure, that's the kind of--",7
-fomc-corpus,1979,Whatever it may be.,5
-fomc-corpus,1979,"Yes, but we've got to explain that.",9
-fomc-corpus,1979,"Yes, we have to be prepared to explain it.",11
-fomc-corpus,1979,"My point is that we end up leaving the figures the same, but with a parenthetical adjustment.",20
-fomc-corpus,1979,"Yes, adjusted for deviations from the estimate as to the ATS effect. It's adjusted for deviations because we've already adjusted it tbyl 3 percent.",30
-fomc-corpus,1979,"Mr. Chairman, may I ask two questions on that? In explaining it to the public in the report, I assume we would say something like: Given what has happened in the second quarter, it is now expected that ATS growth may be somewhat less than originally thought and, therefore, growth in M1 may be somewhat higher in the range than at the midpoint. But more importantly from the point of view of material presented to the Committee--in terms of a tracking path for M1 to judge against--would I be wrong or right in assuming that the tracking path would center not so much on 3 percent if we had evidence that the ATS effect is running at 1-1/2 percent, but would center more on the 4 - 1 / 2 percent top of the range? In other words, the staff would have a question of what we would present to the Committee for it to judge how it is going to--",189
-fomc-corpus,1979,"You're asking, Steve, for the Committee to show internal consistency and that's a big demand!",18
-fomc-corpus,1979,"From the discussion, absent any other instruction, I would assume that we would track essentially on the 3 to 6 percent measured range.",28
-fomc-corpus,1979,"I think what I'm saying is that that's true if we look at ATS only. But some members may want to adjust their policy thinking to other things that have happened. But on ATS only, I think you're probably right. We probably made a mistake. For internal purposes we probably should have put your estimate in for the effect of ATS every month. Pardon?",72
-fomc-corpus,1979,We can't really make out where we are.,9
-fomc-corpus,1979,"We probably should have used--what is it, 4-112 to 7-112 percent--from the beginning, making an adjustment each time .",31
-fomc-corpus,1979,Added in ATS.,4
-fomc-corpus,1979,"Yes, added in ATS just for internal purposes. Maybe we should still do it--or do it as a supplemental chart. Steve will say that we don't have a measured way to do that, but if you make an estimate that the effect is X amount, you have to add in a number that would do that.",64
-fomc-corpus,1979,"Mr. Chairman, as one who advocated adjustment, I think your plan is really better and I would go along with that.",25
-fomc-corpus,1979,"I'm trying to accomplish both [objectives]. I'm trying to accomplish the adjustment without scaring people and leave us some running room so that if the adjustment turns out to be different than we now think, we don't have a second go-around.",48
-fomc-corpus,1979,"I think that's an important consideration, as Paul pointed out very clearly. It also gets to be a consideration, I think, when we select the range for 1 9 8 0 .",40
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"I would want that [ 1 9 8 0 range] on the surface to appear to be somewhat lower; others wouldn't, but I would for psychological reasons. I think it could have a very therapeutic effect on the market.",48
-fomc-corpus,1979,Are you proposing that we go to 1-1/2 to 4-l/2 percent for ' 8 0 ?,27
-fomc-corpus,1979,"No, for '80 I was proposing that we indicate that our current thinking is to continue the same ranges, adjusted for the impact of ATS. So it isn't 1-1/2 to 4-1/2. Nancy: it could be that 4 to I or 4-1/2 to I-1/2 on an adjusted basis.",74
-fomc-corpus,1979,Are you going to be that vague for next year consistent with--,13
-fomc-corpus,1979,"I could be that vague now, but I wouldn't be that vague in February. I'm sort of hedging my bets because I assume that by the end of the year we will have completed our project. We'll have some redefinitions and we'll have a new series, which will be tracked back in time. And that series will come into--",67
-fomc-corpus,1979,"Mr. Chairman, I'm just worried about M1. But if the [Humphrey-Hawkins] Act does not require that we specify in numbers--",32
-fomc-corpus,1979,"Well, where's the Act? Who has [the languageI ?",14
-fomc-corpus,1979,"I have a copy, M r . Chairman.",10
-fomc-corpus,1979,It specifies that we are to indicate our ranges and I don't think it requests that we--,18
-fomc-corpus,1979,"It says that as a part of its report on July 20 of each year in addition to [the ranges for the current year], the Board of Governors shall include a statement of its objectives and plans with respect to the ranges of growth or diminution of the monetary and credit aggregates for the calendar year following the year in which the report is submitted.",69
-fomc-corpus,1979,"I think we can do it by saying we intend to stay on the same track, with an adjustment for ATS. I don't know how that appeals to the Committee. If you'd like to have a discussion of that, I'd be happy to do it. Is there sentiment along with Bob's that this is perhaps the best way out of a box?",69
-fomc-corpus,1979,I would accept it.,5
-fomc-corpus,1979,"I'm not quite sure, Mr. Chairman. If we try the tack you are suggesting to avoid specifying the numbers for '80, which I would approve, what I can't really make a guess on--maybe you can tell me--is whether the [Congressionall Committee will try to smoke it out of you. If they do, then you're going to have to face the problem of the explanation of why it's 1-1/2 to 4 - 1 / 2 percent now and 3 to 6 or 3 - 1 / 2 to 6-1/2 percent next year. I hope you can avoid the problem but I'm not--",136
-fomc-corpus,1979,"I think I can because in the verbal answers I can say: Look, when we were putting [the objectives] down last year we were thinking of M1 in the old way of 4 - 1 / 2 to I - 1 / 2 percent. And whatever the ATS effect turns out to be at the end of the year--whether it's 3 or 1 or 7--[that] is really the adjustment [unintelligible]. I think I can kind of fudge that one in answering the Committee. One thing to avoid is to get at what the 1 - 1 / 2 to 4 -1 / 2 would be and keep referring to the whole thing as based upon 4 - l / 2 to I - 1 / 2 percent on the old series for M1.",171
-fomc-corpus,1979,"One other observation if I could, Mr. Chairman? For those who just look at the numbers and don't bother to read the explanations, as clear as they might be, if we move to 3 to 6--if what had originally been the majority view here prevails--[there will be] those who are concerned about what the Fed ought to be doing to ease things up during a recession. And I assume the facts of the recession no doubt will surface during the testimony. We'd appear to be easing without really doing so. There will be some advantages in terms of announcement effects for those who take a superficial view of what we are doing just as it might have a contrary adverse effect to foreign exchange traders who don't read the explanation. That's the other side of the coin.",156
-fomc-corpus,1979,"Sure. I think for internal purposes we ought to prepare each month a chart on the old series basis so that we don't get confused. The world may get confused, I suppose.",36
-fomc-corpus,1979,"The only thing that might appear to be a little queer is that we'd have a stand pat hand in terms of ranges--if, let's say, Paul Volcker's and Henry Wallich's proposal were adopted--in the face of a developing recession. It might look a little odd.",57
-fomc-corpus,1979,Yes. Any other coments? Roger.,9
-fomc-corpus,1979,"Just to [follow] on that, I don't know how you would intend to avoid testifying as to the numbers--that we're indeed looking at 3 percent for the ATS adjustment early in this year and perhaps only 1-1/2 in the latter half of 1979. That can be read, if we maintain these ranges, as a tightening of policy.",75
-fomc-corpus,1979,"Well, we would adjust the ranges.",8
-fomc-corpus,1979,Pardon me?,4
-fomc-corpus,1979,We'd adjust the range.,6
-fomc-corpus,1979,"No, what we do is this: If we were actually shooting for the midpoint of our ranges and we had a 1-1/2 percentage point ATS effect, then 3 percent on the current range equals 4-1/2 percent, and we'd be at the top.",58
-fomc-corpus,1979,"But it's going to be very difficult to explain, and the--",13
-fomc-corpus,1979,It's hard to explain to ourselves! That's why we're going to explain if we change in the numbers. It may be easy.,25
-fomc-corpus,1979,"Mr. Chairman, we refer to those old rates as pure rates in Richmond, before we fool around and adjust them.",24
-fomc-corpus,1979,Pure rates.,3
-fomc-corpus,1979,"It's not very descriptive, but it's easy to recognize what we are talking about when we use that term.",21
-fomc-corpus,1979,It seems to me you'll do a better job than the DOW Jones ticker does.,17
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"Well, one thing is that the written report will [unintelligiblel. Yes, the Dow Jones will take the written report and put it on the wire. What I say will be lost in the shuffle so that--",46
-fomc-corpus,1979,"Well, except that you are reporting to an oversight committee and they may well understand what you're saying.",20
-fomc-corpus,1979,I think you ought to explain very carefully what we're doing because it could be very misleading. I think we've had a bad reputation for being misleading and not forthcoming in saying what we're doing. We should put all the cards on the table and tell the [Congressional] Committee exactly what's going on.,59
-fomc-corpus,1979,"Sure. I have no disagreement with that. These ranges were set with the impact of ATS estimated at 3 percent. [The Congressional Committee] will have to take account of the fact that there may be a deviation from that particular estimate and that to the extent there is a deviation the ranges will be inappropriate. Therefore, Mr. Chairman, you should look at M2 as much better to track.",80
-fomc-corpus,1979,Amen.,2
-fomc-corpus,1979,Then we'll go back and have another argument. Henry Wallich has been trying to get in a word.,21
-fomc-corpus,1979,"Two things. One, to automatically add to our 1-1/2 to 4-1/2 the difference between 3 and the current ATS [estimate] wasn't quite my idea.",40
-fomc-corpus,1979,"No, but you--",5
-fomc-corpus,1979,"I think we are getting ourselves here in the spirit of [believing that1 in a recession we've got to accelerate the aggregates. Now, that way, there will never be a reduction in inflation. In a recession interest rates should come down, but at constant rates of expansion of the aggregates: otherwise prices will go up indefinitely.",66
-fomc-corpus,1979,"Historically, the aggregates virtually always come down--",10
-fomc-corpus,1979,"That is what gives you assurance that you [can] ease; if you just keep the aggregates growing at a constant rate, you get very low interest rates.",32
-fomc-corpus,1979,What is the pleasure of the Committee? Let's just take a quick poll.,15
-fomc-corpus,1979,"Is this just for '79, M r . Chairman?",12
-fomc-corpus,1979,"Just for '79 to start with, and then we'll turn to ' 8 0 . The proposition is to report that we have decided to stand pat on ' 7 9 , but with a clear explanation that there is an inaccuracy in the M1 range. That is, we will make clear that the M1 range has been adjusted for estimates of ATS and will have to be adjusted to the extent that there is a deviation from that original calculation. What's the sentiment on that? It's my proposal and I guess I would go along with it. I'm not sure.",116
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"Well, I had a preference for the adjusted range of 3 to 6 percent. I would go along with anything that makes your job of explanation easier, so--",34
-fomc-corpus,1979,"It's our mutual job MR. ALTMA"". President Black Yes Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice Yes Governor Teeters Yes Governor Wallich NO",39
-fomc-corpus,1979,"Okay. I think that is strong enough that we should just probably stick with that. How about 1980? What is your pleasure for that? Again, looking at the rundown here, it looks as if we have about the same lineup. Practically everybody who specified [numerical rangesl was at 5 to 8 and 6 to 9 percent, or very close to it, for M2 and M3. And the same thing for M1, with a 3 to 6 percent range. My thought [with respect to the 1980 ranges] was to indicate that there are a number of uncertainties, not only in the economy--whether it may be at a turning point and the effects that have not worked through yet--but also with regard to the Administration's policies and pending legislation. So, at this point in time, it would appear reasonable to continue to seek growth of the aggregates in 1980 within the ranges that have applied for 1979, adjusted in the case of M1 for deviations [relating to our estimate of] the effects of ATS.",222
-fomc-corpus,1979,That's our present plan,4
-fomc-corpus,1979,"That's our present plan. And I'd say that because of the number of uncertainties, the Committee could expect revisions to this when we re-present [our ranges] in February.",34
-fomc-corpus,1979,"Mr. Chairman, I don't want to dissent on this and I wonder if you could throw a few crumbs to those of us who would like to see some little move toward slowing because of our oft stated position that we want to get growth of the aggregates down over the longer run.",56
-fomc-corpus,1979,"Well, I'm open to suggestions. Can you give us a--",13
-fomc-corpus,1979,"Well, if we just knock a half point, say, off the top on each one of those [ranges], I think that would psychologically give us a big boost in the market. We might want to change the ranges later on, but I would certainly like to see something in that general direction.",60
-fomc-corpus,1979,"I would leave the figures the way they are, Mr. Chairman, but say in your text that we are still firm in our desire over the longer run to see the aggregates [slow].",38
-fomc-corpus,1979,"But if we did only that, wouldn't people say why didn't you put the ranges a little lower?",20
-fomc-corpus,1979,Because we were in a recessionary period.,9
-fomc-corpus,1979,"Oh, you're just saying depart from that during the recession.",12
-fomc-corpus,1979,"Well, I was going to parallel somewhat what Bob Black said. I think the first question you'd get--and you're much more experienced than I in appearing before those people [on the Congressional Committees] is: Mr. Chairman, you've said repeatedly that gradually over the years you are going to try to phase down inflation, so how will these figures you've just given us conform with that? In other words, will doing the same thing next year as we're doing this year really be a meaningful first step to gradually cranking this [inflation] down? That's what I would [expect].",117
-fomc-corpus,1979,"I would say in response that the record shows that we have had two years in a row of reduction in growth of the aggregates. And, within the ranges that have been specified, the prospect for a further year of reduction would still be available if economic conditions make it possible. Therefore, we are able to pursue our long-term aim within the ranges that have been indicated by this Committee. That's how I would probably answer. Again, I think the record is more powerful than promises. The record is that two years in a row now we've had significant reductions in the growth rates of these aggregates. On M1 adjusted, we've gone from 7.9 percent to 7.4 percent to an estimated 6 percent for this year and that's probably more impressive to the Committee than [any] promises we can make.",163
-fomc-corpus,1979,"You know, strange as it may seem, I think we've decelerated a bit too rapidly, and I wouldn't like to see it continued. I think the market is going to be watching that very carefully.",42
-fomc-corpus,1979,"Yes, M2 [has gone down] from 9.8 to 8.4 to probably 6-3/4 percent.",29
-fomc-corpus,1979,"That's pretty darn fast, really.",7
-fomc-corpus,1979,"It's fast, yes.",5
-fomc-corpus,1979,It's faster than I would like.,7
-fomc-corpus,1979,That's why we could moderate [the decline] a little next year and still keep it in the right--,21
-fomc-corpus,1979,"Mr. Chairman, if I just might add a comment. In no way am I trying to interrupt the decisionmaking process nor am I claiming to be a market psychologist, but it's my impression that in 1977 the credibility of the System was undermined more for having set low ranges that it didn't hit than for having set [unintelligible]. I think that had more of an impact than anything else in that period.",86
-fomc-corpus,1979,"I wouldn't be prepared to support anything except an expression of hope, in much the way you did. Frankly, I don't think we'll be able to do it.",33
-fomc-corpus,1979,I don't believe the figures anyway. The figures are going to jump around and ATS account adjustments are going to jump around.,24
-fomc-corpus,1979,"But we're going to have a new definition of PI1 and it's going to affect this. Well, again, it's a very hard thing for us to do. If we get very specific, we run the risk that Steve just pointed out. Our credibility would be hurt [morel if we put out some very specific n d e r s and can't come near them than if we put out some generalized statement of policy intent, which we know is about the best we can do at this point really.",100
-fomc-corpus,1979,"well, I think maybe we can improve the faulty procedures of the past and do a little better in hitting what we say we [want]. That's what really deserves criticism rather than the other, I think.",41
-fomc-corpus,1979,Certainly.,2
-fomc-corpus,1979,"Well, the band is wide enough to encompass almost anything we can do.",15
-fomc-corpus,1979,"It really is. If [growth] came to the low side of the band, we can satisfy all of one group and if it came to the top we can satisfy all of another group. So all of you can be satisfied.",47
-fomc-corpus,1979,We'd be better off just to stay where we are.,12
-fomc-corpus,1979,"It's [going to be] a low-keyed report as I see it: Not ""we are out there to do so and so,"" but we need some time to observe how the real economy behaves and to complete our study of the components of the money aggregates, how they [should be defined], and what their proper alignment is.",67
-fomc-corpus,1979,"Mr. Chairman, could we point out pretty clearly that we've had a rather rapid deceleration [in the growth of the aggregates] and that, as you indicated before, maybe we can pause a little for now? But we still have that goal.",50
-fomc-corpus,1979,"Steve, it seems to me that what we were planning--we haven't seen that chapter [of the report1 yet, but I think you and I talked about this--was to have a long-range chart on each aggregate to show what we have done to bring each one down as well as a shorter-term focus. We need to focus on the year because it gets lost. But in a long-term chart we are intending to show that we have been winding this [monetary growth] down as promised.",102
-fomc-corpus,1979,"If we can show that clearly, I can live with what you are suggesting, but--",18
-fomc-corpus,1979,I think we ought to cover the whole decade. Isn't that what we're going to do on these?,20
-fomc-corpus,1979,"Well, at least back to the early ' 7 0 s so it can be--",19
-fomc-corpus,1979,"Well, yes. We want to go back so we catch the earlier cycle too and show how the money growth came up and then we have been bending it downward. And the ranges that we're suggesting, if we say we are going to continue the same ranges, allow us to continue that trend. I don't want to get locked into promising that. I think Chuck's right. I don't want to get locked into promising anything. I just want to say that all things equal, and with our ambition to fight inflation being what it is, we can live within those ranges to accomplish what's appropriate. What is your pleasure?",123
-fomc-corpus,1979,Verbalize steadying the boat.,8
-fomc-corpus,1979,Do we need a vote on [the ranges for 19801? Perhaps yes.,17
-fomc-corpus,1979,Steadying the boat with a hope that in time we will get [money growth] down.,20
-fomc-corpus,1979,"Okay. MR. ALTMA"". Chairman Miller Yes Vice Chairman Volcker Yes President Balles Yes President Black Yes Governor Coldwell Yes President Kimbrell Yes President Mayo Yes Governor Partee Yes Governor Rice Yes Governor Teeters Yes Governor Wallich Yes",49
-fomc-corpus,1979,May we consider those votes now? Henry. would you like to go unanimous with the first [vote on the 1919 ranges]? There's always a chance.,32
-fomc-corpus,1979,I'd like to stick with that because I disagreed on that one the last time.,17
-fomc-corpus,1979,Foolish consistency is the hobgoblin of a little mind and everyone knows that you're a big mind!,23
-fomc-corpus,1979,"You should say, therefore, that it isn't foolish inconsistency.",13
-fomc-corpus,1979,"I was going to ask, M r . Chairman, whether you wanted to worry about the wording of this matter now that the vote is settled. Or should we settle that with you later?",38
-fomc-corpus,1979,"I think we can do the wording [later]. And if we feel we should circulate it to the Committee, we can do that. I don't think we should take the time now to do it. We need to turn now, I think, to the next issue. Perhaps it would be worthwhile to circulate the wording early, even before we put out the whole--",73
-fomc-corpus,1979,"Normally we would be sending this directive to the New York bank today. But I suppose we could leave that portion out: it's not operational for the short run. CHAIF"" MILLER. It's not operational until it goes into the report next week. MR. ALTMA"". What I'm saying is that normally this directive is transmitted today.",67
-fomc-corpus,1979,"But this [part of the1 directive is concerned with the long-term ranges: it has no operational effect. So we could have time to consult with the Committee. On the short-term directive [regarding operations] until the next meeting, yes, it must be precise. NOW let's turn to the next item on the agenda, which is the question of short-term ranges. And I believe the first thing is to turn to the staff's recommendations. Steve.",92
-fomc-corpus,1979,"Well, Mr. Chairman, to be very brief it seems to me that alternative I1 on page 10 in the Bluebook would be quite consistent with the long-run decision the Committee just made. The federal funds rate range we show there is the one currently in place, 9-3/4 to 10-1/2 percent. But of course the operating funds rate level has been 10-1/4 percent, so it's an asymmetrical midpoint so to speak. That's what I would recommend to the Committee, given its decision just now.",113
-fomc-corpus,1979,"Well, why don't we just go around the table the same way quickly and get your individual recommendations. We will start again with Henry on this.",29
-fomc-corpus,1979,"[I'd prefer that you] don't start out with me, Mr. Chairman; I haven't had the benefit of education around the table.",27
-fomc-corpus,1979,You want us to skip you and come back to you at the end?,15
-fomc-corpus,1979,"Well, I think I lean more to alternative 111, although modifying the funds rate there downward. My thought is this: If we have a crisis in the exchange market, we should be free to move. I don't think it's worth a great deal getting the funds rate up in the absence of such overriding necessity, but I think we may very well face that over the next month. What I would really like is something that gives that kind of instruction. That would mean beefing up the language of the directive--not just saying that we take account of foreign exchange markets--but I have not found a good way of wording it. I would enhance that, as I said, and give high priority to the program for supporting the foreign exchange value of the dollar and due regard to developing conditions in domestic financing markets. That's not an optimal [way of saying it] but it's a distinction that I am trying to draw.",184
-fomc-corpus,1979,"You could have ""giving due regard to the domestic side"" overriding attention.",15
-fomc-corpus,1979,"If we have a major boil-up, there is no way of putting together a package this time, as was done last time. And we can't do it with intervention; I don't think we should do it with intervention. So we then just have to face a possibly substantive decline in our currency, adding to inflation and adding to the problems of the world. That's how I would like to shape this: Stay at the present funds rate level, give more room on the up side--in other words, 10 to 10-3/4 percent--with some proviso that would give us a chance to move up readily to a higher rate if the exchange market should boil up, but otherwise not go up on the funds rate.",147
-fomc-corpus,1979,"Yes, Phil.",4
-fomc-corpus,1979,"Henry said a good share of what I was going to say, so I won't pursue it. I wouldn't put the words quite the way he did, in an ""overriding""sense, although I think the dollar depreciation risk is a high one in any policy that portrays any picture of ease. Curiously enough, we came out precisely the same on the fed funds range, 10 to 10-3/4 percent. We're at 10-1/4 percent now, so it would be asymmetrical on the bottom side. I really don't see much need for [a range]. As far as I am concerned, it's 10-1/4 percent unless something overriding develops either to force it on the up side or on the low side. I'd almost just as soon say 10-1/4 percent.",167
-fomc-corpus,1979,"Let me just put out a thought. It seems to me that an international disturbance is a serious [concern]. It could require that we take some action. I don't know what that action would be. To try to [address that] in the short-term directive is almost impossible. It seems to me that we should get on the phone and we should make a decision in a meeting. So maybe we ought not be trying to shape this directive to deal with an international crisis but have a commitment to ourselves that if there is such a crisis, we will call a meeting promptly and deal with it. To anticipate what it will be, why it occurred, what will start it, what the response should be, and what else is going on, is very, very hard. Anyway, that's just a thought. Frank.",164
-fomc-corpus,1979,"Well, Mr. Chairman, this Committee has traditionally overstayed policy both in the direction of ease and of restraint and I would like to see us violate this tradition once. It seems to me, with the economy clearly in a recession, that we ought to start moving to try to mitigate the amplitude of the recession--to try to take out some insurance that the recession will not be bigger than the staff has projected. So with that in mind, I would propose that the funds range ought to be 9-1/2 to 10-1/4 percent with instructions to the Manager to move to 10 percent immediately. I think history gives us assurance that the aggregates are not going to run away from us in a recession, even with an aggressive interest rate policy. Now. I recognize that this is going to be disturbing to the foreign exchange markets in the short run. But once the markets understand that our economy is turning down while the rest of the world is still moving up, I think it will turn out to be a short-run phenomenon. And we can use our open market operations in the foreign exchange area to mitigate the shock. But I believe we have a conflict between our domestic and our foreign objectives. I think we have to sacrifice one, and I would sacrifice the exchange market at the moment.",263
-fomc-corpus,1979,"Thank you, Frank. Ernie.",8
-fomc-corpus,1979,"Mr. Chairman, alternative I1 seems acceptable to me.",12
-fomc-corpus,1979,Thank you. John.,5
-fomc-corpus,1979,"Well, even though I dissented in May because I wanted the funds rate down to 10 percent, I find myself in a position now where I think the rate ought to be up to 10-1/4 percent. That's more or less fortuitous and it's because of the recent surge in the aggregates. The level of M2 is now near the midpoint and is forecast to grow, as you know, at 8-1/2 percent over the July-August period. That should put it slightly above the midpoint. And the M1 level in June was below the midpoint but is projected to grow 4.2 and 4.9 percent in July and August, which if it happens--and I hope it does, Steve--will bring it right to the midpoint by August. I think that's good; we need [growth] to get back up to those midpoints and that's in part what tends to offset the fact that we have a recession going on now. From that point on and within the ranges that we have specified, I would argue two points very strongly. [One is1 that we ought to aim for those midpoints, in terms of having a moderate and stable policy, steering a middle course between the dangers to the dollar in foreign exchange markets on one hand versus the sagging economy on the other hand. And I would argue secondly, picking up on a point I was glad to hear you make earlier, Mr. Chairman, that we ought to be paying more attention to M2. With all of the uncertainties that we know have plagued M1, I guess I'm distressed by the fact that in the formal directive we are still calling for about equal weight to be given to M1 and M2. At least two years ago, we circulated a paper calling for greater emphasis on M2 and I would like to see that as a formal proposal at this time. So, I'm going to make it: I think we should start giving closer to two-thirds weight to M2 rather than the present 5 0 / 5 0 [to M1 and M21. Having said all of that, the specifications of alternative I1 would be satisfactory, but qualified by what I have just said.",450
-fomc-corpus,1979,"Thank you very much, John. Mark.",9
-fomc-corpus,1979,I would find alternative I1 acceptable.,8
-fomc-corpus,1979,Thank you. Bob.,5
-fomc-corpus,1979,"Alternative I1 is fine with me. I don't share the position that we should try to adjust the ranges to reflect the possibilities of an international crisis of any kind, basically for the reasons that you have outlined. It seems to me that to try to do it just by jiggling up the upper [limit of the funds rate] by a 114 percentage point wouldn't solve anything really. We should have it much higher than that if we were going to assume that we will have no telephone communication over the next four weeks. I'm not willing to make that assumption, so I would go with alternative I1 the way it is, with a money market directive.",132
-fomc-corpus,1979,"Thank you, Bob. Roger.",7
-fomc-corpus,1979,"Alternative 11, Mr. Chairman. Just a comment with regard to the international situation: If I heard Scott Pardee correctly this morning, he suggested that any move by the Federal Reserve, whether in the discount area or an upward movement in the funds rate, would have some salutary effect [in countering1 any weakness in the dollar that might develop. Again, I would like to propose that serious consideration be given to a discount rate increase if that develops rather than moving to an upper limit of 10-1/4 percent [on] the fed funds range.",115
-fomc-corpus,1979,Larry?,2
-fomc-corpus,1979,"I'd just like to suggest that we broaden the fed funds range symbolically to 1 point, and I would be perfectly happy with alternative I1 and 9-3/4 to 10-3/4 percent. But if we are going to signal a substantial and real interest in controlling the aggregates in any way, somewhere along the line we will have to move toward a broadening of the fed funds range.",84
-fomc-corpus,1979,"Thank you, Larry. Bones?",7
-fomc-corpus,1979,"The activity in the foreign exchange markets continues to disturb me, Mr. Chairman, but I believe the suggestion that you made deals with that directly and forthrightly. Meantime, alternative 11 just as it is shown [in the Bluebook] is acceptable to me.",56
-fomc-corpus,1979,Thank you very much. Dave?,7
-fomc-corpus,1979,Alternative I1,3
-fomc-corpus,1979,"Willis has alternative 11, also. Bob",10
-fomc-corpus,1979,"M r . Chairman, I guess my preference is based more on intuition than anything else. My inclination is to hold the funds rate where it is and hope that the aggregates do slow from the excessive pace that they recorded in June. But more than most people around here, I think our [actions] ought to be guided by the behavior of the aggregates; that ought to be what triggers our operations on the funds rate. In that connection I think we ought to recognize that the aggregates are well within their ranges. However, it's not entirely the points at which the aggregates rest, but rather in part the slope of the aggregates. And for the last four months there have been some pretty steep positive slopes. If that continues, which I don't really anticipate, I think we ought to be prepared to move on up [on the funds rate]. So, in short, I would buy alternative I1 with the money market directive.",184
-fomc-corpus,1979,"Okay, alternative I1 with money market. Emmett.",12
-fomc-corpus,1979,Alternative 11.,4
-fomc-corpus,1979,Thank you. Nancy.,5
-fomc-corpus,1979,"iw. Chairman, if it were not for the international markets, I would be recommending alternative I. What I am worried about is that we are never going to get to a point that we start easing that the money markets are not going to get upset. It's just a matter of picking our time, and-",62
-fomc-corpus,1979,When we want to upset them.,7
-fomc-corpus,1979,"When we want to upset the foreign exchange markets and how much of an upset is going to occur, even if we keep with a constant policy at the present time. And as I said earlier, I think our first move is going to have the most impact. When we start moving [rates] down, subsequent moves aren't really going to have the announcement effect. I guess I'm not quite ready yet to make the move in the international markets. But [the time] is going to come and we are not going to avoid that upset in the international markets.",111
-fomc-corpus,1979,"Well, we don't have to take the week in which the Bundesbank is going to raise their discount rate.",22
-fomc-corpus,1979,"well, you'll always find someone who's moving up. If it's not the Bundesbank it'll be England or something. I would go with alternative 11. It is not my preference; my preference is alternative I.",42
-fomc-corpus,1979,All right. Chuck.,5
-fomc-corpus,1979,"Well, I agree with Nancy. But in deference to the international situarion, I would postpone the reduction in the funds rate until next week. [But] the fact of the matter is it's going to get worse and worse and worse. And if those people are going to follow a policy of deliberate appreciation in their currencies, which is what the British are doing certainly, and I think the Germans are also--",84
-fomc-corpus,1979,"Very, very reluctantly, they are doing it",9
-fomc-corpus,1979,"Well, I don't think we ought to get dragged along with them into a worldwide depression. And I think we ought to stop it. So I agree, but what I would do is take the aggregates specifications--. Well, I would take all of the specifications.",53
-fomc-corpus,1979,In which [alternative]?,5
-fomc-corpus,1979,"Those of alternative 11, but I'd call for an immediate reduction in the funds rate to 10 percent.",22
-fomc-corpus,1979,Okay.,2
-fomc-corpus,1979,A reduction in the funds rate next week,8
-fomc-corpus,1979,Now we got it. Next week--in one week or I days. You want the President to get a speech off first.,26
-fomc-corpus,1979,"We have had one of the sharpest declines [in retail sales], as far as I can recall, over 4 or 5 months. It's really staggering when you consider the size of that component in GNP, to have a 6 - l / 2 or 7 - 1 / 2 percent decline over a 5-month period.",72
-fomc-corpus,1979,Think of what people are going to be buying once they get gasoline again.,15
-fomc-corpus,1979,They can't afford anything else,5
-fomc-corpus,1979,At $1.25 a gallon.,8
-fomc-corpus,1979,Paul.,2
-fomc-corpus,1979,"If that's really the explanation for the declining retail sales--and there must be something to it--I don't think the remedy is monetary policy but rather fiscal policy. My main concern here would be that we not move right away on the funds rate without some considerable provocation. I think we have to keep in mind the international situation but always against the perspective of accelerating inflation. It may yet require some action in raising the fed funds rate, but that leaves me happy with a 10 to 1 0 - 1 / 2 percent range--that will do--and I'd do nothing at the moment. Probably I'd have the money market directive. I am bothered by the ranges under alternative I1 simply because this month our own staff's projections for aggregate growth are much lower than the Board staff's. They are outside the ranges proposed here already on the low side, which will be contrary to the idea of not changing the fed funds rate if those [projections] came out to be right. I don't think one can put much weight on either of these projections; this just indicates that the money supply unfortunately is pretty much a random number for the month. So I would stick with the money market directive, and I would prefer a wider range on [the aggregates]. I would really prefer 0 to 6 or 6 - 1 / 2 percent or 1 / 2 to 6 - 1 / 2 or something like that [on M 1 1 and 5 to 9 percent on M2.",310
-fomc-corpus,1979,"Okay, thank you. Phil did we get your specifications on M1 and MZ?",18
-fomc-corpus,1979,"I took all of alternative 111, Mr. Chairman.",12
-fomc-corpus,1979,"Alternative 111, okay. Let's get those in there. Now, let me ask two questions first. [Unintelligible] even with the specifications of leaving the funds rate at 10-1/4 percent. One is that we didn't get a complete indication--though I believe we covered everyone--of preferences for a money market or an aggregates directive. Is it critical to the ranges that we resolve that first? John. ~fl.BALLES. 1 forgot to mention, Mr. Chairman, a monetary aggregates directive [is my preference].",112
-fomc-corpus,1979,"Aggregates. Okay. Bob Black, you said a money market directive, I believe.",18
-fomc-corpus,1979,"I tend to think we ought to have different ranges when we have a money market directive than when we have an aggregates one because the trigger points are different. Others apparently don't see that distinction, which I see.",42
-fomc-corpus,1979,"It is supposed to be that way. We haven't operated that way much, recently. Phil, you wanted which one?",24
-fomc-corpus,1979,Money market.,3
-fomc-corpus,1979,Money market. And Bones you wanted an aggregates?,10
-fomc-corpus,1979,I have a slight preference for a money [market directive].,12
-fomc-corpus,1979,"I'm sorry, we just got it down wrong. See, that's why we need to check these. Bob Mayo is for money market.",27
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,And Chuck.,3
-fomc-corpus,1979,"Well, I guess I'll take money market this time.",11
-fomc-corpus,1979,Emmett.,3
-fomc-corpus,1979,Money market.,3
-fomc-corpus,1979,Nancy.,2
-fomc-corpus,1979,Money market.,3
-fomc-corpus,1979,And Paul said money market. Henry MR. WALLlCH. Money market.,16
-fomc-corpus,1979,"Well, that's very interesting. So it looks like everybody is for a money market directive except John Balles--or me, and I haven't said what I'm for.",33
-fomc-corpus,1979,It's clear I'm out-voted.,7
-fomc-corpus,1979,"I don't know that I'll add too much to this conversation. I do think that one of the things that will affect our actual short-term policy, as distinguished from what we direct today, is the outcome of the President's announced program. If it is a powerful program that causes a positive reaction in markets, it may give us more running room to look at this differently. On the other hand, if it's a weak program and perceived to be so, we may have enormous pressures on us in another direction. I think we are likely to be in consultation next week one way or the other. My preference would be for all of us to bear in mind that we shouldn't get too locked into what we say until we hear what comes out of that and then we should probably re-assess our thinking because we just can't predict what we will think. Having said that, [according to my count] a lot of you are for alternative I1 with a few variations. There doesn't seem to be much disagreement on maintaining the present level of the fed funds rate at 10-1/4 percent. Of the voting members, Chuck, I think you are the only one who suggested--Frank did as a nonvoting member--a near-term move down on the [funds rate].",256
-fomc-corpus,1979,"Well, I take it on the fact that we don't know what the President is going to say on the oil crisis.",24
-fomc-corpus,1979,"Okay, then that gives us everybody standing still here. There's an overwhelming preference for a money market directive. This gives us on M1 a preponderance of preference for the 2-1/2 to 6-l/2 percent range. On M2 there is a preponderance of 6-1/2 to 10-1/2 percent and on the range for fed funds a preponderance of--it really looks like alternative I1 is it. Before we vote on that, I would like to take seriously John Balles' suggestion that in the directive we give more weight to M2. And I would like an expression of sentiment from the voting members on whether you would be so inclined or whether you would prefer to continue with the equal weight.",157
-fomc-corpus,1979,"Mr. Chairman, before the Committee Votes on that, I ought to bring to their attention special factors in this area. The most obvious is that what will affect M 2 particularly is whether the 6-month bill rate happens to be just below 9 percent or above 9 percent. That has turned out to have a very pronounced effect.",69
-fomc-corpus,1979,Increased M2,4
-fomc-corpus,1979,That's right,2
-fomc-corpus,1979,Now it's back to where there is no rate advantage.,11
-fomc-corpus,1979,"If it goes below 9 percent, then the S&Ls will have a greater advantage which can take funds away [from banks]. If it goes above 9 percent, the banks have an advantage. There's considerable uncertainty in our projections in that area. I just wanted to explain that.",58
-fomc-corpus,1979,"Nevertheless, with that caveat and all the other things [involved], what is your preference? Let's just go down [the list]. Paul, would you want to change the weight?",38
-fomc-corpus,1979,I think not.,4
-fomc-corpus,1979,We heard from John. Bob Black.,8
-fomc-corpus,1979,"No, in view of Regulation Q. If that were removed, I think I would.",18
-fomc-corpus,1979,Phil.,2
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,Bones.,2
-fomc-corpus,1979,I think not. It might be difficult. I'd rather have no change at the moment.,18
-fomc-corpus,1979,Okay. Bob Mayo.,5
-fomc-corpus,1979,"I'd have no change. We are going to redefine the aggregates in January or sometime soon, anyway, and I think this would just be confusing. But John's point is basically correct.",36
-fomc-corpus,1979,Chuck.,2
-fomc-corpus,1979,I think that's right. I wouldn't do it now.,11
-fomc-corpus,1979,Emmett.,3
-fomc-corpus,1979,No change.,3
-fomc-corpus,1979,Nancy,1
-fomc-corpus,1979,No change.,3
-fomc-corpus,1979,And Henry.,3
-fomc-corpus,1979,I'd like to see it examined because the idea has merit but I wouldn't do it now because I can't [assessl the implications.,27
-fomc-corpus,1979,"Okay, it looks as if the preference is to stay with equal weight. Now having done that, let us see what our vote would be on alternative I1 as is with the fed funds rate at 10-1/4 percent and a money market directive.",53
-fomc-corpus,1979,With the same range [for fed funds1 of 9-3/4 to 10-1/2 percent?,25
-fomc-corpus,1979,"Yes, 9-3/4 to 10-1/2 percent, the range we now have. Correct.",25
-fomc-corpus,1979,Is this a formal vote?,6
-fomc-corpus,1979,"No, a straw vote. Let's get things going.",11
-fomc-corpus,1979,All right. Vice Chairman Volcker,7
-fomc-corpus,1979,I find it very difficult with those ranges that high especially. It depends on how permanently fixed that 10-114 percent rate is or how much provocation it takes to move it.,37
-fomc-corpus,1979,You would like to lower the bottom side of that?,11
-fomc-corpus,1979,"Yes, I think so.",6
-fomc-corpus,1979,Okay. John.,4
-fomc-corpus,1979,"I'll gulp and say yes. MR. ALTMA"". President Black Yes Governor Coldwell I have some reservations, but I'll go with it President Kimbrel Yes President May0 Yes Governor Part.ee",39
-fomc-corpus,1979,"Well, I'm right on the edge. I can vote for it; it's lower ranges that I'd have to vote against.",24
-fomc-corpus,1979,"That's on account of Paul. MR. ALTMA"". Governor Teeters Yes Governor Wallich",18
-fomc-corpus,1979,"Are we going to stick by your suggestion, M r . Chairman, that if the exchange markets destabilize, we will have a meeting?",28
-fomc-corpus,1979,"We will have a meeting, yes.",8
-fomc-corpus,1979,"~ l right. l If we will have a meeting, then I will go along.",18
-fomc-corpus,1979,"Okay, that means at the moment we have everybody voting for this except Paul, who could gulp and [unintelligible] you can do it without a gulp.",34
-fomc-corpus,1979,"I can gulp and vote with it, if you gulp several times before changing the funds rate.",19
-fomc-corpus,1979,"You've noticed how we have gulped all year long. If Paul will go with it, I will go with it. That will make a demand on us. I think that's pretty good. That's fantastic. I knew we would be unanimous this month! Remember, 1 told you that on the phone. Now do you believe me? Please don't change your votes now. There is one other issue and that is the recommendation with respect to foreign currency operations. Do we have [any renewals]?",99
-fomc-corpus,1979,"No, the swap drawings that we have outstanding are simply from this last month, so there's nothing--",20
-fomc-corpus,1979,"We don't have any renewals. We have the Mexican swap line situation on which you received a memo. We have made no promises except to get [the Committee's] sentiment. If you've read the memo, the consideration is do we signal to the Mexican central bank that we'd be willing to expand the swap line to $700 million from the present $350 million and then work out the details? That's on the basis that this seems to be something they would like--to improve their general relations with the United States. They claim they don't need the swap line and don't intend to use it, but they would like to signal a cooperative spirit and the capacity to be prepared in the future if they should need it. Again, I don't have any particularly strong sentiment. There is some thought on our staff that usually the swap lines are changed at the time of their renewals in December. The memo indicates that that hasn't been the record. The record seems to show dates in August and various other [times]. So I'm not sure that we can base our decision on whether the right time to do it is at year-end.",223
-fomc-corpus,1979,"I have great doubts about it, Mr. Chairman, because it is a political move. If we do this, I fear we will find ourselves approached by the State Department and maybe the Treasury on behalf of other countries. That has already been the case at a very low level of planning. One person from the State Department has raised questions on whether some other countries could be included in the swap network.",80
-fomc-corpus,1979,Could it be foreign policy that--,7
-fomc-corpus,1979,"[Unintelligible] foreign policy and developmental and so forth, I think, if we do what is probably sensible to improve relations with And I think we ought to resist this.",37
-fomc-corpus,1979,The request to us did not come from the State Department.,12
-fomc-corpus,1979,"No, this came from the Mexicans.",9
-fomc-corpus,1979,Directly from the--,5
-fomc-corpus,1979,"But if we do it for a reason that the State Department plainly understands to have a political element, I think they will want to have some say in future swap changes. Now, unless you've indicated to the Mexicans a great degree of good will and intention, I would suggest that we say we'll raise the swap line if appropriate, if and when they want to draw on it, but not give a bigger credit line in a vacuum, as it were. On top of that, there's my own uncertainty as to what the Mexicans really are up to. They're borrowing enormously. They need to because they're financing the construction of the oil infrastructure. Whether or not this borrowing is going well or not, I don't k n o w . I have the impression that it is going well. I have no contrary indication. But they may be uncertain and they may want this as a backstop. And they may want it as a means of improving their own borrowing posture in the market. I would hesitate to be drawn into that.",204
-fomc-corpus,1979,Phil.,2
-fomc-corpus,1979,"Well, I have some of the reservations Henry does. I see it not costing us anything to add more onto their swap line. And if this were a crucial position of the State Department and foreign policy--that we add to the Mexican swap line--1 guess I'd swallow and do it just because it doesn't cost me anything at the moment. But I think there is a politicizing of this swap line arrangement that we have fought, especially with such countries as wanted a swap line because they wanted to be a part of the club. Mexico now wants to be a part of a bigger club. So I guess I'd have to say that if we are going to do this, we do it only as a political reason.",143
-fomc-corpus,1979,Any other sentiments?,4
-fomc-corpus,1979,"My conclusion happens to be the same as Governor Coldwell's. I think I would do it if it serves some sort of positive purpose. I don't know about just doing it without getting some confirmation that it is some kind of useful signal. I suspect they have some real purposes in mind, along the lines that Governor Wallich suggested. They want an additional backstop during a period in which they are borrowing very heavily. I would not refuse to give it to them if it serves some positive purpose from the standpoint of U . S . policy.",109
-fomc-corpus,1979,I agree with Paul's statement.,6
-fomc-corpus,1979,"I agree, too, but I think the purpose that it serves from our point of view is perfectly obvious. And I think it would help us at the present time to seem to be willing to be forthcoming to the Mexicans. Because I would be willing at this time to be forthcoming, that does not mean that I would be willing to see it politicized with respect to that does not have the oil potential that Mexico does. I don't see that as politicizing. I see that as economic.",100
-fomc-corpus,1979,"We've had a Venezuelan request too, as I recall.",12
-fomc-corpus,1979,"Well, that depends again on whether it costs us anything and whether it would be helpful in future relations.",21
-fomc-corpus,1979,"Technically, these things are limited to countries that have convertible currencies so that those we mentioned here, including ones I myself mentioned, aren't really eligible. My concern is that once we get into the political game of doing this to pursue a U.S. political advantage we won't be able to hold to that line.",62
-fomc-corpus,1979,"Is there a possibility, Mr. Chairman, of saying to the Mexicans that we will consider this at the year-end renewal of these lines and in the meantime do some checking around in this government to find out if this is an important element--",49
-fomc-corpus,1979,Ted?,2
-fomc-corpus,1979,"Mr. Chairman, in preparation for the meeting, I checked with the Treasury Department on two points. One was whether they had been approached to increase their swap line. They have not been approached, in a conversation down there. Their reaction on the question of whether there is political interest--and I only checked with Treasury--was that there probably would be some political interest on this side but it's not clear at the moment whether this is the right time to put it in the pot. So their advice was to hold off, to indicate that even if there was positive sentiment on the Committee we might not make a final decision today.",125
-fomc-corpus,1979,"You triggered one other thing I meant to ask, Ted. What is the Treasury line now?",19
-fomc-corpus,1979,It's $ 3 0 0 million though only half of it is drawable [under normal circumstances].,21
-fomc-corpus,1979,Maybe Treasury ought to--,5
-fomc-corpus,1979,It might be logical for both of us [to act1 or for Treasury by itself--,18
-fomc-corpus,1979,The Treasury was not pushing us. I asked the political questions since they're a little closer to those. I did not check with the State Department on this case.,32
-fomc-corpus,1979,"The reason I'm pushing a bit on this, Mr Chairman, is that we had a discussion with We sent him over to the Treasury Department saying that it's their job if they want to make loans for political purposes. He was pleading his [case] on the basis that we had led him and his poor country into a democratic election and that was upsetting all of the financial--",74
-fomc-corpus,1979,"We, the Federal Reserve had?",7
-fomc-corpus,1979,"we, the United States government.",7
-fomc-corpus,1979,I feel closest to the same reasoning Henry [cited] unless somebody says there's a strong advantage to it.,22
-fomc-corpus,1979,An overriding political reason.,5
-fomc-corpus,1979,"I'm not understanding. Phil, you have confused me. You said you didn't see a reason not to do it becaue it didn't cost us anything. And now you're saying you are opposed to it.",41
-fomc-corpus,1979,"No. What I said, Mr. Chairman, was that I agree it doesn't cost us anything. But I think it has to be demonstrated that there's an overriding political gain to be achieved by this. I would oppose it otherwise.",46
-fomc-corpus,1979,"Scott, did you have anything that you wanted to ask?",12
-fomc-corpus,1979,No. I'm just wondering [howl we would come out on it and what somebody will say to the Mexicans that will--,26
-fomc-corpus,1979,We haven't come out yet.,6
-fomc-corpus,1979,"I'm not sure I'd use the word ""overriding""but I certainly agree that there's no point in making a gesture unless somebody knows we are making a gesture.",33
-fomc-corpus,1979,"Use the word ""advantage.""",7
-fomc-corpus,1979,"MY problem on this is that there may be an advantage in our relations directly with the Bank of Mexico. There's a concern that they have and that we have on the financial side. There are a lot of political deals being struck on oil, on emigration, and so forth. [Say] all of a sudden the State Department on our side and whoever it is on the Mexican side come to some agreement and then the Federal Reserve and the Bank of Mexico [are given] some sort of order: Okay, you fellows, to finish whatever discussion has been going on, here's your part of it. If we separate this discussion on the swap increase to some degree--and it is costless if they're not going to draw--then we've got a better line of communication directly with the Bank of Mexico. Again, if we let them down gently, like saying at the end of the year or at some appropriate time we select we will talk about increasing the line, at least we have the good communications with the Bank of Mexico--and with the least cost, if you want to consider it that way. It's a hard one to handle.",227
-fomc-corpus,1979,"The bottom line, M r . Chairman, is that I think I'd insist on the Treasury joining us.",21
-fomc-corpus,1979,"I assume it's irrelevant, Mr. Chairman, that they have recently been [picking] up a fair amount of [large denomination] bills from the El Paso branch.",34
-fomc-corpus,1979,"Mr. Chairman, if we are going to go for letting them down easy or if we put conditions on it by working for the Treasury's participation, I think we lose whatever advantage might be gained in doing it. So I think we either do it in a way that seems obviously forthcoming and cooperative or we don't do it.",65
-fomc-corpus,1979,"Maybe I misunderstood or maybe it has been misstated. I did not view this as a political issue. I viewed this as [a means of] improving relations with the United States on the initiative of the [Mexican central] bank. I have never heard from the State Department or anyone else on the subject. [Bank of Mexico officials] approached me directly. They came in to see me and said we need to build our relations with your country and make them stronger. We are a central bank, we'd like to [request an increase in our swap line]. That was the proposition. And the advantage was not that they wanted to use the money, but they wanted to demonstrate that we are working closely together. I don't know. As I say, I don't have any particularly strong feelings on this.",161
-fomc-corpus,1979,Let's have our December meeting in Acapulco!,11
-fomc-corpus,1979,"Pardon me? Oh, you want to go down and negotiate in Acapulco you say? Oh, shucks. Well, I'll take this under advisement. They don't need to know immediately. Maybe if I get any thoughts from the counsel you have given, we'll come back with a particular suggestion--either that we have a timetable or a different approach or something. Now we must do something very important, which is to confirm that we are going to meet again on August 14 here and by phone in the interim should the need arise. Is there any other business? Thank you very much. Lunch w i l l be served.",130
-fomc-corpus,1979,"I might say for the benefit of those who have just come in that we had a little executive session to do some important business, the first item of which was to elect a Chairman. I'm not sure whether it's entirely appropriate that I announce my election, but it proceeded. I should also say that this is the first time the new Vice Chairman of the Board has been privileged to attend an Open Market Committee meeting. We hope it's a privilege, anyway! You can make that judgment some time later, Fred, but I know I am delighted to have you here. Fred has made the point to me several times that as a Princeton graduate he's well qualified. I know from personal experience that that doesn't carry you very far, Fred! You're going to have to stand on other grounds, but you have many other grounds upon which to stand--business experience, entrepreneurial experience, banking experience, and some political experience. We like to consider ourselves apolitical in one sense, but I have found that in another sense a little political talent and understanding never hurts in these positions. So from all sides we are delighted to have you join us. I look forward to working with you and I'm sure the others do as well. [In our executive session] we did make some other personnel changes which I ask everybody in this room to hold in confidence until they can be completed. After I don't know how many years of valiant service--13 or 14 years I guess--in one of the most harassing jobs that I can conceive of, Alan Holmes [will have a new role.] He served first as Manager of Open Market Operations on the domestic side and then took over on both [the domestic and foreign] sides during some turbulent years, leading the System into a more active posture on the foreign exchange side and seeing that accomplished. We thought the time had appropriately come to take advantage of Mr. Holmes' services as an Adviser so he's still on board. We're still going to benefit from his services for many years to come, I hope, both in the Federal Reserve Bank of New York and in connection with the Open Market Committee--but without direct line responsibility. The other part of that process is that we have two gentlemen in Peter Sternlight and Scott Pardee ready to take over the full line of responsibilities on the domestic and foreign sides. So the Committee has acted to make Peter the Manager on the domestic side, Scott the Manager on the foreign side, and Alan Holmes Adviser for Market Operations, looking over the shoulders on all sides in a constructive way. I think it can be a very effective team in a slightly different alignment, and I'll be delighted to get this in place. But it is all subject, as I'm sure you know, to concurrent action by the board of directors of the New York Bank by whom these esteemed gentlemen are appointed to their official positions. And the directors don't meet until this Thursday so these changes cannot be put in place until Thursday. I hope they can be put in place then. I'm sure Mr. Timlen can manage that assignment but there won't be any public announcement until the directors act, so I hope you will respect that. And I do welcome all three of you to new assignments. With that I think we can proceed to the minutes [of the July meeting]. Do we have a motion? Without objection the minutes are approved. We have a Report of Examination, which I believe has been distributed to you. I am informed that Mr. Farnsworth is ready to answer any questions you may have. Are there any questions about the examination? Mr. Wallich.",716
-fomc-corpus,1979,"Is it possible to figure out the unrealized gain or loss on the account, and have you tried to do so?",24
-fomc-corpus,1979,"Governor Wallich, I have with me today Dave Robinson who is the Manager of the audit team, and I'll turn the question over to him.",29
-fomc-corpus,1979,"Which account are you talking about, the domestic or the foreign?",13
-fomc-corpus,1979,Domestic. On the foreign side I take it that the rule of [FASB 88] requires us to revalue these assets continuously but I don't believe there is a similar rule for the domestic assets.,42
-fomc-corpus,1979,"Governor, I don't believe we made any attempt to do that. In our efforts we only made an attempt to verify the balances as they were reflected on the records of the Bank.",36
-fomc-corpus,1979,Do you see the possibility of doing that? Are there technical difficulties?,14
-fomc-corpus,1979,Why would you want to do it?,8
-fomc-corpus,1979,"Well, I'd like to know--",7
-fomc-corpus,1979,Whether it's below water? But we're not going to liquidate the account.,15
-fomc-corpus,1979,--where we stand. For one thing it would be helpful if we find that we're taking a loss on foreign exchange transactions to remember that the loss may be offset [by gains on the domestic side].,40
-fomc-corpus,1979,That's the reason.,4
-fomc-corpus,1979,"What's the average length of the System portfolio at this time? Do you have that, Peter--or someone?",22
-fomc-corpus,1979,It's in the area of 4 to 6 years--something like that.,16
-fomc-corpus,1979,"Oh, really that long?",6
-fomc-corpus,1979,I had no idea it was that long. That adds a little maybe to the reason for Henry's question.,22
-fomc-corpus,1979,It's probably completely under water then!,7
-fomc-corpus,1979,I would have thought it was more like 2 years.,12
-fomc-corpus,1979,"It shatters his hopes of having an offset, though.",13
-fomc-corpus,1979,"Well, my impression of this examination, Mr. Chairman, was that the books balance and that all the tests they've made indicate that the books are being kept in adequate fashion.",35
-fomc-corpus,1979,That is correct. We also did a sample of the transactions of the Federal Open Market Trading Desk and ascertained whether the directive was being carried out. All those cases in the random sample indicated that it was.,43
-fomc-corpus,1979,"It was a random sample, I trust?",9
-fomc-corpus,1979,"A random sample, yes.",6
-fomc-corpus,1979,I have no problems with this. I move we approve it.,13
-fomc-corpus,1979,Second.,2
-fomc-corpus,1979,"Without objection, so ordered. Foreign currency operations. Mr. Pardee.",15
-fomc-corpus,1979,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1979,Any questions or comments?,5
-fomc-corpus,1979,"Scott, do you think the market would respond favorably if there were to be a package that included new Carter bonds? Is that a valuable feature to them?",32
-fomc-corpus,1979,"To some people in the market it would be helpful, yes. Others would not pay too much attention to it, particularly since it's something that had been announced before as part of the November 1st package. But a package usually has something for everybody and there are some who would think that the Carter bonds would be important.",65
-fomc-corpus,1979,Do you think they'd respond one way or another to forward operations?,13
-fomc-corpus,1979,"It depends on what's coming along with it. The forward market operations right now alone, without any other change, would be seen as a tactical exercise. It's in some ways weaker than spot operations and may be seen as a fallback position on the part of the authorities. Forward operations combined with other activity could add, but I personally would prefer to continue doing spot operations.",73
-fomc-corpus,1979,"Scott, what is your reaction to this discussion that seems to be going on in a number of quarters about a competitive interest rate ""war"" between various countries in the world, including the United States?",40
-fomc-corpus,1979,"Well, I don't know; war is a very strong term. But clearly, as I indicated in my [remarks]--and we've felt this for several months--the response of the central banks and the authorities in Europe is that with higher rates of inflation coming about from the oil price increase and from stronger domestic economies, they have raised their interest rates. The ones within the EMS have a particular problem in that it's harder now for the governments to come to an agreement on changing their exchange rates within the European monetary system; they have to get the agreement of the agricultural ministers as well as the finance ministers. And so particularly the Germans have raised their interest rates over the course of the year in response to these inflationary pressures and expansion of bank credit demand. Others have found they've had to raise their rates to defend their currencies in the exchange market and to fend off their own inflationary pressures--some a bit against their will, I think. And from the United Kingdom side we had a decision on the part of the new Administration there, the Thatcher government, to raise interest rates by a full 2 percentage points back in May, which has set a new course for sterling. And that has occurred. I wouldn't call it a war but other countries have been raising interest rates. There have been several rounds of interest rate hikes, and it's a different atmosphere than we've had in earlier years.",277
-fomc-corpus,1979,"I don't think there's much substance to that now, Phil, but I think it's a useful question to ask oneself about what might happen later in the year. When I look at all these interest rate changes abroad, there's a pretty straightforward justification in terms of their own domestic situations--with rising inflation and strong economies. One begins to ask what happens to their economies later this year or into 1980, partly because of the oil price increases. I think there is some danger but I don't think we can really be critical of what's happened so far.",109
-fomc-corpus,1979,"Well, I wasn't implying criticism. I was just questioning the market reaction to this type of--",19
-fomc-corpus,1979,There is a feeling that there is a war going on. I think it's overstated.,18
-fomc-corpus,1979,"The British [action] is a change in policy, and to some degree it looks like the Canadians might be included in that.",26
-fomc-corpus,1979,"The British is a change in policy but it's often stimulated by the exchange rate. In fact, they don't like the exchange rate consequences, as near as I can read it. Larry Roos.",39
-fomc-corpus,1979,"Scott, in your report you alluded to some apprehension or nervousness in the market in relation to this meeting today. Is that nervousness that we may tighten monetary policy or that we may continue to vacillate? What did you mean by that?",52
-fomc-corpus,1979,"If you talk to different people, they would give you a different [answer regarding the] nature of the apprehension. I gave you a list of the things that people are bearish about with respect to the rest of [our country's] economic policy and there's still some hope that the Federal Reserve is here and doing its job. [As for] what job that is, you talk to different people and you get different reactions.",85
-fomc-corpus,1979,But the bearishness is essentially a concern about expanding inflation? Is that what you mean?,18
-fomc-corpus,1979,"No, no. These guys are making bets--and that's what they're doing--on whether interest rates are going to be higher after the meeting or not. And how much higher is part of the bet.",41
-fomc-corpus,1979,"Doesn't their major concern pertain to their inflationary expectations for the United States? If we came to grips or appeared to come to grips with inflation along the lines of the new Chairman's statements, wouldn't that have a constructive effect on the value of the dollar?",53
-fomc-corpus,1979,"Certainly, if there was a feeling that the actions of the Committee would lead to a reduction in inflation. But again, I'm very cautious about what people are doing on the Friday and Monday before an FOMC meeting. They're just aligning themselves to be in a particular position to anticipate some action which if it comes, they will make money and if it doesn't come, then they won't. But I would not want to overinterpret what these day-to-day swings [mean].",94
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,"I'll approach it from a different way and make it a little more specific. Would you care to speculate, Scott, on what good it might do vis-a-vis market expectations and psychology if we were to snug up a bit more on both the discount rate and the federal funds rate--in a range of 1/4 point to possibly 1/2 point?",73
-fomc-corpus,1979,"Well, it would help with those who are interested in responding to that sort of thing. But as I say, there's a deeper root of concern about the dollar. As long as the Federal Reserve is doing what people think the Federal Reserve should do--and again these are people in financial markets and they are more inclined to look to interest rates as a guiding light--then they will be a little more relaxed. But they're also worried about the question of leadership and economic policy more broadly. So we might buy ourselves some more time--which is what we bought [with] our intervention in late July and the interest rate hike that took place then. That bought us some time. But part of our problem last Friday was that people were calling in and saying all right we know what you've done and we know what the Federal Reserve is trying to do--you have a new Chairman and all that--but another bad price figure just came out. How long are these price figures going to continue? So long as the United States continues to have a higher rate of inflation than Germany, Switzerland, and some of these other countries, it will help [if our rates go up]; it will buy time. But it won't solve the basic problem of confidence in the dollar, which has been troubling us throughout this past year or so.",263
-fomc-corpus,1979,"Scott, has the market changed its attitude at all about intervention?",13
-fomc-corpus,1979,"Well, I don't know which attitude you mean. Again, they expect us to be there. If we aren't, then everybody will be very disappointed and we'd have a real problem on our hands. So we have to show up when the problems do emerge.",51
-fomc-corpus,1979,My impression though is that they're not willing to challenge us--,12
-fomc-corpus,1979,"Oh, yes they are.",6
-fomc-corpus,1979,"--on the total of intervention. In other words, they're not willing to push us into saying okay we'll put $10 billion into this package.",29
-fomc-corpus,1979,"Well, that's part of the package idea. There are those who are touting a package, who call in and say you guys need a package and one of the elements is the fact that $30 billion won't do it. As for the November 1st package, for all we know you've spent it all already. It's that sort of thing. So then you get in the idea that Henry raised of Carter bonds and hikes in interest rates; the list is just as long as one's arm depending, again, on which person you're talking to. And they're still prepared a little to challenge us in the market but not quite so much. What we did in late July really stopped a number of the players. And our operation last Friday quieted a few others. But it's temporary; they'll be back.",160
-fomc-corpus,1979,"Most of what I wanted to ask, Mr. Chairman, has been asked. But, Scott, in retrospect do you think we would have been significantly better off so far as the dollar is concerned if we had moved the discount rate one point instead of a half point?",54
-fomc-corpus,1979,"I don't know. I'm trying to interpret a wide range of things without trying to interpose my own views, so I'm not sure. In view of what was going on at that time, I think what was given was a signal of concern by the Federal Reserve, and that's what the market wanted. That's what it got, and anything more than a signal is--. It could have changed a number of people's attitudes temporarily, but as I say the market is looking at a lot of other broader problems. A half point as against one point is not so important as the fact that the half point was done.",122
-fomc-corpus,1979,"Is it possible at the present time to put a ranking on the various factors that the market weighs in looking at the exchange rate? In other words, in the current account there's improvement; inflation, no improvement; interest rates, a deterioration. What weights should one assign to these?",56
-fomc-corpus,1979,"Well, I just had a lecture from a chartist so I'm not sure what weights to apply myself these days. I think basically we come back to the fact that [market participants] are looking for fundamental improvement. This is what the market is looking for. This is what the corporate treasurers are waiting for. At this stage they are very pessimistic that there will be fundamental improvement. So in the meantime we end up with this--",89
-fomc-corpus,1979,"Would an improvement in the current account, which seems very likely, make up for failure to improve on inflation?",22
-fomc-corpus,1979,With some it would help. It will change the balance in the market.,15
-fomc-corpus,1979,"Henry, I'd say that clearly inflation would be number one on their minds. If we had some good price statistics, that would help a great deal. Second, I think is merchandise trade; third, current account; and fourth, interest rates.",49
-fomc-corpus,1979,"But don't those weights change? Those are the weights today, but the--",15
-fomc-corpus,1979,"Sure they do. But right now I think those would be the important things in that order, roughly.",21
-fomc-corpus,1979,"We have to ratify the transactions, if you are willing to ratify the transactions. Without objection, they are ratified. Maybe we can take up this Mexican swap issue. Scott has distributed a memorandum. We had some material last month and there was a preliminary discussion. Is there anything you want to say, Scott?",65
-fomc-corpus,1979,"Well, simply that it's the Manager's job to make a recommendation and I personally favor this. But [let me cite] the kinds of arguments that the Mexicans raise.",35
-fomc-corpus,1979,Let me supplement that a bit. So I would be favorably inclined but I want to hear what other people have to say. Phil.,28
-fomc-corpus,1979,"Mr. Chairman, I've done quite a bit of thinking about this since we had a discussion on this the last time. At that time I took a position that it was a costless operation in the sense of just raising the swap line, but since then I've had some second thoughts. Yes, it's costless in the sense that we could raise the level of the swap, but it's not costless in a precedential sense.",86
-fomc-corpus,1979,"I agree with that wholly in substance and I think it's as simple as that. So while I agree with you fully in substance--and as I say I think they would, too, as a theoretical matter--in practice I do not feel that we can press them because I think their argument on the other side is rather impregnable. This is an increase of $360 million, you said?",79
-fomc-corpus,1979,From $360 million to $700 million.,9
-fomc-corpus,1979,"So it's an increase of $340 million; [I wondered] whether a more modest increase might do the job. I came to the personal conclusion that fiddling around on the amount--cutting it in half or something and ending up with $850 million or whatever--just didn't amount to enough to quibble about. I think you have a very strong substantive point, but it just runs against the practicalities",82
-fomc-corpus,1979,"If approved, when it is announced would we announce that it was in response to a request from the Bank of Mexico?",24
-fomc-corpus,1979,"Well, I think these things are probably routinely announced deadpan--by saying there's an increase period.",20
-fomc-corpus,1979,"Mr. Chairman, that's what we had thought. Something would go into the Policy Record. In the past, there has usually been a sentence of explanation. I would think, without having heard the Committee's discussion, that it would say something about at the request of the Bank of Mexico and in light of expanding financial relations--that side of it.",70
-fomc-corpus,1979,"I have worried about the precedent [issue] that Phil raised, too. I think that is a negative; it is a question of weighing that. Scott may want to speak to this, but we have the precedent of a swap with Mexico; and Mexico is a big trading partner right next door. I think it is adequately distinguishable from any other Latin American [country].",75
-fomc-corpus,1979,We have a $2 billion [swap line] with Canada.,13
-fomc-corpus,1979,"I share Phil's concern about the precedent I am somewhat concerned, however, about what would happen--the matter having come this far--if we were not to approve it. Would there be adverse [consequences]?",44
-fomc-corpus,1979,"Scott, do you want to respond to both the precedent point and this one?",16
-fomc-corpus,1979,"No, [what you said] is fine.",10
-fomc-corpus,1979,"I'd like to move approval, Mr. Chairman.",10
-fomc-corpus,1979,Do we have a second? I'm just going forward here with an orderly procedure. Henry.,18
-fomc-corpus,1979,"I would like to associate myself with the precedent concern. The State Department has always thought that the Federal Reserve might be a source of credit in one situation or another. They have a low level project going to that effect on how we could lend to LDCs. And it will not be completely easy next time, [when] relations with a large LDC need improving, to say we don't want to participate. It may be that the discussion with Mexico has gone too far and we would do more damage by saying no. But we should be aware that the government--not this particular Administration--in the past repeatedly has pointed to the Federal Reserve as a source of credit in an emergency situation. When the State Department makes a list, the Federal Reserve is normally featured in there.",156
-fomc-corpus,1979,"Paul, could I ask one more question? Are there any implications if we were to have a less than unanimous vote on this? Is this made public, Murray?",33
-fomc-corpus,1979,Yes. It's a change in the Authorization for Foreign Currency Operations.,13
-fomc-corpus,1979,Votes are made public?,5
-fomc-corpus,1979,"It can be held until the Policy Record [is released], which will be three days after the next meeting.",22
-fomc-corpus,1979,But the votes are made public?,7
-fomc-corpus,1979,"Yes, it's a change in the foreign currency authorization.",11
-fomc-corpus,1979,"But it wouldn't just say that the Committee approved this. It would say [the vote was] 9 to 3, or whatever it might be.",31
-fomc-corpus,1979,"Well, we have never done it that way. We've always listed the votes by name.",18
-fomc-corpus,1979,On every one?,4
-fomc-corpus,1979,On every change in the [authorizations and directives].,11
-fomc-corpus,1979,"Paul, could I ask one more question? I'm a little bothered, Scott, about the last sentence in your memo. That sentence indicates that the State Department and Treasury officials involved in the discussions expressed the view that while they would not urge the Federal Reserve to agree to the increase for the sake of furthering such action by the System, on balance it would be helpful. Does that capture the flavor of your discussions--that they really don't see this as something that is of any urgency?",97
-fomc-corpus,1979,Paul was the one who held the discussions. I was interpreting his--,14
-fomc-corpus,1979,I held the discussions.,5
-fomc-corpus,1979,But there's no urgency?,5
-fomc-corpus,1979,"Well, on balance, yes, they'd like us to do it. I think that's clear. They have these other negotiations going forward and they think this would be constructive. That is clearly [their view]. How important it is in connection with those other issues is another question, which I can't really evaluate.",61
-fomc-corpus,1979,Would we gain or loose anything of substance by having the Treasury provide a statement of support?,18
-fomc-corpus,1979,"I would think our problem is the reverse. I'm just speaking personally. There's no question that they like the idea, but I don't want to get either State or Treasury too involved in saying anything about it for the very reasons that Henry and to some extent you were suggesting.",54
-fomc-corpus,1979,"Yes, that's why I asked do we gain or lose.",12
-fomc-corpus,1979,"It seems to me, Paul, that this last sentence is a delightful art form that preserves our independence, while achieving an objective.",26
-fomc-corpus,1979,That's precisely what we're trying to do here.,9
-fomc-corpus,1979,"Mr. Chairman, just to clarify one point. Under normal procedures we would make an announcement of the increase right away, or within a couple of days, once it is worked out with the Mexicans. That announcement would say nothing about the vote. The vote would come out in the Policy Record, which would be published in mid-September. I might say that's right before the [two] Presidents meet. The vote would come out then.",89
-fomc-corpus,1979,"Mr. Chairman, I wonder if the attitude of the group would differ if the economic outlook for Mexico worsened rather than brightened--if the oil reserves proved to be a little less than now [thought].",42
-fomc-corpus,1979,I think we have to look at that because I do believe it gives them a leg up. All I can say is that I have looked at that and I think this is manageable in that context. That isn't to say that I cannot imagine a situation where Mexico would draw part of the line sometime but I don't think there's any immediate prospect of that.,70
-fomc-corpus,1979,"If I may, I would say that if Mexico got into trouble, we should be ready to help them and for a larger amount than this swap. I say that not only for the reasons that have always existed but because banks are now more deeply involved. But I would prefer to see that done on its merits rather than on a previous decision to improve relations.",72
-fomc-corpus,1979,"You say on its merits. Speaking for myself, that is in my mind. I came to the conclusion that you've come to and I think that is not irrelevant in considering this. If we never had any intention or would basically be unsympathetic toward Mexico ever using the line, I think it would be a mistake to approve this. But if we do contemplate that in an uncertain world it's not impossible that we would accede to their use of the line sometime in the future, we can go ahead and do it.",105
-fomc-corpus,1979,"If this discussion got out, I suspect we'd get applications from such countries as",15
-fomc-corpus,1979,"May I speak to this question of precedent? We've had discussions with these other central banks over the years and told them ""no,"" and we can tell them no again. Mexico is a different country from these others. We do have criteria in the files from 1967 and we published in the Federal Reserve Bulletin at that time the criteria for swap partners. Now, we're a long way from 1967, but those criteria have protected us a lot from the possibility--in cases where discussions were getting started on a very informal basis --that the discussions would get much further. But I think we're protected on the economics as well as the convertibility of currency [and] our relations with the central banks. We have a very good relationship with the central bank in Mexico. At some of the other central banks we don't know who the Governor is from one month to the next. So we can protect ourselves, and we have. And I feel I'm one of the first lines of defense on this.",199
-fomc-corpus,1979,Not many of those Latin American countries have a convertible currency.,12
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,"Well, are we ready to vote? I take it we have to have a full-scale vote, Mr. Secretary?",24
-fomc-corpus,1979,"Well, it requires a vote. It isn't necessarily a roll call vote, but if there are any dissents we would record that.",27
-fomc-corpus,1979,"Might I ask, Mr. Chairman, given the pros and cons of all of this and what we've heard: Would you care to tell us what your recommendation is on balance?",36
-fomc-corpus,1979,"Well, my recommendation is to do it.",9
-fomc-corpus,1979,All right. Thank you.,6
-fomc-corpus,1979,"Well, [because] of the publicity, I think it would be preferable not to have a split vote on this, so I would vote for it, too.",33
-fomc-corpus,1979,So would I.,4
-fomc-corpus,1979,Do you want to call the roll on this?,10
-fomc-corpus,1979,Chairman Volcker Yes President Balles Yes President Black Yes Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes First Vice President Timlen Yes Unanimous.,52
-fomc-corpus,1979,Mr. Sternlight.,5
-fomc-corpus,1979,"Thank you, Mr. Chairman. I would just like to say first that I appreciate very much the Committee's earlier action and expression of confidence. [Statement--see Appendix.]",35
-fomc-corpus,1979,Questions?,2
-fomc-corpus,1979,"Peter, what is the dealers' inventory position now?",11
-fomc-corpus,1979,"In issues over one year, as of Friday which is my last figure, they had about a $460 million net long position. No doubt it is lower now because we did some sizable buying of coupon issues yesterday. We bought almost a billion dollars of coupon issues yesterday, some of which would have come from the dealers' inventories and some from customers. I would guess that they are probably at close to an even position in over 1-year issues.",90
-fomc-corpus,1979,"I didn't mean a particular date, Peter; I meant a time frame of, say, over the last 3 or 4 weeks. Have they been holding about a plus or an even position?",40
-fomc-corpus,1979,"Well, that goes up and down as the market gears up for a Treasury refunding and then takes on those securities. Typically [dealers] have wanted to be moderately short in their positions because they had that kind of view of the market. They had gotten into a deeper short position as this Treasury quarterly refunding approached. They used the refunding to build up a long position and by now they have distributed securities that they had taken on and have gotten back to close to an even position again, I would say.",104
-fomc-corpus,1979,You see no discernable change in their attitude toward keeping either a balanced or a short position?,19
-fomc-corpus,1979,They seem to want to be in about a balanced or slight short position.,15
-fomc-corpus,1979,"If there is no other comment, we have to ratify [the domestic transactions].",17
-fomc-corpus,1979,Going back to this earlier statement that the average age of our portfolio is now 4.3 years.,21
-fomc-corpus,1979,I didn't give that precise a figure.,8
-fomc-corpus,1979,It was 4 to 6 years.,9
-fomc-corpus,1979,"That 4 to 6 years came in the examination report. That is well in excess of the average age of the total public debt, isn't it? So, we are a substantial factor in helping the Treasury to lengthen the debt unless what they report is only the publicly held debt.",58
-fomc-corpus,1979,They report it both ways. They give the average length including Fed holdings and government accounts and excluding them. They have achieved a significant lengthening on either basis. I wouldn't say that our behavior has been a major factor in enabling them to lengthen the average.,52
-fomc-corpus,1979,I think they normally use the publicly held debt as an estimate.,13
-fomc-corpus,1979,"I may not remember [correctly], but I thought that publicly held debt was getting up in the 4-year area.",25
-fomc-corpus,1979,It might be up to around 4 years or so. I think our average length might be slightly longer. We have been conscious of that and for that reason on the recent quarterly rollovers we have steered a somewhat greater proportion of our rollovers into the shorter options.,55
-fomc-corpus,1979,Thank you.,3
-fomc-corpus,1979,[We need to] ratify the transactions. Without objection. Mr. Zeisel.,18
-fomc-corpus,1979,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1979,I don't know whether you made explicit your assumptions. [You have assumed] no changes in fiscal policy?,21
-fomc-corpus,1979,No change in fiscal policy other than the automatic adjustments.,11
-fomc-corpus,1979,Right. [And you've assumed] the present targets on monetary policy.,14
-fomc-corpus,1979,And the present targets on monetary policy.,8
-fomc-corpus,1979,I would appreciate it if you would confine yourselves at this point to questions and be as brief as possible. We will come back and have comments on the economic situation. John Balles.,38
-fomc-corpus,1979,"I really wanted to follow up on the question you just raised, Mr. Chairman. Jerry, have you had a chance to do any calculating on what the automatic changes in fiscal policy might produce--that is, the revenue losses built into your economic model and the expenditure [increases]. I think it's important to all of us. I am certainly struggling to get a fix on how much fiscal stimulus we might get to cushion the downturn, in order to pinpoint the appropriate role for monetary policy in this period.",101
-fomc-corpus,1979,"Right. [Given] the contraction that we've projected--which affects unemployment benefits most importantly in an automatic way but social security benefits to some minor degree and food stamps and so on--the total impact is about $1-3/4 billion automatically on transfer payments. The receipts are adjusted down by about $3 billion, I think, but I don't have those figures [in front of me]. I will have to check that.",86
-fomc-corpus,1979,"Is that for calendar 1980 or what, Jerry?",12
-fomc-corpus,1979,That is for fiscal year 1980.,9
-fomc-corpus,1979,"It would be much more than that I would think in its economic effect, because your figures would reflect the collections on corporate taxes and they would still be running pretty high.",34
-fomc-corpus,1979,"Yes, that's right.",5
-fomc-corpus,1979,"If corporate profits fall off next year, then we are going to have a much bigger effect than $3 billion, I would think, by fiscal 1981.",33
-fomc-corpus,1979,"The projected deficit goes up $10 billion next year, Jerry, and I don't think it would go up if we didn't have a recession.",28
-fomc-corpus,1979,"President Balles, it's a measure of the fiscal policy effects that's conventionally [used]. People look at the high employment surplus to standardize for the level of activity. And on that projection--granted the measurement differences among people--the change from, say, the 2nd quarter of '79 to the 4th quarter of '80 throughout is fairly consistently in a restrictive direction. That is, the high employment surplus grows so that more is being taken out of the economy as it gets weaker rather than vice versa. That's just one measure people take as an indicator of fiscal policy.",119
-fomc-corpus,1979,Governor Coldwell.,4
-fomc-corpus,1979,"Jerry, could we probe just a minute? In your comment on the unemployment rate, I heard you say that you are forecasting a loss of jobs in the industrial sector. What do you have in the way of advance indicators of employment changes so you could say to us, for example, that the demographics are there to provide X amount of new labor force? [Are there other indicators such as] the loss of help wanted ads in the newspapers, the changes that you see developing in the automobile industry or whatever else to give you some leg up on what the unemployment rate is likely to be over the coming quarter?",122
-fomc-corpus,1979,"Well, obviously the growth in the labor force is a significant element in our projection procedure. We don't have any concrete evidence from current economic series indicating layoffs of any substantial magnitude beyond the employment figures that I referred to--that is, the cut in manufacturing employment by about 130,000 over the last few months.",63
-fomc-corpus,1979,You do have some [accession] rate figures?,11
-fomc-corpus,1979,"We have those and they don't show any really dramatic changes. Our assumption is that labor force growth will be quite moderate in the coming year--around 1-1/2 percent, which is about half the rate it was in 1978. Characteristically the participation of women has not suffered particularly during recent recessions. That's a function of social and other considerations, as well as the fact that women tend to go into employment sectors which continue growing. But basically we are projecting a fairly stable overall participation rate. That would mean a continued decline in the participation rate of adult males, particularly older adult males and a continued rise, although at a more moderate rate, for women. And I would consider our projections of labor force growth to be on the conservative side. The projections of the employment side, of course, fall out of our production projections.",170
-fomc-corpus,1979,"On the question of the participation of women, isn't it possible that we may get a more comparable reaction [to that of] men now that the level of participation is [sharply] higher.",40
-fomc-corpus,1979,You mean that they would tend to stay or continue--,11
-fomc-corpus,1979,"Well, that we won't have this division [unintelligible] further increases in participation rates at the time when labor demands weaken.",27
-fomc-corpus,1979,"Basically, the participation rate of the adult men, let's say those age 25 to 54--what we generally call the core of the adult male labor force--tends to remain pretty stable, and we would expect it to remain stable. There's a certain degree of discouragement reflected in those who are more marginal members of the labor force in that group; they move out [of the labor force statistics] when they're not looking for work. But basically the decline that we get in the [adult male] participation rate when the labor market weakens is among people who are older. They are making decisions about whether to stay in or not. When the employment market is strong and there are attractive job opportunities those older workers tend to stay in. When things look poor and the opportunities are not there, they tend to drop out. So we tend to see some accelerated decline in the participation of men in the age 55 and over group. We would expect that the participation rates would be held up in part by the degree of inflation--the pressure on household incomes. That tends to result in women particularly looking for jobs or staying in the labor market.",230
-fomc-corpus,1979,"[You have] looked over this range of information, which you obviously thought greatly about. And yet in each of the last 3 months I think you have expressed some surprise that the unemployment rate has not started to move up. Do you now view that as an immediate possibility?",56
-fomc-corpus,1979,"I certainly hope so, in a sense. My social conscience is at war with my economic view of [the situation]. The lack of a rise in unemployment, which is the other side of the coin of a cut in employment, is reflected in the enormous deterioration of productivity in the last couple of quarters. Obviously, if one believes the output figures, then employers have not rationalized their labor forces yet; they have not adjusted. Possibly this reflects the fact that they were taken by surprise by the decline in output. Possibly they want to hold off for a while. In any event, I would think that rational behavior would dictate substantial cuts in employment over the next couple of quarters.",136
-fomc-corpus,1979,Unless [employers] thought they were going to need that labor in the near term.,19
-fomc-corpus,1979,"That's correct. But when they look at their books and see what happened to profits in Q1 and Q2--and probably will happen to profits in Q3--given the employment levels that currently exist in the face of declining output, I think those [numbers] are going to be persuasive arguments to them to cut back on employment.",67
-fomc-corpus,1979,But this is not an unusual pattern at this stage of the cycle.,14
-fomc-corpus,1979,"It's a bit worse than average but you are quite right, Governor Teeters, that the pattern is not unusual.",23
-fomc-corpus,1979,It seems to me that it's quite similar to the first half of '74; we had a [comparable] phenomenon at about the same time [of the cycle].,34
-fomc-corpus,1979,That's correct. This one seems to be a little worse; the decline in productivity is a bit more dramatic.,22
-fomc-corpus,1979,Governor Wallich.,4
-fomc-corpus,1979,"Looking at your projections, am I right in thinking that net exports and the change in business inventories are the two really dynamic factors and that they roughly offset each other with a swing of about $30 billion at a maximum? My question is about the degree of confidence with which you hold these [projected] sizable swings.",64
-fomc-corpus,1979,"I think you are quite right, in the sense that they not only offset one another in some respect but also that the degree of confidence we hold in our forecasts [of those two measures] is very similar. However, that degree of confidence is extremely low.",52
-fomc-corpus,1979,"With some of these elements, [such as] consumption, I think you probably have a very narrow confidence interval.",23
-fomc-corpus,1979,"I'll speak first about inventories and I will let Mr. Truman attack the problems of projecting net exports. Quite frankly, our projections of inventories are determined largely by business behavior in regard to their management of stocks in recent years. Businessmen have tended to be quite conservative; they have tended to respond very quickly to their perception of any backup in stocks. We saw a number of very small, very rapid adjustments in production, too, whenever there was an indication of stock building. We are projecting a continuation of that behavior. There are indications that inventories had built up in June and in automobiles undoubtedly in July also. There has been some buildup in inventories in real terms elsewhere. We think production adjustments are occurring rather rapidly, but they are not very large so they can be put out of the way rather quickly. And we would expect that businessmen will attempt to continue to keep their stocks more or less in line with sales--in fact on the conservative side over the projection period. But we have a number of equations to forecast, and I don't put any more credence in those equations than I do in this kind of visceral judgment based upon recent past performance.",229
-fomc-corpus,1979,"We would like to believe that the net export projection is slightly more firmly held than the inventory projection. The facts may not be so right. It is true in the net exports area that we are now dealing with a $600 billion total--and it's made up of factors which move in very different directions and have different futures--so that the range of error on the net export projection can be quite large if we look out as long as six quarters. I'm pretty comfortable, though, with this projection as it now stands. The oil situation is rather straightforward, based on the assumptions that we have. And the question might be how responsive imports will be to slow growth in the United States. We have put in a fairly modest downturn in real imports in connection with this; it could in fact be larger. On the export side, things look fairly good--carrying through to the middle of next year--as long as growth is reasonable, given the recent growth in major industrial countries. The question I think [arises] in the latter part of 1980, when we do expect a considerable slowdown; if that is more [severe], then clearly exports will fall off less. In terms of the global numbers, the one area of particular uncertainty has to do with service income, which gets fed into these projections. There has been a dramatic increase in service income in the last quarter of last year and the first quarter of this year. We basically have not extrapolated that increase but we have a further modest buildup from the current level. Now, we have been fooled by statistical flukes in those series, so the numbers could be off, but in the basic merchandise trade area, I'm pretty comfortable [with our projection]. I would say that the swing in nominal terms that we have here is much less than that in so-called real terms. It's an area of strength but not a great deal of strength.",383
-fomc-corpus,1979,I have three names on my list. I hope the questions will be brief and that there won't be any more than three names. I might just say--I can't restrain myself from saying--that these two uncertainties may be mutually related if merchandise trade does so well because the economy is in a recession that is generated by the inventory reduction. If you don't get the inventory reduction you won't have such a good trade balance and vice versa. Frank Morris.,90
-fomc-corpus,1979,Do you have any estimates of the burden of consumer debt service--taking into account mortgage debt plus other debt--now and how it would compare to 1974?,33
-fomc-corpus,1979,I refer you to an exhaustive article in the Quarterly Review of the Federal Reserve Bank of New York.,20
-fomc-corpus,1979,"The level is fairly high and the burden is a bit higher than it was back then. [Mike], do you have those figures?",27
-fomc-corpus,1979,The repayment to income ratio is 23 percent roughly--at the record level.,16
-fomc-corpus,1979,That's a record level.,5
-fomc-corpus,1979,But the peak was reached last fall. It has been drifting down ever so slightly.,17
-fomc-corpus,1979,Consumer installment credit particularly has leveled off but I think the mortgage debt is still drifting up.,19
-fomc-corpus,1979,The article in the New York Federal Reserve [publication] makes a point that the simple view of this probably overstates the burden of debt.,28
-fomc-corpus,1979,Demographics.,3
-fomc-corpus,1979,"It argues that there are many more families now in heavy debt bearing categories, and if you adjust for that and adjust for the credit card debt--which would be a different kind of debt--the figures don't look as high as they do absolutely.",49
-fomc-corpus,1979,The issue is whether the debt burden seems significant [enough] or not to affect consumer behavior and perhaps create a slower response on the part of the consumer in the upturn than we have been accustomed to in the past.,45
-fomc-corpus,1979,The conclusion of that article is that [the debt burden] is high but not so high as it looks on the surface. It therefore moderates the conclusion; they still may be [unintelligible]. Chuck Partee.,46
-fomc-corpus,1979,"I just wanted to ask for your interpretation of the retail sales figures, Jerry. [The article] in the paper was a little confusing. The July increase looked very small to me but then there was some talk of a revision in May and June and I couldn't really make it out.",57
-fomc-corpus,1979,"Yes, that's correct. The July increase was quite small--0.4 both for total sales and sales ex-autos. Both May and June were revised up, which suggests that the second quarter consumption figures will not be as weak as we had thought earlier.",52
-fomc-corpus,1979,But were they revised very much? This is just a question of fact.,15
-fomc-corpus,1979,"Other things equal, they probably would revise GNP up by 1 percent or so.",18
-fomc-corpus,1979,One percent?,3
-fomc-corpus,1979,"It's fairly significant. But as I pointed out, the pattern is still a relatively weak one.",19
-fomc-corpus,1979,"Just another question quickly, Mr. Chairman, on the fiscal policy matter. Jerry, earlier this year you may remember we called attention to some startling differences between your projections of the high employment surplus and those of the Council of Economic Advisers. They were much different magnitudes and even different signs. Could you bring us up-to-date in a nutshell on where that stands today if you know?",78
-fomc-corpus,1979,"Well, we still have differences in the level, and those differences are a reflection of a different approach in calculating the figures. We tend to move generally in harmony, however, with the Council's movements at this point.",44
-fomc-corpus,1979,They both show a rising surplus?,7
-fomc-corpus,1979,"We both show a rising surplus, yes. I think that's really the most significant way of assessing these numbers. To come back to this issue of how much of a loss as a result of the recession, the projected decline in the deficit increases in our projection between '79 and '80 by about $10 billion and the high employment move is an additional $17 or $18 billion. I guess a very simplistic view would be to add those and it comes close to $30 billion in fiscal loss. But we will calculate that carefully for you and send a note along.",114
-fomc-corpus,1979,Mr. Axilrod. You want to give us a survey of what are called financial relationships.,20
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Thank you, Steve. I am conscious that without an egg timer time has been passing. But I thought it might be useful if I just set out a few thoughts of my own at this point before we have a coffee break. I don't intend to make it a habit particularly, but this is a meeting that is perhaps of more than usual symbolic importance if nothing else. And sometimes symbols are important. I thought I'd just lay out a strategy as I see it so you can have something to shoot at. Take it in the nature of my thinking out loud. I don't know to what extent it will reflect the general feeling of the Committee. In general, I don't think I have to go into all the dilemmas and difficulties we face for economic policy. It looks as though we're in a recession; I suppose we have to consider that the recession could be worse than the staff's projections suggest at this time. Once the inventories begin going, we don't know quite where they will end up. In looking at the situation that we're in, among other things I don't think we can forget that energy is a sizable factor and that it's not very susceptible to monetary policy. Nonetheless, we do have risks on the down side. When we look at the other side, I don't have to talk much about the inflation numbers; again, energy is a big factor but it's not the only one. And when I look ahead, nobody is very optimistic about the inflation picture. One can add up--and we've been doing it for a long while--considerations that could point to some decline in the rate of increase [in inflation], most of which have been disappointing as we've moved along. I don't see any very convincing reason to expect much of a decline to come about naturally, so to speak, in the short run, partly because I don't think we're through that energy price adjustment. So we've got to keep anticipating some impact of energy prices on the total. When I look at the past year or two I am impressed myself by an intangible: the degree to which inflationary psychology has really changed. It's not that we didn't have it before, but I think people are acting on that expectation [of continued high inflation] much more firmly than they used to. That's important to us because it does produce, potentially and actually, paradoxical reactions to policy. Put those two things together and I think we are in something of a box--a box that says that the ordinary response one expects to easing actions may not work, although there would be differences of judgment on that. They won't work if they're interpreted as inflationary; and much of the stimulus will come out in prices rather than activity. On the other hand, a tightening action obviously has risks, too, when we're facing the kind of business outlook we have. But to some degree the perversity of reactions can help us there. I think there is some evidence, for instance--if a tightening action is interpreted as a responsible action and if one thinks long-term interest rates are important--that long-term rates tend to move favorably. The dollar externally obviously adds to the dilemma and makes it kind of a ""trilemma"". Nobody knows what is going to happen to the dollar but I do think it's fair to say that the psychology is extremely tender. And as Mr. Pardee was suggesting earlier, we have all sorts of projections of great current account improvement; unfortunately, even those optimistic projections don't really show up in the figures until next year. And with the normal lag of figures, even if the projections are right some time in the next year, I think it leaves us in an exposed or vulnerable position for a period of months, maybe through the end of the year or longer. In saying that I'm not terrified over the idea of some decline in the average weighted exchange rate of the dollar or some similar measure. The danger is, however, that once the market begins moving, it tends to move in a cumulative way and feeds back on psychology and we will get a kind of cascading decline, which I don't think is helpful. In fact, it's decidedly unhelpful to both our inflation prospects and business prospects. Finally, I would note that the aggregates are running high; Steve just went over that. We're lucky they're not so bad over a long time perspective, but basically the recent figures don't look so good. And of course we've got this underlying question of what these traditional definitions of the aggregates mean anyway. In terms of our own policy and our approach, I do have the feeling--I don't know whether other people share it or not--that economic policy in general has a kind of crisis of credibility, and we're not entirely exempt from that. There is a similar question or a feeling of uncertainty about our own credentials. So when I think of strategy, I do believe that we have to give some attention to whether we have the capability, within the narrow limits perhaps in which we can operate, of turning expectations and sentiment. I am thinking particularly on the inflationary side. [Can we] restore the feeling that inflation will decline over a period of time and that that's a prime objective of ours? I think that is particularly critical now domestically in terms of the discussion of a wage pattern guideline that's going on currently and the tenderness of the foreign exchange markets. Specifically, that suggests that we may have to be particularly sensitive to some of the things that are looked at in the short run, such as the aggregates and the external value of the dollar. When we're sensitive to those things, there's certainly a perceived risk of aggravating the recession. I'm not so sure that we're in the zone where monetary policy itself is all that restrictive in terms of real activity, but there is certainly a perceived risk. Now, I don't know how we get out of that box but it would be very nice if in some sense we could restore our own credentials and [the credibility] of economic policy in general on the inflation issue. To the extent we can achieve that, I do think we will buy some flexibility in the future. If we're going to be in a recession, by all traditional standards the money supply does tend to be a little weak and interest rates go down. I suspect that's a pretty manageable proposition for us if long-term expectations are not upset at the time by any decline in interest rates--an action we might actually have to take to or want to take to support the money supply. But I don't think that approach will be a very happy one unless people are pretty confident about our long-term intentions. That's the credibility problem [and the confidence] we have to establish as I see it. And we haven't got a helluva lot of time as the recession comes along--if indeed it does come along--but particularly if it gets worse. So, I think we can't ignore the psychological problem that we have at the moment. I don't know what the chances are of changing these perceptions in a limited period of time. But as I look at it, I don't know that we have any alternative other than to try. The other alternative may be letting things go along, and perhaps they will anyway. And if inflation doesn't get better--maybe it will get worse --at some point it will be upsetting enough so that a much more forceful policy, whatever the consequences, will be required. That's not a very happy process. So I think we're in a situation that is not risk free but there are risks on both sides of what we do, and they are pretty balanced. In saying all that, I don't think that monetary policy is the only instrument we have either. I might say that my own bias is, while I certainly think in the particular situation we find ourselves it's premature to be arguing for a big fiscal policy move, that such a move might be necessary. If it is necessary, it ought to be through the tax side and it ought to be through a tax program that not only deals with the short-run situation but fits into the long-term objectives. I would think the background for that is pretty good in terms of a tax program that might do something for both costs and investment. But I don't think that's anything we are going to get or should promote right in the next month or two. So we don't have a lot of room for maneuver and I don't think we want to use up all our ammunition right now in a really dramatic action; I don't see that the exchange market or anything else really requires that at the moment. Certainly dramatic action would not be understood without more of a crisis atmosphere than there is at the moment. Ordinarily I tend to think that we ought to keep our ammunition reserved as much as possible for more of a crisis situation where we have a rather clear public backing for whatever drastic action we take. But I'm also fairly persuaded at the moment that some gesture, in a framework in which we don't have a lot of room, might be a very useful prophylactic--if I can put it that way--and would save us a lot of grief later. If we can achieve a little credibility both in the exchange markets and with respect to the aggregates now, we can buy the flexibility later. So, in a tactical sense, that leads me to the feeling that some small move now--I'm not talking about anything big--together with a relatively restrained aggregate specification might be desirable. I don't intend to define the dimensions of that before I hear your reactions. But that is the framework in which I came into the meeting anyway, and I will be interested in hearing your reactions. If we talk about almost any movement on the federal funds rate, however small, the discount rate question becomes a relevant consideration. That I do not prejudge in my own mind but if any of the presidents in particular want to comment on that one way or another, I would be delighted to hear those comments, too. I might only say that I'm somewhat allergic to the use of the discount [rate] as pure symbol--in other words move the discount rate and do nothing else because I think there's already some flavor of that in market thinking. We do that about once and that means the symbol is pretty much destroyed for the future. But other than that, I feel fairly neutral about [the discount rate issue] now, before I know how the discussion will come out this morning. Why don't we have a short coffee break. When we return we'll discuss the economic picture and your general policy bias first, [along the lines of the procedure] Mr. Miller introduced. Then we'll come back [to the policy issue] and get specific about it.",2119
-fomc-corpus,1979,"I'm not a clockwise, counterclockwise, or protocol man, so if you want to talk at this stage, get on Mr. Zeisel's list--I mean Mr. Altmann's list. I'm sorry, I was looking at the wrong end of the table. I know which way interest rates go even if I don't know which end of the table I'm at! Go ahead, Mark.",80
-fomc-corpus,1979,"Thank you, Mr. Chairman. I found your comments very helpful and I am very sympathetic with them. I guess the only thing I'd like to do is to make you feel a little less insecure about the impact of where I think you are heading and what that would imply in terms of the real economy and recession. It seems to me that as we look at what's happening in the real sector, two issues are relevant. One is what caused the recession that we are heading into. I think you rightly attributed that primarily to the energy problem. And if that's the case--and I happen to think it is--there is really nothing that printing money or, I would add, deficit spending could do to offset that. Second, as you know, we have convinced ourselves at least in Minneapolis that even if that weren't the case, there is no exploitable tradeoff between inflation and unemployment. So [in our view], a conscious decision to go easy on money in order to ameliorate the unemployment effect just really wouldn't have any impact. In fact, that would have the effect you suggested--that is, it would come out in terms of prices rather than in more rapid real economic growth and less unemployment. So it seems to me--with inflationary expectations clearly having worsened in contrast to our expectation earlier that they would start to get better about this stage of the year--that we almost single-mindedly have to devote ourselves to the task of doing something about inflation. Then the question is: What do we do and how do we do it? I found Steve's comments very helpful and useful in that they implied a tremendous amount of uncertainty about how to figure out what is happening to the demand for money. I don't pretend to be able to forecast that any better than anybody else, and the implication of that to me is that we have to try rather hard to hold the short-term rate of growth of money in line on the assumption that we can then respond in whatever way is appropriate to hit the long-run targets. I'm impressed by the fact that money is growing too rapidly. We talk a lot about ATS but lots of other [financial instruments] have come into use as money substitutes, as we have talked about; I think you've even mentioned them on occasion, [Mr. Chairman]. If we add any portion of those to the rate of growth of M1, for example, we get really quite large numbers. Let's assume that we get 4.8 percent growth of M1 for August, which I think is the forecast. Any of the ranges proposed in the Bluebook would allow for high double digit growth in September, excluding these other non-M1 factors. I think that would just be much too rapid growth at this very critical time. So I think we need to reduce substantially any of the ranges that are listed here in the Bluebook, perhaps going with the range we have at this time which is 2-1/2 to 6-1/2 percent. And if it turns out that that requires an upward adjustment in the funds rate, it seems to me we've got to do that in the short run in order to head off what I think would be a substantially more serious long-run implication.",646
-fomc-corpus,1979,Dave Eastburn.,4
-fomc-corpus,1979,"Paul, I was very much interested in your recital of the almost upside down economy that we are in, where usual roles really have reverse implications. There is one, however, that occurs to me that you didn't mentioned and that is the possibility that in this kind of world a recession of any magnitude can be inflationary in a longer-run sense. I think that's a real possibility particularly if, as I suspect, the staff's assumptions about fiscal action underestimate the stimulus that we would get if we were to have a recession, particularly one of greater magnitude than now forecast. So I think it's quite possible that we run the danger of overstaying restraint--creating a worse recession than is now projected, stimulating very sharp action on the fiscal front to get the economy moving, having very adverse psychological and expectational effects throughout the economy, and thus in the long run doing more to stimulate inflation than perhaps anything else we could do. All this is by way of saying that my inclination is to be very careful about moving vigorously toward restraint at this time, particularly given the lags that we all know exist between what we do now and the time that it is going to affect the economy. I'd like to end by asking Steve a question because his answers will determine in part just how confident I feel about all of this. Steve, on your fourth-quarter projections for M1 and M2, you have something like 4 percent and 7-1/2 percent with any of the alternatives--""A"", ""B"", or ""C"". Given past history with recessions and what they do to money growth, does that change your confidence level with respect to those fourth-quarter figures?",333
-fomc-corpus,1979,"Given the recession we have projected, which is slightly under 2 percent [negative GNP], and the degree of inflation, I guess I have the normal lack of confidence, but not any more than that. But I would think that [those projections] might be too low rather than too high if the nominal GNP we have forecast develops. I say that because on our quarterly econometric model--and you know there's uncertainty around that--the amount of so-called drift that's implied in that number is 3 percentage points. It's fairly high, and we have turned out to be right in the past on drift. But that we can't be certain about.",131
-fomc-corpus,1979,Thank you.,3
-fomc-corpus,1979,Mr. Balles.,5
-fomc-corpus,1979,"Well, Mr. Chairman, I find myself very sympathetic to the approach that you outlined in your assessment of the immediate and longer-run problems. It might seem odd in a way since last May I was in the distinct minority that thought we ought to ease a bit in view of an impending recession, which our staff had been forecasting for some months. My concern at that time [involved] what was going on in terms of interest rate levels and the effects in financial markets as well as the monetary growth record. There had been a period of very slow monetary growth over a half year. Now to my great surprise we have found just the opposite, with the summer surge in the aggregates. That apparently calmed down in August, but again there's a very strong projection for September, which Steve has already reviewed for us. So it seems to me that we have a credible reason for snugging up a bit right now and, therefore, I would lean toward what you were proposing, a conservative set of ranges and maybe an Alternative C type of approach for the period immediately ahead. That's simply because the aggregates have shown such strong growth since April--August being about the only exception--and [that surge in growth is] coming at a time when there is great sensitivity about inflation problems and how [that affects] people's behavior and the position of the dollar. One of the reasons why I was probing on the fiscal policy side this morning was that, while we can't decide this today, in my own mind I have been trying to formulate what could be a longer-run strategy. And it's based on an expectation that is yet to be demonstrated--that we will get a lot of fiscal stimulus, probably coming through a tax cut. That's just a personal guess, obviously. And while we talked about the high employment budget, I'd like to emphasize that in my opinion there is real stimulus in the real world from an enlarging deficit, which we are surely going to get on an NIA basis, perhaps of the magnitude shown in the Greenbook. If we are going to get that kind of stimulus down the road from the fiscal side, whether we want it or not--and I think we are going to get it--it might be a good thing to cushion the effect on the economy. I guess I'm now leaning more toward the view than I was in the spring that monetary policy may have to address itself principally to some gradual deceleration in the inflation rate, because if we don't get that accomplished, we will have an even bigger recession down the road.",507
-fomc-corpus,1979,Tom Timlen.,4
-fomc-corpus,1979,"Mr. Chairman, I'm generally in agreement with your comments in the areas of concern that you referred to. Having been trained in the traditions of Benjamin Strong, Allan Sproul, and Paul Volcker, I may have some shadings of view.",50
-fomc-corpus,1979,Sounds like a tight money man!,7
-fomc-corpus,1979,"I don't think I will comment in depth on all the areas you touched on, but certainly [foremost] in my mind are the level of inflation, the strong growth in the aggregates, and the tentative position of the dollar in the foreign exchange markets. Sure, we have to be concerned about the prospect of a recession and high [un]employment, but now is a time when psychology is a very important factor. I think the perception of the Federal Reserve's resolve may be at issue and I believe it's timely to give an indication of the direction in which we may be going. It's my judgment that there should be a continuing gradual process of tightening and we should adjust to developments over time as they [occur]. Those are my comments, Mr. Chairman.",152
-fomc-corpus,1979,Mr. Black.,4
-fomc-corpus,1979,"Mr. Chairman, were you not more original and more articulate than I, I would have assumed that you had borrowed my notes to make that talk of yours. I guess the only point on which I might differ with you is that I tend to attribute more of the oncoming recession--if that's in fact where we are headed--to inflation than you did and less to the energy situation. In any event that leads me to the same conclusion: that we ought to approach the recession problem very carefully or otherwise we are going to lay the groundwork for more recession or inflation, and then more severe recessions down the road. And I think we have to deal not only with this recession but with the problem of recurring cycles. This leads me to the point where I conclude that we really have to do something about the rate of growth in the aggregates. I concur with Mark Willes' remark in that all the ranges [in the Bluebook] seem too high. I'll offer two brief bits of evidence in support of that. If we go back to March, when growth in the aggregates began to spurt, and look at the period from March to September, under alternative B with a money market directive, for example, M1 could grow over that period by as much as 9 percent before we really acted. And that's a pretty long period of time. M2 could grow as high as 12 percent before we acted, and with ""C"" it's just a tad different from that. The second point is that we ought not to lose sight of the necessity for mentally adding back in 1-1/2 percent to the top of that adjusted 3 to 6 percent range for M1 because it's really comparable to 7-1/2 percent; and we are very near the top of that range now.",365
-fomc-corpus,1979,Governor Wallich.,4
-fomc-corpus,1979,"Well, I'm very much aware of the need to balance the considerations of recession and inflation. I think if we tighten up a little now, which is my inclination, we probably will add something to the depth of the recession but not much. And I would not consider that this may provoke such ill-timed and ill-thought-out responses on the fiscal policy side that we can't do that. I think we have to do what seems right and then contribute as we can in a sensible way to other decisions being taken. Now clearly, monetary policy has eased a great deal in recent months, [looking at] the aggregates themselves or the quasi-monies which we can add to M1, in which case they nearly double the rate of growth. Or we can add them to M4 or M7 and they have a less dramatic impact, but [the quasi-monies] are really pretty close to M1. Real interest rates have become much more negative as inflation has accelerated. And if you can't buy the CPI, you can always take your money abroad and buy a currency that is somewhat like the CPI; people are doing that. So we have had a change in monetary policy that we had not intended. We haven't been going out of bounds [on the long-run ranges] because we had that six months of flat movement in the aggregates from late last year through earlier this year. But I think the important thing is what has happened in recent months. [Let me mention] one consideration about the real economy. We are projecting, hopefully, a reduction in inflation of 1 or 2 percentage points from a double-digit range in the period after this recession. Remember that in 1974-75 we also got into the double-digit range; inflation was about 12 percent in 1974 and we brought it down to about 6 percent in 1975 and to about 4-1/2 or 5 percent in 1976. In other words we did a great deal better then--at considerable cost in unemployment--than we expect to be doing, at least for the first year of the post-recession period. If that means that we go into a new expansion in 1980 with a base inflation rate of 10 percent or thereabouts and we go through the same experience and the rate of inflation because of an expansion increases by about half of its value, we will find ourselves with inflation in the 15 to 20 percent range. I think that prospect is no longer at all incredible. I don't think our present policies involve very strong inflation fighting; they involve a very heavy component of fighting recession and in my view the result of that will be that we will go through one further round of slightly diminishing inflation and then we will see sharply accelerating inflation again.",558
-fomc-corpus,1979,Governor Coldwell.,4
-fomc-corpus,1979,"Mr. Chairman, the situation as I view it has a couple of interesting quirks. As you recall, last fall we talked about the real economy expanding while the monetary economy held quiet. We are now looking at a monetary expansion with a presumption that the real economy is flat. I didn't believe the one last fall, and I don't believe the one now. I think we have either a stock adjustment problem going on or a flow problem. At any rate, I think we are caught in a vicious circle. We start with an inflation rate base of whatever you want to call it--say, 7, 8, 9, or 10 percent. From that comes encouragement for higher oil prices and higher wages; we get lower productivity, we get higher costs, the dollar depreciates, and then we get higher inflation. We have got to break out of this circle, and breaking out of it I think means we have to refuse to validate some of these higher costs and prices. It's going to be an expensive process for us; it's going to be a traumatic process for some of our people. But I think the threat of an intensification of recession, while a cautionary flag, still is not balanced against the costs of inflation, which are now in the double-digit range and have been there for some time. The costs even if we just take it against GNP are obviously over $200 billion a year. We've got to get out of this box. I don't think we are going to break out of it today or tomorrow, but we are going to have to break out of it somehow or we will just continue to have a higher and higher inflation and a constant recurrence of international crises. The downside risks are there, certainly. But there's a certainty to the upside risks, too, in terms of inflation. I haven't had much confidence in these aggregates figures for almost 10 years now. I certainly have not seen anything to improve my confidence in them. The impact on the dollar has come to be a new element in this package and I think in the long run it means that we have to pay attention to our international position, perhaps a little more so than we have done in the past. All of this says to me that we still have a role to play. Monetary policy can't do it all but its role at the moment is to fight inflation. I would hope that the Committee would also look at the long-range strategy of how we are going to get out of this box that I have tried to portray for you. We need to try to look at the possibilities of getting more certain figures on our money supply, [perhaps by] getting greater reserve coverage throughout the whole range of financial institutions and maybe even some nonfinancial ones also. We must try to get ourselves equipped so we can know precisely what we are creating and be able to limit that creation of credit when we think it is necessary to dampen inflation.",589
-fomc-corpus,1979,Mr. Kimbrel.,6
-fomc-corpus,1979,"Mr. Chairman, from my vantage point we are indeed beginning to recognize some slower growth. That may be somewhat less evident in the Southeast than in other parts of the country, but with all of this we are also observing some [developments] that do not provide a great deal of encouragement, specifically in the area of consumer confidence area. Perhaps much of this is generated by the energy concerns and the toll they're taking in every part of the economy and also the contribution they're making to inflation, and that in turn is extracting its pound of consumer confidence. We have never seen the man on the street demonstrating the lack of confidence that he seems to be generating at the moment. Add to this the recent strength in the aggregates and we've become quite concerned about our total credibility. From the foreign exchange side, we seem to be getting unmistakable readings that what we do today and certainly over the next few days will be extraordinarily visible. We will be watched from that vantage point and also [from the perspective of] new leadership on this Committee. I think that makes our action today--and the direction of our action today--more than usually visible. That also spills over into the domestic arena; we are going to be having more than usual concern. I would venture that most of you have been called more frequently in the last ten days than you have before [by people] wondering what was going to happen here today and over the immediately succeeding days. I recognize the risks that are associated with almost any action we take, particularly if it's in the direction of some slight firming. Even though the movement should be slight--even symbolic, which is the term I believe you used, Mr. Chairman--I think it would be desirable at this particular juncture. Also I view the [appropriate] timing of the move with some additional pressure in monetary policy [as] now. So if indeed in the not too far distant future we find it appropriate to take a turn toward ease, some strength will have accrued, some different posture would have identified itself with us so as to permit the easing that would be [needed]. But as of this juncture, consumer confidence and attitudes, visibility, [and] both international and domestic [issues] lead me to want to add some degree of additional restraint today.",457
-fomc-corpus,1979,Mr. Winn.,4
-fomc-corpus,1979,"Mr. Chairman, I have a great deal of sympathy with the identification of the box, which you so aptly described. I personally believe that we haven't started to feel the social costs of inflation and that they are going to surface to an increasing extent this fall, with more attention on them. But in thinking of how we get out of the box that we have sort of built ourselves into, I have less confidence in our forecast of the aggregates than I do in the forecast of the economy--not only in terms of the numbers forecast but what they mean. On the other hand, I think any action we take--because we are certainly in the spotlight today--will be looked at very eagerly and there are psychological reactions coming from what we do. So that would make me just a bit cautious as to how extensive the symbolic action we take today [should be]. Yet in trying to find a way out of this box I think we do have to make some changes. And while this may go against the grain of your background, Mr. Chairman, let me suggest a possible course: I suggest that we shave the ranges of the aggregates and shave them considerably from what appears here. At the same time, we could widen the range of the funds rate and for once in our lives pay some attention to that and let [the funds rate] roam. Doing that gives us somewhat more adaptability to the circumstances as they unfold. It gives us an opportunity to evolve gradually from where we are rather than take an action which, if we get a reaction within the next week, then puts us back in another box that may become difficult. This would avoid tying our hands with respect to future actions, which I am a little concerned we might do with a major action today, although I have sympathy for that sort of move. [Given] my confidence that the aggregates may be much stronger even than the estimates, by narrowing their ranges I think we achieve your goal but do it with a different mechanism than a retention of a policy [unintelligible] at this time.",411
-fomc-corpus,1979,Mr. Morris.,4
-fomc-corpus,1979,"Well, Mr. Chairman I agree on the nature of the box we're in as you described it. It seems to me that we can work our way out of the box if we gear our policy to the aggregates in the next 6 or 8 months. I think we're in a situation very similar to the second quarter of '74 when we had declining final demand. The decline was cushioned by a very large inventory accumulation, financed by a substantial expansion in bank credit, and this in turn I think led to a sharp rise in the aggregates. It seems to me that the problem in '74 was not that we leaned so hard against the expansion in the first half, pushing the funds rate to unprecedentedly high levels, but that we moved so sluggishly when the aggregates failed to grow in the last half of the year. Our slow movement on the other side I think produced a much bigger recession than was necessary and probably more reaction on the fiscal front than was really productive. So I would agree with your judgment that we should take a symbolic action today that would not be terribly damaging to the future prospects for the economy but would have some symbolic significance to the markets. I would suggest moving to 11 percent on the funds rate, raising the discount rate to 10-1/2 percent, but giving the Manager a money market directive and informing him that there should be no move beyond 11 percent without further consultation with the Committee. A move of that size is not going to have any major further weakening impact on the economy; it would be slight, but not significant. I think it would yield us some psychological benefits and would be a worthwhile move provided that we're willing to perform differently in the last half of the year than we did in the last half of '74. [We should] really move against a situation in which the aggregates are not growing, and I think that's likely to be the case in the fourth quarter when we get a big decline in inventory accumulation.",396
-fomc-corpus,1979,Mr. Baughman.,6
-fomc-corpus,1979,"Mr. Chairman, I must join the chorus that has been sung pretty much around the table thus far, although I guess I would have to say I'm not a singer, as John Balles reminded me at the last meeting. Coming from an area where labor markets are [tight] and the turnover of labor is high because of that, [my singing] really doesn't have credibility in these circles. With respect to the box that has been referred to, thus far at least we are calling it a box and not a coffin, which may prove to be overly optimistic.",113
-fomc-corpus,1979,We could make it into a coffin.,8
-fomc-corpus,1979,A little latent optimism!,5
-fomc-corpus,1979,"I'm not unaware of the [concern] that is bothering quite a few of us, namely that the historical record seems to say rather unequivocally that we have usually acted late in both up and down periods of the cycle. And insofar as there is an argument in support of a heavier reliance on the monetary aggregates, it is largely because heavier reliance on them would help us to avoid making those errors, if we classify them as errors. But it seems to me if our major problem is inflation, and we visualize ourselves as being in a box and we're trying to find a way out, then we're pretty much forced to orient monetary policy to a rather long-term horizon. Doing that really means we throw in the sponge for our more flexible economic tool, so far as influencing economic activity. And that in turn means that we turn responsibility for the short-term influence of economic activity over to fiscal policy. While I don't like aspects of this, I'm persuaded that that's probably the route we're going to have to go if we want to find ourselves out of the inflation box. Namely, we have to focus monetary policy primarily on getting a [handle] on inflation. That seems to me to force us into a context of working [toward our objective over] a rather long-range horizon and finding some way of defining it. Now a recent Congressional report spells it out in terms of a conventional monetary aggregate. Right at the moment I think it takes a pretty heroic person to commit himself to hitching closely and rather unequivocally--especially over a long time frame--to a monetary aggregate. But I don't really see much escape from it if we're going to hitch to inflation and that aspect which I think flows from it--I agree with Governor Coldwell--namely, the weakness of the dollar in exchange markets. That's all I have, Mr. Chairman.",371
-fomc-corpus,1979,Mr. Mayo.,4
-fomc-corpus,1979,"Mr. Chairman, I'd like to look at this as an opportunity rather than a box.",18
-fomc-corpus,1979,Good.,2
-fomc-corpus,1979,"Inflation is our number one enemy. This has been declared far and wide, by the President of the United States and the leaders of the Congress as well as by the Federal Reserve. This may not always be the case. There may be some folding on the fiscal side. In fact I would be willing to bet a Suzie to a penny--well, I've got to help publicize [the Susan B. Anthony dollar]--that we will have fiscal stimulus regardless of what we do, as long as we're responsible, of course. If we put the discount rate at 20 percent that's something else. We will be blamed for high interest rates and for causing the recession regardless of whether we move [rates] up a percentage point or down a percentage point at this juncture. We tend to be too thin skinned about that. I don't think we can take it seriously as long as we act within a reasonable margin, which is a much greater margin than this Committee has typically envisioned. We all grant--I think Phil Coldwell put it very politely--that we have a generally shared low level of confidence in the accuracy of our figures on the monetary aggregates. But having agreed with that, I don't know what to do with that fact. I think we have to take the central point of the low level of confidence and work with it partly because--and here we are in a box--we have agreed to and the law has been passed that we are to have targets and those targets have been elaborated on. We obviously have a very concrete belief in some targets that we ratified again just one month ago. So for foreign reasons, namely the value of the dollar, and for inflation reasons--and not only for substantive reasons but for symbolic reasons--I think this is an opportunity, while everybody is hating inflation so much, to move ahead and to tighten somewhat. I would define ""somewhat"" as it was just defined--I forget by whom but I think it was Frank--as an 11 percent central rate. A range of 10-1/2 to 11-1/2 percent [for the federal funds rate] is fine with me. Maybe we could [trim] our aggregates [ranges] down a half point but I wouldn't go farther than that because I think we would make trouble for ourselves. But I'd be ready to reverse, again partly for symbolic reasons and partly for substantive reasons, with this rather hazy concept we have of the distribution of the lagged effect.",505
-fomc-corpus,1979,Mr. Partee.,5
-fomc-corpus,1979,"On balance I guess I agree with Frank Morris more than anyone, although there are points of similarity [with other views]. I think the economic outlook is so bad that I wonder whether I'm missing something. That is, it seems to me that a substantial drop in consumption will have more effect than any other factor on capital spending. A substantial drop in capital spending and consumption will have a major effect on inventories, and the prospects are that we're in for a very serious recession if this continues. So I've looked around for some things that would tell me I was wrong about that. There are a few. First of all, Frank, the stock market hasn't gone down. I've looked back and in every other recession the stock market has dropped fairly early. In fact, it has gone up over this period. And those are people who are betting their money on the future course of events. The second thing that's interesting to me is that the risk premiums haven't increased in the securities markets. They are close to their lowest point even for Chrysler, which is probably only the first of a number of corporations that will get to be in serious difficulty. Even Chrysler hasn't [seen a rise in] those risk premiums, looking at low-grade corporates as against high-grade corporates or corporates as against governments or municipal bonds, low and high grade. And even for Cleveland, the low grade muni premium is not large. The third thing is that the behavior of the money supply is extraordinarily strange. We haven't had a period associated with a recession in which we had really weak money growth followed by quite strong money growth. It has been a rather mixed picture, but generally speaking the monetary aggregates weaken and stay on the weak side; they may be positive but they stay on the weak side until pretty close to the lower turning point. This time we seem to have had 4 to 5 months now of strength. It could be a change in the demand function, as Steve suggests, but that always bothers me because we can just do that. Arithmetically anything we don't understand [is explained as] a change in the demand function. Or it could be an intent to look through the recession. Indeed, all three of these indicators might be a reference to the public's attitudes--an attempt to look through what they perceive to be a modest recession and to build on the future. If that's the case, we might not have much recession. So, I'm pretty much forced back to the aggregates as the only decent guide we have. And as long as they're rather strong, I'm not terribly uncomfortable about our contribution, plus or minus, to what's happening to the system. They're a little too strong, I think, because they are running up through their ranges pretty fast. And as Bob Black and I guess Mark Willes pointed out, they could very well get to the top of the range or go above it in another couple of months if we happen to have strong numbers. I know all the problems with the aggregates, but I don't think they're as bad as most of you do. And I think we ought to be guided by the aggregates, recognize that they are high in the range and take a little defensive action on account of that. I also think the market so anticipates some little firming as a result of today's meeting that not to do it would have its own impact on psychology and attitudes. So I would be prepared to see a little tightening partly because I'm not sure what these strengths in financial markets mean and partly because we're running high on the aggregate ranges and we have just again reported to the Congress on them and our intention to stay within them. For the funds rate I would suggest maybe a range of 10-3/4 to 11-1/4 or 10-1/2 to 11-1/4, with a midpoint of 10-7/8 percent. I think we ought to reduce the short-term aggregates ranges a little but it's a mistake to reduce them too much because we will just look silly since we don't have any effect on them--to speak of--with our policies in the next month or two. I'd maybe take a point off the aggregates of alternative B, both the lower and upper ends and go with a money market directive. That is what I would propose today.",863
-fomc-corpus,1979,Mr. Rice.,4
-fomc-corpus,1979,"Mr. Chairman, I listened with interest to your comments at the beginning of the discussion, and I appreciate a good deal what you had to say. I agree [with what you said on] economic policy, increasing prices, and credibility. I also agree that if there were some action or set of actions that we could prescribe that would strike a really significant blow against inflation, turn around public expectations of continued inflation, and restore the confidence that you mentioned, that would be an imperative thing to do. However, I'm conscious of the need to balance the goal of moving against inflation as well as doing what we can to minimize the impact of recession. Obviously the economy today is weakening; even you recognized yourself, Mr. Chairman, that the recession may turn out to be worse than the staff now projects. Clearly most of the economic indicators are weakening; very few show any strength at all. My own feeling is that the recession is likely to be deeper than we now are willing to recognize. It may be true that increasing the money supply right now would result in higher prices instead of stimulating real growth, as Mr. Willes pointed out. But it may also well be true that any restrictive action that we're likely to take, given the causes of the current inflation, would be unlikely to have much effect except perhaps symbolically. I doubt myself if any action we take will have any really significant effect in restraining the current inflation. So I would be most reluctant at this time to move in the direction of further restriction. I can't help noting that money and credit are already tight and interest rates are very close to their historic highs at the present time. To move further in that direction, in the face of the obvious evidence of a weakening economy, seems to me to run the excessive risk of making the recession deeper than it might otherwise be. I might be persuaded differently over the next few days or weeks as additional data come in, but at the present time I would prefer to see us follow a steady course--that is, not move in the direction of further restrictiveness. But also because up to the present time the unemployment figures have not risen significantly, I would be opposed to taking any easing actions. I would therefore want to follow a policy of steady as we go. I'd stay with the policy that we had adopted previously. I think this would translate, so far as the monetary [aggregates] are concerned into alternative B, keeping the ranges roughly where they were.",494
-fomc-corpus,1979,"That's not, of course, keeping the ranges where they are.",13
-fomc-corpus,1979,"No, I realize that.",6
-fomc-corpus,1979,Mr. Guffey.,6
-fomc-corpus,1979,"Thank you, Mr. Chairman. I, like everybody else around the table who has [spoken] this morning, am mindful of the balance needed between the [potential] depth of the recession and the need to fight inflation. Over recent months, my attention has been more focused on trying to moderate the depth and the length of any recession that seemed to be clearly on its way or perhaps already in progress. I guess that's a very comfortable position when the aggregates are indeed growing at a moderate rate or even at a very low rate; we can [then] afford that luxury. But things have changed. The projections we're looking at now of as much as six months of very high rates of growth in the money supply ultimately will translate in my judgment into a worsening of the inflationary outlook. I would come to the position then of suggesting that we have to move against those growth rates in the money supply. The question is how and by how much. I would note that this Committee has taken interest rates, as measured by the federal funds for example, a full half percentage point higher since the last meeting on July 11. That's not an insignificant move. The proposal around the table is that we take another 1/2 point [increase] immediately; that's a full percentage point from one meeting to the next. There's been a change in the Chairman of this Committee; there have been changes in several other aspects of the Committee itself. That [increase in rates] may have a public perception that would be acceptable in the short run. On the other hand, it seems to me that in view of the past movement we've already had--and if there is indeed a lag in how interest rates affect the growth rate in money supply--then I would oppose going up at this time in any major step. I would like to propose that if the markets question where we are [on the funds rate]--whether it's 10-5/8 or 10-3/4 percent--we indeed validate a move to 10-3/4 percent. And I'd set the ranges in such a way that they would be below either ""A"", ""B"", or ""C"" as they appear in the Bluebook. I would have them be 1 percent off the ""B"" ranges of 4 to 8 and 7 to 11 percent, with a rather restrictive federal funds range of 10-1/2 to 11 percent. And if indeed we get the growth projected by Steve and his staff for the latter part of August and into September--particularly those first 2 weeks in September which apparently is a crucial period--we should be prepared to move to 11 percent and let the Desk work within those ranges, but [I'd go] no further than 11 percent. You asked, Mr. Chairman, for some comments with regard to the discount rate. If we were to move [the funds rate] to anything above 10-3/4 percent--if that's the decision of this Committee--then it would be my feeling that the discount rate probably should go up and by as much as 1/2 percentage point. I would prefer, on the other hand, if we do stay fairly stable--that is, at the 10-1/2 percent target we have now--that the discount rate remain where it is. Only if we move to 11 percent should consideration be given to a discount rate move.",691
-fomc-corpus,1979,Mrs. Teeters.,5
-fomc-corpus,1979,"I'm glad to find we're all in agreement that we don't know what's going on or what to do about it. I can live with a minor tightening at the present time, given a 10-1/2 to 11 percent range on the federal funds rate and some reduction, possibly, in the ranges for M1 and M2. However, I would like to join Frank Morris in that I think we're not going to be there very long. We should be fully prepared between the next month or two to start moving back from these ranges as the recession develops. I think we are going to be facing an underlying real economy that will probably turn out to be somewhat worse than is being projected at the present time. If that's true, we're going to see jumps in the unemployment rate in the neighborhood of 1/2 percent a month and I think it would be the right policy when the unemployment rate starts to rise to show some response to the developing recession, partly because it's a proper policy stance for monetary policy to take and partly to reduce the size of the fiscal stimulus, which will be on everybody's mind when we get those types of increases in the unemployment rate. I don't want to do very much now. I don't think it's going to have any impact on the inflation rate. I can't really believe it's going to do a great deal in the international market because what went on in the international area was not connected to underlying economic events but was basically a reaction to political events. However, a minor tightening at this time--I'm saying 10-1/4 to 11 percent on the funds range--I would find acceptable. And I'd urge the Committee to be constantly watching the developments in the economy for the turning point at which we can back off. There will not come a time in the next six months at a very minimum in which we can say we have won the fight against inflation and therefore we can lower the rates. I'm sure that will be an argument down the line--that we still have a raging inflation and therefore we should not react to domestic developments. So I would go along with the recommendation in alternative B, with some adjustment in the ranges.",434
-fomc-corpus,1979,Mr. Roos.,5
-fomc-corpus,1979,"Yes, sir. I purposely waited until the end of the batting order because up until the last few expressions of opinion I was so wholeheartedly in agreement with everything that was said that I didn't want to express that agreement until everyone was committed verbally to that position. I didn't want to drive others off! I subscribe, Mr. Chairman, to your introductory remarks. I think they express the best analysis of a longer-range strategy that I've heard since I've been a member of this group. You have publicly expressed your determination to do whatever possible with monetary policy over a long range. Certainly we aren't going to bring inflation down in a 6-month period. And certainly we're never going to bring inflation down if we act on a month-to-month, quarter-to-quarter [basis of] fine-tuning. I think it's terribly important, as so many others here have said, that we do something symbolically today to reinforce the credibility of the policies that you have expressed in the short time you've been Chairman. Specifically, I would favor at least the alternative C program. I think we have to move toward widening the fed funds range and freeing interest rates to move more freely. I would perhaps go beyond that, as Mark Willes expressed, by reducing the monetary aggregate ranges even below those in alternative C. But I would not recommend anything more of [unintelligible] than that shown under alternative C.",277
-fomc-corpus,1979,"You made one mistake at least, Mr. Roos. Vice Chairman Schultz has not yet spoken.",20
-fomc-corpus,1979,I eliminate my remark from the record!,8
-fomc-corpus,1979,"He carefully husbanded his [remarks at his] first meeting. He participated at the very beginning and this won't be the very end, Fred, unless you're so dramatically persuasive that we immediately--",38
-fomc-corpus,1979,"Well, I want you to know that I shall protect my position as the caboose with fervor! My feelings are pretty much the same as I expressed to you yesterday, Mr. Chairman. It seems to me that inflation and credit demands, the difficulty in projecting the aggregates, and the sensitivity of the dollar would argue very clearly against any easing. On the other hand, in spite of the little snapback that we've had in July, the economy is certainly very fragile. And in spite of the persuasive arguments in the Federal Reserve Bank of New York [article] on demographics and credit cards, I continue to be worried about the level of consumer debt. I'm very concerned about consumer confidence, not just because of the Michigan and Conference Board surveys, but in light of the longer-term kinds of studies that are made about consumer confidence. I just don't know how low that can go and I don't know how serious the recession could get. I think that is a clear and present danger, so I would argue against any very strong moves to tighten. That leaves me to suggest that we stay where we are or tighten moderately. It seems to me that at this point in time a message is very important, so I'm persuaded that we should tighten moderately. I am concerned that the messages we send be clear, which under ordinary circumstances might make me want to take a little stronger move than I would support today. But in the present circumstances, with everything that has been said in the media and with the changes in leadership, it seems to me that any move toward tightening is going to be a fairly clear message. I would hope that sometime in the future we could narrow the aggregates ranges and let the fed funds be perhaps more volatile. But I would be a little concerned about that right now, as perhaps muddying the waters a little on the clarity of the message. I would also have a bit of concern right now about raising the discount rate because I would like to save some powder if the message is not taken as we think it is going to be. So I would come down generally in favor of alternative C; but the fed funds rate range I would prefer is Governor Partee's 10-1/2 to 11-1/4 percent.",449
-fomc-corpus,1979,"In view of the hour and the fact that a number of people were very specific in their comments, I wonder whether it's not appropriate for me to try to put something quite specific on the table and let you shoot at it. First, let me make a couple of comments that occurred to me in listening to you--some points of agreement and maybe disagreement in some cases. We work with these aggregate ranges; we now have two [sets] of them [depending on] whether we modify them for ATS and NOWs or not. When I look at the modified ones in particular, the question that Governor Wallich raised keeps occurring to me--whether we were anticipating all the events that brought about the quasi-monies and near-monies that we got this year. I certainly wasn't. And I think there is a rather persuasive case that money in that statistical sense is much easier than either of the particular statistics we use suggests. There were a lot of comments about our needing to move perhaps against a decline in the aggregates later on; I don't know what's going to happen there, but I allow for that possibility. I remain very concerned that to the extent possible--and we may have very little time--we do it from a position of strength in terms of our total posture rather than weakness. That move which may become necessary may almost be forced upon us [and] will be taken unnecessarily amiss in terms of our longer-range concerns about inflation. Inevitably, all this brings up the question of fiscal policy. Let me give you a more hopeful [view] on that. Maybe I haven't been in Washington long enough--on this tour, anyway--but obviously if the recession turns out worse than now projected, let's say, there will be a lot of pressure on fiscal policy. I would say--I'd say it in this room anyway, though I certainly wouldn't say it publicly now--that I'm not sure that's altogether a bad thing, given the way personal income is acting and given the direct drain on purchasing power that comes from the oil situation. I do think there is a considerable risk, which some senators impressed upon me at my hearing, that if the Administration doesn't come up early with a tax program that they would like, they will have forced upon them a tax program of a kind we wouldn't like. [I mean by the latter] the kind of pure ""get out the purchasing power as quickly as possible"" program. I don't know what others who have been up [on the Hill] think about this; maybe Nancy [has some thoughts on it]. I suspect when it comes right down to it, the Administration may have a fairly clear idea of the kind of tax cut it wants--and there was some Congressional sympathy still--which would be in a constructive long-term direction. I don't know when the proper time is, if ever; I think it depends upon the business situation. But I am not entirely unhopeful that if it comes to having a tax cut, (a) it might be a good thing, and (b) there is a reasonable chance of shaping it in a constructive short- and long-range direction. Now, maybe that's entirely too optimistic but I'm in the business of being optimistic now. Is that blowing smoke completely, Nancy?",653
-fomc-corpus,1979,"I don't think so. There is a tremendous amount of sympathy on the Hill to roll back the payroll taxes. And for the first time there was constituency pressure of an enormous amount on the payroll tax increases last year. I think the people have become terribly sensitized to them with the rapid increases of recent years. My concern is that we may again [find ourselves] in many ways politically in the fall of '74--when the Administration waited until there was a palace revolt in mid-January before even proposing any sort of tax action. It seems to me, as we get further into the fall, that the type of tax cut that the Administration wants and the type of tax cut that they want on the Hill are going to be very close together.",150
-fomc-corpus,1979,"Well, that is my hope too. Nobody can project how it will come out, but I think they are in the same box--to return to that--as we are. But it's premature to begin suggesting that kind of thing now until we're right up against it. It's inherent in the position that we're in.",63
-fomc-corpus,1979,"I have not thought of a payroll tax cut per se as structurally a very desirable device. I would have thought [more favorably] of something that undoes the great increase in the corporate tax resulting from under depreciation. If all they did was to remove that, by replacement costs depreciation--",59
-fomc-corpus,1979,I think what they basically have in mind is a payroll tax [cut] because it would reduce pressure on prices and reduce costs directly on the employers' side. There's also a possibility of some adjustment on depreciation--accelerated depreciation or investment tax credit.,50
-fomc-corpus,1979,"Also, if you're going to give something to business, you've got to give something to the consumer.",20
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"I think you've got to give something to the consumer, so it may be some combination of that sort with some emphasis on the investment side. Now, I've got a personal problem--other people do, too--with the payroll tax pure and simple because of the linkage between the payroll tax and the benefits. So, I don't know. But we're not going to resolve fiscal policy here this morning. I'm just not quite as pessimistic about it as some of your comments [implied]. The other thing that occurred to me--I don't know whether anybody mentioned this or not--is that any of these aggregates ranges shown for the short run in comparison with the short-run ranges we have currently could be interpreted as an easing. I don't know how serious that is. It is true that they are substantially higher than the present ones we're working [toward]. Well, let me try something here and just shoot at it. On the aggregates, I don't think I can't bracket everybody's implicit or explicit comments, but there was a considerable amount of commentary that we ought to go below any of these ranges [shown in the Bluebook alternatives]. The least we can go below them is 4 to 8 percent and 7 to 11 percent. On the federal funds range--I'm speaking personally but I think it may coincide with some other views--I tend to think of it asymmetrically. It depends on whether we think of the range asymmetrically or put the asymmetry right into the specifications. We have another problem just in terms of the message issue. Right now, while the market is a bit confused about the federal funds rate [objective], there is a substantial body of opinion that thinks we're at 10-3/4 percent, and at the least I think we have to confirm that. Frankly, I don't know quite where we are because when I listened to people earlier I was changing my mind. Maybe I ought to change it again. I was [thinking] in the fairly immediate situation--I'm not talking necessarily tomorrow, but this week--of something like 10-7/8 percent or maybe even with a little flexibility, say, around 10-7/8 up to 11 percent. That is consistent, I guess, with a range of 10-3/4 to 11-1/4 percent. Obviously we can widen that out. Or I suppose the alternative is something like the 10-1/2 to 11-1/4 percent that some people mentioned, which also gives us a 10-7/8 midpoint if I did the arithmetic correctly.",526
-fomc-corpus,1979,"Well, that does; but the other range gives you 11 percent.",15
-fomc-corpus,1979,"Yes, and we would treat it asymmetrically low, I think. The asymmetrically low [concept] reflects the fact that we really don't want to have a surprise in the aggregates and move lower too quickly for a couple weeks with some low aggregate figures. My persistent problem with this is that I never know what those aggregates are going to show next month. I hate to be at the whim of a really temporary move in the aggregates, which is why we always have this question of how wide to make the federal funds rate range. But let's say, so I can elicit some responses here, 4 to 8 percent [for M1], 7 to 11 percent [for M2], and 10-1/2 to 11-1/4 percent as one version of the funds range. Or if you want to tighten it up on the low side, 10-3/4 to 11-1/4 percent is basically the same starting point, maybe shaded in the second case to something like 10-7/8 percent or 10-7/8 to 11 percent. Presumably we would go up to the 11-1/4 percent if the aggregates come in strong. And if they come in really strong, we'd have to have a telephone conference. If they come in the other way, presumably we'd have a telephone meeting.",281
-fomc-corpus,1979,"A money market directive or an aggregates directive, Mr. Chairman?",13
-fomc-corpus,1979,"I never heard anything that sounds more like a money market directive. CHAIRMAN VOLCKER I have no particular feeling about that, one way or the other.",32
-fomc-corpus,1979,"Well, the trigger points would be very different, as I view it anyway.",16
-fomc-corpus,1979,I don't have any strong feeling about a money market or an aggregates directive. I suppose an aggregates directive would make me lean more toward the 10-3/4 to 11-3/4 percent range just in case of a fluke and the aggregates came in too quickly on the down side. Governor Coldwell.,65
-fomc-corpus,1979,"Mr. Chairman, I did not express myself on the aggregates or the range for the federal funds rate. I thought we were talking principle more than anything else on the first go-around. I would like to view this as kind of a 3-stage process: that we would lead with a small increase in the federal funds rate, move with the discount rate, and then appraise whether the federal funds rate needs to be moved after that. I'd like to see a strong policy statement drafted at the time of the discount rate action. And while you haven't asked for [our comments on] this, I'm going to throw it in anyway: I'd like to see us increase our intervention in the international field, with the idea of strengthening the dollar or giving it some upward push at the moment. I'm afraid we have downward pushes headed at us down the road and if we've got any stability, I'd like to get a little money in the bank to work with. Now beyond that, on the funds rate and so forth, I'm not a fan of these ranges. Nevertheless, I have to work within what the Committee is paying attention to, so I'm going to specify the ranges I think would be appropriate. Those ranges would be: 4 to 7 percent for M1; 7 to 11 percent for M2; and a funds range of 10-1/2 to 11-1/2 percent, with the understanding that we do not exceed 11-1/4 percent without consultation but move promptly to an 11 percent rate.",310
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,"Mr. Chairman, most of what you are suggesting as a possible position here I find--well, let me say acceptable. I'd like to move a touch more promptly to 11 percent on the funds rate. There's one caution I'd like to draw, and maybe I'll be a voice in the wilderness this month as I was last month. We all agree that the aggregates are getting increasingly harder to understand. In my view that's much more true of M1 than M2. I made the suggestion last month --but got no support, I'll have to say--to put more weight on M2 formally in the directive just for the reason that it is behaving less erratically than M1. I hope before the next meeting of this Committee to share with you an updated paper by my staff on what the recent behavior and experience with M2 has been. It's really quite encouraging in terms of the demand function being pretty stable and coming back on track after departing in the first quarter, despite all the vagaries of Regulation Q and what have you. The only specification that I dwelled on, Mr. Chairman, was your very high range for M2 at 7 to 11 percent. The projections of the staff for the growth of the aggregates in September are very high, bringing M2 especially up near the top of this range. I think that's too high. And if we're going to pay any attention to coordinating our short-term 2-month goals with our longer-term goals, I think we really need to bring the range for M2 down to a point where we won't continue to depart from the midpoint [of our long-run range]. It sounds awfully radical but I'd like to suggest a range [with an upper limit] no higher than 9 percent--perhaps 5 to 9 percent on M2--just so we don't get increasingly off track from the midpoint, which is the provisional target that I personally would like to shoot at. As far as the fed funds range is concerned, I could go with the range you're talking about as long as we move pretty promptly to 11 percent. If that is done, I think we should follow that up with an increase in the discount rate of a full half point. And I'd feel more comfortable with an aggregates directive to make sure we don't let the aggregates get too near their outer bounds without triggering some action on the federal funds rate.",477
-fomc-corpus,1979,Frank Morris.,3
-fomc-corpus,1979,"Paul, I would just say this: Since we're after some symbolism here, I think we'd get a lot more symbolic impact at 11 percent than at 10-7/8 percent. I think a movement of [only] an eighth of a point might produce a perverse reaction from the market. It seems to me that a nice round odd number like 11 percent is what we ought to be seeking.",83
-fomc-corpus,1979,I can understand that argument.,6
-fomc-corpus,1979,"I think we have a choice of either a narrower aggregates range that is likely to be triggered on the up side before we pull it down or being a little more generous on the funds rate. I could go with 4 to 8 percent on M1 and 7 to 11 percent on M2 provided we move to 11 percent on the funds rate and have a 10-1/2 to 11-1/2 percent range, with the possibility of that being used if it is triggered by the aggregates under a regular aggregates directive so that there's a gradual movement. If we don't want to do that, then I would say that we ought to pull down the upper end of the aggregates ranges and maybe the lower end also in order to have a narrower funds rate but an earlier trigger. I would prefer the first version: 4 to 8 percent, 7 to 11 percent, and [on the funds rate] 10-1/2 to 11-1/2 percent and a move to 11 percent.",211
-fomc-corpus,1979,Would you go down to 10-1/2 percent if the aggregates were within those ranges?,20
-fomc-corpus,1979,"Well, you have to [accept] the logic of this.",13
-fomc-corpus,1979,You could always make the ceiling higher. I have no name on my list.,16
-fomc-corpus,1979,"Henry made the point that I wanted to make. I would just like to follow up and point out that if we take 4 to 8 percent with a money market directive and if the forecast for August is correct, then M1 growth in September would have to be over 11 percent before we move [on the funds rate]. And that's 11 percent without any add-on for any of these near-money things. Somehow that just doesn't strike me as being a very forceful move to combat inflation. So, I think we really do have to decide either to drop the ranges substantially if we're going to have a money market directive or we almost have to have an aggregates directive so that we begin to move if those numbers come in very high in the range.",152
-fomc-corpus,1979,"Mr. Chairman, there is the possibility that the Committee could adopt a mixed directive--and the Committee once had such a directive--that in effect was aggregates on the up side and money market on the low side. That is, you'd move the funds rate up if the aggregates were high in the range but you wouldn't [lower the rate] until growth is below the bottom of the range. We had wording at one point for such a directive.",89
-fomc-corpus,1979,Mr. Mayo.,4
-fomc-corpus,1979,"Steve's point is one I was going to make. I think we could do that. As far as the figures are concerned, surprisingly, I would support what Henry just said: 10-1/2 to 11-1/2 percent with a central point of 11, and for the aggregates 4 to 8 and 7 to 11.",74
-fomc-corpus,1979,Mr. Timlen.,5
-fomc-corpus,1979,"Mr. Chairman, I was prepared to vote for one of your first two alternatives: moving the funds rate up to the area of 11 percent with a funds range of 10-3/4 to 11-1/4 percent, M1 at 4 to 8 percent, and M2 at 7 to 11 percent. I think the important thing is the movement of the federal funds rate. And if the general thinking of the Committee is in terms of an objective of 11 percent, I'd be prepared to vote for [any of several] variations in the M1 and M2 ranges--whether it's 3-1/2 to 7-1/2, 4 to 8, or 4-1/2 to 8-1/2 percent for M1, for example. My leaning would be 4 to 8 on M1 or something shaded down from that, but I think the key in the eyes of the market is where we put the funds rate.",206
-fomc-corpus,1979,"I'd be willing to support the 10-3/4 to 11-1/4 with a funds rate of 11 percent and have your [proposed] ranges of 4 to 8 and 7 to 11 percent. But I would be very much opposed to the mixed directive. It seems to me that we're at a potential turning point of rather major proportions and if the money supply does come in very low, then [a standard type of directive] would operate to move the rate automatically down.",104
-fomc-corpus,1979,I'm not sure with those specifications that we need the mixed directive.,13
-fomc-corpus,1979,"I'd prefer that, too, because I think it would look awfully bad to have a biased directive in what may be a developing recession of size. So if we have that very tight constraint on the funds rate, we won't move it obviously without consultation. I might point out that we can move it up if in fact Mark's fears are [realized] and September turn outs to have a double-digit growth rate. We can always have a telephone conference.",92
-fomc-corpus,1979,No other comments?,4
-fomc-corpus,1979,"Mr. Chairman, I think I make a lot more of these trigger points than most people do, and Henry's and Mark's points are important to me in selecting the ranges because they do trigger [action on the funds rate] at different points. In one case it triggers when [the aggregates] get near the top or move beyond the top of the ranges and in the other it triggers when they move significantly beyond the midpoints. So with an aggregates directive we would have wider ranges than we would with the money market directive, necessarily just by the sheer arithmetic of it. My preference, which I could alter to some extent, would be an aggregates directive that would trigger at an upward [move at] somewhere around 6-1/2 percent on M1--which would be a range of 3-1/2 to 7-1/2 percent --and at around 9-1/2 percent on M2, which would be a range of 6-1/2 to 10-1/2 percent. I don't know what federal funds rate is consistent with that, because I despair of ever picking out of thin air some range that will give us predictable behavior of the aggregates. But my best guess, which is certainly uninformed as I think everyone else's is, is about 10-1/2 to 11-1/2 percent. And I would favor moving to 11 percent now and once we get there, and get that rate firmly established, following with a half point increase in the discount rate.",312
-fomc-corpus,1979,"Mr. Chairman, I've been sitting here puzzling over some of the comments with respect to what the speakers perceive to be the need to move to 11 percent to hold the growth of the aggregates in late August and in September to something less than has already been projected. First of all, those are guesses. So it seems to me that we have to focus upon what level of interest rates is appropriate for the economy in the period ahead while still moving against the pressures of inflation. Moving to 11 percent isn't going to lessen the pressures of inflation. With that kind of puzzlement I would say--and I guess I'm repeating myself--that we have taken rather substantial steps in the last month. And since I don't see that at this point an additional 1/2 or 1/4 percentage point [on the funds rate] will bring those growth rates down any in the next six weeks, I would prefer to stay where we are at 10-3/4 percent.",197
-fomc-corpus,1979,"I will stipulate that a 1/4 or 1/8 percentage point move on the federal funds rate isn't going to have any pronounced effect on the growth rates in the next two months--if that's the only thing we're worried about. I'm not sure it's the only thing we're worried about. [Unless] somebody else wants to say anything, all I can do is try again. I'm not sure, but I think there is a little more sentiment for moving to 11 percent now than I had judged. I'm going to give you two more alternatives. We can stick with the 4 to 8, 7 to 11, and 10-3/4 to 11-1/4 percent with the midpoint [on the funds range] at 11 percent and move there. Or we can go to, say, 3-1/2 to 7-1/2 and 6-1/2 to 10-1/2, which a number of people suggested--and it [moves] some distance toward other [suggestions]--and we can shade the 11 percent a little on the low side. I'd still like the flexibility to play in that area--perhaps go after [something around] 10-7/8 to 11 percent [on the funds rate].",267
-fomc-corpus,1979,"From my perspective, Mr. Chairman, it's most important that we move to 11 percent promptly. I don't think 10-7/8 does us any good because we're in effect already there. I am bothered by the [monetary growth] ranges having a level as high as 8 percent or even 7-1/2 percent, but I can buy that with a money market directive, which gives us some movement if [the aggregates] come in at the upper end of the ranges. It seems to me, then, that if we want the 10-3/4 to 11-1/4 percent [funds range], that just gives us a 1/4 point to work in, which bothers me a little. But the telephone is always there and we can call a meeting and raise it if we have to.",173
-fomc-corpus,1979,"Well, shall we get a show of hands from voting members on 10-3/4 to 11-1/4 percent and the midpoint where it is, with 4 to 8 percent and 7 to 11 percent [on M1 and M2]?",56
-fomc-corpus,1979,Preference or acceptable?,4
-fomc-corpus,1979,"Well, let me have preferences first.",8
-fomc-corpus,1979,What's your midpoint?,4
-fomc-corpus,1979,11 percent.,3
-fomc-corpus,1979,"Which directive, Mr. Chairman?",7
-fomc-corpus,1979,"Following Phil, here, the money market directive at the moment. With that high a range, I'm a little worried about an aggregates directive. Again, there's just some uncertainty about what will happen in the very short run. I just looked over Tom's shoulder and New York already has a lower estimate for these aggregates; it might be triggered on the low side before we know it.",76
-fomc-corpus,1979,"They did before, too.",6
-fomc-corpus,1979,"Well, I don't attribute any great weight to that other than the inherent uncertainty in these things. I have been watching those numbers enough that my discount factor is extremely high. The trouble is my discount factor on all these numbers is extremely high in any short-run period. Let me just ask the preferences first. Well, let's go all the way and say acceptable.",72
-fomc-corpus,1979,"So, you're asking: Is this acceptable?",9
-fomc-corpus,1979,This is alternative number one?,6
-fomc-corpus,1979,"We'll try out another one, but let's try this one: 4 to 8, 7 to 11, 10-3/4 to 11-1/4 [moving to the midpoint of] 11 and a money market directive.",52
-fomc-corpus,1979,"1, 2, 3, 4, 5, 6, 7, 8, not counting yourself.",27
-fomc-corpus,1979,"Well, we can try out another one if somebody tells me what to try. Is it with slightly lower ranges for the aggregates?",26
-fomc-corpus,1979,I would bring those down a little.,8
-fomc-corpus,1979,"Well, let's try them a half point lower, with the same federal funds and what--change it to an aggregates directive just to get a little variety?",31
-fomc-corpus,1979,"Yes, let's do that. I think it makes a whale of a difference.",16
-fomc-corpus,1979,"Who suggested money market? Well, who likes that better? It's 3-1/2 to 7-1/2 and 6-1/2 to 10-1/2, and the same federal funds range but with an aggregates directive.",53
-fomc-corpus,1979,Do you really mean better or just acceptable?,9
-fomc-corpus,1979,"Well, let's say acceptable. That seems to have a smaller vote than the other.",17
-fomc-corpus,1979,Four.,2
-fomc-corpus,1979,"I don't know what other combination to try, so I think we'll just go with the first one unless somebody has an inspiration here.",26
-fomc-corpus,1979,The only way I can see that you really might separate this as to what we're looking for is 10-7/8 to 11-3/8 percent on the federal funds range with a money market directive.,44
-fomc-corpus,1979,The overwhelming impression I have is that at this point the changes are not highly significant. Let's vote on the original.,23
-fomc-corpus,1979,"It's 4 to 8 percent, 7 to 11 percent, a funds rate range of 10-3/4 to 11-1/4 percent with an 11 percent midpoint, and a money market directive. Chairman Volcker Yes President Balles Yes President Black No. I agree with half of it, but I think the ranges are too high with a money market directive.",80
-fomc-corpus,1979,Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice No Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes First Vice President Timlen Yes It's 10 for and 2 against.,45
-fomc-corpus,1979,"Thank you. It's 1:30 p.m. What other business do we have here? Oh, I had one thing I wanted to mention, the [lending of] Treasury [securities], if we can dispose of that in a hurry. I take it there was one question that preoccupied the staff, which is whether we charge when we lend securities. I find it difficult to imagine when [that authority] will be used, so it's not an absolutely central issue to me. I take it that we've always charged, obviously, for the short-term extension of credit. In this case, we're not really extending credit in the same sense. We're lending securities upon which we continue to earn interest. However, in the market would you like to charge or not?",155
-fomc-corpus,1979,I'd like to charge because it's a substitution for direct borrowing.,12
-fomc-corpus,1979,I would like not to charge because we do in fact get the return on the securities. This is a--,22
-fomc-corpus,1979,But don't we want to urge them not to do this?,12
-fomc-corpus,1979,"If it will speed up things, I thought of a great Solomonic approach on this of charging an eighth, which is less than we charge--",30
-fomc-corpus,1979,How about 3/16th!,8
-fomc-corpus,1979,"Without objection, we'll charge 1/8 point.",11
-fomc-corpus,1979,I think that's silly. I'd just leave it at zero.,12
-fomc-corpus,1979,"I'm really at the wishes of the Committee on this one. I take it there's a certain amount of prevailing sentiment to charge. Do we want to have a vote on this or just agree? Without objection, it'll be an eighth. Oh, [do we need to talk about] swap renewals, Mr. Pardee?",65
-fomc-corpus,1979,"There's nothing coming up before the next meeting that is of importance, so I would pass on it.",20
-fomc-corpus,1979,"Okay. I had one other item. The House Banking Committee issued a report on monetary policy and there is a paragraph in that report which says: ""The law requires the Federal Reserve to report on its monetary targets to 1980. In this the report is disappointing. The Federal Reserve merely indicates that tentative approval has been given to the retention of the present targets through 1980. No justification is offered. This is particularly distressing in view of our committee's recommendations in its report of March 12, 1979 that long-term monetary growth targets should be adopted. Our committee requests the Federal Reserve promptly to correct this defect by issuing a supplement to the report fully explaining its monetary targets for 1980."" I would suggest that I write a letter to the [Banking] Committee saying that perhaps you misread our report. [I must admit] I haven't read it myself! In case you didn't get the message, we did say that the targets at this point were the same for next year as this year, but there is an unusual amount of uncertainty, statistical and otherwise, attached to [that decision]. We did not mean to say that we were not suggesting a target for next year, but obviously we will review it with great care in February. With your permission I will write such a letter. SEVERAL. Hear, hear.",271
-fomc-corpus,1979,Thank you. The date of the next meeting is September 18.  The meeting is adjourned.,22
-fomc-corpus,1979,"We'll come to order, if I can find my copy of the agenda! I might tell you before we start that we will have a small alteration in procedure after the meeting. Instead of traipsing over to the dining room for lunch, I thought we would expedite things by bringing you a few sandwiches over here. So, we'll give you a break after the meeting and then we will proceed [with discussions] around this table while we're being fed--adequately, I hope. We will experiment with this procedure and see how it goes. But that does not mean that we should not conclude our work before the usual lunch hour.",126
-fomc-corpus,1979,It probably will have that effect.,7
-fomc-corpus,1979,"If it has that effect, we'll have another change of procedure at the next meeting! [I need to] get approval of the minutes [of the August meeting]. Without objection, they are approved. Mr. Pardee.",45
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,Any questions?,3
-fomc-corpus,1979,Would you explain briefly for me how the foreign exchange swap conducted by the Bundesbank sops up domestic liquidity?,22
-fomc-corpus,1979,"We're in the process of preparing a paper on that, which I hope we will be able to circulate to the Committee. They have dollars in their portfolio. They sell those dollars spot to the market in exchange for marks. Since what they are effectively doing now is simply selling a participation in their holdings of Treasury bills, there are no dollars rattling around in the exchange market. It's simply that the G e m a n banks come in with marks on a spot basis and they will be getting them back in 1 month or 2 months, depending on the maturity of [the bills]. So the operation is absorbing marks coming in from the banking system. One of the problems that the Bundesbank has with this operation is that they may be taking liquidity away from the German banks by this process, but they are not mopping up really the [other] side--the effect on the monetary aggregates of the demand for deposits with German banks.",188
-fomc-corpus,1979,Thank you.,3
-fomc-corpus,1979,"Scott, you alluded to the fact that as the energy induced segment of inflation improves--or recedes--it may bring some improvement into the picture. Don't most of the foreign exchange market partipants really look at the monetary induced part of the inflation picture, which of course reflects money growth? Don't they look at that? Don't they recognize that if total inflation were to be reduced from 10 to 8 percent, we'd still have the basic underlying money induced part of the inflation? Won't that still be their primary concern in terms of the market?",112
-fomc-corpus,1979,"Well, the market is concerned about inflation however it is induced. There are some monetarists in the market who do follow closely the aggregates, but they are just one segment. There are others who worry about other things. There are even some chartists out there who couldn't care less about any of these broader numbers that we work with. But they are concerned about inflation, however it is induced.",80
-fomc-corpus,1979,Mr. Balles.,5
-fomc-corpus,1979,"Mr. Chairman, I don't know what credence we ought to put in the rumors, and maybe we shouldn't even bring them to this table. One of my directors called up very excited yesterday about a rumor that the dollar was going to be devalued, mind you, sometime in October. I suspect, but I don't really know, that this is a pretty distorted view of what comes out of the press reports about a possible realignment of European currencies from the meeting scheduled this coming weekend. Is there anything that we ought to know about that or are you in a position to tell us?",119
-fomc-corpus,1979,"People in the market have a lot of questions as to what happened over the weekend--there was no communique--and I really don't know anything further. As for a devaluation of the dollar at this stage, there's no mechanism to do it since we are on a floating rate basis. As I Said, we have been looking at this 180 [German mark] rate that the market has, but we're not wedded to that rate any more than we were to other rates. It's just that we are caught in this box. The moment we back away or seem to be somehow weak in any sense, all of a sudden the speculators--and these include people on the I M M and some of the banks--jump on it. And even more we have corporate treasurers and foreign central banks outside the G-10, who as I say may be sitting on their hands at this moment. But if the dollar should suddenly start [falling], then they will sell. It's a very highly unstable equilibrium condition we're in now, where as soon as the dollar begins to weaken, then we have selling pressure rather than sort of an equilibrating inflow of demand for dollars. So as long as the environment remains this highly charged, with so many silly things going on--1 had one fellow tell me that the dollar was going down because it always goes down in September and that's why he was selling dollars. We have the IMF meeting, we have all these other meetings, and obviously the dollar, for one reason or other, isn't going to come out of this period strong. Yet these people are willing to admit that they see around the corner an improvement in the underlying conditions because of the data that have come in over the past month and other recent months.",354
-fomc-corpus,1979,Mr. Partee.,5
-fomc-corpus,1979,"To say a word in favor of devaluation, it strikes me, Scott, that we're not the only ones by far having trouble maintaining our currency against the mark. I notice, for example, that last week the Swiss were buying their own currency in quantity and selling dollars in order to finance it at the same time we were selling marks and buying dollars; the two institutions were working at cross purposes. And the Germans don't seem to be doing terribly much to keep their rate from rising either. I notice, for example, that the figures you've cited and that we've looked at don't show the German intervention as being very substantial over this period. Well, if everybody is having difficulty maintaining [their currencies] against the mark and if the Germans don't much care and aren't doing anything about it. why is it that we persist in throwing great amounts of money into maintaining this pegged rate of 180 or 181 whatever it is? That's the difficulty with going away from the idea of intervening [only] in disorderly markets. This is not a disorderly market definition. but we intervened in quantity in order to maintain a pegged rate. I do believe the term ""devaluation"" has some significance when countries operate as if there is a fixed exchange rate.",252
-fomc-corpus,1979,I don't think we're operating as if we have a fixed exchange rate.,14
-fomc-corpus,1979,It's been quite a while that we've been trying to keep the rate at 180 or 181.,20
-fomc-corpus,1979,"The Swiss also have bought dollars once the market psychology tipped in the other direction. So their earlier sales were in conjunction with a policy of aligning their rate with the mark and, as I said, that did trigger some sentiment that the Bundesbank was hitting on the exchange rate. But once the franc began to rise, they bought dollars just as vigorously as they'd been selling dollars before and they are still prepared to do so. They're interested in stability.",89
-fomc-corpus,1979,"A couple of comments. I don't think it's right to say we're in an interest rate war or anything of that sort, as some of the circus newspaper commentary suggests. As near as I can see, what the Bundesbank has been doing generally is well justified by their internal situation and normal criteria that they would use. Their inflation rate has been going up, and they unquestionably don't like that, and their economy has been doing pretty well. And they seem to be--ebullient may be too strong a word--quite confident about the immediate outlook there. By immediate I'm talking 6 to 9 months, which is rather encouraging from our standpoint and I think from the world's standpoint if it's true. They seem to have a good deal of confidence in it. That does not say that they would mind particularly if the mark appreciated, and that notion is fairly well imbedded in market thinking. On the other hand, I don't think the other Europeans want the mark to appreciate because of the opposite side of that coin from their standpoint and their own inflationary problems. So they are at kind of an impasse within Europe. I think our concern, given the psychological situation and the real situation that Scott outlined, is whether we can have a moderate decline in the dollar against the mark. It's true that the dollar has been appreciating against most other currencies. But if the market gets in its head that the dollar is really going down, would we be able to stop it without spending a lot more money than we're already spending? That is the question. And let me say that it would make me very nervous to try to control a depreciation at this point, given the underlying malaise.",335
-fomc-corpus,1979,But what do we do if the rate really does need to be 170 instead of 180?,20
-fomc-corpus,1979,"Well, [you say] ""does need to be."" I don't know what that implies.",19
-fomc-corpus,1979,"In terms of purchasing power parity, rates of inflation--",11
-fomc-corpus,1979,"What can you say about that? In terms of purchasing power parity, you can argue that if 180 was right six months ago, something less than 180 ought to be right now. But that assumes that 180 was right some months ago, which nobody knows. In fact, I get the impression that many people here and abroad [thought that 180 was really too low six months ago. And I think you have to argue that; otherwise the logic would follow pretty precisely. But there is this question of how to prevent the [decline] from getting out of hand if it happens. Just in case any of you are wondering, this was not a great decision-making meeting in Paris last weekend. A lot of it was devoted to [issues] on the IMF agenda, which are not particularly relevant to current exchange market or economic policy developments. But there was an exchange of views about the business outlook and about policy without any attempt to arrive at any specific operating conclusion. These meetings are a chance to exchange views about the outlook and about policy postures, but [the issue] was not pressed very far, certainly not in an opertional mode. Have you got any recommendations, Mr. Pardee?",244
-fomc-corpus,1979,"Well, if you want to cover them now, yes. Over the next month we will be going through the first cycle of renewal of the swaps that we incurred in the operations in late June and in late July. These involve some 17 swaps, totaling $1,797,000,000. It's the first renewal; I'm just reporting it.",70
-fomc-corpus,1979,"We have a proposal to provide for the first renewals if and when necessary, I take it, and I assume they will be necessary. Any discussion? Without objection, I think that is done. Now we have to ratify the transactions, too. I guess I skipped over that. Would someone like to so move? Without objection they will be ratified. Mr. Sternlight.",78
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,Comments or questions?,4
-fomc-corpus,1979,"Well, on the last point, I think it's ridiculous. Can't we at least get some action [by] the responsible part of Congress to quit this nonsense?",32
-fomc-corpus,1979,"Would you like to volunteer, Mr. Coldwell? I think we can duly note that that's the unanimous view.",23
-fomc-corpus,1979,"Doesn't the new bill give us some promise, though, that they're going to try to put in a system where the [increase in the debt ceiling] would be sort of automatic without all the testimony and hocus pocus?",46
-fomc-corpus,1979,I don't know how automatic it will be; I know very little about it. I know they're trying to hoist it off on the budget committee and I don't know whether that's going to [happen].,41
-fomc-corpus,1979,"They're trying to tie the debt ceiling to the budget resolution, but whether that will--",17
-fomc-corpus,1979,"There obviously is logic in that, but whether it's just going to make the budget resolution that much more difficult, [I don't know]. Mrs. Teeters.",32
-fomc-corpus,1979,The problem of putting it in the budget resolution is that the resolution is not signed by the President. They have to make some sort of alteration in their resolution in order to have it signed by the President.,41
-fomc-corpus,1979,"I would remind you that this is an opportunity to talk about the budget deficit and, therefore, not to be completely despised even though it is rather illogical to first vote [in favor of1 the deficit and then refuse to allow it to be financed. But it gives the defeated party a chance to come back a second time and criticize.",69
-fomc-corpus,1979,That's the theory. It seldom happens in any very orderly way.,13
-fomc-corpus,1979,"Well, it's such a waste of time. The Secretary of the Treasury and the staff have to spend untold hours getting ready for something that really involves just spinning wheels.",34
-fomc-corpus,1979,It seems like it comes around a couple of times a year now.,14
-fomc-corpus,1979,"Among other things, [they] have escalated [the] social security [issue]. It's fully escalated because it was attached to a debt ceiling goal once when we sat there and wondered whether it should be vetoed or not. We have to ratify the [domestic] transactions, if there are no further questions.",66
-fomc-corpus,1979,So moved.,3
-fomc-corpus,1979,"Without objection, that is done. Mr. Kichline.",13
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,I wonder if we can confine our comments now to rather pointed questions. Mr. Coldwell.,20
-fomc-corpus,1979,"Jim, in the change of your output [forecast]--and I don't mean to be critical because you've obviously got to change it as things [evolve]--there seems to be a shift, by a rather sizable amount, between the third and fourth quarters on real GNP. You've increased the third quarter by 2-1/2 percentage points and decreased the fourth quarter by 1.1 percentage points. I hear what you're saying in terms of consumption being a cause of the third-quarter increase as opposed to prior expectations. I gather that inventories went up a bit faster than you had anticipated, which may be the cause of most of the shift. The fourth quarter, though, I read you as saying GNP declines in conjunction with [reduced] housing starts and maybe capital spending. Am I reading you right? Are those the principal reasons for this shift?",175
-fomc-corpus,1979,"Those don't account for most of the revisions. We have anticipated them for some time. The bulk of the difference between Q3 and Q4--that is, getting a deeper negative in Q4--is the inventory side. Other than that, we have had most of the changes built in for some time. The biggest changes really were in Q3 and represent past data. As a matter of fact, in real terms we raised final sales in the third quarter by about $6 billion and $4-1/4 billion of that is consumption. A lot of that is autos. So I would say that for the third quarter final sales are stronger, and the fourth quarter mainly involves adjusting downward the drag of inventories.",144
-fomc-corpus,1979,For the fourth quarter you're saying consumption is reasonably stable?,11
-fomc-corpus,1979,It's declining slightly in real terms; it's down 1 percent in real terms and we had it down a half percent in real terms last month.,29
-fomc-corpus,1979,S o your swing in these two quarters is principally an inventory swing. Is that what you're saying?,20
-fomc-corpus,1979,"Well, it's [a swing of] $16 billion dollars from the third quarter to the fourth quarter, and that would translate into roughly 2-112 to 3 percentage points at an annual rate.",41
-fomc-corpus,1979,Which is about the difference--,6
-fomc-corpus,1979,"One question, Jim: Is this the first time you've shown an actual liquidation of inventories?",18
-fomc-corpus,1979,"I think we had the courage of forecasting a minus 0.1 a couple of months ago, but it was very small.",26
-fomc-corpus,1979,And you haven't shifted the timing of that liquidation?,10
-fomc-corpus,1979,"No, but the size of it has become different; that is, the second- and third-quarter accumulation has been larger than we had anticipated earlier and we now have a larger correction in the fourth quarter.",41
-fomc-corpus,1979,You have a pretty good decline in goods consumption in that quarter. Mr. Timlen.,18
-fomc-corpus,1979,"Jim, my question relates to the development of last Friday, the apparent settlement of the General Motors negotiations. I was wondering if you had any hard information as to the terms of that contract as signed and what implications it may have for prices and as a precedent for other contracts or a possible reopening of contracts in 1980.",65
-fomc-corpus,1979,"Well, we don't have detailed information. We checked late last night and found that the Council on Wage and Price Stability didn't have the contract yet, so I didn't get so discouraged about not knowing the details. We do know that the wage increase was pretty much in line with past contracts; on our estimate we would assume that it might amount to about a 28 percent wage increase over 3 years. Pension benefits for current retirees were also raised but we don't know how that would be valued and we don't have the details. Our general expectation right now is that it probably is in the 33 to 35 percent range for a 3-year period. I don't know how that will be priced out by the Council on Wage and Price Stability. It may well fit within the guidelines. But in any event--",161
-fomc-corpus,1979,"That's about the area of the teamsters [settlement], isn't it?",15
-fomc-corpus,1979,"That's right, it's not really out of line with what we had expected earlier but it is a sizable increase. S o the publicity associated with that I think would have a negative effect in terms of holding wages down.",43
-fomc-corpus,1979,I don't have much better information but what I have conforms with what Mr. Kichline just said. Mr. Balles.,26
-fomc-corpus,1979,"Jim, you have a rather strange looking pattern in the quarterly trend in the GNP deflator, if I've got the right numbers here. For this year it's 9.3 percent in the first quarter, 9.2 in the second, 8.1 in the third, and then it suddenly jumps to 10.3 in the fourth quarter. There's probably an answer for that, but what is it?",85
-fomc-corpus,1979,The federal government pay raise.,6
-fomc-corpus,1979,Could that be the entire [reason] as far as you see it?,15
-fomc-corpus,1979,"Well, that's a large part of it. The pay raise will be a I percent increase, and I don't think the seasonals take proper account of that. It's a shift in mix. The fixed weight [measure] is actually declining 0 . 2 percent from the third to the fourth quarter. There may be other factors at work, I'm not sure. But the fourth quarter usually is one to look at for a pay raise at the federal level.",92
-fomc-corpus,1979,I realize that that's a factor. I'm just surprised at the magnitude--that it could swing the whole GNP deflator by a point and a half. I'm not questioning the figure; I'm just expressing my surprise.,43
-fomc-corpus,1979,"I don't know, something else may be at work. I just can't answer your question other than that the federal pay raise is one influence and I would think it would be the major factor.",38
-fomc-corpus,1979,"We also have [for] the third quarter an increase in the import prices--because of the oil price increase--which has a depressing effect on the measured GNP deflator in the third quarter. so some of the third quarter ""lowness,""if I might put it that way, is in the deflator itself; we don't see so much in the fixed weight, PCE measure.",80
-fomc-corpus,1979,Mr. Winn.,4
-fomc-corpus,1979,"I think we ought to look at the wage behavior of this year with a sense of encouragement, not discouragement. With inflation running what it is, I think it's surprising that the settlements in the electrical area and even in the automobile area for current employees have been remarkably restrained. Maybe they've done a better job than we have here in terms of inflation problems.",71
-fomc-corpus,1979,"You say even ""in the automobile area."" I take it you--",14
-fomc-corpus,1979,"Well, in this case, for current employees it looks as if the total cost might come out to 11 percent--that's my estimate --on an annual basis. [The total is] 33 to 35 percent and part of that is for the retirees, not for the current employees. So if you adjust that back down, given double digit inflation behavior, I think that's remarkable restraint, really, in the labor area.",86
-fomc-corpus,1979,"But does the 33 and 34 percent include the extra time off, extra vacations?",18
-fomc-corpus,1979,It does not.,4
-fomc-corpus,1979,But the electrical settlement really wasn't that--,8
-fomc-corpus,1979,"Well, I think what you say has some validity looking backwards. I don't know where to put the automobile agreement; I have a little doubt about that. That's a question we have: Looking forward, will that rather favorable record, considering what has been happening in prices, be sustained? I think this is one of the major issues we have here.",70
-fomc-corpus,1979,"I understand that this is not making our problem any easier, but I think we ought to recognize that there has been some restraint this year.",28
-fomc-corpus,1979,"I might say in terms of these guidelines that I don't feel up-to-date on that and I don't know the details. I understand the argument has been whether to have a guideline at all, with the alternative being this tripartite labor/management/public commission to look at wage settlements and pricing behavior. It gets posed in those [unintelligible] terms because I take it that labor has said that they will not participate in a tripartite arrangement with any numerical guideline. The Administration likes the idea of the tripartite commission but has not been willing, so far anyway, to go along with the idea of giving [the commission] absolutely no guidance in terms of numerical guidelines. That's where the impasse is.",145
-fomc-corpus,1979,"Well, I think they'd be well advised to drop the guidelines. To raise the guideline going into a recession doesn't seem to me to be a great contribution toward stability. And all these inequities and distortions are building as we go along.",48
-fomc-corpus,1979,"Well, that's a tempting course except when you look at what I think Willis, by implication, was referring to. Wages have been fairly well restrained given this price behavior and given the pressure for a catch-up. S o , is it really wise to drop [the guidelines] right now? That's basically the issue they're struggling with--the fear that everybody will say they want a very sizable catch-up. I was startled the other day when the FAC was here. At a dinner --I think most of the Board members were there--the bankers were arguing for some catch-up and some understanding. They were arguing in general terms until one banker kind of let the cat out of the bag and said we want, for instance, 11 percent this year. That is quite a bit; he's talking about a nonunionized work force that presumably was [getting] 7 percent. Well, if you suddenly jump from 7 to 11, even nominally--I don't know how typical that is but this is the way one fellow was thinking--where does that leave you? That's what they're worried about. They say that's just a catch-up and it's only for one year, but if you build it into your [whole] labor force what happens? It's not an easy issue. I was tempted by the position that you took and the more I thought about it, it seemed awfully risky. The recession hasn't gone far enough to have any restraining influence. Any other questions on [the staff's presentation]?",303
-fomc-corpus,1979,"I'd just like to make one more comment, Paul. It seems to me that we're in an environment in which we have the most advertised recession in history, with talking our way into it perhaps contributing more because I think we're going to get an uptick in this third quarter, too. I don't know how that's going to be manipulated from a press [standpoint]. When you talk to business people they all tell you that their business is still very strong. But then they will ""bad mouth"" because everybody else is bad mouthing and that's what they read. I think psychologically we may have built ourselves into a box.",124
-fomc-corpus,1979,"A strange phenomenon, I confess, is that everybody has assumed we are in a recession and we are getting an increase in the gross national product. I don't know. That's still a forecast, of course.",41
-fomc-corpus,1979,"The businessmen always say that, Willis.",8
-fomc-corpus,1979,"I know, but they read it in the press.",11
-fomc-corpus,1979,"Their business is off 1 percent from the very highest level it ever reached: that's a very good rate of operation. It's the inflection, and I thought the Redbook started to point out quite a few areas of inflection.",47
-fomc-corpus,1979,"If I may just add one question, Mr. Kichline: How do you get an increase in output per hour in the fourth quarter while the gross national product is declining significantly?",37
-fomc-corpus,1979,"We have a substantial employment adjustment built into this forecast, so it's coming out of labor input.",19
-fomc-corpus,1979,That would be unusual at that early stage--wouldn't it--of a decline [in activity]? Can that adjustment move that fast?,27
-fomc-corpus,1979,"Well, it's part of what would be a fairly smooth and rapid adjustment, which is built into our forecast on the inventory side. My view would be that I have been surprised that we haven't had more in the way of reduction of labor input to date. And in light of new information on inventories and final sales, it becomes clear. But I don't think it's unusual. The August reading was one that seems to me to point in that direction and once that has begun, if you look back at prior recessions, it has gone on quite quickly for several months in a row. So I would think we're on reasonably safe ground in expecting labor input to drop off in the fourth quarter.",137
-fomc-corpus,1979,You have unemployment getting to where by the end of the year?,13
-fomc-corpus,1979,"Averaging about 6 . 9 percent for the fourth quarter, so it would be close to a 7 percent or 7 . 2 percent rate [in December].",37
-fomc-corpus,1979,"I don't want to monopolize this, but I'd like to raise one more question about your inventory calculation for the fourth quarter. We're going to have a big crop harvest in corn and soy beans and with the price changes being what they were I wonder if that may not throw the inventory calculation off again in that period [unintelligible] storage space.",71
-fomc-corpus,1979,"That's right. I'd say the price side is a very tricky part of this. We have in the third quarter an inventory valuation adjustment of slightly over $40 billion, and once it gets into those huge ranges, it becomes very difficult. In the fourth quarter, we expect something smaller but still large to prevail. On the crop side, I would only say that exports have been coming along very well; it may not show up in nonfarm or farm inventories here. In addition we have built into the forecast some taking up of those crops by the Federal government in terms of the Commodity Credit Corporation, so it may not appear in private sector inventories.",129
-fomc-corpus,1979,"One of the main problems on the crop issue is the inability to move the crops. Rail capacity is very low. With the Rock Island strike and so forth, the Iowa farmers are really going to [unintelligible]; they just can't move anything. They still have a large share of last year's crop sitting there.",64
-fomc-corpus,1979,"Mr. Axilrod, do you want to give us a perspective on financial relationships?",18
-fomc-corpus,1979,[Statement--seeAppendix.],7
-fomc-corpus,1979,"Let me ask a couple of questions. You went over three reasons why the money supply increased more rapidly over the late spring and summer. It struck me last night that there may be an additional reason. I'll just comment on it. You do all these equations and everything else to get something called gross national product, which is the gross domestic product. And you have a price rise in there, whatever it is, of less than 10 percent or around 10 percent. In fact, we've had a big increase in the oil bill as well, which doesn't enter into the gross national product. It leads to a considerable discrepancy on other price indices from the gross national product deflator. [What] if we said in some sense that the additional money supply was financing the additional oil imports?",157
-fomc-corpus,1979,"It's quite possible; these equations may very well not be picking up the true transactions needs if they don't have the full price effects of the imported prices in them. And they don't. The GNP is measuring domestic output prices. So that's quite possible, in which case we would not really be supplying more money than historical relationships would suggest but about the same amount. In either event, [money growth] would be rapid but we'd have a somewhat different explanation of what we might expect in the future. It would tend to argue less, I would think, for a slowdown in the future [stemming from people1 just deciding to invest their excess cash but would depend more critically on a real slowing in the economy.",141
-fomc-corpus,1979,Or one would hope to get a leveling in the import prices.,13
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"I was confused last night when I looked hastily at these flow-of-fundsprojections. Maybe there is an obvious explanation but we talk about short-term credit demands and commercial bank demands being very heavy these days. When we look at these figures for the half year--we only have them on the half-year basis--they show a decline in total credit demands. There's a decline in the first half of the year and then a further decline in the second half. If I look at bank credit it slows from the first half to the second half and the decline is a little steeper in business loans. If I look at demands for nonfinancial corporate businesses, they are declining; the rate of growth in short-term debt declines significantly. And I look at the household [sector] and they have a rapid increase in deposits and a decline in direct purchases of credit market instruments. I don't know where money market funds are in there. Are they under credit market instruments?",193
-fomc-corpus,1979,"They've been shifted, I think, this month.",11
-fomc-corpus,1979,"Well, that helps explain it. Even so, [their growth] was fast in the first half of the year, too. But this column of figures seems a little inconsistent with what we talk about happening in the market in the short run. Is that because we got a drastic change in the fourth quarter or what?",64
-fomc-corpus,1979,"Well, there is a considerable drop in what we projected in bank loans and commercial paper raised in the fourth quarter. A l s o , we were talking mainly about business credit demands but there has been a slackening currently in consumer credit demands. S o we have a little tapering off in the current quarter relative to the second quarter and essentially we are in a downward trend in terms of credit demands and credit funds raised in the second half of the year beginning about now--just as we're supposed to be getting a lower growth in money beginning about now. These are in our projections.",117
-fomc-corpus,1979,"I haven't looked at the quarterly figures, but one reading of this is that it does [suggest that] we're on the verge of a rather steep decline in the fourth quarter. Do you have quarterly figures?",41
-fomc-corpus,1979,"Well, we have total funds raised coming down in the third quarter relative to the second, but the second quarter was an unusual peak. And the third quarter is above the first quarter, though well below the second and then it goes down further in the fourth quarter. But again, the fourth quarter remains above the first quarter.",65
-fomc-corpus,1979,"I might note that in the third quarter the evidence we now have--or at least it is our current projection on the consumer side--suggests that household funds borrowed will drop $14 billion at an annual rate from the second-quarter level. And going into the fourth quarter, that's down another $1 billion. So in the household sector, we think [a slowdown in borrowing] is under way in the third quarter. With regard to nonfinancial businesses, we currently project total funds raised to be down about $8 billion in the current quarter and down an additional $18 billion in the fourth quarter.",120
-fomc-corpus,1979,But the third quarter will show a big increase in bank loans and--,14
-fomc-corpus,1979,"Mr. Chairman, it's not all that unusual to have a burst in bank credit as the economy moves into recession. The cash flow of business is--",30
-fomc-corpus,1979,My question is why it didn't show up in these figures.,12
-fomc-corpus,1979,We have business loans projected to be increasing slightly less than the terrifically high second-quarter pace. So in the current quarter it is down $6 or $1 billion at an annual rate.,38
-fomc-corpus,1979,It is down.,4
-fomc-corpus,1979,And it drops $14 to $15 billion in the fourth quarter.,14
-fomc-corpus,1979,"However, I would add, Mr. Chairman, that that's partly offset in the short-term markets by an increase in borrowing in the commercial paper market. We have a projection for September which has lower business loans than we had in July and August.",49
-fomc-corpus,1979,"I have a quarterly figure here now, which shows a very sharp drop in the fourth quarter in the short-term debt of nonfinancial corporations. It's very sharp. Mr. Roos.",37
-fomc-corpus,1979,"Yes sir, Mr. Chairman. In listening to Steve, I found myself very much confused or disturbed by an underlying question that maybe he or someone else can answer. In Steve's analysis of what's happening in M1, he decribed three possible or at least two exogenous factors. One is the public's desire to draw down cash balances and the possibility that somewhere along the line the public added to cash balances. Steve did allude to the possibility that we contributed to the explosion of M1 by trying to stabilize the fed funds rate at a time of strong credit demands. I think you, Mr. Chairman, mentioned the possibility of the oil situation contributing to this. I get the feeling that we sort of feel that these exogenous factors that are beyond our control are really what leads to an unexpected explosion in the rate of M 1 growth. Then when Steve gets to his suggested alternatives, he essentially concentrates, if I heard him correctly, on what we ought to do on the fed funds rate--either stand pat or let it tick [up] or let it recede. My question, and I ask this really as a noneconomist, is: Can't we through our open market operations control the rate of M1 growth in spite of these exogenous factors? I get the feeling that we continue to react to some [developments1 out there that we can't control. Couldn't we in this room this morning, if we decided that we really wanted to, set a target for M1 growth and mechanically through open market operations over a long period of time achieve that target?",317
-fomc-corpus,1979,Mr. Axilrod,5
-fomc-corpus,1979,The answer is yes.,5
-fomc-corpus,1979,"I'll be very elliptical, Mr. Chairman, in the interest of saving time. I was of course couching my own discussion in the terms in which the Committee has been framing its policies. If the Committee had been framing its policies in terms of the monetary base or reserves or something like that as an operating device, I would have couched the discussion in those terms. It's perfectly true that the monetary base or reserves have expanded much more rapidly in the past two or three months than they had in the previous two or three months. In part that's because of efforts to hold the funds rate down; in part it's because currency, which has a bigger weight in the base, has increased more rapidly. And in part it's because banks have begun adding to holdings of CDs and absorbing more reserves that way, whereas in the two or three previous months when M1 had been growing CDs had been dropping, releasing reserves available to support money. So reserve growth didn't have to be as rapid in order to support the same amount of money. I add those latter factors in order to indicate how complicated it is to have a relationship between reserves and money that is stable because the deposit mix and thus the need for reserves is constantly shifting, and preferences for currency versus deposits are constantly shifting. So it's very hard to come before the Committee and say: If you set the monetary base or reserves to grow this much, I can guarantee this much money. And it would be even more difficult to tell the Committee what federal funds rate or what interest rates are likely to emerge from that--questions the Committee obviously would want to and need to know. S o I'm not saying it's impossible and I'm not even really indicating my preferences in the matter. But it's not going to be any less difficult, in a practical way, to control money with reserves than it is to control it with the federal funds rate because it will always involve the Committee in two decisions. [First], what should be its fundamental target. Is the money target that it is setting right or wrong and should it [change] in light of changing circumstances? And [second], what is it going to do about interest rates? Does the Committee in fact want them to go up or down in the way that they would be going if we adhere fairly ridgidly to a preset reserve target. I hasten to add that I don't mean to say that I don't think it would be useful to have a reserve or a base target. Personally, I happen to think it would be useful.",502
-fomc-corpus,1979,"Well, Paul, the reason I asked the question--and I ask it purely in a constructive way, not to just reopen the classical argument--is because of the problems that we've had in controlling money growth. [Given] your statements, which I think are great, that we're never going to accomplish our ultimate goal until we achieve some discipline in terms of monetary growth, couldn't we discuss these issues again? Maybe I am out of order to raise this now, but couldn't there be a discussion again of whether or not our traditional policy of targeting on interest rates, in spite of the possible adverse consequences in terms of money growth, [is appropriate]? Shouldn't this be given another look in view of everything you've said and in view of the less than happy experience that the FOMC has had over the past years in achieving its goals of stability in terms of the inflation problem? Shouldn't we take a look at this in some way?",187
-fomc-corpus,1979,"My feeling would be that you're not out of order in raising that question, Mr. Roos. We would be out of order in having an extended discussion of it today, because I don't think we're going to resolve it. I presume that today, for better or worse, we have to couch our policy in what has become the traditional framework. But I think it is a very relevant question, which has come up from time to time, and I think we should be exploring it again in the relatively near future. And I would plan to do so.",111
-fomc-corpus,1979,Do we still have the Committee on the Directive?,10
-fomc-corpus,1979,"I think we do, and we'll consult with that Committee. Are there any other questions specifically directed toward Steve's report before we open [the discussion1 up more generally?",34
-fomc-corpus,1979,"Steve, I'd just like to deal with the first of the three possible explanations that you gave. If I heard the words right, I interpreted you as saying that there has been some revival in money demand.",41
-fomc-corpus,1979,"In the first one, I was trying to say that to some extent people may have reduced their demand deposits and savings deposits earlier because of ATS accounts and the high interest rates and found that they just couldn't run with such small deposits so they've put some back in. [I would] just sort of forget that addition; it's an offset.",67
-fomc-corpus,1979,"I realize that's a possibility. I must say I'm skeptical, though, as I look at the sharp rise we've had in short-term interest rates in that same period when the growth of the Ms has taken place. I would have thought that would have encouraged further the use of RPs and money market instruments, and we know from the facts that that did occur. So I find it difficult to believe that that's a plausible explanation or a very solid one.",90
-fomc-corpus,1979,"Of the three explanations, I would put the lowest probability myself on that one.",16
-fomc-corpus,1979,"I would, too.",5
-fomc-corpus,1979,"It's relatively low, but in the absence of evidence I was reluctant even to weigh them.",18
-fomc-corpus,1979,"Well, if there are no other questions--",9
-fomc-corpus,1979,"Well, on that point though, John, we were getting an increase in velocity of 9 . 8 percent in the fourth quarter and 12.3 percent in the first quarter. That just couldn't continue. It may have gone too far the other way: it was negative in the second and third quarters--or slightly negative. Certainly something was going on there in the way of a shift. It was a rate that just couldn't continue.",89
-fomc-corpus,1979,"I'm still confused somewhat by these figures when 1 look at the quarterly flow of funds. We have had higher interest rates recently, which are normally accompanied by an increase in individual purchases of credit market instruments, if I remember these flow-of-funds ambulations correctly, and a decline in deposits. Instead, we had an enormous increase in deposit holdings by individuals and a very big decline in the rate of growth of credit market instrument holdings during the third quarter when interest rates were rising. We'd normally expect the reverse to happen.",104
-fomc-corpus,1979,"Well, that's in part the definition of money market mutual funds, the problem in the switch from--",20
-fomc-corpus,1979,You just [reclassified them] between those two quarters without telling anybody.,15
-fomc-corpus,1979,"No, but money market funds grew very rapidly [and] the structure was changed. Between the second and third quarters money market funds are expected to have grown very rapidly at an annual rate.",38
-fomc-corpus,1979,And they're in deposits.,5
-fomc-corpus,1979,"And they're in deposits, not in credit market instruments. So if you look at past history, it's quite a distorted picture.",25
-fomc-corpus,1979,Didn't you correct the history?,6
-fomc-corpus,1979,"Well, we didn't have any money market mutual funds pre-1974, so if you look at--",21
-fomc-corpus,1979,You didn't reclassify them between the second and third quarters; it's just that they've grown more rapidly.,21
-fomc-corpus,1979,The second quarter was also changed. The numbers are consistent. What you have in the first half of the year in effect was that households purchased a lot of Treasury securities at a time when foreign central banks were selling off Treasury securities. In terms of the overall pattern of flows--,55
-fomc-corpus,1979,"Excuse me, relative to 1966, 1969, and 1970, given our treatment of these securities today, we're finding a money market type instrument being classified as a deposit. It's really the same [phenomenon] as in 1966, 1969, and 1970 when funds moved out of banks into other higher yielding instruments.",75
-fomc-corpus,1979,"There is one other factor, Chairman Volcker. Beginning in that period in the second half where we had that sharp swing back to savings deposits, which I have been interpreting as part of this precautionary mood [response], they had been declining rather sharply. Then they've been increasing in very recent months and that swing would also affect these numbers. It may not be the major factor but it's another element different from previous cycles that may be affecting these numbers.",90
-fomc-corpus,1979,"Well, let's proceed with general comments on the business outlook and policy prejudices--or policy orientation anyway. Mr. Baughman.",27
-fomc-corpus,1979,"Mr. Chairman, first let me make just a comment on retail sales. We are probably the only District that has maintained that questionable old series on department store sales, but in the four weeks ending on September 8, such sales showed a very strong increase relative to the year-ago period. All in all, that average was up 10 percent whereas cumulatively through [September 81 from the beginning of the year it's up 7 percent.",90
-fomc-corpus,1979,It was up how much?,6
-fomc-corpus,1979,"It was up 10 percent from a year ago in the four weeks ending September 8; and from the beginning of the year through those four weeks it's up 7 percent. So there was a definite step-up, compared to what had preceded that 4-week period, which occurred pretty generally across the metropolitan areas in the District. Those [whose sales] I had reported earlier as being very strong attributed it to an apparent increase in purchasing by people coming from Mexico. They continued strong but they did not show the surge that other centers did in that last 4-week period. That's just by way of suggesting that in our part of the country, at least, there seems to have been something happening to nonautomotive retail sales because these were department store sales. With respect to the financial sector, as I was listening to Steve's comments, they seemed almost exactly to replay some conversations we had in the District last Wednesday evening, at which Governor Teeters was present. [Those comments were] to the effect that in a prior period with 13 percent interest rates, bankers were working very hard to discourage borrowers. At the present time they are still out searching for loans. Apparently they find it profitable to add to loans now, whereas in the earlier period they did not. They say that they feel no credit restraint and they do not see a reluctance on the part of their customers to borrow. There was a comment, for example, that 13 plus 3 percent for real estate loans--these were bankers talking so the loans were not primarily residential mortgage loans--just doesn't seem to deter people. They go ahead and sign up and don't even ask a question as to whether they couldn't do it for less. With respect to labor markets, the thrust of the conversation in our part of the world is tight labor, high turnover, and losses of efficiency as a result of high turnover. I don't know whether we have that sort of situation in labor markets elsewhere or not. But it seems to me--and I am inclined to disagree a little with the view Willis winn was expressing that we are lucky not to have more than an 11 percent annual rate of increase contracted for 3 years in the automobile industry--that building that sort of [wage increase] into the economy almost guarantees that we are not going to make any significant progress fighting inflation for 3 years. That's particularly so in an industry where the indications are that it's moving to supply a diminishing proportion of the domestic market. So we have a market structure that is permitting wages and prices to be pushed up in that industry. And we're really exporting jobs from the industry and importing increasing amounts of automobiles produced abroad. That Seems to me to be inconsistent with moving toward the objectives we presumably have in mind. I don't see any answer to this problem in our conventional use of monetary and fiscal tools except a very, very long, drawn out and very painful one. So it seems to me that we should be trying to encourage the government to think of ways to break into some of these wage and price processes in the interest of trying to move more rapidly to moderate inflation without going through the necessity of creating horrendous amounts of unemployment for a long period of time. That's all I have, M r . Chairman.",654
-fomc-corpus,1979,Governor Coldwell.,4
-fomc-corpus,1979,"Mr. Chairman, I have been listening here for some time, trying to cipher out what I think this economy is going to do. I think Steve's comment that it is uncertain is probably a good portrayal of my position. I have doubts that the staff's switch between the third and fourth quarter is going to come out as perfectly as they show it here. I doubt that they would defend the precision of the 0.7 [forecast] or anything like that anyway. It seems to me that we still have some strength left in this economy. And the portrayal of credit demands still reflects, I think, the basic attitude that inflation will continue. If there is anything certain in this world right now it seems to be that inflation will continue, whether at the current 10 percent rate in the fixed weighted index or at 9 percent plus. I am bothered about this forecast showing even through the end of 1980 more than 9 percent inflation in terms of the average from Q4 '79 to Q4 '80. The prospects we have had detailed for us by the staff have shown weakening, tied primarily as I understand it to an inventory position and personal income assumption. Housing is expected to decline, but barring a change in attitudes--unless the ceiling rates in state usury laws become more binding--it still appears to me a pretty speculative area of inflation. Oil [prices], of course, are something that seem to move ahead; and with a minimum of 10 percent inflation for this year, I suspect we are going to get another shock in oil prices next year, unless somebody can find some way to dampen the demand severely. S o , as I look over what is coming up, with high aggregates growth with which we are financing these [activities], with rates not dampening the strong credit demands--that is, the financial side of the economy still indicating strength--the recession seems uncertain and the inflation certain. I still think that the policy position of this Committee ought to be to do what it can to dampen inflationary expectations. That doesn't mean that we have to charge into major changes in either the federal funds rate or anything else. I suspect the answer I would come out with is that we have to get the money supply figures under better control, which means putting some rather severe limits on what we would accept as a peak rate of money supply growth over the coming 2-month period. And if we exceed that, then we take another tightening step and so be it. If the money supply growth does subside, as the staff seems to think it will eventually anyway, then we can afford to be a little more relaxed and perhaps even turn [rates around], following the market down. But for the coming period, Mr. Chairman, I would counsel the Committee to continue the path it has been on, slowly moving up its [funds rate] targets to force a curtailment in money supply growth.",590
-fomc-corpus,1979,"Let me just interject, if I may, to the presidents in particular: We have a lot of discount rate proposals in, and anybody who wants to comment on what has been proposed as your turn comes up, [please do sol. Let us know what course [you favor] or what rationale you want to present or whether you disagree with your directors.",72
-fomc-corpus,1979,"Mr. Chairman, do you want us to do that now or when we get to the specifications?",20
-fomc-corpus,1979,"I think in a general way you could do it now, but you may want to return to it more precisely when we get to the specifications. Governor Wallich.",33
-fomc-corpus,1979,"Mr. Chairman, it seems to me that we face basically a question of timing. If the economy goes into recession, as it may already have done--interrupted temporarily maybe, but perhaps a more prolonged one than we originally thought--at some point we have to ease. But at the present time it seems to me the signs are still on the other side. The aggregates have been very strong; in a sense that's been an easing rather than a tightening even though interest rates have risen. Inflation shows itself to be more persistent than before and we have the old picture where we tend to underestimate inflation. That also means that real interest rates are less than one thinks, at least the upper end. We are now getting to the point where we are getting positive real interest rates. I guess Chase with its move [of the prime] to 13 percent made us honest. But that is only before taxes. And as we look down the road, it seems to make people increasingly accepting [continued] high inflation and thereby perceiving a lower long-term real interest rate. Now. the economy itself seems to me very spotty. What we have in good part is an automobile recession. This is reflected in the Redbook. Many parts of the country are still very strong and if we were to ease at this time those strong areas would of course bump against their ceilings increasingly and produce more demand pressure and inflation there. I would add that there are other things that might give us concern about high nominal interest rates. Most have not yet materialized. The suspicion that there might be some sort of crunch ahead seems not to be valid based on what we hear. There are no real supply constraints on credit. We think of how we've shielded the housing sector through the money market certificate. That just means that we need more restraint across the board in all sectors--that is, in lower aggregates or higher interest rates. I would remind you again that what's going on in the Euro-markets means that the relevant monetary aggregates that we ought to focus on, if we had the data, are growing faster than what we see. Finally, as to the immediate situation, it seems that the market interprets the behavior of the aggregates and of the economy as something that will cause us to tighten. So while we should not slavishly follow what the market seems to expect, nevertheless we have to recognize that we disappoint the market at a cost--at a cost in credibility--and I see no reason for that at this time. I would therefore argue in favor of a mild increase in the funds rate in order to slow the aggregates. Thank you, Mr. Chairman.",529
-fomc-corpus,1979,Mr. Eastburn.,5
-fomc-corpus,1979,"Thank you, Mr. Chairman. I would like to take a little different position than has been taken up to this point. I believe one thing that is very good in the discussion that we have been having is that we are talking about longer-run strategy--a kind of cyclical strategy, I think. Everything that has been said up to now is in that vein, and that's good because I think one of the problems we have in these meetings is that we tend to operate month-to-month and get short-sighted. My strategy is somewhat different than Phil's or Henry's. I happen to think we are in a mild recession and that the recovery will be a protracted one. In that situation I also think that in our strategy we need to avoid mistakes that we have made in past cycles. One mistake that we have made is overstaying restraint and the other mistake is overstimulating when the economy weakens. I think Phil is entirely correct that we need to take an action that [makes] a dent on expectations; it's just that my course would differ somewhat from his because I feel we need to take increasing care to avoid precipitating a serious recession. That would have bad effects on expectations that would ultimately confirm inflationary expectations because it would precipitate action that would be designed to stimulate the economy and would in the longer run have negative effects on expectations. That means that in the current situation I would be willing--not happy, but willing--to see somewhat higher growth rates in money for a time than I would ordinarily like to see. But that's in the expectation that we will be getting slower growth in the months ahead. I think it also means that we will have to exercise care against overstimulating as the economy proceeds to weaken, and that means resisting somewhat declines in interest rates that might otherwise occur and having somewhat slower money growth than we would have had in similar periods in the past. In other words, [I'm suggesting] a strategy of kind of leveling off the peak and filling in the valley. There are risks in that, many risks. First of all is the assumption that the economy will behave the way I am assuming. Second is that the money supply in fact will start to slow down in coming months. But for the moment I would take that risk and stand pat; I'd stay where we are and live with somewhat higher growth rates than I ordinarily would like to see. If that proves to be wrong and money growth continues exceptionally strong--that is, above the ranges--then I think we have to move the federal funds rate up. But [for now] I would stay essentially where we are.",526
-fomc-corpus,1979,Mr. Mayo.,4
-fomc-corpus,1979,"Mr. Chairman, I have increasing difficulty in trying to define how tight credit is. We see the ambivalence, if one can use that term, in our own area with farm credit, small business credit, credit for builders and so forth very tight. Banks are very tight and it doesn't filter down like it's supposed to in a fluid system from the big banks. We don't have the moral suasion problem that we had five years ago--or if we do, we really haven't recognized it--where many of us made real efforts to contact individual banks about their overextension of acquisition credit and REIT credit and so forth. So I guess this leads to a question to Steve or anyone else on the staff who wants to volunteer: What is your interpretation of the extent of the insulation of the large banks from our attempts at credit tightening because of the availability of funds from abroad? That makes it extremely difficult for us to define how far we can go, much less [how to1 implement whatever definition we arrive at.",203
-fomc-corpus,1979,"Well, perhaps not in complete answer but in partial answer, President Mayo, I would think that the availability of Euro-dollar funds abroad has made it necessary to have interest rates a little higher in this market than we would otherwise because large firms can simply borrow a little cheaper abroad than they can here. On the general point you are raising, what I tried to say earlier was that my instinct was that the 13 percent prime rate was producing some real restraint. In simple terms, if people expect the rate of price inflation to be less than 13 percent, it's immediately a very restrictive rate. Now, we will have [firms] perhaps expecting that their sales are going to weaken, in which case that adds to the restrictiveness. So the rate is the main factor at present, and the need for higher rates domestically is greater because of this lower rate in Euro-dollar markets.",177
-fomc-corpus,1979,So you think we can offset the availability through the rate?,12
-fomc-corpus,1979,"If we can't, I think we probably have to throw out the history of economics.",17
-fomc-corpus,1979,"Are you suggesting, Mr. Mayo, that we ought to think about some kind of moral suasion?",21
-fomc-corpus,1979,"I'm raising the issue, Paul. I haven't made up my own mind on it. It's an issue that we have not discussed around this table in this cycle and we certainly did five years ago.",39
-fomc-corpus,1979,Do you have any concluding comment you would like to make?,12
-fomc-corpus,1979,"No, I'm throwing this up for grabs at this point. I don't know how to attack the moral suasion issue this time, Paul, because of the availability of such a flood of funds in the international markets. We are not talking about what was an attempt in a mild way at ""credit allocation""--if I may use the naughty tern--five years ago when we were trying to get [banks] to stay away from purely acquisition credit and trying to keep the REIT situation stable yet not expanding. This time what I have in mind in bringing this up certainly doesn't relate to our banks and foreign loans; it isn't that aspect of it. And I don't know to what extent moral suasion could do us much good here. It's a much broader question to go out and say to the big money market banks that we would prefer that you not borrow from abroad. That's a very hard thing to say. What do we do about it? I don't know, but I think it's a worthwhile question to kick around a bit.",205
-fomc-corpus,1979,"Some of this borrowing from abroad, I think, is just borrowing back money that Americans put abroad in the first place.",24
-fomc-corpus,1979,That's true,2
-fomc-corpus,1979,"I'm not sure how much, net, there is.",11
-fomc-corpus,1979,"Well, to the extent oil money or OPEC money is involved and that's sloshing around, that somehow gets to the big banks and insulates them from monetary policy. I hope that Steve's answer on [rates] is an accurate statement. I certainly do.",54
-fomc-corpus,1979,"Obviously, if anybody else wants to comment on this question, I would be delighted to have the comments. My own feeling has been that it's probably pretty late in the day to begin talking about moral suasion. I don't know whom we would morally persuade.",51
-fomc-corpus,1979,That's the real problem.,5
-fomc-corpus,1979,"We may do more damage, unless we see particular speculative problems and takeovers or whatever. I'm not sure [how we can succeed in3 that process.",31
-fomc-corpus,1979,"On this issue, Paul, I hear more comment in the market about credit controls of various types as the way of doing it to avoid Reg--",29
-fomc-corpus,1979,"My response would be a fortiori applied to credit controls. I don't know what we want to control at this particular point in the cycle, but--. Mr. Kimbrel.",37
-fomc-corpus,1979,"Mr. Chairman, from our vantage point we are seeing some contrasting developments early on. The farmers are very excited; generally expectations are for one of the best farm years ever. Business people are still reading the papers and saying "" I read that but I don't feel it in my business."" Developments in residential sales and construction in the area are harking back to the early '70s. It's incredible some of the stories we are hearing about sales and possibilities in certain areas of the District. We add to that, of course, the visit of an unwanted gentleman hurricane in the Mobile area and that confuses things. The banks were not open yesterday, and we are not sure that they are going to be open today. And 10,000 people are still without power. So, we don't know what the total impact of that is going to be. Business loans in the District have not followed the national pattern. They are somewhat weak, but consumer attitudes are also discouraged and uncertain. Add to that [what we said in] our earlier discussion of the growth in the aggregates and the apparent lack of restraint on [such growth] in recent months. [Nevertheless,] at the directors meeting last Friday the feeling was I think unanimous that there is not going to be a credit crunch but that inflation is going to be about as strong [as it has been] for at least the rest of the year. Add to that the uncertainty of foreign exchange markets, and I have to associate myself with the expectation that maybe [the slowdown] has gotten somewhat deeper during the last month since I have been involved with the Desk and I think there is really some urgency that we ought to be directing more attention to restraining money growth. I don't detect in the markets any great concern that if we do that, they are going to fall out. So I would hope that we would at least maintain our present posture with possibly some leaning against any new growth--as much as anything else to try to preserve our credibility. I recognize that we have been hoping for slower [monetary] growth for some months; but it hasn't come and I am not persuaded that it's imminent. I guess that pretty well suggests that I would have no difficulty agreeing with our directors' recommendation to increase the discount rate a full 1/2 percentage point.",464
-fomc-corpus,1979,Mr. Black.,4
-fomc-corpus,1979,"M r . Chairman, I don't have any serious quarrel with the staff's projections on the economy. But I think they are probably on the optimistic side, if they've missed, because it seems to me that this trouble we have is more in the nature of a worldwide problem with the petroleum shortage, inflation, and turmoil in the foreign exchange market. So I would not see nearly the improvement in the foreign trade sector that the staff has projected. I think all these problems are going to intensify the domestic problem. In dealing with the recession that we are in, I think we have a unique set of problems here that we really haven't [encountered] in the postwar period, as Dave Eastburn indicated. I don't think the past action in earlier recessions gives us much of a guide as to how we ought to proceed in this one. There was an excellent article by Paul McCracken in The Wall Street Journal yesterday that spelled out the sort of procedures I think we ought to follow. What I believe we have to do, since I think inflation is the main problem, is to address that problem almost entirely. More troubles are going to build up and we also are going have more serious problems on all fronts, including the unemployment front down the road. And to me dealing with inflation means getting a hand on the aggregates. As we set our targets today and as we approach the end of the year--when we are going to be judged as to whether we have hit our long-run targets or we haven't--we ought to bear in mind that there is a good deal of confusion among the public and probably on the part of some members of Congress. I find it confusing myself [as to] what our M1 targets really are for the fourth quarter of last year to the fourth quarter of this year. You will remember that in July we decided we would not change them; we left the M1 range at 1-1/2 to 4-1/2 percent but the consensus around the table as I read it was that for internal purposes we would think of that as being 3-1/2 to 6 percent since we revised downward our estimate of the ATS/New York NOW account effect from 3 to 1-l/2 percentage points. Now, this spurt in the aggregates that we had in August and September is going to make it very difficult for us to get a good fourth-quarter rate. And under all three alternatives in the staff's projections they are talking about a rate from the fourth quarter of last year to the fourth quarter of this year of 5.3 percent. If we add to that the 1-1/2 percent ATS/New York NOW account [effect], that comes out to 6 . 8 percent, which I find is sufficient evidence to indicate that we have been too easy. Although I sympathize with Bob Mayo's position--it's hard to judge these things sometimes--when I see bankers out fighting for loans as they are now and I see a lot them adding to their investments, I have to conclude that credit conditions may not be as tight as they appear [on the basis of] interest rates alone. Looking back in the history of economic thought, when we didn't have all the statistics we now have there was considerable feeling on the part of economists at the time that you could look at the behavior of the foreign exchange rate and the price of gold and that would tell you whether you had too much money or not. [Those indicators] clearly say to me that we are much too easy. But I view these long-run targets that we established in July as calling for a midpoint of 6 percent pre-ATS and 4 - 1 / 2 percent post-ATS, and I think we ought to endeavor to come as close as possible to these midpoints. I think this use of homeopathic doses of federal funds rate increases in the past has pretty well ruled out any hope we have of achieving this if indeed we can control the aggregates by manipulating the federal funds rate. I have some doubts about that and some sympathy for Larry Roos's approach, but I do think we want to offset as much of the second and third quarter overshoots as possible, and I would--",856
-fomc-corpus,1979,"I'm not quite sure what target you are talking about, Bob. Maybe you can--",17
-fomc-corpus,1979,"This is M1, Mr. Chairman.",9
-fomc-corpus,1979,Did you say a 6 percent midpoint on our range?,12
-fomc-corpus,1979,That's what it would be pre-ATS,8
-fomc-corpus,1979,Pre any ATS.,4
-fomc-corpus,1979,"That's right, without any ATS. I believe that's what we were thinking about. Then you remember we went to 1-1/2 to 4 - l / 2 percent, which gave u s a 3 percent midpoint when we thought the ATS effects were--",55
-fomc-corpus,1979,You are talking about a concept that isn't portrayed on our nice little charts at all.,17
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,He's adding the ATS back in,6
-fomc-corpus,1979,"That's right. I think that's the way we have to judge it. At least we have to clear up that confusion ourselves. Lord help you when you have to explain this to the Congress and to the public because I get confused every time I think about it! When we get down to the specifics, I would like to propose that we take some actions to try to get close to these targets, although I don't think we can achieve them [fully] because of past misses.",95
-fomc-corpus,1979,Mrs. Teeters.,5
-fomc-corpus,1979,"I think you have overlooked that [Ml growth in] August came in at 6 . 8 percent. We haven't had a continuous 10 percent rate of growth; at the end of August the rate of growth of the money supply dropped. And if you look closely, it's in currency. The rate of increase in demand deposits has been coming down a l l summer. Can someone explain to me why we have a sudden increase in demand for currency? I don't know the explanation for that. I would point out to you that we have raised interest rates 100 basis points [very recently]. That's a big increase in basis points. We have a prime rate of 1 3 percent, and nobody pays prime--it's prime plus. So we are talking about interest rates in the market that are 15 to 18 percent, and it's not just on consumer loans. We have really gone very far, very fast in the past 6 to 8 weeks. I think it's time that we slow down and see what we are doing because the major impact [of our tightening actions1 is going to be in the fourth quarter of this year and the first quarter of next year. I'm a little puzzled about this availability argument. The lack of availability previously has always been in one [sector]; it has always been in the mortgage market. I suspect that in other areas of the market there was really enough money available, except maybe in the summer of '74. Now that we have said that we don't want to put all of the restraint on one industry, the word goes around that there is plenty of available money and nobody is being hurt by this. People have got to be squeezed out of the markets at this point. It may not be the big banks or big corporations, and it may mean [the restraint] is going to be focused again on certain areas of the country. The Sunbelt seems to be almost imune to any sort of restraint. And as we move [rates] around, it make it harder for New England and for the upper middle West, along with other areas of the country. I'm extremely reluctant to raise either the discount rate or the federal funds rate at this point.",441
-fomc-corpus,1979,I'm not sure it is a fact that everybody's paying more than the prime rate. There are still some reports around that quite a few people are paying less than prime.,34
-fomc-corpus,1979,And the compensating balances.,6
-fomc-corpus,1979,I don't know why that should be--,8
-fomc-corpus,1979,"Well, the competition of the European banks is a major factor.",13
-fomc-corpus,1979,"Well, it's very short-term money",7
-fomc-corpus,1979,I'm not sure it's all short term. I think it's probably bigger--,14
-fomc-corpus,1979,I think Nancy's point is that most borrowers pay something more [than prime] and a 20 percent compensating balance.,25
-fomc-corpus,1979,There are reports that some banks are still making fixed rate loans at something less than prime.,18
-fomc-corpus,1979,"Furthermore, there was actually an announcement by the Bank of America that it was going to make automobile loans at 12 percent--a lower rate just to help out the automobile dealers as a sales mechanism. It would be an unusual situation, but it certainly doesn't indicate much tightening.",55
-fomc-corpus,1979,Mr. Morris.,4
-fomc-corpus,1979,"I sort of lean [in the same direction as] Dave Eastburn and Nancy Teeters at this juncture. The evidence seems to me to indicate that recession momentum is gathering force very rapidly and that the recession is likely to be more severe than the staff forecasts. I had hoped, since it was the best forecast recession ever, that we would get some restraint on inventory accumulation. But the whopping increase in inventories in July plus the big demand for business loans at banks in the last 4 or 5 weeks suggest to me, even though oil inventories may be down some recently, that we're still getting very big inventory accumulation in August and early September. This, of course, suggests that when we start turning that corner, we're likely to have a pretty big inventory swing, probably bigger than is in the projection. I also agree with Nancy on the point that in the past [several] weeks we've moved short-term rates almost 150 basis points; long-term rates in some cases [have risen] almost 50 basis points. I can't ever remember a month in which we've moved rates more than that. We've gotten a lot of bang for the buck in terms of the relationship of the relatively small move in the funds rate to the very big moves in the rest of the market. I think we have yet to see the effects on economic activity of the actions we have taken. So, I would come out the same place Dave did; I think we ought to behave a little differently going into a recession than we would behave in a continuing boom environment. All history teaches us that when the inventory accumulation starts to abate we will get a slackening in the aggregates. And I think the long-run track of the aggregates up to now has not been bad. Over the past 12 months [we'vehad growth of] a little less than 5 percent on M1 and a little less than 8 percent on M2, and I think that's about what we would have wanted to come out with a year ago. So it seems to me that we ought to stand pat for the next month. As far as the discount rate is concerned, it seems to me that we ought to hold that in reserve in case we need to use it. In the event that we get a run on the dollar, it would be nice to have a symbolic gesture in the closet that would permit us to announce another 1 percentage point increase in the discount rate, which would attract a lot of attention in Europe and so on. So I would rather save that weapon for future use. As far as moral suasion is concerned, we might have had that as a part of the package last November 1, but I think it's much too late now. I think the recession will substitute for moral suasion.",559
-fomc-corpus,1979,Mr. Timlen.,5
-fomc-corpus,1979,"Mr. Chairman, you expressed some interest in the discount rate actions at the Reserve Banks. Two weeks ago the directors of the [unintelligible] New York Bank voted a 114 percent increase in the discount rate. When the officers came in that morning, they were very troubled as to what our recommendation should be on the rate. There was some feeling to do nothing, some feeling to do a 114 point, and some feeling to do a 1 1 2 point. I think on balance the strongest sentiment was to take a small, but not insignificant step and therefore to recommend a 1/4 point. Well, later in the morning we heard that the projections on the monetary aggregates were reduced somewhat, so the officers decided on balance to propose that we wait a couple of weeks. Having made the recommendation to the directors that we do nothing [on the discount rate], the directors expressed some sentiment that it would be well to coordinate the action of the Bank with [developments] in the open market that were identified with the new Chairman, so that on their own initiative our directors moved and voted a 114 percentage point increase in the discount rate. [Our board] will be meeting on Thursday of this week and I would suspect with further market developments and administered rates, there might be some sentiment for something more than the action taken two weeks ago. As an aside, I might say that there's a good deal of talk in the markets in New York about the possibility of an impending credit crunch. As we look at the situation in the individual major banks, however, we can't find a commercial bank that may be faced with a credit crunch. In terms of the general situation, my views are very close to Governor Coldwell's. I don't think the situation is particularly dissimilar from the one we faced last month. Inflation is still for me a matter of major concern. The monetary aggregates still are on the high side, and the dollar--which I don't think Phil mentioned--continues to be under recurring pressures in the foreign exchange markets. I must admit that we cannot overlook signs of weakness in the economy. Unemployment is edging up and there is the question of inventory accumulation. [It's unclear] whether there has been a correction in the automobile industry but that is a possibility. I think it's important that we not have the problem of a General Motors strike. We do have a problem that the settlement was expensive. I think it's important that the Federal Reserve not indicate that it is weakening in any respect in its resolve to fight inflation or restrain growth in the aggregates, so I would favor some further tightening at this time.",530
-fomc-corpus,1979,Mr. Partee.,5
-fomc-corpus,1979,"Well, I've been gone for a couple of a weeks and I feel a little out of it. A significant recession is not a certainty but it's a high probability. One could read this as an automobile-led correction and a shift in real income from consumers to producers and distributors of oil, both of which have had a marked effect on retail demand. But I guess I'd go along with Frank that the indicators all point to mounting tendencies toward weakness in the economy. And it seems unlikely that we'll get a smooth and easy inventory correction as the staff is projecting. S o if in fact these pressures continue to mount, we'll probably have a deeper recession than is forecast by the staff. I've been concerned over the last 4 to 6 weeks, as Nancy has, about the possibility of overshooting. I think it's important, very important, that we try to keep the aggregates within the ranges that we specify. And I think it was very appropriate that we moved interest rates up significantly over the summer because of the bulge in the aggregates in the spring and summer, which was to a considerable degree unexpected. But we have to remember that those changes in rates affect money growth with a lag. We've had the increase in rates and we have another lagged response yet [to come]. We also have to remember, as Nancy said, that if we look at M1 there has been a significant slowing in demand deposit growth. It was [at anannual rate of] 17 percent in June, 10 percent in July, and is forecast at 3-1/2 percent in August. That has been masked by an explosion in currency. We don't really know [why that has occurred]. It seems most likely to be some kind of aberration; we don't really think it will be sustained. Feeling that we have moved rates quite a bit in the last month or two and that the aggregates are in a lagged way likely to be reflecting that, I also agree with Nancy. I think the best thing to do, as the Committee often has done over the last decade or so, is to pause for a while and see what develops.",427
-fomc-corpus,1979,Mr. Balles.,5
-fomc-corpus,1979,I was going to ask Nancy if that explosion in currency is a part of the underground economy that she testified on.,23
-fomc-corpus,1979,It's the Susan B. Anthony dollar.,8
-fomc-corpus,1979,How much of that is the Susan B. dollar? There were $300 million of those going out beginning in July?,24
-fomc-corpus,1979,"Well, in addition to the Sunbelt, the area west of the Rockies is not feeling very much if any recession yet. Aerospace, electronics, and agriculture in general are all quite strong. One indication is that the [volume of] help wanted ads in the Los Ancreles Times is almost unreal. The latest count that I heard from someone was 98 pages [of such ads1 in a recent Sunday edition. So a lot of jobs are going begging. We have had, of course, as is true around the nation, some decline in auto sales and in housing starts but considerably less percentage-wise than the country as a whole. AS far as the national outlook, we don't have any huge quarrel with the Board's staff view. We still expect the economy to bottom in the first half of 1980 and quite possibly in the first quarter. There's always the risk that things could get worse than our staff is now forecasting, but I'm reserving judgment on that until we get some evidence that that's a likelihood. In addition to the input that we bring to these meetings and the usual sources of our own research staff and directors, last Friday when Vice Chairman Schultz visited us in San Francisco we called in a special small group of bankers, businessmen, and academicians for a very frank exchange of views. We sounded them out about their feelings on the economy and on Fed policy, and I must say, Fred, that I thought the reactions were quite candid and somewhat humiliating in a way. The bankers generally expressed the view that as yet there's very little evidence that the high level of interest rates is having any significant total effect on cutting off credit demand. Now, one has to add to that the expressions we got from them in our usual go-around with bankers and bank directors that these high rates are having a cutting effect on the so-called middle market for business borrowers--the smaller firms--and for mortgage loans and some small farmers. That's where the incidence of the high interest rate effect has been felt thus far in our part of the country. But as a general matter, even if the businessmen present were mostly from big concerns, they simply indicated that the higher rates per se are not having any effect at all on their capital projects. If a project is worthwhile, it's not going to get cut off by a one or two percentage point increase in the cost of funds. A minority expressed the view that this is leading to some greater caution on inventory policy, which is already being viewed as quite cautious. One major real estate developer present indicated that the higher rates are just built into their projects and aren't having any dampening effect at all. It was by the economists that we really got blasted. They came from Stanford, Berkeley, the University of California at Davis, and from a number of major banks in town. Quite frankly, they were highly critical of what they called pro-cyclical Fed policy and the extreme swings in the growth rates of money and credit that they've witnessed over the past year--the very low rate from, say, October to March and the very high rate on balance from April to September. The clear majority view in that group--and the bank economists were quite similar to the academic economists--was that it's vital that we give more attention to that now than to what would be a more conventional counter-cyclical policy. My own view is that [we should make] an attempt at the gradualism that we announced several years ago. I remember your predecessor twice removed I guess, meaning Chairman Burns, [said] that the System's strategy would be to gradually lower the rate of monetary growth as a long-run strategy for getting inflation under control. What happened, I'm afraid, is that while the ranges have been brought down a little in the last several years, we've seen a great deal of evidence of the actual rates of monetary growth accelerating. I continue to feel, as I expressed last month, that we're going to get some automatic cushioning effect to this recession from fiscal policy, perhaps supplemented--there seems to be more and more talk about it [though I don't know] whether anything will happen or not--by discretionary tax cuts. So I lean toward the view that we may have to use monetary policy as the principal weapon to break inflationary expectations and to get some deceleration in the actual rate of inflation. Our directors clearly voted to increase the discount rate to reinforce what they thought should be a further snugging up in our efforts to get the rate of growth in the aggregates down somewhat. Almost fortuitously we've had a counter-cyclical policy since spring. If in fact the first quarter proves to have been the peak of the previous cycle, then in the second and third quarters we've had a counter-cyclical policy of considerable magnitude given the rate of monetary expansion that has taken place. And perhaps it's a bit too much to also get on top of the inflation problem. Bottom line I come out pretty much as Phil Coldwell, Henry Wallich, and Bob Black did. I think we should lean toward a little higher funds rate and a little better control in linking our short-term targets with our long-term targets if there's to be any success on the inflation front. I think it was last April, Steve--at just about the wrong time--that I raised with you in front of God and everybody here the fact that you had been overforecasting the rate of monetary growth. You sure got that fixed! Correct me if I'm wrong--1 don't have the exact figures with me--but I think month by month the Bluebook forecasts have in fact understated, and perhaps by a significant margin, the subsequent [monetary] growth we've experienced. I may again be raising that issue at the wrong time, but the recession will take care of that.",1158
-fomc-corpus,1979,"It's a good leading indicator, John!",8
-fomc-corpus,1979,"Until I see it, I guess I'm not going to believe it. I am concerned on balance that it may not have been bad that we had a real surge in monetary and credit expansion because of this recession. But I think we may have overdone that in view of the continued problem of getting inflation under control. So I would vote for a little snugging up.",74
-fomc-corpus,1979,M r . Rice.,5
-fomc-corpus,1979,"Mr. Chairman, probably not surprisingly, I would associate myself with the remarks made by Dave Eastburn, Nancy Teeters, Frank Morris, and Chuck Partee. I can therefore be very brief. I think it's time to give more weight to what is happening in the real economy. The economy is clearly weakening; the staff analysis is very clear on this. It's really very hard to see where the strength in the economy is that some people are worrying about. Most of the indicators seem to me to point toward weakness and further weakening in the economy. Retail sales in real terms have been declining since last May. Industrial production has turned down. GNP is projected to decline further after the current quarter, which is close to an end. It seems to me that, as Governor Wallich pointed out, we are faced with a problem of timing. And I would say that at this time it would be inappropriate to take any monetary action that would have the effect of further weakening an already weakening economy. In response to the concern about inflation, which I share, I would have to say that in my judgment any action that we might take today is unlikely to have any effect on the inflation rate within the next 6 to 9 months. So whatever tightening of policy might be adopted today would be largely symbolic. Also, I would note that even at the current federal funds rate--even with the current degree of tightness --the monetary aggregates, M1, M2, and M3, would probably fall within the long-run ranges of growth that have been set for the period from the fourth quarter of '78 to the fourth quarter of '79. Given the outlook, there's a strong prospect that the growth in the monetary aggregates will indeed decline. Therefore, in the current circumstances I would not favor any increase in the federal funds rate nor would I favor an increase in the discount rate. I would want to stand pat. I would not argue at this time for an easing of policy, but I would certainly argue that any further tightening would be a dangerous step to take.",414
-fomc-corpus,1979,Mr. Winn.,4
-fomc-corpus,1979,"I guess we're going to have to rearrange the seating here a little; we're kind of [taking] sides and I'm out of place here in terms of my approach! I think we're dealing with expectations in a variety of ways, and when we [focus on1 our cyclical analysis we forget the changes in price behavior that we're faced with. [Prices] are not going to behave in the traditional way in the future, but they're still one of the canker sores we have to deal with. With the publicity we've had recently [regarding] our behavior we have a real problem of expectations and a growing cynicism in the markets. The markets don't believe that the System has the resolve to cope with these problems; [they think] that we tend to shift our targets and keep our interest rates stable so that if we miss our target we just push it up and say we're going to catch up later on. They're getting rather pat in the way they view our activities. I feel that we need to change their expectations about us in terms of our behavior, as I argued last time. Consequently, I'd be in favor of widening the federal funds rate spread and I'd let the rate behave on the basis of what actually happens marketwise. Secondly, I'd use this opportunity to change the discount rate because it doesn't really change market [rate] levels: it would change expectations because there isn't an immediate foreign exchange pressure that forces us into doing some of these things. We can use it to have an announcement effect without actually changing the level of rates marketwise, reinforcing a resolve to do things a little differently and, therefore, changing expectations. I'm not in favor of really hiking the rate level at this stage unless the aggregates do continue their rapid growth. I'd point out to those who mentioned the decline in demand deposits that this represents part of the continual shifting and changing in the nature of the money concept, as people take advantage of opportunities to keep their funds at work with RPs and other things. Consequently, I am still concerned about our overshoot in this area. With all of our comments and people pointing to us as being concerned about this development, I'd like us to show by some action that we are concerned without necessarily changing the rates significantly. In terms of expectations, I have one that is different from those of the group: I'm not sure we're going to get a mild [recession] next spring. I think we're going to get an uptick this quarter. That is going to change expectations for the final quarter and we may get a stronger final quarter than projected. I think the basic forces of decline are with us. What I can't see is the bail-out after we get into a substantial decline. I don't see the forces there to provide the uplift. So I think it can degenerate into a somewhat larger decline than has been projected, with the fiscal implications and the consequent problems with respect to continued price inflation. And I'm worried on that score.",590
-fomc-corpus,1979,Mr. Guffey.,6
-fomc-corpus,1979,"Thank you, Mr. Chairman. With respect to economic conditions in the Tenth District, we are enjoying--as others have said regarding the agricultural area--probably the finest crop in history. And it's a reality; most of it is already [harvested] or is ready to come into the bins. The problem has been more real in the sense that Bob Mayo mentioned; [producers] cannot move that crop, particularly to the port facilities for export, because of the shortage of rail cars as well as the Rock Island strike. It is putting some pressure upon the financial community to continue to finance inventories that had built up a year or two years before. But it also is fairly clear that some weakness is developing, particularly in retail sales--as affected by the auto situation--but also in residential sales. To my knowledge--and I have inquired around the region--1 can find no area within our District where any speculative houses are being built at the moment. Everything is being built on contract. If there is no contract, there is no building. Turning to my own view of the staff's expectations for the national economy, it seems to me that they are quite reasonable, though maybe a bit bullish. I would expect to have a bit deeper and more prolonged recession from the actions that have already been taken. Traditionally, when consumer expectations turn, they turn and don't come back very quickly. With regard to growth in the aggregates, as has been mentioned, to be sure over the year [Ell looks very reasonable at about 5.3 percent without ATS. I believe that is the figure. But equally important, it seems to me, both last month and again this month we've been looking at accelerating rates of growth in the aggregates. If you focus on M1, the staff projection is almost 10 percent for September. But I would like to point out that most of that has already occurred in the first two weeks of September. And two events have taken place, both the Social Security payment as well as the anticipation of the September 15 tax payment date. From here on out the staff projections are essentially flat. It would seem to me that if the seasonals play any part in the first two weeks of September--about which there seems to be some doubt--we may not be getting the aggregates growth now that we tried to react to in August. Lastly, I would join with others who have said that we have moved very rapidly. S o it seems to me time to pause now to see [the effects of] what we've done. We talk about the 13 percent not cutting, but it hasn't been in place very long. People either had been committed before and haven't backed off or they haven't made judgments as to whether they're going to continue to borrow in the future. I would say that in the financial area of the Tenth District, the 13 percent rate has already taken a toll; several correspondent bankers have told me that at a 13+ percent rate they are withdrawing from requests to finance additional cattle operations simply because the economics don't pan out. As a result we could quite likely see in the future a withdrawal of the inventory levels of cattle that would have been coming on stream in the period ahead. In talking to staff and others and seeking advice, I would note that one person characterized the situation we're looking at right now as a situation akin to preparing a chicken for the table. That is, the chicken's activity increases substantially right after you cut off his head. If you react to that increased activity by striking with the ax again, that greatly increases the risk of damaging the meat. That may be exactly where we are now. So with that, I would propose that we stand pat at the moment with respect to the federal funds rate but use the discount rate for an announcement effect. As Willis pointed out, the discount rate has no real effect on market interest rate levels and the alignment issue is beginning to be a problem in our District. Thus, I would propose that the discount rate be raised at least 1/4 point, or perhaps 1/2 point.",823
-fomc-corpus,1979,"Well, I think we've had some barnyard reasoning! Mr. Roos, would you like to make a few comments?",25
-fomc-corpus,1979,"First of all, being from the other end of the same rural state, I would have to disagree with Roger's analogy. When one prepares a chicken for serving, one usually has the best results if the dish is served up without any guts, whereas I think monetary policy--well, I'll stop at that. I'd like to take up very briefly some of the things that have been said. First of all, I'd invite your attention to page 10 [of the Bluebook], the upper graph showing the growth of M1 during this year. [Some would] conclude that [policy has been appropriate] because the average of M1 for the year appears to fall between our targets. I would point out that the roller coaster effect that we've experienced is really very damaging to stability. If you remember your friend's button that I wore to one meeting--and was nearly fired as a result--I implied that that dip early in the year would result in recession. The dip occurred and we are experiencing a recession. I don't think the up and down movement is a good thing. I also am concerned--",219
-fomc-corpus,1979,"Are you projecting a boom now for the next 6 months, Mr. ROOS?",18
-fomc-corpus,1979,"Yes. I hear some of my friends say that we have moved interest rates up 100 basis points. I don't think we moved those rates; I think strong credit demand and inflationary expectations moved those rates up. If anything, we have leaned against what the [increase in rates1 would have been had we not expanded the money supply. Furthermore, for those who feel that a further rise in interest rates would have the effect of lengthening and deepening the recession, I would point out that if--in order to maintain the fed funds rate at its present level--we permit [such] growth of the aggregates to continue, the public perception [will be one1 of excessive aggregates growth. And I think the result will be interest rates that are even higher than they are now, in spite of our attempt to keep rates where they are or to stand pat. Specifically, I think we have no choice but to do whatever we can to bring M1 growth back under control. I would urge two steps. One, our board was unanimous in its recommendation that the discount rate be moved up 1/2 point. [Second], whatever the range for M1, I think the upper limit of the M1 range for the period ahead should not exceed 5 percent exclusive of ATS or 6-1/2 percent with ATS. I think the best thing we have going for us is [the public's] belief--in reaction to the excellent statements by our Chairman--that we are determined to maintain monetary discipline. If we do anything that can be interpreted as a move toward ease, I think our last thread of credibility will be lost. And a very important new policy that has been enunciated by Chairman Volcker will be less than truly effective if we do that. S o , that's my thinking.",364
-fomc-corpus,1979,"Have you any brief wisdom from the upper Midwest, Mr. Gainor?",15
-fomc-corpus,1979,"I will be brief, Mr. Chairman. We feel a bit behind the times in the Ninth District. We hear in the national press that the recession is half over and it hasn't even hit us yet. Unemployment is very low in our District, less than 3 percent, and labor markets are tight. Industrial production is strong. The only questionable areas have been tourism, which was affected earlier in the summer by the gasoline shortage, and [agriculture where] we have a problem with the transportation of grain, as was alluded to earlier. With respect to the national perspective, we continue to be concerned about inflation and about the international position of the dollar. We believe the Committee should try to get the numbers under control while it's still politically feasible to do so. Our directors have recommended an increase in the discount rate change of 1/2 percentage point, which we suggested. And we would favor further limiting growth of the aggregates.",188
-fomc-corpus,1979,Mr. Schultz.,4
-fomc-corpus,1979,"Well, I've only been on this [Committee] for six weeks and we're having a little barnyard humor, so I'll just say that unfortunately I feel like the little boy who dropped his bubble gum in the barnyard! It's a very difficult time to be here. I think we have a Hobson's choice. It seems to me that the likelihood is that the economy is going to weaken and we're going to get accused of overkill, overstaying [a restrictive policy]. The problem is, if we look at it on the other side, that's conjectural; the facts are that the aggregates continue to grow. And it's hard to find where monetary policy is biting very much. We see a little in real estate, and a few banks talk about their consumer credit [lending] at a fixed [interest] rate so they're beginning to slow down. But by and large it's hard to find very much bite any place. I call around the country and I don't find very many people screaming very hard. There just isnrtvery much pain out there. I'd love to believe these numbers but the problem is I don't know what inflation is doing to them. I don't know what people are really doing in response to that and what kind of variances we have. So I'm afraid I just have to go with what I can see and what I know to be the facts. And those are that the economy still looks pretty strong and the aggregates continue to rise. So I come down on the side of some further tightening. I would go with an increase in the discount rate and some moderate tightening in the federal funds rate, though probably not very much. I would like to see the range widened to at least 100 points and at some point in time deal with the stimulative problem that President Eastburn talked about when we start coming out [of recession]. I'd like to see us go to an aggregates directive but now probably is not the time, with all the volatility. But my feeling is that we need to take another [tightening step].",408
-fomc-corpus,1979,"I have failed in one of my objectives, which was to get us out to the coffee break early. Perhaps reflecting my long experience in this particular chair, Mr. Schultz, the decisions don't get any easier from meeting to meeting. If we have a geometric progression, I'll really be in trouble at the next meeting! Let me just make a couple of comments before we go out for coffee. There is a very strong possibility of recession on the one side. We've had that possibility for almost six months now and we still have the unemployment rate at a level that some consider to be the natural rate. I don't know whether it is or it isn't, but we had a lot of discussion earlier, which may be reflected in some of the comments about labor markets still being fairly tight. And, obviously, we have inflation as strong as ever. We have a difficult timing problem. Difficult or not we have a timing problem if the business outlook develops more or less as projected, in that we don't have a lot of flexibility--at least flexibility in a tightening direction--in terms of what we can do in the midst of a real downturn. As I read the recent business news, which is always difficult, I feel a bit reassured by the most recent trends. There's a little more stability in retail sales in real terms and some decline in production. What we [believe] is happening in inventories is probably consistent with the type of outlook the staff has projected of a rather mild recession. I think the major risks are still on the lower side, but what we see now is not inconsistent with that kind of situation evolving. In looking at the business outlook, it does seem to me that the main problem lies in the area of income and consumption. I noticed on one of the [Greenbook] tables that you have indicated an effective tax rate and it shows [a rise that] in one sense looks rather gradual. But in an historical perspective I suspect there's a rather sharp increase in effective tax rates, which has been draining off income. And of course we have the higher oil prices draining off real income. That does seem to me to be the heart of the business problem we have. We've had some questions raised about what monetary policy can do about inflation. I understand those questions, but there's the other question about what monetary policy can do about this particular conjuncture of adverse business developments--if they are adverse. The heart of the problem really lies in consumption and income. That suggests to me that perhaps the appropriate cyclical action when we get to it lies mainly in a tax policy rather than in the financial markets easing and the money supply growing. In terms of what we can do with monetary policy, we do have this question of what happens to wages in the short run. I don't think we have a situation that some of my friends in the Bundesbank think they deal with--that when the monetary authorities say something, the labor unions jump. I don't think that is quite the situation we face here! But we are in a rather crucial period in terns of how much the probably deteriorating inflationary expectations now get built into the wage structure. In a general way that has something to do with what we do. It's awfully hard to evaluate the significance of the gold price speculation, but I can't imagine that it's very good in terms of confidence in either inflation or the financial structure. Exchange markets remain in a very tender position, even though--and this came out quite clearly at the meeting last weekend--the expectation is very strong that if we wait a while, and we have to wait some months, the current accounts are moving quite nicely [toward] what is called equilibrium. I don't know whether one can quite call it equilibrium if it's achieved at the expense of a recession. The German and Japanese current accounts are both deteriorating quite a lot, partly under the impact of oil. Ours has gotten better. We expect it to get quite a lot better by next year, although not in coming months. And I feel reasonably encouraged that growth is pretty strong abroad. There are worries there about the impact of the oil situation but that is not very visible yet. It does seem to have some momentum, at least in Japan and Germany, which I think is a favorable background. We don't yet clearly face a situation where the United States going into a recession tips the whole world into a recession. There are some areas of support there that I think are quite important. Well, I don't know where that leaves us precisely. I share the view that has been widely expressed that this isn't the time for any easing, in the visible sense, of interest rates. I would hope that that's an ingredient of whatever we decide. I also share the view that has been quite widely expressed that we have to show some resistence to the growth in money. I would note that that remains a source of political support for us. It's not every day that we get a letter from the leader of the Black Caucus [in the House] exhorting us to show more restraint on the money supply side. So I'm going to carry that letter close to my heart, whatever we decide today. And [he was] speaking on behalf of the whole subcommittee, at least, of the House Committee on Banking and Currency--the Subcommittee on Domestic Monetary Policy. So, I do think that those two ingredients at least ought to be in whatever policy we decide here. With that, why don't we break briefly and come back and be prepared to decide what we will do.",1111
-fomc-corpus,1979,"I don't think this gavel has ever been used before in these meetings. It's not very tight. Mr. Altmann, will you please take care of repairing the gavel? Well, let me just try to get something on the table that seems to approach most closely a concensus in numerical terms and you can take whatever shots at it you would like. A s I listened, among the voting members of the Committee at least, I think there was a majority desire--but clearly not unanimous--to make a little move on the federal funds rate. So I would propose 11-1/2 percent on that at this point. I am not particularly eager to make a major move now or in the foreseeable future, so I would suggest that we put a band around that of 11-114 to 11-3/4 percent, which ought to [result in a] reconsideration before a very major step on the funds rate. There is a desire by most people to constrain the aggregates and that may require going [with ranges1 below any of these alternatives we have [in the Bluebook]. Consistent with the notion that we're not looking for any easing in the immediately foreseeable future, it may make some [sense] to broaden the MS aggregate [range] on the down side. Let me suggest 3 to 8 percent for M1. And in the interest of symmetry, I think that means about 6 to 10 percent on M2.",296
-fomc-corpus,1979,You shouldn't cut a point and a half off the top of M2 for that M1 change. M1 is about half the [M21 total.,31
-fomc-corpus,1979,Are you saying that is consistent?,7
-fomc-corpus,1979,No. it is not consistent.,7
-fomc-corpus,1979,6-1/2 to 10-1/2.,13
-fomc-corpus,1979,"Yes, that might be pretty close.",8
-fomc-corpus,1979,The current projection for M2 is what?,9
-fomc-corpus,1979,9-1/2 percent.,7
-fomc-corpus,1979,"9-1/2. All right, let me modify my suggestion for M2 to 6-1/2 to 10-1/2 percent. Who wants to shoot?",38
-fomc-corpus,1979,"Please state them again, Mr. Chairman.",9
-fomc-corpus,1979,"For M2, with Mr. Partee's modification, 6-1/2 to 10-1/2 percent; 3 to 8 percent on M1; 11-1/4 to 11-3/4 percent on the funds rate, meaning we would go to 11-1/2 percent. And I would interpret this to mean that we wouldn't go above 11-1/2 percent unless the aggregates got to or above the upper ends of the ranges that we're talking about.",106
-fomc-corpus,1979,This is a money market directive?,7
-fomc-corpus,1979,"I think that probably implies a money market directive but in a sense, if we give full weight to the projections we now have, we're starting out in the upper part of the ranges.",37
-fomc-corpus,1979,We're above the range [for Ml]. Isn't September projected at 10 percent?,16
-fomc-corpus,1979,"Well, I was talking about the two-month projection.",11
-fomc-corpus,1979,What is the projection?,5
-fomc-corpus,1979,7 percent.,3
-fomc-corpus,1979,"It's 7 percent, so we're within the range but in the upper part of it. In effect by moving to 11-1/2 percent [on the funds rate], if we adopt this philosophy, we wouldn't move further unless growth actually got to or above the upper ends of these specified ranges. I'm just putting this on the table. Let's hear what comments you have.",76
-fomc-corpus,1979,"I'm very much in tune with that, Mr. Chairman. That's almost my prescription.",17
-fomc-corpus,1979,Larry Roos.,4
-fomc-corpus,1979,"I believe our range last month for M1 was 4 to 8 and you would adjust it to 3 to 8 percent. The 8 percent bothers me, Mr. Chairman, because that 8--when we add 1-1/2 for ATS--means we really would tolerate a 9-1/2 percent growth in M1 if we let M1 go to the top of these specifications. That's a heck of a growth rate if we're trying to correct the overshoot that we probably already have. That's my only reaction. I repeat that I really don't think [we should have] anything over 6-1/2 percent as the upper limit; the upper limit is much more important than the lower limit under the present circumstances.",154
-fomc-corpus,1979,Except that the lower limit does keep us from moving [the funds rate] down.,17
-fomc-corpus,1979,"Well, we're already there if September comes in as expected at 10 percent; that is 5 percent for the two months. So it would take 6 percent [growth] to move up. That's not a great deal and yet it is a very high rate if, as Larry says, [we tolerate1 8 percent plus 1-1/2 for ATS. On the down side, the 3 percent, we'd have to get minus 4 percent for the second month, which strikes me as pretty extreme. It's a useful precaution but I would prefer to achieve the same objective by having a skewed [funds rate] range of 11-1/4 to 12 percent or so and go to 11-1/2 percent.",154
-fomc-corpus,1979,"You're assuming in these calculations that we know the second half of September, which we don't really know.",20
-fomc-corpus,1979,"May I say, Mr. Chairman, technically the ATS effects recently have been running only 1/2 percent, not 1-1/2 percent.",32
-fomc-corpus,1979,"May I ask a question about the ATS effects? Is that for the whole year, Steve, or were you talking about recent months?",27
-fomc-corpus,1979,I was referring to the recent months.,8
-fomc-corpus,1979,"I'm sorry, Henry, I didn't understand your recommendation.",11
-fomc-corpus,1979,"I think that 8 percent is high, and I think the 3 percent, while it accomplishes my purpose of avoiding a decline [in the funds rate1 is almost unrealistic because it means, assuming September comes in as projected, that we have to have minus 4 percent [Ml growth] in October. And that doesn't seem very likely. so just in the interest of plausibility, I would prefer to modify this M1 range, but I don't feel strongly. If that's the best way of qualifying the funds rate movements, it can be done that way.",114
-fomc-corpus,1979,"As I observe these figures from week to week, there is nothing one can assume about the last two weeks of September.",24
-fomc-corpus,1979,"Well, Mr. Chairman, I have just a slight reservation on this on the 8 percent side. I guess I'd rather have 11-1/4 to 12 percent [on the funds] range, using 11-1/2 as the ""midpoint"" but also using 11-3/4 as a possibility if those [aggregates] start moving up strongly toward the top of the range. I'm a little bothered about just nailing the rate at 11-1/2 percent and saying that's what it's going to be and we're going to reassemble if anything happens on either side of it. If that's the way we're going to work the game, then why don't we just say it?",145
-fomc-corpus,1979,"Well, I'm not quite saying that. If the aggregates were strong enough, I think we could use this whole range here.",25
-fomc-corpus,1979,If the aggregates were strong enough? You would say that [Ml growth] would have to get up to the full 8 percent in order to move even to the 11-3/4 percent?,41
-fomc-corpus,1979,"Well, we're not so far from that on the current projection. It's just a matter of judgment. At this particular phase in the business cycle, should we be moving more than that without at least having a telephone call? I don't think there is any question about that.",54
-fomc-corpus,1979,"I have no objections to having a telephone call. I'm a little bothered about saying that [Ml growth] has to be at 8 percent [before we confer] because I think 8 is too high. If it means that we've got to go up to 11-3/4 percent, then I'd rather take the decision now that we're going to go to 11-3/4 percent if [Ml growth] is up in that area.",91
-fomc-corpus,1979,"Phil, what would your preference be on ranges?",10
-fomc-corpus,1979,"If I had a preference straight out, the range would be 3 to 7 percent, but I'm persuaded that with the present projection 8 percent growth is a possibility. All I'm saying is that I'd much prefer to make sure that we do use some of the [funds] range if we're approaching that [upper limit]. I just think 8 is too high. If it got up in the 7 percent range, I'd like to see us nibbling toward usage [of the upper part of the funds range].",105
-fomc-corpus,1979,"If I had my preference, I'd have the same ranges suggested by the two governors: [a funds range] of 11-1/4 to 12 percent with an M1 range of 3 to 7 perent--I think the 8 percent looks very high--and an M2 range of 5-1/2 to 9-1/2 percent. I don't feel that this is strongly different from the numbers you put down. And I agree with Phil that if the numbers are coming in pretty high, I would [want to1 feel that we could go to 11-3/4 percent and not be blocked by the 11-1/2 percent.",141
-fomc-corpus,1979,"I wouldn't mind the 11-3/4 percent top on it, Tom. if we were going to use that top as [Ml growth] moved up toward the 8 percent. But I wouldn't require it to get to 8 percent before we use [the top of the funds range].",60
-fomc-corpus,1979,Use an aggregates directive and it becomes much more acceptable to me with those ranges.,16
-fomc-corpus,1979,"If I had my preference, I would put 9 percent as the top because I think we will have a large [number in] September. [Ml growth1 will be probably on the order of 10 percent; it could be 12 or it could be 8 or something like that. Why, when October [Ml growth] is moving down, would we raise the funds rate? There's an inconsistency about the whole thing. Also, I might point out that a 9 percent increase in money with the rate of inflation that we have and cannot stop--it will be there in fuel and in food prices over this period--is not a terribly high increase in the money supply.",139
-fomc-corpus,1979,"Mr. Chairman, I think setting this 11-1/4 to 12 percent [funds rangel and a 7 percent top on [the M1 rangel just automatically assures that we're going to start raising the interest rates again.",50
-fomc-corpus,1979,That's not what I proposed.,6
-fomc-corpus,1979,"I would go with 3 percent [as the lower limit] and I would put 9 percent [as the top]. I think your proposal is being pretty [forceful] in putting it so low. I have noticed that the aggregates only work on the up side. During the long period of time the money supply was declining, we ignored the bottom level of [the M1 range] for six solid months--for [apparently] good reasons. I didn't think it was the right thing to do at that time. But we only seem to get excited when M1 growth goes over the top of its range rather than when it goes to the floor.",133
-fomc-corpus,1979,We have had a little more experience going over the top.,12
-fomc-corpus,1979,Not in my--,4
-fomc-corpus,1979,"Like disorder in the exchange market, it only occurs on the down side.",15
-fomc-corpus,1979,Bob Mayo.,3
-fomc-corpus,1979,"I didn't elaborate on my own position earlier but I find I am much more comfortable with Alternative B as presented [in the Bluebook]. I would not object to going to the 11-1/2 percent midpoint with the 11-1/4 to 11-3/4 percent range. I don't think I would widen the range right now though, to 11 to 12 percent, say. I don't find the 9 percent [for the M1 range] too high either; I think 5 to 9 and I-1/2 to 11-1/2 are all right. Once I decide that I want the midpoint [of the funds range] at 11-1/2 percent, I think [the question] is about the tightening that I want to see done. And, like Mr. Guffey and Mr. Winn, I would rely on a little psychology here and move up the discount rate a half percentage point and have that be our announcement effect rather than have any tightening other than what I might say is more of an accommodation to the market. If the market tightens, I wouldn't have any problem going to 11-1/2 percent but I wouldn't do any more than that. I think we have to keep the pressure on; I don't want to see any sign of easing whatsoever. And I think we can do it with that prescription.",284
-fomc-corpus,1979,John Balles.,4
-fomc-corpus,1979,"Well, I guess I could live with the ranges that you proposed, Mr. Chairman, if we had an aggregates directive. When I keep in mind that part of the proposal was a money market directive that does bother me. [I say that] simply in the sense that at some point if we have any intent at all of coming within even the upper end of the ranges we've specified--and I think we've got to do that if we're going to make any progress gradually on inflation--we'regoing to have to do something to keep from moving farther and farther away from both the midpoints and the upper end. So I'd like to throw out the possibility, while we're still in the discussion phase here, of an aggregates directive to accompany these ranges that we've talked about. On the federal funds rate specifically, I would join those who think we ought to set the range a little higher, at 11-1/4 to 12 percent.",189
-fomc-corpus,1979,"Now, that's a real difference. I'm not sure the other difference as stated is particularly significant as I read it. If we're starting off at 11-1/2 with a I percent current projection, we haven't got much room anyway whether we have an aggregates or a money market directive. I suspect they're the same on the up side; they might be different on the down side. Because we haven't got any room in there anyway, you've in effect taken the move.",94
-fomc-corpus,1979,"I think, Mr. Chairman, we could move [the funds rate] to 11-1/2 percent and then wait a week and take another look at the projections. Chuck mentioned a while ago that October is going to come in very low but I'm not at all sure that is true. I know that's what the projections say. So, that's what I would do.",76
-fomc-corpus,1979,"Well, if that's the case, we'd have to move up under either [form of the directive].",20
-fomc-corpus,1979,"Well, if we move it to 11-1/2 percent, I think we've done it for the time being and we can wait until the projections come in and move further. I would align myself exactly with John on his specifications, with an aggregates directive. I have the same problem with a money market directive. That takes us further off target than we now are.",75
-fomc-corpus,1979,I think we're in the area of religion rather than substance.,12
-fomc-corpus,1979,"Well, I don't think it's that, Mr. Chairman. I think it's a question of how serious we are about the aggregates. And as I guess everybody knows, I'm right serious about them.",39
-fomc-corpus,1979,"Well, I am too, Bob, but I have trouble paying too much attention to the two-month figures.",22
-fomc-corpus,1979,"I do too, Bob, but we have had year after year of excessive growth and at some point we have to act in the short run if the long run is going to come out right. And I don't think we have, though recently we've done pretty well.",53
-fomc-corpus,1979,"That's what I'm arguing for, Bob. I think we've got a position in place now where we have the pressure on. Sure, we ought to be ready to reverse but I think we ought to be very careful not to tighten unnecessarily more than the 118 point we're talking about.",56
-fomc-corpus,1979,"I hope you're right, Bob, because I don't want to see interest rates go up. But I'm afraid they'll have to if we're to avoid [even] higher rates, a more serious recession, and more unemployment further down the road.",47
-fomc-corpus,1979,Who else would like to get into this?,9
-fomc-corpus,1979,"Mr. Chairman, I'd like to join Bob Mayo with respect to the ""B"" ranges and standing pat at the moment. I would like to suggest--this is not a substantive issue--that if we have an aggregates directive with a 9 percent top [on the M1 range1 that's really about the same thing as if we have a money market directive with the ranges that you have already suggested. Either one of those is acceptable to me.",90
-fomc-corpus,1979,"I think there's a possibility, Mr. Chairman, of some compromise here. To take off on Bob Black's suggestion--",24
-fomc-corpus,1979,"Well, let's hear from the others first. Governor Wallich, you didn't give ranges, or at least Mr. Altmann didn't record them.",29
-fomc-corpus,1979,I would go with 3 to 8 and 6-112 or 6 to 10; that would be my preference.,27
-fomc-corpus,1979,Governor Rice.,3
-fomc-corpus,1979,I would go with Alternative B.,7
-fomc-corpus,1979,I should have added that I would prefer a money market directive because of the sensitivity of any interest rate movement now.,23
-fomc-corpus,1979,Mr. Baughman.,6
-fomc-corpus,1979,"Mr. Chairman, first I think the Board should approve the half percentage point increase in the discount rate for those Reserve Banks that have in a request for that. Secondly, along with those who would like to see more emphasis on the aggregates, I think it would be desirable to go to an aggregates directive. In terms of the ranges, I could accept either those you have specified or those in Alternative C. Yours are a little more restrictive than those in ""C,""but with an aggregates directive hitched to Alternative C they would not be greatly different. And along the lines of Willis Winn's suggestion--and also consistent with the argument for more attention to the aggregates instead of a very narrow funds range--1 would allow a little more [flexibility] on the funds rate with a range such as 11-1/4 to 12-1/4 percent.",174
-fomc-corpus,1979,Mr. Eastburn.,5
-fomc-corpus,1979,"I would support Alternative B, but I do think the arguments for a discount rate increase are good and I'd be prepared to recommend that.",27
-fomc-corpus,1979,Mr. Morris.,4
-fomc-corpus,1979,"I would certainly subscribe to your recommendation, Mr. Chairman.",12
-fomc-corpus,1979,Mr. Winn.,4
-fomc-corpus,1979,"I'd just spread the [range on the funds] rate, M r . Chairman, but I wouldn't quarrel too much [with your proposal]. I'd go with 11 to 12 percent and an aggregates directive.",43
-fomc-corpus,1979,Mr. Gainor.,5
-fomc-corpus,1979,"We prefer an aggregates directive, Mr. Chairman, and we could go with the ranges you prescribed.",20
-fomc-corpus,1979,Governor Schultz.,3
-fomc-corpus,1979,"I'm happy. At some point in time I'd like to see us go with a wider [federal funds] range and the aggregates directive but right now, considering the volatility problem, I'd be happy with your proposal.",43
-fomc-corpus,1979,"Well, there's no question that on the aggregates 3 to 8 percent is the [best compromise for M11. It hits both the majority and the midpoint of all the concerns; there are some higher and some lower, but there is a majority for that. It's the same for M2 at 6-1/2 to 10-1/2 percent. The difference of opinion lies more on where to put the upper point of the [funds range]. There was some dissent perhaps, but the great majority wanted to or are willing to go to 11-1/2 percent now. There is some difference of opinion on the upper point of the range; there is one who disagreed on the lower end of the range. I count 5 who would like to go higher on the upper end. And there is obviously a disagreement on the [selection of an] aggregates or money market directive. I would just make two comments, both of which have already been made. One is [that it's hard to] go much lower on the aggregates ranges if we've got two high weeks in September already. Even if the rest of September comes out on the low side, it's got to get pretty damn low. And if we go down very far on that aggregate, we would be raising rates. There's quite clearly a possibility of raising rates in the midst of a pronounced decline in the growth of the aggregates from week to week. I question whether we want to do that. The other comment is on the aggregates against the money market directive. There may be a difference; I find it hard to see what the difference is on the up side. I see some difference on the down side. With an aggregates directive we might [move the funds rate] down more rapidly and sharply if the [aggregates] came in weak. But if we had 8 percent on the up side and we're at 7 percent to start with, then the difference [of opinion] may be, if it stays at I percent, [whether] we go up still further. I think that is the only substantive difference and it is a substantive difference. I guess I contemplated in my proposal that 11-1/2 percent is in fact above the midpoint, so we would already have gone above the midpoint and we would not move any further if the projection remained unchanged. It would take a further increase in the aggregates projection to raise the federal funds rate all other things equal, including the exchange market and everything else that might influence what we do. That's what the argument is about, as I see it, apart from the difference on the down side. Do you want to go above the 11-1/2 without the current aggregates projection for the two-month period changing? If it went up as much as a percentage point, we might go up under either formulation [of the directive]. If it stayed the same, on my original formulation we presumably wouldn't move. If the people who favor an aggregates directive mean that we should move under that circumstance, you ought to say so. I think that's what they would be voting for. I don't think this difference is enormous.",633
-fomc-corpus,1979,"We'd also appreciate some guidance as to the Committee's feeling if [the projection] went up something less than that full percentage point. I know these are fine lines to draw, but we have to make those decisions.",44
-fomc-corpus,1979,It's a very fine line as far as I'm concerned.,11
-fomc-corpus,1979,"Well, with the lower limit of 3 percent we wouldn't move. The possibility of coming in at 3 percent is just about zero, as far as I can see.",35
-fomc-corpus,1979,"It's not zero, but it's very low.",9
-fomc-corpus,1979,It's probably a negative probability! [Laughter] You've got this stacked in one direction.,18
-fomc-corpus,1979,"Well, does it make a big difference, Nancy, whether we make it 3 to 8 or 4 to 8 ?",27
-fomc-corpus,1979,Not much.,3
-fomc-corpus,1979,Not much.,3
-fomc-corpus,1979,"I don't think it does. A range of 3 to 8 says we really don't want to move [the funds rate] down unless something important happens. Well, let's leave the money market/aggregates issue open for the moment. I guess I'm left thinking--I'm reluctant to say this because it's what I said before--that the nearest thing to a consensus is 3 to 8 percent for M1, 6-1/2 to 10-1/2 percent for M2, go to 11-1/2 percent now on the funds rate and make the range 11-1/4 to 11-3/4 percent. Any discussion? I don't know whether these are all absolute preferences, but there seems to be a majority for that. The major difference among those three specifications is whether [the funds rate range] should be 12 percent on the upper side.",183
-fomc-corpus,1979,I could live with that. we would have a conversation if [Ml growth1 strikes at the up side and go to 11-3/4 percent. We'd have a second conversation to go beyond that.,42
-fomc-corpus,1979,My basic feeling is that I think we ought to have a conversation at this stage of the game if we want to put the funds rate up that high. We shouldn't just put it on automatic pilot at this point.,43
-fomc-corpus,1979,Even to 11-3/4 percent?,10
-fomc-corpus,1979,"I could think of a marginal circumstance in which we might want to have a conversation but I could think of nomarginal circumstances where if that is the directive, we would go ahead. I think you'll just have to leave that up to me. That kind of decision also depends some on the economic news we get and to some extent certainly [on developments in] the foreign exchange market--the typical reservations we always put on these things. Maybe we ought to have a renewed expression of views; not everybody expressed themselves. Let's assume those were the specifications. How many of the voting members would want an aggregates directive? 1, 2, 3 , 4, 5. How many would want a money market directive? We'll see how many don't vote! 1, 2, 3, 4, 5. There is somebody besides myself who didn't vote.",177
-fomc-corpus,1979,Me. I didn't vote.,6
-fomc-corpus,1979,You don't like either one.,6
-fomc-corpus,1979,"That's right. Well, I would prefer a money market directive.",13
-fomc-corpus,1979,"But the whole thing is [beyond] your pale. I would feel somewhat more comfortable with the money market [formulation] under existing conditions. I think we are very much probing the outer limits of what we should do at the moment in terms of the basic economic situation. So I guess we'll just put the vote that way: 3 to 8 percent, 6-1/2 to 10-1/2 percent, 11-1/4 to 11-3/4 with an 11-1/2 percent midpoint, and a money market directive.",119
-fomc-corpus,1979,A very technical point Paul: 6-1/2 to 10-1/2 percent is a smaller range for M2 than we have for M1. Does that make sense? Should it be 5-1/2 to 10-1/2 percent? It's the least important [number] we're talking about.,68
-fomc-corpus,1979,I don't have a strong opinion on that one. Does anybody else want to comment?,17
-fomc-corpus,1979,Or at least have the same [width] range.,11
-fomc-corpus,1979,"I would judge that we may already have stretched some people's tolerance in making the M1 range 3 to 8 percent, Bob. So maybe we ought to leave it at that.",37
-fomc-corpus,1979,It's a question of consistency.,6
-fomc-corpus,1979,"I'm concerned about that M2 number because I do believe we're getting considerable shifts [of funds1 from the S&Ls to the commercial banks. But that, of course, would tend to result in a higher number rather than a lower one. It wouldn't go the other way unless market rates were quite a bit lower, which isn't in prospect.",69
-fomc-corpus,1979,"It just seems, if we're going to have a 5-point range on M1, that we should have no less than a 5-point range on M2",33
-fomc-corpus,1979,Is there a strong preference for the 5-point range?,12
-fomc-corpus,1979,"Just to show my flexibility, Mr. Chairman, I'll say that I would go along with that.",20
-fomc-corpus,1979,Let's just have a quick expression of preference on that. Do most people want to join Mr. Mayo on making this amendment?,25
-fomc-corpus,1979,"I'm sorry, would you repeat the numbers?",9
-fomc-corpus,1979,I'm suggesting 5-1/2 instead of 6-1/2 percent on the lower end of the M2 range.,27
-fomc-corpus,1979,Just as a general principle.,6
-fomc-corpus,1979,I don't notice any upswelling of support.,10
-fomc-corpus,1979,"I don't either, but I don't [hear] any objection.",13
-fomc-corpus,1979,"I wouldn't have any great objection myself but let's stick with where we were. I guess we are ready for the vote. MR. ALTMA"". Chairman Volcker Yes President Balles NO President Black No Governor Coldwell No President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice No Governor Schultz Yes Governor Teeters Yes First Vice President Timlen Yes Governor Wallich Yes The vote is 8 for, 4 against.",87
-fomc-corpus,1979,"We have one other item on the agenda, as I recall. We can cover it quickly, I think. You have a memo, which I assume you have all read, which concludes that we should continue the practice of lending securities to government security dealers in case they need them to make up for failures. We would charge them roughly three times as much as the market rate.",75
-fomc-corpus,1979,"Well, it's either double or three times.",9
-fomc-corpus,1979,"Charging three times the market rate is a practice we have been following for some years, and I take it we review that practice periodically.",27
-fomc-corpus,1979,It has been on about a 6-month review.,11
-fomc-corpus,1979,Are there any questions of Mr. Sternlight or Mr. Peterson?,14
-fomc-corpus,1979,A very well argued brief there!,7
-fomc-corpus,1979,Splendid.,3
-fomc-corpus,1979,"Paul, marketwise, is there any way we could make this shift [in the funds rate] today rather than tomorrow, to throw the markets a little off balance in their shooting duck attitude toward us?",41
-fomc-corpus,1979,"Well, the way the funds market has gone this week, the funds rate has been averaging, through yesterday, 11.39 percent. But actually, the funds rate on the day yesterday was about 11-1/2 percent and today it was starting out on the firm side. We went in early because the funds rate had moved to 11-5/8 percent, so we were trying to hold down the funds rate at--",89
-fomc-corpus,1979,"Sounds like an easy transition. I take it there is no objection to the lending of securities. The meeting is adjourned, and it's one minute before one o'clock.",35
-fomc-corpus,1979,"Well, gentlemen, I think we might as well start. I hate to start without Emmett but he seems to have been incommunicado for 40 minutes now, so let's begin. Maybe we should take a minute to hear Mr. Kichline go over the latest business news. I realize you did that yesterday, Jim, but not everybody had the benefit of your comments yesterday. So, why don't you do that.",86
-fomc-corpus,1979,"All right. I'll try to be brief. Economic activity in the third quarter appears to have expanded a little faster than we had anticipated earlier. We now believe that real GNP probably grew at an annual rate of around 1-1/2 percent, maybe a shade higher. Employment, production, and sales all seem to have been somewhat higher. The most recent news, of course, was on the employment situation in September. Total employment grew substantially and the unemployment rate dropped 0.2 percentage point to 5.8 percent. Industrial production now appears to have grown about 1/2 percent in September on the basis of the most recent labor market report and some physical product data on auto sales and steel production. As you know, housing starts were unchanged in August at 1.8 million. We have some additional information that suggests capital goods shipments in August were rather stronger than we had anticipated as well. On the inventory side, inventory still seemed to have been accumulated at a substantial pace in August, at least at the manufacturing level. And this is an area of growing concern given what we perceive to be substantial imbalances developing unless we get sustained growth in final sales or further downward adjustments in production. While the recent data clearly suggest more strength than the staff had anticipated at the last meeting of the Committee, the fundamentals still seem to be running against sustained growth in coming quarters. Namely, I would point to declining real income, which we have now had since December of last year. At the present time we think that real growth in the fourth quarter is likely to decline at about a 3-1/2 percent annual rate, which is a bit bigger decline than we had estimated earlier. But over the whole projection period through 1980 we don't anticipate any significant change in the forecast we presented to the Committee in September. On the price side, the most recent information relates to production. The producer price index, as you h o w , increased at a 1.4 percent annual rate. It was particularly discouraging. There were widespread increases, with food and energy prices continuing to rise very rapidly.",426
-fomc-corpus,1979,"We might take just a minute to see if any of the Presidents in particular have comments they would like to make on the business scene from [a regional] perspective that would add to the statistical information that we've had on prices, production, or other fronts. Let's hear quickly.",55
-fomc-corpus,1979,"Well, I think we're seeing an amazing replay of 1974-75. We have declining final demand, with the economy cushioned by very large inventory accumulation that produces big demand for bank credit, resulting in growth in the aggregates. And we've been leaning against that growth by pushing up the federal funds rate. I gave a talk to my directors on Tuesday in which I overlaid the 1974-75 period on the current period. I assumed March '79 was the peak in this period and compared that to the November '73 peak. The behavior, including the tracking of the federal funds rate, is amazingly similar. It seems to me that we have a very big inventory accumulation; and when the inventory accumulation does stop, I think the recession is likely to be bigger than we are projecting.",160
-fomc-corpus,1979,Did you see evidence of a credit crunch in that earlier period?,13
-fomc-corpus,1979,"Well, I don't have a measure of credit crunch but I do have measures of the funds rate and the rate of growth in the money supply, and the behavior of those is quite similar.",38
-fomc-corpus,1979,"My recollection is that we had a very different situation with respect to credit availability but I was told just recently that a bank from Chicago was working diligently in an eastern area to round up business loans. We wouldn't have had that, I think, in 1975.",54
-fomc-corpus,1979,"Well, I think the money center banks are still very aggressively looking for loans. But if you go outside the money centers, the banks are very tight. At least they are in New England.",39
-fomc-corpus,1979,"Of course, the real estate situation is entirely different, with 1.8 million housing starts. That compares with what we had, say, in the summer of '74 when starts were down to a 1.1 million annual rate or thereabouts and there just wasn't any mortgage money.",59
-fomc-corpus,1979,But the state and local sector is much weaker than it was in 1974-75.,19
-fomc-corpus,1979,That's true.,3
-fomc-corpus,1979,That is hardly speculative although it's a little speculative. In '74 it was virulent.,18
-fomc-corpus,1979,In '74 we had a constraint in terms of capacity that we haven't faced to a big degree.,20
-fomc-corpus,1979,"To follow up on what Ernie said, I've had conversations in some depth with various directors over the last week and whether they're businessmen or bankers they report essentially the same story--that the present level of interest rates, in contrast to the situation generally in '74, is just not deterring borrowing in any way that they can see. I'm sure that's not true for everybody in the country; small businesses and farmers are in a big cash flow bind. But medium- and larger-size companies, according to the companies themselves as well as their bankers, just don't blink at this level of interest rates. They just go ahead and borrow anyway. I don't think we're approaching the credit crunch type of situation that we had in '74. I think that's one of the big differences.",154
-fomc-corpus,1979,We have plenty of tightness at 90 percent of our banks but they probably don't account for more than half of the business. And the other 10 percent can get money whenever they want.,39
-fomc-corpus,1979,But bank credit was expanding pretty rapidly in the first half of '74.,15
-fomc-corpus,1979,Any other quick comments?,5
-fomc-corpus,1979,"Yes, Paul. A quick and informal [survey] of some people in our area confirms a bit what I think Frank [Morris] was saying. There's increasing concern about the inventory situation and the likelihood that the recession is going to be more severe than they had thought. This is on the part of retailers and of bankers who have some feeling that the strength in business loans is inventory-based and that it is going to collapse.",86
-fomc-corpus,1979,"We had a businessmen's meeting in our Bank about a week ago and we had three or four industrialists as part of the group. Of the three or four, all were predicting a rather good year in 1980 with the exception of one that is a supplier to the automotive industry. It's generally the same kind of [story] we've been hearing for a long time. The industrialists were all vigorously defending their accomplishments in the area of productivity. They were saying that their own companies were doing very well in that regard and they thought the national statistics really related to the services field and government regulations. One of the people there was a mutual savings banker who was not very happy about the prospect for deposits in New York for the next quarter.",148
-fomc-corpus,1979,If there are no other comments--. Bones did you want to comment?,15
-fomc-corpus,1979,"I'd simply echo [Tom Timlenl. In the last week we had a series of business leaders in from Jacksonville, Atlanta, and New Orleans. They [exhibited] an enthusiastic lack of confidence in so many areas. But for their own individual businesses the only expression of any concern was from a convenience store operator with about 1500 outlets who suggested that one [sign] of a possible recession was the fact that they were having many more thefts--more stealing [of merchandise] as well as robberies. That was the only [indication] of recession they could see.",118
-fomc-corpus,1979,Sales at Sears Roebuck were ahead of last year for the first time in twelve months.,19
-fomc-corpus,1979,"Was a year ago bad, do you recall?",10
-fomc-corpus,1979,"Well, Sears has gone through particular problems.",9
-fomc-corpus,1979,It seems to me that they were in bad shape about a year ago.,15
-fomc-corpus,1979,It shouldn't be used as an example for the whole country.,12
-fomc-corpus,1979,Wards had a very small change over a year ago.,12
-fomc-corpus,1979,"Yes, but Penneys and Kmart are still doing fine.",13
-fomc-corpus,1979,"Well, let me say where I think we are even though Emmett is still absent. I appreciate your all standing by so patiently over the past few days, but we've had a few complications putting this together, with some people out of town and so forth. Just in terms of the schedule for today, I think we have to assume that the Board of Governors is going to have to meet after we get finished. And depending upon what we decide, the presidents may want to meet. too, to discuss any reserve requirement changes and what kinds of problems that will create in the short run. [Unintelligible] and we may need to talk about straightening out mechanical problems that may arise [when we implement] any decisions we make. So we can play that by ear as we go along. I don't know how long we're going to have to be here today. We will be here until we arrive at a consensus and proceed [from there]. I'm not sure when we would announce any decision that we make--whether we'd do it late today or Monday morning. Those seem to be the two practical alternatives with the Pope here rather blanketing the area [news] tomorrow and creating a little difficulty [for us1 in terms of an orderly announcement. Let me say that I think there are several dimensions to the current situation. We wouldn't be here today if we didn't have a problem with the state of the markets, whether international or domestic. They were pretty feverish last week--or beginning in the previous week, really. Beginning about 2 weeks ago and carrying over into the early part of what is still this week, the foreign exchange market was in a situation that was clearly not amenable for very long to such techniques as intervention. The markets have turned around some in the past few days, as you know. I think that is almost entirely explicable by the fact that at about the time I returned from Belgrade Treasury officials and others were making some statements that left hanging the possibility of some kind of a package, so the foreign exchange dealers have retreated to the sidelines.",418
-fomc-corpus,1979,The reporters left the room when [Secretary] Miller said that Paul had gone home. They just rushed to the phones.,24
-fomc-corpus,1979,"That typically is the case these days. I arrived at the airport and there was a reporter accompanying me on the plane. I don't know when he got to a telephone; he couldn't until we got to London. I have thought that one way of managing the markets might be to ascend in an airplane and just circle, with a refueling [plane] and no known destination! [Laughter] I don't think we can count on that [state of relative calm1 for very long. In fact, as you know, while the markets have been standing still or even declining, the gold market has not exactly been in a calm situation. And the phone calls have begun to escalate, reflecting a kind of extreme nervousness in all directions. I think the rumors that were floating around in the market yesterday--first that I had resigned and then that I had died and then that I was mad at Governor Schultz--are symptomatic of the state of the market. [Market participants] are living with fragile expectations and inspired rumor and all the rest from day to day. I do think that the psychology in that sense is ready to crack open, depending upon what decisions they see coming out of here or elsewhere in a very short-term time horizon. Now I turn to the economy and you know generally the situation there. We have had at least an Indian Summer, which 1 suppose raises some questions in peoples' minds as to whether the recession is all that imminent after all. There is an inventory problem potentially or actually without any question. I myself feel a little less--concerned isn't quite the right word. I think the risks of the economy dropping off--. [Secretary'snote: Mr. Rice arrived at the meeting.] There you are! I'm sorry that somehow somebody didn't get the accurate word to you on the timing here. We really just started. I have described the state of the markets as in some sense as nervous as I have ever seen them. In terms of the economy, I was about to say that my own concerns about the risks of the economy falling off the table, though they have not evaporated, have diminished a bit. The possibility of that occurring appears to be somewhat delayed at the least. My own judgment of this may change, but I think the risks certainly are a little less than they were before. That's a judgment that may not mean much if I don't tell you what I thought the risks were earlier. I thought they were significant. But [the possibility of a downturn] seems to me at least postponed. On the price front, expectations have certainly gotten worse rather than better. Even though the price news is bad, it does not in my judgment as yet reflect a spreading of the whole inflationary force into areas outside of energy. We had a fluctuation in food [prices] last month, but that [component of the price index1 goes up and down. If we look at the wage trend, so far as we know--with the exception of the General Motors settlement--we haven't had a real breakout yet. But we're dealing with a situation where that's an imminent danger on the one side as is the possibility of a recession on the other side. Mr. Schultz had an apt description the other day of where we are--and I certainly share the feeling--in saying that Scylla and Charybdis have now come together. There is clearly no risk-free course for us here; there are risks on both sides. The idea that we can absolutely thread the needle between the risks is probably a nice hope but it may be an illusion. At this stage you've got to place your bets one way or the other and move. I certainly conclude from all of this that we can't walk away today without a program that is strong in fact and perceived as strong in terms of dealing with the situation. I would put that case into context. Ignoring some of the more feverish psychology for the moment, we are in an interim period of sorts where if some of what I think are quite reasonable--but never absolutely certain--projections develop in a favorable way we're not going to see that in fact in the statistics. The statistics are not going to be convincing to anybody for a period of some months. I'm thinking there particularly on the price front where, if the present trends continue and we don't have an excessive oil price increase from OPEC in December, energy prices shouldn't level off in any absolute terms but should come down from the enormous rates of increase recorded in recent months. And if other prices are held more or less in check, there is a chance that inflation will at least come down toward the single digit level--and if you want to get hopeful, within the single digit level--by the end of the year or early next year. If one looks at the balance of payments side, I think most projections, given foreign growth and given the outlook for the domestic economy, suggest that both the trade position and the current account should look considerably better going into 1980. That's simply because, ex-oil, [the external sector] has been doing pretty well and should continue to do pretty well under these conditions. As we get into 1980 the burden of the increased price of oil imports in the price indices should be [diminishing]. So, we could get a substantially stronger looking picture then, but we're not going to know that until probably well into the first quarter. And, of course, current account figures for the whole first quarter aren't going to be out until the Spring. The trade figures come out on a monthly basis and they should reflect [the improvement] to some extent, although part of the projected strength is in non-trade areas of the balance of payments. The point is that there is a bridging or an interim period here before the best news one can [reasonably anticipate] is going to come about. And in the present mood of the markets, I think it's going to take some time before they're convinced. So we have to fit our programs into that interim period. The other element, of course, is that we are not dealing with a stable psychological or stable expectational situation by any means. And on the inflation front we're probably losing ground. In an expectational sense, I think we certainly are, and that is being reflected in extremely volatile financial markets. Let me give you a little background in terms of foreign components or elements of the package of anything that we might do here. I want to make a couple of comments that I really consider off the record. I don't know if we want to keep the recorder going or not. I'd prefer not to. Let me just say a few words about the attitudes of foreign countries as I've experienced them first hand. This is not particularly new, although the depths of the feelings. . . [Secretary'snote: The recorder was turned off while the Chairman gave his assessment--based on discussions at recent international meetings--of the views of foreign officials regarding a coordinated package.I That does not reflect entirely a feeling that a package is impossible, despite all I have said. I think it's clear that an international package is impossible without strong action by the Federal Reserve. But when you look at the components of a traditional package of that kind, there is a question of how impressive it is going to be psychologically. We could perhaps build up something like a $10 billion further availability of marks through fairly obvious techniques--increasing the swap lines, selling the Germans some S D R s , and drawina- on the IMF. I think, but I'm not saying it's absolutely impossible--in a bind, I should say--if people really thought it would be effective in terms of market Dsvcholocrv. - > ~~~~ ~ --But after a lot of discussion, bv aeneral consensus the feeling was that that kind of a package isn't-going to add all that much to an announcement at this point, as compared to the other possibility of indicating that resources are not really the problem, which I think is true in the technical sense. If the Germans wanted intervention, they'd provide the resources. And there may be some merit in keeping some of these possibilities dangling over the market for a period of time and perhaps announcing some of them as the period evolves. That probably would be more effective than trying to wrap them all up in a package that may not be very impressive at the moment anyway. The Treasury undoubtedly will be announcing a bond issue in the German market, I suspect in a matter of days. They have flexibility in the timing and they will do it when they think they will get some advantage from it. That's not a big deal in the sense that it has been amply leaked in Belgrade already both by the Germans and the Americans. But that will be coming along; I think we can just assume that that is [a given]. There are no specific swaps, SDRs, or IMF drawings [under consideration] for the reasons I suggested. There was no desire to solidify any of that at this point. The possibility of gold sales has been canvassed up and down. That this is not a great question of philosophy is, I suppose, the way I would word it. This is a very practical question of what seems useful and what doesn't seem useful. The question has been debated up and down and I think it is essentially unsettled. There is a possibility Iof gold sales], particularly if the gold market acts up again, but there has been no firm consensus reached on that point simply because in our mutual discussions some concern was expressed about whether they are effective or not effective over a period of time. They might be effective immediately. But if the gold sales have a nice effect immediately and we test it a little while later and the gold price goes up again, the question arises: Is it confidence inspiring or is it not? Or is it really better over a period of time just to leave the [gold] market alone? I think that question has to be left on that basis for the time being. It is indeed an open question and something that I think will depend upon the performance of the markets over a period of time--not just of the gold market, but of all markets. So, that is essentially the background we are dealing with in that area. We will have cooperation, I think, from our foreign partners either on gold or on intervention to the degree that they feel that we have done something here; that is an essential part of setting the stage. We will get that kind of cooperation, I suppose, with the limitations of enthusiasm that are inherent in my earlier comments. I don't mean to suggest that that type of activity is ""out"" if we mutually think it is advantageous. On the contrary, it is '""in""over a period of time with an appropriate background. But it is not ""in"" in the sense of announcing an international package of that type this weekend. Now, when it comes to our action here, I think there are broadly two possibilities. One is taking measures of what might be thought of as the traditional type. That would include a discount rate move on the one side and so far as this Committee is concerned a significant increase in the federal funds rate--putting those moves together. The Board will be considering some reserve requirement changes later today. Let's assume that the package would include that. Also, we would go forward with whatever changes in the federal funds rate we thought appropriate, which would be evident in the market. Or maybe we would say something about that in the announcement of the discount rate change and the reserve requirement change. I think we ought to look at that possibility. The other possibility is a change in the emphasis of our operations as outlined in the memorandum that was distributed, which I hope you've all had a chance to read. That involves managing Desk operations from week to week essentially, with a greater effort to bring about a reserve path that will in turn achieve a money supply target--which we have to discuss--recognizing that that would require a wider range for the federal funds rate and would involve a more active management of the discount rate. And of course the question of reserve requirements and the discount rate change at this point are relevant in that context too. As I look at these two approaches there are advantages and disadvantages, obviously, to both of them. I must say that the thought of changing our method of operations germinated--in my mind at least--before the market psychology or nervousness reached the extreme stage it reached over the past week or so. My feeling was that by putting even more emphasis on meeting the money supply targets and changing operating techniques [in order to do sol and thereby changing psychology a bit, we might actually get more bang for the buck. By that I mean our having a more favorable impact on psychology and perhaps a more favorable impact on banks by introducing a little uncertainty per basis point of rise in money market rates than would be possible through the traditional method. I overstate it, but the traditional method of making small moves has in some sense, though not completely, run out of psychological gas. Every time the interest rate goes up by a small amount [bankers] say okay, we'll raise the prime rate. Whatever you do is inadequate--you, the Federal Reserve--and we'll go along. We have access to liquidity at a fairly fixed federal funds rate--the rate isn't going to change all that abruptly--and you're not having much impact on market thinking or on market confidence in your ability to keep the money supply under control. I am not saying that that reasoning is correct but I think it is the reasoning in the market psychologically. So we run a risk, almost whatever we do, that [in response] to next week's changes they will say: ""It's not quite enough; the interest rates should be a little higher. The Fed undershot again."" And we won't get the psychological impact we are looking for. So there may be something to [be gained in] a change in the psychological atmosphere that in some sense will give us more bang for the buck, as I put it. It's possible. It's an easier political sale, and we are obviously moving into an area that is sensitive, to say the least. We do have a background of some Congressional thinking that puts great emphasis on the money supply targets. So, to the extent that we accept that emphasis one might argue that we will get more support. I think that it is a factor to be weighed, but there are those who would say: ""The hell with all this theorizing about where the targets are; when Congress sees the interest rate effects, that won't make any difference."" So it is not a black or white situation by any means but I think it is something we can take into account. If we're lucky, this change [in our operating technique] will improve our chances of reaching our money supply targets on the one side. On the other side, it has some built-in pressure to move interest rates downward more promptly if the money supply begins running low. If the money supply were running low because the economy was falling off more rapidly, triggering a faster response on the down side clearly might be considered an advantage--and maybe an important advantage. A context where the decline in interest rates is being related to weakness in the money supply should offer us some psychological and real protection in terms of financial market appraisals of why the interest rates are going down. Now, there are disadvantages as well, and they are important. To take one that flows immediately out of the advantage that I just cited, some people may consider it a disadvantage that we get too locked into [responding to] fluctuations in the money supply. [That might lead to] a prompt decline in interest rates at a time, let's say, that would be unsettling internationally or might be misinterpreted domestically. So there is clearly an opposite side to that advantage. There is a feeling that we can get stuck. We are going to have to constrain the [funds] range whatever we do; it should be much wider under this approach but we certainly can constrain the fluctuation in an uncertain world. There is a danger that we could get stuck at the top of the range if the money supply turns out to be fairly strong; we'd be back basically to the kind of operation we are in now, bumping against [the upper limit of] a federal funds target, which at that point would be at a higher level than we otherwise really would have wanted. I suppose there are two dangers out of that. We may get a little more restraint than we bargained for; that is one possibility. Another is that we will defeat the psychological purpose if this puts us back into that kind of constraint. There is a feeling that by responding to the particular situation we have now with a change in technique, we may get locked into a technique that isn't very suitable over the longer run, including into 1980. The technique might have implications for interest rates or other things that we wouldn't be happy about in other situations, yet it would be hard to reverse our ground. I think we also have to consider [the risk] of putting a lot more emphasis now on the money supply targets, knowing that there is no technique that's going to assure that we are going to [achieve] the money supply targets--either because of the inherent lags in the situation, the uncertainties of the money demand function and all the rest, or because we would resist any absolutely extreme movement in interest rates that might be necessary to keep [the money supply1 within the target ranges. We could well end up exceeding the targets for the year, after making a hullabaloo about this change in technique. And we could run into a reaction that at that point would be adverse. So there are advantages, disadvantages, and risks on all sides of this equation. I should report to you that obviously I discussed the whole problem on the international side and inevitably on the domestic side with the Administration. I think I can say flatly that they are ready for a strong program; they would have no disagreement with that conclusion at all. They shy away very strongly or have an uneasy feeling about a shift in technique at this point because of the uncertainties of the situation. There's a rather strong feeling, I think I should report, that that is the more risky course for a variety of reasons that I've touched upon: concern that the interest rate may move in a contrary way at some point in terms of the international situation; considerable concern about locking ourselves into a technique beyond this year that might not be suitable in light of all the circumstances; and concern that an immediate rise in the rate might be excessive depending, of course, upon where the federal funds rate ceiling is put. But there's a fear on the other hand that if it is put too low we're in a box where we would be bumping against the ceiling all the time. Finally a feeling that I think we have to consider too, if we do make this change, is that there is no apparent encore for the Federal Reserve; we will have in effect shot our bolt. Now, I don't think that's necessarily a minus, but it's another factor we might want to take into account. It has been clear all along but it's particularly clear at this point that we cannot by brute strength of monetary policy alone correct all the ills in the economy and in economic policy generally. I don't mean to infer that I think economic policy is bad. I think fiscal policy has given us all the support we could ask for right now and, in terms of general business analysis, one might even argue more support than would be absolutely desirable. I don't think we can [count on] the possibility of changing fiscal policy in this psychological situation. I don't believe it should be changed for that reason. But if we change techniques, I think in a broad way we have gone to the limits of what monetary policy can really expect to accomplish and we can't come back with something entirely different a month from now and another [change] two months from now or whenever. Now, I can go with either of these broad approaches because I think, with regard to our immediate situation, that we can develop an [alternative] package of measures that is basically equivalent in terms of market impact or psychological impact or whatever we want to achieve immediately. I have told you what the instincts are elsewhere; I have also told you that [the Administration] is ready for a strong program. I think it's clear that the decision is one that is within our province and we have to make it today. We need a program that's as convincing as we can make it. In my view it's also very important that we have the widest possible consensus among us in this kind of situation where there is no good answer. I think we all do recognize that there is no good answer, but there is strength in diversity here, if you will. So, to the extent that we have a consensus, that in itself will help carry the program and help achieve what we want to achieve. I am prepared, within the broad parameters, to go with whichever way the consensus wants to go so long as the program is strong, and if we adopt a new approach so long as we are not locked into it indefinitely. If we adopt a new approach, I'd consider it something that we adopted that seems particularly suitable to the situation at this time. We'd obviously gain some experience either pro or con by adopting the new approach. And I would say that early next year or late this year in connection with considering the new [money and credit growth1 targets for the next year we would have a thoroughgoing ground up decision as to whether we wanted to maintain this kind of approach, modify it, return to more traditional practices, or whatever. That should be a completely open decision. I was intending to have that discussion in any event at that time and I just don't want to prejudge the issue by whatever we consider suitable at the moment. And finally I would say that I don't think we can adopt a mechanical approach on the reserve side. While there would be a clear change in emphasis if we decide upon [this new approach], inherent in it is that we simply are going to have to leave a lot of discretion in the actual operations to the Desk, to my benevolent oversight, and to ex post review [by the Committee] with whatever frequency you would like, looking ahead on an interim basis. But I am not prepared to recommend or to accept a mechanical device that says nonborrowed reserves or the reserve base or total reserves or whatever, are going to meet x figure on a week-to-week basis come hell or high water regardless of what judgments are about the outlook or regardless of whether the interest rate is 17 percent or 6 percent. We are just not going to carry it to that extreme. But if we go in that direction, there is a real change in emphasis involved that would need to be reviewed carefully as we move along. That is my analysis of the situation. If you have any reactions at a very general level now, let's have them. And then I think we ought to get into more detailed questions about the new approach. The traditional approach is obviously much more clear-cut. It is a quantitative question of where you want to go. Many of the questions overlap. The differences are not night and day, but I think we need the time for a little more exposition on what the new approach would entail.",4714
-fomc-corpus,1979,"Paul, in your review you made no mention of controls. I hear more rumors about those than you can shake a stick at these days.",28
-fomc-corpus,1979,Bank credit controls or any kind of controls?,9
-fomc-corpus,1979,Various types.,3
-fomc-corpus,1979,"Well, let me just say a word on that. In this situation we get more talk about that, and there are certainly market rumors. I don't know that I hear such strong rumors that controls are a great possibility right now but there is a very large segment of market opinion that says if not now we are going to be driven to [impose them] later because the situation is out of control. My reaction--which on the basis of some earlier discussions I think is shared by some other Board members and by people in the Administration who at the very least would have to trigger the control mechanism when we're talking about domestic credit controls--is that of all the options one could think of theoretically, that is probably the most dangerous in terms of the business situation. That's because a control program that really bites at all might lead to [undesirable] reactions. For instance, grave questions might be raised about whether financing was available for some of the inventory that one would like to see financed. And all the anticipatory effects, with people trying to protect themselves, would [put the economy on] a very dangerous course at this particular juncture in the business cycle. The feeling is that there is some danger, on which people will put different [probabilities], of the economy having a most severe inventory reaction and indeed [that controls might1 even inhibit planning for capital spending that we wouldn't want to inhibit. Controls in the international dimension have not been discussed at all. I personally cannot conceive of controls in the international area. Forgetting about philosophy or long-term effects or anything else, I can't imagine--1 speak for myself--how one would design them so they'd be effective. They would have so many leaks around them because the major types of flows that involve foreign held dollars [have] leads and lags or what could be disguised as leads or lags. Such controls just don't have any prospect of effectiveness that would make them within the range of possibilities.",390
-fomc-corpus,1979,"Paul, it seems to me that the situation we are faced with is pretty much as you outlined here. Maybe I could streamline this for my own thinking. I see our objectives as perhaps four-fold--centered around dampening [inflation] expectations, achieving some credit restraint that might flow from that, hopefully strengthening the dollar exchange rate, and--depending upon how one views this--a somewhat self-serving target of meeting our longer-range objectives and bringing growth in the monetary aggregates down. If those are our objectives and I lay heavy stress on the dampening of expectations, then it seems to me that the program has to be strong enough to impress the market. I have my doubts that the foreign market is going to be impressed for three reasons: (A) I don't think they are going to believe it: (B) I don't think they'll understand it in terms of our change [of technique]: and (C) I think they are so skeptical that they'd just say it's too little and, without some effort on the part of the Treasury or somebody else, there would be no direct impact on the gold price. So it seems to me that we are designing something here to a considerable extent [for] our [domestic] situation, hoping there is a fallout internationally. The risks are large, of course, and [primarily] on the side that whatever recessionary tendencies are already there might be compounded, creating a [greater] decline. I suspect that risk involves 1980, not 1979. I think the risks are equally strong on the other side in that if we don't put out something fully credible, we face a potential blow-up [vial a speculative move in the metals commodities that spreads out from there--in effect a flight from dollars. So I'm prepared to move ahead on this because I think the latter risks are too high.",373
-fomc-corpus,1979,"I'm glad you mentioned the commodities issue. I don't know whether all the Presidents have caught up with this, though I presume they have. Beginning a little more than a week ago, late in the previous week when the gold market was gyrating, there was some very clear evidence that this psychology was getting into the metals markets in particular in a very forceful way and maybe in the grains market very temporarily. There were very sharp price increases in some metals markets which continued into Monday or Tuesday. They have relapsed along with the gold market and the exchange market fervor for the same reason and I'm sure they were related psychologically. But it's worth mentioning that we have this evidence of extreme sensitivity. And the price increase was what--20 percent in the copper market in 2 days or something like that?",160
-fomc-corpus,1979,Lead went up 20 percent.,7
-fomc-corpus,1979,"Lead went up 20 percent, too. It was frankly a bit of scary psychology to say the least. That has also in some sense relapsed for the moment in this [general] atmosphere of nervous anticipation.",43
-fomc-corpus,1979,"I might make a general comment, Paul. I approach the situation a little differently than Phil does. And I don't pay as much attention to foreign and international aspects as you do. The thought I would like to emphasize or underline is uncertainty. I think the staff forecast--which I believe is not that much different from the forecast of the Council [of Economic Advisers] or from those one sees in standard private market services--is quite plausible. We certainly do have a lack of final demand right now. We certainly do have a decline in real income and we are going to continue to have a decline in real income. And today, at least in Washington, the winter heating season is beginning. The drain on purchasing power from that is going to be much greater on a seasonally unadjusted basis over the coming six months or so. There will be less money available for everything. So it's fairly reasonable to think that there is going to be a recession trend rather promptly, one that develops and continues over the winter and into the spring. If that's so, why of course we are going to want to try to keep the monetary aggregates growing. And we will have a sudden shift in our problem, which will be overly slow growth rather than overly rapid growth in the aggregates. That's one scenario. On the other hand, I was extremely bothered by the market developments of the last two weeks. I think the spreading of the gold [market psychology] into the more remote metals is very bothersome. Silver we understand and platinum we understand, but the spreading to copper, zinc, and lead is very bothersome. And not only grains but a number of other futures prices were moving [up], with no real justification for those moves. It leaves one with the thought that because of a run from currency--a desire to get into goods and out of money--we might have now a new development in our economic experience that would lead to a ""last gasp"" round of demand for goods, probably most intensively for inventory. That might last 2 or 3 months or it might last 4 or 5 months. It's very limited but it could last for a while. And then when the recession occurs, it will be much deeper because in addition to having to adjust to the lower level of final demand, people will have to liquidate inventory. They will move from inventory accumulation to decumulation and we will have a recession that is more like 1975 or perhaps worse than that. If that's the case, for the next few months or during the period in which there's this anxiety and concern about possibly moving from money into goods, it is very important to restrain the growth in the aggregates, and we could be talking about significantly higher interest rates. With that uncertainty, it seems to me that our traditional method, which is to estimate the short-term market rates that will adjust the demand functions for various kinds of money on a lag structure, has [inherent in] it the danger that we are going to miss. [Either] we will miss an intensification in the demand for money and be behind the gun, as we have tended to be here over the last six months, or we will miss a decline in the demand for money and overstay and be behind the gun, as we traditionally have done [going] into recessions. It's an extremely dangerous, risky proposition to change our operating mode. We have tried it a couple of times. We had RPDs back in the early '70s and we had that experiment a few years ago. For one reason or another--and we know the reasons--they didn't work. But even though it is extremely risky, I think it's the less risky course than to stay with our traditional system. So my emphasis is on uncertainty and the need to be aware of the fact that we no longer can specify interest rates given this uncertainty, rather than our need to tighten up or anything like that at this time.",796
-fomc-corpus,1979,"I agree with Chuck. His analysis fit my views very closely. Despite my view that the recession is going to be sharp, I think we are in a situation where we have to be willing to do something dramatic today. It's not clear to me that a change in operating procedures is going to gain us much yardage on the foreign exchange market because many will not understand what we are doing.",78
-fomc-corpus,1979,Unless they think it's more of a commitment.,9
-fomc-corpus,1979,That means that we also have to have some traditional measures to go along with it that they will understand,20
-fomc-corpus,1979,No question.,3
-fomc-corpus,1979,I think the Committee has to understand that we are talking about something that will give the Manager discretion; [I'd] give him at least 2 percentage points on the up side in the next few weeks. We have never done that--that's a dramatic change in our behavior--but that's what we are talking about. And I think our credibility will really suffer if we announce a change in procedure and then fail to have the guts to go through with it.,91
-fomc-corpus,1979,"If I may just interject, Frank, I agree with what you are saying and I think [the issue] has to be approached in that light. But presumably the guts will have a number on it--the degree of our guts on the up side.",52
-fomc-corpus,1979,"Well, that's right. But it's got to be a pretty big number.",15
-fomc-corpus,1979,I understand.,3
-fomc-corpus,1979,"The other thing is that we are going to need to educate the market very soon on this. So, if we go ahead with this change to a new procedure, I think you ought to have a press conference today.",44
-fomc-corpus,1979,"Well, if we have a new procedure, I will have a press conference. Whether I have it today or Monday is an open question.",28
-fomc-corpus,1979,"[If you have it today], the markets will have the weekend to absorb this.",17
-fomc-corpus,1979,"Well, I don't know. We have a holiday on Monday and we may do the press conference Monday morning. You can assume that I will have a press conference if we go through [with this change].",41
-fomc-corpus,1979,Are the bond markets closed? Okay.,8
-fomc-corpus,1979,"The stock market is open, but that's it.",10
-fomc-corpus,1979,"Could I add one other point? I follow along with Frank on this. However, I think there is one [aspect of making a change] that is a disadvantage. I don't think this can be a short-run change in technique because it is going to require a certain amount of time for it to work out. I understand the point that you made about meeting the special situation we have, but this is a basic change in technique. And we've learned before that it really does take time to know whether la new technique] works or not. There's a credibility problem if we launch this and stop and go with it. So I really think we are committed to this if we go [forward].",138
-fomc-corpus,1979,"Well, I don't want to accept that. I don't think we can make that decision now. If we [change our operating technique], I do accept the fact that to some degree we have prejudiced the discussion we will have at the end of the year. We will have to have a reason then to move back to the traditional method. But I don't think we can really make that decision now, nor should we. Nor do I think this commits us that fully, though it prejudices to some degree what we would do next year.",108
-fomc-corpus,1979,We'd run it for several months in any event.,11
-fomc-corpus,1979,Oh yes. I think we are committed for several months.,12
-fomc-corpus,1979,"I'm thinking partly in terms of the public impact that this will have. If the impression is conveyed that this is something we are just trying, I really don't think it will have the impact on credibility that we need to have.",45
-fomc-corpus,1979,"Maybe we lose some, but in this particular situation I don't think we lose the whole [impact] or anywhere near that. We may lose 10 to 20 percent of it. Let me comment on a point that has come up a couple of times. I don't think we are talking about a program here just to support the dollar. I know [different] people place different emphases on that. The dollar is part of the total situation, but I think this is really all one ball of wax at this point. The psychology in the foreign markets is the same a s the psychology at home; it is reflected in the metals markets. It is the inflationary psychology or whatever. So I don't think of this as a program specifically directed to the foreign side. If anything, it's specifically directed toward the domestic side, but it will have foreign repercussions. One oE the interesting questions--it's very hard to express and I don't k n o w the answer--is whether the new approach will carry a message of its own even in the international markets. I would be a little more optimistic [on that score] than some of the comments I just heard. There has been a great deal of discussion about the money supply and the feeling that so much of this psychology is related to the fact that the money supply is out of control. That's the comment we hear all the time. The virtue of a new approach, if it has one, is that we are accepting--with all its risks and dangers--more of a focus on the money supply. I think that is understandable at that kind of gross level. I have a list here [of people who have indicated a desire to comment], so maybe I will [proceed] in an orderly way. John.",354
-fomc-corpus,1979,"I think there would be considerable agreement that the kinds of steps that were taken last November were viewed as bridging actions. They were effective but, of course, they can only be effective as long as some fundamental changes are being made that get around to solving the problem. One aspect of that, from the standpoint of the Federal Reserve, is to do what is necessary to slow the growth of the aggregates and to begin to bring inflation under control. Other elements, as I look back on it--and I'm sorry that we [as a nation1 haven't made more progress--would have been to do something more effective on the energy front and so on. I think there is a wide perception from the standpoint of the Fed's responsibilities and functions that there has simply been such excessive monetary growth in the last six months that we aren't making any progress on the inflation front. Fred's comment about Scylla and Charybdis coming together is a very apt analogy, I'm afraid. We've all been struggling with this problem in that if we know a recession is probably in prospect, we normally would want to ease [policy] somewhat. Some of us felt so strongly about that last spring that we dissented; the record will show that we thought [policy] ought to be easing. Since that time inflationary developments and inflation expectations have become even more dangerous. One definite advantage that I see in moving to this new operating target of reserves is that it's likely to result in greater credibility in the marketplace [on the part of] a great many observers here and abroad that we will do something more effective than we've done, say, in the past 6 months in slowing down the rate of monetary growth. That [growth] in a way has been good in that it [may be] counter-cyclical but I think it has seriously damaged our ability to control inflation. One thing that hasn't been said yet--perhaps it's so widely understood that it doesn't need to be said--is that the possibility of using the kinds of reserve targets that are set forth in this memo has been studied at great depth over a considerable number of years. We are not moving into this as if it were untested and unstudied; there's an enormous body of research, including staff papers and very good analytical delineations of the problems and so forth. So I don't think we are taking on something that's new and experimental in the sense that it hasn't been very thoroughly examined. When this subject came up four years ago under a predecessor subcommittee of the current subcommittee on the directive--and I served on that predecessor subcommittee--I was in favor of moving to a nonborrrowed reserves target then. And that was not in a crisis atmosphere such as we have today. If anything, I think the argument for adding a reserves target, with a considerably wider range of possible movements in the federal funds rate to make it effective, is stronger now than it was then, particularly in view of the explosive inflationary psychology that we have today. So, on balance, I would feel very comfortable in moving to the sort of approach that was set forth in the Axilrod-Sternlight paper. I fully agree with you that we shouldn't go by a strict mechanical formula. I agree completely that we're going to need to give you and the Desk a lot of discretion if we get into this. I , for one, think we would make a real impact on market expectations by announcing this new technique. Obviously, we'd have to follow through with some results, but I would strongly support the proposal for moving toward the sort of approach outlined in the paper by Steve and Peter.",727
-fomc-corpus,1979,Bob Mayo. I'll get back on course.,9
-fomc-corpus,1979,"Mr. Chairman, I would like to enthusiastically support the change in emphasis in our operations. I have felt for a long time that we were doing the best that we could, but I've changed my position on that under these circumstances of the most sensitive monetary situation that I can remember at any time in our history. It seems to me that we are dealing with an essentially psychological situation, both abroad and here at home. I'm not going to suggest that we do something dramatic just to do something dramatic. I share John Balles's feelings that this isn't something that is so unknown to us that we should register fear and trepidation and do it blindly. I think the RPD experiment, looking back over the history of it, failed because we were too timid on the federal funds ranges that we associated with it, and it killed itself. So, I think now is the time for us to take the plunge, so to speak. I would do it for international reasons, too. I don't think it is just a question of fallout from what is good for domestic reasons. I have talked over recent years with a number of people throughout the world in their home offices about the role of money targets and so forth. And I've come to realize that for better or for worse these [targets] are there; there is an acceptance of the idea of a more monetarist approach than we have taken. It seems to me that this is the time to do something a little more [dramatic]. If I may be so crude, the patient has been constipated for a long time and Ex-lax will no longer work. I'm suggesting an enema or, if you want the full prescription, an enema plus some change in diet. Dr. Mayo is speaking, though I'm not one of the Mayo brothers, thank you. Anyway, at this point I think we can capitalize psychologically on monetarist support throughout Europe in particular, as well as in the Congress of the United States and much of the journalistic fraternity today. That doesn't mean that I, Bob Mayo, agree with all the arguments of the monetarists, but I recognize that they are there and they are important. They can give u s support in what is essentially a psychological situation. I would not worry about whether, in going with the new emphasis, we are taking a risk that we cannot reverse [our decision] if we have to go to something else later. This is not black and white. We could decide--to use an extreme example--that we don't want to say anything about a federal funds range in the directive today, but keep to ourselves the idea that the Desk should have plenty of leeway. If the market dictates--in the way it responds to what we're doing--that the federal funds rate should go temporarily to 15 percent, we'd let it go. I wouldn't worry about that. If sometime after 90 days--or it may take even longer--we find that this [new operating technique] has served its purpose, we can go back to including a federal funds range that is broad but nevertheless there, if we wish to. I think we have these options as we move along. A decision today to go to the technique described in Steve's and Peter's memo is not a decision for all time, either on the technique or obviously on the policy. We may wish to reverse it before we get locked in [at] too high [a rate], as Paul has said. If we believe in targets at all and believe that we have a responsibility to meet our targets, I think our best bet--not our riskiest--at this point is to take the bull by the horns and change our emphasis of operations. I'm probably getting ahead of myself or ahead of the group, but I would combine this with some increase in reserve requirements, particularly aimed at the larger banks where the tightness is not apparent. Our agricultural banks are tight as a drum. It's not needed there bur: it is needed for the bigger banks. And I would think that any discussion of the discount rate today would probably be premature; that would follow along with whatever the market is showing. But we should keep on the alert on a day-by-day basis to the way the market is responding to our shift in emphasis. And I would give considerable publicity to the change in emphasis. In my view this can be very important psychologically at home as well as abroad. CHAIR"" VOLCKER. Roger Guffey",901
-fomc-corpus,1979,"Thank you, Mr. Chairman. I believe almost everybody who has spoken up until now has said that they would endorse the change in operating procedures. I'd just like to raise a voice, not necessarily in opposition to it but at least to question it. First of all, let me say that I agree that there's a need for something to be done today and that it has to be rather dramatic. Hopefully, it would include the Treasury, but if that's not in the works then we have to move ahead. But if I understand what is being proposed--the change in operating technique--it seems to me a very high risk venture, particularly in view of the fact that it has never been tried. To be sure, it has been studied to death. Moreover, I happen to be somewhat sympathetic to this kind of operating technique. But we are in a time of crisis. For us to move to a new technique that has never been tried will be viewed by the markets, it seems to me, as our grasping at the last straw, so to speak. And if indeed it doesn't work to get the aggregates in better position by the end of this year I think we would have shot our last round and missed. I think that's putting the Federal Reserve as a system in a very, very precarious position. Lastly, if I understand what is being proposed, I would say that the very same thing can be accomplished by using our present operating procedures simply by broadening the federal funds range and narrowing the aggregates ranges. We would have as much chance--or perhaps more chance because we have experience with it--of hitting the targets we're shooting at instead of starting to swim in new and untried waters. If we can get the public reaction that we're trying to get by operating with our present procedures, I would prefer to go that route rather than go into something that we know very little about. I happen to believe that we may be on the verge of moving into a recession but it isn't clear. And I think we do need some dramatic action. I would rather see a press announcement by you framed in the context of having a wider range for the federal funds rate, which certainly will be understood by the market though maybe not by the public. And it will probably be better understood by the market than our moving into a new operating procedure. That coupled together with a rather dramatic increase in the discount rate--and letting the fed funds rate move up to a fairly high level--would be a preferable action to me. However, I do recognize, as you mentioned earlier, that it's absolutely essential that we have a broad consensus [on whatever action we take today]. Accordingly, I will [not object1 if a consensus forms on the other side.",549
-fomc-corpus,1979,Mr. Timlen.,5
-fomc-corpus,1979,"Mr. Chairman, it is clear to me that expectations of Some strong action by this group this weekend are at a high level. I'm not sure that the Committee should always respond to expectations, but in the circumstances today the proposal of combining something new and different with strong traditional steps has real appeal to me. For some time we've been hearing complaints that the United States is not dealing with the fundamentals. And in my mind, the rapid growth in the aggregates that we've been seeing is thought of as one of those important fundamentals. I'd say it is very important that the announcement connect this new technique with an effort to control the rapid growth in the money supply. The total package must not be perceived, as some have been in the past, as a flash in the pan. I'm not sure how well this will be understood. As a result, I would endorse those people who have strongly recommended that we have an in-depth explanation of this technique and its relationship to coping with the aggregates growth. I also agree with the remarks that Roger just made on the importance of a strong consensus coming out of this meeting.",219
-fomc-corpus,1979,Governor Wallich.,4
-fomc-corpus,1979,"I think the main argument in favor of the reserve strategy is that it allows us to take stronger action than we probably could by the other technique. We are much more constrained in the other technique by the appearance of very high interest rates. In the new strategy interest rates become almost a by-product of a more forceful pursuit of the aggregates. I think we need stronger action because of the resurgence in inflation and the behavior of the aggregates and the dollar. I realize that this may involve a higher cost in terms of the length and depth of a recession. But I try to look beyond that and ask myself where we would be late in 1980 if very little inflation has been wrung out of the system and we resume an upward price trend from a much higher base. Now, I wouldn't say that the proposed new technique is superior if the same strength of action could be taken by the existing methods. That's because the existing methods have the advantage that we know the interest rate and we don't run the risk of the rate going in the wrong direction and creating dollar problems. But I think the issue is really how strong an action we can take. And it seems clear that an action via the reserve strategy is capable of greater power. I've leaned toward that strategy for a long time, but I must confess increasingly less as I saw the interest rate becoming more important from the point of view of the dollar. There is that risk of interest rate uncertainty involved in the new strategy. We would have to guard against interest rates going in the wrong direction.",307
-fomc-corpus,1979,Which is what direction--up or down?,9
-fomc-corpus,1979,"it is quite clearly down. Upward we can control [through] money supply. We're aiming at a tight money supply, and that raises interest rates--or that is what we [are talking about]. But downward has a totally different implication. It involves a signal that we've switched policy and the markets are going to respond accordingly. Obviously, as we go into a recession there will be a time when interest rates will have to come down. They will probably come down by themselves if the time is right. And if it is feasible in terms of the exchange markets, then we should Iaccommodatel that and the more the better. But we need to watch this strategy in terms of what it produces for interest rates and for the exchange market so that we don't get surprised by interest rate movements when they could be harmful.",164
-fomc-corpus,1979,"Let me just make a couple of comments. I'm not sure it's self-evident that in interest rate terms the new technique is stronger. It may or may not be, depending upon what happens to the money supply. I think that is inherent in the new techniqde. It also depends upon a judgment on how much traditional-type action we would take and I don't think at this stage of the discussion we know the answer to those [questions]. We'll never know the answer, no matter how long we talk, to what the money supply actually will do in coming months. And until we get further along in our conversation, we don't know how strong our traditional-type actions will be.",137
-fomc-corpus,1979,"Paul, at some point I think we need to hear from your associates in New York as to how they would operate under this technique if we adopt it. I think that is part of--",38
-fomc-corpus,1979,"We'll get into that. I'm just getting general reactions now--and I think they should be rather general--of the type that we have had so far. Let me just say, too, that on the issue of interest rates coming down there probably are going to be differences of opinion; there always are. But I don't think we can sit here today and say it would be a terrible thing if interest rates went up to 14 or 15 percent on the new technique, just taking some numbers that are used [in the staff paper]. if they come down off that peak to the neighborhood of where they are now, that may be inherent in the new technique if it's successful under present projections of the money supply. And I'm not sure it's terribly alarming--to me anyway--in the exchange market sense. It's a matter of judgment. But I don't think we can get ourselves into a position where no matter how high rates go at some point with the new technique, any decline from a new peak is in itself a disaster. it might be great. It might actually encourage the feeling that we're over the peak. I don't think we're in a situation where the interest rate differential vis a vis German interest rates--whether it is 5 percent or 7 percent--is an important market consideration. That implies a little more stable psychological atmosphere. Let me say it is overwhelmed by the psychology of the situation. Who is next here on the list? Ernie Baughman.",294
-fomc-corpus,1979,"M r . Chairman, i picked up on your earlier observation that we can get there either way--with some modification of our present technique or by shifting emphasis to reserves to a greater degree. I'm somewhat inclined to think that if we do announce that we have made a rather basic change in our mode of operation--in our intermediate if not ultimate operational target--that unless it obviously is a disaster fairly soon, it is something we are stuck with for some period of time. I don't have any strong feeling as to which way we try to get where it seems we want to go at the moment. We can do it through the route of a monetary aggregates directive under our present format, with a broad range for the federal funds rate, lifted, and with a continued focus on targets set in terms of monetary aggregates. Or we can go the route that is suggested in the wire of putting greater emphasis essentially on intermediate targets or reserves. [Secretary's note: The memo entitled ""Proposal for Reserve Aggregates as Guide to Open Market Operations,"" dated October 4, 1979 was wired to Reserve Bank Presidents.] But it seems to me that there's a good possibility that if we adopt that [latter approach] we will be read as de-emphasizing rather than additionally emphasizing the monetary aggregates as targets or objectives of policy.",264
-fomc-corpus,1979,Those are the objectives.,5
-fomc-corpus,1979,"I don't think so, but that will come out in a later discussion, I think.",18
-fomc-corpus,1979,"We will be read as accepting some reserve measure as the objective--a kind of M target in the financial sector before we get over to the real sector. As I say, I agree with your suggestion that we can get where we want to go by either route. It would seem to me that it might be appropriate to take [action] in two steps. The first step would be an announcement that we are substantially broadening the operating range as far as the federal funds rate is concerned and that we are committing ourselves to more effective control of the monetary aggregates by that process. It seems to me that that would get the necessary attention in the market, and operationally I don't really see that it's much different.",142
-fomc-corpus,1979,Mr. Winn.,4
-fomc-corpus,1979,"Paul, during this past period, the rumors were everywhere. One of the ones that bothers me the worst is the feeling of an explosion on the wage front. For example, we see banks violating the guidelines pretty generally. Some of my most knowledgeable friends seem to be predicting 20 percent increases next year and that really frightens me. They all had solutions with respect to what we ought to be doing. But they never have as a solution that we should do nothing. So I've tried to [assess] what the risks and implications are of doing nothing in this area and that was rather frightening. Being s-ympatheticto what you're proposing, I wonder if we really have tried to look at the risks inherent in this. We've talked about the price on the international side and so forth, but what are some of the risks here? While we say we don't emphasize interest rates, the implication of this [proposal] is considerably higher rates. And if we think about that, what does that mean at least in the short run in terms of money flows? What does that mean in terms of those with prime plus 3 percent embedded in their costs? What does it mean to those institutions with short-term funding? What does it mean in terms of the commitments and lines of bank credit that will be accelerated? In other words, what are the risks on this side that we have to grapple with as well as the risks that we've talked about on the other side?",294
-fomc-corpus,1979,I think some of those will come out later in a more detailed discussion. Mr. Rice.,19
-fomc-corpus,1979,"Mr. Chairman, I favor moving to the new operating technique--the change of emphasis--at this time. I believe our current approach has not been working and we need to change our style. But in changing our style in this case we probably also are changing our strategy at the same time. I believe it's more than just a matter of operating technique, though I could be wrong. First of all, the psychological impact of a change in operating technique will be strong. I think it will be strong not only in domestic markets but also in foreign markets. In my view the foreign markets will read such an announcement as an expression of our determination to control the money supply, and that will have salutary effects. It seems to me that up to now what we've been doing is pushing up interest rates, largely in response to market expectations, and we've been assuming in effect that we know what the appropriate level of interest rates should be. And when the market wants high interest rates, we end up supplying more reserves and the money supply increases. I think that if we moved to a technique where we decide what the money supply should be--and we operate directly on the reserve base to get as close to the level of aggregates that we want--we would stand a better chance of producing the kinds of results we would like to see. The good thing about moving to this operating technique is that, contrary to some of the views that have been expressed, we introduce new uncertainty into the market. I think that's a good thing. The new uncertainty will have the effect of cooling some of the speculative activity and perhaps have an impact on those demands for credit that are based purely on inflationary expectations and on the assumption that money will always be available at any level of interest rates that the Fed tries to establish. Probably the first reaction will be a sharp rise in short-term interest rates. But I do believe that the rise will probably be short-lived and that the period over which interest rates will remain high is much likely to be shorter than would be the case if we continue to follow our present approach of gradually ratcheting up interest rates in response to market pulls. Obviously, there are high risks involved; these risks have been outlined. But in the current circumstances I think these risks are acceptable. And in any case the risks are less than we would be accepting if we continued to follow our present approach. I would, however, like to have it understood that the money supply targets--the aggregates targets that we set--are important here. They are very important for the success of the program. I would also like to have it understood that interest rates should be flexible downward as well as upward. Thank you.",538
-fomc-corpus,1979,Mr. Black.,4
-fomc-corpus,1979,"Mr. Chairman, Governor Rice has made many of the points that I wanted to make, but I'd just like to say that I feel better about what I've heard around this table than I've ever felt at any time since I've been attending these meetings. I think we are now on the road to formulating better monetary policy. I often think of our position as being analogous to that of a monopolist in the sense that we control the money supply. A monopolist has a choice of controlling either price or quantity but he can never control both. I believe we've been trying to control the quantity of money by setting the price and we have misjudged. We've jiggled the price, in terms of the federal funds rate, one way or the other, and we've usually met with less than complete success in judging what quantity of money will be forthcoming from that. So, I think this gives us a much closer handle on the aggregates than we would have under any of these other approaches, although conceptually we certainly could do it by the old method if we had a wide enough band on the federal funds rate. But I don't think we would know what federal funds rate we would have to choose in order to get the desired rate of growth in the aggregates. Now, I do think there are some broad considerations--and we'll touch on some of these later--that we ought to address before we close today. The first is that the discount rate is going to play a very important role under this operating technique. If we have greater or less fluctuation in the level of borrowing, that's going to make it more or less difficult to hit our total reserve target. So I think we're going to have to be very careful in choosing the appropriate discount rate. It will not necessarily be what we thought was appropriate in the past. My second point is that I think in your press conference you ought to state, among other things, that we would expect the federal funds rate, at least initially, to fluctuate more than it has in the past. You should also stress that there are various slippages in this mechanism; it is not a precise tool. I think you should also say why we have taken the action we have taken on the discount rate, because it will be important to explain why we've put it where we have. Another point I would emphasize, as the staff did, is that we are going to need a pretty wide range on the federal funds rate: it may mean that we have to let it move up sharply--or we may not--in the beginning. I agree with Henry Wallich that we need to watch it, at least initially, on the down side. I'd be inclined to put a floor on the down side until we know what the market perception is on this [approach]. That's because falling interest rates very early in the game, even though we appear to be controlling the aggregates. might be counter-productive. But I would want to see that floor removed as soon as the aggregates come under control. If I've seemed hawkish to some of you in advocating that we push up the federal funds rate to bring the aggregates under control when I thought they were growing too rapidly I think you'll view me as very dovish if I see them growing less rapidly than I believe they should. We have to be prepared to let the funds rate go down. Another point I would stress, which is in the material that was handed out by the staff, is that we have a problem in specifying the width of this band--whether it's for a day, a week, or a weekly average and whether we take into consideration the settlement date and that sort of thing. My guess is that Emmett Rice has diagnosed correctly what will happen to interest rates; they will go up initially as people rush to obtain funds because they perceive that the supply will not be as readily available. But I think also that rates are going to move back down, partly because of the elimination of some inflation expectations and also because I believe we are indeed slipping into recession, which would naturally cause them to drop. Finally, as we get into the long run, there are a couple of items that we are going to have to think about. An example would be structural changes that we ought to consider making to improve our control mechanism. One such change might be lengthening the reserve period to maybe a month or we might want to drop the lag part, although I'm not persuaded on that. Certainly we would want to get rid of the graduated reserve requirements to the extent we could. And, if we lose the Merrill case, I think we're going to be forced into this kind of targeting technique anyway. If we were to announce on the day of the meeting what in fact the federal funds band was, I think we could have some very disquieting effects in the market, whereas the announcement of a change in our money supply target would not really tell the market a great deal. Only the most sophisticated or lucky would be able to figure out the interest rate implications of that.",1009
-fomc-corpus,1979,Mr. Roos.,5
-fomc-corpus,1979,"Well, Mr. Chairman, I assume that my credibility with you and my colleagues would be severely jeopardized if I came out flatly in opposition to this proposal! [Laughter] I also was told by my father to keep my mouth shut when things are going well. So all I'll say is briefly: God bless you for doing this! [Laughter]",73
-fomc-corpus,1979,"I would say that when Bob Black and Emmett Rice agree, I would expect everybody else to be able to agree!",24
-fomc-corpus,1979,There are one or two things that I didn't agree with here but that's okay. Do you want to take a little coffee break or not? SEVERAL. Yes.,34
-fomc-corpus,1979,Okay. we will return to a more detailed exposition unless somebody wants to say something at this point.,20
-fomc-corpus,1979,"Mr. Coldwell is developing a computer for forecasting the money supply, converting it into the reserve base, nonborrowed reserves, borrowings, and the federal funds rate! [Secretary'snote: A s the meeting was in the process of reconvening, Mr. Coldwell was demonstrating an electronic device of some kind.] Let me try to describe the so-called new system, as I understand it, in an unprejudicial way. Out of this discussion will emerge some of the risks and dangers that have been referred to. To the extent possible, let's avoid detailed technical exegesis that will [keep] us here until Monday morning and not resolve the issues. I think there are unresolved issues that we are going to have to play by ear. The basic theory of this procedure is that the Committee would decide--in this case only through the end of the year--on some money supply targets. There are two extremes, I think, that are practical, though one of them may not be practical. On page 3 of this memorandum it says that if we met the midpoint of the present target we would have [September-to-December]movements of 1.3, 1.5, or 5.3 percent, depending upon which [aggregate] we are looking at. If we aimed basically for the top side of the targets or a bit inside them, we'd end up with [growth rates for M1, M2, and M3 for the fourth quarter of] 4.6, 7 . 5 , and 7.3 percent. The 7.5 percent number leaves M2 at exactly the top of its range for the year. Those happen to be, I say with all deference, the present projections of our projectors. I have about as much confidence in those projections as any projections, with all due respect to the projectors. I don't have a great deal of confidence in them. But they happen to be the rates we have to achieve to come within the targets. That doesn't allow any significant leeway if indeed we are going to get within the target ranges, and that is one of the problems we're dealing with here. We have practically no leeway to go wrong if indeed we are going to be within the yearly targets we adopted [unintelligible]. Now, our concept of the process is that those money supply figures that were chosen would be converted into a reserve base number. The reserves for currency would be projected and that would be subtracted from the reserve base, leaving us with reserves against a deposit component of the money supply--and reserves against a few other things, too, which is one of the complications. Allowance would be made for the growth in the non-money supply components; allowance would be made for whatever we know about shifts of deposits among banks and all the rest; and we would trace out a reserve path presumably consistent with those money supply figures. We would compare that with what we thought was going to happen. Suppose we happen to put a lot of weight on the current projection of the money supply and pick figures that would closely coincide with that. We would then provide, making some assumption on the level of borrowing that seemed to be consistent with the level of interest rates that presumably laid behind the projection of the money supply in the first place--we can't avoid interest rate assumptions the way these things are done--nonborrowed reserves along that path. If the money supply actually grew faster, borrowings would go up and presumably interest rates would go up; if the reverse happened, borrowings would go down and interest rates would go down. We live in an uncertain world. And in view of fluctuating projections regarding the trend in the money supply, our first point of judgment would arise--let's say particularly in the present circumstance--because we might get some ease in the money market immediately if we did nothing but follow the path week by week. If we thought we were going to have trouble later because the projection [has money growth] going above [our targets], we would under-supply reserves in the current week to provide some assurance that we're going to cope with the fluctuation later and not have borrowings running ahead of what we had assumed. That would mean that total reserves were running ahead of what we had assumed and the money supply would be running ahead of what we'd assumed. Or in looking ahead, if we were expecting some great decline in the money supply, we might apply judgment and do the operation in the opposite direction. In view of the outlook, we might permit some easing prematurely from the mechanical application of the [amount of reserves called for in the path]. That is, we'd let borrowings drop sooner because we thought the money supply subsequently was going to come in below path. That's one area of judgment we get into right away. AS the borrowings fluctuate, they would themselves be reflected in interest rates. But rates also would be affected further by our subsequent decisions on the discount rate, in terms of whether to follow the trend of borrowings in either direction. In other words, if the borrowings rose, we could increase the discount rate to bring further pressure on reducing the money supply, the increase in borrowings itself being a sign that money growth was running above where we wanted it to run. If it began running the other way, presumably borrowings would decline; then we'd have to make that additional judgment as to whether to reduce the discount rate in order to accelerate or facilitate a decline in interest rates. The rates at that time would also be reflecting the fact that the money supply was running low compared to where we wanted it to be. It is firmly set, in my mind at least, that in this process the federal funds rate is going to be constrained but constrained over a substantially wider range than has been our practice. Now we have a range of about 1/2 or 1 percentage point in our directive, though typically we do not actually operate on that wide a range. We operate on a day-to-day basis with almost no range at all. Well, we let it fluctuate on unusual days, but basically we are operating in an environment where everybody in the market is looking out to see whether Peter Sternlight intervenes at 1/16th of a point or 1/8th of a point higher or lower than before. In practice, the kind of range we have is 1/8th percentage point, roughly. And the market is sensitive to changes in interest rates of that magnitude--at least when we are in the market and not on a Wednesday or something like that. Obviously, with this technique we are going to ignore changes of that magnitude: and we are going to ignore changes of some great multiple of those 1/8ths we've been concerned about in the past. Whether we ignore them when they reach 2 or 3 percentage points or let them go to whatever ceiling is put on the funds range is a matter of judgment, I guess. But we certainly are not talking about the type of operation in which we've engaged in the past where the market is sensitive in an extremely narrow range to where we operate. When I talk about putting a constraint on the [funds rate range] on the top or the bottom, I'm not talking about a constraint that applies every hour of every day. The typical Wednesday situation would presumably run its course; we might get an exceedingly high rate of interest on a Wednesday or it might fall out of bed on a Wednesday, as it sometimes does. I think we'd let those kinds of fluctuations go outside of the kind of range we're talking about. I think we would attempt, probably not very successfully, to avoid telling the market if we hit the [constraint] in more normal circumstances or precisely what the range is. But they're going to be smelling around for it just as they do now and I don't know how successful we would be in avoiding that entirely. A l l I'm saying is that perhaps we can try to disguise the operations by doing them at a quarter point less or letting the rate go a quarter point or a half point above [the constraint] for a day or so. But the market is going to be feeling for where the top or the bottom of that range is if [the rate] goes persistently in one direction or another. And if it does, we can get in a situation, as I said earlier, where it's just going to lock itself against the upper level or the lower level and stay there. We are working with a two-week lagged reserve requirement. Somebody mentioned that that probably isn't the most desirable [arrangement] in the world if we are operating on this kind of system. I think I would agree with that. But we have it, and that's not something we can change overnight. What it means in practice is that we're going to have lags with this system in affecting the money supply, as we have lags with the present system. We always know analytically that we're going to have lags; presumably with the new system we've shortened them somewhat. But we have a mechanical lag of two weeks and on top of that a lag in the reaction of the banking system because we don't control borrowings from week to week. How much more pronounced effect on the money supply we will have in the type of period we are talking about here is one of the risks or dangers, I suppose. We should have more control, I think, when we look through the entire 3-month period. By December we ought to have a good deal more assurance that we're going to hit whatever December figure we have in mind. But we are talking about a quarterly figure and we are already into the quarter, so whatever we do now isn't going to have much effect on the October figure. Fortunately, the current projection for October, for what it's worth, is pretty moderate anyway but the month is basically gone, whatever technique we apply. We will probably have somewhat more effect on the November number with this technique and I would think significantly more in December. But there is no assurance that we're going to meet our target by using this technique--given the inevitable lags and given what I at least visualize as some constraint on [allowing fluctuations in] the funds rate--though maybe more than with the present technique. You know what the errors have been in the present technique. So we would not be adopting a technique here that provides us with certainty--more assurance but not certainty--that we are going to be able to sit here at the end of the year and say proudly that we aimed for a [particular] M1 number from September to December and we came out [there]. There is nothing in this technique that I see that permits that kind of precision, even though it should have somewhat more precision than what we now have. I just want to emphasize that because of the comments that some people made about all the publicity we should give to this change in technique. There's an immediate advantage in the publicity; there is a disadvantage not very far down the road if people read this as a commitment and in fact we are not going to be able to live up to that commitment. That's without even injecting into the equation that we indeed might change our minds next month or the following month. We might say look, this technique is fine, but it may give us a 16 percent interest rate and we just don't want a 16 percent interest rate. Or the reverse. I think that's a policy judgment we cannot avoid during this period. So I feel there are limitations as to how much we can promise from this technique. I don't think that eliminates, but it diminishes, the sense of psychological satisfaction that one can provide. I don't know what the current New York projections are for this period and I don't think it's important specifically. I know some other people in town have a much higher projection for money supply growth over the remainder of this year, given current interest rates. All I'm doing is emphasizing [the uncertainties] again. Nobody really knows what the money demand function will be over a period as short as this, which reflects upon the risks in the proposition. Let me say just [one more thing] before I stop and then we ought to turn to the mechanics and try to clarify that as much as we can. Steve can say whatever he wants to say. When one thinks about being committed to this kind of process over a longer period of time, just put yourself back in the first half of last year. I don't know how many people feel in retrospect that we should have been very substantially easier in the first half of last year in terms of interest rates. I personally think that would have been a disaster in retrospect and I thought so at the time. And we were not. But looking backwards I don't see how our present situation would be improved in any way by having followed religiously a money supply target during a period in which none of the money demand equations were working right. There was vast institutional change going on at the time, with money market funds, ATS, NOW accounts, a big surge in RPs, and all the rest. That's the [reason] I ' m not willing to make a judgment at this point as to the long-term desirability of this technique through thick and thin and in all possible circumstances. So, I would remind you that because of the particular circumstances I am thinking of using this technique for the [coming] 3- or 4-month period. This is a time when it may be particularly important to our credibility and to the economy and to psychology and everything else that we provide ourselves with greater assurance that we will get a handle on the money supply. I think it prejudices the discussion that we will have at the end of the year but it doesn't lock us in with respect to that discussion. There is a basic instability in the demand function for money in the kind of period that we are talking about. There is an instability in the relationship between reserves and deposits that is inherent in this system. And in a sense those kinds of risks get translated into the concerns [about interest rates that different members] have in varying degrees. I'm sure that interest rates will either go up too far or go down too far, depending upon one's preoccupation at particular periods of time. We can control that, to some degree, by setting these limits around [the funds rate], which I think are essential despite the fact that they have some disadvantages. I would conclude in the end that this is not a black and white situation. We are not--at least I am not--proposing that we go to a purely mechanical reserve targeting approach. There are elements of judgment which I have described to some extent; there are uncertainties in the estimates that we are taking into account. We are not adopting an approach that says: Well, currency may be going twice as high as we projected during this period but in the long term that will wash out, so we will ignore it. We are proposing an approach where somebody--some human being--will sit down and say: For the period ahead I'm making a new estimate of currency and allowing an adjustment for its impact on the total reserve base and, therefore, on the nonborrowed reserves that are the immediate operating target. Somebody will be looking at CDs and if they are going up or down twice as fast as projected, he will be making a new projection of the nonborrowed reserve base to allow for the fact that CDs have moved contrary to our expectations in the original projections. We are allowing some human being to sit there and [judge] that the multiplier between reserves and deposits [used for the projections] is off and to make some adjustment for that in conducting operations in the next few weeks. There are all these elements of judgment that enter into the process. That, combined with the constraint on the federal funds rate, brings us to something of a hybrid. Inevitably, we are merely talking about where we are on the spectrum between a mechanical reserve targeting approach and what we have been doing.",3230
-fomc-corpus,1979,"Recognizing that, M r . Chairman, rather than try to plug in numbers today and agree on detailed procedures--if, as I assume, we have a consensus on a change of approach--wouldn't it be wise to ask the staff to work on that? Perhaps we could ask the Board staff as well as selected or interested staff representatives from some of the Reserve Banks to wrestle with the details of how to do this as well as the details of the specifications. That could be done between now and the time we would normally come here for our meeting in a couple of weeks. That might make sense rather than trying to work with these figures that we have seen for a very short time and that our research staffs, in most instances, have not even had an opportunity to react to. If you made this announcement on Monday and if there were a 10-day period for staff to try to put together more [precise] specifications and procedures, those could be circulated and we could discuss them at our regular FOMC meeting. Would that be more productive? Some of us are not professional economists and to sign off on specific numbers and specific details today- -",233
-fomc-corpus,1979,"I will make two comments, Mr. Roos. I don't think it would be more productive because I hope the Committee as a whole, at this particular meeting at least, will not get into that detail. We will be in an absolute morass if we attempt to arrive at some judgment as to whether the staff has made all these translations correctly and on precisely how we should proceed. If we decide to go on this approach, I believe we are going to have to go on it with the Committee indicating only broad guidelines. There is enough judgment involved that we can get a good sense of how the Committee wants this process to operate in a very uncertain world. And even in a two-week perspective, I don't think we can attempt to have a technical resolution of all these detailed issues. There will be plenty of opportunity for that kind of [analysis] in the next few months and it would be relevant in terms of any further decision at the end of the year on whether or not to stay with this procedure. But inherent in the situation today, and I'll just put it very simply, the Committee has to have faith that it can give some general guidance and that we--basically the staff here at the Board under Mr. Axilrod's direction--will translate that as best they can, within these general parameters, into operational numbers. And then, it has to have faith that Mr. Sternlight will use his best judgment in taking the figures that are produced here [in Washington] and deciding on precisely which day he will provide how many reserves to the market.",314
-fomc-corpus,1979,"Well, I thought we were going to get into the numbers. I was off base there.",19
-fomc-corpus,1979,"Well, any way we go we have to get into the money supply number. If we're going to go this way, the Committee is going to have to make a decision on the federal funds constraint and what biases--if I can put it that way--we want to introduce into the operations, particularly in the next couple of weeks. A number of people have referred to a point on which I fully agree: After going through this hullabaloo, if we have made some miscalculation here and the federal funds rate drops by a percentage point, say, next week, we are in a hell of a fix. So, I assume we would want to bias it on the up side. However these calculations come out, we want to have some sense of what the Committee wants to do in that respect.",162
-fomc-corpus,1979,"Couldn't your announcement say that over a mandatory period of a couple of weeks we are going to do this in an orderly, gradual, manner? Do we have to do it right from the beginning?",39
-fomc-corpus,1979,Yes,1
-fomc-corpus,1979,No way.,3
-fomc-corpus,1979,"We are going to have to go through a learning procedure anyway. Even if we were to postpone it for a couple of weeks, we have a lot to learn and we might as well start learning now.",41
-fomc-corpus,1979,"I personally don't think that the nature of the problems we have are susceptible to sitting down around the table and saying: ""Do we use this figure or do we not use this figure?"" We can argue about that kind of thing if we are willing to adopt this experiment in a fairly rigid way for a period of a year. I, frankly, am not willing to take the risks of [operating totally on the basis of] some long-term equation or mechanical relationship that we know can be way off in a period of a month or in any particular week--or even in a 3-month period.",121
-fomc-corpus,1979,But we don't want to keep the funds rate biased upward too long.,14
-fomc-corpus,1979,"No. Well, inherent in this technique, the Committee can keep it biased however it wants to keep it biased. We have to discuss that. But in the mechanics of the process that I described, let's say we biased it for the first two or three weeks, quite deliberately, and we were wrong. It turns out that in fact we didn't have to bias it to keep the money supply under control. But we biased it in that direction because we wanted to make extra sure that [the money supply] didn't rise. The result would be a slower growth in the money supply four, five, or six weeks down the pike than we otherwise would have gotten. Then, out of the mechanics of the system, unless we made a quite deliberate decision to bias it in the other direction, we'd have the expense of biasing it tight in the first place and biasing it easy down the road. Now, the Committee obviously can make a new decision at that point. The biasing is, I suppose, where the Committee thinks the major risks lie. Take [the current] money supply figure. It's already in the top of the range, so we'd be much more sensitive to missing it on the up side than to a little miss on the low side. Particularly initially, we would bias it in that direction, apart from the interest rate implications.",270
-fomc-corpus,1979,"In your announcement Monday, will you announce any figures?",11
-fomc-corpus,1979,No. We would announce that we want to be within the targets for the year.,17
-fomc-corpus,1979,"Right, but not any more precise figures. What I'm worried about, for example--and I'm not trying to get specific--is the 8 percent monetary base figure referred to in this document. Our research staff said that if the people who watch this saw an 8 percent figure for monetary base growth, that would immediately destroy the credibility of the whole effort.",72
-fomc-corpus,1979,I think that's purely an [incidental] number.,11
-fomc-corpus,1979,"They will, of course, be able to make a calculation if we say we're determined to be within the targets for the year. They will see how much more room there is for the remainder of the year for growth in the aggregates that we have been using as [our target] variables.",58
-fomc-corpus,1979,If we give them the adjusted figure for M1--remember we cited the 1/2 to 4-1/2 percent--,28
-fomc-corpus,1979,We might have to underline that.,7
-fomc-corpus,1979,"We are going to have to clarify that one, I think.",13
-fomc-corpus,1979,"MI. Chairman, I wonder if we shouldn't at least make the initial decision if you are ready to go that far. Or if you want to discuss the specifications, which M r . Axilrod can [expound on], we can go that route.",52
-fomc-corpus,1979,"Well, we can go that route. Maybe we ought to discuss specifications. But in my mind, at this point we've made no decision to go in this direction. I think that's a decision we should make at the end oE the road, and citing some specifications may put some concreteness on this discussion in terms of whether we want to tolerate the risk. I just want to come back at the end to the question that M r . Guffey put very well in stating the other case. There is a danger of a too high [funds] rate and there is a question of all this publicity and then falling short. There are these analytic difficulties: the instability in the demand function for money and the [multiplier] relationships that we work with. There is the problem that we may run into a situation where, in effect, our collective judgment tells us to do something different than what the aggregates are telling us to do. Do we want to get locked into a procedure that prejudices us so far toward worrying about the aggregates? Those are the questions that should be in our minds, questions we want to return to before making a final decision here. [We need to weigh that] against the knowledge that we can do something very comparable, to the best of our wisdom, by devising a package using the traditional technique--or the traditional technique as modified somewhat to accomplish the same immediate purpose. So that's the final question. But let's [proceed].",294
-fomc-corpus,1979,I was merely raising the question of whether you wanted to get the specifications of the traditional as well as the new procedure.,24
-fomc-corpus,1979,"Why don't we [discuss the specifications], unless somebody wants to ask more about the mechanics. That will come out to some degree in the discussion anyway.",31
-fomc-corpus,1979,"I'd like to understand a little better the role of the discount window and the discount rate in this procedure. If we bias the reserve path in one direction or another, that will influence the volume of borrowing. That will then influence interest rates, which in turn will affect borrowing by virtue of the spread between the discount rate and the funds rate. We could leave it to that mechanism to control borrowing, we could leave it to the administration of the discount window to control it, or we could move the discount rate. It's not clear to me which way might be the best.",114
-fomc-corpus,1979,"Well, if we adopt this approach, that is one of the issues I had in mind when I suggested that the Reserve Bank Presidents might want to meet for further discussion this afternoon. One of the problems with this approach, it seems to me, is that the administration of the discount window is very confused at the moment. Inherent in the way we have been operating--to put it bluntly--there is no legitimate reason to borrow. Banks borrow because of the rate spread, but that's not really a legitimate reason. Now, that ignores computer breakdowns and that kind of thing. Except for accidental circumstances or late on a Wednesday--and here I'm talking about the larger banks--under our present guidelines there really isn't a legitimate reason for banks to borrow from the discount window, as I understand it. I know I have had the experience in New York where the discount officer happily comes in to tell me that he called up bank x, which borrowed for the first time in six months, a few hundred million dollars. He asked them why they were borrowing. And the bank official cautiously says: ""What the hell, I hadn't borrowed in a while and your rate looked pretty low."" And the discount officer replies: ""Well, you can't borrow for that reason."" Now, if a Reserve Bank really enforces that kind of discipline, it doesn't get many borrowings. But it's obviously not enforced evenly. And I suspect there are no additional guidelines we can give the discount officers at the moment. We have to let events take their course. We have been doing it for years, and I suppose we can do it for a few more months. It will raise this question in the bankers' minds. I think we will have to develop a more coherent policy in a few months and it might be useful for the Presidents to think about these implications.",368
-fomc-corpus,1979,"Mr. Chairman, if I might add a point. If the Committee goes this route, I was planning to have a conference call with the discount window officers. My intent would not be to say anything about their administrative procedures but to explain that they might expect more volatile movements in borrowing than under existing procedures.",61
-fomc-corpus,1979,Whatever they are.,4
-fomc-corpus,1979,"I wanted the discount officers to be aware that they shouldn't be shocked if one bank is in and another one is out, because the funds rate might exhibit more volatility.",33
-fomc-corpus,1979,"What I visualize happening--but it may not if we move the discount rate frequently enough--is that with the volatility in the funds rate, more and more banks will be tempted to borrow despite the presumed guideline against it. So the discipline that now exists will break down, and the same level of borrowings will mean something quite different than it means now. But it's very hard to measure that. How do we prevent that from happening?",87
-fomc-corpus,1979,"They might arbitrage out some of the fluctuations we would otherwise have in the federal funds rate, too.",21
-fomc-corpus,1979,"No question that the federal funds rate will be influenced by the discount rate. It is now, but it will be more so.",26
-fomc-corpus,1979,"It seems to me that the main [objective] ought to be to set the discount rate at a level--if we can figure out what that is--that would reduce the volatility of borrowing, which would enable us to get at total reserves more precisely. I think that would mean that we should try to keep the discount rate at a penalty rate most of the time. That, of course, has implications for our--",84
-fomc-corpus,1979,I think that is the implication of this technique in the long run but not in the short run.,20
-fomc-corpus,1979,There is a question here of how the Reserve Banks should report all this to their boards of directors. I think some of the sharper directors will raise questions about what the role of the discount rate is and what their role is with respect to this new mechanism. We are going to need to consider this. My guess would be that we'd view this as a special program for a special period and that we'd probably want to handle it more through the administration of the window than to develop a whole new procedure to make the discount rate a flexible one.,107
-fomc-corpus,1979,"Well, I haven't thought about it a lot, but I presume that the discount rate would be more flexible but not so much more flexible [as to preclude1 a variety of requests from various Banks in a timely fashion. So there wouldn't be any special problem. I think we are going to have a lot more requests for discount rate changes. But we'll need them to provide a menu of choices in the short run as to where we set the discount rate.",92
-fomc-corpus,1979,"You may remember, Paul, back in 1974 we were operating the discount window with a 4 percent spread between the funds rate and the discount rate.",32
-fomc-corpus,1979,"I think we can do that, too.",9
-fomc-corpus,1979,"Sure, we can do that.",7
-fomc-corpus,1979,Administration of the window can control--,7
-fomc-corpus,1979,"Oh, it can ultimately control it if we make that decision. Did you want to say something, Phil?",22
-fomc-corpus,1979,"Well, M r . Chairman, it seems to me that there are at least four major decisions the Committee needs to make if we are going to move to a reserve targeting procedure. I'm not saying that is the [decision]; as you said, you want to come back to that. The first decision is what target we should aim at. That's [addressed in the memo in the footnote] at the bottom of page 3 . My preference would be in between the two alternatives shown there. I don't like the idea of aiming at the upper half [because of] the potential for a miss and I question whether we can get as far down as the midpoint of the target. So I would suggest to the Committee that we might aim for 5 percent growth in M1 for the full year, which would connote something around 3 percent for September to December and a quarterly average, if I calculated this right, at about 4-1/2 percent. The second decision is how much bias to put in, and I think the borrowing is the key there. If we're going to bias it on the basis of the present borrowings it would be $1.2 billion. I would allow a little more leeway, say, up to $1.5 billion. The next decision, as I read this paper, is what to do if CDs stray off path badly. That, I think we would have to play somewhat by ear but if they really take off, then I would adjust the nonborrowed path. Finally, it seems to me, we have a fundamental question of where to constrain the federal funds rate. I would suggest to the Committee the possibility of a range of 11-1/2 to 14-1/2 percent.",356
-fomc-corpus,1979,"Let me comment. Let's take what you said about CDs as given without objection and reduce the variables by one. You suggested one particular way of biasing this and I would just note that in some sense it depends upon what you mean by bias. If you fill in a money supply figure of 3 percent from September through December against the projection of 4.6 percent, in concept you have already biased it toward higher interest rates. Then to specify borrowing above the current level in the context of this operating procedure would imply a double biasing, I suppose. Aiming for 3 percent would be biasing it in favor of higher interest rates and then you would take out a little more insurance by raising the borrowing level. I think mechanically that's the way it comes out.",155
-fomc-corpus,1979,And I am speaking in terms of the next 2 to 3 weeks with this sort of biased arrangement.,22
-fomc-corpus,1979,"Well, in the money supply sense you [can] call that a bias. That would be [a bias] for the quarter. I guess it's only a 2- to 3-week bias in the sense of higher interest rates.",48
-fomc-corpus,1979,"But if we put in 3 percent for the money supply for September to December, Phil, given the fact that we can't affect October--assume it comes in at 4-1/2 percent--that means we are putting in a November-December growth of about 2 percent. The demand function is still there and we can affect the supply, but it would mean that we would be moving toward a negative number for December. That's really a very tight bias.",95
-fomc-corpus,1979,"Well, if we follow Phil's formula, we do have a little room to miss on the up side. If we shoot for the--",28
-fomc-corpus,1979,"Well, the 4.6 percent [growth in M1 for September to December] is not at the very top. That gives us 5.3 percent for the year and the top of the M1 range is 6 percent.",49
-fomc-corpus,1979,Growth reaches the top for M2.,8
-fomc-corpus,1979,"Well, the M2 is a little [above] and M3 is below. There has been a shift from the thrift institutions into the banks and that accounts for some of that.",37
-fomc-corpus,1979,"Well, these numbers are illustrative",6
-fomc-corpus,1979,"What is the projection for October, Steve?",9
-fomc-corpus,1979,For Ml?,3
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,4.8,3
-fomc-corpus,1979,We already have to have a November-December averaging below October.,13
-fomc-corpus,1979,I don't know whether this facilitates the discussions or not. Let's for the moment concentrate only on the money supply and the federal funds constraint. Those are enough variables to consider. And we'll consider any further bias later.,42
-fomc-corpus,1979,"I find Governor Coldwell's suggestion fairly reasonable, all things considered.",14
-fomc-corpus,1979,"Mr. Chairman, I would like to see a wider range on the federal funds rate.",18
-fomc-corpus,1979,"Wider, Emmett?",6
-fomc-corpus,1979,"Yes, wider on both the low and the high sides. I would like to see something like 9 percent on the low side and 15 to 16 percent on the high side.",38
-fomc-corpus,1979,What we would do if it went to 9 percent--intervene in the [exchange] market in very large amounts to offset the effects?,29
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,And probably be defeated.,5
-fomc-corpus,1979,Why would we probably be defeated?,7
-fomc-corpus,1979,Because it's not the effect of the interest rate as such. That doesn't play a big role in the short run. The exchange market would be the symbol but all over the world they would be saying the new procedure really is a form of easing.,49
-fomc-corpus,1979,I really don't see how they could say that.,10
-fomc-corpus,1979,"Well, I don't think we need to set this for all time. It seems to me that a fed funds rate constraint of 11-1/2 to 14-1/2 percent for 2 or 3 weeks--",47
-fomc-corpus,1979,We can come back to the question of scheduling the next meeting. My own instinct at this point is to delay what would have been the regular meeting for a week just to provide another week's experience. It seems awfully quick to come back. We'd be coming back in less than 2 weeks.,59
-fomc-corpus,1979,"Yes, a week from Tuesday.",7
-fomc-corpus,1979,My own thought is why not delay it a week so we would have another week.,17
-fomc-corpus,1979,We have another event associated with the next meeting--the annual meeting of the retirement committee. That meeting is about the Federal Reserve's retirement system and it brings all the Presidents here. Then they would have to come back again the next week for the FOMC meeting.,54
-fomc-corpus,1979,Maybe we can even change that.,7
-fomc-corpus,1979,We'd just need to know in order to change our schedules.,13
-fomc-corpus,1979,"Well, it wouldn't be too bad just to have an informal discussion at the time of the next scheduled meeting, even if you decided you didn't want to have a regular FOMC meeting.",38
-fomc-corpus,1979,We may not even be having a regular meeting then.,11
-fomc-corpus,1979,"Is it presumed, Mr. Chairman, that we would release to the public the same items of information as we do now?",25
-fomc-corpus,1979,"Do you mean in terms of the actual directive? I see two things that would be in the directive. One is the money supply target, however expressed, from now to the end of the year. And the other is the federal funds constraint.",49
-fomc-corpus,1979,But with the usual lag. This would not be in your press release Monday or today.,18
-fomc-corpus,1979,NO,1
-fomc-corpus,1979,"We do get caught with that, don't we? That's because we would have to release this--",19
-fomc-corpus,1979,"Let's worry about that later. I don't see that we have to release it before 30 days, but we will decide that subsequently.",27
-fomc-corpus,1979,"I think Phil's target [proposal] is too strict. In a sense, he's choking [the money supply]. And that seems to me ridiculous, given the underlying state of the economy as we see it. I think if we aimed to be within the upper part of the range [for the year]--aimed for 4.6 percent [for September to December]--we'd tend to offset the dangers of putting this economy into an actual tailspin. It's all right to control the money supply, but we don't have to cut it off completely, Phil, which is what your proposal would do for the last two months of the year.",131
-fomc-corpus,1979,"I must say that I agree with Nancy. If this is the nature of the detail, then I can't agree to it.",25
-fomc-corpus,1979,I think the thing to do at the moment is just to concentrate on the money supply.,18
-fomc-corpus,1979,"Well, if you want to go around the table, I would view the figures in the right-hand column [at the bottom of page 31 as quite appropriate objectives. I would be prepared to bias the initial funds rate range. Oh I forgot, you don't want [us to address] the funds rate yet.",63
-fomc-corpus,1979,"Well, we have to sometime; let's discuss the whole bias issue. We can [talk about] both the funds rate range and the money supply.",30
-fomc-corpus,1979,I would leave the money supply [range unchanged] and bias it with the funds rate range in the initial go-around. Then we can review the funds rate range depending on progress. I would point out that with that projection for the first month [of the quarter] being above the 4.6 percent--and September deposits have determined reserves for the first 2 weeks of October--we already have a bias in the money supply EURor the initial two weeks of operation.,95
-fomc-corpus,1979,"Well, I'll let that go. I won't get into that technical point of whether we bias the operation--since the reserves of the forthcoming week are already in the bag--during that week.",38
-fomc-corpus,1979,"Yes, sure we do.",6
-fomc-corpus,1979,"No, I think the answer is that we [start with higher] borrowings that first week. We start, even though we know we can't affect the level of reserves that week.",37
-fomc-corpus,1979,"We can affect deposits in that week, even though we are addressing the reserve needs of two weeks hence.",21
-fomc-corpus,1979,We might affect deposits in that week.,8
-fomc-corpus,1979,"And that's really what we are after, so I don't really think [money supply growth] is in the bag for October, Chuck.",27
-fomc-corpus,1979,I don't either.,4
-fomc-corpus,1979,I don't think we are going to affect it much.,11
-fomc-corpus,1979,"I agree that this is not going to affect it a lot, but conceptually it isn't in the bag yet.",23
-fomc-corpus,1979,"Well, it's a matter of degree. We have two proposals: one for 3 percent M1 growth and one for 4.6 percent.",30
-fomc-corpus,1979,"I would like to throw a third one on the table. I'd make it 4 percent. I think we need to shade it, but I don't want to shade it as much as Phil suggested.",40
-fomc-corpus,1979,I'm getting confused here. Are you talking about the September--,12
-fomc-corpus,1979,[Growth for] September to December.,8
-fomc-corpus,1979,Okay.,2
-fomc-corpus,1979,"Mr. Chairman, could I ask a technical question of the staff regarding the right-hand part of the table on page 3? You say, Steve, that the right-hand panel shows the fourth-quarter growth rate consistent with a yearly increase in the upper half of the long-term range. I didn't have a chance to do the arithmetic on this. Do you mean right at the upper end of the range or somewhere within the upper half of the range?",90
-fomc-corpus,1979,"The growth rate shown there produces a rate [for M11 for the year of 5.3 percent. The range for the year, suitably adjusted, is 3 to 6 percent. So, that 5.3 percent is about halfway between the 4.5 percent middle of the range and the 6 percent upper end of it.",71
-fomc-corpus,1979,Just compare the third from the right column on the bottom table with the column at the left on the top table. The target ranges are given at the top of page 3 and the growth for the year is given at the bottom of page 3.,51
-fomc-corpus,1979,"Mr. Chairman, those of us who have the Axilrod-Sternlight memo in wire form have a different pagination.",25
-fomc-corpus,1979,It's on a different page.,6
-fomc-corpus,1979,"Well, there is a target range for M1, M2, and M3. Just write them down along side the growth for the year in the upper half of the target ranges. They are: 3 to 6 percent for M1; 5 to 8 percent for M2; and 6 to 9 percent for M3. So [growth for the year] is right at the top of the range for M2 and somewhat below the top, but in the upper half, of the ranges for M1 and M3.",112
-fomc-corpus,1979,"Mr. Chairman, do you want the growth rates [we prefer] stated in terms of the growth for the year or not?",26
-fomc-corpus,1979,From September through December.,5
-fomc-corpus,1979,September to December.,4
-fomc-corpus,1979,That's going to be the operational period.,8
-fomc-corpus,1979,I would support the 4.6 percent,9
-fomc-corpus,1979,"There's going to be variability. It's possible to get different September-to-December growth rates for the same quarterly average, as I'm sure the Committee realizes, depending on when in the quarter the growth occurs and all that.",43
-fomc-corpus,1979,"The operational one is September to December, even though that doesn't assure precisely that quarterly average.",18
-fomc-corpus,1979,"Or you could use the quarterly average and have varying growth rates for September to December, whichever you want.",21
-fomc-corpus,1979,"Steve, 4 percent for September to December would give us a 5 percent growth rate for the year, right?",24
-fomc-corpus,1979,I would have to translate it into the quarterly average.,11
-fomc-corpus,1979,"The quarterly average would hold it to around that, I think.",13
-fomc-corpus,1979,"The Committee's target is for Q4 1978 to Q4 1979. If we had a quarterly average rate of 5.9 percent [for the fourth quarter] the rate [for the targeted period] would be 5.3 percent. To the degree that you lower the [rate desired for the remaining] months to what you were suggesting--and depending on when exactly in the quarter that slower growth occurred--it would affect that quarterly average. If it occurred early in the quarter, the quarterly average would go down more than if it occurred all in December, say.",119
-fomc-corpus,1979,"Well, that's why you are emphasizing September to December because that would at least bypass a variable.",19
-fomc-corpus,1979,"This shows the slowing that's going to occur. The slowing is in process, but the effect on the quarterly average is delayed because we are going into the quarter with such a high rate.",37
-fomc-corpus,1979,And we already have 5 percent for the first three quarters. Am I right?,17
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"So with 5.3 percent, M1 growth would actually be going up in the fourth quarter?",21
-fomc-corpus,1979,We are coming off a 9-1/2 percent rate in the third quarter.,18
-fomc-corpus,1979,"We are starting the fourth quarter high, so it's very hard to get that down.",17
-fomc-corpus,1979,It seems to me that we can target better on what we want the growth for the year to be than on September to December.,26
-fomc-corpus,1979,"Well, that's true.",5
-fomc-corpus,1979,"Oh, I don't agree.",6
-fomc-corpus,1979,"Well, I know it has to be translated into [the rate for the September-to-December period] for purposes of the operating technique, but it's hard--unless you know what the pattern is apt to be between September and December--",47
-fomc-corpus,1979,That's what we are doing. We would be determining a pattern.,13
-fomc-corpus,1979,"Well, I agree with Bob.",7
-fomc-corpus,1979,"I think the only number we can concentrate on operationally is the one for September through December, given the figures that have been shown here in the memo. We can make a precise arithmetic computation at lunch if we want to, I'm sure. Obviously, the lower that figure is, the more it takes a little off the annual growth rate.",68
-fomc-corpus,1979,"My point, Mr. Chairman is that the staff started with the numbers on the left-hand side, 4-1/2, 6-1/2, and 7-1/2 percent, or 5.3, 8, and 8 percent. And then they went back and produced a September-to-December figure. It's very difficult for us to produce the figures here that would be compatible with what we might want for this.",93
-fomc-corpus,1979,Just interpolate,2
-fomc-corpus,1979,"It seems to me we are better off, Mr. Chairman, to aim for a growth rate for the year and let the staff work it out.",30
-fomc-corpus,1979,That's essentially what I am saying.,7
-fomc-corpus,1979,I don't think that's right because a very small change in the growth rate for the year has a very big effect on the growth rate for the September-to-December period. And it's that latter period that we are dealing with here.,46
-fomc-corpus,1979,"Really, we have only 2 months that we can influence.",13
-fomc-corpus,1979,"You just have to interpolate. If you went all the way down to 1.3 percent [for September to December] you would be at 4.5 percent [for the year]. So if you want to aim half way between [the two figures shown], the annual growth is going to be exactly half way between 4 . 5 and 5.3 percent.",77
-fomc-corpus,1979,But [the choice] has tremendous interest rate implications.,11
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"Mr. Chairman, I would support 4.6 percent.",13
-fomc-corpus,1979,I would propose 4 percent for M1 and 7 percent for M2 in order to give us a little margin for error.,27
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,That's fine with me,4
-fomc-corpus,1979,We have some margin [with the 4.6 percent],13
-fomc-corpus,1979,We haven't got much margin.,6
-fomc-corpus,1979,It's 0.7 on the yearly average.,10
-fomc-corpus,1979,"We need to do two things, in my judgment. One is to set a money supply target that causes the funds rate to rise but not excessively. The other is to set a range that won't allow the funds rate to fall excessively. And to me it looks as if something like 4 percent on the money supply would probably do that.",68
-fomc-corpus,1979,"Let me note that we have other instruments for biasing at the start, including the discount rate that the Board is going to have to decide upon here. If we raise the discount rate substantially, we are going to get an upward movement in the funds rate in the short run.",56
-fomc-corpus,1979,And the impact of the reserve requirement change can do the same thing.,14
-fomc-corpus,1979,I'm going to vote for the 4.6 percent,11
-fomc-corpus,1979,"Given a moment of hesitancy here let me make a suggestion, at least tentatively. Nothing is solid. I just want to move on. Let's assume 4.6 percent for the moment, or 4 . 5 if you want a round number. There i s obviously a good deal of concern that that is too high and a good deal of concern about what will happen in the short run. We can accept that. But in the interest of getting [the full] picture, if tentatively we say 4.6 percent, there is a lot of interest both in biasing [the outome in] the short run and in biasing the possible errors in the direction of not exceeding 4.6 percent because that indeed is getting pretty close to the upper end of the annual target. So let's proceed on that basis for a moment and go to the federal funds range.",181
-fomc-corpus,1979,"Well, what are you going to do with the discount rate, take it to 12 percent?",20
-fomc-corpus,1979,"Well, I think that's obvious",6
-fomc-corpus,1979,"If we take it to 12 percent and we want the federal funds rate around the discount rate, that means the funds rate should be approximately 12 percent.",32
-fomc-corpus,1979,I didn't want to get into that question. I would assume that if we take the discount rate to 12 percent--unless we have a reverse bias in terms of the borrowings--that the federal funds rate is going to go up in the neighborhood of 1 percentage point under normal relationships.,59
-fomc-corpus,1979,That's 13 percent,4
-fomc-corpus,1979,"Now, whether any relationship is normal in this period, who knows? But I think that's the best guess one could make and that would introduce the bias in the short run.",35
-fomc-corpus,1979,"But to talk about a funds rate range, it seems to me we have to have in mind where we are going to put the discount rate.",29
-fomc-corpus,1979,I agree. These things are very hard to [separate].,13
-fomc-corpus,1979,"Mr. Chairman, do we have to move on the discount rate immediately?",15
-fomc-corpus,1979,"Well, we have to discuss that. Obviously, all these things have to be decided. But for myself, when I look at this potential package, I think there is enough risk of confusion in the announcement that an increase in the discount rate of 1 percentage point would be highly salutary in terms of our immediate objective. Intellectually, though, you can argue the other point. I just don't know whether we want to take the risk in the initial announcement of a possible interpretation that we don't really mean it. That's the problem that I see.",111
-fomc-corpus,1979,The increase has to be at least one percentage point.,11
-fomc-corpus,1979,"Well, maybe it's easier if we [discuss] all the [aspects]. Let me tell you what the Board has been discussing on reserve requirements. What I would presume the Board members will agree upon is a packaging together of all managed liabilities, with all its difficulties. That would include CDs, federal funds for non-members, repurchase agreements, Eurodollar takings--this is all very difficult technical business. One proposal is to make a basket of all those liabilities, establish a base date in September, and then [impose] a marginal reserve requirement of some size--some size meaning in a range of 5 to 10 percent--on any increase in the basket. We've discussed also [imposing a reserve requirement] on total outstanding managed liabilities. For purposes of discussion, and to get the whole picture out, assume a target of 4.5 or 4.6 percent for the money supply number. Assume the increase in the discount rate, which itself biases this initially and has the announcement effect as well. Also assume Phil Coldwell's initial federal funds constraint and a moderate assumption on the borrowings for 2 or 3 weeks of the nature he suggested, which involves very little change from the current level of borrowings.",252
-fomc-corpus,1979,Was his suggestion $1 billion?,7
-fomc-corpus,1979,I said $1.5 billion; it's $1.2 billion now,15
-fomc-corpus,1979,"Let's say $1.2 billion to $1.5 billion. I would feel quite differently, frankly, about that borrowing level without a discount rate change. I think we would probably lose too much without the discount rate change. Without the discount rate change I'd put in a much bigger bias on the borrowing side initially, in effect, to force the discount rate change very quickly. But the more I think about it, the other way of doing it--announcing a discount rate change with the package--seems much safer. With that kind of initial discount rate change, I think we can be relatively moderate in biasing on the borrowing. It wouldn't immediately force another discount rate change. So, that's somewhat of a ""family"" [of potential actions].",152
-fomc-corpus,1979,"You are staying with the suggestion of an 11-1/2 to 14-1/2 percent funds rate range, right?",28
-fomc-corpus,1979,"Yes, for purposes of discussion.",7
-fomc-corpus,1979,"If we have a discount rate change to 12 percent, why would we want an 11-1/2 percent lower constraint on the federal funds rate?",32
-fomc-corpus,1979,"Well, in those circumstances, I think the probability of going to 11-1/2 percent is negligible.",23
-fomc-corpus,1979,Sure.,2
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,But I think we want a fairly wide range.,10
-fomc-corpus,1979,"HOW symmetrical do we want to make it at this point? I grant that 12 is close to 11, closer to 11-1/2--",32
-fomc-corpus,1979,Phil probably figured it out. The 11-1/2 to 14-1/2 would probably make the range symmetrical around the best guess of where the actual funds rate might go in the short run.,43
-fomc-corpus,1979,It's a 13 percent midpoint.,7
-fomc-corpus,1979,"Let me say again that if we adopt this technique, I don't think we can be at all sure where the fed funds rate will go in the very short run.",33
-fomc-corpus,1979,It doesn't matter all that much.,7
-fomc-corpus,1979,And it doesn't matter all that much.,8
-fomc-corpus,1979,It would disavow us.,7
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,"It matters to you, Henry, if it goes down",11
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,It doesn't matter to me if it goes down.,10
-fomc-corpus,1979,It doesn't matter very much within a range that is set like this one here.,16
-fomc-corpus,1979,"Well, that's an important point--not so much for a decision today, but looking toward the future.",21
-fomc-corpus,1979,"Well, looking to the future, I may want to let [the funds rate] be more responsive, because in my mind that's one of the advantages of this system. The technique fits the times; our situation is more volatile. So, that's one of the reasons I like this. I would vote yes, for the time being, on the package that you presented.",74
-fomc-corpus,1979,"The rates that really would matter would be the other short-term rates; the funds rate matters much less. The other short-term rates, I think, would move up in relation to the discount rate and the money supply constraint. If the funds rate stays at the lower end of the band for a long time, then that would pull the other rates down.",71
-fomc-corpus,1979,My only concern is whether that [range] is too constraining on the funds rate.,18
-fomc-corpus,1979,I agree.,3
-fomc-corpus,1979,"I agree, too.",5
-fomc-corpus,1979,"I can see a real possibility that it will hit 14-1/2 percent and if we seem to lock on it, it will then establish that as the rate.",35
-fomc-corpus,1979,"If we are in that situation, the Chairman can have a telephone conference and we can discuss whether we want to stay locked in or not.",28
-fomc-corpus,1979,"The staff paper did recommend a range of 3 to 5 points didn't it, Steve?",19
-fomc-corpus,1979,"Yes. I don't know about Peter--he can speak for himself--but I feel very strongly that if we are in any way going to be held responsible for this operating technique working out, a very wide federal funds rate range is necessary.",48
-fomc-corpus,1979,"Well, we have a real conflict here in terms of the way we want to place our risks. I must say that pretty consistently in my own thinking I come down on the side of not wanting to let this federal funds rate go out of sight by accident in the initial stages. Now, that's a matter of judgment. And the general tenor of the plan, of course, is to take whatever punishment--if that's what it is--quickly and get it over with so rates can come down and that's an offset. For once let's get ahead of the market expectation in a sense and get in a position to [move rates] down, which is the other side of the coin. But we are going into unknown territory and there is a limit as to where my own sangfroid gives out here.",161
-fomc-corpus,1979,May I suggest a 4 percentage point spread of 11-1/2 to 15-112 percent with consultation if it goes over 14-1/2?,35
-fomc-corpus,1979,I'd support that. That's good.,7
-fomc-corpus,1979,I ' d rather see it wider.,8
-fomc-corpus,1979,I think we ought to have some sensitivity to a 16 percent federal funds rate.,17
-fomc-corpus,1979,"Understand that even with this kind of constraint, on an individual day it might well be [outside the range]. SEVERAL. Oh, sure",29
-fomc-corpus,1979,We are talking about a weekly average.,8
-fomc-corpus,1979,Let me ask a question. Are we very closely in the ball park here? SEVERAL. Yes.,22
-fomc-corpus,1979,Why not stop for lunch?,6
-fomc-corpus,1979,I second that!,4
-fomc-corpus,1979,I don't mean wander away for lunch. Let's take 10 minutes and come back to the table.,20
-fomc-corpus,1979,Where is lunch?,4
-fomc-corpus,1979,Next door. [Lunch recess],7
-fomc-corpus,1979,"Let's try to reach some consensus on what the proposal should be like if we do it [under the old method]. And if we have a consensus on both of those, we could just vote up or down on which approach we like better, with as many people feeling comfortable about [our decision] as humanly possible. I think you can assume there will be a discount rate of 12 percent I should say.",83
-fomc-corpus,1979,12 percent?,3
-fomc-corpus,1979,"A 1 percentage point increase. Under those circumstances, let me modify my proposal slightly. We work with a 4 . 6 or 4.5 percent target for M1, recognizing that people would rather see M1 growth come in somewhat lower, certainly, than higher. But that to us is a satisfactory target. In an uncertain world, all other things equal, the money market nice and equitable, expectations changing nicely, things settling down, it's possible we would feel better if it came in below than if we were embarrassed by it being too high. We have a discount rate of 12 percent. We have the reserve requirement change, which I think will be 8 percent, on a basket of managed liabilities. That is about equivalent to an added cost of 1 percent on those [liabilities]. That's the effect that has, mechanically. I don't know what that does to the prime rate, but [the added cost to banks] is just marginal. If the banks want to be mean--I've got to speak to the MA--they raise the prime rate and say that's our marginal cost of funds. If they want to be reasonable, they don't because that cost is only going to apply to a very small amount at the margin. I would be inclined to tell them at the ABA that they shouldn't reach forever on the interest rate. That sounds like a good idea. In and of itself, I think [all] that means some increase in the federal funds rate. How much of an increase? Although this scenario only puts the discount rate at about or slightly above the current federal funds rate, it nonetheless, all other things equal, puts some upward pressure on the federal funds rate. In terms of the range, Phil suggested 11-1/2 to 14-1/2 percent. As I told you, it makes me nervous to think of [the rate] going up and getting locked in at a higher level. But if you want to put the upper end higher, I reserve the right to consult if the funds rate were to begin getting up that high. We could have that understanding. I am not talking about for a day; I think it would be fine if it went there for a day or a bit beyond.",453
-fomc-corpus,1979,"Excuse me, Paul, are you talking about 11-1/2 to 15-1/2 percent?",25
-fomc-corpus,1979,"Yes. That's what would appear in the formal record, whether or not we consulted later. Then in starting off, I would suggest a mild further bias. I think the discount rate in a sense is a bias to start with, at least to get the federal funds rate up. And there's a bias in the sense that these projections, if they mean anything, are based upon a lower level of interest rates. So by getting the interest rate up we've biased it some already. I would suggest a mild further bias--for about 2 weeks maybe--and I could express that in one of two ways. We just take the operating flexibility depending upon how things develop. It could be expressed as a slightly higher level of borrowings, as we discussed before. But even that I don't think is necessarily essential, if as things developed it appeared that the federal funds rate in fact was settling down around 13 percent plus or minus. In other words, I'm saying let's bias it enough, if we have to, to get that kind of federal funds rate originally if it doesn't go up there by itself. Or, if it goes beyond that by itself, we probably don't need any bias in the borrowing component. Now, that's just going to be a matter of judgment in this early period. Peter is looking quizzical and wondering how he can make all these judgments every day. And he might miss. Inherent in this operating procedure is the possibility that the rate might be much higher or lower.",298
-fomc-corpus,1979,"The borrowing is a starting point, I think.",10
-fomc-corpus,1979,"We would be biased toward a slightly higher level of borrowing unless we found the funds rate going to 14, 15 percent. If that appeared to be happening, we just wouldn't bias it at that point. That should be consistent with all these relationships, though it would never work out in practice on a weekly basis. Doing nothing else should bring the federal funds rate to around 13 percent, but who knows what will happen in this jumpy market.",91
-fomc-corpus,1979,"M r . Chairman, if I may [ask a question]. I assume that means, in giving Peter some estimate of the nonborrowed [reserve objective], he might start with a level of borrowing that is somewhat higher than the $1.1 to $1.3 billion it has been running on average in the past 3 or 4 weeks. So initially in constructing the path for nonborrowed reserves that seems consistent with the money growth path the Committee sets, we would reduce the total by having a level of borrowing that is somewhat higher [than it has been recently].",117
-fomc-corpus,1979,"I think that would be the initial assumption. But if the funds rate goes up well beyond the 13 percent area, and if we still had time in the week, I think you would reverse the bias.",42
-fomc-corpus,1979,"Just to pin it down, are you thinking of $1.5 billion?",16
-fomc-corpus,1979,"Well, in a way I'm a little puzzled because our knowledge of the relationships comes through a whole span of rates. As we get to very high rates, it may be that banks' willingness to borrow becomes stronger. If their willingness to borrow is about the way it has been, I would be thinking about $1.5 billion. But the banks may become more willing to borrow and we may have to think of a higher level of borrowing for the same federal funds rate.",95
-fomc-corpus,1979,"Don't forget, there is estimating in this procedure. We don't know from day to day what the level of borrowing is going to be for the week, particularly when there's so much of it on the last day. So what we are looking at is some guess of what the borrowing is going to be for the week. Peter might be sitting there without all that much borrowing initially in the week with the federal funds rate very high but his projection could show that there are going to be huge excess reserves accumulated by Wednesday and that the federal funds rate should come way down on Wednesday. What I'm saying is that if he's in that situation, even though we don't have much reported borrowing at that stage, if the fed funds rate is way high in the range we don't bias it so much.",155
-fomc-corpus,1979,"My guess, for what it's worth at this point, is that pushing borrowing to a billion and a half dollars might tend to push the funds rate higher, but that's just my feeling.",37
-fomc-corpus,1979,Higher than 13 percent?,6
-fomc-corpus,1979,"There is a possibility it might go the other way, though.",13
-fomc-corpus,1979,"Yes, it might go the other way, in which case we would retain the bias. None of this is going to be cleared up until the end of the statement week; that's the nature of it. I think you ought to have a better estimate than usual of what the borrowings will be this week because you know what the total reserves are going to be, given that they are based on deposits two weeks earlier. But you still [don't know] the distribution of reserves in the banking system or what excess reserves are going to be.",108
-fomc-corpus,1979,"Well, we know what the borrowings are going to be. We can tell that. It's a question of what rates are going to fall out of those borrowings.",34
-fomc-corpus,1979,"Well, you can't even tell what the borrowings are going to be because you don't know what excess reserves are going to be.",26
-fomc-corpus,1979,That's right; we know what free reserves are going to be.,13
-fomc-corpus,1979,"Another tricky little thing, if we are going to start something [different] as of right now, is that we are within a statement week. The statement week has just two days left as well as a partial holiday, which is usually associated with lousing up the estimates. So there may not be very much of--",64
-fomc-corpus,1979,"Oh, I don't know what we do in these two days.",13
-fomc-corpus,1979,Play it by ear.,5
-fomc-corpus,1979,"Play it by ear the first two days. And one of those two days is a Wednesday, so--",21
-fomc-corpus,1979,Would you expect to get action from us and our boards of directors on Monday?,16
-fomc-corpus,1979,"Well, we have a request for a [discount rate] increase of 1 percentage point, so the Board can act. And I still don't know whether we are going to be making this announcement this afternoon or not. If we are, I don't know what you can do [about contacting your directors] on Saturday, anyway. If we are not going to announce until Monday, I still don't know what you can do because I don't know whether we want to--",93
-fomc-corpus,1979,"We can get them on Sunday M F t . MAYO. We could probably get some of them, but with it being a long weekend in Chicago--",31
-fomc-corpus,1979,It's not a good idea if you are going to wait until Monday.,14
-fomc-corpus,1979,Since you've already got the [request on the discount] rate.,13
-fomc-corpus,1979,"Mr. Chairman, may I make a strong plea that you allow the rest of us to get in on this [discount rate action]? Some of our directors in San Francisco were [pushing] strongly for [an increase such as1 this in our last telephone meeting a week ago. I asked them to hold off until we could--1 did not say it in these words but it's what I really had in mind--get a coordinated package. Is there any reason that you see as compelling to announce it Monday morning rather than in just a few hours? We can get our directors together on Monday morning and I think it would look better if all the Reserve Banks did [the discount rate increase] at the same time.",144
-fomc-corpus,1979,The foreign exchange markets are open. M F t . MORRIS. We can't wait.,18
-fomc-corpus,1979,Let's come back to that at the end; let's finish this meeting. Is that broadly agreeable as an alternative package?,23
-fomc-corpus,1979,"Paul, I missed the aggregates figures that you proposed. Are they the same as you had before?",20
-fomc-corpus,1979,"The aggregates are the ones on the right-hand side of page 3 , recognizing that we'd rather miss on the low side than the high side.",29
-fomc-corpus,1979,A little on the low side.,7
-fomc-corpus,1979,"No, I don't agree with you.",8
-fomc-corpus,1979,"The alternative, it seems to me--though we could fiddle around with the percentages--would be basically the same. We'd do the same reserve requirement change. We'd do the same with the discount rate. And then we'd move the federal funds rate basically to 13 percent, and put a 12-1/2 to 13-1/2 percent range on it, say. We could operate a bit more flexibly than we have before to the extent that that's possible, borrowing a little from what we're talking about in the new technique. But we'd have a much tighter constraint [on the funds rate1 relative to what we just talked about on the new technique.",134
-fomc-corpus,1979,Reserve requirements?,3
-fomc-corpus,1979,"Yes, the reserve requirement [change would be the same]. I think that's essentially it. I don't think I left anything out here [relating to the provision of] reserves.",36
-fomc-corpus,1979,Targets?,2
-fomc-corpus,1979,"I think the same. We've got to have a money supply target, which I presume would be the same. However, any of those [targets] could be altered. MR. ALTMA"". Are they the same as under the existing directive?",49
-fomc-corpus,1979,"No, the same as in package number 1. So it's a longer time horizon [for the money supply target] than we would ordinarily have. And if that objective is stated another way, it would have to be interpreted that if [money growth] were running ahead of this track, we would use the upper part of the 12-1/2 to 13-/12 percent range we are talking about. And if it's running below, we'd use the lower part of the range. I say again that I think the difference largely comes down to the constraint we are putting on the fed funds rate. That course of action would be very much preferred by our friends elsewhere in the city, in terms of the general framework. I don't think it makes a lot of difference, actually, as we modified the other approach. I don't want to make a federal case out of this, but it's nevertheless true. I've just tried to state here what I think is more or less the equivalent in immediate market impact. I suppose you could say that we should be a little tougher in the conventional package to [equalize] the psychological effects that we'd get from the talk about the reserve target.",237
-fomc-corpus,1979,I think that's clearly true.,6
-fomc-corpus,1979,"Remember that one of the dangers of the approach we have been talking about is that we may miss the target anyway, and we are a little less vulnerable to that with the conventional approach. The problem wouldn't disappear if we missed the targets either way. But without going through the rigmarole of a new dedication to [achieving] them we are a little less vulnerable. Maybe I ought to put that federal funds rate that I talked about a little higher to make the [two alternatives] fully equivalent, say, 1/2 point or 1/4 point higher. We could talk about that. These are basically the two propositions we have before us. What I want to know is if there is a strong preference--it doesn't have to be unanimous--for one of them. Let's first take our famous preference [poll]. Let me say the second one would be a little tighter on the federal funds rate than I suggested earlier--[by moving it] at least to 13 percent or a little over 13 percent to make the psychological impact equivalent. How many would prefer the traditional approach? This is a matter of preference.",227
-fomc-corpus,1979,Voting members or all of us?,7
-fomc-corpus,1979,"Well, we will take everyone now. Raise your hand if you prefer the present method. Does everybody else prefer the other or--?",27
-fomc-corpus,1979,"HOW many was it? MR. ALTMA"". Three or four--I'm not sure",17
-fomc-corpus,1979,"Hold up your hands a little higher, even if you don't feel strongly.",15
-fomc-corpus,1979,These are those who feel we should continue as with everything we said this morning?,16
-fomc-corpus,1979,"It's just continue the regular procedure. MR. ALTMA"". It's five.",15
-fomc-corpus,1979,"All right. HOW many would prefer the other alternative? Is that everybody else? MR. ALTMA"". Twelve.",23
-fomc-corpus,1979,There is quite clearly a great majority who want the new technique. Now let me ask the question slightly differently. How many feel strongly about this? I doubt that anybody thinks it's a matter of life or death but I just want to see how strong the sentiment is.,53
-fomc-corpus,1979,I think it's big.,5
-fomc-corpus,1979,"Who has a strong preference for moving in the new direction? MR. ALTMA"". 1,2,3,4,5,6,7,8.",34
-fomc-corpus,1979,"You're in that camp, Nancy?",7
-fomc-corpus,1979,I feel queasy about it.,7
-fomc-corpus,1979,"Well, some preference.",5
-fomc-corpus,1979,"Your feeling is semi-strong, Nancy.",9
-fomc-corpus,1979,"Now, let's look at the voting members Who has a strong preference? MR. ALTMA"". Seven, again not counting you.",26
-fomc-corpus,1979,"Did you count Nancy in or out? MR. ALTMA"". No. I didn't count Nancy.",20
-fomc-corpus,1979,"I'm in. MR. ALTMA"". Eight.",10
-fomc-corpus,1979,Out of 11,4
-fomc-corpus,1979,"Well, I guess that's strong enough that we ought to go with it.",15
-fomc-corpus,1979,I don't know how much difference it will really come down to. I think we have a better intellectual agreement.,22
-fomc-corpus,1979,"I will just give you my interpretation of a non-mechanical [application], as I put it from the beginning, of the new technique. The difference isn't all that dramatic. There will be more emphasis on [the new technique] in the press announcement because it will be, in effect, a warning that the federal funds rate is going to be permitted to fluctuate over a wider range. Of course, we can say that in either announcement, but it will be said a little more strongly [with the announcement of the new operating method].",107
-fomc-corpus,1979,I think we are going to get a bigger psychological impact than you think we're going to get.,19
-fomc-corpus,1979,"I do, too",4
-fomc-corpus,1979,"Paul, one of the problems with the alternative is that we either adopt a wide range or start with a funds rate that's already above where it is now. In other words, if it's at a little less than 12 percent now, and we put our range at 12-1/2 to 14 percent or whatever you suggested, that raises another difficulty. Maybe it's mechanical. But from a realistic standpoint we almost have to widen the range on the alternative.",93
-fomc-corpus,1979,"Oh, I said we would have to widen the ranges on the alternative [technique].",18
-fomc-corpus,1979,"Almost to the full 4 points, if we are going to sell it.",16
-fomc-corpus,1979,"Let me, for my [information], put it the other way. I just want to get a sense of this. Suppose we used the conventional approach; the range might be stated formally as 1 percentage point in width. But suppose I also said that in practice right now, as we usually say, we are going to aim for 13-1/4 percent and we are not going to move that from day to day or week to week unless there's a strong indication from the aggregates. I mean literally it's what we do now. How many people would find that acceptable or would prefer that? Maybe nobody, but I just want to get a feel of that.",134
-fomc-corpus,1979,You mean announce that rate?,6
-fomc-corpus,1979,"No, do it just the way we do now. The market would be looking at Peter's actions over the next 3 days to find out that he was intervening at 13-3/8 percent on the up side and 13 percent on the down side.",55
-fomc-corpus,1979,Ugh! We lose any--1 hate to use the word--drama.,17
-fomc-corpus,1979,That's interesting. Is everybody saying that they don't like that?,12
-fomc-corpus,1979,I still think it's the safer thing to do.,10
-fomc-corpus,1979,"I don't, Henry, because all we'd be doing is tightening with no possibilities of [the rate] coming down again.",24
-fomc-corpus,1979,"It would look as if we are just chug, chugging, more [of the same]. It lacks the announcement effect of the other approach.",31
-fomc-corpus,1979,You get your announcement effect out of the reserve requirement [change].,13
-fomc-corpus,1979,"We have a tentative directive written, which is quite general as you can imagine. [That is being distributed to you now.] We can vote on the directive.",32
-fomc-corpus,1979,Is this just in favor of the approach or does it have the specifications tied to--,17
-fomc-corpus,1979,"Specifications, too.",4
-fomc-corpus,1979,"Well, I'm not going to dissent against what the Board and Federal Open Market Committee think they ought to do if the majority is clearly in favor of package 1. I must admit that I think the M1 target is too high.",47
-fomc-corpus,1979,"I concur, Mr. Chairman. I certainly would like to see it shaved down a bit because I think it is very important that we come within the ranges. And remember, we just announced 1-1/2 to 4-1/2 percent as the target on Ml and we are going to have to tell people that it's really 3 to 6 percent.",76
-fomc-corpus,1979,The announcement will say that,5
-fomc-corpus,1979,I share that view. I would like 4 percent rather than 4.5 percent.,19
-fomc-corpus,1979,"I would, too.",5
-fomc-corpus,1979,"I would, too.",5
-fomc-corpus,1979,I wouldn't.,3
-fomc-corpus,1979,"Well, why don't we take a vote on the 4 against the 4-1/2?",21
-fomc-corpus,1979,"Well, I'd be reluctant to fine-tune too much here. That is why I suggest 4-1/2 percent, recognizing that if market developments permit and if there are opportunities to get [Ml growth] somewhat below that without pressing the limits of our funds ranges, we ought to take them.",61
-fomc-corpus,1979,"Mr. Chairman, I could save the Committee some trouble in reading [this draft directive] by pointing out that page 1 is a repeat of the existing long-run target [directive language]. Page 2 is the new operational paragraph that is proposed.",50
-fomc-corpus,1979,"Mr. Chairman, would it be too much of a straddle to say that we were going to aim for a 4 to 4-1/2 percent range [for Ml] for September-December?",43
-fomc-corpus,1979,"Let me just suggest this. Why don't we put in the directive at this point that we now estimate the ATS and NOW account effect at about 1-112 percent, which would make the equivalent range for M1 3 to 6 percent. I'm going to have to say that in the press conference, anyway.",64
-fomc-corpus,1979,"Well, my point isn't just to straddle more, but to cite an intention within a half point range. It seems to me that we've been range conscious on all of our aggregates so there's no harm in saying we are aiming in a range of 4 to 4-112 percent for September to December.",62
-fomc-corpus,1979,"We could do that. Whatever way, this is not specifically in the directive is it?",18
-fomc-corpus,1979,No,1
-fomc-corpus,1979,It will be in the minutes. CHAI- VOLCKER. It will be in the minutes.,20
-fomc-corpus,1979,"You mean the statement of policy actions? MR. ALTMA"". The policy record.",17
-fomc-corpus,1979,Policy record.,3
-fomc-corpus,1979,"That's the release that comes out about a month [after the meeting]? MR. ALTMA"". That's right.",22
-fomc-corpus,1979,"I hate to keep asking, but is the funds range 11-112 to 15-1/2 percent, as Nancy suggested?",28
-fomc-corpus,1979,"It's 11-1/2 to 15-1/2 as Nancy suggested, with a clear warning to you that you may get a call for a consultation if the rate gets up there.",40
-fomc-corpus,1979,"The way she stated it was that a consultation clearly would be called at 34-112 percent, wasn't it?",23
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,I just wanted to point out that this last paragraph I think has a little range implied for Ml--and for the other aggregates--and the range is centered around 4-1/2.,39
-fomc-corpus,1979,"Why? Oh, because of the ""around"" 4-1/2?",17
-fomc-corpus,1979,"Well, if we are going to center a range, then I certainly would rather center it around 4 rather than 4-112 percent.",29
-fomc-corpus,1979,"But this is the exact statement of what Paul suggested. It seems to me that at the press conference what he'd be saying is that we are determined to hold these aggregates within the targets previously announced. My point simply is that if we happen to come out at 5 percent for September-December we wouldn't be outside the target range. I think 4-1/2 percent does imply a [bit of a] range. Now for safety, we'd rather be on the lower side of 4-1/2 percent.",105
-fomc-corpus,1979,"There isn't any safety on M2, Chuck.",10
-fomc-corpus,1979,"Again, it seems to me that you can trade that M2 off against M3.",18
-fomc-corpus,1979,It may well come in less than that anyway with disintermediation.,15
-fomc-corpus,1979,I think we are dancing on a pin a little bit here.,13
-fomc-corpus,1979,"Yes, I accept Chuck's point. I think it's well taken.",14
-fomc-corpus,1979,Yes. We're going to have an awfully hard time--,12
-fomc-corpus,1979,We are going to be awfully delighted if we come in any place within these ranges.,18
-fomc-corpus,1979,"Mr. Chairman, is this communication, this [directive], going to be kept within this group as far as publicity--?",25
-fomc-corpus,1979,Except for the press conference,5
-fomc-corpus,1979,There are aspects that I think could cause some trouble with the analysis. I'm talking about the wire and the [decision].,24
-fomc-corpus,1979,"By all means, that is kept strictly confidential. M E . KIMBREL. Mr. Chairman, we seem to be getting close together and I sure would hate to have my friend Mr. Roos cast my vote [as my alternate] but I have to leave and I just want to vote.",62
-fomc-corpus,1979,"I think we are ready to vote. We are voting specifically on this directive. Those blanks are to be filled in with 11-1/2 to 15-1/2 and I think we write in the sentence there about consultation when the funds rate is ""in the upper part of the range"" or something vague like ""toward the top. *'",74
-fomc-corpus,1979,Toward the top.,5
-fomc-corpus,1979,"Toward the top. And I think what we mean by that is something like 14-1/2 percent. We are talking about 4-1/2 percent ""permitted,"" if you will. Obvious we'd rather have less, if things develop so that we can do it without putting untoward pressure on market rates. And what we are saying clearly is that if this money demand function collapses we'd be delighted to come in below 4-1/2 percent. It is not going to collapse before we meet again.",110
-fomc-corpus,1979,For security reasons you'd prefer not to get the other Reserve Banks in on the discount rate?,18
-fomc-corpus,1979,"Well, let's just get this vote over with. I believe you understand this slight bias in the way we play that. We are thinking of a federal funds rate ideally in the 13 percent plus range, initially. That would be a highly satisfactory response, but we don't have any close control over it--it could be more or less--and that would affect our biasing decisions. I think we are ready for a vote.",86
-fomc-corpus,1979,All right. Chairman Volcker Yes President Balles Yes President Black Yes Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes First Vice President Timlen Yes Governor Wallich Yes,50
-fomc-corpus,1979,"Well, I very much appreciate this discussion. I think it was important. We do have a press release prepared by Joe Coyne. I would like to insert in the press release--and I just want to ask your advice on it--that the Committee voted unanimously on this.",56
-fomc-corpus,1979,I think you should.,5
-fomc-corpus,1979,The meeting will come to order. We need approval of the minutes for [the previous] two meetings. If anyone would like to so move--,29
-fomc-corpus,1979,So moved.,3
-fomc-corpus,1979,"Without objection, we shall approve the minutes of the two meetings. M r . Pardee.",19
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Scott, you said that the only thing the foreigners thought we had going for us was our monetary policy. Do you mean in the short run? Do they not see the improvement in the balance of payments that has been projected by the staff?",48
-fomc-corpus,1979,They see the projections. They've seen the projections over the last few years--the forecast of an improvement on our trade and current accounts and improvement in our inflation picture. And they're still waiting to see when it will come.,44
-fomc-corpus,1979,"They don't believe it, in short.",8
-fomc-corpus,1979,"They believe it will come sooner or later, but they're not going to bet on it.",18
-fomc-corpus,1979,"Do you think they're looking beyond the present cycle toward a more distant future in evaluating the improvement in the current account, which is cyclical?",28
-fomc-corpus,1979,"Well, again, there's the oil price situation and the Iranian situation. Any forecast one would normally make would be positive for the dollar, but people are not willing to bet on that forecast given the uncertainties in the oil area and the Iranian situation.",49
-fomc-corpus,1979,Do you see any important central bank constraint in the use of the dollar for intervention purposes because of not wanting to do damage to the dollar?,28
-fomc-corpus,1979,"They've talked of it a little but I don't see [a lot of that]. The Swiss National Bank has been careful not to sell dollars this time around. Remember, back in August their selling of dollars was one of the elements that triggered the adverse market sentiment. They finally decided that the Swiss franc had gotten so weak that they would start selling dollars; the first time they showed themselves in the market then, the market moved away from them very quickly so they actually did not sell any dollars. But they're being much more cautious this time around than they were back in August in selling dollars.",118
-fomc-corpus,1979,Thank you.,3
-fomc-corpus,1979,"Scott, do you see any further rate changes on the horizon abroad?",14
-fomc-corpus,1979,"Interest rates? I would pray that I wouldn't but they face some of the same inflationary pressures we do. The oil price has continued to move up. Many of these countries buy their oil in the spot markets, and to the extent that spot prices have continued to rise this fall it's possible that they will have further inflation feeding into their economies. So--",71
-fomc-corpus,1979,"Well, I recognize the fundamentals argument. My question was really about the near term. Are you seeing or hearing any noises about changes?",27
-fomc-corpus,1979,"That's why I say I would pray that [the answer is no] for the time being since everybody has raised their interest rates--the Germans, the Japanese, the Swiss, the British, the Canadians, and I'm not sure how many more--since October 6 . The Greenbook has a list. I would hope that they're all done for the time being--for the rest of this year. But the fundamentals are still a problem.",88
-fomc-corpus,1979,"Scott, how understanding would they be of a decline in interest rates here? If the economy weakens substantially, would they understand that?",27
-fomc-corpus,1979,"If '""they"" is the central bankers, they might understand it or explain it. What has happened so far--the backing off of the funds rates and some moving back of [other] interest rates from the peaks in mid-October--has been taken in stride probably both by the central bankers and the markets. But there is some sort of trigger point where people will begin to wonder whether we have lost our resolve. I don't think that has happened up to this point.",95
-fomc-corpus,1979,Suppose that is accompanied by a clear control over the aggregates. Would they have pretty much the same reaction?,22
-fomc-corpus,1979,"Not everybody has the same perception of what our control over the aggregates is. It's the reading of the economy and the economy is softening. Surely if we could get better control of the aggregates as well, some people would say that's fine, the Federal Reserve is doing its job. AS long as inflation remains very high there are still the real interest rate arguments. Most Europeans believe that interest rates have to be positive in real terms in order for monetary policy to have an effect; and many people in the exchange market believe that.",105
-fomc-corpus,1979,"Could I just say a word on this? At the last Economic Policy Committee meeting at the OECD, from which Charlie Schultz and I have just returned, the United States made a long presentation [on U.S. economic and financial developments], including our domestic monetary policy. Charlie and I got just three questions on this. The only subject of these three question was this: What is going to happen when the aggregates and the economy slow? Are you going to let interest rates go down? We, of course, gave the standard answer: that when inflation comes down, the money supply slows and the economy slows and then it will be appropriate for interest rates to come down. I don't know what the reactions were; there wasn't any come-back on that.",149
-fomc-corpus,1979,It sounds as if they accepted that as a reasonable outcome.,12
-fomc-corpus,1979,"They're not stupid. I think they have to accept it as reasonable, but they also figure that it means there will be dollar weakness.",27
-fomc-corpus,1979,They're hoping the aggregates will slow and interest rates will remain high--both.,15
-fomc-corpus,1979,I think inflation coming down will be the most convincing single thing but unfortunately we're locked into a CPI that has certain lagged features from mortgage rates and from energy. So one can't promise anything.,38
-fomc-corpus,1979,"Do you have any recommendations with respect to operations, Mr. Pardee?",15
-fomc-corpus,1979,"I have two, one with respect to current operations and one with respect to the swap arrangements themselves. Between now and December 28 we have eleven swap drawings for 1 billion 654 million dollars coming due with the Bundesbank. These are all first renewals and need no formal action by the Committee. A second renewal--and this is the first one in all of these operations we've taken since last June--for 88 million dollars equivalent will be coming up in that time span. I will need Committee approval for that now so I can renew it should we not have the opportunity to repay it by that time. That is my first recommendation.",129
-fomc-corpus,1979,Any comments?,3
-fomc-corpus,1979,It's 88 million dollars with whom?,8
-fomc-corpus,1979,The Bundesbank.,4
-fomc-corpus,1979,All these are with the Bundesbank?,8
-fomc-corpus,1979,"Oh, yes. Those are the only swaps we have outstanding.",13
-fomc-corpus,1979,SO moved.,3
-fomc-corpus,1979,"Scott, you [requested Committee approval of a renewal] in the event you do not have an opportunity to repay it. Are you optimistic on that?",30
-fomc-corpus,1979,"Well, during the last month the Bundesbank has been very helpful in channeling marks to us from their non-market transactions. That's how we have been able to repay the 300 odd million dollars worth of swaps. If the Iranian situation quiets down and we can resume these kinds of operations, the 88 million dollars is at the head o E the list to be repaid. We try to repay the longest maturity first, so I would hope by that time we will have repaid it. But [if not], this would be a second renewal and that is always one that requires Committee action.",121
-fomc-corpus,1979,I second.,3
-fomc-corpus,1979,"I share Scott's view on the present situation as to how we should proceed. I continue to think that if things quiet down and we get halfway stable markets, we ought to make it a routine to buy a few tens of millions a week or a few million a day, letting the market see that these are routine transactions in order to repay [swap drawings]. So we get [marks] on that basis without always frightening the market when we move in--having the market think that we're trying to cap the rate at that level. But I would agree with Scott that until the Iranian situation settles down, this isn't the time to start such a policy.",130
-fomc-corpus,1979,"Without objection, we shall approve it. Now you have another recommendation?",14
-fomc-corpus,1979,"Yes. Between now and December 28 all of the swap arrangements themselves mature. We have arrangements with 14 central banks and the BIS and I simply recommend that I be authorized to renew them all as they stand. As you recall, last year we entered into extensive discussions with the Bundesbank over eliminating the 50-50 even sharing of risk clause on our drawings. [That was to be done] in exchange for shifting to the use of their interest rates rather than ours on the investment oE the dollars that arise out of our drawings. There is still much to be said for the change and we found at that time that the U.S. Treasury agrees in principle, but the Treasury is still reluctant to make the change, particularly now given that we are heavily in debt to the Bundesbank once again. Up to this point the Germans have not pressed the issue this time around. I would hope we can wait for a more opportune time. So I'd rather renew the swaps strictly as they are without any change and review the 50-50 problem at a more opportune time. That is my recommendation.",225
-fomc-corpus,1979,"Any discussion? If not, we need a motion. I guess we need a motion before the discussion.",21
-fomc-corpus,1979,So move.,3
-fomc-corpus,1979,Second.,2
-fomc-corpus,1979,"Any objections? If not, we will approve it. Having approved recommendations for the future, we better ratify the transactions for the past. Do I have a motion to that effect? SPEAKER ( ? ) . So move.",46
-fomc-corpus,1979,"If there are no objections, we shall approve them. I'd like to say that the question has arisen as to whether the Japanese--the yen has been weak, as you know--may want to draw on their swap [line with us]. We have given them a preliminary indication that in a moderate amount of, say, $ 3 0 0 million that would be all right. I don't know if they will draw or not because the yen has strengthened a bit; I don't know whether there's been any subsequent strengthening. It's the other side of the Iranian situation; I suppose that's the reason it has strengthened. So I don't know what sense of urgency there is now. Do you?",138
-fomc-corpus,1979,"Well, they've seen some turn in their capital accounts. They're hoping that their trade account will turn later this year, just as a sort of very short-term bridge. They are still discussing other measures they might take if they need to on various capital controls. And they thanked us very much; they are grateful that we have agreed in principle on the swap drawing and they will be back to us if they need it. They don't need the money; it's just the question of having this gesture of cooperation from the United States authority at a moment of a little bit of isolation for them. Theirs is the only currency other than the dollar that has been heavily sold in this experience.",135
-fomc-corpus,1979,"They have something like in reserves as I recall, so they're not exactly out of money.",18
-fomc-corpus,1979,"Well, it has been offered; whether it will be used, I don't know. Mr. Sternlight.",22
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Peter, if those two [dealer firms] are deleted, you'll have a net number of trading firms then of--?",24
-fomc-corpus,1979,I think that would make it 34 or 35 or something close to that.,17
-fomc-corpus,1979,You do business with 35?,7
-fomc-corpus,1979,Yes,1
-fomc-corpus,1979,With everyone on the list you have some activity?,10
-fomc-corpus,1979,"Well, there are a couple of firms that have been added to the reporting list with whom we do not yet trade. One that was added several years ago but hasn't quite brought itself to sufficient volume for us to trade with is the Crocker Bank. Also, Smith Barney was added to the reporting list just a few months ago and it is getting very close to the point of having a trading relationship.",80
-fomc-corpus,1979,What is the split between banks and nonbanks?,10
-fomc-corpus,1979,About 1/3 of them are banks.,10
-fomc-corpus,1979,Any other discussion? Is there a motion to approve the transactions?,13
-fomc-corpus,1979,So moved.,3
-fomc-corpus,1979,Second.,2
-fomc-corpus,1979,"Without objection, they are approved. We have M r . Truman and Mr. Kichline on the economic situation today--the [extended] horizons of the American economy. Mr. Truman.",39
-fomc-corpus,1979,[Statement--seeAppendix.],7
-fomc-corpus,1979,What are you assuming about the oil price decision in December?,12
-fomc-corpus,1979,We are assuming that some of it has already been taken and essentially that we're going to get a 20 percent increase in December.,26
-fomc-corpus,1979,You said a 23 percent increase or something from this December to next December.,16
-fomc-corpus,1979,"That's for oil imports. Our actual oil import prices are reflecting the higher spot prices that are now occurring and there will be a convergence--spot prices will come down. So we're getting in the oil import prices in this quarter, as we had even last quarter, essentially the anticipation of the oil price increase reflected in the spot market.",66
-fomc-corpus,1979,"Ted, the dollar amount then in tbis last quarter actually would average out to about what?",19
-fomc-corpus,1979,"This last quarter we have a $23/bsrrel assumption for the import price. But that's very much higher than the official posted prices, let me say, of the OPEC countries even with the increase that they've had, because of spot--",50
-fomc-corpus,1979,"What are you assuming, say, in February or March for import prices?",15
-fomc-corpus,1979,"Well, the price goes up at about a 10 percent annual rate after the first part of the year.",22
-fomc-corpus,1979,So you're not assuming much impact in December?,9
-fomc-corpus,1979,We're assuming 20 percent.,6
-fomc-corpus,1979,You said after the first part of the year it's about 10 percent. So you have a 20 percent [increase] and then a drifting up from that point.,34
-fomc-corpus,1979,"AS far as the OPEC contract prices, we have a 20 percent increase on the first of January and then 10 percent across the year. When you translate that into our import prices, that translates into a 23 percent increase fourth quarter over fourth quarter. That's because the spot market activity will be [reflecting] some of the OPEC price increase--in effect, the official contract prices--in this quarter as it did last quarter.",90
-fomc-corpus,1979,So you're looking at a price of about $30 a barrel.,13
-fomc-corpus,1979,About $28 a barrel; we have $28-1/4 in the fourth quarter of next year.,22
-fomc-corpus,1979,"Is your fourth quarter of 1979 price higher than you had before, too?",17
-fomc-corpus,1979,"Yes, by about 10 percent. Another way of characterizing it, although I decided not to put it into this little story, is that a couple months ago we essentially had assumed that the real price of oil was going to be unchanged in 1980. Now we are assuming, in effect, that the real price of oil will increase by 20 percent. So, for the fourth quarter of 1980 the price is now 20 percent higher than we had assumed. I'm not sure if that helps.",104
-fomc-corpus,1979,That certainly wipes out any monetary policy effect.,9
-fomc-corpus,1979,We will be fortunate if it is that small.,10
-fomc-corpus,1979,"Right, that's what he said.",7
-fomc-corpus,1979,"On the other hand, not to seek to achieve a monetary policy effect would just mean that that effect would be all the bigger.",26
-fomc-corpus,1979,It's a large increase.,5
-fomc-corpus,1979,Shall I continue?,5
-fomc-corpus,1979,Proceed.,2
-fomc-corpus,1979,[Statement continued.],4
-fomc-corpus,1979,Let me ask a question. You say the current account is essentially in a zero position this year. In the way we used to calculate the current account a couple years ago it would be what?,39
-fomc-corpus,1979,It would be minus about $15 billion.,9
-fomc-corpus,1979,It's a $15 billion difference.,7
-fomc-corpus,1979,"The improvement between the two years, rather than being $14 billion, is approximately $8 billion. So you still have the significant improvement in the level no matter which way you calculate it.",38
-fomc-corpus,1979,[Statement--see Appendix.],6
-fomc-corpus,1979,"Jim, suppose your presumption is incorrect--that both you and Ted have misgauged [the oil price outlookl--and the OPEC price goes up something like 40 percent.",38
-fomc-corpus,1979,"Well, in that case, we'd be talking about adding another quarter or half point to the deflator and I would think taking at least something comparable, if not more, out of the real side. And in the short run 1 think there is quite a rapid passthrough now of these costs. We'd get some lag effects obviously into 1980 and 1981, but we do get fairly immediately a rapid increase in prices.",88
-fomc-corpus,1979,"So if there were to be something like a 40 percent increase in the [oil] price level coming out of the December OPEC [meeting], you'd expect this to be hitting the first half of 1980?",44
-fomc-corpus,1979,"We'd expect a good chunk of it to hit in the first half, but [the effect] carries on. In the current forecast, which has an increase of roughly half that size, we have--",41
-fomc-corpus,1979,That's why I doubled it.,6
-fomc-corpus,1979,"We think our forecast is likely to entail something like a 3/4 percentage point increase in personal consumption prices. That is in addition to the other things going on in the energy area, of which there are many. If we were to assume roughly symmetrical effects, we'd double that, so it gets into the 1-1/2 percent area. So we would see fairly promptly--namely, in the first half--a substantial increase. That is a very bearish outlook and hopefully one that won't come to pass. Even if we have some supply side effects in terms of constraining consumption, it seems to me that you're talking about a poor outcome.",132
-fomc-corpus,1979,"Well, I'm a little confused. Are you saying a 40 percent increase in imported oil prices will bring a 1-1/2 percent increase in GNP prices?",35
-fomc-corpus,1979,"In 1980, right.",7
-fomc-corpus,1979,Over and above what he already has.,8
-fomc-corpus,1979,"No, that's the total effect.",7
-fomc-corpus,1979,It's 3/4 point for 20 percent.,11
-fomc-corpus,1979,3/4 point in addition.,7
-fomc-corpus,1979,What percentage of the GNP is oil now? m.KICHLINE. I don't know. The deflators in the energy sector in GNP are about 8 percent.,36
-fomc-corpus,1979,"Ted, am I right that you rather markedly changed your outlook for [growth in] foreign economies, mainly because of the higher oil prices?",28
-fomc-corpus,1979,"Yes. We have marked it down quite remarkably. We essentially have real growth over the next four quarters of 1-1/2 percent, which is slow growth. Only in one of the major countries do we have what we call a recession, or negative growth. But we have [economic activity in] all the major countries dropping down--essentially growing at half the rate over the next four quarters that they had over the previous four quarters. And the last four quarters have been affected to some extent by the oil prices in 1979. So we have a sluggish outlook abroad. And the improvement in the current account or the trade balance is very small in terms of volume. I don't think there is much increase in the volume of exports from here on in. But the fact is--if I may put it this way--that if our prices are going to go up 10 percent, that means we're going to get something like a 12 or 13 percent increase in the value of exports at a time when the value of our imports stagnates. That's where we get the improvement in the--",222
-fomc-corpus,1979,But you were counting on [the economies of] our trading partners growing at 3 to 4 percent next year and on that helping our balance of payments.,32
-fomc-corpus,1979,"Well, that was some time ago. A forecast of 3 percent was reasonable at the beginning of the year.",23
-fomc-corpus,1979,But now their [expected growth is] down almost to that danger point where they could tip into a recession.,22
-fomc-corpus,1979,It is at the point at which it may be somewhat arbitrary [whether we call it a small positive or small negative]. Sluggish growth is the way I'd say it. M S . TEETERS. So the possibility does exist that we could get a worldwide recession?,53
-fomc-corpus,1979,"Yes, and if you add in the United States with our forecasts--[unintelligible] others which are less pessimistic, let me put it that way--growth for the QECD area, including the United States, is about zero. It's minus 1-112 percent here and plus 1-1/2 percent there; and we're about half or 40 percent of the total, so it's essentially zero.",86
-fomc-corpus,1979,We've never managed to grow at 1 to 1-1/2 percent without sliding into a recession. Have the others?,26
-fomc-corpus,1979,"Well, in the rest of the world, other major industrial countries--with the exception of the oil crisis--have not had recessions in the postwar period. They've had growth recessions, but they've not had negative growth or recessions. S o there is really no comparable experience with the exception of the United Kingdom.",65
-fomc-corpus,1979,"You know, this discussion does not really reflect what went on.at the QECD meeting. The numbers are roughly the same but there was not a great sense of pessimism and not a sense of world recession. Rather there was a mild degree of feeling that it was good to have economies desynchronized instead of having the cycle moving synchronously everywhere.",69
-fomc-corpus,1979,"Henry, let me correct you on that. Our forecasts are lower than the OECD forecasts in large part because they essentially were dealing with our old oil price assumption of no increase in the real price of oil in 1980. So we have a very different outlook. Their forecast is close to 2 percent for the same G-10 countries, whereas ours is close to 1-112 percent.",80
-fomc-corpus,1979,"I know, but by the time this discussion took place the recent increases were known so that was reflected in the conversation.",24
-fomc-corpus,1979,"True, but I would comment that within the U.S. government, for example, people are only now in the process of focusing on the implications of the [outlook for] oil prices. And I think the same is true for most other countries' forecasts; they have not looked at their official forecasts since July. They're now looking at them and when they finish, I think they will end up with a much more bearish picture than they had a few weeks ago. That's somewhat of a hypothesis but I think that's what is happening. It's fair to say that that is the process that we went through over the last four weeks.",126
-fomc-corpus,1979,"Did I understand you to say that you are expecting essentially an equivalent move in the consumer price index for these countries, from a 9 percent rate of increase to 7 percent?",36
-fomc-corpus,1979,This quarter in round numbers it's 9-1/4 percent; a year from now it's 7-1/2 percent. It looks like their consumer price inflation rate peaked last quarter at 11 percent plus. [We expect] some moderation. And they don't have the assistance of housing costs and things like that on their consumer price index.,70
-fomc-corpus,1979,You've taken into account the higher oil price increase in doing that?,13
-fomc-corpus,1979,"We tried to, let's put it that way. The forecasts are all supposed to be consistent.",19
-fomc-corpus,1979,"1 still don't understand this oil price business. If the weight is 8 percent and you get a 40 percent [price] increase, that's more than 3 percent of GNP. Why doesn't it have a 3 percent impact on GNP?",51
-fomc-corpus,1979,"What I was quoting was energy prices. We forecast the energy price deflator, which aside from imported oil includes domestic oil, coal, and natural gas prices. When you put that all together, you find that domestic prices would tend to be rising more rapidly as time goes on because of the decontrol. But next year, unless a change is made, it seems that the Alaskan oil will bump against the ceiling. So Alaskan oil will be constrained in its upward price movement. Natural gas supplies are abundant right now. Pricing there is permitted to go higher with increasing inflation, but in fact the market for natural gas is fairly weak and natural gas is readily available, so we have held down the price increases in that area. And the coal market is very weak. S o , I don't know right off the top of my head how to translate imported oil into the PCE deflator context. Do you Jerry? We can provide a memo to the Committee, if you like, on the energy sector and its price implications. That might help.",210
-fomc-corpus,1979,"Imported oil is about 3 percent of GNP. Imported oil is half of our total oil [consumption], isn't it?",26
-fomc-corpus,1979,"Yes. But the point is, as Jim explained, some prices move with imported oil and some prices move partially with imported oil, and one has to add all those things up.",36
-fomc-corpus,1979,You still haven't included any indirect effects?,8
-fomc-corpus,1979,That's right. And in our forecasting exercise they carry well into 1981.,16
-fomc-corpus,1979,"With respect to Governor Coldwell's question, in your additive process you haven't really included any dynamics in the business effects. That is, there must be a point at which another 3/4 percentage point decline in real consumption would have a material impact on inventories and capital spending that would run through the economy in an accelerated way.",66
-fomc-corpus,1979,"That's right. The 3/4 point effect, for example, this year did not carry through fully to our price forecast. It's roughly 1/2 percent. So we have weaker activity as a result of higher world oil prices and in fact we assume that's going to have an impact in other areas in the domestic economy.",66
-fomc-corpus,1979,Now I'm confused--not that I wasn't before. I thought that when you calculated the U.S. deflator the price of imported goods [always] came in with a negative sign.,37
-fomc-corpus,1979,It does.,3
-fomc-corpus,1979,"That means that if the price of imported oil is going up relatively fast, that can have a strong impact on the CPI but it's not at all clear that it will have a direct impact on the deflator.",42
-fomc-corpus,1979,"I was referring to the personal consumption expenditure deflator. It gets measured there directly and subtracted out when we look at the difference in export and import prices. So the deflator will always understate the effect--the price impact--on consumers of rapid increases in foreign prices. When we look at the personal consumption area or the CPI, as you mentioned, we're going to get the full effect.",80
-fomc-corpus,1979,"My own feelings are perhaps more pessimistic for '80 than yours, for different reasons. I wonder in terms of our current analysis how much allowance we should make for the shock effect aspect [of developments in the energy areal. For example, when we had our [earlier] energy shock, it wasn't really the price but the [concern about] availability that caused people to back off. It then picked up substantially. [I wonder] how much shock effect we'll be getting in behavior for the moment and to what extent that may [erode] because availability is really not affected though price certainly has been in the real sense of the term. So perhaps some of the momentum we've seen will pick up again. we have the seasonal [issue] of Christmas and then [the question o f ] how much change in attitudes might be expected out of that kind of [energy price] development. On the other side, we know that the shock effect [from] October 6 caused construction--in terms of new starts--to turn off completely. That doesn't show up for three months in terms of the set up. In contrast to that, of course, is the fact that leasing is just going crazy now because of projected shortages: I wonder how much of that will be reversed if availability is not [a problem]. So availability versus price and its impact may give us a different path than we would get from a normal cyclical type of analysis.",291
-fomc-corpus,1979,"With the rising price of energy--and I'm thinking now primarily of electric energy--and a presumed move by industry to use it more efficiently, is there a possibility that that will give us a lower industrial production index than we might overwise have had?",50
-fomc-corpus,1979,"We've tried to account for that as best we can. As you well know, a number of years ago we had a fine idea to use for part of the IP index electric power usage as a proxy for output. That was pre-1973. And we've felt very nervous about that ever since 1973, quite frankly. Some of the past data that have come in--this was several years ago now--on output measures from the Census Bureau have given us some hints that perhaps we weren't off that far in the past. We've done some informal checking and we've made downward adjustments, but it's clearly a very hazardous area. We could well be understating output from that side rather than overstating it.",141
-fomc-corpus,1979,But you're not continuing to use whatever factors were developed?,11
-fomc-corpus,1979,"No, we have made adjustments since about ' 1 2 . I guess, when--",19
-fomc-corpus,1979,YOU still use electric power. But you have a trend factor that's more--,15
-fomc-corpus,1979,"Yes, it's about--",5
-fomc-corpus,1979,In a sense the productivity factors have been changed.,10
-fomc-corpus,1979,"And then of course you still have output [data]. You still have manhours, too, and you can look at the manhours .",28
-fomc-corpus,1979,That's right. And we have physical product data with a lag that accounts ultimately for about half the series.,21
-fomc-corpus,1979,"Jim, you had a model that tracked inventories that ran off industrial production data, which you reactivated again. Is that tracking the GNP data still? Do the inventory numbers in the GNP account look to be correct?",45
-fomc-corpus,1979,They do not look out of line.,8
-fomc-corpus,1979,"Jim, as I look over your forecast, you have some fairly heavy negatives on gross private domestic investment in the fourth quarter [and] the first quarter of next year. But in terms of the GNP, I assume that your decline in personal consumption expenditures made the tail wag the dog here. Is that a good assumption?",65
-fomc-corpus,1979,"Well, I think they're both important. On the investment side, the big mover in the short run for some time has been residential construction investment; business fixed investment is important as well. For 1980 as I remember we have a decline in business investment measured from the fourth quarter of about 3 percent. And durable personal consumption expenditures are down around 4-1/2 percent. So we have placed a major emphasis on the behavior of personal consumption expenditures, principally the durables component. I think it's a fair judgment, but I would weight both of them quite high in terms of influencing the [economy's] performance in this forecast.",129
-fomc-corpus,1979,"Y o u have government purchases going up and I don't have the [unintelligible] proportions here to balance off but it looked to me as if you might have an offset here between government purchases and gross private [investment], leaving consumption as the swing package.",53
-fomc-corpus,1979,"In dollar terms, certainly the goods portion of consumption is about twice the size of the investment sector.",20
-fomc-corpus,1979,What are the possibilities that the consumer is going to confound you still in this fourth quarter and push off the decline until the first quarter of next year?,31
-fomc-corpus,1979,I would not be willing to risk any of my own money on consumer behavior. I think it's possible. Our view has been that the arguments against that strengthen as each month goes by and as consumers have been using financial assets or debt or reducing savings to finance their purchases. But who knows? It's quite conceivable that [consumer spending] will be strong.,70
-fomc-corpus,1979,My recollection is that the consumer surveys have been showing a little more strength lately.,17
-fomc-corpus,1979,That's true.,3
-fomc-corpus,1979,"You really have to get a pretty big decline in consumption in November and December to make this come out right, don't you?",25
-fomc-corpus,1979,"NO, I think our forecast is that if we get zero to a 1/4 percent increase in retail sales in November and December, we will hit this number.",34
-fomc-corpus,1979,If you get what? What was the number?,10
-fomc-corpus,1979,A quarter of a percent increase in total retail sales excluding autos. We have a separate auto forecast. That's nominal.,23
-fomc-corpus,1979,In nominal terms.,4
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,Your October figure is preliminary?,6
-fomc-corpus,1979,"Oh, yes. It's the advance; it's not even the preliminary report.",15
-fomc-corpus,1979,"The ""flash"" or whatever you want to call it.",12
-fomc-corpus,1979,"And it could go the other way, too, couldn't it?",13
-fomc-corpus,1979,It could go the other way.,7
-fomc-corpus,1979,"I think we could have a very poor Christmas season, which would start out the new year with an inventory clean-up job and that kind of thing.",30
-fomc-corpus,1979,"I don't want to be a Pollyanna, but do you have any sense at all of when we will begin to get some very substantial substitution in the energy area? Clearly, we're getting to the point in energy prices where a lot of secondary and tertiary recoveries get to be very attractive. You point out that the natural gas substitution can go on both in homes and industrial use. Coal, as you say, is very weak. Yet there are a lot of energy plants that can be reconverted to coal. At what point does any of this really start to occur with a vengeance? Do you have any feel for that at all?",127
-fomc-corpus,1979,"No, I don't. We have been getting scattered reports suggesting that some utilities have been switching back. Those that converted under pressure or for price reasons have been switching back and trying to return to the use of natural gas. But there are constraints in these areas. I guess our view is that we don't know enough about the nature of that market to make a reasonable assessment. It's very clear, given price and availability, that the incentives today are there to switch. But we don't have a good feeling for the technical problems involved in this area.",108
-fomc-corpus,1979,"Just two things, Mr. Chairman. I wanted to make a comment very much along the lines of the question asked by Phil Coldwell. The national and international companies headquartered in our region who deal not only in the manufacturing area but in the retail area report exceptionally strong orders and backlogs. They're surprised; they can't believe it. So it may well be that the fourth quarter is buying a little from the first half of next year and this quarter will be a little stronger than we expect. Second, I want to tell the staff how much we appreciate their finally understanding rational expectations because we noticed that in our copy of the supplement to the Current Economic and Financial Conditions the page that is supposed to have capacity utilization on it was blank. And we think they finally understand!",153
-fomc-corpus,1979,You mean rational expectations are an empty box?,9
-fomc-corpus,1979,"Mark, I think you had the only copy with that particular page blank.",15
-fomc-corpus,1979,Perhaps we can have Mr. Axilrod's statement and then we'll have a coffee break.,19
-fomc-corpus,1979,[statement--seeAppendix.],7
-fomc-corpus,1979,"Well, you've given us something to chew on other than a donut!",14
-fomc-corpus,1979,"May I ask just one question? Steve, did I understand you to say that you were assuming $2 billion as the initial borrowing on alternative C?",30
-fomc-corpus,1979,Alternative C.,3
-fomc-corpus,1979,And $1-1/2 billion on alternative B?,12
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"And what on ""A?""",6
-fomc-corpus,1979,"On ""A"" it's a little over $1 billion.",12
-fomc-corpus,1979,"All right, that's an important variable that I think we ought to--",14
-fomc-corpus,1979,That's not saying that that couldn't be changed.,9
-fomc-corpus,1979,"Yes, of course. That's one of the things I think we ought to vote on.",18
-fomc-corpus,1979,"Could I ask one brief question, M r . Chairman? Steve, you mentioned that under ""B"" you have a 9-1/2 percent increase in M1 from mid-November to year-end. What is the comparable figure for ""C?""",52
-fomc-corpus,1979,"For ""C,"" it's between 7 - 1 1 2 and 8 percent--1-112 to 2 percentage points [less].",31
-fomc-corpus,1979,That's seasonally adjusted.,5
-fomc-corpus,1979,"Seasonally adjusted--no, just in the sense that I took it from week to week.",19
-fomc-corpus,1979,"These all also assume we get a weak number in the next published weekly figure, which we don't know. The preliminary figure shows a decline of $2 billion?",32
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"If it came out substantially above that, all these growth rates would have to be smaller between now and the end of the year.",26
-fomc-corpus,1979,But that's following a week in which we had a $3 billion [increase].,16
-fomc-corpus,1979,"It might be fairer to view it as under "" B "" that we have targeted growth in November of 1/2 of one percent and in December a monthly average of 10 percent. Under ""C"" in November it's about 1/4 of one percent and in December about 8-1/2 percent. I just want to give a sense that we need to push it up, but the week to week [pattern] can vary just depending on how the weeks turn out.",100
-fomc-corpus,1979,"Steve, is that 9-1/2 percent growth in M 1 over the November and December period what you expect under alternative B or what would be consistent with the 4 - 1 / 2 percent?",45
-fomc-corpus,1979,"Yes, that's what we in effect targeted to get the 4-1/2 percent [growth rate from September to December].",26
-fomc-corpus,1979,What's the likelihood that we'll get 9-1/2 percent over the period [to year-end]?,21
-fomc-corpus,1979,"If the Committee puts in the reserves--the reserve path we've designed--we believe we will get it. Where we're uncertain is whether that will be with stable interest rates or declining rates. Our general view is that it will probably be with some decline in interest rates, which is the reason we started that path off with borrowing of $1-1/2 billion--a shade lower than we have had in recent weeks.",84
-fomc-corpus,1979,But that is the most likely rate of increase?,10
-fomc-corpus,1979,"It is our collective-type projection of what would happen to money. If interest rates didn't change at all, it would be slightly lower than in alternative B.",31
-fomc-corpus,1979,"Yesterday we talked about the possibility of extending our horizon on this. Are you planning to make any comment on that, Steve?",25
-fomc-corpus,1979,We did put in the Bluebook--for general guidance--January figures. And I could--,19
-fomc-corpus,1979,You don't show rates for January.,7
-fomc-corpus,1979,You don't show rates: that's my point.,9
-fomc-corpus,1979,"I can tell you what we did there. We assumed you had a 6 percent M1 growth target for the year 1980. So we calculated from the fourth quarter average to the first quarter average a growth of 6 percent. And the figure there for January for alternative B is a level that gets right on that [ 6 percent1 line from the fourth quarter to the first. For alternative A, it's a little over that because [that alternative involves] easing now. And for alternative C it's a little under it. The level that would be implied for alternative B for January gives a January growth rate from December of 5 . 7 percent, just on a month-to-month basis.",141
-fomc-corpus,1979,"You're saying that if we continue that rate--sort of--for February and March, the first quarter would be 6 percent above the fourth quarter?",30
-fomc-corpus,1979,"It might. I don't know the exact February and March [pattern] but it would be somewhere around there. They could be, depending on how the averages work out.",34
-fomc-corpus,1979,"Well, comparable to the 4-1/2 percent path that the Committee agreed to for September to December, what would be the rate for--",30
-fomc-corpus,1979,I don't have worked out a continuation of the 4-1/2 percent path because--,19
-fomc-corpus,1979,"Well, I didn't mean necessarily the continuation of 4-1/2 percent, but what would be the path you would recommend for November through January?",31
-fomc-corpus,1979,"""B.""",2
-fomc-corpus,1979,"""B"" is the 4-1/2--",11
-fomc-corpus,1979,Through January.,3
-fomc-corpus,1979,"It's a lot higher than that, I think",9
-fomc-corpus,1979,"From September to January, the growth rate under ""B"" is 4.8 percent.",19
-fomc-corpus,1979,So from November through January you're talking [a bit] higher.,13
-fomc-corpus,1979,F r o m October to January it's 5 . 5 percent; there's very little difference between that and 5.7 percent for the month.,31
-fomc-corpus,1979,"How much correction does "" C ""make on that? What is the growth rate under ""C"" from December to January?",25
-fomc-corpus,1979,"In ""C,"" from December to January it's 4.4 percent. We assumed that the Committee would be restraining growth a bit below path in the first quarter, so we have it below and then coming back up. So in January M1 is a little below that 6 percent path. These are all things the Committee can adjust, but that's the assumption we made if you went to alternative C.",82
-fomc-corpus,1979,"So you'd have 4 . 4 percent for January. Then that means you would have something under 4-1/2 percent for the 4 months. And for the 3 months from October to January growth would be about 4-1/2 percent, I guess.",58
-fomc-corpus,1979,It would be 5 percent because the January growth rate picks up a little relative to the other alternatives to begin [to get M11 coming back on the path.,33
-fomc-corpus,1979,"In the future, as we said yesterday, I think it would be helpful to spell this out with a little more precision over a longer period of time. This is related to when we next meet and we might just think about that a bit. My inclination at the moment is that we might as well meet again in December and consider [our targets for] next year in a preliminary way--not all of next year but I'd look at this in a context of at least through the first quarter. And we can't do that very well without some preliminary notions about what that whole year should be. But then in February, we've got to decide about the year. Now we could change the date of the meeting and make it after Christmas and early in January, I suppose. S o , think about that.",160
-fomc-corpus,1979,"Does that mean that at the next meeting, Mr. Chairman, you'd like us to provide paths with alternative longer-run growth rates because the year is starting over and also looking ahead 3 months, say?",41
-fomc-corpus,1979,By that time I presume we'll have complicated it all by having a new definition of the money supply.,20
-fomc-corpus,1979,I think the Board is going to make a decision on that shortly.,14
-fomc-corpus,1979,"Certainly in January we will, [ahead of] when we go up to Congress.",17
-fomc-corpus,1979,"So it's going to be a little complicated to say the least. Well, let's have a coffee break.",21
-fomc-corpus,1979,"I would like to go around the table and get some general discussion of the economic situation and at least a preliminary statement of policy. Then we will focus hard on policy specifics. I remind you that Steve expressed the dilemma very well. One can argue that from the standpoint of domestic business activity it would be nice to get some fairly early declines in interest rates, to the extent we can do that consistent with the general framework of the money supply decisions we made. On the other hand, [that's not the case] from the standpoint of inflationary expectations--which I don't think have changed so much--and from the standpoint particularly of the unrest in Iran adding to the possibilities of turbulence in the oil markets and an oil price decision that we are not going to like. That is the major risk we are running and not just in a narrow sense. It's a major risk the country is running and the world is running. To the extent we can have any marginal influence on that, it points in the other direction [for policy]. So there certainly is a dilemma in the next few weeks. Let me say that I think you ought to have in mind this conundrum regarding the [next] Committee meeting. The 18th [of December, our next scheduled meeting date,] is the day after OPEC meets, which is fine if OPEC has made a decision. It's fine in one sense, although it is obviously very early. The chances of OPEC meeting on the 17th and making a decision on the 17th are probably not very high. So it will leave us in a state of suspended animation on that day. Moreover, I don't think we will be in a position then to have absorbed all the distinctions of new and old money supply definitions and all the rest, looking forward to next year. There is the alternative of meeting on Tuesday, the 8th of January. The 8th, 9th or 10th of January [are possibilities]. If we did that, then presumably whatever decision we make here--subject obviously to an interim meeting--is not just for the remainder of November and December but carries through to the early part of January, by implication, as well. We'll turn to that again later but I think it may have a little bearing on precisely what we do here. The dates are not ideal; at least the December 18th date isn't ideal for the two reasons that I suggested. On the other hand it's not at all impossible; it is scheduled, so we can proceed on that basis, too. Let's get any general comments you have on the economy and the policy implications you see for it. Would anybody like to offer any comments? Governor Coldwell.",545
-fomc-corpus,1979,"Mr. Chairman, from my standpoint it seems probable that the economy is going to decline. To me the timing still is a bit [uncertain] as to whether that is going to occur in the fourth quarter or the first. quarter. But I think the chances are high that the fundamentals will bring the economy to a lower rate of growth and probably to negative gEowth. How much of a negative, I'm not prepared to say at the moment. I think there is a good possibility that we might have a fairly sizable negative in the first and second quarters of next year. The place where I would quarrel a bit with the forecast is in the consumption area. I think there is still some resilience out there in terms of the rate of change in consumption expenditures, possibly even by making use of some [increase in] debt, although there it is difficult to see how that can stretch much further than it is stretched. An overriding problem that I see is that even in the staff forecast we are looking at a 10 percent rate of inflation for at least the next nine months and maybe further than that depending upon some ocher things, including the potential for a very nasty OPEC decision. In terms of the economy, I would mention one other thing. While we did get some curtailment in the rate of bank credit growth, the curtailment was from a 22 percent rate of increase to 18 percent or something like that. we've missed our guess on that by a very [large] margin. I believe our forecast on bank credit growth was something like 7-1/2 to 10-1/2 percent or some range in that neighborhood, so [actual growth] is almost double that. I don't find, as I wander around, any real stringency yet. There's an awful lot of talk about the price [of credit] bringing things under control [both] in terms of mortgage rates and I think to some considerable extent a usury problem in certain states, but liquidity still seems reasonably adequate for other kinds o f [expenditures]. S o my preference would be to tilt [policyl a little on the tight side now, given the prospects for next year, trying to make sure that we don't have a further expansion [in the aggregates], which might bring us to even higher rates of inflation. I'd like to keep the Committee's focus on the inflation side for the moment. I do think the chances of [recession] are high next year; and we will have to face the problem of to what extent we allow the rates to go down next year. But I don't like the possibility of those rates going down now, not only because of the potential [effects on the domestic side1 for this quarter but also because of the international side.",562
-fomc-corpus,1979,Mr. Willes.,5
-fomc-corpus,1979,"I have to admit that I don't know what's going to happen to the real economy. I'm not sure I even know how to go about predicting that at the moment because it seems to me that it depends so much on what OPEC does and what the Congress does and lots of other things. I will go on to say, which will be no news to some of you, that in terms of policy it's not clear to me that it makes any difference what the real sector does over the next twelve months because I'm not sure that we have any demonstrated ability to have an impact on that--in a predictable way anyway. Therefore, for slightly different reasons, I end up exactly where Phil did in terms of focusing on inflation as the primary objective. In terms of how we should do that, I have great concern about the process that we are using. It's not that I think we made a mistake in going to reserves. I think that's a tremendous step forward. But I'm not sure we have done that in such a way that we are likely to have a reasonably good chance of being successful. One of the things that we know is that if we change substantially the way we conduct policy, that is going to change people's behavior. Therefore, all of the old statistical relationships that we have been able to look at in the past--relationships between interest rates and reserves and monetary aggregates and so on--might well be in the process of changing because we have changed our focus presumably from interest rates to reserves. So all of the discussion that we have about trying to pick a monetary aggregates target and then backing away from that step by step to figure out what the reserves ought to be and the associated interest rates and so on, just strikes me as being backwards. It seems to me that the only reasonable prospect we have of really making it work is to start at the other end and say, okay let's fix reserves and then let the system adjust to that. Clearly, we don't know exactly what impact that is going to have because we don't have any functions that are relevant in the new environment. But it doesn't seem to me that a lot of the things we have been talking about--unless we are lucky--are going to lead us to any kind of predictable result either in terms of the aggregates or in terms of interest rates. So I just feel very uncomfortable with the nature of the discussion that we are having in terms of how we hope to reach a policy decision. I can construct, given the kinds of conversations we have had so far, a relatively simple model that would say that what we would end up with are reserves that are totally demand determined. And it seems to me that we are trying to do just the opposite of that. We are trying to make reserves and, therefore, the aggregates supply determined. Yet the mechanisms we have set up would have just the opposite result. S o , going back to yesterday's discussion as well as some things we have said this morning, I hope either today or in the near future we can discuss in detail the experiment that we are trying. I say that because it's not clear to me, regardless of what the ultimate objectives we set are, that we stand a very good chance of getting exactly where we want to go unless we just turn out to be lucky.",657
-fomc-corpus,1979,Mr. Baughman.,6
-fomc-corpus,1979,"M r . Chairman, I would say with respect to a general economic forecast that I would subscribe to what Mark Willes has said as to the probable low value [any forecast] would have in the present circumstances. It seems to me that the staff projection is a reasonable one. I would not be surprised if [the economy] actually goes down more in the early part of next year than the staff has projected, particularly in the measure of industrial production, for example. But I'm not sure [that prospect1 should weigh heavily in our policy posture today. With respect to our region, of course, we have benefited in terms of local activity from the oil and gas business; the level of that activity is high and is continuing to rise. Notwithstanding that, of course, domestic production of oil is declining and I'm advised that the rate of decline will probably accelerate next year because the Alaskan line will have reached capacity. AS it has been moving to capacity, it has given us an increase or has offset reductions elsewhere this year. So the outlook for continued growth of domestic sources apparently is somewhat bleak. With respect to softening in economic activity locally, insofar as there is any softening it seems to be traceable to usury interest rate ceilings. AS nearly as we can tell from fragmentary information, the banks are doing a pretty good job of looking across the array of customers, as you suggested they should do, Mr. Chairman, in adjusting to the current situation and they are trying to avoid just lopping off large sectors of borrowers. Moving from the economic picture to the policy picture, I'm [about] right on track with what Phil Coldwell has suggested. I read [the materials for this meeting] rather carefully, I thought, and I listened rather intently to Mr. Axilrod's comments. Accepting the proposition that we probably should continue the present policy for the time being, it seemed to me that alternative C came a little closer to that than the alternative B prescription. Obviously, there's not a big difference but on balance it seemed to me to come out that way.",421
-fomc-corpus,1979,M r . Timlen.,6
-fomc-corpus,1979,"I must say that in my judgment the consumer has been a great source of strength for a long time and I think finally that is going to turn around. I'm particularly impressed by the fact that the impact of [the cost of] heating homes in the Northeast is going to present quite a challenge to some personal budgets and may affect spending plans. I've talked to a number of savings bankers and country bankers in New York and New Jersey over the past few weeks. And despite the Chairman's urgings, outside of New York City at any rate there is no mortgage money in a savings bank or small commercial bank. The banks in New Jersey and outside of New York City are even changing their terms on consumer loans and are not taking on new business. In the state of New York currently the thrifts are very concerned about their loss of funds outright to other investment outlets. And where they are not losing the money to other investment outlets, they are gravely concerned about shifting money from inexpensive savings accounts into various certificates. Generally that clouds my picture as to the strength of the consumer in the first quarter of next year. I must say that for the first time we are hearing concerns in New York as to the possible implications for our banking system of either short-term or long-term withdrawals of OPEC monies from United States banks. I haven't heard that too often, but it is a matter of some discussion. I would say that from my standpoint the focus should continue to be on inflation until we get a better reading of the fourth quarter. And I do share the concerns about the position of the dollar in foreign exchange markets. Therefore, I would stand behind some variation of ""C.",333
-fomc-corpus,1979,"Mr. Chairman, I think I can endorse a great deal of what has been said. I would like to make it very clear that I don't think we have any more control of the aggregates than when we were operating on an interest rate target. Yet the media and I think some of my colleagues here think that we have run out and put our hands directly on the aggregates; I don't think that's true. I agree with Mark that the fact that we've changed [our approach] is going to change the relationships. I believe we are going to have a great deal of difficulty and there is going to come a time when we are going to fail. We were lucky last month that it turned out the way it did. So, keep in mind as we are making policy that we aren't out there directly determining the Ms. And I'm a little concerned that when we begin to want to expand the money supply we will provide the reserves and there won't be any response in the money supply down the line. I am also very concerned about the consumer. There is no housing money; [financial intermediaries] are loaned up. I think our policy should basically be steady as you go at the present time. I would not want to force the banks to borrow any more than $1-1/2 billion under alternative B because I do think the economy is going to turn down. And when it does, I think it's going to drop very suddenly. When people get the first monthly bill for heating oil it is going to hit us. I think there is going to be a gasoline shortage again and I feel that people quite possibly are going to be very conservative at Christmas. I would come out in support of alternative B with $1-112 billion of borrowings and I would increase the federal funds rate. In other words, I favor a ""B-minus""policy.",372
-fomc-corpus,1979,Increase the federal funds rate?,6
-fomc-corpus,1979,"I want to increase the range. I might combine alternative B and $1-112 billion of borrowings with a federal funds range of 10-1/2 to 15-112 percent so that when the signs begin to come through very strongly that the economy is weakening the interest rates can drop naturally somewhat more than they could before. In other words, I would like to ""unskew""it a bit without raising the top but by dropping the bottom to allow more fluctuations in the rate. And when the rate does start to go down, it will have the space to do that in a natural way.",124
-fomc-corpus,1979,"Mr. Chairman, I think the staff forecast is a good one and I certainly am prepared to go along with it. It seems pretty clear that the economy is headed for a contraction in the early part of 1980. We see evidence of this already but it's obvious that the increase in energy prices, the prevailing tightness in financial markets, and a continuing [high] rate of inflation will combine to make the contraction in 1980 steeper or deeper than was earlier forecast. So the outlook is clearly for considerable economic weakness in the year ahead. In the face of that, it seems that our choice is between alternatives A and B; we should be focused more on the effect of such a decision in the year ahead. It was pointed out clearly in the Bluebook that between now and the end of the year it doesn't really make much difference which alternative we choose. The main impact of a choice between alternatives A and B will in all probability be on the financial conditions that prevail in the early part of 1980. I agree with a good deal of what has been said. I, too, place a great deal of emphasis on the need to continue to resist inflation. However, I feel also that at a time when we expect economic weakness to occur we ought not to put the economy in a situation where monetary policy is exacerbating rather than [helping]. We at least ought not to be operating to worsen the real developments in the economy. S o I would much prefer to follow a course that would stand a better chance of providing adequate liquidity in a weak economy--not excessive liquidity, of course, but adequate liquidity at a time when it is needed--rather than being in a posture of having to provide reserves at a time when, as Nancy put it, they will not do very much good. While preferring to lean in this direction, I would also prefer later on by some months to move more quickly to reverse policy sooner in the cycle and to tighten monetary policy when it's clear that the economy is strengthening rather than risk overtightness in a situation that is clearly weakening. So for those reasons I would lean toward alternative B and I would also be prepared to stay with a federal funds range of 11-1/2 to 15 percent. I think one can no longer be greatly impressed with the argument that real interest rates are negative. They are now positive and the unfolding situation that would be consistent with alternative B would also be one that would lean against inflation.",499
-fomc-corpus,1979,"Let me just pick up on one comment you made. You talked about changing policy and I guess I'd ask you what you mean by ""changing policy."" The question comes up all the time. What did you mean when you said that--measuring it in terms of the money supply?",57
-fomc-corpus,1979,"Right, right. In relation to that.",9
-fomc-corpus,1979,"This question is going to plague us, I tell you.",12
-fomc-corpus,1979,"Now, let me just finish. What I had in mind was late in 1980 or perhaps even early in t19811, whenever the economy begins to strengthen, I would be prepared to tighten monetary policy.",43
-fomc-corpus,1979,In terms of the money supply.,7
-fomc-corpus,1979,In terms of the money supply and at a much earlier point than the Federal Reserve normally does. In this way we'd continue to resist inflation rather than err on the side of maintaining the situation where liquidity would be inadequate [for a1 time .,48
-fomc-corpus,1979,"The reason I [raise] the point is that I think it has some relevance unfortunately for this meeting and for every meeting, I suppose. When I appear in public or in private in the first question I get is, ""Are you going to stick with it?"" So I say what ""sticking with it"" means. I go through my song and dance about how, particularly with this present technique, we measure it by the money supply and that's not inconsistent at all with a decline in interest rates when the economy declines, particularly if the inflation rate is declining. I have done this a dozen times in public and dozens of times in private. I was at a lunch yesterday where there were some presumably sophisticated people who have heard me say this in public dozens of times, or at least a half dozen times, as well as some unsophisticated types. And an unsophisticated guy asked me ""Are you going to stick with it?"" I went through my song and dance [about howl we are going to stick with it in terms of the money supply but that doesn't mean interest rates can't come down. I no sooner got finished with this 10 to 15 minute discussion when one of the presumed sophisticates--a member of the Washington economic press--says, ""Now, what I want to know is when are you going to change policy?"" I said, ""What do you mean by changing policy?"" He says, ""The first time interest rates go down."" There we are.",300
-fomc-corpus,1979,That's why I think we should let them fluctuate.,10
-fomc-corpus,1979,That would be favorable.,5
-fomc-corpus,1979,We're going to have to break that psychology.,9
-fomc-corpus,1979,Mr. Morris.,4
-fomc-corpus,1979,"Mr. Chairman, we are still more pessimistic than the staff on the projection for 1980, but they are getting a lot closer to us. We are still looking for a recession, something on the scale of 1974-75, as the result of the three shocks that we have going: the energy shock; what I think now can be called the interest rate shock, which is showing up in Boston in the fact that [a borrower] can get mortgage money from the Boston savings banks--",102
-fomc-corpus,1979,They can?,3
-fomc-corpus,1979,"Yes. The savings banks are offering it. Money is available, but the demand is falling off very sharply because of the rate--the fact that they are asking 13 percent plus 2 points.",40
-fomc-corpus,1979,"Frank, what's the usury ceiling in Massachusetts?",10
-fomc-corpus,1979,We don't have a usury ceiling.,8
-fomc-corpus,1979,"You see, we do.",6
-fomc-corpus,1979,"You have a particular problem, [Tom].",9
-fomc-corpus,1979,"I think we are seeing for the first time real price rationing in mortgage markets. In the past, most of the impact has been on availability but I think we are in a situation now where we could well see a liquidity buildup in the thrifts because the demand is not there at those rates of interest. The other shock I have in mind is the proposition 13 shock because I have been making a lot of comparisons to the '74-'75 period. One area of the economy that was a great sustaining force in '74 and '75 that clearly is not going to be that way in 1980 is the state and local government sector. Having said that, it seems to me that the reserve path under alternative C looks quite all right and I would start out with the initial assumption of $1-1/2 billion in borrowing. And I think I'm much more optimistic than either Nancy or Mark about what this procedure is going to yield for us. The figures that Steve showed us yesterday made it very clear, I think, that over very short periods of time the reserves/deposits relationship is very unstable. But as we add [timel--aswe go from 2 months to 3 months to 4 months--1 think we will see, if we can stick with our guns, that relationship stabilize. I have urged Steve to give us some cumulative totals as we go along and I think they will bear out this relationship.",290
-fomc-corpus,1979,Question: You are associating $2 billion of borrowing with alternative C as--,16
-fomc-corpus,1979,I said initially $1-1/2 billion.,11
-fomc-corpus,1979,"It's a modified ""C.""",6
-fomc-corpus,1979,That's what I was getting at. You are modifying alternative C by reducing the borrowing level associated with it.,21
-fomc-corpus,1979,But I'd certainly move to $2 billion if the money figures come through strong enough.,17
-fomc-corpus,1979,Mr. Guffey,5
-fomc-corpus,1979,"Mr. Chairman, we believe the staff's forecast to be a good one, particularly with the caveats about additional oil price increases that may come out of the December OPEC meeting and that would turn the first quarter a bit lower perhaps than our initial forecast would suggest. As to business activity in our area, particularly in regard to housing and autos, autos virtually have stopped selling simply because of credit and prices.",82
-fomc-corpus,1979,"There are different kinds o f [auto] credit, [do you mean] consumer credit or dealer credit?",22
-fomc-corpus,1979,"Both. With respect to housing, we have two situations within the seven states. One is the usury ceiling, which of course has cut off all residential housing. But the same is true in the other areas where usury laws are not a [factor]. The savings and loans virtually have shut their doors. They are not prepared to bid for the high priced short-term money and put it out other than is necessary to meet the commitments they had outstanding before these recent rate increases. Beyond that, retail sales have turned soft and as a result there is fairly good evidence that [they] are going to move to a lower level. What Christmas may hold I suppose nobody knows, but quite likely it will be a bit softer than we would have thought some time earlier in the year. With regard to the policy we may be considering today, I would say first of all that I, too, would opt for ""C"" or something even a bit to the right of ""C""--andfor a couple of reasons that are a bit different than those Governor Coldwell has already expressed. One, it seems to me that if we try to move growth in the aggregates up in the next six weeks to 9-1/2 percent, as Steve has suggested--or if we get zero in November it's 11 percent [in December]--we are going to get a funds rate drop. And [the rate1 would be pushing on the lower end of the 11-1/2 percent range that we now have or of some lower range if we were to set it lower today. I think that would be totally inappropriate, not only domestically but also internationally. In the discussions that I had on a trip to Europe recently I got very much the same question that you said was proposed to you. If they see our interest rates drop before they see some [progress] in the fight against inflation, then they are going to believe that we have lost our resolve and, therefore, act accordingly. And the dollar will quite likely come under some pressure.",411
-fomc-corpus,1979,"I understand your international reason, but after your recital on the domestic economy why do you argue that [case] domestically?",25
-fomc-corpus,1979,"Well, it seems to me that we are going to have the same kind of psychology--",18
-fomc-corpus,1979,It's a psychology [issue].,6
-fomc-corpus,1979,"Yes. Policy-wise, it seems to me that it would be appropriate to adopt "" C "" or perhaps something a bit more restrictive than that. On the other hand--",34
-fomc-corpus,1979,"You still get a passing grade with ""D.""",10
-fomc-corpus,1979,"With regard to modifying ""C,""however, I'd maintain the federal funds range that we now have--that's 11-l/2 to 15-1/2 percent. It seems to me that it would be inappropriate to change that range. If my understanding is correct, the first time the markets or the world will see that 11-1/2 to 15-1/2 percent range will be when we publish our policy record after this meeting. It seems to me that it's important for stability purposes to maintain that range. S o what I would propose is that we adopt ""C"" with an 11-1/2 to 15-1/2 percent funds rate range rather than the one listed for ""C."" Lastly, I would hope that we would not take action, as ""B"" would suggest, to try to validate the 4-1/2 percent growth rate that we set in early October for the fourth quarter, simply to try to make that come true if implicit in that is a drop in interest rates.",212
-fomc-corpus,1979,"Mr. ROOS. m . ROOS. M r . Chairman, I think it's important at this stage of our deliberations [to stand] back and again ask ourselves whether we really are aware of what we have announced publicly that we are going to do. On October 6 we announced that we are going to change our procedures to concentrate more on the control of money growth. Our experience in the Eighth District is that that announcement was received with almost universal approval. And the question that my associates and I get is the same one you do: Is the Fed really prepared to stick with it? One of the things that disturbs me today as I hear the comments is whether we really have a common understanding of what ""it"" is. My understanding is that ""it"" does not entail trying on a monthly basis to adjust what we're doing in reaction to what are really short-term economic problems. I don't even think that ""it"" means doing something the week after OPEC makes a decision--to meet that immediate need. For this process to be successful, we've got to recognize that we cannot operate on a day-to-day or ""micro"" basis. We have to set longer-term targets; we have to announce those targets; and we have to avoid the temptation to be nervous Nellies if one week something happens that might frighten us. I don't mean that we blindfold ourselves and blindly stick with [our targets] but I think we have to set longer-term targets and be prepared to do what is necessary to achieve those longer-term targets. One thing that I think would be devastating in this regard is to feel somehow that we will follow this [new procedure] but also worry about whether we ought to reduce the upper limit of the fed funds rate from 15-1/2 to 14-l/2 percent. That sounds as though we have taken a half step but we are not sure where we are going. Specifically, I would recommend that we choose alternative B, because alternative B--if I understand the staff projections [and analysis]--coincides with what we agreed last month to do. And if for no other reason than the therapeutic value of sticking, in our first month's reactions, with what we decided to do last month, I'd like to see us adopt alternative B and [stay with our plan1 to seek M1 growth of 4-1/2 percent by the end of the year. Then I'd like us to project into 1980 a specific long-term target that will be consistent with that. I believe--and if I'm wrong, we're all wrong--that our primary responsibility is not to waffle and to ask ourselves if the aggregates can be controlled. Y o u said, and we ratified this publicly, that yes, we believe the aggregates can be controlled. That was why we did what we did on October 6 . In my view our job now is to get the best minds within this System, which I think includes some of our Reserve Bank economists as well as [Board] staff, to work out these processes we talked about yesterday so that we can demonstrate that the aggregates can be controlled. If we fall--if we retreat from what we announced on October 6--I think [it will be] the last straw and any credibility regarding the Federal Reserve's monetary policymaking will be lost. I really think we're on a path of no retreat. I apologize for the length of that statement, but let's understand what we've bitten off; whether it's right or wrong, we've taken that step and the fat is in the fire. Now let's find out the best way to make it work. I think that's our mission.",738
-fomc-corpus,1979,Governor Wallich.,4
-fomc-corpus,1979,"I have no quarrel with the staff's forecast, though I think there is at least a possibility that the OPEC decision will be less adverse than they think. In Europe there seems to be a feeling that oil is reasonably plentiful and, therefore, that the ability to raise [its price] rather drastically is less.",64
-fomc-corpus,1979,They only buy it at $40 a barrel!,10
-fomc-corpus,1979,"Well, but at least they've got it. Even so, I think it's clear that we're facing a worsening outlook for both unemployment and inflation. The [situation] seems to be worse on the side of inflation than unemployment and slow growth. So I think we've got to weight our approach accordingly--that is, lean more in the direction of fighting inflation than taking account of the recession. We have [adopted] a money supply policy for some time into the future and we're really talking here about how to phase into that longer-run path. Admittedly, we're going to review the path in December or maybe in January. But basically we laid down a pattern for the future and this ought to satisfy those who like Larry feel that we ought to have a fairly firm target. I'm quite skeptical of the meaning of this target; I don't think M1 measures what it is supposed to be measuring. If we had the revised aggregates--and revised them the way I would like to see them revised--that [new] M1 would be advancing faster. We see bank credit advancing fast, and it has grown at a very stable rate all through the year, fluctuating in an 11 to 14 percent range. And in the forecast it is not projected to slow down; it's currently projected to increase at its [recent] rate of growth month by month through January. All that suggests to me that we do need continued restraint. I don't see the prospect of another blow being dealt to us by OPEC as a reason for relaxing; it would seem to me a reason for doing more. Otherwise we'll be in the position of the man who was told by his doctor to take it easy because he is badly overworked. And at that moment he has a heart attack so he says, ""Well if things are as bad as that, I might as well go back to working a full schedule."" It would seem to me that if we are hit harder on the inflation front, then the severity of another blow is a reason for increasing the effort, not for diminishing the effort. I'd like to say a word about the dollar. I think in the long run we have to adjust to the prospect that we certainly can't keep up with the D-mark. If this inflation is going to go on and on, the differential between the D-mark and the dollar is perpetuated. We are in much the same position as the French are with the franc; they cannot get their inflation down and they're trying desperately to hang on. They've had to take one downward step; they'll have to take others. I don't think we have to yield on our trade-weighted exchange rate, which is the more meaningful measure of the dollar. We ought to be able to hold on and our policies ought to be designed to that end. Now, I quite share the reactions of the Chairman and of Roger Guffey [regarding] people's statements about our policies. AS soon as we say interest rates are coming down as a result of a logical evolution of our money supply policy, they say: '""Aha,you're changing your policy."" I think there's an obvious logical defect here. One can perhaps differentiate two statements. One is: We're not changing our policy, but the environment is deteriorating as far as maintenance of the value of the dollar is concerned and maybe that's the logical consequence. But we do have to make clear that our policy is the money supply, properly defined, and that interest rates therefore do have greater flexibility. And if inflation comes down, I think that will be fairly acceptable. The problem is that inflation may not come down. Well, forgive me for that long statement. I just want to say briefly that I lean toward alternative C. The only thing, frankly, that bothers me about it is the prospect that it will bring interest rates down sometime this winter. But I'm aware that we presumably will have a chance to reassess that. If inflation comes down and we have a serious economic situation, the doors are entirely open. But I don't want to prejudice that [policy response] now.",816
-fomc-corpus,1979,"What did you say--""C?""",8
-fomc-corpus,1979,"""C.""",2
-fomc-corpus,1979,Mr. Balles.,5
-fomc-corpus,1979,"I don't see any basic reason for changing the posture that we adopted on October 6 , Mr. Chairman. With respect to the real economy, the obvious [areas of] weakness that we observe are housing and autos, although I must say that on the West Coast the sag in housing has been offset by what some builders describe as a furious pace of activity in the non-residential construction field. One encouraging sign in the housing situation in our area is that the state's largest commercial bank and its largest savings and loan association recently knocked off a little on their mortgage rates--coming down a half point, though admittedly from very high levels.",126
-fomc-corpus,1979,From [14-1/21 to 14 percent?,12
-fomc-corpus,1979,"No, from 13-1/2 to 13 percent.",14
-fomc-corpus,1979,Now that is an encouraging sign.,7
-fomc-corpus,1979,But it is encouraging.,5
-fomc-corpus,1979,I did not know that a savings and loan did that.,12
-fomc-corpus,1979,"Home Savings as well as Bank of America. The expectation with respect to the general economy as contained in the Board staff forecast is quite similar to our staff forecast, which I would generally describe as a modest recession by past standards. Obviously, there's a great deal of uncertainty surrounding all these forecasts today. But that's still, I think, the most reasonable expectation. And of course inflation still continues to be the greatest danger here, as many of us view it. I think one of the real problems we are dealing with is the lags that are built into the impact of monetary policy, which we've known about all along. Unfortunately they are not predictable. Those lags are variable but it is typical in a period of restraint that the bad news comes [first] and the good news comes later, in the sense of an observable diminution of inflationary pressures. The only bad result I see from our October 6 actions is the very sharp rise in long-term interest rates. Maybe the school of rational expectations has an answer to [why that has occurred], Mark, because I can't get an answer from anybody else, including my own staff. To the extent that those rates are influenced by expectations of inflation I'm still wondering why--I'm totally nonplussed--they went up instead of coming down. I think that underscores the point that many people around the table have already made, which is that psychology is so darn important right now. As you so well articulated, the real purpose of our October 6 actions was to get inflation under control by bringing about a deceleration of money [growth]. And we're being observed very, very closely on what's going on there. When there becomes a greater public awareness of what happened in October--that there was a considerable deceleration in the rate of [money] growth--and if the November figures come in as Steve has projected them, that will add still further credibility. So I think we're right in the midst of a great credibility test right now and I wouldn't want to rock the boat by any major change in the posture that we adopted with respect to the targets for money growth by the end of the year. [I say that] because I think our credibility and hence our impact on long-term interest rates and inflationary expectations in general will be messed up if we don't meet those goals that we've announced. Good or bad we have announced them. They are out there and we're going to be judged by them. When it comes down to the fine strokes between alternative B and alternative C, I think there's not an awful lot to choose; we may be involved in unnecessary or unproductive fine-tuning here. But if I had to choose between them I guess I would lean a little toward "" C . """,546
-fomc-corpus,1979,Mr. Mayo.,4
-fomc-corpus,1979,"I'd say a couple of things. I have no fault with the staff forecast except that my elbow--which doesn't quite have the problem o EUR Nancy's elbow but maybe it will get that way--tells me that the economy will be weaker than in the forecast. The chances are greater that it will be weaker with greater unemployment and unfortunately maybe even a little more inflation. I still feel very strongly that the Fed's job is to concentrate more on the inflation in our economy now than on the real sector, again partly because we are the only game in town. Even though our effectiveness may be limited, psychologically it is far more effective than anybody else's. My answer to John Balles on the reason why long-term interest rates have gone up is that there has been, even among sophisticates, an almost complete turnover and disillusionment as to whether inflation can be controlled. This is reflected in long-term rates and it makes our job even more of a challenge. I welcome what we did yesterday, Mr. Chairman, as well as Steve's additional input this morning. But I think we may be engaging in a bit of self-flagellation here that is over and above the call of duty. We made a giant step on October 6. AS we sit back and look at it, it isn't that giant a step in terms of what I would call an evolution of monetary policy and its strategies and techniques. We have been concerned with reserves before; we just were too timid to let the system work. We have freed the reserve control concept now of its interest rate bounds to a considerable extent. And yet we must grant that we have found no magic formula as to additional ways of making this process of monetary policy as simple as some of our academic friends believe it can be made. We still have lags; we still have multiplier effects that differ; and we still have disputes as to how to do our seasonal adjustments. We can go right down the line, and we still have basically the same problems we had before. This has been a very important step, but I would rather view it more as an evolutionary step than a revolutionary step. The press has taken it up as a revolutionary step and we can live in the glory of that in the short run. I don't think that it is understood yet what we are doing apropos of the Chairman's statement about [being asked] when is policy going to change. I welcome Larry's speech on defining ""it"" as having a longer-term span than many people had argued before; I certainly agree that that is true. And it's for that reason that I don't share Roger's worry that a big December number is going to get us into any trouble. I prefer ""B;"" I would not object to the Morris formulation of ""C"" with the $1-1/2 billion [on initial borrowing]. I do not see anything particularly wrong with that. I would take us at our word, though, on the releasing of the federal funds constraint and go with 11 to 16 percent. I would broaden it by 1/2 percentage point on [each] side to indicate again our willingness to see the rate fluctuate a little more. I see nothing wrong with that. But I come back to the point that I think is terribly important: Although I welcome the soul searching [and the attention] we are giving to the change in technique and the way the Board staff and the Desk have approached it, we are still dealing basically with the same animal that we did before. We have a chance here to sharpen things up--and we have sharpened things up--but certainly there is no way to make this process as simple as perhaps some of us would like.",745
-fomc-corpus,1979,Mr. Black.,4
-fomc-corpus,1979,"Mr. Chairman, I think it's pretty obvious that the Iranian crisis has potentially great implications for the domestic outlook--[morel than the mere availability of petroleum supplies. But absent that problem, I would think the staff's forecast would be about right. If I had to guess which way the error might be, I would think the economy might be somewhat weaker than they are projecting. It's certainly true that the economy has shown amazing resilience up until now. I guess inventories are in better shape than they were this time in the 1973-74 downturn. But when I look at the weakness in housing and hear a talk like Frank Morris gave us on the resistance to rates and about the lack of availability of funds, I think housing is going to be quite weak. I think the consumer is pretty well over-extended. I gathered an interesting observation from the chief executive officer of He said that consumer loan demand had virtually dried up at is their consumer financing company, but was still present at the bank. I asked him if this related to the type of customer the two institutions have. He allowed as how he didn't know but said that might be part of it. And finally, I would think that if we made an error on the [forecast] of net exports, they would probably be weaker than we had guessed because of the increasing restrictiveness of monetary policy abroad and the generally unsettled international climate. Turning to the policy side, I think the most important task is for us to hit our long-run targets. I agree, as someone said earlier, that we can probably do that pretty well with any of these alternatives. Certainly we ought to hit the M1 and M3 targets with any of them and I believe we'd come pretty close on M2 with any of them. Bank credit I guess we are going to miss altogether. So I don't think that there's a lot to choose from in view of the short period left, as Emmett Rice mentioned. I have a marginal preference for ""B."" My only concern with ""B"" is that the lower limit on the federal funds rate range might be a little high at 11-1/2 percent. Now, last time I argued that we ought not to put that below 11-1/2 percent because I thought we had a credibility problem. And I felt that if [the funds rate] came down before we demonstrated any control over the aggregates, we'd have a real problem. But I do think we have gained considerable credibility at this point and also the economy looks weaker. So against that background, although I'm somewhat concerned over what Henry and Scott said earlier about the foreign reaction, I think the reserve growth needed to achieve alternative B may well entail more federal funds rate movement on the down side than some might expect. I think the rate might have to go below current rates by a fairly significant level so I would want to lower that lower limit to 10-1/2 percent. I guess I'd stay with 15-1/2 percent for the high end, but I surely wouldn't object to raising that. I might be wrong on this and I would suggest that maybe we ought to have a telephone conference if the funds rate approaches either of those limits.",645
-fomc-corpus,1979,Governor Partee.,4
-fomc-corpus,1979,"Well, we are plotting a path [for the provision of reserves], and there never will seem to be much difference in the short run in the paths that we plot because they only work out over the long run. But I think there is a difference between alternatives A, B, and C. There's a different implication for the shape of monetary growth in the first quarter that transcends the very precise [short-run] period we are talking about. In a coming recession, whatever its shape or size--and it may be quite different than we are expecting right now--1 think it is important that we continue to say that it is our job and our intention to provide for a reasonable amount of money and credit growth. That's really about all we can do. [And we need to do so] as safely [as possible] with inflation on the one side and unemployment, which I would point out to you is projected by the staff to be as high as 8.4 percent for next year, on the other side. About all we can do is to have that kind of ambition. I would, of course, as we have sacrificed the mortgage market, sacrifice the foreign exchange market at the right point in the battle to maintain moderate growth of money and credit over the period to come. Now literally it seems to me that we would stay with alternative B here because we have had some shortfalls in monetary growth rates in October and some are projected--perhaps [they will occur], perhaps not--for November. Remember, all we are doing is talking about the path of our provision [of reserves], not what will actually develop in monetary growth. But I dislike that a little because it seems to me that it implies providing too many reserves in December. I think we have to have a strategy for making up shortfalls and overshoots, and we haven't really quite developed one yet. Although we have had a shortfall, I don't like the idea of running too strongly in December for fear that it will extend over into the early part of next year. So my view is that we ought to try to make up a little, but not the full amount, of the shortfall. I think that puts me between alternative B and alternative C. The path I would propose for the Desk and Steve to work on is 5 percent for the 2-month period in M1 and 8-1/2 percent in M2; and I don't think M3 has any great significance in path setting in that time frame. To be fair, it also requires the setting of an initial borrowing level and my view of the matter is that we should stay with $1-112 billion. I was thinking that perhaps it ought to be a little higher, but then I was reminded that the reason the borrowing is [currently] above $1-1/2 billion is that we've had a few misses so to be absolutely even-handed we perhaps should have the $1-1/2 billion initial assumption. On the funds rate range, I certainly wouldn't want to narrow it. I agree with Larry Roos. We have announced to the world that we've changed the way we do things. And to appear to be constraining [the funds rate1 again or to seem to be moving toward a constraint is unnecessary and hardly makes worthwhile the anguish that the market has gone through in adjusting to our announcement of the change in policy. Now, if we open it up a little, I really don't care. I think for this particular period I would leave the range at 11-1/2 to 15-1/2 percent; we're just about in the middle of that right now and I believe there probably won't be any need to raise it on the top end in the period to come. We can open it up later by reducing the lower end if in fact the performance of the monetary aggregates comes in below our expectations. I guess that's it.",788
-fomc-corpus,1979,Mr. Winn.,4
-fomc-corpus,1979,"To start I'd like to commend Steve and Peter again for their performance yesterday. I hope that we can have the second verse of modulations on the theme, whether we meet in December or January, with the same group. I thought it was an extremely productive meeting. As I indicated earlier, I am still concerned about the shock impact versus the economic impact. First, in the mortgage market I think there will probably be more funds available; people are being sold on the idea of paying the present prices because these mortgages can be refinanced. Unlike our long-term Treasuries, which have call protection, the possibility of paying a high price temporarily or at least the prospect of [the house] being sold may lead to somewhat more mortgage money being advanced than we contemplate at the moment. If I were to guess on the outlook for next year--and we have not talked about fiscal policy and what that may mean--I'd say the prospect of our forecast, as good as it may be, [materializing] is not a very high one. I don't know whether changes will occur early in the year or late in the year but I suspect we will see big deviations as economic conditions unfold. Second, I agree with Bob Black that the Iranian situation, the Cambodian situation, and others portend shocks that are outside the energy area but could be quite significant as we look down the road. So I'm really uncertain as to what the outlook may be. Another shock we face is the fact that we are going to change the [definitions of the] aggregates and that's going to introduce another uncertainty into the picture. In view of that, I would be inclined to go with alternative C on the aggregates measures because of the phase-in or transitional stage. I'd stay with the present federal funds range, as in alternative B, and keep the $1-1/2 billion in borrowing.",373
-fomc-corpus,1979,Mr. Eastburn.,5
-fomc-corpus,1979,"Chuck Partee has given the precise description that I was prepared to propose, though the route by which we arrived at that might be a little different. I start with the comment that you made, Mr. Chairman, about your sophisticated and unsophisticated audiences, which I think is very much to the point. We have many non-economic factors that are going to be at work here for some time. That's the real world and I think we have to recognize that. I believe the recession is going to be at least as severe as the staff has projected and possibly worse than that. And I think the Fed is going to come under a great deal of pressure as we move through the first half of next year. I believe we are going to be in a good deal of difficulty with our policy. Given that I think right now we should avoid making the recession worse than it's likely to be, I think primarily we should [aim to1 meet the targets that we have specified. We do have a credibility situation that in my view takes first priority. I'm not sure ""B"" will assure that in the s h o r t run, partly because of M2. On the other hand, I am concerned that ""B"" may produce a decline in interest rates too soon. ""C"" is more restrictive than I would like to see so this leads me to somewhere between ""B"" and ""C,""which is where Chuck comes out. I would leave the funds range where it is and continue to assume the $1-1/2 billion of borrowing.",312
-fomc-corpus,1979,Mr. Kimbrel.,6
-fomc-corpus,1979,"Mr. Chairman, we too have considerable appreciation for the staff projections but I guess we would assign a higher priority for some [possibility] of a tax cut next year than the Greenbook seems to suggest. Also, the South and the Sun Belt are frequently characterized as areas that will not suffer [in a recession] to the same degree as the rest of the country. But I happen to have a slightly different view. I think anything occurring in the rest of the country is going to happen there. And the same [logic] flows to the fact that real price movements and inflationary expectations are so deeply entrenched at the moment that I think we simply must do something to try to dislodge that. Added to that is the significant concern and influence of the foreign exchange markets; the unsettled [conditions1 there at the moment are an added dimension that I think requires [concern] on our part. We recognize, too, that there's almost a belief that we will relax [our policy] too early. And that leads me to feel that the realities of our existence suggest that a continuation of our present policy may be easier now than possibly in 1980 when unemployment or other outside pressures are being brought to bear, even if inflation continues unacceptably high. So reading these numbers slightly differently from some of the others, 1 feel that alternative C is pretty close to where we are at the moment. I'd be happy to see that continue, even the 11-1/2 to 15-1/2 percent [federal funds range]. And I'd prefer to see the borrowings more in the $1.8 billion [areal where I believe they are at the moment. So I prefer ""C"" with those [specifications] I'd add.",358
-fomc-corpus,1979,Governor Schultz.,3
-fomc-corpus,1979,"I think the only economic law I believe in at this point in time is Murphy's Law. I don't know how human beings are going to behave in this particular period, so I'm torn. It seems to me that autos and housing are very weak and the rest of the economy continues to hang up there. I have a feeling that at some point that's going to change. Consumer attitudes are going to change and things are going to get pretty weak rather quickly; and I would like to be responsive when that occurs. On the other hand, it seems to me that we have some real dangers from oil and other exogenous shocks over the near term. I wonder what shape we'd be in if we hadn't taken the steps we took on October 6 , in view of what is happening in Iran. It seems to me that we'd be in pretty bad shape. So my feeling is that we have to continue to hold on to this [policy] a while longer and that puts me somewhere in between ""B"" and ""C."" I feel that Governor Partee's approach is a very reasonable one.",218
-fomc-corpus,1979,"You've disappointed me, Governor. If you had come out for ""B."" we'd have among the Committee members an exact split of 5 ""Bs,"" 5 ""Cs,""and one in between ""B"" and ""C.""",46
-fomc-corpus,1979,How about that!,4
-fomc-corpus,1979,"Noncomittee members are irresponsible! At one point in looking at this I didn't think there was much difference between these alternatives. But I think Governor Partee and others are right that there probably is a real difference when you compress this into a narrow period of time. Obviously the consensus, whether it's the whole group or the voting members with some exceptions, is a weak ""B"" or a strong ""C.""",83
-fomc-corpus,1979,"The other way around--a strong "" B "" or a weak ""C.""",16
-fomc-corpus,1979,"It depends on how you define ""strong."" If you would prefer, it's a strong "" B "" or a weak ""C."" There is a question of how to phrase this and reach a maximum consensus here. I might say in a general way that it would scare me if the federal funds rate went up toward the 15 percent area again, considering all that is happening. I don't detect any strong ""sentiment,""shall I say, to lower that upper limit. But I don't like it because I do think it would be very disturbing in terms of psychology in the markets. And our chances of getting long-term rates down in an orderly way I think would be damaged.",135
-fomc-corpus,1979,"Why is that, M r . Chairman? Why would that scare you if in the short run [the funds rate] went up?",27
-fomc-corpus,1979,Because I think it would lock in these long-term rates and raise great concern about credit availability in the short run.,23
-fomc-corpus,1979,"Paul, that doesn't bother me for a change. It seems to me that we've demonstrated that we're willing to let that rate go up to 15 percent and if it does a second time--if it should happen--I think less attention would be paid to it.",53
-fomc-corpus,1979,I think that's very likely.,6
-fomc-corpus,1979,I think that's right if we weren't in a phase of declining economic activity. Then we could get a little excitement in this city of ours!,28
-fomc-corpus,1979,"We've got this concept of a crunch in mortgages, which would probably be exacerbated.",17
-fomc-corpus,1979,HOW would you feel about an 11 percent rate?,11
-fomc-corpus,1979,On the down side?,5
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"well, I do think we have this problem internationally so I'm not all that gung ho on the down side either.",24
-fomc-corpus,1979,It sounds like you're talking about an interest rate target.,11
-fomc-corpus,1979,I object.,3
-fomc-corpus,1979,You object to what?,5
-fomc-corpus,1979,"I feel the same way as Mark does, that the Chairman is getting too close to [targeting] interest rates.",24
-fomc-corpus,1979,"Now, I agreed with your whole lecture, Mr. Mayo, that we didn't have a revolution but an evolution.",23
-fomc-corpus,1979,That's right.,3
-fomc-corpus,1979,"He also said a giant step, I believe.",10
-fomc-corpus,1979,But he didn't say whether it was forward or backward !,11
-fomc-corpus,1979,"That remains to be seen, I think. In any event, I believe there is something to be said for not changing these [specifications] unless there's a reason for changing them, just in terms of consistency with what we did earlier. That's a point that several people have made. And I think literally what we did earlier is that we said what is the equivalent of ""B"" but that we would not be very disturbed if it came in somewhat below that. So we would not ease [if the aggregates were coming in] between "" B ""and ""C."" in that sense. I think that's where the center of gravity is here. It's just a question of how to express it. From the standpoint of consistency in posture for a very brief period, I put to you a proposition that we stick with the ""B"" specifications but with the clear understanding that we had last time--namely, that if [the aggregates] come in a little low because that's the way the cards fall in the next few weeks, we don't have to exert ourselves too greatly to make it all up in December, although we'd obviously be [leaning] in that direction. In that case we would presumably have a decline in the federal funds rate of some significance. On the other hand, if November [growth] were high, higher than is currently being projected, it would be a straightforward ""B"" type of approach I would think. And just what that means for interest rates may be a little less clear but probably still the chances are for a small decline if the overall projection is correct. I guess ""B"" and ""C"" should be split from the standpoint of M1 and M2, too. M2 is pretty much on target; it's just slightly high in terms of the yearly target. For M1 it looks as if we're going to make the yearly target all right. Let me just try that out on you. Mainly in the interest of not appearing to fiddle around at this stage, the specifications would be those of ""B,""as we had before. But if [monetary growth] comes in lower than "" B ""and between ""B"" and ""C, that's not a source of concern. A s for the initial borrowing, we've had suggestions running from $1.5 billion to $1.8 billion. Going along with ""C,""I'd be inclined to put it somewhere in between, at $1.6 or $1.7 billion to start with. I think that expresses a bit that bias toward coming in between "" B and "" C. 'I And let's leave the federal funds range where it is, if that's the consensus. I don't think we're going to hit either end of that range. The lower end, I think, would probably require a decline in the discount rate, so that's a separate decision.",572
-fomc-corpus,1979,"Mr. Chairman, I did not attempt to specify [particulars] because I thought we were going around a second time, but where you come out is not far from where I would suggest. I'd split this borrowing [range] at $1.7 billion. However, if I heard you right, you're taking the monetary growth rates of ""B,""and I would much prefer the growth rates that Governor Partee suggested of 5 percent and 8-1/2 percent [for November-December]. I believe that's what you said, Chuck.",112
-fomc-corpus,1979,"Well, we can do that. I think that's expressing very much the sense of what I am saying, too. But your proposal has what I would see as a disadvantage--I don't know whether it's a major disadvantage--of having to write a policy record that says six weeks after we made the decision [on October 61 we're now fine-tuning it for another six weeks. It seems to me, to avoid a sense of fine-tuning over a six-week period, we'd be better off expressing it the way I expressed it. But the substantive difference, obviously, is close to negligible.",119
-fomc-corpus,1979,"What will be published [in the policy record for October 61 is just the 4-1/2 percent for M1 in the fourth quarter, Phil.",33
-fomc-corpus,1979,All right.,3
-fomc-corpus,1979,And I think the language to be released this week is 4-1/2 percent [but that] somewhat less than that [would be acceptable].,31
-fomc-corpus,1979,"Well, if we take alternative B, it's 5-1/2 percent on M1.",20
-fomc-corpus,1979,For the two months,4
-fomc-corpus,1979,For the two months. But I think the record would say that we're confirming what we did last time.,21
-fomc-corpus,1979,"But that's exactly part of my problem because--if I heard Steve right--if we confirm that, we've got to hit roughly 10 percent [for Ml] in December on the basis of his present projections .",42
-fomc-corpus,1979,If November comes in as low as he's talking about.,11
-fomc-corpus,1979,"If November is close to zero. If it comes out at 3 or 4 percent, it's 6 or 7 percent [for December]. It's that sort of thing.",36
-fomc-corpus,1979,"If I might just tag on, Phil, I think I'd also like to extend the projection into January.",21
-fomc-corpus,1979,"I would, too.",5
-fomc-corpus,1979,That was sort of my notion of going in between 8uBuand muC#G and then saying we'd continue that for January until we have a meeting and can review it again.,38
-fomc-corpus,1979,"Well I think the difference here is, as I say, substantively a nuance.",17
-fomc-corpus,1979,"Well, You [may] want to call a meeting of the Committee if the aggregates did come in at that high a level, but I think a 10 percent rate of growth in M1 in December would be unacceptable.",45
-fomc-corpus,1979,"What I am saying is that if November comes in as low as we're now estimating, we probably wouldn't hit the 10 percent in December. I'm not saying we can't hit it because we know we get these things.",43
-fomc-corpus,1979,We provide reserves.,4
-fomc-corpus,1979,"Well, we would provide the reserves for 10 percent and that presumably would force the federal funds rate down sharply.",23
-fomc-corpus,1979,"I'm not sure we'd provide [the reserves] for 10 percent, as I see it. I'd say we'd come in at 5-1/2 percent or lower.",35
-fomc-corpus,1979,"Well, all right. I think maybe you want to say that it's 5-1/2 to 4-l/2 percent, you know. That's one way of doing it. But it is a path that we're setting here, or telling the staff to set, regardless of where the money supply actually comes out. This is the rate at which reserves would be provided, as I understand it. Am I right about that?",87
-fomc-corpus,1979,"That's right. Whatever numbers che Committee picks, it's a path; it's difficult to work with a range in this kind of thing.",26
-fomc-corpus,1979,"Steve, what would be the annualized rate of growth on, say, alternative "" B "" or ""C"" from October through January?",28
-fomc-corpus,1979,"For ""B"" it's 5-1/2 percent essentially.",14
-fomc-corpus,1979,"And for ""C?""",5
-fomc-corpus,1979,"For "" C "" it's 5 percent. And it's 5 . 9 percent for ""A.""",21
-fomc-corpus,1979,"I think we ought to avoid the prospect of needing a 10 percent rate of growth and having to force in reserves in December to achieve that. SEVERAL. I do, too.",38
-fomc-corpus,1979,I think December would be much too early for a decline in interest rates in line with trying to say that this should go hand in hand with [what is happening with] the economy and with inflation.,40
-fomc-corpus,1979,"Mr. Chairman, I hate to suggest the possibility of moving these numbers and set forth another option. But one way to meet your point and the point other members of the Committee are expressing is to leave M1 at alternative B as you have--have no change there--but to lower the [associated] M2 because that's clearly higher than the Committee intended. Then in constructing the reserve path there would be somewhat less reserves. And if it does turn out that M2 tends to grow higher than we allowed in there, it would put a little downward restraint on M1. That is, the policy record would have the M1 [range] unchanged, the M2 essentially unchanged, and our reserve path total will be a little lower than what is shown here for alternative B.",156
-fomc-corpus,1979,"But the non-M1 component of M2 doesn't absorb a very large amount of reserves, so the impact would be slight.",25
-fomc-corpus,1979,"Yes, but for whatever it absorbs if M2 grows at a higher rate, there will be less for M1. So it would go in the direction of reducing MI below 5-1/2 percent in practice if, in fact, M2 was growing as strongly as projected.",58
-fomc-corpus,1979,What did we specify for M2 back in October?,11
-fomc-corpus,1979,7-1/2 percent.,7
-fomc-corpus,1979,It was 7-1/2 and we now have 8-3/4 percent?,20
-fomc-corpus,1979,"Yes, we can't really get 7-1/2 percent. In alternative C, M2 growth, as you can see, is 8-1/4 percent over the two months. [Adopting] ""C"" would get [M2 growth] down to 8-1/4 percent. If that were substituted, that might reduce the reserve growth a bit.",79
-fomc-corpus,1979,I would much prefer to specify this out rather than to adopt something that then is going to be interpreted midstream because none of us really knows what the projection is going to be or how [growth] is going to turn out. So I would prefer that we use 5 percent and 8-1/2 percent with a $1.7 billion borrowing assumption and hold the fed funds range.,80
-fomc-corpus,1979,"I would support that, Mr. Chairman.",9
-fomc-corpus,1979,"How does the $1.7 billion compare? How would you interpret that 1.7, Steve? Would you interpret that as a neutral initial borrowing assumption or is it a little restrictive, or what?",42
-fomc-corpus,1979,"The way borrowings have been running very recently, that is about [consistent with] where the present federal funds rate is, really. It's in some sense neutral in that it's starting out about where we are.",42
-fomc-corpus,1979,"But suppose November doesn't come in as low as we think it's going to. NR. PARTEE. Well, we don't know",25
-fomc-corpus,1979,I'd rather do it Steve's way and lower the M 2 target--to have some flexibility for the numbers as they come in--and leave the target for M1 where it was on a quarterly basis.,42
-fomc-corpus,1979,"We basically have that flexibility, though, either way we do it.",14
-fomc-corpus,1979,"Yes, but there's an awful big advantage in being able to say we looked at it--that we're part way down the road and we're not going to change our objective at this point. I think there's a lot of just good public relations in that.",50
-fomc-corpus,1979,Then we ought to stay at 4-l/2 and 7-1/2 percent instead of going to 5 and 8-1/2 percent.,34
-fomc-corpus,1979,I'm talking about just releasing quarterly [targets] and that's all.,13
-fomc-corpus,1979,Where were we before on the M2 rate for the quarterly period from September to December?,18
-fomc-corpus,1979,The Committee had specified 7.6 percent.,10
-fomc-corpus,1979,7.6 and it's way up to 8-3/4.,15
-fomc-corpus,1979,"We are at 7.6 percent to date and our projection is that the growth in time deposits will be high relative to M1, so we raised it. But of course M2 growth may not come in that high. It has been running high relative to M1 as compared with expectations, so we continued [that pattern for November-December].",71
-fomc-corpus,1979,That's because of large CDs.,6
-fomc-corpus,1979,Ye5,2
-fomc-corpus,1979,"May I ask you a question, Steve? You are still, I assume, giving equal weight to M1 and MZ?",26
-fomc-corpus,1979,No.,2
-fomc-corpus,1979,That disappeared?,3
-fomc-corpus,1979,"Oh, yes. The Desk is looking at the reserve path.",13
-fomc-corpus,1979,We've got reserves that are generated by deposits in the aggregate and [we look at] other factors that generate reserves.,23
-fomc-corpus,1979,"If M2 is running slow, it will release some reserves to support M1 and vice versa. But they're not going to be [weighted] equally because of the differences in reserve [requirements].",39
-fomc-corpus,1979,"I don't think that's responsive to John's question, really.",11
-fomc-corpus,1979,What I was trying to get at is what you would plan on doing if M1 came in below the 4-1/2 percent we targeted on and M2 came in higher than the 7-1/2 percent. How would you balance those out in trying to construct your reserve path?,61
-fomc-corpus,1979,"We'd be guided by how reserves are coming out in relation to path, president Balles.",19
-fomc-corpus,1979,"You sort of weight it in relation to the average reserves, as I would see it. That is, the components of M2 have less reserve requirements so they don't get equal weight any more.",39
-fomc-corpus,1979,But you start with the estimate of required reserves for M1 and M2.,16
-fomc-corpus,1979,"Well, President Balles, when M2 was coming in about on track, I don't believe that the staff felt that it had to make a special effort to push up M1 because the Committee had decided that the aggregates [could grow at the target rate] or a little lower. Similarly, if M1 were coming in on track and M2 were running very high, given the stress that we interpreted the Committee to be putting on M1, it would have been a question as to whether we would want to adjust the reserve path down for something like that.",113
-fomc-corpus,1979,Simply refresh my memory. I thought M2 was coming in more or less on track.,18
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,Then why is your projection higher than the track we estimated last time?,14
-fomc-corpus,1979,"Because M1 is coming below. It's the relationship that seems to have changed. CHAIRMAN VOLCKER, M1 is coming in below but M2 is coming in on track. But your current projection for the quarter now is above the track.",50
-fomc-corpus,1979,Because we're pushing M1 up.,7
-fomc-corpus,1979,Because you're pushing M1 up.,7
-fomc-corpus,1979,"~ 2 therefore, , would be running even higher. That's the--",15
-fomc-corpus,1979,But M2 is only going to go off track in the second half of the quarter.,18
-fomc-corpus,1979,Because M1 is going to be pushed up,9
-fomc-corpus,1979,"Yes, as I say, banks may not get all that [projected increase] in time deposits.",21
-fomc-corpus,1979,"Well, I really think we are talking about narrow differences at this point. We just have to reach a consensus on how we phrase this. In listening to all the rest of you, there's a slight predilection for my way of phrasing it. I'd be perfectly happy to phrase it the other way if that's the way people want to do it. I think it amounts to--",77
-fomc-corpus,1979,"Why don't you take a couple of tests on expressions of preferences. I think it would be very desirable, if we could, to have a large number of people voting for whatever [the decision] is.",41
-fomc-corpus,1979,"As I understand it, we have basically two [alternatives] on the table. And we have the Axilrod alternative, too, so we have three options on the table. We have one that is a straight compromise between ""B"" and ""C,""and $1.7 billion on initial borrowings. That's one way of doing it. Another way of doing it is to specify ""B"" with the understanding that we're not unhappy if it turns out to be ""C,"" if November monetary growth is as low as projected.",108
-fomc-corpus,1979,Does either give you a better assurance as to what Ml will do in December?,16
-fomc-corpus,1979,"I think there's equally little assurance in either case. And the third alternative is staying with "" B "" on M1 but lowering M2 to something like ""C."" That's a different compromise between ""B"" and "" C . I'",47
-fomc-corpus,1979,For path purposes.,4
-fomc-corpus,1979,"But Steve's point could be accomplished, couldn't it, by weighting the average of ""B"" and ""C"" on M2 toward ""C?"" Just have it 8-1/2 percent, say.",43
-fomc-corpus,1979,"Well, let's not make any more--",8
-fomc-corpus,1979,I'm trying to simplify it.,6
-fomc-corpus,1979,"One is a straight compromise right down the line between ""B"" and "" C .",17
-fomc-corpus,1979,What do you mean? Is it 8-5/8 percent for M2?,18
-fomc-corpus,1979,"It's 5, 8-l/2 and [borrowing of $1.7 billion] and the same fed funds range.",27
-fomc-corpus,1979,8-1/2.,6
-fomc-corpus,1979,"8 - 5 / 8 , I suppose, is a straight compromise.",16
-fomc-corpus,1979,"My whole point on all of this is that 8-l/2 percent works in the direction of Steve's suggestion. Why don't we make it 5 percent, 8-l/2 percent, and 1 - 1 / 2 .",50
-fomc-corpus,1979,That's what we have.,5
-fomc-corpus,1979,"8-1/2 and 7-1/4 percent, I suppose.",17
-fomc-corpus,1979,M3 is not--,5
-fomc-corpus,1979,And $1.7 billion on borrowing.,9
-fomc-corpus,1979,And the fed funds range the way it is.,10
-fomc-corpus,1979,"All of these leave the fed funds range where it is. The alternative is alternative B with the understanding that [the specifications in ""B""] in some sense are the maximum, within the limits that we can maneuver these things anyway. If November comes in weak, we'd probably be satisfied with ""C."" And we'd also start out with a $1.7 billion initial borrowing assumption. Let's just take those two at the moment.",85
-fomc-corpus,1979,I don't think Steve's alternative is well specified. It would be 5-1/2 percent for M1 and what would M2 be?,30
-fomc-corpus,1979,M2 I think would be 8-1/4 percent. That's a straight compromise.,19
-fomc-corpus,1979,"No, it would be less than that, I think. It would be an impossible construction.",19
-fomc-corpus,1979,"Well, he's not taking it literally to get it within the target, I take it. I'm just compromising between ""B"" and ""C."" I suppose one could say technically--if the staff's estimate is any good--that that is the most awkward one. It's not going to happen. But their estimate may be no good, so--",69
-fomc-corpus,1979,"Well, I could take the second.",8
-fomc-corpus,1979,"We have alternatives 1, 2, and 3. The borrowing level is the same in all of these for simplicity. So all we're talking about is these other numbers. One is an arithmetic compromise between ""B"" and ""C, half way between "" B ""and ""C"" straight out. The other is a more flexible interpretation between ""B"" and ""C"" and would depend in practice presumably on what happens in November, which we can't control any more.",96
-fomc-corpus,1979,"That would probably protect better against unexpected drops in the funds rate because we can go all the way to the "" C ""specifications.",27
-fomc-corpus,1979,Not necessarily.,3
-fomc-corpus,1979,"It goes in that direction, certainly. It might depend, I think, on how low November came in.",22
-fomc-corpus,1979,And how rapidly we recognize it.,7
-fomc-corpus,1979,"Then we have this--instead of saying bastardized version, I'll say ""hybrid""--which is 5-1/2 percent for M1 and 8-1/4 percent for M2. I myself am not sure that M2 isn't going to fall off. My instinct is that it may fall off and [the 7-1/21 may turn out to be consistent [with what we have for Ml]. Now the only trouble with voting on 3 alternatives is that you can't make a second choice, apparently. But let's see whether there is an overwhelming consensus for one of these. The first one, the arithmetic compromise. Just members, indicate if that is your preference. Eight.",142
-fomc-corpus,1979,You're only asking Committee members?,6
-fomc-corpus,1979,Yes.,2
-fomc-corpus,1979,"The next alternative is two. Four with myself. And the other one is the Axilrod version, which I guess is not [anyone's first choice.] Well, it looks like it's 8 to 4 [in favor of the first one].",52
-fomc-corpus,1979,"Do you want a ""can live with"" indication?",11
-fomc-corpus,1979,"Yes. I suppose the next question is can everybody live with one, with its arithmetic purity. IUnintelligiblel but nonetheless pure. Everybody can live with that?",35
-fomc-corpus,1979,"Well, would you be willing to raise [the initial borrowing assumption]? This gives us a little more opportunity for fine-tuning and sharing because we've got the borrowing. Would you be willing to raise that a little?",43
-fomc-corpus,1979,I thought you voted for it in the first place?,11
-fomc-corpus,1979,"I wanted two. Yes, if you made [borrowing] $1.8 billion.",19
-fomc-corpus,1979,"But that's tougher. The choices were between ,VB"" or ""C ~ I! You're trying to make it tougher and move it toward ""C.""",30
-fomc-corpus,1979,"Yes, that's what I'm trying to do.",9
-fomc-corpus,1979,"You people all realize that if you vote for this compromise, this straight arithmetic compromise, and November really comes in low, we're going to be much easier in December than in the other alternatives.",38
-fomc-corpus,1979,I think that might be appropriate.,7
-fomc-corpus,1979,It would balance--,4
-fomc-corpus,1979,That's why we can live with it.,8
-fomc-corpus,1979,That's what I don't like.,6
-fomc-corpus,1979,"Well, have we got a consensus for the arithmetic purity? MR. mY0. Sure, let's vote.",23
-fomc-corpus,1979,If I understand what it is.,7
-fomc-corpus,1979,"It's halfway between "" B "" and ""C."" It couldn't be simpler.",15
-fomc-corpus,1979,"Mr. Chairman, how does this look when it's written up? Does it look like--",18
-fomc-corpus,1979,Better than it sounds.,5
-fomc-corpus,1979,Will it l o o k as if we've departed [from our original decision1 in any meaningful way?,21
-fomc-corpus,1979,"Well. I would suggest that we write it up so that it doesn't. It depends upon how one interprets what we said before. It's slightly tighter in some sense, if you interpret it literally [compared with] the number that we gave before. But if you put it in the context that we said we weren't going to be unhappy if growth came in a little below, we're accepting that [lower growth] as we said we would accept it.",91
-fomc-corpus,1979,"Do we just write it up as November, December, and January and then it would be 5 or 4-112--",26
-fomc-corpus,1979,"Well, I think we ought to assume for the moment--we'll decide about the meeting date in a few minutes--that if we decide that the next meeting will be in January, obviously we carry this forward into January. That's the implication; it is until the next meeting.",56
-fomc-corpus,1979,"I would assume, Mr. Chairman, that this is roughly the sentiment that the Committee decided before--that it has got a hair less M1, and a hair more M2. This to me is essentially what it--",45
-fomc-corpus,1979,I think what we're talking about is [the period] until the next meeting.,16
-fomc-corpus,1979,Or unless things fall out of bed and you call a special meeting.,14
-fomc-corpus,1979,"Yes, we can always have a meeting",8
-fomc-corpus,1979,"Okay, let's vote. We are voting for a straight arithmetic average between ""B"" and ""C. 'I",23
-fomc-corpus,1979,This is for November-December?,7
-fomc-corpus,1979,"Until the next meeting, whenever that meeting shall be.",11
-fomc-corpus,1979,But that would be no later than January.,9
-fomc-corpus,1979,We're not going to do it for February and March.,11
-fomc-corpus,1979,"In the normal course of events I think that's expected. We will decide upon the meeting date in a moment. S O , it's until the next meeting.",31
-fomc-corpus,1979,Chairman Volcker Yes President Balles Yes President Black Yes Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes First Vice President Timlen Yes Governor Wallich Yes Unanimous.,52
-fomc-corpus,1979,"We have another action to take which, if I understand it correctly, involves me delegating to Governor Schultz and in his absence Governor Coldwell the authority to answer all requests under the Freedom of Information Act, I guess.",44
-fomc-corpus,1979,"No, the appeals from any turned down by the Secretary.",12
-fomc-corpus,1979,Appeals [of any requests] turned down by the Secretary.,13
-fomc-corpus,1979,"Of which we have had none, I think, since 1975.",15
-fomc-corpus,1979,"Is there a motion to accept that delegation? Without objection, it is so delegated. The next meeting is the remaining item of business. What I would suggest is that we tentatively keep it on December 18, but that you clear your calendars for whatever date seems best among January 8 , 9, or 1 0 . Are there preferences [with regard to those dates]?",78
-fomc-corpus,1979,The 10th is a [board] meeting date.,12
-fomc-corpus,1979,It's a Thursday.,4
-fomc-corpus,1979,And the 8th is the date I'll be returning from the BIS meeting.,16
-fomc-corpus,1979,You'd be gone on the 7th too,10
-fomc-corpus,1979,The 7th and 8th I'll be gone.,12
-fomc-corpus,1979,"What did you say about December, M r . Chairman?",12
-fomc-corpus,1979,"Keep that on your calendars, with a presumption that the meeting will be held on December 18th. But I want the freedom to move it to--let's say the 9th of January if we can be that specific, which is Wednesday. The meeting might be moved because of various developments of an unforeseen character but particularly it may be convenient in terms of the new money supply figures and all the rest. If nothing is happening that suggests that we need to review things with urgency and if the [new] money supply figures will be in better shape and clearer with two weeks more [of work on them]--and we will have the advantage of knowing the OPEC decision and we won't have that on December 18th--then I'd be inclined to change it. But if something comes up [and things are1 not going according to Hoyle in some sense, I'd be inclined to keep it [as scheduled].",186
-fomc-corpus,1979,"While we're all here, could I address a question to Bob Black? We have a Conference of Presidents meeting scheduled in December.",25
-fomc-corpus,1979,We could reschedule that.,6
-fomc-corpus,1979,Would we if we move [the FOMC meeting date]?,13
-fomc-corpus,1979,"Yes, sure.",4
-fomc-corpus,1979,"I might suggest, Mr. Chairman, the possibility of having this meeting on January 8 if that's agreeable. If we're going to follow it with the Conference of Presidents, that takes another day. Is something wrong with January 8th?",48
-fomc-corpus,1979,Only for Governor Wallich; I think that's all.,11
-fomc-corpus,1979,How about the 4th?,7
-fomc-corpus,1979,Not the 4th; I won't be here.,11
-fomc-corpus,1979,Could we not precede [the FOMC meeting] with our Conference of Presidents.,18
-fomc-corpus,1979,"Yes, I wonder whether you could do it in the opposite order, with the Presidents' conference first.",21
-fomc-corpus,1979,Yes; we could shift it to January and Ernie could preside instead of me.,18
-fomc-corpus,1979,"So if we did that, it would be the 8th and 9th.",18
-fomc-corpus,1979,You'd have the Presidents' conference presumably on the 8th and the FOMC meeting on the 9th instead of vice versa.,29
-fomc-corpus,1979,"Your preference at the moment is to have it in January. So in terms of our planning we should be thinking more of January than December, right?",30
-fomc-corpus,1979,"Again that's my preference if nothing goes wrong, but you know that seldom happens in this business. So I'm not sure what the most likely [date] is. I guess my preference would be to move it later because the money supply numbers will be in better shape and clearly we'd have the OPEC business behind us. But if things get disturbed, my preference would be the other way around.",78
-fomc-corpus,1979,"It would just be easier in planning if we could fix on one or the other as the dominant one. I'm happy to go to January. I think that makes a lot of sense, but I would prefer to fix on one date rather than two.",50
-fomc-corpus,1979,I think that's true. Why don't you turn it around?,12
-fomc-corpus,1979,"Well, let's state it the other way around. Let's have a presumption that we will have it on January 9, but keep the other date open just in case things go wrong.",38
-fomc-corpus,1979,Sold.,2
-fomc-corpus,1979,Let me ask the subcommittee chairmen to get their reports in as if it were going to be in December.,23
-fomc-corpus,1979,"That means they'll be on time for the 9th anyway! All right, let's presume it's on January 9th, but keep December 18th open in case we're hitting the federal funds [limit] or something is going on internationally or whatever.",51
-fomc-corpus,1979,"Does that assume, Mr. Chairman, that we'll still meet on February 5 ?",17
-fomc-corpus,1979,"Yes. On February 5 we'll still have to make the final decision on the targets. So I would expect to have a preliminary discussion of them on whatever date we meet before then. It won't be until February 5 that we will know the budget and some other things anyway, but we are going to have a preliminary discussion whenever we meet next. And that preliminary discussion will have some substance because presumably it might affect what we do in the short run. Do we have a motion for adjournment?",101
-fomc-corpus,1979,So moved.,3
-fomc-corpus,1979,We are adjourned.,6
-fomc-corpus,1980,[That was the change in System holdings of securities] since when?,14
-fomc-corpus,1980,That was for all of '79.,8
-fomc-corpus,1980,"Steve, if you want to add something that bears upon the nature of the operations, this is probably as good a time as any to do it.",30
-fomc-corpus,1980,"Mr. Chairman, we have some tables we could pass out, which are somewhat similar to the ones that we made available to the Committee at the last meeting and which might be helpful in considering how and whether to proceed with these techniques. These tables are designed to elaborate the numbers that underlie Mr. Sternlight's operations. As you can see, they are divided into two columns. On the thought that the Committee wouldn't want to get too far off its path for any sustained period, we divided this period--the seven-week intermeeting period--into a four-week interval and a three-week interval. The three-week period ends tomorrow. The tables [exhibit] all the perils of lagged reserve accounting, which makes the relation between reserves and money in the short run not as close as one might hope. [Operations] were designed to attempt to attain a growth rate in M1 in the September-to-December period of a little over 4 percent and in the November-to-December period of something like 5 percent. In the event, as you saw in the Bluebook, we were a bit short on the growth rate in M1 and also in M2; but I think within any reasonable margin of error we were not really very far short. If you focus on the last column, which [covers] the most recent three-week period, you can see that the monetary base turned out about $379 million short of the original path we set. And you can see that total reserves turned out about $218 million short of the adjusted path. As will be clear shortly, the adjustments were only $4 million. So it really is about $220 million short of the original path; there was a currency shortfall involved. With total reserves running short, the Manager added roughly $150 million to the original nonborrowed path. That is shown in the third panel, where you see adjustments of $146 million. That simply is the $150 million added minus the $4 million, which was a decline in the original total reserve path. So that is the added adjustment to nonborrowed reserves because total reserves were running short of what seemed consistent with this money stock figure, again recognizing the looseness in linkages because of lagged reserve accounting. Thus, to translate that into borrowings, you can see that the original path based on the Committee's decision in November, which was to assume borrowings at $1.7 billion, would be subtracted from total reserves to give [the level of nonborrowed reserves] the Manager would aim for initially. After the $150 million adjustment, that would get us down to $1,550 million in borrowings; and given the weakness in total reserves demanded relative to what was projected as needed to get the [desired growth in the] aggregates, actual borrowings, of course, fell short even of that. So the deviation of $218 million from the [assumed level of] borrowing turned out to be exactly the same as the deviation from the adjusted total reserve path of $218 million. That's just simply arithmetic. The source of some of the problems we were having is shown on the next page; they are inherent in this kind of targeting procedure. Again, I'd say that thus far I think we've been fairly lucky in coming up with growth in money that was pretty consistent with what the Committee wanted. As you can see, on the original total reserve path we were off $222 million from [the path] we first constructed. Adjustments came later. They really involved two components, and they went in opposite directions. One was excess reserves, which actually turned out to be $166 million higher than we had built into the original path; that is line B in the last column. And in terms of the uses of total reserves, required reserves were running $388 million weaker. So, simply taking total reserves as the sum of excess and required reserves, total reserves were running [below by] $222 million. Thinking of it from the sources side, we just didn't supply that much reserves. With lagged reserve accounting, to do so we would have had to pile in a lot more excess reserves than even the banks were willing to hold. I don't know how much that would have amounted to because we would have had to run down borrowings to begin with. Now, the bulk of the shortfall in required reserves was in the type of liabilities requiring reserves that didn't enter into either M1 or M2. As you can see, there were shortfalls relative to expectations of $80 million in large CDs, $90 million in U.S. government deposits, and $167 million in the marginal reserves, which are connected with the shortfall in large CDs. That's essentially because bank credit ran a lot weaker than we expected and banks simply were not borrowing in the market in order to meet those credit demands. Thus, we adjusted the path, really, so that the Manager wouldn't supply those reserves. We hadn't made any adjustments to path since October 6th until this past three weeks. And we had such large consistent shortfalls in these items that it seemed that we would get too much money unless we adjusted the path, so the Manager in effect absorbed the reserves released by the decline in these deposits. Of course there was a shortfall in currency relative to expectations, as shown in the third line, line E. And in terms of reserve requirements, that meant we would have had to add $30 million to total reserves to compensate for the shortfall in currency. However, that was more than made up, as you can see, by the sharp drop in required reserves behind large negotiable CDs, U.S. government deposits, and marginal reserves. Those minuses much more than compensated for the added reserves needed for the shortfall in currency. That is, simply put, the drop in negotiable CDs released reserves that could be used to expand the deposits needed to make up for the shortfall in currency. So, netting through all those things, we ended up reducing the total reserve path by $175 million, as you can see in line F, to reflect changes in deposit mix and in currency flows. It's a rather rough net that won't add up exactly, but it goes in the direction that all items listed under D and E would suggest on [balance]. On the other hand, because excess reserves were running extremely [high], we felt we had to add reserves because banks' behavior with regard to excess reserves was totally different in terms of magnitude from what we had expected. So in the end, as Peter mentioned, because banks kept holding more excess reserves than we were expecting every week, somewhat belatedly we added $171 million. So, those adjustments net out to virtually nothing. If you took that minus $4 million and related it to the $222 million, you get this $218 million, which is the deviation from the adjusted path. In general, this time it seemed very reasonable to make these adjustments to the path. In the previous periods we did not because we didn't see extremely large sustained movements; the movements we did see in the earlier periods were more toward rapid expansion in CDs and in bank credit, things that we assumed the Committee wanted to hold down. However, this time it was toward very weak bank credit; and we assumed that the Committee did not want that very weak bank credit to be reflected in excessive expansion in Ml, so we made some offsetting adjustments. Of course, with lagged reserve accounting, the impacts on Ml are not related one-for-one to what we do this week. One has to wait for some time to come. But in any event, by the time all this was done, we still ended up with weak total reserves because we couldn't provide enough nonborrowed reserves to bring total reserves up to path within this three-week period.",1578
-fomc-corpus,1980,"I'm sure that's crystal clear! So, I think it's time to raise questions--not just on the details of Peter's operations, but questions that bear upon the operating techniques generally. Governor Partee.",40
-fomc-corpus,1980,"Well, just a comment. I think I understood the direction of your adjustments, Steve, as you went through this. But I certainly don't understand it from this table on the second page. I can't make out the magnitude of the adjustments. The arithmetic just doesn't work very well, at least as I was trying to follow what you said, although I understand the direction of change. The other question I have is on the very last comment you made, which was that even after these adjustments you fell short of the desired adjusted reserve path because you just couldn't supply the nonborrowed reserves. Would you explain why it is that you couldn't get in the nonborrowed reserves?",134
-fomc-corpus,1980,He couldn't get in the total reserves.,8
-fomc-corpus,1980,"We fell short on total reserves, not on the nonborrowed.",14
-fomc-corpus,1980,"Well, one of the things that is disturbing me--about the whole period really but particularly the last month or so--is that we don't seem to be getting any market impact. We have to have feed-through if this process is going to work. And yet, regardless of the shortfall in reserves and the shortfall in money and the fact that borrowings were coming down, we held the funds rate at about 14 percent all the way through. It looks as if somebody else is determining the funds rate. My question is: Under those circumstances, since we weren't anywhere close to the bottom level of the funds rate range that was specified, why didn't you put in more nonborrowed reserves in order to try to get this process of adjustment in the market going more strongly than it did?",159
-fomc-corpus,1980,"Well, Governor Partee, that's certainly a very fair question. It has always been an issue, so far as I understand the procedures. My understanding of the original Committee decision was that we would put more weight on nonborrowed reserves than on total reserves, but still the Manager would have freedom when there was clear cause. The staff would have the freedom to adjust the total reserves but the Manager would have the freedom to adjust the nonborrowed reserves when there was clear cause for there being a shortfall. So, early in the three-week period, we did add $150 million to nonborrowed when it appeared that the gap between the total reserves path and total reserves demanded was something on the order of $450 million. And then in each successive week that gap of $450 million kept getting narrower as required reserves began revising up from what we had [projected]. The money supply [growth] estimate for December when we made this adjustment was on the order of 3-1/2 percent or so, I think; it has now ended up at 5-1/2 percent. So as that gap narrowed, I think--Peter can speak for himself--we were a little reluctant to make any further adjustment because we were going in the right direction and we were on the nonborrowed path. Now, it did seem to us that the funds rate ought to drop as member bank borrowing dropped from $1.7 billion to the $1.2 to $1.3 billion area. In the event, now that bank borrowings in the last past three days have been running $600 or $700 million and the funds rate still has not dropped, there seems to have been a change in the demand for borrowing function, so to speak. That is, member banks, who had been very willing borrowers in late October and over the course of November--they had high borrowing at a funds rate that's lower than it is now--have backed away from the window. It's quite possible that we have been late in catching up with that and that in some sense the nonborrowed path ought to have been set higher because of this change in member banks' borrowing patterns. And as Mr. Sternlight mentioned in his briefing, this week in effect he's adding more to the nonborrowed path than is indicated even in this table because borrowing is running so low. If that's the case, then the $1.7 billion of borrowing that was set originally was way too high to achieve those particular targets, and the downward adjustments in them are coming, in a sense, with a lag.",522
-fomc-corpus,1980,"There may be a fair [amount of] instability in that demand. You may remember a month ago, or seven weeks ago or whenever [the meeting] was, we thought there had been an increase in the demand for borrowings compared with earlier in the experience when there wasn't.",56
-fomc-corpus,1980,What plausible reason do you have for the funds rate staying as high as it has with borrowings as low as they are?,25
-fomc-corpus,1980,"I don't have any very good reason at $600 or $700 million, but at $1.2 and $1.3 billion I think that's returning more to the historical pattern. When we evaluate the spread of the funds rate over the discount rate, $1.2 or $1.3 billion of borrowing isn't unreasonable. What was out of the historical pattern was November and late October when we had much higher borrowing at a spread that was even less than we have now. That was what was [off] the historical pattern. What we had up until three days ago is closer to the historical pattern. Now we have much less borrowing than one would expect historically, and I would assume borrowing is going to jump back up.",146
-fomc-corpus,1980,"If I can interject, these last few days seem difficult to explain; the rather low level of borrowing is just not what one would associate with a funds rate of around 2 percent over the discount rate. And, as Steve mentioned, because of that we made an interim adjustment in what we were aiming for in nonborrowed reserves, feeling that to try to press nonborrowed reserves down to the path level in this current week would have meant going into the market and extracting reserves when the funds rate was around 13-3/4 or 14 percent. That obviously didn't make sense; and in effect we've been running this week with an assumption that an adjustment of about $500 to $600 million should be added to the nonborrowed or taken away from the [borrowed] reserves.",161
-fomc-corpus,1980,"I know it's awfully early, but what bothers me about this whole experiment so far, Paul, is that I don't get any sense of dynamics working. That is, we had a very nice outcome taking the quarter as a whole. I think everybody around the table would agree that the money number calmed down and the markets have been better and all that. But that all could have been an adjustment to the one-time change in conditions that occurred early in October, with much higher rates and the availability constraint and that kind of thing. Since then I haven't had much sense of dynamics in the process that would lead to, say, restoration of a higher growth rate in money if it were lower than what we wanted. And it has tended to be lower than we wanted. Perhaps it's just too early, but I don't see it. That's what bothers me.",171
-fomc-corpus,1980,We would have seen what you are talking about if the funds rate had seemed to reflect this low level of borrowing.,23
-fomc-corpus,1980,I think that's probably right.,6
-fomc-corpus,1980,Governor Coldwell.,4
-fomc-corpus,1980,"Steve, for my simple-minded, poor mathematical abilities, tell me if I can make this statement and say it's reasonably accurate: That the things that threw you off were the demand for excess reserves and the shortfall in borrowing. The latter was being made up by an enlarged nonborrowed path and the former--coupled with a currency shortfall, I guess--brought you to the shortfall in the total required reserves path. Is that reasonably close or not?",94
-fomc-corpus,1980,"[Yes], in looking at the uses of total reserves. But if you really make it tough for yourself and analyze this by looking at the sources of total reserves, as I think one should--if you think you're on a total reserve target, which the Committee has not clearly said it's on, having said it's much more on a nonborrowed target--you would say that we fell short on the total reserves in this three-week period simply because we didn't put in enough nonborrowed reserves to push up the total reserves to target. Of course, if we had put in nonborrowed reserves--given the required reserves, which aren't going to change that fast--borrowings would have dropped, one for one. Then eventually we would have had to add to the excess reserves, which were running [about] $400 or $500 million, and we would have ended up with $700 million or so in excess reserves--that would have been the mechanism--and very close to zero borrowing to attain this. The funds rate very likely would have dropped well below the bottom of the range. I would say--and I don't know if Mr. Sternlight would put it in the same way--that if you thought we were on a total reserve target, the reason we fell short was that we didn't push out the nonborrowed reserves aggressively enough and push up excess reserves--which is all we can push around with required reserves fixed--sufficiently to get the total reserves. And what would have stopped us would have been the bottom of the funds rate range. We'd clearly have gone below that. What in practice stopped us, I think, was that the pattern we saw developing was not out of keeping with what in effect had been planned at the time of the Committee meeting and, judging from the Committee's discussion, what the Committee would have found acceptable. That is, at the time of the Committee meeting we had a November rate of growth in M1 of 1.9 percent, and for December--it was just after the meeting when we had the revisions--Ml growth of 7.9 percent. Midway through the period we were looking at growth in November of 1 percent and in December of 3.8 percent. That was around mid-December. Then [our estimates changed] as we got to the end of December, and now we are looking at [M1 growth in] November of 1 percent and in December of 5.7 percent. So it began to look to us that growth was moving up. That's what I was explaining to Governor Partee. Required reserves were coming up and as the period went on--in the last two or three weeks--our shortfall against total reserves was becoming less; it appeared that we were moving in the proper direction. And since we were right on the nonborrowed adjusted path, which was already $150 million above what was originally set, it didn't seem reasonable in that context to take a more aggressive action to chase the total reserves in this very short period. I don't know whether I'm being extremely clear, but I think that's the true answer.",629
-fomc-corpus,1980,We're back in 1937.,7
-fomc-corpus,1980,"Well, we still haven't found out whether there are any dynamics here that will work or not.",19
-fomc-corpus,1980,I think that's true. But I also think we're giving this an unfair test in assuming that we can be within 1 percent of whatever the money supply [target] is.,35
-fomc-corpus,1980,"I was going to say, Mr. Chairman, if I may, that I don't know what the test of success is, but if the Committee was aiming at 4.2 percent in M1 and achieved 3 percent, by my measure that's success.",52
-fomc-corpus,1980,By all past [measures]. Governor Wallich.,11
-fomc-corpus,1980,"If it wasn't a coincidence, it's wonderful. [CHAIRMAN VOLCKER]. If it was far off, the staff would say it was a coincidence!",31
-fomc-corpus,1980,The Chairman giveth and the Chairman taketh away!,11
-fomc-corpus,1980,"The mechanism described just now must have some similarity with what went on during the '30s when [the FOMC] found that it could not generate the money supply it wanted. Well, I don't know what [the FOMC at the time] wanted, but at any rate most of the expansion they did engage in, mostly through gold purchases not security purchases, went into excess reserves. But this is a very faint effect here, which would not worry me a great deal. What does worry me is that I now encounter, not only here but abroad, a criticism of our procedures that in effect says we're back to the procedures of the 1920s when borrowing was regarded as contractionary; the more borrowed reserves you had, the more contractionary effect you were setting up. Banks were trying to get out of debt, so to push the banks into debt was the way to tighten credit; that is sometimes associated with Riefler's name. As I say, I have heard this comment that our procedures now are very similar to that. We push the banks into rediscount, by operating on nonborrowed reserves; the less nonborrowed reserves we supply, the more they have to borrow; and that, we say, lowers monetary expansion. It does so presumably by driving up the funds rate and driving up other rates, and that reduces the demand for money. Now, I wouldn't say that this is a bad mechanism. And I wouldn't say that borrowing is expansionary as some of our critics say in the sense that more reserves, of course, is more expansionary than less reserves. I would say that we aim at a given volume of reserves and that the composition of that volume of reserves makes a difference. If they're all nonborrowed, it's more expansionary than if a higher percentage of them is borrowed. That seems to me a reasonable approach. In support of a rejection of this criticism I would argue that some of the things we experienced here all do point in somewhat the same direction. We got low borrowing at a given interest rate. That would suggest that there is greater reluctance to be in debt now than there was in the past and that there is a true reluctance to be in debt that causes banks to restrain their [credit] expansion. Second, we get high excess reserves. Well, that seems to be the same phenomenon of caution on the part of the banks. They don't want to get into debt; they'd rather have excess reserves. And, finally, the funds rate remains high and doesn't go down as one would expect. Well, again, they're bidding for funds in order to have liquidity, in order to be safe. I could visualize that this is simply happening because we're in a transition period and they are learning the ropes. And after a while the willingness [to hold] excess reserves will wear off and the reluctance to borrow may wear off. But for the time being, it seems to me that this criticism that I hear--and as I say I was surprised to hear it in Switzerland--is not justified. I'd like to hear what Peter and Steve have to say about this.",631
-fomc-corpus,1980,"Well, I think you sorted out those points very well, Governor Wallich. Borrowing has always had this kind of dual role. It's a source of reserves, but it's a source of reserves with a string on it and is certainly less expansionary than if those reserves came from open market purchases or even from float or some other factor beyond our control. We've found ourselves having to make adjustments for the possible change in attitudes of banks toward the window. I alluded to one just now. We are not sure--and any conclusion drawn from the last few days would be very preliminary--but to the extent that there may be something to it, we have made an interim adjustment to allow for that greater reluctance to use the window these last few days and have been willing to provide more nonborrowed reserves accordingly.",163
-fomc-corpus,1980,They differentiate that much between buying money and borrowing it?,11
-fomc-corpus,1980,But why would they change in mid-course? You seemed to be right on track in the first four-week period and then something changed and they became more reluctant [to borrow] in the past three weeks.,41
-fomc-corpus,1980,"Well, we're puzzled, particularly because during the first two weeks of this last [period], as Steve said, it looked as if banks might be getting back to a more normal relationship of borrowing and the discount rate. And this current week just seems to be a little world of its own; I think it is really too [early] to draw any conclusion from it.",74
-fomc-corpus,1980,"You didn't comment on the excess reserves, but I don't suppose that can go all that far.",19
-fomc-corpus,1980,"I tend to associate that with the year-end pressures to a considerable extent, perhaps more than the new operating techniques because, after all, they didn't jump to hold high excess reserves right after October 6th.",42
-fomc-corpus,1980,The funds rate was also volatile in the earlier period. It just seems to have been almost cemented in the last two or three weeks.,28
-fomc-corpus,1980,"It has been surprisingly stable, yes.",8
-fomc-corpus,1980,It seems to me that they would have been more cautious at first--in the post-October 6th period--than currently.,27
-fomc-corpus,1980,"Exactly. That's what's so puzzling, Governor Teeters. One would have expected a response of a bigger demand for reserves--that is, wanting less borrowing and more excess reserves--earlier and then getting used to it later. And what we're seeing now is an increased demand for free reserves in the last three or four weeks relative to what was the case earlier. In some sense for any given amount of nonborrowed that we provide, if there's a bigger demand for free reserves, we're going to get less expansion for them [as they] go into excess or into reduced borrowing.",117
-fomc-corpus,1980,And much less volatility in the funds rate.,9
-fomc-corpus,1980,"Well, that may depend on certain other factors like the attitudes of people in the funds market and how [they react] to the volatility. [",29
-fomc-corpus,1980,Mr. Willes.],5
-fomc-corpus,1980,"Thank you, Mr. Chairman. I'll just make two brief comments. I'll start out by saying that I don't pretend to understand the procedures, so my comments are probably way off the mark. But the discussion fascinates me. It strikes me very much like the discussion one reads in the paper each morning where people are explaining what happened in the stock market. They always have some specific reason for why the stock market did what it did. I don't think we really know how all these demand functions--for excess reserves, borrowed reserves, nonborrowed reserves--are changing in the short run. I just don't think [we know] anything that can make us reach very comfortable judgments on why things are doing what they're doing. Going back to Henry's comments, at times borrowings are in some sense restrictive and at times they're not; it all depends. I think the banking system can have a net borrowed position for a long time and not feel constrained at all, depending on an array of various factors. So, I just feel very uncomfortable with the procedure that we seem to be getting into where we're modifying paths and making adjustments and so on because presumably we are able to identify shifts of a kind that I don't see how we can identify. Now, I don't know what the alternative to that is. But somehow it seems to me that we've got to work our way to a position where we figure out which of these things really matters most--nonborrowed reserves, total reserves, the base, or whatever it is--and set the dial on that and then just let it run for a while. And if we see the dynamics that we ought to see, that's fine; if we don't, then we have to go back and find something else. I feel very [un]comfortable with the situation where we think we can operate on a reserves basis the same way we were operating on a federal funds rate basis. I think the two are very different kinds of procedures; we can't move from a federal funds target to a reserves target and make all these very refined calculations and adjustments.",415
-fomc-corpus,1980,"If I may, Mr. Chairman, the staff feels the same reluctance you do about modifying any paths, President Willes. In this three-week period it was the first time we did it in any consistent way during the twelve weeks this experiment has been running. And it was only, of course, because it seemed that we had a very clear movement of factors. That's a partial answer to Governor Partee. We did [the adjustment of] $175 million early in the period, and as these factors got bigger or smaller we didn't want to adjust for small changes because, after all, then we would end up chasing it --going up one week, down the next, and we wouldn't know. So we try to [adjust] as infrequently as possible just on the grounds that you mentioned, because things would tend to average out. However, when there was a very clear change, it began to look as if we had very little alternative. But it was only because of very, very clear changes, we thought.",206
-fomc-corpus,1980,I wonder if some of the lack of dynamism or some of the sluggishness in this whole process might not be a reflection of the fact that large segments of the markets aren't quite sure exactly what we're doing. That leads me to the question that I would direct to Steve or Peter: What would happen if we specifically and publicly described what our paths are--or at least some of our paths--so that the markets could adjust to what they know our game plan really is instead of feeling that there's some vague thing going on that they're not sure of. Their reluctance or lack of reaction may be due in part to the fact that people don't want to stick their necks out in the markets until they really know what our reserve path is or what our monetary base path is. What are the negatives to defining those things publicly?,165
-fomc-corpus,1980,"I think there is some appeal to that, President Roos, except that in a period like this where we felt there was an overriding reason for making these adjustments in the path, I would wonder if in this whole dialogue to the public announcing a path and then having to modify it could lead to considerably more uncertainty and confusion than if we could have some understanding that we have to exercise some flexibility as we apply this procedure.",84
-fomc-corpus,1980,"As this process goes on, Peter, and as we become a little more comfortable and confident in the process, would you anticipate that we would describe more publicly and more specifically what we're doing? Obviously, if unforeseen circumstances cause us to change, we could certainly explain why we're changing.",56
-fomc-corpus,1980,"Well, I would certainly hope that we can get to the point where we can explain more to the public about the general methodology and how we formulate these paths and carry them out. At what point we might want to or be able to post the path on the wall while we're going through a period, I don't know. I feel it's too early to reach a judgment on that.",76
-fomc-corpus,1980,"[I'd make] two other points regarding [the issue] you raised, President Roos. I don't think publishing a reserve path will make the relationship between reserves and deposits any more predictable. I doubt that public relations [efforts] would work in the direction of making that relationship more predictable because I think that depends on other things. We may want to publish a long-run reserve path, but I think it would have to be for other reasons. Secondly, though, if we [publish] a short-run reserve path--say for three months--I think we're going to generate in the markets the same effect that is generated by the money supply publication. Every time we come out with our reserves number, which we publish once a week, markets are going to see [where it is] in relation to the path and then start arguing with themselves [about what] that means. They might say it means that we're going to lower reserves next week and that means the funds rate is going to go up next week, which may or may not be true because we may have a pattern in mind very different from theirs. And it might generate unnecessary movements in the market. While that's not fatal to anything, it's an unnecessary impediment to the smooth carrying out of operations. Those are the other two points I would add to what Mr. Sternlight said.",270
-fomc-corpus,1980,"Mr. Chairman, I must say that as a former discount officer I find my views very sympathetic to those of Governor Wallich. I'm reminded of the fall of either 1966 or 1969, when there was a good deal of discussion as to why the funds rate was so low. In my mind the explanation that fall was that under some program of easy access to the discount window related to business loan restraint, was borrowing $1 billion for about three or four straight weeks. And the funds rate slipped, much to the consternation of the people at the Desk. But [the reason] was rather simple: There was an additional supply there against a rather constant demand.",137
-fomc-corpus,1980,"You didn't talk to the people at the Desk, did you?",13
-fomc-corpus,1980,"Yes, I did. Spence Marsh and I went through that; I think it was in 1966. Yes, we have had some problems.",31
-fomc-corpus,1980,They got an extra billion dollars?,7
-fomc-corpus,1980,"Yes, they did. I think Governor Mitchell had some kind of program involving access to the window if a bank promised to be a good fellow in terms of not being aggressive and making business loans. I think the rate may have stayed high this past week because banks for some reason or other--maybe the reason Henry cited--have not borrowed. So there was a supply/demand factor here; the supply of reserves in totality was less, so the demand in the funds market was proportionally great and the rate stayed where it was. It's a question of the chicken and the egg every once in a while. I'm not sure which is the chicken and which is the egg in this precise period of two or three weeks.",144
-fomc-corpus,1980,"Mr. Chairman, going back to October 6th, I think you wisely recommended to us that we not put all our eggs in one basket in terms of operating on a reserves target but that we experiment for a while with multiple targets. Now we not only have multiple operating targets, we have multiple intermediate targets in the various Ms. I wonder after three months of experience how the staff feels--I guess I would like to ask both Steve and Peter--about whether it's now time to make some provisional judgments on whether this three-pronged set of reserves that you're tracking is proving to be useful or if you'd rather have one single target. Another part of the question, going back to your remarks on lagged reserve accounting, Steve, and how it is complicating--I guess that's the word for it--your job, is whether in your mind any case is shaping up for a move toward contemporaneous reserve accounting to make the monetary policy implementation more expeditious.",193
-fomc-corpus,1980,"Well, there may be some differences [of view] among the staff on the issues you raised, President Balles. I'll respond to two of your points. I have not thought for the ten to fifteen years I've thought about it that there was ever any use to lagged reserve accounting, and this experience of the past three months reinforces me in that judgment. However, I also have not thought that doing away with a two-week lag is miraculously going to make it easy to achieve the monetary aggregates targets. So, while I think lagged reserve accounting is not a plus in targeting monetary aggregates through reserves, doing away with it isn't going to mean that we're going to do better than hitting 3 percent when we're aiming at 4.2 percent. We could continue, in an unbiased way, sometimes hitting 5.4 percent when we're aiming at 4.2 percent--getting within plus or minus a percentage point [or so] over a three-month period. In my own mind, and maybe I'm wrong on it, I think that was a fairly good result from the Committee's point of view. Secondly, I've become more convinced--this goes back for years because I remember I spent some [time] years [ago] trying to talk President Morris out of total reserves--that in practice total reserves is the more appropriate guide in the short run, namely because of this fatal flaw of trying to decide what is the proper level of borrowing. It's very hard to decide that. And, therefore, while I know we can't hit a total reserve [target] even without lagged reserve accounting in the short run--because the banks can repay borrowing faster or things like that--this experience indicates to me that it's a somewhat better guide. But using [total reserves] more as a guide automatically introduces even more interest rate volatility than putting emphasis on nonborrowed reserves. So there's something of a tradeoff. Those are the two things--",390
-fomc-corpus,1980,How are you going to use total reserves as a guide without making some judgments about borrowing?,18
-fomc-corpus,1980,"Well, we're inevitably going to have to make the judgments one way or another. But, for example, if banks aren't borrowing and we're on a nonborrowed target, we're going to fall short on total. If we're on a total reserves target and they are not borrowing, we automatically sort of have to put in more nonborrowed reserves and we would come up to our total target.",78
-fomc-corpus,1980,If they are not borrowing.,6
-fomc-corpus,1980,"If they are not borrowing. It's simply like that. We, of course, will always have these kinds of judgments to make.",26
-fomc-corpus,1980,"Steve, do I assume your absence of any comments on the base to mean that you haven't really been paying all that much attention to it?",28
-fomc-corpus,1980,"To be perfectly frank, we've paid no attention to the base in the process but we've paid attention to currency. That's because if currency were falling short persistently as it did last time--if it fell short $500 million, then that would mean to me not to put in $500 million more of reserves because doing so would produce a multiple in deposits and way too much money. The way we would do it is that we'd say currency is falling short $500 million, 16 percent is the marginal reserve requirement on demand deposits, and that means to make up for that we would have to put in $80 million more total reserves. If that were happening persistently, we'd have to adjust our path for total reserves up by $80 million to make up for it. So, while not really paying any attention to the base in an operating sense, we are trying to pay attention to currency as well as non-member deposits to see that our total reserve path is properly adjusted to come close to what the Committee wants for money growth.",206
-fomc-corpus,1980,You'd want to substitute $500 million in deposits for the $500 million shortfall in currency.,20
-fomc-corpus,1980,"Right, so we'd use a fraction of the reserves.",11
-fomc-corpus,1980,"Well, I'd point out that our debate about total reserves dates back to 1969, which tells you how long we've been thrashing around this problem. But we shouldn't be too impatient with this. We have a lot to learn about how to run this system. I certainly don't feel the way Mark does that the adjustments to the nonborrowed path were wrong. I think it would have been wrong to have permitted an even greater deviation of total reserves from the path needed to produce [the desired growth in] the aggregates. And just as we are learning, the commercial banks are going through a learning phase now. I think that $600 million of borrowing is an aberration, which we are not going to find in future periods once the money managers of the banks have adapted themselves to this new operating procedure. I met with a group of them a couple of weeks ago and I found them in a great state of confusion as to how they ought to manage their affairs in this new regime. So we're both in a learning phase; and I think we can get back to more predictable commercial bank behavior once the money managers begin to learn how others behave in this new regime.",234
-fomc-corpus,1980,"Well, we have to make some decision and we might as well dispose of it now, if we can, as to how to proceed at least until the next meeting, but I would presume it is going to be for beyond the next meeting. We are clearly open to modifications of the precise technique. Unless we want to argue otherwise, I think implicitly we will proceed with something like the present technique until [we decide to] change, assuming the general technique has support. There are certainly aspects of it that have to be looked at. I think it's literally true that only in the last week or so can we really begin questioning why the market didn't respond in a way one might have expected. And that's much too short a period to have any very [strong] judgments. I also think there must be some element of coincidence in our coming as close as we came [to our money supply objectives] in the sense that even if these techniques are better than I think they are, I doubt that each quarter we're going to be within 1 percent or even, as with the December figure, off by not much more than 1 percent of what we finally--",231
-fomc-corpus,1980,"That's right. Well, maybe lagged reserve accounting isn't the impediment I think it is.",19
-fomc-corpus,1980,"If we hadn't had a nice little bulge in the money supply in the last published figure, December would have been a lot below [our objective], but I don't think it was entirely our good management that produced that bulge at that particular time.",50
-fomc-corpus,1980,"Mr. Chairman, I don't have any problems with continuing on the procedure. I do think there's some question as to whether the Committee would wish to leave with the Manager and whoever else is guiding this the right to change the nonborrowed path by exceptionally large amounts. The amount it was changed this time doesn't bother me, but I can see a possibility where the shortfall might be a half billion to a billion dollars. It seems to me that should be the Committee's decision, not a Desk decision.",101
-fomc-corpus,1980,"Well, let me return to that. On the very general question, leaving aside modifications of the kind you're proposing, I just want to be explicit about whether we want to continue this general type of procedure. Obviously, we're on it and it has worked; on the surface, anyway, it has worked. The results are more or less in line with what was intended. And I think it continues to have some of the advantages that were foreseen originally. While we still worry about what the federal funds rate is doing when it doesn't go according to our preconception, we at least avoid making a concrete decision--",123
-fomc-corpus,1980,"We haven't [moved the funds rate], anyway.",11
-fomc-corpus,1980,"That's right. We haven't done it in any direct way. I'm not sure how many people are convinced they know just where the federal funds rate should be now. Anyway, we avoid that explicitly. On the other hand, I would remind you that nothing that has happened--or that I've observed recently--makes the money/GNP relationship any clearer or more stable than before. Having gone through all these redefinition problems, one recognizes how arbitrary some of this is. It depends upon how you define [money]. And the technique does, I think, make it a little more difficult in some ways, to say the least, to reconcile some conflicting short-run objectives we have regarding the domestic or international [economy] or money supply against interest rates, or whatever. There may be a time when we really want to see interest rates lower or higher and they may not be behaving that way, and they may continue not to do so for weeks and weeks and months on end with this technique. So, there are arguments on both sides. I just want to see whether we have a consensus that we will continue on this until further notice anyway. We need to make that explicit judgment.",235
-fomc-corpus,1980,I don't see that we have any alternative. Nothing seems to have been suggested as a clear alternative to continuing this and monitoring it awfully closely.,29
-fomc-corpus,1980,"Well, at the extreme, obviously we can go right back to what we were doing before. But I think it's fair to say, and I don't want to push it that cleanly, that there's a compromise every place along the line--on where we set the interest rate limits, on where we're operating, and on how much exercise of judgment we put into this even in making the kinds of adjustments that were made in the most recent period, which obviously were influenced by the fact that the money supply and interest rates weren't going exactly the way we might have expected. So, there is not absolute purity on either side of this, and we can make various compromises. But as a broad thrust, I think the question is whether or not to continue basically what we've been doing.",155
-fomc-corpus,1980,Shifting back from a very successful experiment certainly would be hard to explain.,15
-fomc-corpus,1980,There's no question.,4
-fomc-corpus,1980,The reaction would be devastating.,6
-fomc-corpus,1980,It surely would.,4
-fomc-corpus,1980,Unthinkable.,4
-fomc-corpus,1980,"Well, I'd like to make one general comment. The experiment in terms of results has worked very well. I have no quarrel with that, certainly. But I think it continues to lay us open to the risks of unexpected and unexplainable declines in interest rates that can give us great trouble internationally. Now, we can always say that that is appropriate--that we're going into a recession, inflation is coming down, and it is fully appropriate. Nevertheless, as the Chairman has pointed out--he gets this question again and again and we get the same thing in the press and in criticisms at home and abroad--that by sticking to a firm money growth path and therefore a firm reserve path we can get unpredictable interest rate results. In fact, they may even be predictable in the sense that rates become very low when the demand for money lets up. And we may or may not want that. So, I do think we need to build in something at the lower end.",196
-fomc-corpus,1980,The alternative is that we go back to unpredictable changes in the money supply.,15
-fomc-corpus,1980,"Well, that bothers me less.",7
-fomc-corpus,1980,I think one of the two has to be unpredictable.,11
-fomc-corpus,1980,That is very true. But the greater danger is on the interest rate side.,16
-fomc-corpus,1980,They both would be [unpredictable] in varying combinations.,13
-fomc-corpus,1980,"But, Henry, when we adopted this procedure we were all perfectly aware of the fact that interest rates could decline under it and that they would be determined by market factors. I think it's more a problem of your educating your foreign compatriots about the procedure.",51
-fomc-corpus,1980,"Well, we're working hard at that. Every speech contains the same things that I said just now. And sometimes I almost believe them! [Laughter]",31
-fomc-corpus,1980,"Well, I don't think this is absolutely black and white. For purposes of moving ahead at the moment, [let's assume we will do] something like what we've been doing and let's get to Phil's question and maybe some others. But in the broader sense, I take it there's a consensus at the moment. SEVERAL. Right.",69
-fomc-corpus,1980,"Now, I don't know whether we want to deal with Phil's particular question. It's a matter of judgment as to whether or not a big enough adjustment is being made that it should be brought back to the Committee. I wouldn't anticipate adjustments as big as you're suggesting. If we're going to meet as frequently as we've been meeting, because the Committee is [conversant] with the precise techniques we've been using, we can express some judgment when we're meeting. I suppose it's theoretically possible--and I don't know whether you have any answer other than to leave it to my judgment essentially--to say that when the confusion gets great enough we would want a Committee meeting.",132
-fomc-corpus,1980,"Well, we could have limits similar to what we do on foreign currency [operations].",17
-fomc-corpus,1980,Similar to the international.,5
-fomc-corpus,1980,The only trouble is that I don't have any sense at this point of what those limits ought to be; and I think it would take a staff paper to indicate what might be the tendencies.,38
-fomc-corpus,1980,"Well, we could be very arbitrary and say that in some basic sense we are interested in something like total reserves now but the operating [variable] tends to be nonborrowed reserves. We can make a path for nonborrowed reserves at the time of the Committee meeting and say we can't deviate from it by more than ""x"" without [further consultation]. I don't know whether you want to do that.",84
-fomc-corpus,1980,"What's a reasonable ""x""?",6
-fomc-corpus,1980,But with nonborrowed it's zero. The big deviation is in borrowing and--,16
-fomc-corpus,1980,"No, nonborrowed is zero after they've made an adjustment.",13
-fomc-corpus,1980,"Mr. Chairman, I think the solution is that the Committee's directive should be on the basis of total reserves, and the Manager should be allowed to vary the nonborrowed objective in order to achieve the total reserves.",44
-fomc-corpus,1980,"That's basically the way I interpret it now. That is the presumption under which we're operating but, of course, the total reserves are not very controllable and the nonborrowed reserves are. The question is how much we should change the nonborrowed to try to produce the total, which is the basic variable that affects the money supply.",69
-fomc-corpus,1980,"We could have a situation in which the borrowing reverses its present course and jumps up to $1.8 billion. Then would you cut back on the net borrowed path by $1 billion? I strongly doubt that the Committee would want to do that right away, but--",55
-fomc-corpus,1980,"Well, you're making an assumption that the borrowings go up, the reverse of the present [situation], and that they go up without interest rates increasing particularly in the process. Now they are going down without interest rates decreasing. If borrowings go way up without rates increasing, just reverse the staff's judgment: They presumably would be moving in the opposite direction if that literally happened. If we have a big expansion in borrowing, it would decrease pressure on the market; and if the money supply were running high, the Desk presumably would make the opposite adjustment.",112
-fomc-corpus,1980,I guess you're crossing the bridge that there is a good explanation as to why the borrowings dropped from $1.7 billion down to $800 million. That's a $1 billion drop and I'm not at all sure that the--,46
-fomc-corpus,1980,"Well, it's not the drop in borrowings itself. The borrowings would come out where they estimated, assuming they have a correct estimate of total reserves with lagged reserve accounting; and [if] they got on the path of nonborrowed reserves, eventually the borrowings would be forced up. But the borrowings were running low with a high federal funds rate. That's the confusing--",78
-fomc-corpus,1980,"Mr. Chairman, we've gone three months and only had problems in the last month. Like Governor Partee, I have no idea what the limit should be. I suggest we go another month, to the next FOMC meeting, see what we encounter and get some idea of how much the variation is going to be.",65
-fomc-corpus,1980,"Yes, I'd do that too, but we still don't know what the limits are. I don't think we know the magnitude of the problems yet and at what point the problems become a policy decision rather than a technical adjustment.",44
-fomc-corpus,1980,"I agree with you. Well, is that a satisfactory way to proceed? I do think that we ought to put on the table, if not now--and this is under continuing review--any ideas about it. It's all within the present technique, but we might change the technique a bit. It's quite possible.",63
-fomc-corpus,1980,"I would point out, Mr. Chairman, that the element of luck and coincidence in here has a lot to do with lagged reserve accounting. I may be safeguarding the staff's view because what happens to deposits this week does not have an awful lot to do with what we do with reserves this week. It has something to do with interest rates this week, so there is that element of luck and coincidence. If we didn't have lagged reserve accounting, we'd have more real problems that might emerge.",100
-fomc-corpus,1980,"Presumably the staff, despite Mr. Axilrod's predilections, is busily working in a neutral and unbiased way to present us with some recommendations on lagged reserve accounting. That will be before the next meeting or about the time of the next meeting.",54
-fomc-corpus,1980,[The issue] will be before the Board before this month is out.,15
-fomc-corpus,1980,"I'd just like to indicate that I have a lot of sympathy for what Governor Coldwell was saying. I think we need to try to get a feel for what the limits are; and the only way to do that is somehow to decide which of the reserve targets is really relevant. If you think total reserves is the relevant reserve target, then the tolerance limit on that ought to be essentially zero and we can adjust the others however we want to in order to get--",93
-fomc-corpus,1980,But it can't be. The dilemma is that the relevant target is total reserves but it's not operational.,20
-fomc-corpus,1980,"It is operational, but it's not--",8
-fomc-corpus,1980,"Not in the short run. It's operational in a larger sense, but we can't make that zero because we don't control it to zero.",27
-fomc-corpus,1980,"Well, we don't control it because of the way things are apparently set up. We can change things and set it up so we can control it.",30
-fomc-corpus,1980,We'd have to shut the discount window; then it's controllable.,14
-fomc-corpus,1980,"Well, I don't think that's right at all. All I'm trying to say, though, is that there is no arithmetic exercise that one can go through to figure out these limits. One has to [understand] the dynamics of the system and what we really want to try to fix and what we're willing to adjust in order to keep the other things fixed. That's all I'm trying to say.",79
-fomc-corpus,1980,"Even if we did close the window, we still could be thrown off by currency or by float.",20
-fomc-corpus,1980,"Well, it's operational factors plus closing the window that make reserves--",13
-fomc-corpus,1980,"Yes, but it makes a whole lot of difference in terms of where we come out, not just in the period between [meetings of] the Open Market Committee but beyond, how much nonborrowed is thrown into that package. And if the staff, or you, or whoever else is guiding this operation is throwing an extra billion dollars in the path, the Committee is faced with a fait accompli at the next meeting. That's all I'm saying. If the Committee wishes to concede that to you and the staff, it ought to do so; otherwise it's wide open.",115
-fomc-corpus,1980,"Well, it simply implies, does it not, that total reserves is our overriding target? And if that's true, then it seems to me that it doesn't present any great problem to accept a response by the staff on nonborrowed for the purpose of trying to move toward what we want on total reserves.",61
-fomc-corpus,1980,"But I'm saying that if [the staff is] going to enlarge the nonborrowed path because of a shortfall on the borrowing side, some money will have been put in that at the next Open Market Committee meeting we're not likely to get out.",50
-fomc-corpus,1980,"Governor Coldwell, the effective constraint on that--the way it's structured now--is the funds rate. That is, the funds rate constraint stops us. In my view Mr. Sternlight probably couldn't have raised the total reserves in this last [period beyond] that $400 million [in] nonborrowed because he would have been stopped by the funds rate constraint. So the Committee--",78
-fomc-corpus,1980,In the sense of the bottom end of the constraint?,11
-fomc-corpus,1980,"Or the top, either way. You could interpret the present directive as the Committee's saying: ""Here's where the constraint is; it's on the funds rate."" Now, that might [not] be sufficient for you. But that is how it is at the moment.",54
-fomc-corpus,1980,I would doubt strongly that Peter couldn't have put in another $400 million in this period if he had fed it in slowly.,25
-fomc-corpus,1980,"Well, I don't know if you're speaking of the whole period or just this current week.",18
-fomc-corpus,1980,"Yes, I'm talking about the whole period, an intermeeting period of a month.",17
-fomc-corpus,1980,"Well, we don't know because Steve is saying that if he had, slowly or fast, the funds rate would have been down at the lower limit.",30
-fomc-corpus,1980,I doubt that.,4
-fomc-corpus,1980,"Well, that may or may not [have happened] but that is the effective constraint that stops us at some point.",24
-fomc-corpus,1980,"Well, it stops you at some point, but [where]?",13
-fomc-corpus,1980,"I assume that expresses the Committee's will. If the Committee wants to express itself in another way, that is of course its privilege. But at the moment that seems to me how the Committee expresses its will with regard to how much the Manager is free to do.",53
-fomc-corpus,1980,"I don't mean to disagree with you, Phil; I think it's something that has to be looked into. I would disagree with you, Ernie, in that I think we are concerned about nonborrowed as well as total because we have preconditions [bearing on how the operations affect] the circumstances for the next meeting. But that all has to be worked out.",74
-fomc-corpus,1980,"Peter, would you have done anything differently if we had had a 10 to 17 percent funds rate range for this past week?",27
-fomc-corpus,1980,Not in this recent period.,6
-fomc-corpus,1980,I thought that would be your answer.,8
-fomc-corpus,1980,"I guess there are always divergent views among the staff; I would have given a somewhat different answer to be frank about it. We discuss these things all the time. And [my] answer would be that if the Committee were willing to see the funds rate drop as much as that, I woud have been tempted to put in even more nonborrowed reserves. On the other hand, once I saw that the required reserves were rising against that, I don't think I would have made any further adjustments, because I realize the Committee wasn't intent on really forcing money out like mad to get a 3 percent growth rate. Chances are you might get more later. It's that kind of judgment.",138
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, the physicists have always had a rather neat way of dealing with problems such as this by saying: Well, that's an engineering problem. In a sense, I think there's a good parallel here in that the Committee decides what rate of growth it wants in the aggregates--that's the problem for the physicists--and then it's an engineering problem to translate that it into the volume of reserves. So, I would come out very close to where Frank Morris did on that in suggesting that the staff ought to allow for these things in absorbing the least reserves to make their best estimate of what volume we need out there to support the rates of growth in the aggregates that we have chosen.",138
-fomc-corpus,1980,"Well, we obviously will be returning to the engineering problems as well as those of the physicists from time to time. I think we have an understanding on how to proceed in the rest of the discussion.",41
-fomc-corpus,1980,"Well, our engineers will be working on the problem continously, and I didn't mean to suggest otherwise.",21
-fomc-corpus,1980,"I thought you were going to quote the Heisenberg [uncertainty] principle. That merely states that if you observe it, you automatically change it by the act of observation and, therefore, you can't possibly know what it actually is.",49
-fomc-corpus,1980,Catch-22.,4
-fomc-corpus,1980,"[Let's turn] to the question of the new monetary aggregates, on which a memorandum has been distributed. Mr. Axilrod, I presume, is prepared to make a few summary remarks on the subject, including telling us why the different measures have more substantial deviations from each other in the past than in the projections for the future.",67
-fomc-corpus,1980,"Mr. Chairman, I might add that Mr. Simpson, who is well versed in these measures, is here and is--",25
-fomc-corpus,1980,"You probably were going to say this, but let me just make one introductory comment. We ended up with the M-1A and M-1B [measures] to allow for [negotiable order of withdrawal] NOW accounts and [automatic transfer services] ATS. As it turns out, in the current estimates there isn't very much difference. But we still anticipate that there will be substantially more difference if Congress goes ahead and straightforwardly authorizes NOW accounts. The theory here is that ATS, which has been legal for a year, has kind of run out of steam in terms of making any difference, but NOW accounts may well not have. So, whatever we decide upon for the long-range targets next month, we probably are going to have to go back and readjust if Congress does permit nationwide NOW accounts. We'll have to adjust both M-1A and M-1B, presumably in opposite directions. We can do that, I think, consistent with the substance of whatever we decide. By the time we announce them, Congress probably will have acted anyway.",216
-fomc-corpus,1980,"Mr. Chairman, I'm not sure that I have anything extremely helpful to add to this statistical material before the Committee. I was going to point out particularly tables 4 and 5 on pages 6 and 7 of the material that we sent out earlier. The remarkable thing to me was that the numbers for the new aggregates came out within reasonable ranges. That is, they are not numbers that are going to appear strange to the public; once the Committee begins targeting on the new definitions, the rates of growth that are going to have to be adopted will be reasonable relative to the current aggregates. For example, on page 4, looking over the recent 10-year period from 1970 to 1979, the rate of growth of the new M2 of 9.95, or almost 10 percent, is very close to the current M3 growth of 10.28 percent, which is its nearest counterpart. And the rate of growth in the new M3 of 11.08 percent is very close to the 10.64 percent rate of growth in M5, which is its nearest counterpart. Now, the new M3 is running faster than the current M3 because it has in it relative to the current M3 large negotiable CDs, money market funds, and RPs. But that higher rate of growth for a new concept is not so out of keeping with the rates of growth of the current M3 as to make for considerable confusion on the part of the public. Similarly, on table 5 on velocity, you can see that the current and new measures are not behaving very strangely vis-a-vis each other. That is, if you look at the Mls, for the new M-1B, which is again a somewhat different concept than the current M1, the trend of velocity is the same. That is, there appears to be a consistent upward trend in velocity in the current Ml; if you compare the peak-to-trough numbers in the middle panel for the current M1, they get larger in each one [unintelligible], so the trend is toward higher rates of growth in velocity. We see a similar development in the new M-1B, even though savings accounts are in there. That may change a bit for the new M-1B if we get nationwide NOWs because we may get a lot of savings in there and that would involve a temporary drop in the velocity of that measure as we get a one-time transfer of savings as well as checking account funds into the NOW accounts. But, again, I don't think these numbers are strange relative to the old numbers. So, [I've come to the view] that the transition to the new numbers is not going to be as difficult a public [perception] problem as I originally thought it might be before I saw all these numbers laid out. Another problem the Committee may want to consider, when the transition is made, is to what extent it wishes to operate on M-1A, M-1B, M2, and M3 on the new definitions. At least until there are nationwide NOW accounts, I would think you would want to keep operations most focused on the aggregate that is most controllable through the reserve technique, if the Committee's going to continue using the reserve technique. That seems to me to argue mostly for M-1A or M-1B. But when NOW accounts become very important, M-1B will be distorted as will M-1A. And in that case one might have to fall back to a degree more on M2 and possibly M3. But I would assume at least starting in Feruary that M-1A and M-1B would tend to be an index, unless the Committee really wants to change how we've been doing it.",770
-fomc-corpus,1980,Will you weigh the two of them equally?,9
-fomc-corpus,1980,"Well, under the current system, I think M-1A would get the same weight that M1 now gets. That's how I would tend to interpret it.",33
-fomc-corpus,1980,"Every time we discuss this, I get very nervous about this great targeting. Is this all comprehensible? Do we have comments or [questions]?",29
-fomc-corpus,1980,"I have one question on M2. I presume, Steve, that in setting your compatible ranges for M2 for 1980, you're assuming that short-term rates will not get down low enough to produce any great reflow of funds into the thrifts?",52
-fomc-corpus,1980,Exactly. That's right.,5
-fomc-corpus,1980,"If you look at 1975, say, which was a year of recession, a year comparable to 1980 [as projected], M2 went up by 12.3 percent even though I think our 1975 policy was not too expansionary.",53
-fomc-corpus,1980,"I think we still have short rates and even short coupons high relative to the fixed rate ceilings on deposits, so we'll still be getting the funds into these alternatives mainly in the fluctuating rate ceiling deposits. We're not assuming substantially different behavior for now--some increase, but it would be very modest.",59
-fomc-corpus,1980,But of course in '75 [rates] fell below the fixed rate ceilings. So even the passbook rate was affected. That obviously is not in the projection; it couldn't be.,37
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"I just wanted to say, Mr. Chairman, since I was one of those who was rather unhappy with the then-proposed M2 the last time we met and discussed this subject, that I think the newly adopted M2 is a great improvement. Certainly, the inclusion of small time deposits, which are now incorporated into the new M2, is going to have a great advantage, as I see it, of reducing the interest rate sensitivity [of M2] over the business cycle. That's largely because the money market certificates that are included have offset the reduction that otherwise has been occurring in small time deposits. And I feel pretty optimistic, as a matter of fact, because if we look down the road I think at some point we're going to get a further relaxation or abandonment--the sooner the better as far as I'm concerned--of the Regulation Q ceilings. That ought to make the redefined M2 even less interest sensitive than it is now. So, I for one am quite happy with the outcome and I thought I ought to make that clear, having raised objections to the earlier proposal.",219
-fomc-corpus,1980,For similar reasons you would object very strenuously to M3.,14
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"Well, Mr. Chairman, just to start this part of the discussion going, it seems to me--",21
-fomc-corpus,1980,I thought it was just finishing!,7
-fomc-corpus,1980,"--that we're better advised this time around with these new measures coming out to settle on, say, M-1B and adjust it if necessary later on rather than try to straddle an average of M-1B and M2 because we don't know about nationwide NOW accounts. I think it would be cleaner and easier to explain if we just settled on one [measure], even though we recognize that we might have to make some adjustments to it later on.",92
-fomc-corpus,1980,"I don't think that is the reason that we're straddling. We're not looking at an average. It's just that we presumed at the time that NOW accounts would be enacted and that that would produce a strikingly high M-1B figure as it's now defined, which would have been very difficult to explain. Indeed, from our own standpoint, we didn't know quite what its significance would be because a lot of [the NOW account funds] will come out of savings accounts. So it provides us with both an easier explanation publicly, although it looks more confusing, and lets us know a little more about what's going on ourselves.",125
-fomc-corpus,1980,"Well, I think that's true. But I'm arguing a little different point: That if we get into placing a lot of reliance on M2, a considerable part of which we would have no control over, it will give the wrong public image, too.",51
-fomc-corpus,1980,"I think it's more M-1A and M-1B that we're comparing, Bob. The bigger the growth of NOW account-type deposits, some of which will be drained from M-1A and some from M2--maybe something like 50-50--the bigger the divergence between M-1A and M-1B, so we thought we needed both. The one, M-1A, will be running too low to reflect reality; and the other, M-1B, will be running too high to reflect reality until this stock adjustment process is over.",118
-fomc-corpus,1980,That may be all right. Certainly no one in the preceding discussion has suggested that we average nonborrowed reserves with total reserves. I'm just arguing that we ought to get away from this averaging regardless of which--,42
-fomc-corpus,1980,Old M1 with M2?,7
-fomc-corpus,1980,Or M-lA with M-1B. What does that mean?,15
-fomc-corpus,1980,Do we even have all the data now to [calculate] M-1B?,17
-fomc-corpus,1980,I'd like Mr. Darwin Beck to answer that.,10
-fomc-corpus,1980,M-1B? We have [some of the data] in process; they are not yet flowing in. We have the historical monthly data but we are in the process [of putting together] quarterly data and weekly data.,46
-fomc-corpus,1980,"We will have them at the end of the month, right?",13
-fomc-corpus,1980,"That is the schedule. As far as we know we will have them at the end of the month, yes.",23
-fomc-corpus,1980,"Well, I was just pointing out that there is a problem knowing what M-1B is going to be. If we have a shortfall of data, we may be sitting here next month wondering what M-1B was.",47
-fomc-corpus,1980,"You won't have M-1B as quickly for Desk operations, will you, Darwin? M-1B will not become available as speedily as M-1A.",35
-fomc-corpus,1980,"There may be a somewhat greater delay, hopefuly not too much greater.",15
-fomc-corpus,1980,"But when the stock adjustment falls out, presumably we will drop M-1A.",17
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"When we start publishing this, which presumably will be shortly after the next meeting, we are planning to publish M-1A and M-1B weekly but not M2 and M3. They will be monthly [data].",46
-fomc-corpus,1980,But M-1A and M-1B will be published on the same time schedule.,19
-fomc-corpus,1980,"Are we planning to go public with the nomenclature M-lA and M-1B? Isn't that going to get us some laughs? In other words, I think either M-1A or M-1B would be a very acceptable aggregate, but can't we rename the baby M1 again and explain it? I think every columnist in the world is going to write that you economists are fuzzing this up again. Is that a problem or not?",92
-fomc-corpus,1980,"It probably is a problem, and our only defense is that reality is complicated.",16
-fomc-corpus,1980,"If you had your druthers, Steve, M-1B is what you'd focus on now?",21
-fomc-corpus,1980,"It doesn't really much matter, Governor Coldwell, because NOW accounts are such a small proportion. But I have a feeling--don't make the obvious retort, please--that I know more about M-1A than I do about M-1B. And until M-1A declines into a much smaller proportion of the world than it now is, I would tend to prefer M-1A. All our models, such as they are, are built on M-1A and historical experience; I just know more about it and feel a little more comfortable with it myself. So, I really thought it was a good solution, which emerged out of the Board discussions, [to use both measures for a while].",146
-fomc-corpus,1980,We'd get a very funny M-1B if we got a big nationwide movement to convert savings accounts into NOW accounts.,25
-fomc-corpus,1980,"Yes, but that's down the road.",8
-fomc-corpus,1980,"Well, down the road 3 months from now.",11
-fomc-corpus,1980,"It may not be very far, but we don't know--",12
-fomc-corpus,1980,"If they don't enact that [legislation], then there's no difference between them, basically.",18
-fomc-corpus,1980,Don't you have a problem of not being able to seasonally adjust these measures because you don't have the data [on the components that account for] the difference between M-1A and M-1B?,42
-fomc-corpus,1980,That's right. Thus far we feel that we don't have enough historical experience to seasonally adjust the other transactions balances that go into M-1B.,30
-fomc-corpus,1980,"Basically, the quality of M-1B is going to be somewhat uncertain for a while until we have more experience with it.",26
-fomc-corpus,1980,"Well, we've had a number of years of NOW account experience in New England; I doubt that our seasonal is that much different from the rest of the country.",32
-fomc-corpus,1980,It's much colder! [Laughter],8
-fomc-corpus,1980,But lately they don't get as much snow.,9
-fomc-corpus,1980,"When there are nationwide NOW accounts, what we won't know about M-lB is the extent to which and how fast its velocity is going to revise downward, as people shift savings into NOWs rather than just demand deposits. We simply aren't going to know that. Similarly, we're not going to know very much about how much is going to go out of M-1A. But I feel more comfortable in the sense that--",85
-fomc-corpus,1980,I think a proportion of savings deposits moved in the present Ml--after M1 got squeezed so much.,21
-fomc-corpus,1980,"Well, Mr. Chairman, it seems to argue for focusing on M-1A until we get a nationwide NOW account bill.",26
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"Oh, no. I think the way it's going to work out may be slightly different. If we don't have a nationwide NOW account bill, it's not going to make much difference. As the staff shows in its estimate here, [growth in M-1A and M-1B] are within 1/2 percentage point. If we get the nationwide NOW account bill, there may be a period of a year when M-1B is a little tough to interpret because we won't know how much is coming out of saving accounts.",108
-fomc-corpus,1980,So will M-1A.,7
-fomc-corpus,1980,"So will M-1A, but I would guess to a lesser extent.",16
-fomc-corpus,1980,Until [the shifting] disappears.,7
-fomc-corpus,1980,But we can't seasonally adjust M-1B. How can we use that right now?,19
-fomc-corpus,1980,"I don't think the seasonal factor is that bad because NOW accounts are a fairly small proportion of the total. Now, if they were 1/2 or 1/3 of the total--",39
-fomc-corpus,1980,"The more we discuss this, the more I hate to say we have a target for either one of them. Maybe that is a note upon which to stop.",32
-fomc-corpus,1980,"Maybe I shouldn't say anything, but would it be possible in this transition period to publish M-lA and to use M-1B as a memorandum item with a notation that, indeed, M-1A will be replaced by M-1B when the transition period is completed?",57
-fomc-corpus,1980,"Well, we were planning to publish M-1A and M-1B right next to each other. I really don't believe large problems will come from that. Then we'd show a couple of other items, the RPs and the money market funds and go on to M2, which will include the RPs and money market funds. The difference in level between M-1A and M-1B is not going to be vast until we get the nationwide NOWs. And I really wouldn't anticipate any--",103
-fomc-corpus,1980,I don't anticipate that there will be too much trouble with that. But it is complex. I think the complexity of this is inherent in the facts and the circumstances.,33
-fomc-corpus,1980,"But it's particularly important when the Committee expresses its view in the directive to the Desk as to whether or not equal weight is to be given or what we're focusing on. Thus, it would [reasonable] to put M-1B in the public domain but as a memorandum item, initially at least, so that the public and the markets can track it.",71
-fomc-corpus,1980,I just don't know how worthwhile it is to try to guess whether it's better in a memorandum item or the table. We may have the problem that M-1A will look very low. And would we want to keep publishing a figure that looks very low without having a figure along side it that looks relatively high? I don't know how we can outguess all this.,74
-fomc-corpus,1980,"Besides, Paul, it's additive. M-1A plus the components make M-1B, which then goes into M2. So it's logical just to extend it along the columns.",38
-fomc-corpus,1980,I'm fascinated by what Steve just said in terms of the table for publication. Can you go through that again?,22
-fomc-corpus,1980,"As I understand it, the first column would be M-1A, the second column M-1B, the third column overnight RPs and overnight Eurodollars, which would just be Cayman Islands Eurodollars, and the fourth column would be money market funds. The fifth column would be M2, which would include the first, third, and fourth columns as components.",77
-fomc-corpus,1980,So people could construct any M they want?,9
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,The other two are kind of memorandum items in a column because they have some characteristics of a payments--,20
-fomc-corpus,1980,But you're not going to publish the difference between M-1A and M-1B as such.,21
-fomc-corpus,1980,"But we'll have all the components. We'll have a separate table with all the components of all the aggregates as well. So, that will all be available.",31
-fomc-corpus,1980,This table that you just described will be published monthly and then there will be weekly publications of M-1A and M-1B?,28
-fomc-corpus,1980,"We'll be publishing that table weekly. There will be weekly estimates of M-1A and M-1B and of all the commercial bank components of all the Ms, including those in M2 and M3. M2 and M3 will only have monthly figures, but the table will be published weekly. M-1A and M-1B will have weekly figures, as will the commercial bank components [of the broader aggregates].",88
-fomc-corpus,1980,"This may be just a preference, but what were the main reasons you were reluctant to include overnight RPs and Eurodollars in the M1 measure?",31
-fomc-corpus,1980,There was considerable Board discussion on that; perhaps I should let the Chairman summarize it.,17
-fomc-corpus,1980,"I'd prefer that you do that! [Laughter] Mr. Axilrod is being modest because I remember he was vehemently on one side of the argment, the reasons for which escape me.",42
-fomc-corpus,1980,"Many members of the staff, including myself, felt that there was a large investment component to RPs. That is, we felt that money managers were not viewing RPs--to an extent of 100 percent or [even] 50 percent--as a substitute for demand deposits but were viewing them as an alternative to investing in 3-month bills or 3-month CDs, depending in part on their interest rate expectations. So, therefore, if RPs were somehow outlawed, we felt that only a small fraction of the money in RPs would be going to demand deposits and the rest would go into CDs or Treasury bills or commercial paper.",130
-fomc-corpus,1980,"Mr. Axilrod felt that way. Governor Rice, as I recall, felt the opposite. It's basically a question of whether they are actively or passively managed, I think.",37
-fomc-corpus,1980,"Our econometric evidence, I believe, is quite mixed. The staff is well divided on the subject. With the Board divided and the staff divided, the Board came up with a very judicious decision.",41
-fomc-corpus,1980,"Mr. Chairman, does the Committee not feel that the marketing or explanatory aspect of this is important? I'm talking about the ability to relate to my friendly broker, who busted out of school his sophomore year! I'm being facetious, but isn't it important to make an effort to be as clear and as simple as possible in describing this?",67
-fomc-corpus,1980,"Well, I think it's an important problem, and one with which we anticipate some real difficulties. I take a literal exception only to your final point. The effort to be as simple as possible may be misleading. I come back [to my view that] the reality is complex. That is the difficulty we are dealing with during this transition period. But I think it is a major problem, and we plan to have press briefings and so forth beforehand so that we give as good an explanation as possible. Now, as you can see, providing there is no change in the law--if the staff is right and I don't know whether they are or not--there isn't much difference between the two measures, which makes this all look rather unnecessary. But if they are right and we have nationwide NOW accounts [authorized by] Congress beginning in March, there's going to be a significant difference between the two. Therein lies the problem. We're preparing the way. If the law were going to remain unchanged, I'd say dispense with M-1A or M-1B. We would go one way or the other and make it simple. But we do anticipate a significant difference if we have nationwide NOW accounts.",241
-fomc-corpus,1980,Would we drop the other if--,7
-fomc-corpus,1980,"Well, if they don't change the law, we probably can. I'm just talking offhand. If they don't change the law, I think that argues very strongly for dropping some of them.",38
-fomc-corpus,1980,"If they change the law, we could drop M-1A.",14
-fomc-corpus,1980,Wouldn't you drop M-1A if they change the law?,14
-fomc-corpus,1980,"Yes, and we'd drop the M-1B components. But we're certainly going to get share [drafts], which are developing.",27
-fomc-corpus,1980,"Two years from now we'll probably drop it anyway, assuming they have a nice clean law and don't change it within a 2-year period.",28
-fomc-corpus,1980,"I'd just assume, Mr. Chairman, that it would be a useful explanatory device for the Committee, if there happens to be a surge in M-1B, to be able to point to a drop in M-1A so that no one reads too much [into the surge in M-1B].",63
-fomc-corpus,1980,"One can reverse all this and say that by exposing the problems that lie in these figures inherently, we're going to be better off in the end and people will understand it better. But there is a hump to get over yet. There's no question.",49
-fomc-corpus,1980,"Wouldn't the real problem occur, Steve, if we got a surge in M-1B and [the funds] didn't come out of demand deposits? If we got a big jump in share drafts--",41
-fomc-corpus,1980,"If M-1B was surging and M-1A was strong, I assume things would be read into that.",25
-fomc-corpus,1980,But we might have a drop in M2?,10
-fomc-corpus,1980,Yes. We could have a drop in M2.,11
-fomc-corpus,1980,"As I say, the more we discuss this, the more uneasy it makes me.",17
-fomc-corpus,1980,"I know, but you didn't discuss the size of M2 here.",14
-fomc-corpus,1980,I think a few people will understand it much better and a lot will undersand it much less.,20
-fomc-corpus,1980,"Well, maybe it's a net advantage if Larry Roos' third grader--his broker--doesn't understand it!",23
-fomc-corpus,1980,"Did you do well in the market last year, Larry?",12
-fomc-corpus,1980,Have we finished with this subject?,7
-fomc-corpus,1980,"One more question or suggestion, Mr. Chairman, if I may. I think there's a big difference between what we publish and what we target. I certainly have no problems with what is proposed to be published here, for those both inside and outside the System who'd like to experiment with different versions or measures of money. I believe we ought to think pretty hard, though, about whether we want to continue to target four intermediate variables. In the past we've had four targets: Ml, M2, M3, and bank credit pro forma. But in practice [our targets] have turned out to be M1 and M2. In practice we haven't really tried to control M3, and we have just observed what goes on in bank credit. The Bluebook again sets forth in the various alternatives four different intermediate targets. I have a strong feeling that that's about two too many. I wish somehow we could find a way of narrowing that down to about two that we really use in practice, no fooling, as far as decisions of this Committee are concerned. I'm not sure whether--",218
-fomc-corpus,1980,"You don't have L on here do you, Mr. Axilrod? Do you have another table where that appears?",24
-fomc-corpus,1980,"Well, I'm not sure we're going to be up-to-date on L by February.",17
-fomc-corpus,1980,"I guess we'll publish another [column] on that table, which is L.",16
-fomc-corpus,1980,"As an information variable, just like M3 is an information variable. I would hope we could have some discussion of this tomorrow before we make even provisional decisions on what the ranges should be or what magnitude we ought to be talking about.",47
-fomc-corpus,1980,I was hoping to have a little discussion this afternoon on that subject--not necessarily on that aspect but--,21
-fomc-corpus,1980,"Well, if I had to do it right now, I'd pick M2 for one of those versions. I think having two variables as intermediate targets is really about all that is needed and all we can meaningfully handle.",44
-fomc-corpus,1980,"Could somebody tell me exactly what the Humphrey-Hawkins Act says? I thought it indicated Ml, M2, M3, and credit.",30
-fomc-corpus,1980,"It just says ""monetary and credit aggregates.""",11
-fomc-corpus,1980,"But in practice, as we go along week by week in the future we're going to be on M-lA and M-1B because we won't have the data for M2 and M3. That doesn't mean we will get an [overlap] at the end of the month. But when we're making some of these weekly decisions I suspect we're going to be biased, just by the availability of data, toward the Mls.",87
-fomc-corpus,1980,"Well, the purpose of these measures is not so much to hit them all at once, which is impossible, but to be warned if something is going off track. The purpose is to have a sense of the relativeness of the things we're mainly aiming at.",52
-fomc-corpus,1980,"Well, that can come up in the later discussion. Let's turn to the long-range targets, again not with the intent of reaching any decisions but of having an informal exchange in a preliminary way of what seems to make sense here. The first point I had was that, in fact, there's going to be a lot of confusion with the new numbers. That point has already been made. At a fairly technical level, this alternative 1 in the Bluebook is based upon some broad concept that 4-1/2 to 7-1/2 percent is supposed to be the same as the current target, which is listed there as 3 to 6 percent. But that makes a 1-1/2 percentage point adjustment for ATS and NOW accounts and that would kind of reverse. In fact, these are not equivalent, if I think it through correctly, [because] for reasons I won't attempt to explain in too much detail the change is small. I do want to raise the question of what we say--again we don't have to decide now--[for the period] beyond 1980. There are arguments on both sides of this. The extremes are quite clear: We could say nothing about beyond 1980 at one extreme or we could lay down a pattern beyond 1980 and say that cross our heart and hope to die we really intend to make it, just like we intend to make the 1980 one. There is a strongly held body of opinion--perhaps in both [Congressional] committees but I know particularly strongly in the House Banking and Currency Committee--that we should not only say what the targets are beyond 1980 but that they should legislate them. So, I think it's an issue that will come up in testimony one way or another. And if we say something, we should have some guidance as to how much it's a hope or how much it's a real expectation or something in between. My own feeling is that we probably have to say something; but that leaves a lot of room between expressing it as a general hope or a solid expectation and intent. We don't have to give an official FOMC position, but it is an issue that we ought to discuss a bit. Let me just mention a few considerations that occurred to me. Given the position that we're in, for a variety of reasons, I think it could be hard to come up with targets that are in fact or appear to be higher than those we had for this past year. I'm thinking not primarily of the fact that the staff, at least, is projecting a lower nominal GNP but that given the psychological and expectational state we are in, it would be a big decision to have a range of projections that in substance was higher than we have been operating with. Secondly, and I go back to the discussion about the targets we had just 3 minutes ago, there is among other factors the arbitrary nature of the targets. More importantly--well, it may not be more important but equally important--given the uncertainty that I at least perceive in the economic outlook for a variety of reasons, I think there is a question as to how wide a range we want. We have been operating with fairly wide ranges of 3 percent. We have to consider whether we want to narrow those ranges. There are pretty persuasive reasons, given the uncertainties regarding both the definitions and the outlook, why it's wise to have a significant range. As a part of that issue, there is a question of what we mean by the range: whether the middle of the range does reflect some central tendency of what we think is appropriate on the basis of what we know now. But there is a difference between attaching some very great significance to the middle of the range as opposed to saying that in the light of all the uncertainties we may well feel, as the year progresses, that it would be quite reasonable [for growth] to be toward the lower end of the range. That's a decision, obviously, that can be reviewed as we go along. But how we treat that is of some significance. I did not intend to discuss the economic outlook extensively right now, although logically [the agenda] may be in the reverse order. That will be on the front of the agenda tomorrow when we actually have to make a decision about the short-run ranges. As you know, for what it's worth, the staff is projecting a 7 percent increase in nominal GNP [for the year], but [the increase] is rather small in the first quarter and then it rises progressively. That's not a pejorative comment. [Laughter] I indicated my personal view. There is a considerable amount of uncertainty about any economic forecast. But it's interesting that there is in a sense a lull in terms of nominal GNP. [GNP growth] is quite low in the first quarter; it's less than 5 percent. And then it's projected to be about--in fact precisely--double that for the fourth quarter; it goes from 4.7 to 9.4 percent. I'd just note that if we take that as an economic forecast and we attribute importance to historical relationships between velocity and interest rates and all the rest, if we have a steady growth in money demand the year, it implies a very different set of money market conditions early in the year as opposed to late in the year, assuming that those relationships hold true. And there is a question as to how we want to play any particular target during the course of the year in the light of that or other possible patterns of economic activity. In that connection, the Bluebook does suggest--and of course it bears very directly on the decision tomorrow about the short-run ranges--some alternatives [regarding] the question of strategy, which to some degree we do have to settle tomorrow, certainly for the next month. It can worded in various ways. [The issue is] whether we deliberately aim for a pattern of monetary growth [this] year that deviates on the average--whether we take our risks in various directions as the year proceeds--and how that meshes with anyone's view on the economic outlook, the interest rate outlook, the international side of the equation, and I think ultimately, too, fiscal policy considerations. In other words, do we just want to set a dial at one extreme and say aim at the average throughout the year and see what happens? Or do we consciously want to take some of these other things into consideration as we see them from month to month within the ranges specified for the year? In terms of the particular setting that we're dealing with now, to make just a few points, we have had more strength in economic activity than we anticipated throughout the second half of [last] year. Certainly it continued through the fourth quarter as a whole. I don't know what you think about this, Mr. Kichline, but I see that Ms. Courtney Slater, the Commerce Department's chief economist, while she expects a recession this year has now decided that GNP grew by 2 to 3 percent in the fourth quarter instead of 1-1/2 percent. I guess she's getting ready to publish a figure fairly soon and I don't know whether that's it.",1455
-fomc-corpus,1980,She controls the staff that puts it together.,9
-fomc-corpus,1980,"When is that preliminary figure due--in a few days? Well, I guess it's due out in a week or more than a week.",28
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,"I don't know whether that [statement by Ms. Slater] reflects [the number they will publish] or not. They will get some more information before they publish that number, won't they? Do they get retail sales?",45
-fomc-corpus,1980,"Yes. They will have information later this week on the employment situation, and they need inventory numbers. Inventory is important and data are due [to come out] on January 18.",37
-fomc-corpus,1980,"Well, I don't know what that reflects, but it's in the same direction we've been seeing of [the economy] having more strength than was anticipated. When one looks at the business picture one has to say, as reflected in the fact that the figures keep coming out better than the projections, that in a sense we're pretty clearly off econometric patterns and other patterns. That's particularly clear in the saving rate, which has gone below the bottom of anybody's ranges. And that's what makes things quite uncertain as we look ahead. It seems to me that there are a number of explanations of why we're off the pattern. It doesn't help much in projecting, but part of it must be a response to inflationary expectations. And we've surely had our share of international disturbances recently that affect inflation and affect the dollar and are visible in the gold price, the silver price, and commmodity prices. Obviously, that leads into the oil situation, which has a very direct and pronounced effect both on inflation and what we think about the business outlook. That situation has been highly unstable and I have the feeling myself that the next few months will give us--without overdramatizing it--a kind of important last chance to see whether we will get some balance in the oil market between consumption and production so that there isn't continuing upward pressures on prices that are going to carry us to some unknown level later this year. So long as the spot price remains above whatever the OPEC official decisions are, which are rather mixed in themselves, we will get a very unstable situation. And we don't know how far this upward momentum in oil price numbers can go. So far as fiscal policy is concerned, all that I know indicates that the present Administration is going to hang tough, if that's the right phrase, in terms of any sign of a tax [reduction] program at the moment. On the expenditure side, I don't know anything more than has been leaked, which is that the total is up around the $615 billion level. We have a higher level of real defense spending. We are projecting some real increase in federal government spending which, if anything, I guess is a little low relative to what the Administration may be projecting. It's either [about the same] or a bit on the low side. But there is no proposal that I'm aware of for any tax reduction. And I don't think there's all that much discussion of it, although that's a little more doubtful given the spate of reports that will come out on the federal budget and the Economic Report in a few weeks. I don't think that means that the Administration is not aware of the case for tax reduction or necessarily would absolutely rule it out; it depends upon the evolution of the business scene. But I think it does mean that they're not going to push it; they're going to resist it and resist discussion of it right now. While one has to make one's own judgments about how Congress will respond, that certainly makes [a tax cut] less likely at the very least in the short run than if the Administration were pushing it. Looking at the period since October: On the one hand, while all the financial data are within our immediate objectives, I don't think we've made as much expectational progress, if I can put it that way, as conceivably might have been hoped. Indeed, in some sense we have not made as much progress on interest rates; one might have hoped that they would be coming down a little more clearly by this time. Looked at from an October point of view, we haven't seen those developments that might have been anticipated. It's fairly obvious why not, given the international turmoil and the lack of more visible progress on inflation. In that connection, I might say that if there's anything I would feel relatively certain about in the near-term economic and price outlook, it is that the price figures are going to look worse rather than better for some months, particularly in the consumer price index where we will get both the impact of oil and the impact of interest rates from the last three months. The mortgage rate has not been worked into that [set of rates] in anything like a full way. So, when we look at expectational factors and disturbances, whether here or abroad, psychological or real, I think we have a hump to get over for probably three months anyway of higher [rates of increase in the] consumer price index. And in one or two of those months I suspect the increases could be significantly higher than anything we have seen so far. That is the situation with which we have to live whatever questions we have or whatever we think of the longer-term prospects for inflation and business [activity]. With those general points, let me open the discussion to what people think is relevant with respect to these longer-term targets both on the one-year target and at least a little feeling, although that's more of an open question, about what people think we should say in presumably more general terms about the period beyond 1980. Mr. Eastburn.",1001
-fomc-corpus,1980,"I'd like to respond in three points: One, we've been talking for three years or so now about our basic strategy being one of gradually reducing the [growth of the] aggregates. I think your points about the business situation and inflationary expectations and the image are exactly right. In view of that, it seems to me that our strategy should be one of gradually reducing the [growth of the] aggregates. Rather than alternative one or two, I like the formulation on page 11 of the Bluebook, which has the four strategies. And of those four, I like number four best because I think we probably are going to get a tax cut and should plan a gradual reduction [in the growth] of the aggregates in light of a likely tax cut.",151
-fomc-corpus,1980,What is strategy four?,5
-fomc-corpus,1980,"Strategy four is a progressive reduction in M1 growth from 6 percent to 5 percent to 4 percent in successive years, assuming a tax cut of $30 billion.",35
-fomc-corpus,1980,"Let me just say a word here and I'll shut up about it. When I look at these different strategies, all of which come off the econometric equation from the base forecast, I must say that I have great doubts about these adjustments in the econometric equations. I guess you're driven to strategy four because it looks [good] on all the numbers.",71
-fomc-corpus,1980,"I'm not arguing the numbers at all, Paul. I'm arguing the basic philosophy of proceeding [with] a gradual reduction. All right, that's the first point. The second point is that I feel strongly that we should not announce that strategy and specifically that we should not announce numbers. I think we have a credibility problem and I believe expectations hinge basically on policy performance and not what we say, because nobody will believe what we say until we perform. So, I think we should have this as our philosophy but should not announce any specific numbers. We can talk about this being our intent. Third, we should reserve flexibility for change in case we want to change our strategy as circumstances develop. I was struck, for example, at the precision that's incorporated later in the Bluebook in the forecast of interest rates, assuming various alternatives and combinations and permutations. That may be an interesting exercise but I think its accuracy is greatly in question. What we should do is remain flexible enough so that we can change and depart from this strategy if and when circumstances require it. But that should be the basic idea unless we see reason to change.",224
-fomc-corpus,1980,"Well, you're now talking about 1980 and beyond. From your last comment do I infer--I don't want to put words in your mouth--that consistent with that you like the idea of not narrowing the range, anyway, in the short run? By the short run, I mean 1980.",62
-fomc-corpus,1980,"Yes. I didn't address the question of the range, but I think that's right.",17
-fomc-corpus,1980,Do you have any feeling about where the range should be in 1980 as a very tentative [view]?,22
-fomc-corpus,1980,"Well, I think alternative 2 is too sharp a reduction from where we are. But around 5 percent is what we ought to have as a central tendency.",33
-fomc-corpus,1980,I don't think anybody should feel at all wedded to what they tentatively say today. We have another whole month before we [need to decide]. Mrs. Teeters.,35
-fomc-corpus,1980,"I would support what Dave was saying. Announcing 3-year targets is an invitation to losing all our credibility. We have enough problems projecting out 1 year let alone 3 years. To box ourselves in by saying we're going to come down to certain levels by 1982 is an unnecessary restraint and an unnecessary danger. We may have that intention, but there's enough variability in this economy that we shouldn't go out on that limb; we should continue to do it by performance. I'm not sure I even want to talk too much about what we're going to do in the future--other than [to say we want] to continue to restrain [money growth]--so that we have the opportunity to change our mind as time goes on. I've probably done more 5-year projections than anybody else at this table and I speak from experience: They're all wrong. You don't come out where you say you're going to if you go down that line. I strongly oppose any publication or any commitment to a specific number for future years. I wouldn't narrow the ranges. We have a difficult year ahead of us and I think we will need all the space we can get. For the alternatives, a midpoint somewhere around 5 to 5-1/2 percent is probably the appropriate way to go. I would like to bring up one thing that bothers me a little. A year ago we were in much the same position. We had the money supply down--in fact, going negative--and I'm not sure any of us really understands why the money supply did that between September and March.",317
-fomc-corpus,1980,It was a demand shift! [Laughter],10
-fomc-corpus,1980,"The econometric equations didn't fit. There's a strong possibility that something is going on that has nothing to do with our careful reserve management and all the rest. We just may be in the period of the 6 months when the money supply goes down. And [last year] we didn't really have a very good explanation as to why it took off after the end of March. So, before we pat ourselves too greatly on the back, let's remember that aspect of it and give ourselves enough leeway to accommodate sudden spurts on a monthly or weekly basis, if we do have them, and still not be outside our range.",125
-fomc-corpus,1980,What would [your view be] if we say on the long-range issue that we are not going to publish any figures but merely say that we are on a long-range program to reduce inflation and we're just going to set money supply [targets] each year that are consistent with a continued reduction in inflation?,61
-fomc-corpus,1980,"Well, that would be fine, Fred, if we were the sole source of the inflation. But it's like playing poker with the other players always pulling all the wild cards. We're playing with OPEC, and we really have no control over oil prices. To say that we're consistently going to reduce inflation in a situation where we don't have control over inflation is, to me, going out on a limb. There may be a time, if this so-called recession turns very deep, when we might want to reverse our policies completely. And the risks on this recession, it seems to me, are basically on the down side. So, I just find it very difficult to commit myself to any sort of long-term position.",144
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Mr. Chairman, it seems to me that we're not going to have the privilege of avoiding making some fairly definite commitment as to what our policy posture will be beyond 1980. There's also a possibility of getting some positive mileage from taking a fairly specific posture as to our plans regarding the orientation of monetary policy beyond 1980 because if we're going to be able to make progress on the inflation front, we've got to begin to have an effect on long-term contracts. Such contracts have become a fairly common part of the economic environment, particularly in the wages sector. So it seems to me that we should be serving up notice to those who engage in the making of long-term contracts that insofar as the monetary policy environment within which those contracts will be made or lived through is concerned, it will be a changing part of the [overall] environment. And it will be changing in the direction the Vice Chairman has suggested of trying to work toward lower numbers. And, as I believed you mentioned, if we don't say it, there's a fair probability that the Congress will say it in harder terms than we would be inclined to say it. So, I think the prospective benefits lie rather clearly on the side of saying something [about the period] beyond 1980. And what has to be said is that we will be moving gradually to smaller growth rate numbers both for money and bank credit, trying to make it sound as credible as possible.",287
-fomc-corpus,1980,You're saying you wouldn't give numbers.,7
-fomc-corpus,1980,"I would not give numbers unless in a final showdown we have to give numbers to avoid numbers being legislated. But I would go so far as to be rather unequivocal in terms of stating that we have every intention of having diminishing magnitudes of monetary growth rates and credit expansion in each of the succeeding 2 or 3 years. If it develops that it is simply not possible to live by those plans, I think we still might have purchased something beneficial rather than negative on balance. Furthermore, we have the opportunity to make adjustments midstream; if developments come along which are so persuasive that we need to make adjustments midstream, the provision is there for that. But I'd be inclined not to make adjustments midstream unless the case for doing so were very, very persuasive--so persuasive that we would appear just not to be in touch with the real world unless we did make adjustments. Now, on where we come out for 1980, I find your observation persuasive that we simply cannot appear to be giving higher targets than our experience in 1979. With respect to a specific target or a range, my own preference since we started setting targets has been to set a specific target, recognizing that we will never hit a specific target but nevertheless having something specific to shoot at. I would feel in view of the great uncertainties we're looking at that there may be some benefits to a range for 1980. But if we were to give a wider range than we used in 1979, we would lose credibility. I think it would be a mistake to widen the range of the target, whatever target we select for 1980, from what we had in 1979. That's about all I'll say right now.",345
-fomc-corpus,1980,You don't want to say anything about the level of the target?,13
-fomc-corpus,1980,I had hoped we would take that up tomorrow.,10
-fomc-corpus,1980,Not the annual.,4
-fomc-corpus,1980,"Well, my inclination would be something on the order of our experience in '79 with a downward tilt. In other words, if we [adopt] a range, I'd put the midpoint of the range below the experience in '79. If we pick a specific target, I'd say the highest it should be is the absolute increase in '79.",70
-fomc-corpus,1980,Governor Coldwell.,4
-fomc-corpus,1980,"Mr. Chairman, I approach this from two interesting bases. Number one, membership of the FOMC will not be the same three to four years from now. In fact, if my count is correct, we're going to lose at least one-third of the members. I doubt very much if we're going to commit anybody out that long. I think it would be a mistake to commit because we'd lose credibility; in fact we may lose a bit this year in [adopting] a set of hard targets. There are enough uncertainties and instabilities in this economy right now that we'd better have about as much leeway as we can get. If we followed Ernie's path of selecting a particular point, then my aim for a point would be something like 4-1/2 to 4-3/4 percent; [if we set a range that would be my] midpoint with a 2 percent margin on either side. But that would obviously widen the range from the 3 percentage points that we've had in the past. As I look at the picture of the alternatives in front of us, new definitions and current definitions, I'm not quite sure I understand all of them, except that the first two seem to be identical until you get to M2. It seems to me that we might fudge a bit here and maybe use 3-1/2 to 6-1/2 percent or 3 to 6 percent. We had a 5-1/2 percent growth rate for 1979. If we're trying to hold down inflation in 1980 and 1981, I don't see how we could aim for 5-1/2 percent; it seems to me that we have to aim for something lower. We've been hitting the tops of the ranges or have been outside them on some of these aggregates, so my preference would be to put the top of the range very close to what I really want to shoot at and then scale down from there and hope we are able to make some progress. And if growth came out at the top of the range, we'd have an excuse of a worsening economy or something that would clearly demand more credit than we had planned. But I do think this economy is so unstable that it's difficult to know which way to plan. We've already talked about recession for months on end. It isn't here yet, except in the automobile and housing sectors, and maybe 6 months from now it still won't be here except for automobiles and housing. I don't know. It's hard to see how the consumer can continue to fight this. Maybe he is going into dissavings, but somehow or other he's keeping up his expenditures and may continue to do so for a while. My preference would be not to talk about 1981 because I think we're going to get into a box. I'd like a range of 4 percentage points, but if the Committee thinks 3 points is the most we can get away with, I'd take the 3-point range and I'd shade alternative 2.",610
-fomc-corpus,1980,Down?,2
-fomc-corpus,1980,Down.,2
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"Well, I start with the experience we've had of hitting our target on M1 and getting as a result a severe acceleration of inflation plus a much stronger economy. We've been waiting for this recession now for a year. It was predicted for the early part of '79. So, this leads me to think that there is something about our numbers that just does not reflect the true concept of money. [I don't know] whether we're going to capture that by our revisions. I think we'll make improvements but not really capture everything that is happening in the way of rising liquidity, and that makes me lean toward low numbers. I also see that there are very ominous changes going on in people's habits and expectations. In the last surge of inflation, 1974-75, there was a worldwide tendency for saving rates to increase. That was almost the same in all major countries. I haven't checked out what happened in this period, but we see now what happens to us. People have a different attitude. They are less afraid that they'll lose their jobs, but they're more convinced that inflation will go on. That is what the decline in the saving rate seems to me to say. Now, as to action, I share the view that we shouldn't make a numerical commitment because the meaning of that commitment isn't clear enough, particularly if we had to start with a commitment that says 6 to 5 to 4 percent or 5 to 4 to 3 percent. I very much doubt that we'd hit that because circumstances could force us into a pro-cyclical pattern. We're not going to have the desire or ability to cut off a strong economic expansion, and we'll find ourselves being pro-cyclical. Therefore, I think we have to start with a low rate of money growth right away. I would say that 3 to 6 percent is a good starting point. If we went much higher than that, we'd be in immediate danger of getting into negative real interest rates with what they do to allocation of credit and inflation and the dollar. On the other aggregates, I'd like to see more clearly how they are likely to behave. But I think a fairly narrow [Ml] range like 3 to 6 percent, aiming at the midpoint of 4.5 percent and expecting that that really is a symbol for much more liquidity than it seems to give us, is the way to start.",480
-fomc-corpus,1980,"Mr. Chairman, Governor Wallich's comment reminded me of a fact that was inadvertently left out of the Bluebook. We showed the actual growth rate of M1 for 1979 of 5.5 percent and I meant to show also in parentheses, and did not, the growth of M1 as if there had been no ATS accounts. One would have had to add 1.3 percentage points to that on our latest estimate. So, 6.8 percent would be the growth if there were no ATS accounts. That same 1.3 would be added to M-1A, and its growth would be 6.3 percent if there were no ATS accounts.",139
-fomc-corpus,1980,"Well, that explains a little more why we were able to finance such a tremendous inflation, but the increase in velocity still remains very large.",28
-fomc-corpus,1980,Other demand shifts may also be occurring.,8
-fomc-corpus,1980,"Do you consider the 6.3 percent consistent with the range of 3 to 6 percent, though?",23
-fomc-corpus,1980,No. That would go with a range of 4-1/2 to 7-1/2 percent.,24
-fomc-corpus,1980,"I really don't want to prolong this, but you say 6.8 percent [without ATS] accounts. Is the implication that that's the part that came out of demand deposits?",36
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"But you have M-lB, which is the number with all of the ATS and NOW accounts, at 7.3 percent. Are you saying that most of the NOW accounts came out of demand deposits last year?",44
-fomc-corpus,1980,"No, I was referring to M-1A; that would add 1.3 to M-1A. I don't have at hand at the moment any additional M1 data.",38
-fomc-corpus,1980,"Well, we'll explore that another time. Mr. Guffey.",14
-fomc-corpus,1980,"Thank you, Mr. Chairman. There are two or three points I would like to make. One, on the discussion of whether or not to retain ranges, I think there is comfort in ranges and that we must retain them for 1980. And I think a spread any narrower than the spread of 3 points that we have had in the past would be ill advised. Secondly, as to the projection of our intentions for 1981 and beyond, I would agree with the comments that it would be perhaps more destructive to credibility than helpful. If we project for 1981 and beyond, we would have to do it either [by giving] a set figure of where we project the money supply to be, which takes us out of the range concept, or by saying that we are going to reduce money growth 1 percent from the year before, whatever that may be. There is real danger in trying to project into 1981 and beyond. It seems to me quite appropriate, however, to express what probably would be a consensus of this Committee that our objective is to move the money growth to a lower level [within] those ranges, [namely around] 5.5 percent. That's still a very restrictive monetary policy for 1980 as opposed to 1979. That would be moving from growth of 7 percent in 1979 to 5.5 percent in 1980, which I consider to be a fairly restrictive policy. I would like to recommend that we look at a range for 1980 for M1 or M-1A, and I think they are both the same, of 4 to 7 percent rather than either alternative 1 or alternative 2.",346
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"Well, I would take a somewhat different tack. You talked about the complexity of reality as we view the Ms and reserves. I think the complexity of the economy with respect to the outlook is even greater. Second, I think we are boxed in because of the law saying we have to do this and do that. If I were doing it, I would indicate very clearly what my economic scenario is and then what my recommendation is in [that context] rather than say that this is our target irrespective of what happens. I suspect that the economic outlook is going to be far more variable--and I'm not saying on which side--than any of the projections would indicate, and that makes our target setting even more important. And I would offer to go back to Congress at an appropriate time because of my lack of confidence in my long-range forecast on the economy. I would surely put my economic scenario out there if I put out any kind of targets.",189
-fomc-corpus,1980,"What I don't quite understand, Willis, is that you say you would put your scenario out first, but then you say you don't know what the scenario is.",32
-fomc-corpus,1980,"Well, that's correct. But [I'd say: Given] this hypothesis, this would be true. For example, Paul, go back to October and look at what you would have projected on the international front versus what you feel now. That can change far more dramatically in a very short period of time. Let's assume we go to a military draft or assume we get involved militarily; all of these [projections and targets] would be out the window. On the other hand, if we just take a look at our inflation rate and what that could do, [the recession] may be far deeper than any projection we have if things started to come unravelled on that score. Then we would have to adjust to the reality as best we see it at the time, rather get into this longer range kind of set up. You can take the President's economic outlook or any one you want, and say: If that's true, then this would be our goal. But because we are not certain about these things we are going to have to adjust as time goes by and we are willing to come back and report when we adjust. But to get caught in a longer-range [target], even a year's target at the moment, is really buying ourselves another trap. Or else we have to have a wide range because of our uncertainty about the reality.",270
-fomc-corpus,1980,You dismiss entirely the argument that the more firmly we set a range the more we might be influencing the reality?,22
-fomc-corpus,1980,"At this time, yes.",6
-fomc-corpus,1980,"Do you think we have the luxury to do that, Willis? It seems to me that we are charged with deeper responsbility than that.",29
-fomc-corpus,1980,"Well, the Board has to [indicate] what projection is consistent with the numbers it chooses [for the aggregates]; and that is the scenario.",30
-fomc-corpus,1980,That's right; that's what I mean.,8
-fomc-corpus,1980,And that could be wrong.,6
-fomc-corpus,1980,It could be very wrong. I think the reality is that we have a much greater [chance] of being wrong this time than has been true in a long time.,34
-fomc-corpus,1980,"Where would you stick the number today, subject to change tomorrow?",13
-fomc-corpus,1980,"Around 5 or 5-1/2 percent as a midpoint, Paul.",17
-fomc-corpus,1980,Mr. Kimbrel.,6
-fomc-corpus,1980,"Mr. Chairman, I guess for different reasons I would opt for not going to longer projections. Frankly, there are so many uncertainties that there are enough difficulties with 1980. And even there, I would hope that we could relate our longer-run look at 1980 to the actual targets that were in place for 1979 and not our results or our experience for 1979. I would not be too much for changing these during the year, even with the chances of recession or OPEC influences. I think [any] changes we are going to make [in the ranges] are going to have a rather minimum influence, and I'd be inclined to stick to our longer-run targets. In doing that I have a preference for looking at those associated with alternative 2. Contrary to what some of the others have suggested, I'd be inclined to narrow the target ranges, maybe still with 4-1/2 to 5 percent as the midpoint, but certainly not wider than 4 to 6 percent if M-1B is what we are going to be talking about.",220
-fomc-corpus,1980,Mr. Timlen.,5
-fomc-corpus,1980,"Mr. Chairman, I must say I am pleased that this is only a preliminary discussion of our long-range targets be they for 1980 or 1980 and 1981. I am not sure whether I am distracted or overwhelmed by major external political forces as well as external financial forces. I have no idea how or when they may be wound down; maybe we will have a better idea for the final discussion in February.",86
-fomc-corpus,1980,[Unintelligible] proposing making it for the last quarter.,14
-fomc-corpus,1980,"Why not? At any rate, I think these external developments all pose threats on the side of impeding our inflation fighting efforts, and they pose a risk to the strength of the dollar if there's a renewed reason for a flight from [other] currencies. Finally, I would agree with some of the people to my immediate right that a recession is upon us. I look at the auto situation and housing and the cost of energy as we go into the winter and the impact on consumers. For me inflation continues to be the overriding concern. Inflationary expectations are as rampant as ever. The dollar continues to be vulnerable in the foreign exchange markets to any appearance of an easing in our policy, and [market participants] do focus on interest rates. So my prescription as of this preliminary discussion is not to compose another dramatic package like October 6 or November 1, but to restate our resolve on inflation and commit the Federal Reserve to a reduced rate of growth in money and credit. I would avoid any appearance of an easing when we go to the new definitions. And we should make such a commitment not only for 1980 but also for 1981. I'd say if we need any countercyclical policy we should look to the Treasury and the fiscal side. I haven't really studied the numbers much yet. I would be inclined to go for something very close to alternative 2 on page 8 of the Bluebook.",286
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"First, I would use the 3-point ranges that we have had. As a matter of fact, if I could, I might choose a 4-point range as Phil [suggested]. [But] given the fact that we have had ranges of 3 points, I just don't see us broadening them out. I would remind you that we fully used the ranges this past year. In fact, we more than used it in the case of Ml. Now, maybe our new procedures will make the variations a little less, but I would guess that we may use pretty much of the ranges this year. In addition, I think it would be desirable to borrow a little from tomorrow to have [money growth] on the low side in the first part of the year and on the high side in the second part; therefore, we might want [wider] ranges just for that purpose. So, I would have 3-point ranges. Secondly, I would not make any 2- or 3-year statement regarding specific reductions in our monetary growth rates because it's unrealistic. For example, take this econometric projection. We would be saying that after unemployment got to 8.1 percent we would reduce the monetary growth rate again and then presumably after it got to 10.5 percent we would reduce it again. I just don't think that's [realistic]; we're not going to do that. Indeed, I don't think we are going to reduce the monetary growth rate a great deal until some of the things that are adding to inflation tend to fall off. For that reason, it's important that we be pretty conservative with 1980 because I doubt that we will be able to reduce the ranges much beyond the 1980 ranges that we set. In fact, I don't think 1980 will be much of a problem in terms of [growth] being within the ranges because there will be enough of a recession that we're probably just saying how low we want interest rates to go when we set the ranges for the year. So, I would say that we ought to center the range on 5 percent for M1, which would be an improvement over what we experienced [last] year, and that would mean about 3-1/2 to 6-1/2 percent, [with] a little more on M-1B and the other ranges in accordance with that. And then [we should] hold to it. I might remind you that not only do we face the possibility of recession, but we may be in a semi-war [status] and it will be important, I think, to have a range that is quite explicitly stated to which we can hold.",541
-fomc-corpus,1980,"But when you say ""hold to it,"" you mean consistent with your first comments about using the range if necessary.",23
-fomc-corpus,1980,"Yes, that's right. And, as I said, I'd drift a little low in [the range] in the beginning with the view that growth will be rising within it later on.",37
-fomc-corpus,1980,"Mr. Black. I don't know whether we will get through with everybody today, consistent with getting out at a reasonable time. But if it's agreeable, let's go on a little longer.",37
-fomc-corpus,1980,"Mr. Chairman, I come out very close to Ernie Baughman in feeling that we ought to stress our range in 1980 and not indicate specifically what the ranges will be for future years but indicate very clearly that we still hold our oft-stated intention to reduce these ranges gradually over time until we get them down to what we hope to be a noninflationary basis. So far as these new aggregates are concerned, M3 is probably the worst because it seems to be the most interest sensitive. I think M2 is going to be rather interest sensitive, too, because we have taken out of it all the nonnegotiable CDs at weekly reporting banks and all the large CDs--whether negotiable or nonnegotiable--at the other banks. I would think, John, that would probably more than offset the advantage from [including] the money market funds, but I'm not sure about that. I believe M-1A leaves out an increasingly important part of the transactions balances, so I would settle on M-1B as the best one of all. I would favor narrowing the width of the ranges. We have had 3 points suggested at times in the past; we have had 2 points. I would favor 1 point for the two Ml ranges and probably 2 points for M2 and M3, which I don't think we can control that precisely anyway. The main thing that I want to do is to set these targets below what we achieved in 1979. In terms of M-1B, which is what I build all this around, we had a 7.3 percent rate of growth in '79; I'd say 6 percent might be a reasonable rate in '80, so [a range of] 5-1/2 to 6-1/2 percent would look about right to me on that one. If we can explain satisfactorily that M-1A really was not 5 percent as the figure shows but 6.3 percent, then maybe 5 to 6 percent would be reasonable for that. For M2 I'd suggest 6 to 8 percent and for M3 6-1/2 to 8-1/2 percent.",452
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Mr. Chairman, I find myself philosophically interested in the idea of reducing the ranges, but I don't think this is the time to do it. I think we need all of the flexibility we can have here. I find myself at least at the moment utterly opposed to going above 6 percent on the upper end of our range for whatever we call [narrow money]--Ml, M-1A, M-lB--for psychological reasons. It would give a wrong impression abroad regardless of how much we tried to explain it, and to some extent that would be true at home as well. So I come back to the 3 to 6 percent range that we had, not just because we had it this [past] year but because I think we have established some modicum of credibility in keeping [actual growth] within the 3 to 6 percent. We're certainly very close to the upper edge, but we still have established a credibility which I have the impression at least was not achieved even by some of our more austere partners, Germany included. I feel that this a restrictive policy. Like Willis, I feel that the variability of the outlook is even greater now than it has been, certainly in my memory as a member of this Committee. That's one of the reasons I wouldn't narrow the range. I would also urge that we keep our powder dry until we see how things are moving along six months from now. As to whether we want to change that range, I certainly wouldn't make [our intent] public, and I certainly wouldn't stick to 3 to 6 percent through, shall we say, hell or high water. I feel very strongly that to use a [number] of any kind beyond 1980 is foolish. I feel, much as Ernie does, that if we state our intention in the present environment as defined by the President's messages and so forth and so on, our own analysis and related intention to reduce the expansion of money supply further as long as the inflationary forces rage as strongly as they do is as far as we can go in talking about '81 and '82. I join Nancy [in her view about long-term projections]. I'm not going to question whether she's made even more 5-year projections than I have, but we made the first one on the budget in the 1971 Economic Report. It was a fine paper exercise, and the way to start is to start. But I would hate to go back and review that now, even with all the adjustments, and realize how shaky it was at the time.",519
-fomc-corpus,1980,Mr. Willes.,5
-fomc-corpus,1980,"My wife made me promise that I would be more agreeable in the new year, so I would like to say that I agree with everything that has been said. I'd like to say it, but the fact is that I don't agree. But since the hour is late I will be very brief in stating my disagreement. We all agree that the outlook is uncertain. Where we disagree is whether that makes any difference or not. If we really think that if we knew what the outlook was we could affect it in a systematic way, then we end in one side of the [corner]. But some of us have the view that even if we think we know what is going to happen, there is no systematic, predictable, effective way that we can have an impact on it. Because of that, one can end up with quite different policy implications. I feel perfectly comfortable in the abstract in saying that, yes, the outlook is uncertain but that policy ought not to be uncertain. Policy ought to be a given, and by making policy a given we can in fact reduce some of the uncertainty of the outlook. The implication of that is that we should not only decide but should specify in great detail what our targets are for the next five years. Unfortunately, we have one minor problem with that, which is that a change in technology is going on in the financial markets that makes all the numbers, if not irrelevant, at least highly uncertain. So, since you have given us an extra month, I would like to wait another month and then be able to come back and tell you what I think those numbers ought to be. It's clear that we can't in the current environment spell out any M for the next three years because the technology is bound to change in such a way that it would make any number we specify obsolete. It may be that we are going to have to move to some kind of reserve target and spell that out for three years. But whatever we do, we need to find a way to reduce the uncertainty of the outlook that is associated with policy. We can't reduce the other uncertainties, but we can reduce that uncertainty. I think that would be a substantial accomplishment indeed.",435
-fomc-corpus,1980,You are not going to offer any numbers?,9
-fomc-corpus,1980,Next month he will.,5
-fomc-corpus,1980,Next month.,3
-fomc-corpus,1980,"Well, we'll stay in suspense. Mr. Balles.",12
-fomc-corpus,1980,"Since the hour is late, Mr. Chairman, and since I don't really have any convictions but only tentative leanings at the moment, I'm not sure I will give a number either. But I would like to refresh recollections by going back five years when we didn't have to have publicly announced ranges. Subsequently, when we did announce them, we had a very unhappy result [after] proclaiming a long-run strategy of gradual diminution in monetary growth. That was about four years ago. Psychologically, [targeting] gradual reductions in the ranges year by year was probably good; the actual outcome was just the reverse. Nearly every year the actual monetary growth kept accelerating. Whatever we do, we have to avoid that kind of outcome like poison, if we give any credibility to our actions of October 6. I think we need to stick to that long-run strategy and really make it work this time. We need to diminish gradually the rate of money growth, however defined, and it's going to be more difficult as we get into these new definitions. So, with respect to the different alternatives that are outlined here, with the risk of making a pest of myself, I'm going to come back to the theme of whether we need all four [variables]. I think we are getting the cart before the horse in a way, by trying to set numbers for four [measures] when we haven't really decided whether we need or in fact can control all four. When I think of the new content of M2 and the huge amount of savings deposits at nonbank depository institutions--deposits that really aren't under our reserve influence--and when I think of the volume of money market mutual funds shares and so forth, like you, I begin to have some doubts about whether we really can control M2. It might be important information for us on which to base our other actions. But if I were forced to give a provisional number for M-1A or M-1B as of today, I would lean to a midpoint of about 1 percent. I'd like to reserve for a more definitive--",421
-fomc-corpus,1980,A midpoint of 1 percent?,7
-fomc-corpus,1980,"I'm sorry. As you can see, I'm getting punchy; the hour is late. Please don't record that. I agree with your [suggestion of] a midpoint in the general area of 5 percent for either M-1A or M-1B. I think the important thing is to demonstrate within the context of how serious this recession may turn out to be that, while we may have to depart temporarily from the reduction mode during the depth of the recession, the minute we get beyond that it is our longer-run plan to continue this gradual diminution [in money growth] in view of the strength of inflationary pressures.",127
-fomc-corpus,1980,"Well, I'm torn here between the hour and having only three more names left. I'd rather like to get through the three names if we can do it with great dispatch. Mr. Rice.",38
-fomc-corpus,1980,"Well, Mr. Chairman, I don't see how we can look much beyond 1980. As a matter of fact, I would prefer not to look beyond the next 3 months.",38
-fomc-corpus,1980,You'll have that opportunity tomorrow.,6
-fomc-corpus,1980,"But since we have to look at 1980, I would favor some moderate reduction in the rate of monetary growth for 1980. Since the M1 range we would be reducing from is 4-1/2 to 7-1/2 percent, [whose midpoint is] roughly equivalent to the rate of growth in the target for 1979, 3-1/2 to 6-1/2 percent would be an acceptable range to me. I think the range should be kept fairly narrow, at 3 points. So, 3-1/2 to 6-1/2 percent would be acceptable. I'd be prepared to see perhaps a slightly higher range up to 7 percent, say, 4 to 7 percent. But I could certainly live with 3-1/2 to 6-1/2 percent with a midpoint of 5 percent. I know we are supposed to discuss the 3-month target tomorrow, but what happens in the next 3 months is of great importance right now. And I think over the next 3 months is a good time to lean rather heavily on monetary growth as compared to over the year as a whole. It would have good credibility value and I think it can be done without much harm.",261
-fomc-corpus,1980,"By ""leaning on it,"" you mean down?",11
-fomc-corpus,1980,"Down. I think it can be done without much harm. It will be a period when unemployment is still relatively low. So, I would argue for more restraint, or a rate of growth toward the lower end of the range over the next 3 months with the understanding as the year unfolds that higher rates of growth would be tolerable.",68
-fomc-corpus,1980,"Mr. Morris, are you feeling brief?",9
-fomc-corpus,1980,"Very brief, sir. I think we ought to be able to show a substantial reduction in our guidelines for [this] year, simply because it is [likely to be] a year of recession. It's a year when the demand for money is going to be down. And it's only in recession years, in my judgment, that we are going to be able to reduce the guidelines. I can't see us reducing them in '81 from the levels we set for [this] year if the economy is expanding. As a theoretical proposition I'd like to see [growth] go from 5 percent to 4 to 3 to 2; but it seems to me that if we don't cut the ranges back now for '80, we are not likely to cut them back for '81 or '82. Therefore, I would go for the 3 to 6 percent [M-1A] range and try to explain to the market that it is a reduction. I think we are going to have a hard time explaining that it is a substantial reduction because everybody is so confused about the ATS add on and take off and so on that they are not going to be as impressed with 3 to 6 percent as we are.",247
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"First of all, if I may, let me commend the staff. I think the form of this Bluebook is the best I have ever seen. Maybe we will only keep it within our own family, but it enables us to make these decisions in the context of economic implications instead of just looking ahead for 2 or 3 weeks as we sometimes have in the past. I would very much recommend that we announce--or that at least you announce--as forcibly as possible our intention to lower our growth rates over a 3-year period. I think it's important to recognize that there is absolutely no way in the world other than by affecting expectations to anticipate a reduction in inflation during the calendar year 1980. The only possibility we have of accomplishing anything along these lines is to make our longer-term intentions sufficiently clear that anticipations and expectations would react favorably. It's vitally important in the world in which we live that our new--and I certainly feel proper--approach to monetary policymaking not be pre-judged with the expectation that we will get results in the year 1980. I think that would cause political pressures that would be disastrous. Specifically, I would recommend a 5 percent [growth] rate, as shown under the alternative 2 description on page 8, and strategy 3 on page 11 in terms of 1980, 1981, and 1982. Possibly, if it's unpalatable to think of actually putting out numerical [intentions] to the world--and I'd say in that regard that our primary responsibility is not to protect our own flank but to come to grips with inflation and to accomplish these other [objectives]--at least our determination to reduce money growth over a 3-year period should be announced and announced clearly. That's the only way we are going to have any effect in anything like a short-term context. That's all I have.",385
-fomc-corpus,1980,Mr. Schultz has promised me he can pronounce an interim benediction in 30 seconds.,19
-fomc-corpus,1980,"It's an uncertain world so we need all the flexibility we can get. We need at least a 3 percentage point range, with a midpoint of 4-1/2 to 5 percent, which would argue for alternative 2 or a half point higher. Longer range I agree that we'd be absolutely foolish to set specifics. I do think it's necessary that we say something that indicates some commitment or resolve of some kind. We're the only group that has any credibility to do so. I think that's absolutely essential for us if we are going to continue to attack the inflationary expectations problems.",118
-fomc-corpus,1980,"I very much appreciate your staying here until 6:30 p.m. I didn't give you much choice, I guess, but nobody vocally objected anyway. I think it was very useful to hear these preliminary expressions and to get this part of our agenda out of the way. We will proceed with Mr. Kichline's economic outlook when we all return tomorrow morning.",76
-fomc-corpus,1980,"I guess I, or we collectively, neglected to ratify the domestic operations. Is there a motion to ratify the domestic operations? SEVERAL. So moved.",34
-fomc-corpus,1980,"Without objection they are ratified. While we're in the process of ratifying, why don't we hear about foreign currency operations.",25
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Questions? Comments?,4
-fomc-corpus,1980,What in your opinion is likely to be the effect of the announcement this morning that OPEC is seriously going to pursue a basket of currencies?,28
-fomc-corpus,1980,"They've been discussing that off and on. Who announced it? If it was the Saudis and there's a general agreement, then it could lead to selling of dollars. But if it was the Kuwaitis or some research economist in one of these areas or newspapermen, it's unlikely to be [more than] a momentary blip in the market.",72
-fomc-corpus,1980,"It was a story that came out yesterday afternoon, I think, when you were probably still on the plane, Scott. And the Desk reported at that time, although it was on the ticker in the morning yesterday, that there had been no effect on the market. The nature of the story, as I heard it, was that some Arabian official had said that eventually they probably would have to go to [a basket of currencies] or something along those lines, which would suggest a change in the Saudi's position on that particular issue. But it is probably fair to say that they have been talking about it for so long that it has been fairly well discounted. Even the psychological effect, in terms of diversification, may not have been a factor in the market yesterday, according to the Desk.",158
-fomc-corpus,1980,"According to page 4 of The Wall Street Journal, it was a West German newspaper reporter quoting Saudi Arabia's oil minister as saying that the currency basket appeared inevitable.",33
-fomc-corpus,1980,That's the story we got yesterday. We've heard that before.,12
-fomc-corpus,1980,"Scott, in your Desk operations and your wanderings abroad, what's your sense of the direction of currency management on the part of the multi-nationals? Are they making any significant shifts?",38
-fomc-corpus,1980,"No, in fact they have been rather out of the market. They were a major factor early in December as they transferred some of their profits and earnings home. During the late part of the month and early this month, in our conversations with them, they said they just don't know which way to go. They're very nervous [about the situation] politically as well as with respect to other elements. But they haven't been moving funds very much. The real problem for us in the exchange market, as far as dollar sales, has come from the diversification by the Iranians and perhaps other central banks. On the other hand, the risk of talking to corporate treasurers is that they start warning us that if the dollar begins to decline, they will sell dollars; it's that sort of thing. We have not heard of major shifts by corporations. They're not very optimistic.",173
-fomc-corpus,1980,Would you like to ratify the transactions?,9
-fomc-corpus,1980,I move to ratify.,6
-fomc-corpus,1980,"Without objection they will be ratified. Do you have any recommendations, Mr. Pardee?",19
-fomc-corpus,1980,"Well, we are now getting into the phase of second renewals of swap drawings and I do need authorization. Some of the drawings relate to our operations last summer, in July. We have eight swap drawings in the amount of $335 million that are up for second renewal between now and February 14. I would like to recommend that we roll them over once again, if we haven't had the chance to pay them off before then.",87
-fomc-corpus,1980,Any discussion? Do we have a motion to that effect?,12
-fomc-corpus,1980,I'll move.,3
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection we will approve that proposal. We turn to Mr. Kichline who has the unenviable job amid all of this uncertainty of giving us a prudent, considered, forceful, accurate view of the economic outlook.",46
-fomc-corpus,1980,How about unambiguous? [Laughter],10
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Did I understand you correctly that you're projecting domestic energy prices up 60 percent?,16
-fomc-corpus,1980,That's correct. That refers to crude oil prices--the wellhead prices--not the total energy component.,21
-fomc-corpus,1980,What were they up in 1979?,9
-fomc-corpus,1980,"Well, substantially less. I think for the year it was about 45 percent.",17
-fomc-corpus,1980,How much of your 8 percent [inflation forecast] would be energy-related then?,18
-fomc-corpus,1980,"Well, it varies. In 1981 it's a little over a percentage point, about 1-1/2 percent, and in 1980 it's about 2 percentage points. Let me just say, as it turns out, that domestic wellhead prices in 1979 are estimated to have been up 55 percent. The price of domestic crude oil is estimated to have been at $14-1/2 a barrel in the fourth quarter of last year. Given the decontrol schedule and our OPEC price assumption, by the fourth quarter of 1980 the price of oil is expected to go to $23-1/4.",131
-fomc-corpus,1980,You're just talking about domestic crude oil prices?,9
-fomc-corpus,1980,"Domestic wellhead prices for crude oil. But the current decontrol schedule, which is obviously subject to change--the President does have that authority--would by October of 1981 place domestic crude oil prices at the world price level. So, we're going in two years from $14-1/2 to $33-1/2 on the price of half our oil supply.",77
-fomc-corpus,1980,"But this still would have very little impact on the price of gasoline, wouldn't it, barring an increase in taxes? What would be the price of gasoline, would you say, corresponding to a world level price for crude oil?",46
-fomc-corpus,1980,"We've got all these numbers. Let me just say that lots of things intervene in getting to the retail price of gasoline including importantly margins, which we have assumed will shrink a bit. Gasoline prices are estimated to have increased 50 percent in 1979; [the estimate for] 1980 is 29 percent and for 1981, 15 percent. So the rate of increase is slowing.",82
-fomc-corpus,1980,"Jim, you have an inflation rate of about 15 percent this first quarter, don't you?",19
-fomc-corpus,1980,For the CPI.,4
-fomc-corpus,1980,"There was an announcement that the prices of homes declined some in November. We've been wrestling with this question of when we will start to see a leveling out of the housing component in the CPI. Are we getting any better feel as to when we will see some impact? Is it as early as March, or are we going to have to wait until later before we see any impact?",76
-fomc-corpus,1980,"Well, as you know, there are two important influences on that housing component: One is the price and one is mortgage interest costs. Mortgage interest costs tend to lag commitment rates by about a quarter. So, what happened in the fourth quarter in mortgage rates would appear in the CPI measure this quarter. Given our expectations that mortgage rates have peaked and will be drifting down, we think that by this spring the mortgage interest component should not have an important influence in driving [the CPI] up. In fact, late in the spring, in June or so, it could begin to operate the other way. On house prices, some of the measures of house prices recently have declined. Unfortunately, that's not the information that is directly used in computing the CPI. Our best guess is that house prices in the CPI will be shown to be rising somewhat less rapidly through the next several months, but probably at a rate that's still near 10 percent. So, we don't expect measured inflation in the CPI due to the house price component to be a helpful factor in the short run.",213
-fomc-corpus,1980,"You did mean to say it was multiplicative, didn't you?",13
-fomc-corpus,1980,I get into so much trouble when I use that term that I decided to avoid it today.,19
-fomc-corpus,1980,Why is that different index used?,7
-fomc-corpus,1980,"Well, as I understand it, the index used to measure house prices is an FHA series. It's based in effect on FHA loans, which as you know are a small part of the market. It's designed to measure ""a representative house."" The series that come out monthly are Census series, which are based upon the turnover of new and existing homes. And in those I believe the average price of homes declined a little in November. The question is: Was that attributable to a change in the mix or in fact did ""the representative house"" decline in price? It is assumed at this juncture that people opted for lower priced homes and thus the turnover was concentrated in such homes rather than that house prices were declining.",143
-fomc-corpus,1980,I was wondering whether the staff has had any chance to [develop] even a preliminary view on the likely impact on inflation rates of this morning's announcement of the upward adjustment on the wage/price guidelines.,41
-fomc-corpus,1980,"Well, that was pretty much in line with our expectations. We have assumed in the forecast for some time now that the wage/price restraint program would reduce compensation by perhaps 1/4 percent or so, or a couple of tenths, but not a great deal. In effect, part of this is the notion of: Do you experience settlements that are well above your guideline or do you move the guideline so that few fall outside the program? And, that's a bit what is going on here. It is a flexible guideline, as I understand it, with a 2-point spread. We expect that the program in practice has been eased from the restraints of a year ago and that at best it will have a small damping influence, but not [much].",153
-fomc-corpus,1980,"Your projection of the average earnings increase is up into that guideline, isn't it?",16
-fomc-corpus,1980,"Yes, we have compensation in total running in the 9-1/2 percent area, so it's at the top end of that program. I might also note, though, that this is a fairly heavy bargaining year. We face [labor negotiations by] the steel workers, communication workers, some longshoremen, and the aluminum can industry; so 1980 is not an easy year in terms of major collective bargaining settlements.",87
-fomc-corpus,1980,Did I see someplace that nonunion wages are now rising faster than union wages?,16
-fomc-corpus,1980,I'm not aware of that.,6
-fomc-corpus,1980,Maybe I just picked up the idea.,8
-fomc-corpus,1980,"In effect, Jim, what you've done by the revisions this time is to push the recession into 1980; 1979 is no longer a recession year. What are the chances of [a recession] being deferred another six months?",48
-fomc-corpus,1980,That's not his projection.,5
-fomc-corpus,1980,"Well, as you know, [those chances] are clearly there. If you look back, we had assumed in the staff forecast that a recession or a downturn in economic activity would take place in the third quarter of 1979. We were a bit late in coming to the recession view and, as it turned out, obviously not late enough. It is possible that we will be surprised. The outlook hinges importantly on consumer behavior; that by no stretch of the imagination is the big surprise in the fourth quarter, if the numbers hold up. I do believe that the ability of consumers to rely on reducing their saving rate for a couple of quarters to below, let's say, the 3-1/2 percent level begins to be a possibility, but it's very unlikely. I also think that we have in place now a clear downturn in the housing sector and weakness in business fixed investment, and those factors will tend to drive up the unemployment rate and provide somewhat less income growth. So, I think the probability is now higher that economic activity is declining, but I would not rule out the possibility that we will be surprised.",225
-fomc-corpus,1980,"Well, Table I-10 in Part I of the Greenbook seems to indicate that you're forecasting a six-quarter decline in personal consumption expenditures, heavily concentrated in the goods sector--in fact, all in the goods sector--with services continuing to rise on a real basis. You're forecasting very heavy declines [in total consumer spending] in the first three quarters, tapering off until you get a positive figure finally in the fourth quarter of 1981. What does history tell us about this kind of pattern? Is this consistent with, say, the 1974-75 pattern?",116
-fomc-corpus,1980,"No. What we have had often in the past is a sharper slowdown, particularly in goods, but nothing that has stretched out for six quarters. What is unusual about this is not so much the size, but the duration--that is, six consecutive quarters of declining real personal consumption expenditures. I would associate a good deal of that with the fact that this expansion and projected recession have very different characteristics than past history. For the extended period ahead one of the key differences relates to policy assumptions, both monetary policy and, very importantly, fiscal policy. There are no discretionary fiscal actions in our forecast--in fact there are tax increases--during the downturn. So we would [attribute] a good deal of it to that.",144
-fomc-corpus,1980,"I was going to ask a question later but it's timely to ask [now]. You have a prolonged recession or sluggish period here and you have no fiscal action assumed. You make some assumptions about monetary policy. Would you like to comment about an appropriate policy mix over this period, looking six to eighteen months ahead?",62
-fomc-corpus,1980,"Sure. In my own view, I think a posture of monetary restraint indexed by a rate of growth of the Ms that is no higher, and perhaps somewhat less, than we had in the last year would be appropriate. I also believe, however, that action should be taken on the fiscal side. [I'd note] two important aspects there. One would be to roll back the social security tax increases scheduled in 1981. It seems to me, in some way or other, that is not consistent with trying to gain control over inflation. However, something like $18 billion in federal revenues are generated out of that, so that by itself would mean about an $18 billion tax cut. I also think some tax reduction that would affect the corporate sector by trying to provide business investment incentives would be appropriate. Realistically, it seems to me that such a package would be in the $30 billion area. But when one thinks of having tax cuts in an election year period that do nothing for the consumer sector, that seems to me rather unlikely. So, probably when we are talking about a tax cut, we would be talking about a bigger number rather than a smaller one.",236
-fomc-corpus,1980,"What about the timing on that, Jim? Just rolling back the social security tax is no tax increase rather than an actual tax cut. Isn't there a possibility that a tax cut in the payroll tax, say in mid-1980, would be appropriate timing?",52
-fomc-corpus,1980,"That's quite conceivable. That would mean we could avoid part of the increase that would be coming along this year because as of January 1 we did have about a $4,000 increase in the social security tax base and effectively for consumers that will come into play largely in the second half of this year. So, that's right. If you are talking about this, you do not think in terms of doing something eighteen months ahead but rather around mid-1980. That is when one would want to have this [lower tax become] effective.",109
-fomc-corpus,1980,"You have given us a scenario here of an $18 billion tax cut in social security taxes and something for business and you say, realistically, something for consumers, too. So I don't know how much above $30 billion you are.",47
-fomc-corpus,1980,"Well, I didn't recommend that. I said I think that's one of the facts of life. The number may go higher.",25
-fomc-corpus,1980,"It would bother you if it were higher, right?",11
-fomc-corpus,1980,Don't forget the $18 billion so-called tax cut is just not a tax increase. It's a funny tax cut.,23
-fomc-corpus,1980,"That should be offset or compensated for by a rise in the personal income tax, shouldn't it?",19
-fomc-corpus,1980,Pardon?,3
-fomc-corpus,1980,"We're talking about a shift of the social security financing from the payroll tax to personal income tax. So we would have to anticipate the rise in the personal income tax as we cut back on the social security tax increase, if we didn't want to increase the deficit.",52
-fomc-corpus,1980,"Well, given the size of the full employment surplus as shown, it doesn't bother me at all to have an increase in the deficit. By the end of '80 it's shown as being 4 percent of GNP.",44
-fomc-corpus,1980,Your budget deficit for 1981 is what?,10
-fomc-corpus,1980,"$30 billion. The Administration, we understand, is trying to hold the number in its budget message to around $15 billion. But we have a different economic situation. I think that's right that [the deficit] is an upward constraint because if we have a tax cut [this year], it seems to me that in fiscal year 1981 the deficit could easily be in the $60 to $70 billion range.",84
-fomc-corpus,1980,What does the 50 cent gasoline tax do to the consumer presently?,14
-fomc-corpus,1980,It's about 2-1/2 percent under a direct measure.,14
-fomc-corpus,1980,On the level of the index or--?,9
-fomc-corpus,1980,"No, if inflation were rising at 10 percent before, it would rise at 12-1/2 percent for a year.",27
-fomc-corpus,1980,For a year. So it raises the level of price increases by 2-1/2 percent?,21
-fomc-corpus,1980,Right. The percentage change goes up by 2-1/2 points.,16
-fomc-corpus,1980,"Mr. Chairman, I would like to go back to this forecast of personal consumption expenditures because I think it's an important point. You have forecast an increase in unemployment of roughly 1/2 point per quarter in this period ahead, at least for 1980, and industrial production is only going down about 2.3 percent [in the first quarter] and 6 or 7 percent, roughly, for the full year. So, one wonders a little whether these are consistent with the decline you have forecast in personal consumption. If the goods part of this consumption is going down at more than 7 percent in the first two quarters and 6 percent in the third quarter, isn't that likely to have a greater impact on industrial production?",149
-fomc-corpus,1980,"Well, one of the important points here is that industrial production is only a part of this; what has been driving the changes in industrial production recently has been autos. And we expect that to spread. When you talk about the unemployment rate and IP, you are talking about the bulk of employment outside the manufacturing sector. The strong growth recently has been in trade and services. We expect that employment in manufacturing will drop but we also are going to get much slower employment growth in the trade and services area. Combined, that is likely to drive up the unemployment rate relative to changes in industrial production. I don't think they're inconsistent. What we are talking about here is our view that we will have employment adjustments in the short run once businesses become convinced that their sales picture has changed. And labor markets today are still quite tight in many areas, particularly for skilled labor. Businesses are unwilling to give up skilled labor resources unless they are convinced that, in fact, the picture has changed for them.",196
-fomc-corpus,1980,Presumably they get convinced by the end of the second quarter with a two percent reduction in goods sales.,21
-fomc-corpus,1980,"I think that would be convincing evidence, assuming that our forecast is right.",15
-fomc-corpus,1980,"Well, I think the emphasis on the consumer is certainly appropriate here. I would point out, Phil, that in nominal terms goods expenditures rise every quarter, which I think makes the point that consumers are being pressed not only by taxes but also by inflation, particularly the inflation in oil prices which doesn't really have a personal income counterpart in it. The saving rate behavior is extraordinarily interesting. I calculate that in '78 and the first half of '79 the personal saving rate averaged a bit above 5 percent, fluctuating up and down but never getting much below 5 percent and being above it in some quarters. That was a period of rapid increases in installment debt, which reduces the saving rate of course from what it would otherwise be since it's a reduction from gross savings. Then in the third quarter of '79 it dropped to 4.3 percent with a lesser rise in installment debt; and in the fourth quarter it apparently dropped below 4 percent to maybe 3-1/2 percent or something like that with a still further decline in the rise in installment debt. So the question is: In terms of components, what is moving that saving rate so strongly downward? I suppose one could argue that if people are moving from cash to goods, the financial saving is falling off. That would be one indicator. If, on the other hand, there is a generalized sort of squeeze so that people don't have enough income to cover [their expenditures] and there's an attrition in saving that results, that's a different kind of story. If it's the first case, we could have a continued high level of consumption. But that doesn't seem to me consistent with the reduction in installment credit. If it's the second case, we would have a very substantial decline in real consumption. You probably don't have much information on the components of the saving change, but do you have a view on what is happening there?",380
-fomc-corpus,1980,"Well, I have a view that in fact the economy has not been generating much real disposable personal income. [Its growth] peaked out in December of 1978. In terms of the monthly figures, it bounced around but in the second half of last year, for example, real disposable personal income is estimated to have gone up less than 1/2 of one percent. And yet we are getting expenditures, which we estimate, for example, in the final quarter of the year to have been at 3 percent. Clearly, in our view, it's a strong attempt by consumers to maintain their spending patterns despite adverse factors in growth of real disposable personal income. So, it is that sort of issue. It's true that the issue is wrapped up with whether or not we are getting durable goods purchases [from] savings, and that would tend to drive the [saving] rate down in a given quarter.",182
-fomc-corpus,1980,There couldn't have been much of an increase in car sales in that period; they probably declined. Were other durables strong?,25
-fomc-corpus,1980,"Well, some appliance sales had been strong, but consumers were generating installment debt increases of around 10 percent.",22
-fomc-corpus,1980,"This change in consumer behavior, as I said yesterday, strikes me as very significant. If, now, in a period of accelerating inflation people don't save more but save less, there must have been some change in their evaluation of the situation. The most plausible guess, it seems to me, is that in '74 people were genuinely scared. They didn't know where the economy was going and whether they were going to have a job, so they cut back on average. Now with a more moderate recession predicted, there seems to be less of that fear. On the other hand, there's a more rational attitude that if they buy now they save 13 percent. They are buying; they did buy cars, which was perhaps the first wave of that. Now they are buying something else. You are quite right that [consumer spending] seems to go from one thing to another. But I would argue also in looking at consumer debt, which has risen relative to income, that the consumer probably looks at it in relation to future income. So, with future nominal income rising, the debt ratio to him appears less than it is. My main comment is on the nature of our staff's forecast. It is in a sense a formal exercise because you don't give weight to the political probability of a tax cut. So this [forecast] is what would happen if the things that are already planned and decided were to happen. The Board staff's forecast is under those of forecasters who are not bound by that constraint; I think those forecasters generally accept and expect a substantial tax cut sometime this year. Therefore, the shape of their recession is different. Their recession is shorter than ours and its end is different; instead of saucering out very flat, it comes up more V-shaped. And their inflation expectations--although I don't know this for a fact, but it seems logical from these differences in their view of the income pattern--should be higher than ours. Can you say anything about outside forecasts and the like?",401
-fomc-corpus,1980,"I think your description of those forecasts is quite correct; most major models do have a somewhat deeper or perhaps the same decline, though shorter in duration, and a much stronger recovery. DRI is one example and that's clearly their forecast. On the inflation side, curiously enough, the Board staff's forecast would be in the upper range of inflation rates of outside forecasts that I've seen for 1981. In part that's attributable to the fact that many of the outside forecasts with a stronger recovery generate more productivity and they've incorporated a tax cut that removes the social security [tax] aspects. But I think the conditional assumptions here are very different from those being used by most outside forecasters.",137
-fomc-corpus,1980,Your assumption of the impact of that social security tax increase on prices was what in 1981?,20
-fomc-corpus,1980,"Well, we think it will be close to 1 percent without a constraint on the time horizon. We think it's probably closer to 2/3 of a percentage point or something like that in 1981. Compensation goes up by 3/4 of a percent because of that effect and we assume it will be fairly quickly passed through in the form of higher prices.",75
-fomc-corpus,1980,"What sort of a monetary interest rate projection do you have underlying this forecast, Jim?",17
-fomc-corpus,1980,We have a moderate decline in rates beginning in the spring and going on; the 3-month Treasury bill rate we assume will [drop to] around 10 percent in the spring [and will drop a bit more through] the third quarter and rise slightly thereafter to 11 percent in the second half of 1981.,65
-fomc-corpus,1980,So it's basically a very restrictive monetary and fiscal policy.,11
-fomc-corpus,1980,"Oh, yes.",4
-fomc-corpus,1980,That's based on what--6 percent Ml growth?,10
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,Is that M-1A or M-1B?,12
-fomc-corpus,1980,"It's M-1A, but I'm not sure we would want to forecast a great deal of difference in interest rates on the basis of M-1A and M-1B.",37
-fomc-corpus,1980,"Jim, I was a little surprised about the magnitude of the announced increase in real GNP for the fourth quarter. Where would you guess that will end up after the final revisions are in?",38
-fomc-corpus,1980,"We don't have any additional information; in fact, I'm not sure that the Commerce Department has anything in the way of hard evidence right now. All of the data for December are essentially missing, including retail sales. The obvious assumption would have to be that consumer expenditures are even stronger than we have now in our forecast. [We have] a bit higher federal expenditures than Commerce had, a little higher exports, and our inventories were a little higher, I believe. So the major source of the difference is consumer spending. Our information, for what it's worth, would suggest to us that real consumer purchases in December were not that strong. We had built into our forecast an increase of about one percent in nominal retail sales increases in December, excluding autos, so it's virtually no increase. And if [Christmas] turned out to be a strong season, that 2 or 2-1/2 percent kind of number could well come out. I would be very surprised if it were 3 percent or higher. But a 2 percent number seems to me to be perfectly plausible at this point.",218
-fomc-corpus,1980,2 percent for what?,5
-fomc-corpus,1980,Real GNP in the fourth quarter.,8
-fomc-corpus,1980,Okay.,2
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Jim, first a question: I assume that these projections were glued together before the President's grain embargo statement was issued and therefore do not reflect either the suspension of additional exports to Russia nor the promise by the government for grain storage, whatever that may mean. Have you had a chance to evaluate what adjustment there might be to your forecast because of these twin factors?",72
-fomc-corpus,1980,"Yes, we've looked at that. There are a number of uncertainties at this point. We don't think it will have much of an impact on real GNP. It will change the internal mechanics of accounting for it, namely about $2-1/2 billion less in agricultural exports. And that would show up in farm inventories or government purchases. But, in fact, for real GNP we don't think it will have much of an effect. The issue really is what price effect it might have and whether over the longer run that does change domestic and foreign exports as well as domestic production. And that's unclear. It had seemed to us that it might well in the short run lead to higher prices; but I notice prices seem to be falling, so we had that one wrong. It seems to us that the price effect is more important and we don't have a good fix on that right now.",179
-fomc-corpus,1980,"Of course, there's also the question of what happens to the grain. It can't be stored indefinitely.",20
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"My other point is an observation. It seems to me that one of the factors making consumers spend much more is that, for better or for worse, they have had such an increase in the equity in their homes that they consider that their kitty. That could be very dangerous if there is a prolonged slowing in [housing prices]. But I know of instances involving personal friends who feel much more prosperous and are willing to spend more of their disposable income just because they have a house that they think has gone up in value by 50 percent in the last couple of years.",113
-fomc-corpus,1980,"Although there was a decline in the saving rate in the second half of the year, do you mean they suddenly recognized their wealth?",26
-fomc-corpus,1980,"Yes. Well, don't try to get me to predict the timing of some of these things; it just comes in waves. As we said, the product--whether they're buying automobiles or refrigerators or whatever the composition is--is elusive here. But [the rise in home prices] seems to me to be an important factor.",65
-fomc-corpus,1980,Mr. Willes.,5
-fomc-corpus,1980,"Following along your question and Governor Wallich's comments, I'd like to ask Jim a question and then reserve the right to comment on what I think his answer will be. The Chairman forced you into a policy recommendation on fiscal policy. Would you indicate--you've got to have some idea in mind since you gave that statement--what that would do to your own forecast? Would you be willing to spell that out?",83
-fomc-corpus,1980,"Well, in terms of price behavior, we have performed some exercises with our quarterly econometric model to get some notion of the impact of something like a mid-1980 tax cut in a range of about $30 to $35 billion. We think that by 1981 that probably would result in a reduction in the rate of increase in the deflator by about 3/4 of a percentage point from what it otherwise would have been, and [a larger decline] over a longer time horizon. At the same time, it would have small impacts on real GNP; we think real GNP might be up by 1/2 percentage point or so.",134
-fomc-corpus,1980,The tax cut would lead to a reduction in the deflator?,13
-fomc-corpus,1980,"That's because it's oriented toward social security and business fixed investment and not toward generating additional direct consumer expenditures. So, I gave you an answer that was different than you thought.",34
-fomc-corpus,1980,But in a way even better.,7
-fomc-corpus,1980,"President Willes, that tax package is essentially the difference between Strategy 3 and Strategy 4 on page 11 [of the Bluebook].",29
-fomc-corpus,1980,"That's what I thought. Well, we've been having a lot of discussion about tax cuts and responding to recession and so on, which is a conversation that is similar to those we've been having for the last 10 years. And the only comment I would make is that we do that based on models that have proved to be off track almost every year for the last 10 years. That suggests to me that we have something misspecified. Of course, some of us think we know what that is. And I just think now is a time when we're going to have to be very cautious about what we think we really can do to try to have an impact in a systematic way on real variables. I think we all agree that we can have an impact on inflation; but it's not at all clear, based on the Fed's model--or any other model--that we have had to revise virtually every year because it went off track, [that we can have an impact on real variables]. Our view is that the model has gone off track because it's misspecified; and it's misspecified in such a way that it does not make it a reliable tool to use to do these kinds of exercises. I think we play a very dangerous game if we think we can say with very much precision that we're going to have an impact on these real variables by cutting taxes $30 billion or $50 billion or whatever it is when the best guess at the moment, as far as I can tell, is that all it will do is have an impact on inflation and have practically no impact on unemployment or real GNP or any of these other things that we really would like to get a handle on.",337
-fomc-corpus,1980,"Let me just see if I understand what you're saying. You're saying that a tax reduction of any sort will have an adverse impact on inflation and not too much impact on the real economy, you suspect.",40
-fomc-corpus,1980,I think at the moment that's the best guess.,10
-fomc-corpus,1980,There's no impact on real activity through government policy?,10
-fomc-corpus,1980,"No, I didn't say that. Clearly tax policy, monetary policy, and lots of things can have an impact on real economic activity. But as far as we know it can't have a predictable impact. We're going to change lots of things. Any time tax policy changes it's going to change things. It changes incentives, it changes functions, and so on. The question is: Can we predict in a fairly reliable way what that impact will be? And I don't see anything that suggests that we can because all the models that we have used to try to make those predictions have proved to be misspecified. And there's no reason to suppose that they are any better specified now than they were ten years ago.",140
-fomc-corpus,1980,Are you simply saying that the variance around the forecast is wider? Or are you saying that the forecast is--?,23
-fomc-corpus,1980,"It's not a question of variance. It's the fact that the parameters are unstable and will respond, in our view of course, to expectations. Therefore, by failing to factor expectations in, we've completely misspecified the shape of the economy. Ten years ago that would have sounded like an absolutely absurd assumption. I think now the evidence is rather considerably on that side. I just want to point out one thing. I think people as they've heard me talk about it have said: Well, he was a monetarist and this is just one mode of monetarism. The theories that we're talking about were primarily developed by Keynesians. In fact, the people around our place who have done the most work on it originally came to us to work on optimal control theory and used a model like the Fed model to develop optimal control techniques. So, it's not as if it's just the monetarists who think they've found a new tool to play with. I think it's a very serious challenge to the bases we've been looking for in terms of making the kinds of decisions--",212
-fomc-corpus,1980,"But don't you think, even though one could view this as very imprecise in terms of the numbers we come out with, that we can predict the direction? Isn't that really the more crucial question?",41
-fomc-corpus,1980,"Well, the best guess that we can make, if we try to make adjustments--and one can't do this in a very precise way, of course, except in a very simple model--is that, yes, we can predict the direction fairly precisely. But the extent we can predict what would happen to real output is essentially zero.",67
-fomc-corpus,1980,Then you are saying that we can't affect aggregate activity through government policies.,14
-fomc-corpus,1980,"Yes, on average.",5
-fomc-corpus,1980,"This is very, very [specific].",8
-fomc-corpus,1980,"Yes, it is. There's no question about it. But the evidence--I'm not sure I'm happy to say it but I will--is increasingly consistent with that view.",34
-fomc-corpus,1980,"Jim, in your forecast you said you used 6 percent monetary growth as a base. Did you play around with this to take into account some alternatives to the Bluebook with the idea of maybe 3 percent for the first half and 6 or 8 percent in the second half?",58
-fomc-corpus,1980,"No, we did not. The exercises that we did, using the model, are presented in broad form in the Bluebook. We did not for this meeting go into any other alternatives, of which there are an infinite number of possibilities.",48
-fomc-corpus,1980,"Could you say what, let us say, 4 percent across the board would be?",18
-fomc-corpus,1980,"Well, we took 4-1/2 percent and 7-1/2 percent. And the results for the year are shown in the Bluebook. We did not use alternative paths that would have something like slow money growth and then fast money growth within the years.",56
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"I get lost in the fiscal forest. For a number of years we had budget results in which expenditures fell below appropriations. To what extent is this going to be reversed? Plus the fact is that there is no reason why one can't anticipate next year's appropriations; orders [and] expenditures come later. And I don't quite know what you assume on those off-balance sheet activities such as Chrysler and other things. To what extent might we get a real surprise on the expenditure side or the orders side, as contrasted with this?",106
-fomc-corpus,1980,Let me just add to Willis' question. What are you assuming about special government measures or Home Loan Bank measures or whatever?,25
-fomc-corpus,1980,"We have built into the forecast government subsidized [housing] units of 300,000, which is pretty much in line with what the Administration talked about. That's 50,000 more than in the last fiscal year.",45
-fomc-corpus,1980,"It doesn't mean, then, that they are cranking up the tandem plan? MR. KICHLINE(?). Well, that's part of it, but it's not a major cranking up of the tandem plan. As you know, the budgetary impact there is quite variable; it depends on when the government sells those mortgages. It's an interest [subsidy] that ultimately shows up in the federal expenditures. On the authorizations, that's a difficult question because we have built in a significant increase in defense expenditures along the lines of the Administration's proposals. That could well go higher. A good deal of what the Administration is proposing we have assumed will result in authorizations, but not expenditures, particularly not in the short run. To the extent that the defense sector is geared up more rapidly, there is a bigger increase in actual federal outlays. I think that's conceivable, and it would obviously feed into the real side forecast, particularly in 1981. So, we've assumed a good deal of lag between authorizations and expenditures. I might note that defense ordering has in fact picked up a good deal. And in the fourth quarter, one of the factors--not the main one--leading to a significant increase in federal outlays was a pickup in real defense expenditures.",256
-fomc-corpus,1980,I'm somewhat amazed at the amount of money that's suddenly showing up in Cleveland. I don't know if that's the subject of charity coming home or what but the money seems to be coming out of the woodwork for that sort of thing. I'm gathering that this is really going to mean that this year we're not going to have any appropriations that weren't spent.,70
-fomc-corpus,1980,That could [mean] a very big difference in the federal spending.,14
-fomc-corpus,1980,"One of the aspects of this that is important, too, is the extent to which there is excess capacity in the defense industry that could take up a significant increase in defense spending. We learned again in the Vietnam conflict that we couldn't spend as fast as was budgeted because the factory wasn't there; they had to tool up and so forth. It takes a much longer time to acquire a sophisticated product. But that is one of the considerations that perhaps--",90
-fomc-corpus,1980,"Related to that is the fact that inventories are rather tight and [are being carefully] watched in most of these special sectors. If we get any change in that area, we're going to see explosive prices and people scrambling for the short supply. My final comment is that I'm struck by the number of people who tell me they're now pricing for inflation. They tell me they tried a price increase in midyear but it didn't go because their competitors didn't meet it. They tried a price increase in December and not only did their competitors meet it within 48 hours but they [moved] ahead of them in terms of the prices themselves. There seems to be an explosive development related to the inventory shortage in this area.",142
-fomc-corpus,1980,I'd like to correct the response I gave Governor Coldwell. We did not assume a flat 6 percent quarterly money path. It's 6 percent QIV 1979 to QIV 1980; but in fact we have built into our current forecast about 5-1/4 to 5-1/2 percent growth in Ml in the first half of '80 and about 6-1/2 percent or so in the second half.,92
-fomc-corpus,1980,But you didn't do any alternative scenarios?,8
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,"Are there any further comments on the business situation? If not, we'll turn to the decision we have to make. Just by way of background, and summarizing yesterday's discussion, I thought there was a good deal of skepticism expressed around the table about the idea of seeming too precise much beyond 1980. I do have some concern myself about the point Mr. Baughman made that it may be a little hard to escape when [we are pressed for] some notion of what we're going to do after 1980. But the advice in sum seemed to me to be cautious on that side. There seems to be a pretty strong consensus that a range of a few percentage points [for the growth of the aggregates] is about right. As to possibilities within that kind of range, I don't want to prejudge where people are coming out on annual policy itself. There was a fair amount of [sentiment] for [growth] between 4-1/2 and 5 percent; there were some for a little above 5 up to 5-1/2 percent. I think virtually everybody was saying growth probably ought to be lower than what it was last year by some definition of what it was last year. So I think we are in that general area; it does affect what we do in the short range to some extent. It may be graduated in our individual minds anyway. It should be. That kind of background is useful to our short-run discussion. Why don't you introduce that subject, Mr. Axilrod.",310
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"In turning to this matter, let me just mention a couple of things. As Mr. Roos said yesterday, given the new technique we are using and all the complications of an annual and a short-term horizon, the Bluebook was put together admirably in my view. It does take a quarter's time horizon for this particular decision. That's arbitrary, and we debated as to what the right time perspective was. If anybody has any comment on that, they could offer it.",96
-fomc-corpus,1980,The Committee on the Directive tried valiantly to get that put in a year ago without success. So we're happy.,23
-fomc-corpus,1980,"Well, it could be longer or it could be shorter, but it seems to be a tentative compromise anyway.",22
-fomc-corpus,1980,Is it going to roll forward?,7
-fomc-corpus,1980,"Yes, presumably. I don't know whether we thought this all through, but I guess the presumption would be that in February we will have the next three months, if we continue in this framework. Now, that's--",44
-fomc-corpus,1980,But it would be related to the path. You wouldn't lose sight of the longer-run path.,19
-fomc-corpus,1980,It will always be related against the--,8
-fomc-corpus,1980,We would continue to present the growth rates for the whole year as we go on.,17
-fomc-corpus,1980,"We thought of doing it for six months, but it's an arbitrary decision.",15
-fomc-corpus,1980,The three months is starting January 1st through March 31st?,15
-fomc-corpus,1980,December.,2
-fomc-corpus,1980,December to March is the way you calculate it.,10
-fomc-corpus,1980,"I presented December to March, and we have in the text the quarterly average growth rates that are roughly consistent with it.",24
-fomc-corpus,1980,Does it include December or does it not?,9
-fomc-corpus,1980,December is the base. It's essentially the growth rates in January and February and March averaged.,18
-fomc-corpus,1980,"What is the difference? I didn't pick up on that. All these numbers you were giving here are the December-to-March figures. If you have 5 percent growth December to March, what does that make the quarterly average?",46
-fomc-corpus,1980,The quarterly average is 4-1/2 percent. They're running about--,16
-fomc-corpus,1980,Just a little lower.,5
-fomc-corpus,1980,Just a little lower this time.,7
-fomc-corpus,1980,"In Steve's comments he raised the question repeatedly about whether the Committee, in effect, has any preference as to how interest rates evolve during this period. You can have different points of view on that: That you don't care or that it's a very important question. I would think comments on that point are relevant, if you think they're relevant. The only other point--I put these points down here earlier--is that I think the most certain thing about the economic forecast is that during this particular 3-month period we are very likely to have a higher consumer price index, for all that means in terms of expectations and problems of various sorts. So with that, we'll proceed. Mr. Roos.",140
-fomc-corpus,1980,"Mr. Chairman, I am concerned about what you alluded to as a thread that ran throughout Steve's comments indicating a continued concern about interest rates because interest rate movements would affect output one way or another. It seems to me--and I don't say this critically in your direction, Steve--that we did adopt and publicly announce a new program whereby, within broad limits, we were going to permit interest rates to fluctuate freely in order to concentrate on the control and gradual reduction of money growth. I think we will frustrate our whole purpose and the possibility of succeeding in this new approach if we have tucked behind in our minds all the time the view that a primary, or at least very important, aspect of what we're doing is somehow continuing along the path that we were on of trying to control interest rates and hope that in this process we can achieve some [reduction of] money growth. I don't think we can have it both ways. I would ask Steve: Is the staff still imbued with a real concern about interest rates?",207
-fomc-corpus,1980,"The staff believes, I think--and I can't talk for everyone--that decisionmaking in the economy is affected by the level of interest rates and credit availability. On the other hand, the staff believes, or at least I do, that it's difficult for the Committee to make a priori decisions about the proper level of interest rates. That's why a money supply target is important because then those decisions come out of the market to a great extent. However, because we believe that decisionmaking by businessmen takes into account credit costs and availability, it seems important to try to suggest what the pattern of interest rates might be in the course of the year, and that's what I was trying to say. If the Committee adopted a pattern of money growth in the course of the year because it was chasing a long-run target and got way ahead of it early in the year and then wanted to catch up for credibility reasons late in the year, that might imply a very high interest rate. You may not want that, so you may want to give up on your long-run target, which could be one credibility problem. If we have very high interest rates, I believe it would have effects on economic activity in 1981. If we entered the year with 15 percent, I think economic activity in 1981 would be slower than we've been projecting. I've asked Mr. Kichline for verification of that.",279
-fomc-corpus,1980,"Let me just ask this. There has been reference made to the possibility that interest rates would drop. I noted with interest and with admiration the fact that the Chairman in a recent speech said publicly to the world: Don't be concerned if interest rates drop because under our new practices interest rates could conceivably drop and not signal any easing of policy. Now, isn't it possible, through the utterances of the Chairman and others, to say that we have somewhat of a new ball game? We're doing this differently and people should stop thinking along the lines they have been accustomed to thinking over the last 10 years because the last 10 years certainly didn't bring the desired results. I'm fearful that we're just letting ourselves be a little bit pregnant and running all over the lot.",153
-fomc-corpus,1980,"But, President Roos, to be very brief, I was simply addressing myself to the question--raising it for the Committee --of whether you want low growth of M1 in the first half and high growth in the second half or [vice versa] because the Committee has to make that decision, and there are certain implications. That's what I was trying to get to.",75
-fomc-corpus,1980,"If I may say in this connection, Mr. Roos, I think we've got a spectrum over which we can operate. We used to operate with very tiny changes in federal funds rates from time to time, or between meetings certainly, and not very large ones even at a meeting. There is no doubt that we have changed; in my opinion, the emphasis is quite different now. But in some people's minds it may be different than in other people's minds. That does not exclude necessarily some predilection about which way to bias this in the short run. People may have some druthers one way or another without at all implying that we're controlling the federal funds rate the way we did before. But one might want to lean in one direction or another. Maybe other people wouldn't want to lean in one direction or another. But we don't have to make it a choice between dismissing from the minds of everybody around this table any concern about interest rates and going back to what we were doing before, which was a very close focus on the federal funds rate within a quarter percentage point. It's just that we've got to make some decision. The decision is made in terms of the money supply, but that decision at any particular meeting may be biased in some people's minds by some guess, anyway, as to where they would prefer the interest rate music to accompany it--the treble to accompany the base or whatever that [expression] is.",287
-fomc-corpus,1980,You don't have to recant in the presence of--,11
-fomc-corpus,1980,"If I may follow up on this. The purpose of a money supply target presumably is to force wider swings in interest rates. If we stick to the same rate of money growth through expansion and recession, we'll get very wide swings of rates, wider than we've been willing to impose by acting a priori, as Steve said, on the interest rate. But to me that doesn't mean that it is logical to move to severely negative real interest rates because we have a recession. There are considerations of having a positive or a negative real interest rate, and to my view the ability to swing widely toward a low interest rate is limited by that. It should not become severely negative.",133
-fomc-corpus,1980,Perhaps we could combine comments on this conceptual and theoretical point with practical comments on where we should put the money supply target in the next month. Mr. Eastburn.,33
-fomc-corpus,1980,"Well, I would like to respond to Steve's comments about the path of money growth. I think where we go on this depends on how smart we are.",32
-fomc-corpus,1980,You're not assuming too much on that?,8
-fomc-corpus,1980,"My conclusion from listening to the discussion before is that we're really not all that smart as to be able to do that. And that forces me into the position that if we have as a long-range strategy a gradual reduction of money growth, we ought to figure out where we want to start and pretty well stick to that. That puts me, since I came out yesterday at about 5 percent for 1980, with alternative B. I don't mean hold to that inflexibly if unexpected things develop, but I just don't think we're able to do the kind of fine-tuning that is suggested by the Bluebook in terms of front loading or rear end loading or whatever. I'd just put down 5 percent and stick to it until we decide we have to make some kind of a change.",159
-fomc-corpus,1980,Mr. Coldwell.,5
-fomc-corpus,1980,"Well, Mr. Chairman, it seems to me that the direction we're working on here is to lower the [growth in the] monetary aggregates. I would accept alternative C, for which you have growth of 4 percent. I'd be willing to accept a range around that, although I'm not sure how this is all working out with single points versus ranges in the short run. But I'd be perfectly willing to accept, say, 3-1/2 to 5-1/2 percent or something like that. My present predilection would be to accept a lower level in the first half and see what the second half brings. Because my primary objective is to try to get some impact on the price level, I'm not sure that I totally agree--in fact, I'm fairly sure I don't agree--with what the staff is saying, which is that we can't have some impact on prices here. I doubt very much if this long-range low growth saucer forecast is really a reasonable one over a long period of time; things will change. A recession is likely in the next year; it's timing is uncertain. And I'm reasonably sure that something will come up and destroy that lovely little package over the next 8 quarters. The complex of political as well as economic and foreign factors is such that I would opt for a lower level in the range, particularly since we got something in the 3-1/2 to 4 percent area in the fourth quarter, as I recall, Steve, rather than the 4-1/2 percent we were [expecting].",316
-fomc-corpus,1980,"We got 3 percent from September to December and 4.9 percent, I think, for the quarterly average.",24
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"Just for purposes of clarification, Governor Coldwell, when you began talking about a range, is that merely a reflection of our frailties in achieving the number or do you have something in your mind about interest rates, let's say?",47
-fomc-corpus,1980,"Well, I was coming to that, Mr. Chairman. The range I put down was partly because of our frailties in achieving a number, and I'd give the Desk a little guidance rather than just leave it to the Manager to make some ad hoc decisions on it. But it also reflects some interest in the interest rate package. Contrary to Mr. Roos, I think interest rates are an important element of the impact both on expectations and on consumer and capital expenditures. So, I'm unwilling just to wash my hands of interest rates and say ""Go where you want to go."" I don't think it's likely [to have no impact] internally, and I think it's even less likely to have no impact externally in our relationships with other countries.",149
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"As I indicated yesterday, Mr. Chairman, my preference on the long-run targets would be to go mainly with M-1B. It increased at a 7.3 percent rate last year and I think 6 percent is a reasonable rate for [this year]. If the relationships set forth over the next year between the old M1 and M-1B hold in the future, this would suggest that the appropriate long-run range for M1 would be about 5-1/2 percent. Against this background, I think we ought to be working down our target growth rates and I would favor alternative B. Now, that does specify rates that are below what I've indicated I thought was probable for M1 and M-1B, but I would be prepared to support that for three reasons. One is that I think we still have a very serious credibility gap. I find few people in the financial markets who really believe that we're going to stick with the policy we announced October 6th. So, I think we need some low growth rates very quickly in order to better establish our credibility. The second reason why I would favor being somewhat lower in the beginning is the point that Frank Morris made yesterday: This seems to be about the only time we can get the growth rates down. That may be in part because the market used to determine to a greater degree how much money it got than it presumably will under this new system, but there's still an element of that in there. And then, third, past experience has shown that we usually get bursts in the aggregates in the second and third quarters. While that may have stemmed from bad seasonal adjustments or the old methodology, I'm still suspicious that it might happen [again]; so I would like to get some pretty low figures under our belt before it does happen, if in fact it does. So far as the range for federal funds is concerned, philosophically I'd like very wide ranges and would be tempted on purely philosophical grounds to widen that range, particularly at the low end. But this is not a time to stand on pure philosophical preferences because it's undoubtedly true that foreigners and people in this market, too, are paying a great deal of attention to what interest rates are doing. So, I think it's important that we not let the rate go below 11-1/2 percent, and I would put that as a floor until such time as we have better credibility than I think we now have.",493
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"I'm pretty sympathetic with Dave Eastburn's comments. I think fine-tuning is difficult in practice, and I would point out that the main misses that we've had have been large misses. That is, it really isn't that we expect 5 percent and get 4 percent. We expect 5 percent in a month and get zero or a minus; or we expect 5 percent and get 10. That has been the nature of the chunkiness of that demand function for money, and I think that demand function is there just as it always was. The question now is: What kind of response will a sudden change in the growth rate of money bring in terms of policy? I guess I would say that under our new procedures it would bring a very abrupt and considerable change in interest rates, either up or down. So, without fine-tuning I rather like the 5 percent on the old definition. I guess we're talking about current definitions, aren't we?",193
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"We would specify it in current terms. I like the 5 percent of alternative B, partly because that would give us 4-1/2 percent for the quarter which, if we get it, will be on the moderate side from the standpoint of the ranges that we choose for the year. I would be willing to tolerate a little shortfall from that 5 percent, say, to 4 percent. But if it comes in significantly weaker than that, I think we would want to be supplying the reserves and we would want to be seeing interest rates move. There is something to what Larry says, although he perhaps overstated it a little, that we have to be prepared to see interest rates move in response to a need. I would like to see us take the alternative A specifications of 7-1/2 and 8 percent for M2 and M3 rather than those in alternative B. We don't really know what success that new [floating rate] certificate is going to have. It's being advertised very strongly by the thrift institutions and I wouldn't want to see us tighten up because it happened that the thrift institutions had a good inflow from the promotion of the 2-1/2 year certificate. [On the funds rate,] I think we're a long way from either 11-1/2 or 15-1/2 percent and I don't see how we could get to 11-1/2 percent without taking action on the discount rate. So I would leave that range right where it is at 11-1/2 to 15-1/2 percent.",324
-fomc-corpus,1980,Mr. Kimbrel.,6
-fomc-corpus,1980,"Mr. Chairman, I continue to be concerned about the expectations and realities of our price level and about the possibility of the influence we can have on our exchange rate frailties at the moment. I'd be very anxious to reaffirm our posture, a posture that would indicate a continuing steady move to a general reduction of the growth rate [of money]. I recognize that this might very well contribute to interest rate changes, but [with] some more flexibility. But in the real world we simply have to be a little attentive to the level of [unintelligible]. I think we cannot move quite that abruptly. All of that leads me to feel that I'd be rather comfortable with the numbers associated with alternative C.",142
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Mr. Chairman, I want to make a couple of points. First of all, I want to agree with Dave Eastburn's philosophy of not monkeying around with fine-tuning among the quarters. This makes us think we are smarter than we are, among other things, to use his language. The purpose here is to set a long-term range and, unless we see some rather dramatic reason for changing it, to make our quarterly [objectives] basically consistent with that, subject to some small variations--and I mean small--that Steve may feel he has to introduce into the staff projection. I feel also, although we have made a giant step forward in moving [from 2-month horizons] to September-to-December and now December-to-March [time periods], that we need to make one more refinement of that in the interest of not being too overwhelmed by monthly changes [in the growth of money]. It would be much better if for the current quarter, or the decision which is being made today, on January 9, to use the month of January as our center month and in effect take the fourth quarter of 1979 and go to the quarter centered on the current date. That means comparing the average for the fourth quarter with the average for December, January, February. Next month we would do January, February, March; in other words, it would be literally fourth quarter-to-first quarter. I think that makes a lot more sense and gets us over part of our hangup where we spend, it seems on occasion, an interminable amount of time trying to explore the seasonal adjustment deficiencies of a given month. Granted that going to three months is in the right direction, I would urge strongly that the Committee consider going from quarter to quarter. It may look awkward because in the first instance in effect we have to have December at both ends of our equation. But as we move on out, of course, that overlap would not occur. It's just a neater proposition and would help in the smoothing of this. Again, the point is--and I think Dave made it effectively--that we can do a better job that way. I would add that I prefer alternative B partly because I like the 3 to 6 percent long range and the 3 to 6 percent short range, which yields a midpoint--whether by coincidence or not--of 4-1/2 percent for the quarter-to-quarter change. I guess that is for the fourth quarter to the first quarter literally, Steve. I don't know what it would be for December, January, February; maybe it doesn't make much difference. I feel very strongly that the answer to the question of ""Do we pay attention to interest rates?"" is that, of course, we pay attention to interest rates. We pay attention to interest rates just like we pay attention to real GNP, unemployment, and an awful lot of factors. In my mind we shifted in the October 6th package from a primary public emphasis on interest rates to a primary public emphasis on the aggregates, with the targets going through reserves. We have not abandoned all of our secondary emphases. We emphasize plenty of things, one of which has to be interest rates because we live in the real world and the execution of monetary policy must be through a market that pays attention to interest rates. There's no substitute for that; at least I've never heard of one in our type of society. One other point: I think the Federal Reserve System would be making a serious mistake to publish M-1A and M-1B and M2 and M3 and L and say to the world, in effect: We don't know which of these is right; take your choice. Now, I'm perhaps overstating. I would pick M-1B myself and call it Ml, drop the B. And if we have to qualify the description of it because of NOW accounts or other changes, we should qualify it. But we are being almost too research oriented, too much students of this rather than decisive leaders. If we can't determine which one we think is better, with some qualifications and so forth, nobody can. And I think our leadership role depends in large part on our ability to go through this whole redefinition of the aggregates and to avoid coming out with a definition that looks like the mouse has really squeaked by coming up with M-1A. I would recommend strongly that we publicize M-lB as Ml. We can handle the consequences. End of speech.",908
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Mr. Chairman, it seems to me that the targets set out in alternative C have a good probability of coming pretty close to serving the needs of the environment as they unfold in the next couple of months or so. I've been rather impressed with the observation through time and in conversations here that we can't have much influence on how the expansion in money and credit is allocated between production and prices. The indication is that the structure of the economy and expectations are tending to allocate it more and more to prices and less and less to production, which leaves us in an awkward situation of simply embracing or accepting it or seeking greater slack in the economy--and probably for a fairly long period of time--in order to make some increased impact on the inflation problem. But it seems to me that the inflation problem must be given priority in part because the darn thing just keeps getting worse and worse. I'd be prepared to accept pretty much whatever interest rate pattern evolved during the appropriate time period as a result of pursuing these quantitative targets.",200
-fomc-corpus,1980,Mrs. Teeters.,5
-fomc-corpus,1980,"Well, I want to ask a question first. Your economic forecast is based on a 6 percent rate of [money] growth. If you take the rate of growth of money down another full percentage point, what does that do to real growth and to the unemployment rate?",55
-fomc-corpus,1980,You did assume that the rate of growth in money would be slower in the first half of the year?,21
-fomc-corpus,1980,"Yes. The staff forecast is based upon the money path of alternative 1 on page 15 in the Bluebook, which is 6 percent for the year. It's slower in the first half--I think it's around 5-1/2 percent and then 6-1/2 percent in the second half--but the short-run path consistent with that is alternative B.",77
-fomc-corpus,1980,What happens if you reduce that path by a full percentage point?,13
-fomc-corpus,1980,"Do you mean for the long-run target or the short-run target? In the short run, if you stuck to the 6 percent target mentioned and simply altered the money path for one quarter and then picked it up the next quarter, it really wouldn't have a significant impact on inflation or real GNP.",61
-fomc-corpus,1980,"Governor Teeters, there's a degree of fine-tuning in the numbers here that has to be taken with a grain of salt. But on page 25 in appendix C, if you reduce that 5 percent to 4 percent and still aim at something like 6 percent M1 growth, which is what Jim's assumption is--that's the third column under alternative C --you'd end up in the fourth quarter with a somewhat lower funds rate than under his basic assumption to make up for the greater restraint now. That's in essence what that would tend to lead to. Similarly, if you had a 5-1/2 percent long-run growth, which we have not shown here, the funds rate in the fourth quarter would probably be somewhat lower under a short-run alternative C path than under short-run alternative B path.",165
-fomc-corpus,1980,"I'm not sure I got a [complete] answer. My inclination is that if we cut [money growth] below the 6 percent that's in the forecast for the year, we'll have a more severe recession on our hands as we keep the interest rates up. I have a great deal of sympathy with Dave Eastburn's point of view that we should stick to a number and let the interest rates fluctuate. Where I come out is that I'd like to see a 5-1/2 percent growth rate for the year as a whole and I'd set a target of approximately 5 percent for the quarter to give us a little range to meet the needs at the end of the year. I don't think, frankly, that we can undertake a policy for 3 years of consistently reducing the rate of growth of money supply. I just don't think that's in the cards for us in terms of what's going to happen in the economy. We've brought the rate of growth down consistently now for 3 years, but there's a certain minimum to which we can get and I don't think it's 3 or 4 percent. We are going to get ourselves into a position of setting a target which is so much too low that it's either going to have severe impacts on the real growth of the economy or we're not going to meet our targets. Realistically, we're going to [have to] come down to a plateau for growth of the money supply and try to hold it there rather than reduce it a percentage point year after year; and a rate of growth in the money supply of about 5-1/2 percent strikes me as about where that minimum is, given the other things that are going on in the economy. So, I can buy alternative B for the quarter, but I do have a higher target for the year as a whole.",366
-fomc-corpus,1980,Mr. Timlen.,5
-fomc-corpus,1980,"My preference, Mr. Chairman, is for alternative C. I think it's consistent with efforts to reduce the growth in the aggregates over the year 1980 and also consistent with the [view] that the basic economy may be slowing in the first quarter. I think it would have an important impact on inflationary expectations and help our credibility. It will also [add] strongly to the message conveyed in terms of the relevant interest rates in the foreign exchange markets, where I must say the emphasis is on interest rate levels as opposed to the movements against reserve targets. I don't have a strong feeling on what the federal funds range should be, whether it should be 11-1/2 to 16 percent or 11-1/2 to 15-1/2 percent. I'd just as soon stay with the existing range of 11-1/2 to 15-1/2.",181
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"Well, I continue to think that the economy moves on interest rates. If I rely on the money supply, it's because in [a period of] inflation I think that's a better way to get the right interest rates than to try to do it outright. But I don't regard the money supply as a black box where I have to accept everything that comes out. So if an unreasonable interest rate comes out, I reserve the [option] to evaluate that on its own terms. As Nancy said, we have reduced the growth of the money supply for 3 years running and have brought inflation from about 7 percent to 13 percent in doing so.",130
-fomc-corpus,1980,With able help.,4
-fomc-corpus,1980,With able help from various--,6
-fomc-corpus,1980,"We really brought the real rate of inflation from about 7 percent to 10 or 11 percent, Henry.",23
-fomc-corpus,1980,"Well, we can argue about the numbers, but [inflation] has gone up while the growth of the money supply as we define it has gone down. So I lean toward the tighter side for the long term, alternative II. And within that framework I lean toward alternative C in terms of the old definitions of money. I don't care whether we use the old or the new definitions, just so we don't misunderstand. I would go with the numbers that are in the Bluebook under alternative C: 4 percent for M1; 6.5 percent for M2; and 7 percent for M3. I would raise the lower end of the funds rate from 11-1/2 to 12 percent and make the top 16 percent. I agree with Chuck that before the rate got to 11-1/2 percent we would probably find ourselves making a decision about the discount rate anyway.",184
-fomc-corpus,1980,"Henry, did you say you would change the top of the funds range to 16 percent?",19
-fomc-corpus,1980,"To 16, yes. And the bottom to 12.",13
-fomc-corpus,1980,Mr. Willes.,5
-fomc-corpus,1980,"Thank you, Mr. Chairman. It's amazing to me how I can have such a fundamentally different view about how the world works than Chuck Partee and yet find that he stated my policy position much more eloquently than I could ever state it. Whatever you wrote down for Dave Eastburn and Chuck Partee, write down for me and that would be great. I would just say that on Bob Mayo's point, it's not clear to me that a bad decision is better than no decision at all; I think we ought to publish all the numbers and let people help us find out--",117
-fomc-corpus,1980,"I'm not arguing against that, but I think we should indicate a dominant preference.",16
-fomc-corpus,1980,I don't think we have enough information.,8
-fomc-corpus,1980,"We will [indicate our preference] in the Policy Record, certainly.",15
-fomc-corpus,1980,"We are forced to do it. Let's be proud and carry the flag and not say we don't know but maybe this is the better of the two. I see us being too academically sound, if I can put it that way, rather than carrying leadership for a figure. And if we can't carry that leadership, nobody can.",65
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Mr. Chairman, I think alternative B looks good, even though I came out yesterday for a 4-1/2 percent midpoint. I feel that if we are going to bias the flow during the year, it ought to be the opposite of what most people have been saying. I think the rate of growth in the early part of the year ought to be greater and the rate of growth in the latter part of the year less because I think we will be better off with a saucer-shaped recession than a V-shaped one. So, to the extent that we can obtain these [rates of growth], it's such a weak economy that it should help to cushion the extent of the decline and hopefully produce a more saucer-shaped than V-shaped recession.",151
-fomc-corpus,1980,You hope to produce a more saucer-shaped than V-shaped one [and would] increase the money supply more rapidly in the first part of the year and less rapidly in the second part.,38
-fomc-corpus,1980,"Right. Traditionally, following our earlier policies, we have supplied very little monetary growth in the early part of a recession. We have encouraged a sharper decline in the economy thereby. We lagged in reducing interest rates and then when the unemployment rate got really high, we turned around and produced very rapid rates of growth in the money supply. That led to very big swings in the economy, which I think are counterproductive in the long run to controlling inflation.",91
-fomc-corpus,1980,"May I interrupt, sir? Don't you think the shape or the depth of the recession is already determined now?",22
-fomc-corpus,1980,"It probably is, largely. I'm not suggesting that we can--",13
-fomc-corpus,1980,So what we do now--,6
-fomc-corpus,1980,"It's just that to the extent we have to make a decision, it ought to be biased in this direction. But I'm not under any illusions that we can fine-tune this thing.",37
-fomc-corpus,1980,I don't believe that anything we do today is going to make the recession more saucer-shaped or more V-shaped.,23
-fomc-corpus,1980,"Well, the second part of it could affect the character of the recovery.",15
-fomc-corpus,1980,It might prolong it.,5
-fomc-corpus,1980,"You're on, Mr. Rice. It's just that you have to expand on your comment because you are next on the list.",25
-fomc-corpus,1980,"Mr. Chairman, given the forecast for nominal GNP for this quarter which I believe is 5 percent and is, of course, very weak, and given the forecast for the inflation rate which I understand is 15 percent for this quarter, I would--",52
-fomc-corpus,1980,The consumer price index.,5
-fomc-corpus,1980,"The consumer price index, yes. I think this is a good quarter to try to keep the rate of growth in money at the low end of the 1980 range. That would give us leeway to allow it to expand at a faster rate later on in the year if that appears desirable, and I think it will appear desirable. So for this quarter I would favor alternative C; I would be comfortable with a 4 percent rate of growth for the next 3 months. Also, I think this is not the time to accept a sharp reduction in interest rates, and alternative C will assure that interest rates will not fall significantly. So my preference at this time would be for alternative C.",140
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"Mr. Chairman, as a number of people around the table have already noted, 1979 was a nonrecession year. It's a bit of a humbling experience in terms of our ability not only to fine-tune but to forecast. As I recall your statements on the subject, I think it's to your credit that you spoke out and said that you weren't sure we were in a recession despite announcements coming from other high places that the recession began a couple of months ago and was already half over. That's an interesting commentary on the state of the art of forecasting. In any event, given that uncertainty about our ability not only to fine-tune but to forecast, it seems to me that inflation does remain the key threat to the longer-term health of the economy--to economic growth, employment growth, a sound dollar, and so on. For all those reasons and without going into any more detail, I, too, would come out at this time in favor of alternative C.",197
-fomc-corpus,1980,Mr. Guffey.,6
-fomc-corpus,1980,"Thank you, Mr. Chairman. I, too, would opt for alternative C, taking advantage of what would appear to be fairly slow growth in money that we are focusing on in the first quarter. I would note that historically--in recent history at least--we haven't had very much growth in money in the first quarter and, quite likely, that history will be duplicated this year. To get somewhat of a head start on our longer-run targets it seems to me that we ought to accept that slow growth in the first quarter; and as a result alternative C would be attractive. I would also note that if you focus on Ml, its growth even under alternative C is greater in the first quarter than we had in the fourth quarter, which turned out to be a fairly strong quarter. I don't know what that implies except that it just reinforces my thought that we quite likely will get very slow growth in the first quarter and ought to tolerate it whether it is below 4 percent or not. The interest rates are an important factor both domestically and internationally and we shouldn't lose sight of that.",218
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"I would like to be listed under the alternative B team. I think there is a possibility that ""C"" would represent too drastic a reduction from a higher level of money growth to a lower level of money growth, and that could have recessionary implications. So, I would opt for ""B.""",60
-fomc-corpus,1980,"Mr. Winn, would you like to say something?",11
-fomc-corpus,1980,"I guess I was shaken by last year's experience with money growth, so I am suspicious of almost any number we put on these things, frankly. I remind you that any number we pick is fine-tuning of a degree, and I'm not sure the numbers differ that much in terms of the fine-tuning aspect. I suppose because of last year's experience and the concern as to what will happen in the money demand area, I would probably stay with ""C.""",92
-fomc-corpus,1980,"Mr. Schultz, you're left; you are not volunteering.",12
-fomc-corpus,1980,"I'm just very uncertain about where this economy is going to go, particularly in this quarter. I can foresee a situation in which growth of 6 percent could be very restrictive and growth of 3 percent could be very loose, depending upon what happens. So I come out between ""B"" and ""C"" and I would hope that there's some real flexibility for us to react as we see what actually is going to occur this quarter. I do have some concern about interest rates. I'd like to see them slowly come down as we go through the year. It would worry me if we had a sharp drop in interest rates in this quarter when we show very high inflation rates. That could be disastrous in the foreign exchange markets and I don't think it would give a very good impression to the country as a whole. I come out somewhere between the B and C alternatives.",173
-fomc-corpus,1980,"Well, we seem to have some differences of opinion, but they are not enormous. So let's ruminate a few minutes and drink some coffee and see whether we can bring this to a conclusion.",39
-fomc-corpus,1980,"Gentlemen, ladies. After great Solomonic perusal of the preferences expressed by the members of the Committee and others, and evaluation of those qualitative comments that were made--the acute ones and I discarded the others--let me make a general comment. I think, as a number of people have mentioned, that we have an image problem or an opportunity--I don't know which to call it--that is perhaps as important as the numerology at the moment. I have sympathy for the comments that said we have to appear to be quite cautious during this period, particularly until the market gets a little more settled down in terms of interpreting our actions. Substantively, I personally would not mind seeing some decline in interest rates; in fact, I think it would be desirable on the domestic side if we can get by with it on the international side. It may be a little inconsistent with the energy problem, and this is where the compromise has to be struck. Everybody was between ""B"" and ""C"" in one way or the other basically. There are probably a few more on the Committee for ""C"", but [the margin] is very narrow, and for the non-voting members it is a bit the other way. Nobody talked much about the interest rate range. I would say, consistent with the desire not to have a misinterpretation of our actions, since there is not very strong reason to change the interest rate parameters anyway, let's just leave the range the same. In that respect we can say when this [directive] is published that there can be no misunderstanding about whether any change was made with regard to the interest rate parameters. I'm not sure that the bottom or top of any of the [proposed] ranges is going to be relevant during this period, as a number of people have indicated, so I don't think there is a strong reason to change the range. I would propose leaving it as is. It was also implicit in the comments that primary, but not exclusive, emphasis is to be placed on M1. That is the measure basically used to construct the paths; we don't ignore [M2], but it's not exactly a 50-50 weighting proposition. I'm not going to suggest what weight it has in any numerical terms. I think the primary emphasis will tend to be on M1, but we will keep a weather eye cocked on the M2 figure. In terms of the range [for Ml], as I said, everybody was [for growth] between 4 and 5 percent, and I would propose that we just state it in the directive as ""between 4 and 5 percent,"" which I think is consistent with the atmospherics of the [situation]. That is open to an interpretation that I personally would not resist, but we would draw a path on the basis of 4-1/2 percent consistent with that opening stance. But let me say that we would be more concerned about a situation where [growth] was tending toward the lower side, 4 percent or below--we can't control these things that closely--and interest rates were rising; we would tend to get aggressive more quickly, providing more reserves. And if it went in the other direction where it was drifting high, if interest rates were falling out of bed and giving us trouble on the international side we would be prompter about getting it back in the range, in terms of attitudes and judgments about the kind of path shifts that we have to make in the reserve numbers in the period. But we would start out with 4-1/2 percent.",725
-fomc-corpus,1980,I'm not quite sure you said what you wanted to say.,12
-fomc-corpus,1980,"Well, I may have said it wrong, but I think you--",14
-fomc-corpus,1980,You mean we should react more rapidly if M1 growth goes up with the interest rates falling than if M1 growth went down and interest rates were rising.,31
-fomc-corpus,1980,"No, either way. In other words, if M1 [growth] were low and interest rates were also low, we would be slow about changing. But if it were low and interest rates were high, we would change more quickly. It's how quickly we move to make the judgment, which might have to be made. It's just this judgmental issue, which we went through at least once, of changing the path in the view of what is happening. Well, Mr. Altmann just wrote [suggested wording for] the directive which says ""between 4 and 5 percent for M1 and on the order of 7 percent for M2."" The latter happens to be the alternative B number. It's another way of saying something around 7 percent. So that's what I would propose for your consideration. Operationally, the question arises as to what that means in technically constructing a path. I suggest that it means 4-1/2 percent for the arithmetic of it, but we have to make this borrowing assumption in constructing the path. That seemed to be an easier decision before last week than after this week. This week has been somewhat of an aberration, where we had a high funds rate consistent with an exceptionally low--inexplicably low--borrowing level. All I can say--and I think we have to be prepared to look at it again after another week or two of evidence to see if this aberration seems to be continuing or if it seems to be reverting to the earlier pattern--is that I have a nice round number to suggest to you; that it is a round number may be its only virtue. But it falls between the earlier experience and the present experience, and the number is $1 billion of borrowing. Now, that is lower than anything we have been dealing with up until this past week. The latest information on the money supply, as nearly as I can gather--I hate even to put this in your mind in a way, but having opened the issue I will put it in your mind--is that the tea leaves we have on the number for next week's publication would show fairly significant growth. It's not inconsistent with this 4 to 5 percent range but, if anything, it is a bit toward the upper side of that range for January.",464
-fomc-corpus,1980,"A stronger number, Mr. Chairman, is for [the week] we are not [yet] going to publish.",24
-fomc-corpus,1980,"It's not the number we are going to publish this week but the number we would publish next week. It's a very unreliable indication, but for what it's worth, it is not inconsistent with this kind of range. But it doesn't suggest that there is great danger of [Ml] falling way down in the range in January. That's if that number means anything.",71
-fomc-corpus,1980,"We would be projecting a 5 percent rate of growth in January instead of 3-1/2 percent, if that number held up.",29
-fomc-corpus,1980,"So the proposal is for: 11-1/2 to 15-1/2 percent, or unchanged on interest rates; between 4 and 5 percent on M1 with the understanding that I suggested about 7 percent in M2; and starting out--but looking at that very hard in a week or two in the light of this recent aberration--with something like $1 billion of borrowing.",84
-fomc-corpus,1980,"One cosmetic thing. Would it be better to say ""about"" 4 to 5 instead of ""between"" 4 and 5? It sounds very specific, as if we expect it to come between the numbers. I realize that's what we mean, but we won't accomplish it. So maybe if we said ""about"" 4 to 5 percent--.",74
-fomc-corpus,1980,"[The sentence] says ""seeks"". I don't know how--",14
-fomc-corpus,1980,"And ""on the order of"" is what you have for the second part.",16
-fomc-corpus,1980,"""On the order of"" is what I have for the second part. I have the slight feeling that maybe ""between"" is a little better cosmetically, but it's no big deal. Henry.",40
-fomc-corpus,1980,"Well, I have a couple of points of uneasiness. One, it seems to me that we may be biasing this in the direction of lower interest rates by the low borrowing assumption. What happens if borrowing is higher? Then, presumably, until the nonborrowed reserve path is adjusted, total reserves would be higher than we thought. So the low borrowing assumption does have some implication for the total reserves we anticipate and for interest rates.",89
-fomc-corpus,1980,"I'm not quite sure that's right, Henry. We are getting into this darn lagged reserve accounting again. But in the immediate future, which is going to be relevant for judging this, we will know what the level of reserves is. We are just judging the nonborrowed reserve path, saying we are putting the nonborrowed reserve path at $1 billion below what we know reserves will be next week. That's for the first week anyway. Now, it depends--and this is the uncertainty--but that would be tighter than last week in terms of borrowing when we had the market quite tight with a lower level of borrowing. We just don't know the significance to attach to that. You might be right, but it's not in accordance with the most recent experience.",153
-fomc-corpus,1980,Not the very recent experience.,6
-fomc-corpus,1980,That's right. Basically the $1 billion was arrived at--other than that it's a round number--by being halfway between the experience of the last week and the previous week.,35
-fomc-corpus,1980,"It would seem to me a lot more sensible if the Committee instructed the Manager to seek a total reserve path that would be compatible with these [Ml and M2 growth rates] rather than have the FOMC try to estimate what the [appropriate] level of borrowing is. I think we could eliminate that from our agenda without any loss, and probably some gain, before--",75
-fomc-corpus,1980,"Well, you are going to have an argument, I suspect, with Governor Coldwell. Let me repeat. I think what we are doing is that we are aiming at a total reserve path and it's 4-1/2 percent [Ml growth] under this version. The instrument that we affect is nonborrowed reserves. What we don't quite know how to do is [how to determine] what level of borrowed reserves is consistent with the total reserves path that is really the objective. That's engineering in Mr. Roos' terms, I guess. But I'm telling you what I propose for that element of engineering.",124
-fomc-corpus,1980,"If we worked with a monetary base--and I know that is a dirty word--we'd obviate all these problems, I think.",29
-fomc-corpus,1980,"It does make a difference what the source of reserves is, and we should not ignore that. It may be a refinement, but borrowed reserves are not quite the same thing as owned or nonborrowed reserves.",42
-fomc-corpus,1980,"From my standpoint, I suppose I'd be perfectly happy with what you suggested, Frank--just leaving it to the engineers, as Larry said--but I'm not sure the Committee as a whole is willing to leave it entirely to the engineers.",47
-fomc-corpus,1980,"President Morris, if you did that, some of the staff could sit around and make a decision and say: Well, we think borrowing ought to be zero. And the funds rate would be dropping very sharply immediately. We wouldn't make such a callous arbitrary decision, but you would be leaving that possibility open.",62
-fomc-corpus,1980,I don't really understand that.,6
-fomc-corpus,1980,"Well, it's because we know required reserves for next week, and the Desk has to make the choice of whether those required reserves will be met by borrowing at the discount window or through the Desk's provision of nonborrowed reserves. If those required reserves happen to equal the total reserves that seem proper, the Manager still has to make that decision.",69
-fomc-corpus,1980,But you can't [play] that game for a quarter. You can do it--,17
-fomc-corpus,1980,"No, but that is always the position we are in for any particular week. Even looking beyond the week for which we know the reserve number, we know what level of total reserves we want to aim for to [support] 4-1/2 percent or whatever the number is. What we really don't know in a sense is how to get there, because we don't control one element in the reserve base.",83
-fomc-corpus,1980,"And, therefore, I don't think it makes any sense for the Committee to tell the Manager to follow a nonborrowed target unless we also tell him not to pay attention to total reserves. Now, in the last month he had to change the nonborrowed target. I think that was the correct thing to do.",64
-fomc-corpus,1980,"Well, if I understand the comment made yesterday and this is combined with your comment, we have to get some kind of compromise. We are interested in total reserves. Our success or lack of success in reaching that target will depend upon, over a period of time, how much banks borrow and how much we put in as nonborrowed reserves. Taken together it will depend on both of those things. It is not an indifferent decision in looking at the outlook whether they borrow or whether we put in the reserves. Frankly, I think we have to leave some room to the staff--or Mr. Sternlight, Mr. Axilrod and myself--in making those judgments as time passes. Governor Coldwell yesterday raised the question as to whether, if we make a big change in assumption, the Committee [wants] to look a bit at the engineering, in Mr. Roos' term. Now, I don't know at what point you want to do that, if at all. All I'm suggesting by throwing out this figure is that this is at least a chance to look at the initial [borrowing] assumption that goes in--we meet again only 4 weeks from now or whatever--and maybe that's enough. But there was a question about that yesterday. You don't even have to look at the initial assumption if you want to leave it to us. But it's a matter--",279
-fomc-corpus,1980,"I really think it's meaningless. But if people get some solace from it, maybe it's all right.",20
-fomc-corpus,1980,"If you are willing to convert everything from borrowing to nonborrowed reserves, sure, you can call it meaningless. I don't believe it is meaningless. I think it's quite meaningful if we shift from $1.5 billion of borrowing to zero borrowing.",50
-fomc-corpus,1980,"The staff presumably would only reach that judgment in the light of their own assessment as to whether it's consistent with the total reserve path. They have that constraint. And if they keep being off the total reserve path, presumably we will get a new staff or something because they are making the wrong judgments. But that is an inevitable matter of judgment inherent in the discount window that somebody has to make. It's a question of procedure as to how much the Committee wants to get into that judgment. I tend to agree with you, Frank, that the answer is ""not too much."" But at least initially, when we're meeting anyway, it's a question of how much we want to--",134
-fomc-corpus,1980,"Mr. Chairman, I come out right where Frank did. It's not only the matter of borrowing, it's a matter of what liabilities the banks use up or [whether they] release reserves that are not part of the money supply. All those things have to be estimated and there are a lot of them. To me borrowing involves the same sort of problem. I see it just the way Frank does.",80
-fomc-corpus,1980,"Well, if you want to proceed this way, I will tell you instead of asking you in a sense--and permit you to object--that the staff is planning to seek borrowing of $1 billion initially and they will use their best judgment as time passes. If you want to object to that, object, but it doesn't have to be part of the decision in any formal sense. I don't think we need to prolong this unless somebody really wants to object to that Solomonic compromise between the experience of last week and the earlier experience.",108
-fomc-corpus,1980,"You mentioned the staff and the departure of the staff if we are off the total reserve path. In that regard the Committee should remember that with lagged reserve accounting, if deposits turn out to be strong, borrowing will rise and there is no way in the world to get back on a total reserve path in as short a period as 4 weeks; we are going to have to wait longer for the--",81
-fomc-corpus,1980,But it will dictate because we have a 3-month--,12
-fomc-corpus,1980,"No. Whatever we start with, if nothing else goes wrong and we are moving above path, the immediate manifestation of that is a rise in borrowing; if we are moving below path, the immediate manifestation is a decline in borrowing. That's what happens.",50
-fomc-corpus,1980,"I don't want to prolong this either, but I have some confusion on a related point and that is the role of the discount rate. I had been under the impression that the philosophy [at the Board] was that, given lagged reserve accounting, the differential between market and discount rates was not an effective factor in encouraging or reducing borrowing. However, in the Bluebook there is a comment in paragraph 18 on page 17 about what will happen if the discount rate isn't changed under certain circumstances and the influence of that on borrowing. Has there been further thought [at the Board] about that?",120
-fomc-corpus,1980,"Let me say that the question of lagged reserve requirements, which keeps coming up here, and the discount window posture, which bears upon this question, are under review. Within the next month or so I think we have to put both of these matters, certainly the reserve requirement issue, on the agenda. Are we going to be ready in time for the next meeting?",74
-fomc-corpus,1980,That lagged reserve requirement [study] will be ready within a couple of weeks.,17
-fomc-corpus,1980,What about the discount window?,6
-fomc-corpus,1980,That will not be ready in that time frame.,10
-fomc-corpus,1980,Not before the next meeting?,6
-fomc-corpus,1980,"I doubt it. It could be accelerated, but I don't think--",14
-fomc-corpus,1980,"The point I am making is mainly that any comment at the moment is tentative depending upon where we go on that. But given the way we are now operating--the way I look at it anyway--the amount of borrowing presumably will affect the level of market rates relative to the discount rate. A couple of comments were made this morning. Let's suppose borrowings [have to go] way down to achieve this path. For a while at least the discount rate is going to constrain how far [the funds rate] can go down, so long as the banks are borrowing. Now, once they stop borrowing, it can go below the discount rate; but so long as they are borrowing significantly, presumably market rates will not go appreciably below the discount rate. If it went the other way and borrowings tended to increase, one would expect interest rates to go up given this level of the discount rate. In theory, I suppose, we could reduce the discount rate in those circumstances and at the same level of borrowing we might get lower market rates in the short run anyway than we otherwise would have. So the discount rate fairly directly affects the market rate, all other things being equal.",236
-fomc-corpus,1980,"The practical aspect, as far as those of us at the Reserve Banks are concerned, is that we do have our Board meetings once every 14 days and they make recommendations on the [discount] rate. With a fairly restrictive directive so far as the aggregates are concerned, there might be some question one way or the other as to what happens to this--",71
-fomc-corpus,1980,"That judgment--I think I made this point before--seems to me to be more important than it used to be. That's because if you propose either an increase or a decrease in the discount rate, we can basically say that the message, if we're all interpreting it the same way, is that we want market rates higher or lower. We're not really saying we want borrowing to be greater or less, although that may be the ultimate implication over a period of time. But the immediate effect would be to change market rates rather than borrowing. Ultimately, [a new discount rate] obviously may affect borrowing because it has affected the climate in financial markets. But the short view, as I look at it anyway, is that if you're sending the Board a message about the discount rate, you're sending us a message on where you think market rates should be, all other things equal. Of course, this is why we didn't act in October and November when market rates were up wherever they were--14 or 15 percent on the federal funds rate--and a lot of people said we should raise the discount rate to close the gap. It was our judgment that, at least in the short run, it wasn't going to close the gap but was just going to put the market rates up further. So it was a question of whether or not we wanted market rates to go up further. I think all that changes if we open up the discount window. If we didn't have a natural restraint on borrowing, which we have had ever since the beginning of the Federal Reserve System, but if we operated [with an attitude of] borrow all you want if you find the rate attractive to you, then we'd have to manage the discount rate in a different way.",348
-fomc-corpus,1980,"I do think that the level of borrowings is somewhat of an index of possible need. That is, if we got a high and rising level of borrowings, that would mean we're exceeding the monetary targets and there would be more indication for a rise in rates than if we got a low and declining level of borrowing; in the latter case [reserves] probably would be falling below target and that would be consistent with the reduction so--",88
-fomc-corpus,1980,In general.,3
-fomc-corpus,1980,"Yes, I don't think it really will seem all that inconsistent over time.",15
-fomc-corpus,1980,"Mr. Chairman, could you explain how the discount rate influences--",13
-fomc-corpus,1980,The market rate?,4
-fomc-corpus,1980,That's a little different than I thought.,8
-fomc-corpus,1980,"Well, Mr. Axilrod has a nice econometric function which hasn't worked so well recently, but nonetheless reflects the theory. Banks are reluctant to borrow. Their willingness to overcome their natural reluctance to borrow depends upon how cheap the discount window is relative to market rates. With a given reluctance to borrow, they will borrow more if the margin is 4 percentage points than if it's 1 percentage point. So, if you put up the discount rate and change the existing situation in the margins but you don't change anything else including the amount of borrowing, market rates will go up. And they are going to be forced to borrow $1 billion in the current example. In the existing situation that's what we say. We can control that in the short run. We know they are going to borrow $1 billion. We know, if this equation is right, that they will only borrow $1 billion when the federal funds rate is 1 percentage point above the discount rate. So we now raise the discount rate from 12 to 13 percent; they won't borrow that $1 billion that we are going to force them to borrow until the federal funds rate is 14 percent.",237
-fomc-corpus,1980,"Well, that's a very interesting view of the world.",11
-fomc-corpus,1980,"It will hold, President Willes, for 2 weeks; that's certain under lagged reserve requirements.",21
-fomc-corpus,1980,"Now, the higher interest rates are then going to affect everything else, so we begin getting a different answer. But in the short run I think that's what happens.",33
-fomc-corpus,1980,"That's implicitly assuming no change in excess reserves, Mr. Chairman. I don't think that's right.",19
-fomc-corpus,1980,"Well, the changes that can occur, such as changes in excess reserves and changes in total deposits that banks can bring about, would have to be enormous in order to offset any significant shortfall of reserves because the multipliers are so high for M1. That multiplier is on the order of 10 and for M2 it's on the order of 20, so banks would have to bring enormous pressure on their borrowers and the holders of securities in order to make up a given shortfall in reserves by changing their reservable liabilities.",106
-fomc-corpus,1980,"If they change their liabilities, it will ultimately affect reserves, and that's what would occur from the higher level of interest rates. It's not going to affect reserves for 2 weeks.",36
-fomc-corpus,1980,"I'm trying to say what the difference is between lagged and nonlagged reserves. It is a small one, as far as the [reserve] adjustments go.",33
-fomc-corpus,1980,"Because even with nonlagged you still have this tremendous multiplier. Yes, I agree.",18
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"Well, I don't want to prolong the discussion, but it makes me very nervous that we would take what in effect is a deterministic, very short-run model and decide the time path for changes in the discount rate, then market rates. I think that's a very questionable thing to do.",57
-fomc-corpus,1980,"I don't understand quite what you are saying. It doesn't mean that we can't change the discount rate. It just tells us to recognize that if we change the discount rate, the short-run impact is going to be to put market rates up, which may be what you want.",55
-fomc-corpus,1980,"Well, what's the short run? Is it 2 weeks or 4 weeks or 6 weeks? We could get exactly the opposite results if you change the time horizon by a relatively small amount.",40
-fomc-corpus,1980,"I don't know about the small amount. But there's no question that if you put up interest rates, the ultimate result might be to reduce the money supply, which might have all sorts of impacts and produce lower rates over a period of time.",48
-fomc-corpus,1980,Fairly quickly.,4
-fomc-corpus,1980,I'm talking about the immediate impact.,7
-fomc-corpus,1980,Reduce the money supply and get lower interest rates!,10
-fomc-corpus,1980,"Well, we don't have to wait--",8
-fomc-corpus,1980,"Do you want comments on this compromise or what are you going to do? Mr. Chairman, I'd rather have [a range] centered on 4 percent than the 4-1/2 percent you've chosen. The [risks] of 5 percent are too high to me. I think we ought to be aiming for something less than that in this coming quarter to make sure we do not overstimulate at this particular moment, and I'd much rather we have a 4 percent rate. The range could be 3-1/2 to 4-1/2 percent if we want a center point; or for a single point 4 percent would be my strong preference. With the $1 billion in borrowing I have no problem.",151
-fomc-corpus,1980,Any other comment?,4
-fomc-corpus,1980,"I feel somewhat the same way. Evidently these [choices] do not matter a great deal [individually], but the combination of what seems to me historically low borrowing, an unchanged lower end of the funds rate, and a somewhat higher rate of M1 [growth] all cumulates a little in my view.",65
-fomc-corpus,1980,"Well, I am on the opposite side. Somebody needs to speak. It looks as if the chances are that we will have something like 5 percent [Ml] growth. I don't think we ought to be deliberately following a mechanism that pushes rates up in this quarter, which is probably a declining quarter in the economy. I'm prepared to have 4 to 5 percent to accommodate other members, but I certainly wouldn't want to center [the range] on 4 percent, which I think does bias it in favor of a rise in interest rates.",110
-fomc-corpus,1980,"I also think it's the wrong time to have interest rates going up. If the economy slides off, for once we should be going with it rather than lagging behind it.",35
-fomc-corpus,1980,"Steve, I thought you said alternative C was consistent [with the current] rate, not an upward [move in the] rate.",27
-fomc-corpus,1980,"Alternative C in the first quarter we assume would be [consistent with] something like the present interest rate level; it might go down a bit, but more likely--",33
-fomc-corpus,1980,"[Down] a bit, but not upward.",10
-fomc-corpus,1980,Not in the first quarter.,6
-fomc-corpus,1980,"But it seems to me we want to have some flexibility here. If the economy does slide off, I think we'd want to see interest rates slide off. If we go to a very stringent monetary policy of 4 percent [Ml growth], we are sort of gluing the [funds] rate at 14 percent with a possibility of it going higher. As I say, it would be nice for once to have Fed policy moving in sync with the economy. And if the economy doesn't slide off, the interest rate is not going to come down.",111
-fomc-corpus,1980,"As I see it, Steve said the best estimate the staff can make at this time is that January [Ml growth] looks like 5 percent. That would mean that if we center it on 4 percent, we're going to have to have some additional restraint at this point in time, and I'm not sure that that's that we want.",68
-fomc-corpus,1980,Any other comments?,4
-fomc-corpus,1980,"For once, Mr. Chairman, though Governor Rice and I voted at [opposite] ends of this spectrum, we have agreed that either of us could accept the other's position.",36
-fomc-corpus,1980,"Well, it's a pretty fine judgment when you get down to 1/2 percentage point differences. But I would suggest to both sides that under my interpretation of this the degree of resistance to either end of the range is somewhat affected by what does happen to interest rates, which I don't think we know. That is where the concern is on either side, and the concern is a reasonable one. But I get a little leeway in there. Now, one can argue that M1 can be put a little higher or a little lower but if there aren't any other comments, I guess we can vote. Is this package understandable?",126
-fomc-corpus,1980,"Chairman Volcker Yes President Balles Yes President Black Yes Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes First Vice President Timlen Yes Governor Wallich Yes Unanimous, Mr. Chairman.",56
-fomc-corpus,1980,"There were a couple of other things I wanted to mention, which I'm not sure I remember now.",20
-fomc-corpus,1980,Don't mess it up!,5
-fomc-corpus,1980,"No, not on [the policy decision]. I just want to remind you again that both the discount window procedures and lagged reserve accounting are relevant to what we are doing, and if we are really going to stay on this technique, they urgently need examination. We are not talking about any easy change in either of those, if we want to change. While the surface logic seems to say to change from lagged reserve accounting, I suspect it would not be easy to do that mechanically in the banking system, particularly before membership gets resolved. I'm just not sure how easy it is to do. If we are really talking about changing the discount window mechanism to something that seems to me logically more consistent with this operating technique, again on first blush, I suspect we are talking about overthrowing 60 years of Federal Reserve history, which is not an easy thing to do either. So they are not going to be very simple questions to deal with, but they are inherent in this operating technique. We had an agenda item on release of the FOMC Memoranda of Discussion for 1974. I take it this has been read by the staff and--",231
-fomc-corpus,1980,"They have been read and reviewed by the staff and the international parts have been reviewed also by staff at the New York Bank. The Treasury has been consulted on it as well, all in accordance with past procedures.",42
-fomc-corpus,1980,Do we need a vote on this?,8
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"I would like to say that it has been checked out very carefully. My own feeling, if I were one of the foreign central banks, is that I'd rather not have that much reported about what my representative said at particular meetings. But it has all been correctly checked out, as in the past, and there seems to be no uneasiness.",70
-fomc-corpus,1980,The one thing proposed for deletion is the Bank of England's attitude toward support for the institutions operating in London. I would have assumed that would be public knowledge by now.,34
-fomc-corpus,1980,You would rather have even more--?,8
-fomc-corpus,1980,"I'm really asking another question, Henry. There is something in a memo of yours, apparently, that is going to be deleted.",26
-fomc-corpus,1980,"As a matter of procedure, these are checked with the foreign central banks, aren't they?",18
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,And they requested that this be deleted?,8
-fomc-corpus,1980,We volunteered to delete it in this case.,9
-fomc-corpus,1980,And they are happier.,5
-fomc-corpus,1980,"To answer Chuck's question: When this lender of last resort issue was being discussed 5 years ago there were some items, especially with regard to consortia banks, that were left fuzzy. Governor Wallich's notes are more explicit on the fuzzy part but because of the fuzziness there may be some disagreement. [It conveys more] than the public knows; they sense it but they don't know it. That and the fact that views are directly attributed in those notes is the reason we felt it was wise and consistent with previous procedures to delete it.",111
-fomc-corpus,1980,"My only question, Ted, was that I thought it was He happened to be representing the Bank. But if it is more explicit than even current public understandings, then there is a basis for excluding it, yes.",44
-fomc-corpus,1980,We need a motion on this.,7
-fomc-corpus,1980,So move it.,4
-fomc-corpus,1980,Seconded.,3
-fomc-corpus,1980,"Without objection, that shall be released. The next meeting is February 5. I would assume that the discussion on the long-range targets, having had [this preliminary] discussion today, can go reasonably expeditiously. And on that basis I assume we can do it all in the morning. We do have the lagged reserve accounting question. We probably will not have a discount window question [to consider] by that point. I would hope to get something on the lagged reserve accounting out to all the members of the Committee before the meeting and that discussion. The meeting time doesn't necessarily have to be extended at this point. We probably aren't at a point to make a decision right now.",139
-fomc-corpus,1980,"Mr. Chairman, in view of yesterday afternoon's discussion, the basic GNP forecast would probably assume an M-1A growth rate of something under 6 percent. The staff in its wisdom will have to decide on somewhere around 5 to 5-1/2 percent to be consistent with that discussion. In any event, we would have some alternatives to interpolate.",75
-fomc-corpus,1980,"We have a problem. You remind me. I don't know whether it's particularly useful right now, but a precedent was created. Perhaps it's a precedent; we could make it a precedent anyway. The last time--was it earlier in the year or at the midyear meeting--?",56
-fomc-corpus,1980,Mid-July.,4
-fomc-corpus,1980,"At the July 1979 meeting a forecast was given by the Board of Governors in the testimony. It was the Board of Governors [forecast] of GNP for 1979 and 1980, too.",43
-fomc-corpus,1980,"Well, if you read the Humphrey-Hawkins Act, that's what it seems to require.",20
-fomc-corpus,1980,I don't think it technically requires that.,8
-fomc-corpus,1980,It says the Board's view of the relationship to or the consistency of the Open Market's Committee decision with the outlook for the economy.,27
-fomc-corpus,1980,Consistency with the outlook of the Administration? Is that it?,12
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"I know it's going to be hard to back up on it because it was very well received by the Committees. Very little attention was paid to it, though.",33
-fomc-corpus,1980,It raises a bit of a question in my mind on whether it is worthwhile polling the Committee on what their economic outlook is. We went through that exercise once or twice with Mr. Miller. Do people want to be polled on what their economic look is? Is it a useful exercise?,58
-fomc-corpus,1980,The law requires that the Board--,7
-fomc-corpus,1980,"I know. That particular [requirement] is for the Board, but I have no strong feeling one way or another on that.",27
-fomc-corpus,1980,We'll be working off the staff projection at that time and I think an indication of agreement or disagreement or points of agreement or disagreement might be helpful.,29
-fomc-corpus,1980,"Well, I might ask you for that next time, but I don't know.",16
-fomc-corpus,1980,"Mr. Chairman, did I understand that if we have staff papers on one or more of these studies that you anticipate those being discussed in the morning meeting rather than at an afternoon meeting?",37
-fomc-corpus,1980,"Well, we also have a request from a member of the Committee. Willis Winn sent me a letter raising all sorts of interesting questions on the international scene--I don't know whether that letter was distributed other than to the Board members--and suggested that it might be a good idea to have a general discussion of the international scene. Some of the questions are quite profound. That raises the question in my mind whether [to allocate more time for discussion]. While I think we can pretty clearly do the work we have to do in February in the morning, would there be any desire in view of that and perhaps a discussion of lagged reserve accounting and inter-related matters to begin the discussion the afternoon before? I'm not sure it would have to be a meeting; it could be a discussion the afternoon before. How do people feel about that?",166
-fomc-corpus,1980,I think it would be a good idea.,9
-fomc-corpus,1980,"There's no great resistance to coming in the day before, if I read you right.",17
-fomc-corpus,1980,Could we start earlier in the day--everybody was here [yesterday] by noon--and end earlier?,23
-fomc-corpus,1980,"Well, I'm not sure that we will do it, but let me keep that option open if we have some of these other [issues] to discuss. I don't think it would have to be a meeting, for what difference that makes, but it might be worthwhile having an early afternoon discussion session. So, let me review that.",67
-fomc-corpus,1980,"In spite of remaining flexible, the earlier we can get notification the more helpful it would be. Getting travel reservations is a real problem.",27
-fomc-corpus,1980,"Okay, thank you.   I think we are finished.",12
-fomc-corpus,1980,"I will call the non-meeting to order. We are not in a meeting at this point anyway; we may be in a meeting later. I would just remind all of you that I sent out a memorandum on the idea of possibly changing the [FOMC] meeting dates. It probably would amount to having fewer meetings on the theory that with the current operating procedure, I sense--maybe nobody else senses--that a meeting after only four weeks doesn't give us much evidence on which to change anything. With lagged reserve accounting and with a lag in the numbers, we're hardly in the period that we were discussing before the next meeting comes along. So there may be some logic in doing it a bit differently. This is partly based on the idea, after looking it over--and I think we all agree--that we need a little longer perspective. It seems to me better to get the longer perspective by sticking to calendar quarters rather than just always looking three months ahead on some kind of moving average basis. If we take that as an assumption, logically we should meet somewhere around the beginning of a quarter and look at that quarter. We can review it sometime during the quarter and also look ahead to the next quarter. Then when we get to the end of the quarter, we will be looking ahead at the next quarter. There seems to be a certain logical progression in that method of looking at it as opposed to meeting more frequently when the basic decision was whether or not to change the federal funds rate. But I will return to the subject at the end of the meeting and then [we will decide]. There's nothing magic about any particular time to change.",331
-fomc-corpus,1980,"Well, there is some magic in it. I looked at your [proposed] schedule and I thought that we probably should meet at the very end of the quarter to plan for the next quarter. Then I realized that we have constraints on two [meeting dates]. One is because of the budget and the [President's] economic report [and] the Humphrey-Hawkins testimony; so we have to wait until January to do that one. Then we have a similar constraint in July when we have to wait for the midyear review of the budget before we can do very much. I finally came around to your schedule on two of the quarters anyway. So, we might as well change the whole schedule into a similar pattern.",147
-fomc-corpus,1980,"Well, I had nothing invested in any of the particular dates or when we would change, if we change. But I do have the feeling that every four weeks is a little frequent if we are operating in this particular mode. I wouldn't feel that way if we were operating more on money market oriented criteria.",61
-fomc-corpus,1980,Could [we meet] on the original dates in those months instead of moving--?,17
-fomc-corpus,1980,"Well, it's a little hard. But look at the dates carefully. As I say, I had nothing invested in the particular dates that were put on that proposal, particularly when we get near [the usual] dates, if there are problems in changing them. For instance, for that proposed April 1, which looks logical except for April Fool's day, March 25 is almost equally logical. And we could basically have the same pattern by meeting on March 18th, because I understand [that date is on] everybody's schedule now, although that would leave a longer lapse before the next meeting. But there's nothing sacrosanct about any of those particular dates.",136
-fomc-corpus,1980,Is there supposed to be a response?,8
-fomc-corpus,1980,"No, you can wait until later; it can wait until after the meeting tomorrow. I just wanted to remind you to have it in mind so that if you have any strong feelings they could be adequately verbalized tomorrow. The first thing on our agenda today is lagged reserve accounting. Mr. Axilrod.",63
-fomc-corpus,1980,"Mr. Chairman, lagged reserve accounting, as the Presidents and Board Members know, has been a subject of considerable contention in the System since it was adopted in 1968.",36
-fomc-corpus,1980,We're going to get an issue pretty soon for which we just can't pull out the old memoranda.,20
-fomc-corpus,1980,"That's what I was getting to. There has been considerable contention since 1968 when it was adopted. And I must say from an internal perspective there was contention between 1966 and 1968, when it was being studied for adoption under a rather different institutional environment and different operating procedures than we now have. Various staff groups have studied this since 1973. I am afraid you are not quite getting independent results since I think I was Chairman of three of those groups. And they all three unanimously concluded that there is very little to be said for lagged reserve accounting from a monetary policy point of view if the Committee is operating on a reserves target. One can't make a case that it is the least bit of help and one can make a case that it is harmful. There have been divergences among the staff even in that context of it not being helpful. The question is: How harmful in fact is it? Some would contend more strongly than others that it's harmful over the longer run. Others would contend that it doesn't matter over the longer run: That with or without lagged reserve accounting we can perk along on a reserve target and manage to hit our objectives. I think that's a legitimate source of dispute because the long run is compounded of a number of short runs. And in a very simple-minded sense in any 1-week period there is no defined relationship between the multiplier on deposits and reserves in that week. That is, reserves this week can bear any relationship to deposits because all one has to do is worry about two weeks from now. So we rely almost entirely, therefore, on banks' responses to interest rates to control deposits. When you cut through it all, fundamentally that is no different from relying on a fluctuating federal funds rate target. So, I personally would tend to take the view that lagged reserve accounting can make it virtually impossible to hit our targets in the short run and probably is of some importance in making it difficult to hit our targets in the long run. Thus, I think it is really quite inconsistent with the present operating procedures. Now, I don't mean to say that there aren't other things that are equally difficult. The discount window is a problem and our own graduated reserve requirement structure is a problem. But in the latter regard, some of Mr. Lindsey's research would suggest that lagged reserve accounting accounts for bigger divergences in the multiplier from predictions than does the graduated reserve requirement structure.",487
-fomc-corpus,1980,From Mr. Who's research?,7
-fomc-corpus,1980,"Mr. Lindsey, on my right. So I would say that while doing away with lagged reserve requirements is not going to solve all our problems in hitting the aggregates, it at least looks like a step in the right direction. In view of this cogent staff analysis, one might be curious as to the reason no action has been taken to date. I assume there have been two reasons. One was that with the federal funds rate operating target, which has been the principal System operating target for years, or even with a net borrowed reserves operating target, lagged reserve requirements are essentially an irrelevancy, like almost any reserve requirement is an irrelevancy. With a funds rate target, the Committee is simply trying to aim at that interest rate which will cause all the adjustments by banks and the public, whether or not there are reserve requirements, that will bring about the proper money supply. So in that sense it's irrelevant. The other issue was membership. The lagged reserve requirement is viewed as a benefit of membership. To test that view we did run a survey during one of these staff analyses and, except for those at the St. Louis Federal Reserve Bank, all of the directors of Reserve Banks who represented member banks said lagged reserve accounting was desirable. In St. Louis, the directors said it was undesirable.",265
-fomc-corpus,1980,When was that?,4
-fomc-corpus,1980,That was in 1976.,7
-fomc-corpus,1980,That was before the good days!,7
-fomc-corpus,1980,"That sort of follows the pattern for most everything, doesn't it?",13
-fomc-corpus,1980,"The staff has no other way of assessing lagged reserve requirements as a membership benefit. One's instinct would be that it is minor relative to the real burden, which is the reserve requirement itself. In sum, Mr. Chairman, the staff does believe that it is probably appropriate now to move toward contemporaneous reserve accounting if the Committee is going to continue with a reserve targeting procedure. In that context, we did offer three alternatives in the memorandum. One is moving from a two-week lag to a one-week lag, which would presumably speed up the response of the banking system a bit. The second is making reserve requirements contemporaneous for Reserve City banks and leaving a lag for the other 5,000 banks. And the third is an essentially contemporaneous scheme for all banks. Without going through all the reasons that are detailed in the memo, Mr. Chairman, we did conclude that we see very little advantage to any move now except the move to contemporaneous accounting for all banks. That is, if the Board did not feel disposed to move toward contemporaneous accounting now, for whatever reasons, the staff would not suggest taking either of the other two alternatives. We believe that their advantages do not outweigh the disadvantages that might be entailed in terms of messed-up reporting, failure to quell the public debate, and certain problems of the multiplier that the mix system brings about. Those are all the comments I have, unless Mr. Lindsey would wish to add something.",291
-fomc-corpus,1980,"Well, you have not left a lot of doubt as to where you stand, Mr. Axilrod. Is there any dissenting opinion among the staff on the importance of this matter?",38
-fomc-corpus,1980,"I might say that, if anything, my views are more extreme than Steve's.",17
-fomc-corpus,1980,"In the articles and academic papers and so forth that have been written on this subject, do they bring anything to light or make any argument that you have not made?",33
-fomc-corpus,1980,"No, in preparing these memoranda for the Board, we thoroughly reviewed the literature starting from the early '70s on. My own view, which isn't particularly humble, is that the quality of the analysis presented here is much superior to the academic work.",51
-fomc-corpus,1980,"We would expect that! Well, it's just that the conclusion comes through a little more strongly than I read it in that memorandum itself. I had a feeling that you saw some disadvantages in the degree of certainty with which the Desk was operating. Maybe Mr. Sternlight would like to comment.",58
-fomc-corpus,1980,"Yes, I'd like to add a word or two. I feel much less convinced than Mr. Axilrod that there would be significant benefits from a switch to contemporaneous accounting. I can see the theoretical case that he makes. I'd be among those who feel that in the longer run even that theoretical case makes very little, if any, difference. I can see some impediments to the Desk's operations under a contemporaneous system in that we don't know required reserves in the week we're operating in. Perhaps more significant than that, when some deviation in required reserves stems from a factor other than the behavior of the monetary aggregates--for example, a bulge in interbank deposits or something of that nature that essentially we would want to accommodate rather than resist as part of our reserve targeting--I think contemporaneous accounting could send us off in a perverse direction. So, I came out feeling that there is not all that much advantage to it. And having the minus on the membership side--I don't know how strongly to evaluate it, but I am told that it still does have some significance--just made me pretty dubious about the desirability of a change.",232
-fomc-corpus,1980,"Mr. Holmes, you were there before and after. Do you have any comments?",17
-fomc-corpus,1980,"Yes, Mr. Chairman. I can recall back in the great debate over whether we should have lagged reserve accounting, all sorts of claims were made that it was going to help the Desk tremendously and that the Wednesday [settlement date] would be a stable day in the funds market. We at the Desk never believed that. But, if it does make a difference for bank relations and on that ground alone it is useful to the banks, then we see no harm in the lagged reserve accounting. I feel very much as Peter does that it doesn't make all that much difference. It seems to me that the System has introduced enough other changes recently in statistics and in procedures that I see no urgent need, certainly, to go ahead with a move back to contemporaneous reserve accounting. Along with Peter, I doubt if it really makes that much difference.",171
-fomc-corpus,1980,"Well, we're not going to make a decision this afternoon, but anybody who would like to comment on this subject should comment.",25
-fomc-corpus,1980,"Mr. Chairman, I have long felt that if we're going to have a reserve operating base, sooner or later we are going to have to move to contemporaneous reserves. As one example, let's say that later on this year we get into a period where the money supply is not growing or is contracting. That would mean that in order to hit our target of total reserves, the Desk would have to push in very large amounts of excess reserves at the expense of a pretty sharp reduction in the funds rate. That might look a little funny if we're willing to do it, but it is one of the consequences stemming from lagged reserves. It is very awkward to control reserves with a lagged system. On the other hand, this is a very awkward time for us to make a change. As far as I am concerned, it's only a matter of timing--of when we do it. I don't think this is an optimum time, first because of the membership bill. I wouldn't want to throw anything on the fire that could in any way interfere with that bill. I'd want to hold off until it has been decided one way or the other. Second, all of our computer systems people in the whole Federal Reserve System are [working] flat out. We have the system automation program and we have the work going forward in connection with the pricing of Federal Reserve services. At least in the Boston Bank, we don't have any capacity to do the work on [a shift from lagged reserves]. And I think that is probably true around the System.",309
-fomc-corpus,1980,How big a job is this for us internally as opposed to for a bank?,16
-fomc-corpus,1980,Depending on the alternative--the memo had three alternatives--some of our people said four to six months for programming.,23
-fomc-corpus,1980,"I am assuming going all the way to what is called contemporaneous reserves, which isn't quite contemporaneous; it's a one-day lag.",27
-fomc-corpus,1980,I was told it would take us 90 days to implement it.,14
-fomc-corpus,1980,Boy!,2
-fomc-corpus,1980,"I'd strongly support what Frank has said. On the substance of the argument, I certainly join Steve; that's exactly where I come out. Like Frank, I would also stress that it would be very risky in my opinion even to raise this outside the Fed until we get a membership bill passed because there will be some adverse member bank relations in a transition. Secondly, I'd stress that both the banks and the Reserve Banks need a long lead time on this, longer than Steve thinks based on the impression I have from the staff memo. I would think six months would be an absolute minimum. When you think of banks in the West with statewide systems and 1,000 branches and so forth, it gets to be a very, very complicated system of reporting.",150
-fomc-corpus,1980,You say it will take a long time because they will--,12
-fomc-corpus,1980,"Well, both for the banks and for us for the reason that Frank said. Our data processing people within the Reserve Banks have been knocked flat by the tremendous number of changes in the current reporting series, by the cranking up of IBA, and by the marginal reserve requirements. We have the possibility of a membership bill on the horizon, which will bring us a lot more institutions to deal with. On top of that, all at the same time, if we try to plug in a very detailed, cumbersome, time consuming, expensive reprogramming effort and try to do it too quickly, I think we'll rue the day we did it. I'll tell you this: (1) I would hope that a decision would be made to move to contemporaneous reserve requirements; (2) I wouldn't even raise the issue unless we get a membership bill; and (3) then at that point, I'd make sure that plenty of study is given to lead time needs of both the banks and the Reserve Banks.",201
-fomc-corpus,1980,"I appreciate your caution about raising [this issue], but I did this morning.",16
-fomc-corpus,1980,"Oh, you did? Now he tells me!",10
-fomc-corpus,1980,I think your caution is well taken and I did it with some hesitancy. Mr. Mayo.,21
-fomc-corpus,1980,"Well, most of my speech has already been given. But I would say of the three alternatives Steve presented, I certainly would agree with the staff, or the reserve requirements policy group, that a return to contemporaneous reserve accounting would be the preferred solution. I think it is better than lagged reserves. But I too feel, though I probably can't say it as eloquently as John just did, that it very definitely ties into the membership bill, and I would postpone it if only for that reason. I also feel, even though I am known around this table as a pragmatist or eclectic or something--no comment Mr. Roos--that there are two other ways that have not been thoroughly presented and discussed by the Axilrod Committee but should be. They have been subjected to a lot of good academic thought. Maybe they are cockeyed, but I can't see the holes in them myself yet, and I think they're worthy of discussion. One of them is Bill Poole's paper, Frank, on what amounts to a 100 percent marginal reserve requirement on the most recent changes since the last determination. The other is the idea of some sort of reverse lag where, as we all learned in our elementary money and banking text books, the Federal Reserve or the Central Bank sets the reserves. That isn't as silly as it may sound. We are not saying to a bank that it can't accept any more deposits because its reserves have already been set. That can be handled by the way it works through the accounting system. But it seems to me that both of those ideas have enough merit that they at least ought to be kicked around a little more by the SRAC and by Steve's group. So, while I agree that the major reason for delaying the implementation of this relates to the membership issue and the timing, I would suggest that we have a little more work to do in terms of analyzing these two ideas, just as examples. And if we want to blow holes in them, let's do it. But some of us, at least, are intrigued by these two ideas and the possibility that, if they work, they will bring us closer, though obviously not completely, to a chain drive rather than a belt drive, if I may use that [analogy].",457
-fomc-corpus,1980,"Have you looked at those, Mr. Axilrod?",12
-fomc-corpus,1980,We have in the past looked at those and several other gimmicks that have been advanced.,18
-fomc-corpus,1980,And he will now deliver an unbiased opinion!,9
-fomc-corpus,1980,We'll be glad to consider them further.,8
-fomc-corpus,1980,There are good gimmicks and bad gimmicks. We deal only in good gimmicks.,18
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Mr. Chairman, like Bob, my speech has been pretty well given. I'll start with a conclusion: I think it would be a mistake to make a change right now. There are several reasons. In addition to the ones that have been given, I think the magnitude of the problem has not been demonstrated to be great enough to justify the cost of a change at this time. We knew when we made the change years ago to lagged reserve accounting that it would have the effect it is having. But at that point we judged that the membership benefits overrode the negative effects it would have on the linkage between the policy target and achieving the target. It seems to me that the balance today is even stronger in the direction of membership than it was at the time we made the change. And my recollection is that the views we received from the Manager of the System Account then were the same as have been expressed today. The Desk did not see it as presenting an insurmountable operating problem. As to the suggestion that it's irrelevant if we're operating with a federal funds target, I find that persuasive. But it does seem to me that it's inappropriate to throw into the same box the net borrowed reserve target. That seems to me a different animal than the federal funds target. And the suggestion that we have to achieve the monetary aggregate target through interest rate effects is a part of any operating procedure. The people who borrow from banks and the bank officials who are handling banks' investment decisions are operating in response to interest rates. And it's through the interface of the banks and their customers that the asset side of their balance sheet is affected, and then the liability side seems to me to flow from that. So we cannot escape working through the interest rates in the market to achieve influence on the monetary aggregates. I think that's true whether we try to work through some reserve aggregate or a federal funds target or a net borrowed reserve target. It comes down to our ability, whatever the target, [to determine] the linkage between [our objectives] and the aggregate we attempt to affect. But in the final analysis [the key is] our willingness to let our efforts influence interest rates in the market. Along with Bob's reference to a couple of items and gimmicks in the literature, I was expecting to see at least some passing reference--to use the vernacular on the table--to a ""gimmick"" that was kicked around fairly extensively a number of years ago: namely, grouping banks into about five groups and having their reserve settlement dates come up on a different day of the week.",517
-fomc-corpus,1980,"We have studies of that also, President Baughman. We will be glad to--",18
-fomc-corpus,1980,"Well, I don't know whether [those in] the profession--",13
-fomc-corpus,1980,These are professional gimmicks!,6
-fomc-corpus,1980,On the willingness to let that [academic] feud quiet down: Was it a matter of your persuading them or simply that they felt we turned off our hearing aids?,34
-fomc-corpus,1980,"As far as Professor Friedman is concerned, I think it was the latter. He was the chief proponent of it.",24
-fomc-corpus,1980,"It seems to me that we should anticipate that that will likely surface again. So, my view, Mr. Chairman, is that we should not change at the present time. I agree with the conclusion that our present mode of operation would work a little better if we were on a concurrent basis. But I think the cost of going there would be excessive now.",72
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"Just to set the record straight, I have a change of position since the advent of the age of enlightenment in St. Louis. We're strongly in support of contemporaneous reserve accounting. I would subscribe to John Balles' concern about moving before the operational changes have been considered and made and [so forth]. In talking to our bank relations people, I got the impression that as many banks dislike this lagged reserve arrangement as favor it. Anyway, let the record show that whatever happened in 1976 does not reflect our present position. We support it.",111
-fomc-corpus,1980,"Yes, in June of 1976.",9
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, in deciding whether lagged reserves are good or bad for policy, I think we have to decide whether the likely errors in hitting the money supply stem from a lack of responsiveness to changes in the volume of reserves or whether they stem from unexpected changes in the appetite of the market for money of the type that Frank Morris assumed. If it's the first, then one can make a case that we get a little quicker response under lagged reserve requirements than under the other in the sense that if we inject a given volume of reserves, required reserves don't rise immediately, so the banks feel a little easier and they kick this off a little faster. In the case of unexpected deviations stemming from a shift in the demand for money, then we do have an automatic braking that comes about under contemporaneous reserve requirements that tends to stop this unexpected change in the demand for money. I think it's this latter type that's really the most troublesome for us under our present mode of operation. So that does give a slight edge to contemporaneous accounting under the present procedures. But I don't think we ought to overemphasize that. I come out very close to where Alan Holmes and Peter Sternlight did. At most, I would think the delay would be two weeks. And if you accept any of the points that Irving Auerbach was raising in his debate with Bill Poole in the American Banker, then you may conclude that it may take longer than most people assume for these multiple contractions or expansions in bank credit to take place. In the kind of environment in which we are trying to bring about a steady rate of expansion in money, and given all these other slippages in the monetary multiplier, it's hard for me to see that it makes a great deal of difference under present procedures. But I do think that it is good for us, if we can, to quiet this criticism that has been stemming from the monetarists. I have two reasons: (1) It would divert their efforts toward trying to help us achieve a monetary target and they would stop assuming that it's as easy to hit as most of them have assumed; and (2) it would remove any excuse that we have for not hitting the targets. And both of those [results] would be rather salutary, I think. As far as the other side of the coin is concerned, bank relations, a lot of the academic commentators assume that it's easier for a bank to adjust under contemporaneous reserve requirements because it does not involve as large a change in excess reserves. But they are not talking to the bankers I've talked to. I think most of the Reserve Banks now provide each of their banks with a daily statement on reserves, which shows their required reserves as determined from deposits two weeks earlier. They subtract from that any vault cash they held two weeks earlier, either add to that or subtract from it the amount of carryover from the previous week, and then show how much the banks must hold in their reserve balances for the remainder of the reserve period. In fact, we even show that on a daily average basis. So far as the small banker is concerned, all he has to worry about is looking at that statement that comes every day, early in the day--it never misses its schedule except when the carrier doesn't run, which is very seldom--and he knows exactly the reserves he has to hold on a daily average basis for the balance of that reserve period. And if he misses it a little, he has the 2 percent carryover. Most of them, if they watch it very closely, can get pretty darn close to zero excess reserves. But I wouldn't favor the adoption of alternative one--moving to a one-week lag--which I think is the best of those Steve outlined, for the reason that John Balles and Frank Morris and many of the rest of you have stated. It would be a major problem [of implementation]. But as we move ahead, we might think about how we could go to contemporaneous reserve accounting and yet solve this bank relations problem. The problem doesn't stem entirely from not having all the banks as members. I don't think we'd want to burden the banks unduly even if they were all [members]. So, what appeals to me most would be a month-long period of contemporaneous reserve accounting. I think that would have practically all of the advantages of the [weekly contemporaneous accounting period]. It would involve less rate volatility because banks would have more opportunity to engage in interest arbitrage within the reserve period. It would also give more time for this adjustment to the changes in the demand for money--that multiple contraction or expansion that some of the commentators seem to think occurs almost instantaneously. It would reduce the work of the Federal Reserve and the work of the commercial banks a great deal if we didn't have to put this out on a weekly basis. It would reduce the emphasis on the weekly figures that now cause us so much problems. And if we eliminated the carryover in the process--and I think we probably could get away with eliminating that if we went to a month-long period--it would eliminate a form of slippage. But there are some disadvantages to a month-long period without the carryover in terms of unexpected reserve movements toward the end of the period. And this would not be simply the last day in the case of many banks that don't know their required reserves until five or six days later. But if we did have an unexpected movement toward the end of the period, it would have an effect on only 1/28th to 1/31st of the whole period because of the month-long period as compared with an effect of 1/7th as we now have with a seven-day period. We also could not provide as much help to the banks through giving them statements of their required reserves, and that removes one of the inducements for them to report more promptly to us. Certainly that is important to us. Finally, with a long period of time, in a sense one could argue that the banks wouldn't have to come to grips with a change in reserve availability quite as promptly, and we might have some slippage there. But on balance, if we combined these two, that might conceivably be the best of the two worlds. But I would urge that we not move to that at this time for reasons others have already stressed.",1278
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"Well, those were very thoughtful observations by Bob Black. I just would like to make two points on those before I briefly say what I meant to. I am not sure that we'll satisfy the monetarists by this change. I think their reasoning is that they want to minimize Desk operations. They believe that with contemporaneous accounting all the adjustment can take place through a change in deposits and none of the reserve needs have to be met by Desk operations. You pointed out that these adjustments of levels of deposits don't take place instantaneously. We need a very large change for each dollar of reserves, something like a $10 change in demand deposits and a $20 change in time deposits. These changes are really so large that they can't take place quickly; any reserve deficiency or surplus must still be met very predominantly from Desk operations. My other reaction is that the one-month procedure sounds like an ingenious possibility and well worth studying, but one can see the danger of slippage if we expanded this [time period]. Suppose we made it not one month but one year. One can see that that wouldn't be workable. So somewhere between a day and a year there is an optimum in terms of less disturbance but also less loss of effectiveness. As far as moving to a contemporaneous basis right away is concerned, I think the gain we have in terms of the monetarists' analysis wouldn't be very great. The staff memorandum convinces me that the gain in terms of speed might be very considerable. The effects of any reserve shortage begin two weeks earlier unless we want to assume that somehow a reserve shortage or surplus casts its shadow ahead and the banks move into very short-term assets as soon as they see their deposits moving in one direction or another. But that isn't very likely because all they see is their own deposits moving; they don't see the aggregate moving necessarily. So, there does seem to be a significant advantage in terms of speed of adjustment and I think that is important because even though we say that it really doesn't matter over a quarter or so whether we deviate from our target, it is always very hard to get back on track. It doesn't matter if we deviate if we indeed get back on track. Nothing happens to the real sector. But getting back on track may be very painful because the forces that pushed us off may still be operative. I have one question on something that I'd like to understand better. I have the impression that under the present procedure, the funds rate still serves as a guide to reserve needs. Peter seemed to say that if we move to contemporaneous, we would lose that. At present, a movement in the funds rate is an unambiguous indication that reserves are either too large or too small and it is clear that the Desk must take action unless it wants to have the reserve imbalance met by borrowing or repayment. If we have contemporaneous, then a move in the funds rate may mean indeed that market factors have produced a deficiency or excess of reserves. But it also may mean that the aggregates are moving in a particular direction, creating a reserve surplus or deficiency. If the latter is the case, we may not want to counteract that; we may want to let the change in the funds rate do its job. Say a decline in deposits leads to a decline in the funds rate. We would want the decline in the funds rate to help push deposits back up. So there seems to be a possibility of using the funds rate as a guide to operations under lagged [accounting] and less of a possibility to do that under contemporaneous. Since I am troubled, frankly, by the use of the funds rate as a guide to operations because it exposes us to the appearance of still being on a funds rate target, I wonder whether this wouldn't protect us against that suspicion that we're trying to control the funds rate rather than nonborrowed reserves and the aggregates. And I wonder whether the Desk wouldn't be able to judge what it needs to do--determine the need to add reserves or the absence of a need--without this indication coming from the funds rate.",817
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"Well, I have the feeling that the honeymoon of our experiment is about over. Consequently, I get a little more itchy to fiddle with the machinery rather than to let it stand. I am convinced that the acceptance of the Federal Reserve making this [procedure] work is going to be more important than for membership and a whole host of issues. I would not back off because of the effect it may have on the membership legislation at this time. This is more important than the membership issue. I am convinced that while there are programming problems involved, we can get it done faster than we assume if we change our priorities a bit. I would give up on some of the other things we are doing, I think, and put this in place. I am not sure how much time [it would take] but the biggest problem is getting the Banks to rearrange their priorities in order to mesh with it. I would pick up on some of the other comments about the importance of saying that this [procedure] works. I am concerned that the slippages are going to show up much more. There is a lack of confidence in the market now about what we are doing and either [we need to do] that or look at the discount rate again, or perhaps both, very promptly or I think we are going to be in trouble. I would like to raise one question. With [the development] of the managed liabilities and RPs and other things, are we seeing a change in the adjustment process now that will [become more pronounced] if we start to tighten? Are we seeing that [adjustment not] formally showing up in the deposit base but in some of these items? I get lost in all the accounting as to how that flushes out.",353
-fomc-corpus,1980,"We have often expected that when the System tightens, there will be an increase in managed liabilities that holds down demand deposits. For example, there would be an increase in issuance of CDs and RPs and all that. That didn't turn out to be true in the fourth quarter when there seemed to be a sharp reduction in bank credit demands. But for unchanged credit demands, so to speak, I would expect that to be an element in the adjustment process. It would be an aspect of the tightening--issuing [such] things and putting upward pressure on interest rates in so doing.",117
-fomc-corpus,1980,"Why do you think we are running out of honeymoon time or however you expressed it, Willis?",19
-fomc-corpus,1980,"Paul, I hear more doubts being raised in more areas than I ever thought possible. Their suspicion is that we are [not] on a money target [unintelligible] very much a funds target.",42
-fomc-corpus,1980,We don't see it in the money supply figures.,10
-fomc-corpus,1980,"Well, we are confusing it by all these different money supply figures we are surfacing.",18
-fomc-corpus,1980,We haven't done that yet.,6
-fomc-corpus,1980,And they don't know--,5
-fomc-corpus,1980,"People are looking, Paul, at the reserve base until we get--",14
-fomc-corpus,1980,"I don't know how far the ingenuity of our staff goes, but we will get off bounds on one definition. We changed the definition in the seasonal adjustment factor--fixed it up perfectly, I would say.",41
-fomc-corpus,1980,If we shift from lagged reserve accounting to contemporaneous and confuse that issue--,16
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"Well, I speak somewhat tentatively on this subject which I have observed raging around here for many years. It is somewhat religious in character. By the way, St Louis, I think has always been on the side of the angels, Larry! They might have had a little falling off or--",59
-fomc-corpus,1980,Steve tells me we were the only people--,9
-fomc-corpus,1980,"I would say you were always in favor of contemporaneous accounting and I would say that Bob Black has always been against it because he saw the public relations cost or the bank relations cost. The latter was a major factor involved, I thought, in the Board's accepting the lagged way in the first place. I am impressed by Henry's argument. I do think the speed of adjustment is something that is going to plague us because I personally believe that sooner or later, but perhaps not right now, Willis, we're either going to get a big surge or we're going to get a big collapse in the aggregates and then we are not going to be able to do anything about it because of the lags with which the demand schedule can be affected. And two weeks is a meaningful amount of time in shortening that process, if indeed it does shorten the process. I don't know that it necessarily would because, after all, the Desk knows that the money supply has surged or has fallen out of bed before the reserves have to be put up to support the higher amount or the lower amount; and presumably if they don't follow a strictly mechanical formula, they can begin to make adjustments for it early on in their strategy. So even that can be overcome. My biggest problem is that I would lean toward contemporaneous accounting except that I think the structure is much too complicated to use it. Reported deposits are extremely complicated; there is quite a variety of deposits with different kinds of reserves against them. And it seems to me all of that is much more difficult [to manage] on a contemporaneous basis; it would not be a disadvantage otherwise if we had a very simple structure. Now, it also happens that the membership bills all propose a very much simpler structure of reserves than we now have. And it seems to me that if [the structure were simpler], that would also tend in some sense, Bob, to do away with the bank relations problem because it is no longer an optional matter as to whether to follow the specified procedures. It seems to me that a very much simpler structure and the change in the whole reserve apparatus that would be associated with a new bill, which probably wouldn't take effect for six months or something like that, might be a time for introducing a change. But I would tie it to those kinds of developments; I wouldn't do it now. By the way, I do believe the point made by Frank and others has some value: With our current way of processing the daily report of deposits and the programming that exists we probably don't have the capacity to make the change without risking a collapse of the structure. That has begun to bother me. So, I wouldn't do anything now; but the introduction of a new simplified system on different terms and conditions might be an occasion for going to it.",559
-fomc-corpus,1980,Mr. Timlen.,5
-fomc-corpus,1980,"Mr. Chairman, I have heard at least six economists at the Federal Reserve Bank of New York opine on the matter of reverting to contemporaneous reserves. Not one of them thinks there is any major advantage in such a change, so I will be disposed to follow that professional judgment in my Bank. I must say that John Balles has given most of my points in terms of the bank relations [effects of] such a change and I would like to stress the importance of that. It is lead time, not only at the Reserve Banks but at the commercial banks as well. I would say, too, that I don't think that First VPs are in a position to start changing their priorities in the computer support area. We have a number of very key projects going forward in that area to bring up our new FRCS 80 communications network. We are entering the area of resource sharing. And to change our priorities to accommodate something that is not held out as having a major advantage is to me very poor planning. I would also say that we have had so many changes in the area of reserves--and those changes involve a cost to our member banks--that this would just add to the difficulties of shaping things in an orderly way.",248
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,"Mr. Chairman, I also tread tentatively in an area like this. In general, I am persuaded by Mr. Axilrod's theoretical arguments that contemporaneous reserve accounting has advantages in the short run when applied to a reserve targeting approach to monetary control. Mostly though, I am impressed by what Mr. Sternlight and Mr. Holmes had to say, which is that it probably won't make a great deal of difference in how the Desk operates. I just have one question that I'd like to ask Mr. Axilrod, if I may. I assume you are familiar with Irving Auerbach's arguments in favor of lagged reserve accounting. I take it that this is essentially an argument that the effects of any shifts in money demand won't be very quickly felt in markets and that the argument is based on the actual behavior of commercial banks in their lending and in their portfolio management. I wonder what you would say in response to Mr. Auerbach.",192
-fomc-corpus,1980,"Well, Governor Rice, Irv has a much more complicated mind, I think, than I do. Also, the evidence with regard to bank response has been developed over a number of years when the System has been running a different kind of policy that is very accommodative to bank needs. If at today's interest rates the bank needed reserves, the System supplied it. So every banker worth his salt knew that he could rely on the federal funds market within plus or minus 1/4 percentage point to make his adjustments. In that kind of environment, adjustments do tend to be made quite slowly. That may be the best kind of environment; I am not questioning that. But I think that's the basis for the empirical evidence. Without lagged reserve accounting you introduce the possibility of controlling total reserves. Now, you may or may not want to control them literally, but you introduce that possibility whereas with lagged reserve accounting that's much more difficult to do. If you can control total reserves, offsetting borrowing as it occurs, then it follows that the banks are simply not going to be able to put out the deposits and that in consequence interest rates are going to move sharply up or sharply down as banks are forced to make those adjustments. If the Committee wants to move toward the kind of world where it is more certain of controlling total reserves in the short run, or indeed in the long run, then I think abandonment of lagged reserve accounting would make it more practicable to do so. Now, if bank adjustments take a long time, then it might require a lot more interest rate variation in the short run to overcome that kind of inertia. However, I would feel reasonably confident that after some transition period the process of bank adjustments would be much shorter. Of course, in that process banks would begin holding more excess reserves so we'd have that problem to worry about. I know this is somewhat general, but that's how I would respond to the kinds of comments that Irv makes.",395
-fomc-corpus,1980,It depends in considerable part upon what we do with the discount window issue.,15
-fomc-corpus,1980,"Yes. I am sure, even if we leave the window open and don't close it, total reserves leaves you the possibility of chasing it. You may not ever catch it, but it leaves you the possibility of chasing it.",45
-fomc-corpus,1980,Governor Coldwell.,4
-fomc-corpus,1980,"I have only two comments, Mr. Chairman. First, I would agree with the Account Manager that this is likely to have [only] minor advantages. But secondly, I would caution the Committee that this is another interruption in the overall picture of [the policy] the Committee is trying to follow. If we add that on top of our redefined aggregates as well as possible daylight overdrafts and additions from the membership bill, we're likely to complicate the figures [further] and they are going to be difficult for people to follow, even our very good staff.",114
-fomc-corpus,1980,I can't contemplate that possibility. President Willes.,10
-fomc-corpus,1980,"Thank you, Mr. Chairman. I found Henry's comments and Chuck's comments particularly useful. So I would like to [be recorded as agreeing with] whatever you wrote down for them. I would add one thought, which goes back to the comment that Bob Mayo made. I am not much for gimmicks, either. But if there's a bank relations problem, as many think there is, it just might be possible that the kind of proposal Bill Poole made can be structured in such a way that we don't give much away but present it to the banks as though we are giving them something when we are taking away lagged reserves. His kind of penalty scheme, for example, in terms of the carryover would make it possible to say that we are going to take away lagged reserves but we are going to give banks some flexibility they don't have now. And yet if we structure that penalty in the right way, in fact, we're not going to give away much in terms of sloppiness in the reserve figures. Looked at in that way--unless, as Chuck says, we get the whole thing solved with the bill--it might be useful to consider a gimmick like that simply as a bank relations vehicle. It may be a means to get the advantages and not have the negative bank relations impact that some of us, at least, are concerned about.",276
-fomc-corpus,1980,"I guess everybody has talked who wants to talk. Is there anybody else who urgently wants to talk? Mr. Kimbrel. When I put the adverb in front of it, you're in trouble!",41
-fomc-corpus,1980,"I have a personal bias toward contemporaneous reserves. And if we were operating so that we could accomplish it, I would certainly opt for that. But I suppose our real thrust [should be] Desk efficiency in discharging our directives, and those at the Desk don't seem to be too enthusiastic about contemporaneous reserves. I accept that against the environment of the costs of programming such a change at the Reserve Banks and commercial banks. And, Mr. Chairman, right at the moment any change in our relationships with our member banks, even this, is not exactly very well timed.",115
-fomc-corpus,1980,"Well, those cautions seem to be rather unanimously felt. I must say the other side of it is--I don't know how important it is substantively--that when we work with a two-week lag in the context of what we're trying to do now, one has a great sense of artificiality. We are working to affect a reserve figure that we always know we cannot affect because it always depends upon something that happened two weeks earlier. It leaves me at least with a very uncomfortable feeling over a period of time. But I think it has been useful to get all these considerations on the table. I don't know whether we have to look carefully at the reverse lag situation and so forth or not.",140
-fomc-corpus,1980,"Well, we can. It depends how promptly the Board would want to take this up. But Mr. Lindsey has already done considerable work in that area, so we would be in a position to develop something.",42
-fomc-corpus,1980,"You are in a position to talk pretty quickly about that. I don't know where we'll come out, but--",22
-fomc-corpus,1980,"Paul, if we are going to be doing additional studies on this, I have always been very taken by the notion of doing away with Saturday and Sunday, which is another gimmick.",37
-fomc-corpus,1980,"That's coming up anyway, isn't it?",8
-fomc-corpus,1980,You mean for Federal Reserve purposes only?,8
-fomc-corpus,1980,"Yes, excuse me, for Federal Reserve purposes only, because of all the inefficiency of flows back and forth.",23
-fomc-corpus,1980,"Well, the relevance of that comment is that one thing leads to another. And there is this question of whether to make a whole bunch of changes at one time or to keep making changes, as I think we have been doing, that upset people.",50
-fomc-corpus,1980,"A memo on that very subject, on the effect of a move from 7 to 5 days, has been prepared for the Board. We didn't want to send it forward right at this time because of the confusion with the memo prepared for this meeting, but we do have a staff recommendation on that.",61
-fomc-corpus,1980,"At the very least, obviously, there are a lot of arguments to delay for a while. I think we ought to get all these things on the table; maybe we won't want to delay them all. We can look at the membership issue in a month or two and see where that stands, but we ought to have at least a preliminary feeling of how we would want to go, depending upon the resolution of that issue. Let's hope it gets resolved one way or the other. Well, I don't think there is anything more to add on this unless the Desk people want to say anything in conclusion. Well, it has been useful [to see] how uniform many of the views are about the theoretical desirability and the practical difficulties in this.",149
-fomc-corpus,1980,"Mr. Chairman, I would just like to add one footnote to this. From my perspective, it is not merely theoretical desirability and practical difficulty but, as you commented, the artificiality of playing with these numbers. That is driven home to me almost every week, so I feel some practical impact of that.",64
-fomc-corpus,1980,"Well, we're going to have a presentation on the international scene. I think a variety of questions have arisen on this which may or may not be of any immediate relevance to what we [do]. MESSRS. TRUMAN, SHAFER, and HENRY. [Statements--see Appendix.]",62
-fomc-corpus,1980,Let's proceed to a formal meeting and hear from Mr. Pardee about the international [scene] in the last month now that we've heard about it for the next two years.,35
-fomc-corpus,1980,"Every time somebody mentions the international value of the dollar, I don't know where I am. I feel like the zoo keeper who is worrying about lions and tigers and bears and is told that the animal kingdom is improving or not improving during the course of the day. I am working in a different world than the one we've just come from, though I have great sympathy with many of the things that were said. [Statement--see Appendix.]",88
-fomc-corpus,1980,Any questions for the zoo keeper?,7
-fomc-corpus,1980,"I move slowly now so I didn't really capture what you said in that very last statement. If the Bundesbank sells dollars and takes in marks presumably, you say we may share in those marks. What are you telling us?",45
-fomc-corpus,1980,"We have a bit of a dilemma. It would be rather nice to see the dollar rise at this stage, after all the pressures that the dollar has been under for these many months. And on that basis, it's awkward for us to see the Bundesbank go into the exchange market and sell dollars and thereby keep the dollar from rising as it might otherwise. At the same time, we have $2.6 billion worth of swap debt remaining and I am going to have to ask for a second renewal on a good chunk of that swap debt. And the U.S. Treasury has a very substantial short position in that it used a lot of the resources of the earlier Carter notes in the intervention last fall. So, we have a rather great need for marks. We have to balance off our wish to see the dollar rise a little to reinstill a bit of confidence in the market in the dollar against this need for mark resources.",186
-fomc-corpus,1980,Are you telling us that the procedure has a possibility of lightening our mark debt?,17
-fomc-corpus,1980,"When the Germans sell dollars and buy marks, they give some of them to us sometimes.",18
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,They give them to us?,6
-fomc-corpus,1980,They sell them to us.,6
-fomc-corpus,1980,For dollars? How do they get an advantage out of that?,13
-fomc-corpus,1980,Because we're repaying the swap.,7
-fomc-corpus,1980,Are you projecting a reduction in our mark debt?,10
-fomc-corpus,1980,"I am if the dollar remains where it is [or] continues to rise. There is still a rather substantial calendar of mark-denominated issues coming into the international markets, which will be converted at the Bundesbank. And this rediversification--there's no term for it and the politics only goes one way--this flow of funds back into the dollar provides us with opportunities. The Bundesbank had one offer put to them this morning on which it decided it didn't like the exchange rate. We would see quite a bit of that as well: People coming back to the dollar, selling large chunks of marks on the exchange market, and either the Bundesbank or ourselves taking those [marks] off the market.",143
-fomc-corpus,1980,Our decision as to whether to use any marks we acquire for the purpose of repaying debt will hinge not on the fact that we've got some marks but rather on what is happening in the exchange rates?,40
-fomc-corpus,1980,"Well, there is a certain urgency as far as our repayment of debt is concerned. And whenever the dollar is strong enough to take it, we open doors and windows. We have not gone into the exchange market as an open buyer of marks. That's one point I was making in my [report]. But to the extent that someone comes along and offers marks to us, we will take them and use them to repay debt.",85
-fomc-corpus,1980,Why is there a certain urgency of repayment? Are those bonds coming due?,15
-fomc-corpus,1980,We've had swap drawings outstanding since last June and we're going into the second renewal on a number of these.,21
-fomc-corpus,1980,You have a recommendation to make in that connection?,10
-fomc-corpus,1980,"I don't have the numbers, but between now and the end of February we have a rather substantial list of swap drawings, totalling about $1.8 billion, coming up for second renewal.",39
-fomc-corpus,1980,We have to ratify the transactions since the last meeting. Do we have a motion to that effect? Without objection they are so ratified. And you are asking for permission to renew $1.8 billion of swap debt maturing between now and the next meeting?,54
-fomc-corpus,1980,By the end of February.,6
-fomc-corpus,1980,When are we going to meet next--March?,10
-fomc-corpus,1980,Not until March 28th.,7
-fomc-corpus,1980,"The drawing has been outstanding for six months, Scott?",11
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"This goes beyond any feasible next meeting date I am sure. Do I have a motion? I do and I have an enthusiastic second. Have we any objections? If not, are there any other questions or comments on this?",45
-fomc-corpus,1980,Your pressure for urgency of repayment is merely the annual date coming up?,14
-fomc-corpus,1980,It's not merely the annual date; I think I have a responsibility to the Committee to keep these things short term.,23
-fomc-corpus,1980,He always feels under pressure. I don't know--,10
-fomc-corpus,1980,"I understand that, but I thought you were conveying a sense of real urgency and that maybe we ought to take further steps than what we're now taking.",30
-fomc-corpus,1980,"Oh, no, I am not trying to go in that direction, as far as the policy is concerned. But in terms of my own responsibilities I feel that I have an urgency to clear this up. Now, there is a tradeoff--we have to choose--because we're covering this debt at a rather substantial loss to the Federal Reserve. And if we waited three months or six months, the exchange value of the dollar might be such that we could repay at a profit. On the other hand, experience has shown that to be a 50-50 [probability]; we might be paying it off at a substantially greater loss. I would rather get it off the books while we have the opportunity and free up our resources for later problems.",150
-fomc-corpus,1980,I was just testing the degree of urgency you're putting on this.,13
-fomc-corpus,1980,Only his normal pressure.,5
-fomc-corpus,1980,Nothing as drastic as going into the market and buying some D-marks.,15
-fomc-corpus,1980,And nothing as drastic as the Bundesbank telling you that we have to get out [of debt].,20
-fomc-corpus,1980,"Well, we're having daily conversations with them on their pace of selling.",14
-fomc-corpus,1980,"I forgot to ask for approval of the minutes of the last meeting. Without objection, they are approved. How long is your presentation, Mr. Kichline?",33
-fomc-corpus,1980,Probably about 20 minutes.,6
-fomc-corpus,1980,But then the questions will take it beyond that.,10
-fomc-corpus,1980,"We don't have time for questions. There is no ground swell for wanting to hear that presentation tonight. In that case, maybe we'll dispose of Mr. Sternlight. He's always very [brief].",39
-fomc-corpus,1980,"I don't think I'll take that long, Mr. Chairman. Shall I go ahead?",17
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"Before I forget, maybe we can go ahead and ratify your transactions. Without objection they are ratified. I think we'll do no more than hear whatever comments or questions you have to Mr. Sternlight.",42
-fomc-corpus,1980,"Could you expand a little on what you perceive as market expectations about future inflation? I see that Treasury bill futures, for instance, have changed by a very substantial amount, something close to 100 basis points over a month or so.",47
-fomc-corpus,1980,"I hadn't focused on a particular quantity, Governor Wallich. It's just that ""expectations of inflation"" seems to be the most commonly cited factor for this very marked rise in the longer end of the market, with the longer bonds up about 100 basis points over the past month. And there is the budget message; even though it perhaps more frankly acknowledged inflation than some past Administration messages, there is still the feeling that if the Administration is saying it's that bad, it's going to be even worse. I guess this is the kind of thing that greets one at times like this.",117
-fomc-corpus,1980,You mentioned that some people thought the new money supply figures would look higher. Why should they have that idea?,22
-fomc-corpus,1980,"I suppose just fear of the unknown, really. We're coming out with something new, and it's partly that. It's partly perhaps a misconception that since these new series are likely to include some elements that have been growing rapidly the aggregates will tend to show more rapid growth. That's the feeling. If there is some account taken of the checkable deposits and money market funds--",73
-fomc-corpus,1980,The reason I asked is that they don't have any sense of this revised seasonal.,16
-fomc-corpus,1980,"No, but they have expressed skepticism about the recent seasonal. Certainly I have heard the comment that the slow growth in the past few months may have partly reflected an inadequate seasonal adjustment for that period.",39
-fomc-corpus,1980,"Peter along those same lines, all the new definitions in January would show greater growth rates than we had for those same measures in September to December whereas all the old ones show less in January. What is the market going to say to that? This is very closely related to what you were saying.",59
-fomc-corpus,1980,"Well, I think they might feel that some of their skepticism was well placed.",16
-fomc-corpus,1980,"That's what I am afraid of, really.",9
-fomc-corpus,1980,"We have a press conference scheduled for Thursday, I think, to attempt to explain these new figures, and that question is sure to arise. I don't look forward with a great sense of anticipation to trying to explain either the substantial actual complications or the fact that the numbers look higher.",56
-fomc-corpus,1980,"We do have the revised seasonal, Paul. That's an annual event to revise the seasonal.",18
-fomc-corpus,1980,But it doesn't have to go higher.,8
-fomc-corpus,1980,"Well, it happens to have done what the market expected it to do. That is, it raised the seasonal factors for the winter quarters and dropped them for the summer.",34
-fomc-corpus,1980,"We have lots of problems. This M2 number is more like the old M3 number, but since it's called M2 and is higher than the [old] M2, we've got a problem. Any other questions or comments?",47
-fomc-corpus,1980,Stress the long run. Go back to the [previous] six months and it will look a little better as you explain it.,26
-fomc-corpus,1980,We will adjourn until tomorrow at 9 a.m.,12
-fomc-corpus,1980,"We got through our agenda down to item 4 anyway, yesterday. I suggest that we begin with the staff report on the economic situation and then perhaps take a little more time, if we want to, on the discussion of the economic situation and implications for the longer-term ranges in the light of the fact that this is the meeting at which we have to set them for a year ahead. Mr. Altmann tells me he would appreciate, for purposes of writing the minutes anyway, a fuller discussion of your views than we have had at some recent meetings. But more important substantively is the fact that this is the annual meeting where we have to consider and rationalize what we do in terms of the longer-range outlook. In that connection, I don't know whether all of you noticed that the President exercised his prerogative to relocate, I guess is the right word, the Humphrey-Hawkins objectives. In the original Act they were 4 percent unemployment and a 3 percent rate of price increase in 1983, and he moved back the unemployment objective 2 or 3 years and the price objective--what, 5 years?",230
-fomc-corpus,1980,I think it's 1986 [for the unemployment objective] and 1988 [for the price objective].,22
-fomc-corpus,1980,"Yes, it was 3 years and 5 years. It is the first time that particular prerogative has been exercised, and maybe it will make everyone feel more relaxed regarding how one reconciles what we do with the dictates of that Act. I mentioned last time that it might be useful--I will not insist upon this--to quantify your feelings about the outlook. I'd say the best way to do it in terms of the real GNP would be on a fourth quarter-to-fourth quarter basis. In terms of prices, the consumer price index is the easiest one to think about. And I suppose the unemployment rate would be the traditional one. If you want to give some sense of your figures, you can do it with any appropriate qualification that you think is desirable: That you feel reasonably confident about it or immensely uncertain about it or anything in between, because I think that is part of the flavor within which we must operate. [We need] to take account of the uncertainties in setting our own policy. Given where we're starting, I hope to have a great revolution and perhaps have the coffee break a little earlier, more toward the breakfast hour than toward lunch, after we finish the discussion of the economic outlook. With that, you may begin, Mr. Kichline. MESSRS. KICHLINE, ZEISEL, and TRUMAN. [Statements--see Appendix.]",281
-fomc-corpus,1980,"I'm a little confused by this last chart. This shows a rising rate of inflation through most of the first half of 1981, or the first quarter anyway. I thought your projection earlier showed a declining rate of price increase over that period.",49
-fomc-corpus,1980,"Well, this is the GNP implicit deflator; on a fixed weight basis it goes down. As you know, the GNP implicit deflator subtracts out the energy prices coming from abroad and, in fact, gives us a lower number than is being experienced domestically. So the implicit deflator at this time would be an understatement of the impact of inflation in this early 1980 period. The fixed weight deflator is around 10 percent.",92
-fomc-corpus,1980,How do you reach those confidence ratios? I don't really understand the process by which you get a 70 percent confidence interval.,25
-fomc-corpus,1980,"We use the errors from the quarterly model in the equations, which are determined from past history. We run a large number of simulations; in fact this is based upon 400 experiments with the model. And when looking at that, we determine it with a 70 percent confidence interval.",57
-fomc-corpus,1980,How many were above?,5
-fomc-corpus,1980,"How many of those were above and how many below? In effect, using this very large number of simulations, the model would say that 70 percent from the past fall within that bound.",38
-fomc-corpus,1980,I'd like to comment--I'm probably the only simple-minded person on the Committee--that I found your presentation to be the best I've seen. It was presented in a form that I found very easy to understand and I liked it.,46
-fomc-corpus,1980,Thank you.,3
-fomc-corpus,1980,"Could I ask a question, Mr. Chairman? The Chairman [of the Congressional Committee] has asked us to talk about possibilities regarding real GNP, the CPI, and unemployment. As I understand your presentation, your real GNP forecast for 1980 would be down 2.2 percent.",60
-fomc-corpus,1980,"Now, wait a minute. That's for the year as a whole, isn't it?",17
-fomc-corpus,1980,That's fourth quarter-to-fourth quarter.,8
-fomc-corpus,1980,Isn't that what you're asking?,7
-fomc-corpus,1980,Yes it is.,4
-fomc-corpus,1980,And you have the unemployment rate at 7-3/4 percent at the end of the year.,21
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,What's your CPI? That is what he asked.,10
-fomc-corpus,1980,"Well, you'd want to add a line on that table for the staff forecast for 1980, QIV to QIV. The staff has a forecast of 11.4 percent for the increase in the CPI. And for 1981 the staff forecast for the CPI is 8.6 percent. Just for comparison--",66
-fomc-corpus,1980,For the fourth quarter of 1980 you have what?,12
-fomc-corpus,1980,"No, for the percentage change from the fourth quarter of 1979 to the fourth quarter of 1980 we have 11.4 percent.",30
-fomc-corpus,1980,What is the rate of consumer price increase in the fourth quarter of 1980?,17
-fomc-corpus,1980,9.2 percent.,5
-fomc-corpus,1980,But the change over the year is 11.4 percent?,13
-fomc-corpus,1980,"Well, we have a forecast of around 15-1/2 percent in the first quarter of this year with a combination of energy [prices] and high mortgage rates driving it up. It drops to 11-3/4 percent [in the second quarter] and then to 9-1/4 percent in the second half of this year, which measured fourth quarter-to-fourth quarter gives you around 11-1/2 percent.",91
-fomc-corpus,1980,I don't understand. What was it in the fourth quarter of last year?,15
-fomc-corpus,1980,13.0 percent.,5
-fomc-corpus,1980,"And it's going to be 9.2 percent in the fourth quarter of 1980, according to this projection?",24
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,Give or take a percentage point.,7
-fomc-corpus,1980,What is this change of 11 percent that you're talking about?,13
-fomc-corpus,1980,Fourth quarter-to-fourth quarter.,7
-fomc-corpus,1980,You take the level of the index in the fourth quarter of 1979 and calculate the percentage change in the level to the fourth quarter 1980. Early in 1980 we have very rapid increases in the CPI and they slow later on.,50
-fomc-corpus,1980,Why don't you give us the quarterly figures. It may help us.,14
-fomc-corpus,1980,And year-over-year is different from fourth quarter-to-fourth quarter.,14
-fomc-corpus,1980,"Well, if you want to look at some of these numbers: The fourth quarter of 1979 is 13.0 percent; the first quarter of 1980 is 15.6; the second quarter is 11.7; the third quarter is 9.2; and the fourth quarter is 9.2. Measured fourth quarter-to-fourth quarter, that is an increase of 11.4 percent.",88
-fomc-corpus,1980,"What do you have year-over-year, for 1980 over 1979?",17
-fomc-corpus,1980,"I think we have that on a different table. If not, someone may have a calculator and we can--. It's 12.8 percent.",30
-fomc-corpus,1980,"I just have to decide what figure I want here. I think I want the fourth quarter rate of change, your 9.2 percent figure.",30
-fomc-corpus,1980,"Yes, I think that's right. The rate of inflation as measured by the CPI is reduced by the end of the year to 9-1/4 percent. The Administration has more than that, doesn't it?",43
-fomc-corpus,1980,"I have a December-to-December calculation for the Administration. They didn't calculate it quarterly; I have the details, [so I can] calculate it. It's roughly comparable. For fourth quarter-to-fourth quarter it's 10.4 percent in 1980, which compares to our 11.4 percent. And for 1981 we're both at the same level, 8.6 percent from the fourth quarter to the fourth quarter.",89
-fomc-corpus,1980,"The figures we are looking for, then, are the [counterparts] of your minus 2.2 percent--that's the fourth quarter-to-fourth quarter change in real GNP--the level of unemployment in the fourth quarter, and the rate of change in the consumer price index during the fourth quarter.",62
-fomc-corpus,1980,You want the CPI in our [forecasts] rather than the implicit deflator?,17
-fomc-corpus,1980,"It happens to be the same; it's 9.2 percent for the fixed weight price index, too.",22
-fomc-corpus,1980,It does happen to be the same.,8
-fomc-corpus,1980,Can you tell me what the consensus is of private forecasts at this point?,15
-fomc-corpus,1980,The consensus of price forecasts or what?,8
-fomc-corpus,1980,For everything.,3
-fomc-corpus,1980,"Well, for these three items or some approximations thereof.",12
-fomc-corpus,1980,"Well, I don't have a consensus. I can give you some numbers based on a couple of the econometric model forecasts. I might just say that a great deal of difficulty is associated with this sort of exercise in that both the monetary and fiscal assumptions differ. And in many cases one doesn't know what the energy price assumptions are. Most outside forecasters that I am aware of now include in their control projections some sort of tax cut as well as a considerably more expansive monetary policy if specified, or if not specified, implicitly so. Most of them have a recession, I would say, that is two or three quarters in length beginning now. They have maintenance of very high prices and a much sharper recovery in activity late this year or in 1981. The Wharton model is something like that, for example, and they do have a tax cut. And they assume M1 growth of 6-1/2 percent compared to our 5 percent. In comparison, the bill rates in that sort of forecast by the fourth quarter of this year are below 10 percent, compared to 11 percent in the Board staff's forecast. So, a good deal of the difference probably relates to alternative policy assumptions. DRI is the most confusing of all. It has an increase in nominal GNP from the fourth quarter of 1979 to mid-1981 that averages 10 percent at an annual rate and has the bill rate going down 3-1/2 percentage points. All of that is achieved with a 4-1/2 percent M1 growth, which is magic compared to anything in the postwar period.",328
-fomc-corpus,1980,Do you have the interest rate assumptions in the Administration's forecast?,13
-fomc-corpus,1980,"Yes, I do. Do you want a fourth-quarter level or--?",15
-fomc-corpus,1980,Fourth-quarter level.,4
-fomc-corpus,1980,"The level in the fourth quarter of 1980 is 9.6 percent on the 3-month bill rate; in the fourth quarter of 1981, it's 8.8 percent. The staff forecast has a bill rate of 11 percent in Q4 1980 and 11-1/2 percent in Q4 1981. There is no explicit money assumption that goes with the Administration's forecast.",86
-fomc-corpus,1980,"But if you calculated it, what would it be? They must have some [implicit assumption]. Is it higher than yours?",25
-fomc-corpus,1980,It would have to be higher.,7
-fomc-corpus,1980,It has to be higher than yours.,8
-fomc-corpus,1980,We are very pleased that they have not put that in.,12
-fomc-corpus,1980,"Me, too, Steve.",6
-fomc-corpus,1980,They may be using a different equation.,8
-fomc-corpus,1980,"Let sleeping dogs lie, I guess.",8
-fomc-corpus,1980,Eggert is very cheap. Why don't you go ahead and buy it so you can have it?,20
-fomc-corpus,1980,"We do buy it; I don't look at it. Well, I can't say I don't look at it. It's a rundown of 30 or 35 forecasts. Unfortunately, they come out with different time periods and no listing of the policy assumptions, so it's very difficult to compare one to another. It's helpful if one just wants to scan what private forecasters are thinking, but we've had difficulty trying to relate our forecast to others unless we have the detail of the monetary policy [assumptions], for example. But we do receive that and do look at it.",114
-fomc-corpus,1980,Let me add one more item on the list that I asked you to comment on and that is the fiscal policy [unintelligible]. Mr. Roos.,33
-fomc-corpus,1980,"Jim, maybe you've answered this. I am a little lost. On the GNP implicit price deflator, where your projections show an increase into 1981, did you put any weight on monetary policy? In order words if, as we have announced, we are going to reduce gradually the rate of money growth, do you still anticipate this upward movement in the deflator, or was that not put in your--?",85
-fomc-corpus,1980,"No, that plays a very important role. But we have inflation coming down in 1981; it's not going up.",25
-fomc-corpus,1980,But you show it going up [initially]; it's sort of a roller coaster.,17
-fomc-corpus,1980,"Well, as I say, in part the deflator is a statistical artifact when import prices are rising very rapidly. I do believe that there's little that can be done to change the course of price developments within the next three or four months. In fact, already just about half of the first quarter is over, so in our view we're locked into a very adverse price performance in the first half of this year.",82
-fomc-corpus,1980,"Do you see that prevailing through the second quarter of 1981? In other words, you don't see any relief even though we're doing what we are doing here in gradually reducing the rate of [monetary growth]?",44
-fomc-corpus,1980,"As I say, part of that is attributable to the performance of import prices in influencing this calculation. It is our view that prices do improve. If you take a look at an alternative measure of prices, in the section that Jerry Zeisel was referring to--go back one section [in the handout] right before the yellow sheet--there is a chart that plots the gross domestic business product, which is a fixed weight price index. There some of the problems from shifting weights are at least taken out, and you can see that we do have a decline beginning in the second half of this year, stretching into and throughout 1981.",129
-fomc-corpus,1980,"But if we hang in there, which we are determined to do, and keep firm control over and gradually reduce the growth rate of whatever Ms we are controlling, don't all these other things fall into line? Or do you still have to run 400 equations to see what--?",56
-fomc-corpus,1980,"What falls into line? I only wanted to tell you that while we give you point forecasts, we're quite aware that there's a wide range of error associated with any forecast. We tried to look at past history to suggest how big that range is, and it's sizable. We have no difficulty with your point that monetary policy over time does have an influence on the economy and on prices. In fact, the answer is: Yes, we agree.",88
-fomc-corpus,1980,Mr. Willes.,5
-fomc-corpus,1980,"Thank you, Mr. Chairman. Like Governor Schultz, I found this a particularly interesting presentation, but I think for a slightly different reason.",28
-fomc-corpus,1980,You mean you're not simple-minded?,7
-fomc-corpus,1980,"Without touching that line with a 10-foot pole, I want simply to refer to the very last chart! I think the staff has done us a great service in presenting that because with all the conversation about whether the increase in the CPI is going to be 9.2 percent or whatever, if you look at that band [depicting the range of error], that's an incredibly large band. We talk about the CPI in the fourth quarter and it could be plus or minus some very large numbers. While it's useful to go through these exercises to see where we come out, I think we really don't pay as much attention as we should to the enormous uncertainty that attaches to these forecasts. We've had some people doing some work at our place--and I don't understand the technical details so I won't take you through it--but let me just give you an example of the kinds of problems one runs into in making quantitative forecasts. If you think of watching a wagon on a TV screen or a movie screen, you'll notice that the wagon is going forward and it looks like the wheels are going backwards. The reason for that, of course, is that as the wheel goes forward in the first frame the spoke is up in the center and then it goes forward and it's the second frame before it gets all the way back up to the top again and so on around. So, even though the wheel is moving forward, when you take pictures, it looks as if it's moving backwards.",295
-fomc-corpus,1980,It depends on the speed of the projector.,9
-fomc-corpus,1980,"You're exactly right. It depends on the speed of the projector and the speed with which the wheel is moving. Now, let's suppose that decisions are made in continuous time and you take econometric snapshots on a monthly or quarterly basis. It could be a matter of pot luck that the speed of the decisionmaking framework and the speed of the projector are the same. If they're not, you can actually take a picture that gives you just the opposite view of what's going on. We happen to think that in many cases that's exactly what happens. We have all these nice pictures that are actually giving us pictures exactly the opposite, in terms of policy implications, of what is going on in the ""real world"" and how it's functioning. I simply say that to indicate that I think we need to be particularly [cautious] at this time, given not only the uncertainties in the world but the uncertainties about the tools that we're working with, about what we think we can even say in terms of the time path for the economy over the next eight quarters.",210
-fomc-corpus,1980,You have expressed yourself eloquently on the wide band of uncertainty. Would you care to express a view on the central tendency as you see it? Or are you so uncertain that you have no view on this policy?,43
-fomc-corpus,1980,"If you press me to the wall, I will. I don't think I can say anything with any credibility, but I'll give you numbers anyway. And if the numbers turn out to be--",38
-fomc-corpus,1980,"Well, I think it is not unimportant that you say there's a great degree of uncertainty and I would like to get that--",26
-fomc-corpus,1980,"With that great big long caveat that I just gave you, the numbers that we have in terms of real GNP for 1980 are more positive than the staff's. We think on balance that there's going to be some very modest positive real growth during 1980 and we tie that in with what we see happening with fiscal policy and slightly stronger business investment. I don't quarrel at all with the staff's deflator number or their CPI number. If anything, though, given what I just said about defense spending and so on, those numbers might turn out to be low rather than high. I also don't quarrel with their unemployment numbers.",131
-fomc-corpus,1980,"Even though you have positive output growth, you would agree with that unemployment number?",16
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Do you have any particular feeling about fiscal policy?,10
-fomc-corpus,1980,"Yes, the deficit is understated.",7
-fomc-corpus,1980,By the staff or--?,6
-fomc-corpus,1980,"That is, without a discretionary tax decrease it is understated.",12
-fomc-corpus,1980,"But by how much, I--",7
-fomc-corpus,1980,Do you wish to say whether you think a tax cut is a good idea or not?,18
-fomc-corpus,1980,I think a tax cut would be a disaster.,10
-fomc-corpus,1980,"Okay, that's a clear view! Mr. Timlen.",12
-fomc-corpus,1980,"The one number I can read accurately from this whole list of numbers is our projection of unemployment in the fourth quarter of 1980, which is 7.3 percent. In New York we're probably giving more weight to defense spending than the Board staff is giving, not only in terms of defense spending by the Federal government but capital expenditures by the private sector in anticipation of government orders. In terms of real GNP, then, our picture for the year, quarter by quarter, differs slightly in the timing and the depth of the possible recession. Our four quarters run a positive 1 percent for the first quarter, a positive 0.5 percent in the second quarter, then two negative numbers in the third and fourth quarters of minus 1 and minus 2 percent. On a full year average basis that comes out to [minus] 0.6 percent. Our deflator quarter by quarter ranges between 8.5 and 8.9 percent, so for the year we have 8.5 to 9 percent inflation [as measured] by the deflator. Our CPI is somewhere around 10-1/2 to 11 percent. One thing that I would throw out that you have not asked for is that our people in New York think the saving rate will continue to be quite low for the entire year of 1980; to wit, they have it averaging out at 2.9 percent.",287
-fomc-corpus,1980,What are you assuming on the saving rate?,9
-fomc-corpus,1980,It drifts up and for the year 1980 averages 4-1/2 percent.,20
-fomc-corpus,1980,"Yes, there's a big difference between the Board staff forecast and ours on the saving rate. On the federal fiscal situation, for fiscal 1980 we are looking at a deficit close to $45 billion; I'd say $40 to $45 billion. And for fiscal 1981, depending upon a tax cut, we have $40 billion on the low side without a tax cut and $60 billion on the high side with a tax cut. I don't really have a good judgment on whether there will be a tax cut on not.",107
-fomc-corpus,1980,Do you think there should be one?,8
-fomc-corpus,1980,"Do I think there should be one? For a change, I would agree with Mark Willes. But some of the numbers are hard for me to estimate in terms of the full impact of defense spending, whether out of the government or the private sector. In terms of the consumer, I just don't know how to read currently the effect of the mild winter. I would have been rather concerned about the cost of heating but I know our Buffalo branch is running considerably below budget in terms of heating that building. What the experience is in private homes, I just don't know. So the consumer may have a little uptick there.",125
-fomc-corpus,1980,I take it that you think there's a fair amount of uncertainty.,13
-fomc-corpus,1980,"I wouldn't put it in quite the same language as Mark, but I am uncertain.",17
-fomc-corpus,1980,Governor Coldwell.,4
-fomc-corpus,1980,"Well, Mr. Chairman, this is the last chance I get to say this so I am going to say it. In fact this is my last FOMC meeting.",35
-fomc-corpus,1980,"Why don't you stand up, Phil?",8
-fomc-corpus,1980,"No, I am not going to chance that! I agree that there's a high degree of uncertainty, but our track record and our past performance clearly indicate that we've underestimated the rate of inflation and I expect we will continue to do so. I think there's going to be a rapid defense build-up, but impacting largely upon expectations in the first part of this year. If that is the case, we may see a moderation from what the staff was [projecting] in the rate of decline in the first half. I think fiscal policy is going to be easier than portrayed by the Administration's budget. Fiscal policy is likely to be stimulative instead of restraining and I suspect we will probably underestimate the aggregate data that we are using. As for the data you've requested we comment on, Mr. Chairman, I would put real GNP in a zero to plus 1/2 percent mode, the CPI at the end of the year in the neighborhood of 14 percent, and the unemployment rate at about 7 percent. And I have already indicated that I think fiscal policy is going to be easier.",220
-fomc-corpus,1980,"So you're not in favor of a tax cut, I take it.",14
-fomc-corpus,1980,"I am certainly not in favor of a personal income tax cut. I think there is a case to be made to improve the rate of business capital stimulation in the area of improving job expectations, but I would question whether this is the right time to do that. There's a fundamental fact of high inflation, which we need to continue to keep our eye on; unless that is damped, the possibilities of a rising rate of inflation are very good. I just don't find myself in agreement with the idea of gradualism in economic policy. It's a lovely theory but a practical monstrosity. Credit availability in the economy is high in my view right now. And with expectations of high inflation, the interest rate restraint is minimal. Banker attitudes reflect no feeling of quantitative restraint; to the contrary, they are seeing business as usual. I admit the majority of the bannking profession seems to say that the only thing that would satisfy them would be a major depression. But I still think we have not obtained control over this and I suspect that the recent trends in the international financial side are going to create some dollar problems for us for the coming year. As you struggle through these, I wish you well.",238
-fomc-corpus,1980,Thank you. We're going to be left with your decision for the rest of the year! Mr. Smoot.,23
-fomc-corpus,1980,"Thank you, Mr. Chairman. I had very little time to prepare for this. Dave is not well and sends his best, however, to all of you. The last time I was down here I did have time to prepare a great deal and I was very confused. Now I haven't had much time to prepare very well and I am still very confused! Nevertheless, we would be somewhat less pessimistic than the Board staff's projections. To address your questions: On the real GNP, we see it negative for the year, but maybe in the range of 1 to 1-1/2 percent negative. On the CPI, we'd say up 10 to 11 percent for the year, but if I read my own charts correctly we'd be closer to 10 percent in the fourth quarter. And on unemployment, consistent with our somewhat more optimistic view on the economy, we would be in the range of 7 to 7-1/2 percent. On the tax cut, we have considered a tax cut in the second half of the year in the range of $25 to $30 billion. I would agree with Governor Coldwell that it ought to be carefully constructed to stimulate capital formation and to look at the social security tax. Other than that, I don't find our differences with the Board staff to be that great. There are a lot of marginal things that just add up to a somewhat more--",285
-fomc-corpus,1980,"If I understand you, your forecast has a tax cut in it?",14
-fomc-corpus,1980,"Yes, we would anticipate one. I would also subscribe to Mark's comments that differences of 1/2 or 1 percentage point at this time really appear to be somewhat meaningless.",37
-fomc-corpus,1980,Mr. Guffey.,6
-fomc-corpus,1980,"Thank you, Mr. Chairman. The staff's forecast is a bit more pessimistic than our forecast, and that largely centers on two differences. One is the saving rate, which the Board staff's forecast suggests will increase over the coming year while we believe it will be either flat or at least at a low level, thus giving consumers the ability to maintain in part their standard of living even in view of heavy inflation. Secondly, we believe defense spending will be somewhat greater than the staff is forecasting for the year 1980 coming into the third and fourth quarters; it may be $2 to $3 billion larger in each of those quarters than the staff has projected, thus giving stimulus to the economy. As a result, we would see the real GNP at about flat, zero to maybe one percent on the positive side, with unemployment someplace between 7 and 7-1/2 percent. The CPI in our judgment, however, is going to continue at a fairly rapid rate. Our judgment is that it will still be in the 11 to 12 percent range in the fourth quarter. As to the fiscal side, obviously there will be much more expansion than the staff or the Administration are forecasting. And as to a tax cut, I would agree with whoever said it would be a tragedy.",262
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"Well, I have been concerned about defense spending as a question mark in the outlook. I must say that the chart the staff has provided us, showing an alternative with $10 billion more defense spending this year and $20 billion more in 1981 and in 1982 on top of the 6 percent real growth that's already in there for nonpersonnel costs, strikes me as a good liberal estimate of the extra defense spending that might occur or that is possible in the short run. And I would point out to you that it doesn't change the numbers all that much. I believe they did this with the model, so it includes orders effects and that kind of thing--that is, effects that occur before the actual defense spending. So, both that and the fact that it seems to me to look a little less [tenuous] than it was a month ago make me feel that it isn't such a big possible plus in the economy in the immediate future as it might have been. Also, the saving rate is just very difficult [to forecast]. New York has a continuation of a very low saving rate throughout 1980 and one could argue that there has been a permanent shift in the saving rate. I don't think so. I think it's going to come back up. I agree with the staff on that. There is no evidence of a permanent move from money to goods of the kind that would be indicated by that. So, I come down to an expectation that real GNP will fall some this year, though probably less than the staff has [in its forecast]--maybe 1 to 2 percent. The employment rate I am quite sure will rise significantly because I just don't think it is possible that services and trade will continue to add to the employment rolls without output, without a commensurate value added, much longer. So a 7-1/2 percent fourth-quarter unemployment rate is probably a reasonable forecast. I'd have inflation a little higher than the staff has--at 9 to 10 percent, say, for the deflator and 10 to 12 percent for the CPI in the year ahead. As for fiscal policy, I think there will be a tax cut but probably not until next year. That's not as early as the alternative staff projection has it, which is the middle of this year. It probably will occur in early 1981, sometime in the spring, and it will improve 1981 results a little from what the staff has projected. But I would point out to you that I think an absolutely binding assumption on the recovery of the economy is the monetary assumption which, of course, we have the ability to control. Did I get everything on this [list]?",545
-fomc-corpus,1980,Yes. You wouldn't particularly push for a tax cut earlier.,12
-fomc-corpus,1980,"No, I think we ought to wait. I think it will be necessitated by a high and rising unemployment rate, and I figure that will be obvious to everybody by early next year. So it's a next year venture rather than this year. When it occurs I agree with the comments that have been made that we ought to do what we can to make it stimulative for business investment if we have any effect. But I do have to tell you that I think the full push will be to make it a consumer tax cut when it occurs.",109
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"Well, I would like to go back to the last chart again, as Mark did. You notice those tolerance lines, the top and the bottom, are fairly narrow over the next three quarters. So it seems to me that we're looking basically at a fairly set outlook for the next three quarters and possibly into the fourth quarter, and I don't want to throw away what is one of our major advantages. The Humphrey-Hawkins Act requires us to give our outlook for this year. We have a fairly good idea where we're going this year and where we're going to end up, and our views do not differ a great deal as I hear what has been said around the [table]. It's plus or minus a little here or there, and that certainly falls within the tolerance limits of what the staff has projected. Secondly, the Humphrey-Hawkins Act says that in the middle of the year we are to reassess what we are doing. To lock ourselves into a policy at this point from now until 1981 is the biggest mistake we could ever make. We have some idea where we are going for the next two quarters or we can come pretty close to it. We have a chance to reassess it in the middle of the year. And I certainly don't want to vote for a policy at this time that is going to result in T-bill rates of 11.7 or 12.2 percent in 1981. I wouldn't quarrel a great deal with what the staff has projected. I would agree within one percentage point on almost any figure they gave us, though I'd probably expect a little higher unemployment rate than they're projecting and a little higher inflation rate, again depending on what happens primarily in defense. But if you look at the full employment surplus in the fourth quarter and the first quarter of 1981, it jumps $30 billion. And it jumps another $20 billion between the first and fourth quarters of next year. We don't have to make a decision on [1981] at this point. We have two more major decision points between now and the beginning of next year, and I think we should utilize them to the fullest. [We need to] consider the fact that we may settle on a 4-1/2, 5, or 5-1/2 percent rate of money growth and it's not going to have a great deal of influence over the next nine months. However, at midyear if we have unemployment rates of 7-1/2 or 8-1/2 percent, we must be prepared to change our policy at that point. I don't want to go down the line item by item because I don't have a great quarrel with [the forecast], but I do urge that we not give up the flexibility.",561
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"Mr. Chairman, I would like first to turn to page 3 of this package of charts and ask a question to the staff and then make a comment. On the calculation of the high employment budget you show for 1980 and 1981, Jim: These are your calculations, I assume, rather than the official figures set forth by the Administration?",72
-fomc-corpus,1980,"They're our calculations but we use the same procedure, which has been revised.",15
-fomc-corpus,1980,"In other words, it's benchmarked at a 5.1 percent unemployment rate?",17
-fomc-corpus,1980,Correct.,2
-fomc-corpus,1980,"All right, thank you. My comment is this: Within the last couple of years our Research Department has done quite a bit of work [on this subject]. In fact, we circulated a paper to the rest of you, just to share this view, giving an alternative noninflationary full employment rate, which we estimate to be somewhere between the high 5 percent [to] low 6 percent area, maybe centered on 6 percent. That's based on a lot of detail I won't go into, but it [involves] all the factors going into the changes in the composition and behavior of the labor force. I asked our staff to make a computation of what the high employment surplus would be if one assumed a 6 percent unemployment rate, and it produces some radically different figures. For 1980 the high employment budget surplus, [as calculated] officially by the Administration, is said to be $4 billion. But using the 6 percent unemployment rate figure, we come up with a deficit of $20 billion. Furthermore, off-budget financing, which as I understand it is not included in this high employment budget surplus calculation, would add another $17 billion. So looking at it in this alternative way, I can see the possibility of fiscal stimulus to the tune of $37 billion even on a so-called high employment basis, defined as 6 percent in this calendar year. And that, by the same reasoning, translates into a surplus of $12 billion in 1981. The reason I went through this exercise was to get a different view, depending on one's assumptions, of whether we have real fiscal stimulus or fiscal restraint or how fast we are moving from one to the other. It nets out for this year, certainly in my view, to a pretty sizable fiscal stimulus rather than the restraint officially forecast. And I think that has a pretty broad bearing on appropriate monetary policy.",381
-fomc-corpus,1980,"A part of the question, if I may just interrupt, is whatever the level, how much does it change?",23
-fomc-corpus,1980,"You have an improvement, John?",7
-fomc-corpus,1980,"Yes. In my calculation, it changes from a $37 billion stimulus on the high employment basis, which adds in off-budget financing of $17 billion and assumes a 6 percent noninflationary full employment rate in fiscal 1980, to a $12 billion surplus in fiscal 1981. Now that is quite a movement. But it starts late this calendar year and [continues] into 1981.",85
-fomc-corpus,1980,"What kind of assumption do you have on normal GNP growth? To put those figures together, you need some assumption on normal growth too. Is 2-1/2 percent what you used? That's what I think the staff here is using as their assumption.",53
-fomc-corpus,1980,I'd have to turn to Mike [Keran]. Do you have a figure readily at hand on what we assumed for normal growth of GNP? I am not sure we assumed [something on] that.,41
-fomc-corpus,1980,"Well, you have to make some assumption to come up with the calculations.",15
-fomc-corpus,1980,"Well, it falls out of the 6 percent unemployment assumption--a certain growth in the labor force, a certain growth in productivity, and that kind of thing.",33
-fomc-corpus,1980,"But you have to have a normal growth that will keep the unemployment rate at 6 percent. I don't know what Mike used, but I am sure he has a figure.",35
-fomc-corpus,1980,He may have a figure; I don't have it readily at hand. We'll get it for you later.,21
-fomc-corpus,1980,"It would be the same, [2-1/2] percent.",15
-fomc-corpus,1980,2-1/2.,6
-fomc-corpus,1980,"Turning to the other questions you raised, Mr. Chairman: Our staff forecast for the economy for this year is quite similar to the forecast of the Board's staff, showing a decline in real GNP from the fourth quarter 1979 to the fourth quarter 1980 of exactly the same amount, 2.1 percent. We have the CPI going up by 11.1 percent from the fourth quarter to the fourth quarter. Sir?",89
-fomc-corpus,1980,"That's fourth quarter-to-fourth quarter, though; that's not [the rate] in the fourth quarter.",21
-fomc-corpus,1980,"No, that's from fourth quarter-to-fourth quarter. Our figures show in the fourth quarter of this year a rate of 9.7 percent. That is our staff view; I am not that optimistic. That is where our two staffs differ: The Board's staff sees a continued rise in the inflation rate through part of this year; our staff has a more optimistic assumption that we're at or near the peak right now.",85
-fomc-corpus,1980,The [Board's] staff shows a decline in the consumer price index for this year.,18
-fomc-corpus,1980,"Yes, down to 9.2 percent [in the fourth quarter].",15
-fomc-corpus,1980,"Right, but I was thinking of their trend line on the GNP deflator, which is going up for a while. Our unemployment rate by the fourth quarter of this year is almost the same as theirs; ours is 7.6 and they're showing 7.7 percent. The difference in our views is that our staff is more optimistic with respect to a fairly strong bounceback in calendar year 1981, which I hope is right, up to growth of 4 percent plus, whereas the Board's staff is looking for 1981 real growth of only 2.6 percent. I am giving the staff views of our Bank. My own personal instincts are that we're probably going to have more inflation and less decline in real output than the research staff at our Bank expects. That's based on pure hunch or instincts as to what is going on in the way of a semi-wartime economy here. And my pessimism on the inflation rate--my view being worse than either staff is forecasting--comes among other things from what has been going on in long-term bond markets in this past month, which I find extremely discouraging. People are putting their money where their mouth is really in anticipation. To me that is a very dangerous signal of a rejuvenation of inflationary expectations. And it is discouraging especially in view of our demonstrated good track record since October 6th in getting a genuine, observable, real deceleration in the money supply, which I had assumed would impact favorably on inflation expectations and hence on long-term bond rates. Yet despite what we have done, we have seen a move in the long-term bond yield, which I view as a good index of inflation expectations, back up to a new high. So I'm very concerned that we adopt a posture that is a strong signal of continued deceleration of monetary growth because that is the only tool we have to combat these recently renewed rising inflation expectations.",388
-fomc-corpus,1980,You're not advocating a tax cut?,7
-fomc-corpus,1980,"No, sir. I support your view 100 percent.",12
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, the Greenbook revision resulted in a move from a V-shaped decline to a sort of saucer-shaped recession, which is probably in the right direction. Despite this, I think the underlying foundations of the economy are quite weak. What strength we have had recently has come mainly from efforts on the part of households and some others to beat inflation. Now, I am aware of the argument that the rising wealth of households stemming from such things as appreciation of the value of housing may produce a wealth effect that will cause them to hold their expenditures at higher levels. But I think that is really a pretty weak reed on which to hang the forecast. Sooner or later, this artificial prop to spending that stems from inflation is going to fall apart, and an inflationary economy is not a healthy one. And if it does fall apart, then at that time I would expect, if inflation is worse, that we would have a greater decline because of the attrition of real income and the high interest rates that would discourage business investment. Also, I think we would have a clamor for wage and price controls. If, on the other hand, inflation is showing signs of abatement, then the effects of this decline are going to be diminished. So I think Chuck's observation a while ago that a lot depends on what we do is a very significant point. That will affect the outcome to a great degree. And I think we're going to have a very difficult job in the months ahead because, like John Balles, I feel we're going to have more stimulus from the fiscal side than most people seem to be assuming. But I do think we are dead serious about our stated intention to bring down the rate of growth in the aggregates, and I think we'll stand firm. But since I won't be voting next year, I have a little less confidence in that than I otherwise would have.",379
-fomc-corpus,1980,You want to say that again?,7
-fomc-corpus,1980,"To get down to the figures, I think the drop in GNP might be nearer 3 percent than the 2 percent the staff has projected. Since I expect us to do well in the policy area, I would put the fourth-quarter rate in the consumer price index a bit lower, at 9 percent. I would guess their unemployment rate is not very far off; my guess would tend toward 8 percent. As I indicated, I think the deficit is understated--the stimulative effects are understated--and I certainly would not favor a tax cut at this juncture.",116
-fomc-corpus,1980,Mr. Kimbrel.,6
-fomc-corpus,1980,"Mr. Chairman, our views are not significantly different from those enunciated by the staff. To put numbers to them: For real GNP, we're looking at a minus 2 percent; for the unemployment rate, we're in the neighborhood of 8 percent; and for the CPI, 11 percent. We do feel, though, that the fiscal [package] may be considerably easier than the staff is now reflecting. We certainly would not support a tax cut unless it were directed toward capital investment. We wonder if defense spending may not be somewhat larger, particularly in the private sector anticipating [orders]. Finally, Mr. Chairman, we are growing somewhat concerned--and our concern was not lessened any by Mr. Sternlight's comments yesterday afternoon--that the market increasingly is believing that we are not slowing money growth to the extent it expected from our October decision. [Given] that and our track record in this upcoming period of the year when with tax refunds we've been somewhat less than successful in anticipating what money growth would be--if indeed we miss that as much this year and we do have excessive money growth--I have to believe that inflationary expectations are going to be escalating again and may contribute more trouble than we need. So, I hope that we will be demonstrating pretty forcefully that we expect to restrain [money] growth.",270
-fomc-corpus,1980,You said 11 percent on consumer prices. Is that year over year or during the fourth quarter?,20
-fomc-corpus,1980,Fourth quarter-to-fourth quarter.,7
-fomc-corpus,1980,"Do you have a fourth-quarter figure itself, just for comparability purposes?",15
-fomc-corpus,1980,I guess 9 or 9-1/2 percent.,13
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Mr. Chairman, a question [to the staff] first. Insofar as there may be a windfall profits tax, are you assuming that the revenues raised thereby will be placed back into the economy or is that pretty much outside the projections here?",51
-fomc-corpus,1980,"No, it's included in the projections. The windfall profits tax--technically I think the words associated with it are ""energy trust fund,"" but that's a misnomer if one believes that the revenues are segregated--is included in the budget figures. For 1980 we have something like a net addition of nearly $5 billion to revenues. It's something like $7-1/4 to $7-1/2 billion in revenues and $2-1/2 billion in expenditures, so it's around $5 billion net receipts. And for 1981 it's around $10 billion net receipts. So, that is included in these figures.",132
-fomc-corpus,1980,"Thank you. I don't have a view significantly different from the staff. I think the degree of uncertainty in the outlook is not unusual at this point in time; it's probably less now than it was a couple of months ago. It seems to me that the cork is out of the defense expenditure bottle now and that that will probably go along about as fast as orders can be placed and procurement can be stepped up. That leads me to think that insofar as we may deviate from the staff projection it is likely to be in the direction of a stronger economy, less progress on the inflation front, and probably a little less build-up in unemployment. But for our purposes here, I am perfectly satisfied to accept the staff projections. If I were to shade away from them, it would be in the direction I have indicated. In addition to the defense spending, I have a view similar to the New York Bank's view that consumers are still in the process of adjusting to inflation and that the saving rate is likely to stay very low until they do see some improvement on the inflation side.",216
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"I base my projections almost entirely on a rate of basic money growth, and the figures I will suggest are predicated on a rate of growth of M-1A and M-1B of roughly 5 percent. If there is a 5 percent basic money growth rate, I would see real GNP declining by maybe 1 percentage point fourth quarter-to-fourth quarter. I would see the GNP deflator, which is what we look at really, at about a 10 percent rate during the fourth quarter of next year, or maybe 9-1/2 percent--obviously, these percentages can vary by 1/2 point--and I would see an unemployment rate of roughly 7 percent. However, I feel very strongly that what we do will have a very direct bearing on the outcome of these figures, and if we were to set growth ranges for M-1A and M-1B at 3-1/2 to 6-1/2 percent and if growth came in at close to 3-1/2 percent, that would have a significant weakening effect on these three figures that I suggested, as we see it. In other words, GNP would be significantly lower and unemployment significantly higher. And if growth came in close to the top end of that band, at let's say 6-1/2 percent, I think we'd see a much more serious acceleration in the deflator, a significantly stronger GNP result, and a significantly lower unemployment rate. What I am driving at is that I think we have the key to this in our hands and that all three of these factors will depend on what we decide to do and how carefully and with what determination we stick with whatever we decide to do. I would personally be very much opposed to a tax cut. I would perhaps be much more tolerant of a tax cut that was an across-the-board, consumer-directed tax cut if later in the year or next year the government decided to give some tax relief directed to stimulating capital formation. I think that might be desirable but I do not favor a tax cut, not that it makes much difference in that regard what I think. But in what we do, we can make a big difference on the money growth.",455
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"I think it's great that we get these scenarios out on the table. My only concern is that my camera may be in sync but it may be out of focus. So the picture that comes out may be quite distorted. But let's take several of these assumptions that we've passed over. First, the level of interest rates. I must confess that when we talk about double digit interest rates, I get nervous. But I remember that last year I got lectured by any number of people that if we passed the 10 percent rate, that was going to cut things off; and I remember after October 6th how things just dried up completely. But I think we forget that it's real interest rates that people probably take into consideration. And I have been amazed at the amount of money coming out of the woodwork in the last two weeks of January and the number of deals that are being formulated with respect to apartment houses, hotels, commercial buildings, and so forth. The amount of money that is being committed in this area has stepped up tremendously after this hiatus. I think we see it in the bond market, John, in terms of their attitudes. Some of the current financing I think is being done to repay short-term debt. There's an awful lot of talk going on with respect to financing, but that's not going to come into the investment picture until the last half of this year. And that being laced on top of defense expenditures, should they come along, makes a little different scenario for this year's [performance]. One other thing: In terms of your employment figures, have you put anything in there for a possible draft or increased military employment?",330
-fomc-corpus,1980,"No, we have not.",6
-fomc-corpus,1980,"If you do this, you get a different scenario. Again, this doesn't occur over night but it is another factor that seems to me is down the road.",32
-fomc-corpus,1980,"What was ""this""?",5
-fomc-corpus,1980,"If you put a draft in the picture, then it changes these employment figures.",16
-fomc-corpus,1980,Probably in 1981.,6
-fomc-corpus,1980,"It's probably down the road; I don't say it is immediate. But, again, as one [looks at] various scenarios with some different inputs, there are different results, obviously. While housing is down, I too am amazed at the amount of money that is even showing up for housing at the moment. So, as I look at the level of rates, I go back to looking at availability; and I get nervous as to what [level of] interest rates it will take to have a damping effect on some of these [sectors]. In my scenario, I come out with a dip in the first half of this year because I think it's already under way. But I can see some revival in the second half, so that I get a 1 percent decline for the year but it's quite a different shape. The price [situation] really scares me. Go back and look at 1973 and 1974; maybe we're going to multiply that distortion created by prices. And if the world situation changes, some of the pressure for relief could come next year--I think it's already under way for this year--and carry through for a while. But we may be [unintelligible] upswing continuing through part of 1981 and then real price distortion problems hitting us by the end of the year. I see price problems in the 15 percent [CPI] rate; that is going to give rise to increased wage demands and re-opening of contracts and all kinds of pressures and we don't know how that is going to factor through to the balance of the year. And that's not in your scenarios, in terms of the wage assumptions that you put in. One gets different price results with some of these different assumptions. So I am even more concerned about inflation developments and what they mean not only for 1980 but perhaps for 1981 and thereafter. And that has implications for the international side and a whole host of things, which change the [scenario]. I think the pressure for a tax cut is going to come both with the election problem and the first half year results. That will further complicate the problem and I would be opposed to it. This would be in my scenario, Paul.",448
-fomc-corpus,1980,Did you have an unemployment rate or a price [forecast]?,12
-fomc-corpus,1980,"I get an [average] unemployment rate from the fourth quarter to the fourth quarter of maybe 7 percent, but I think it will probably go higher before it comes down unless we get a draft and some other things that would change my numbers. I don't know what is going to happen, but you get a different picture if you change your assumptions.",70
-fomc-corpus,1980,You're in the high uncertainty group?,7
-fomc-corpus,1980,Very much so.,4
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Mr. Chairman, we ought to be recorded as generally supporting the Board staff's projection and its numbers. However, unlike most of the others, if the forecast is in error, I think it will be because the recession could be substantially more severe than they are projecting. We had a miss in our forecast in the last half of 1979 because consumer behavior was much stronger than we were forecasting on the basis of income growth and so on. This has led New York and Kansas City and perhaps some of the rest of you to look upon a 3 percent saving rate as a norm for the future. I think it is also possible that when the unemployment rate starts rising the consumer will turn defensive and we will see the saving rate rise higher than the Board staff has projected and a bigger recession will result. Also, the housing sector could be weaker than the staff has projected. We don't really yet have a good fix on how the current housing rate structure is impacting demand. But the Board staff has the weakest quarter at 1.4 million starts. It seems to me that we could see at least one quarter substantially below that. So, I think we have a risk of a much sharper recession in 1980 than the Board staff is projecting. It's a risk, but I can't attach the probabilities to it. As far as defense spending is concerned, we've talked to the major defense contractors in the Boston area like Raytheon and others, and they say that for the kind of hardware the Defense Department is talking about most of the money will be going into long lead time items. And while we may get a big effect on expectations in 1980, they don't see a big effect on employment until 1981, even if the program were to get geared up fairly soon. So, it seems to me that we could see a different pattern: a very sharp recession followed by a tax cut, an increase in the defense budget, and a big jump in 1981. That's another hypothesis that hasn't been stated around this table.",408
-fomc-corpus,1980,We'll get every hypothesis on the table! Governor Wallich.,12
-fomc-corpus,1980,"It seems to me that the odds have clearly moved in the direction of less recession and more inflation than they were some time ago. I think the degree of uncertainty is very high because the saving rate is abnormal and, therefore, potentially unstable. And if we move to higher rates of inflation, people could react very unpredictably. But the thing that most impresses me about the behavior of people is that in the last surge of inflation, in 1974, the saving rate went up--and it did so not only in this country but all over the world--while this time people have reacted differently. They pulled the saving rate down. That seems to be a message. They seem to be saying: ""We're no longer so scared of losing our job that we're stopping our spending. We're now out to beat the game."" And that suggests to me that we may be in a new ball game unless the move to higher inflation rates throws a new scare into people. Well, I had anticipated a somewhat more severe recession than the staff, but recent events have taken me off that. I could see a small dip in 1980 of maybe 1 percent, but [my forecast has] a very wide variance. I see inflation now at very high rates, with the deflator at 12 percent for the year, that is year-to-year. And the CPI could be close to 15 percent. These [increases mean that] real interest rates are no longer positive. I know that some of us don't believe that real interest rates mean very much. But we're only 19 people and there are 220 million out there who believe differently or at least act as if they believe differently. So I share what Phil Coldwell said on that score. I don't see quantitative monetary restraint being in effect--that is, availability restraint. And I don't think that these interest rates, particularly when one considers them after taxes, really bite. So we have to consider now that we are in a group of high inflation countries with Italy and the United Kingdom. Then comes a tier of moderate inflation countries and then come the low inflation countries. We've moved very far. That is why I don't really expect a tax cut this year. I think these forces will give people pause unless there is a significant deterioration in the climate. Eventually, I think there will be a tax cut simply because we are getting more fiscal drag than we can accommodate over time. I certainly would oppose a tax cut, and I would lean toward firm monetary restraint. I don't know [how] one can have that confidence in the nominal aggregates that M-1A and M-1B convey. All we know is that these [measures] are extremely uncertain. I don't think the new definitions capture all that's going on, especially in the Euromarket. We capture only a small part of that. So I believe money is really expanding faster than we think, and I would want to take that into account in thinking that we can have 15 percent inflation. On unemployment, I have no difference with the staff; 7-1/2 percent by the end of 1980 seems a possibility.",634
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"First, to go back to the charts for just a minute: I greeted with some astonishment the chart on unit [labor] cost indicators where output per hour, having deteriorated badly from the beginning of 1976 to the present or the last available quarter, suddenly takes a new spurt of enthusiasm and becomes positive. And your unit labor cost, of course, shows just the opposite trend. I would like to believe this, but I am not sure what the staff has based it on.",100
-fomc-corpus,1980,"Basically it is associated with our assumptions or conclusions about more rational behavior by employers in regard to their staffing. The deterioration in productivity is the other side of the coin of this tremendous increase in employment relative to the lack of growth in output. We're anticipating that the pressures of rising costs and the evident lack of strength in markets over the next couple of quarters will persuade employers that they are overstaffed and that, therefore, they will be laying off employees and trying to bring their costs better into line, which will show up in a somewhat improved productivity performance. But as you will note, we have negative productivity throughout 1980. It just isn't as bad as it was in 1979.",138
-fomc-corpus,1980,"In effect, you're suggesting that whatever labor hoarding has taken place to date really isn't going to continue. And that's one of the reasons your unemployment rate is moving up as much as it is. Is that correct?",43
-fomc-corpus,1980,"That is true, yes.",6
-fomc-corpus,1980,"My other question on the charts relates to defense spending. Frank stole my headline on that by his mention of long lead times on defense contracts. I find the assumptions both in the budget and in your table on real defense spending unreal. I don't think it is possible unless there is an awful lot of shelf items involved--more than I can imagine--to add 6 percent to real defense spending in the remaining six months of the fiscal year. And that's all there is left in this fiscal year. We have a history over the last 30 or 40 years of projecting increases in defense spending prematurely, and I think this is happening again in the budget figures and in the staff forecast. Instead of being up 7 percent and up 8 percent or whatever is shown on this chart, I would say it's more likely to be up 2 percent and up 12 percent. So, that would affect the attitude toward these figures in 1980. On the other hand, I would support the total that you have in your staff forecast because I think it's more likely to burst out on the nondefense side in light of other factors between now and the beginning of the new fiscal year. Now, that doesn't mean there isn't an attitudinal and expectational response. But I think it stems mostly from the evaluation of the inflation and the real GNP outlook a year ahead, rather than manifesting itself in defense spending in the fiscal year of 1980. Having said that, I won't repeat Mark's caveats, but in terms of point estimates I really don't have much quarrel with the staff forecast on real GNP. As for the probabilities, I would say the probability is that there will be less growth--in other words a bigger decline, net, than the [minus] two percent the staff has--maybe a [minus] 3 percent for the year. I am not quite as pessimistic as Henry, but I will take shelter under his umbrella on the price index. I don't think there is more than one chance in ten that we can get down to 10 percent on either the CPI or the fixed weighted deflator by the fourth quarter of this year. The chances are very good--I hate to use the word ""good"" that way--that it will still be above 10 percent. On unemployment, despite my question on the labor hoarding problem, the chances are unfortunately also very good that unemployment will be above 8 percent because the inflation rate is so sticky and so built into consumer expectations that I think this is the way it's going to crank out. No tax cut, please.",526
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,"Well, Mr. Chairman, what I wanted to say was said by Frank Morris. I have no reason to argue with the staff forecast with respect to GNP, the unemployment rate, and the CPI. Given what we know today, these projections seem to me to be the most probable outcome. But, I suppose like everybody else, I do have some worries; and one of them is the cumulative effect of the erosion of disposable income on consumer expenditures. Consumers may well be prepared to spend less than has been projected in the forecast. And, of course, if that happens, there will be further consequences for the economy. Now, this may well be offset by the buildup in defense expenditures toward the end of the year. So there is some uncertainty. But I do worry that the possible shortfall in consumer expenditures may well make the recession more severe than is projected. I also worry about the cumulative effects of a restrictive monetary policy. If we are successful in damping inflationary expectations, the reaction may well be stronger than we now see, and this may also operate to make the recession more severe. But these are just vague worries; I have no data to support them. And for the purpose of making suggestions as to monetary policy, I am prepared to accept the staff's forecast. As for a tax cut, I would be opposed to a tax cut at the present time. However, depending on how things emerge in the future, a cancellation of the anticipated social security [tax increase] package could well be an appropriate measure. But that judgment would await future developments.",314
-fomc-corpus,1980,Governor Schultz.,3
-fomc-corpus,1980,"Well, as everybody around here is aware, I have had a high degree of uncertainty about what was going to happen. I have a little less right now, so far as my feelings about the near term are concerned. I see three areas of weakness. First, I think the economy is a little weaker than the numbers will show in January because the weather in January was so remarkably good all over, and I think that had a considerable effect. I am seeing some areas of restraint that are secondary kinds of reactions to the October 6th [action]. In the area of consumer credit, more and more banks are cutting back on the availability of consumer credit and are increasing the price and other factors. We're also seeing that with [credit extended by] retail establishments; Sears and Penneys and others have recently made those kinds of announcements. So, I think we are seeing some restraint that hasn't been there before and the pressure is increasing in that area. I do not think that we have seen the low in housing. I agree with Frank Morris that it's going to go lower; it could go considerably lower. We saw that chart on the commitment rate, and my understanding is that the situation may be even worse than that chart looks. And that's bound to begin to spill over into housing durables pretty quickly. It hasn't done that much yet. As far as autos are concerned, I don't see anything that is going to bring them back very fast. Things may have to get worse in that area, partly as a result of the [tighter] consumer credit and partly because gasoline prices are going to continue to go up. We see that there is more conservation than we really thought. People are more concerned about [gasoline prices], and I think it's going to have a big effect on their purchases of automobiles. So, I don't look for any strength there in the near term. On the other hand, longer term I see some areas of strength that may be stronger than the staff assumptions. I disagree with Bob Mayo on the defense side. The reason I do is that we're looking at all of the news reports that say this involves sophisticated weapons and there's a very long lead time. We are not looking at the operations and maintenance side. My understanding is--I have just seen some recent figures--that the Pentagon is estimating that for ammunition alone they need more than $20 billion. Now, ammunition is something that can be produced pretty quickly. So I think we may see some faster impact on the defense side. The other area is the tax side. It is an election year. I do not favor a tax cut this year; I would, I think, next year. But we may get it this year. If you look at the staff's chart ""fiscal alternative-tax cut"" and see what a politician would see--that with a cut in payroll taxes he can have the best of both worlds, better growth in GNP and lower inflation, which is what that chart shows--that's very attractive to a politician. And I just think that we may get enough weakness in this first half to make a tax cut much more likely this summer. So, my figures are a little stronger than the staff's: GNP down 1 to 2 percent; unemployment 7 to 7-1/2 percent; and the CPI in the fourth quarter a little worse than the staff's, at 10 to 11 percent.",688
-fomc-corpus,1980,"Well, I have missed one personal objective of speeding up the coffee hour appreciably. But since we're short of 11 a.m., let me make a couple of observations. I do have the feeling in listening to some of the different economic forecasts and comments that our staff, which is sometimes accused of being Keynesian, feels more constrained by the money supply assumptions than more monetarist-oriented people. And that accounts for some of the differences in view. Assuming that we're all intelligent people around the table, [given the] differences in outlook that have been recited, I don't see how anyone can come to any opinion other than that there is a great deal of uncertainty in this forecasting business. In terms of what we have accomplished or have not accomplished in monetary policy in recent months, particularly as reflected in expectations as best one can judge them, we have to conclude that we've been [set] back very substantially and have suffered a grievous blow from everything that has been going on internationally--whether you're talking about oil prices, or Iran, or Afghanistan and concern about defense spending. There's nothing much we can do about that, but I think in some sense we're back to square one or worse in terms of the public's concern about inflation. So I tend to agree with those who see a risk of an inflationary breakout, in modified terms, on the up side as a real danger. I also agree with Emmett Rice and a couple of others who said that we could get a longer reaction in the economy on the down side if that happened. I don't know what we can do about that. We can't deal with both situations at the same time. In fact, I don't think we can deal with the risk of a downturn and ignore the inflationary side, because they're part of the same parcel in some sense. I feel rather strongly that it would be a great mistake to put much money on any particular forecast at this point. I come back to what Mark Willes said at the beginning, and I think the saving rate question is a perfect illustration. I can hear persuasive arguments around this table as to why it is going to go up and I can hear persuasive arguments as to why it is going to stay down; and I don't know of any criteria by which I can choose between those two choices at the moment. In a direct statistical sense that will be the most important influence on the economic outlook in the near term. There are a couple of other things that might be mentioned that haven't been touched upon. We have some uncertainty about tax refunds in the near term, with some expectation that they may be very high relative to past experience--I am talking about [the time period] between now and April or beyond--and what that will do to the near-term timing of consumer spending. What it will do to the near-term timing of the kind of forecast the staff has I think is an unknown. If one assumes some lag in defense spending but also assumes that the option of high defense spending is going to come along [later], we could get a pattern of big refunds for a while, in a sense artificially holding things up, followed by a defense impetus coming late in the year and taking over after the refunds subside. It only adds to my feeling of caution about any forecast. So far as the bond market and the banking system and the availability of credit are concerned, I'd just make two observations. I think the bond market people, who from the way they are behaving apparently are quite discouraged about the inflationary outlook, have concluded that money is freely available. I see one side of it. But also, in talking to some bankers, I think there is something to what Fred Schultz just said about a cumulative impact of restriction. That's beginning to be felt by some bankers, who have talked to me, anyway, not only in consumer lending but in mortgage lending and in small business lending and other types of lending. I think it is true that the last ones to feel that are probably the big companies that have access to the bond market and to the banks, too. I don't think the picture is all one way. There has been great confusion about--I guess it was John Balles who said it--whether the money supply is genuinely [or only] statistically under control. I think it is statistically under control. I am not sure the market thinks it is genuinely under control. And it comes down in part to some confusion over our own operations. I meant to mention earlier--and I don't know whether the presidents have seen it--that we put out an elaborate technical explanation of what we're doing, which Mr. Axilrod authored. It has gotten no attention in the press thus far, but it was an attempt in considerable part to meet the questions that have been arising about why reserves are going up 10 percent or 12 percent or 8 percent, depending upon which number you're looking at, while the money supply is going up 3 or 4 percent. I don't know whether we will convince anybody as that seeps into consciousness. But there has been great confusion engendered by the differences in growth rates among all these measures, including right now the various reserve measures going off in widely different directions. I will leave you with that. Let's have the coffee break and when we return get back on these long-term and short-term targets.",1075
-fomc-corpus,1980,"I think we can start. Let me make a couple of preliminary remarks and just devote our attention to the long-term ranges at this point. One preliminary remark is that, whatever we do, I am afraid that we inevitably are going to have quite a lot of confusion with the changes in definitions [of the monetary aggregates] coming at the same time as [the setting of our] targets. We are going to have a press briefing, not to give the targets, but to explain the changes in definitions and the changes in patterns. We have had to add to all our other complications the usual annual revision in seasonal patterns. We can now go forward and talk about the new numbers but we are talking about them against the background of an increase of almost 5 percent in January, if we can switch our minds now from 1-3/4 percent or whatever was projected before on the basis of the old numbers. The new M-1A and M-1B are growing at something like 4-3/4 percent in January, as I recall, which is pretty much on the target that we set for ourselves by the grace of a revision in seasonal adjustments. If policy fails, we can always revise the seasonal adjustment factors for a while! [Laughter]",255
-fomc-corpus,1980,"Well, we may have to consider it; it may be more important than lagged reserve accounting!",20
-fomc-corpus,1980,"I do think this is going to be troublesome to explain, but we inevitably have to do it. Another complication, which we don't have to face right now, but it is inherent in this situation, is that basically the reason we have both M-1A and M-1B is to allow for growth in NOW accounts, and that [dichotomy] is a transitional device. The staff's judgment is that growth in M-1A and M-1B will not be any different this year if the law legalizing NOW accounts doesn't pass. But the high probability is that that law will pass, presumably sometime during the spring, and that we will have to re-estimate M-1A and M-1B to allow for that; I presume we would want to make a technical adjustment in the targets. I don't think we have to worry about that now--maybe we can wait until midyear for our regular revision anyway--but I just warn you that sometime during the spring, I suspect, if the law does pass, we think there will be a significant difference between M-1A and M-1B and that some suitable changes will have to made, if nothing else, consistent with what we decide today. On the substance of the matter, if it is true that we face a wide disparity of views in what the outlook might bring and a high degree of uncertainty, I suspect we are on an approach--whatever other merits or demerits there may be--that will provide us with some fail-safe protection. [By that I mean] that if the economy really goes down hill, almost any figure within the range of what we have been talking about should produce an easing in the outward externalities of policy, but if the fears of a stronger economy and an inflationary surge appear, the opposite ought to happen. And I presume that in a very crude way, anyway, either of those results would be appropriate. When we discussed this the last time, there was a consensus--and maybe for a variety of reasons it was not quite unanimous--or a strongly predominant view to maintain a 3 percentage point range, and all these alternatives are couched that way. The ranges in the Bluebook fully encompass all that people were talking about last time, I think. The differences in the ranges are not very wide, as you know, and nobody is bound by what he or she said last time. To orient you a bit: It was not true for everybody but the predominance of views fell between the alternative II and alternative III choices shown here; and there was actually some plurality if not a majority for alternative III. But people were talking in a preliminary way and rather loosely. My own feeling is that we probably [should] end up in that area, and I don't have enormous feelings that a difference of 1/2 percentage point is of great significance. When we are in that area, the strength of my views is not pronounced among [those alternatives]. But judging from the discussion last time, we are predominantly in that area. So with that introduction, who would like to be more precise in stating their views about where we should be for the annual range in 1980? Mr. Black.",650
-fomc-corpus,1980,"Mr. Chairman, my feeling hasn't changed a lot since our last meeting. It is true that the economic outlook has changed somewhat from what most of us expected. In particular, the government's demand on resources appears likely to be much greater than we earlier thought. But far from providing the reason for relaxing or delaying this long-run task of ours of lowering the rate of growth in the aggregates, the inflationary dangers posed by this fiscal stimulus suggest to me that the System needs to stick all the more firmly to the goal that it has often stated in the past. The midpoints of alternative II look good to me. I was one of those who preferred the narrower ranges last time. I would much prefer a 1 percentage point range for M-1A and M-1B and a 2-point range for the other aggregates, M2 and M3, because of their interest volatility. Now, one can certainly argue that we need more flexibility since we may be moving into a recession and we may be moving into more inflation. I recognize the validity of that argument, but it seems to me that the narrower range would do a lot to enhance our credibility. Therefore, it would enhance a great deal the beneficial expectational effects that I think we'll get if we do in fact announce lower targets than what we have achieved in the past. I would be rather unhappy if M-1A and M-1B, which are the two aggregates I consider most important, came out at the top of their alternative II ranges. So, my figures would translate to 4-1/2 to 5-1/2 percent for M-1A, with a midpoint of 5 percent, the same as in alternative II. My other ranges would be: M-lB, 5 to 6, with a midpoint of 5-1/2; M2, 6-1/2 to 8-1/2 with a midpoint of 7-1/2; M3, 7 to 9 with a midpoint of 8; and bank credit, 6-1/2 to 8-1/2 with a midpoint of 7-1/2.",443
-fomc-corpus,1980,"Let me just say a word. You reminded me about M2, M3, and bank credit. First of all, I'd just note that if people feel strongly about the weight to be put on those numbers, they ought to say so. Secondly, in the normal course of events, given the way we are operating they may get a little less weight than they have in the past because we won't have those figures as up to date. So far as I am concerned, I take on faith the staff analyses of the consistency of the particular ranges they put down for those numbers as compared to Ml. I don't know of any strong reason why they should be different from what the staff put down, but I have a little residual suspicion that those are indeed more volatile numbers than the M1 numbers because quite a lot does depend upon the evolution of interest rates, and I don't know in which direction they will go.",182
-fomc-corpus,1980,"Well, I have said most of what I felt along that line. I would emphasize M-1B because it catches the transaction balances better; M-1A has lost a lot of the transaction balances.",42
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"Well, Mr. Chairman, last time I indicated some preliminary specifications that would have been consistent with alternative II. I want to argue this morning for alternative I. That's a difficult thing to do and I have always found myself unsuccessful in such arguments in the past. But let me try it once more. The staff projection for nominal GNP, fourth quarter-to-fourth quarter, is for a 7 percent increase. The direction of thinking as we went around the table was to convert that to a somewhat higher nominal GNP increase because almost everyone thought inflation would be a bit higher than the staff has projected, and quite a few people thought that the decline might be a bit shallower than the staff has projected. So I would say that the Committee view, as opposed to the staff view, is that nominal GNP will increase at least 8 percent. And I believe the Administration, Jim, has a 9 percent increase in nominal GNP fourth quarter-to-fourth quarter. In drawing these long-term ranges, the relationship between money growth and the nominal GNP is of central importance because it really indicates the amount of tension there's likely to be in markets as the year goes on. And even 7 percent [for nominal GNP growth] with a 5 percent midpoint on M-1A and 5-1/2 percent on M-1B, which is alternative II, does imply an increase in velocity of a couple of points. If, in fact, we think nominal GNP [growth] is going to be a little higher than that--let's say 8 percent instead of 7 percent--it seems to me that as a matter of practicality and credibility in achieving the targets we set, we ought to recognize that a bit in the specifications we pick. Going from alternative II, which had been my former choice, to alternative I adds 1/2 point to the midpoint. It makes the midpoint for M-1A 5-1/2 percent and that for M-1B 6 percent, compared with, say, an 8 percent nominal GNP, and I think it does suggest a very considerable tension on markets throughout the year. And it's [a target] that we might be able to achieve. I would point out one more thing: Every private forecast that I have looked at, and I just reviewed them yesterday, suggests a federal funds rate at the end of this year of 10 percent or below. The only exception might be Salomon Brothers, but they don't specify the funds rate in their projection. We are suggesting something around 13 percent. The difference, I think, is in the implied increase in money in the private projections, which is stronger than we have. Now, if we go through a recession and hold the interest rate up throughout the recession--hold it pretty close to where it is now--start a recovery, say, a year hence or thereabouts with a rising trend of rates and high unemployment, we will have done really quite a lot to restrain the economy [through] monetary policy compared with any past cycle that I can recall. And I think that also argues for being just a bit more liberal so that we'll have something we can achieve. I understand fully what Bob says about narrowing the ranges, and I do agree that there is quite a difference between, say, 4 percent and 7 percent in M-1A, [which are the limits] in alternative I. But in the interest of again being able to achieve growth this year within the ranges we specify, which we managed to do for the first time in our history in 1979, I think we need to hold the width of 3 points that we have had but try to [achieve] the midpoint of the range. So, I would come out with alternative I for the reasons that I have explained, and I would stay with the 3-point range.",790
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"I agree with those who have argued, starting with Governor Teeters and others, that in view of all the economic uncertainty, we do need a lot of flexibility as the year unfolds. And for reasons that Chuck has just reviewed, I would support the idea of having a 3-point range. As I often do when we get to this time of the year, I like to speak to the two faces of the ranges that we are discussing here. The one face is the public reaction or the announcement effects, for what they are worth. They may not be worth a lot, but I can't believe they have no effects at all. I admit, as Ted Truman pointed out to us yesterday, that the public pays more attention to what we do than to what we say we are going to do. But reverting to my earlier deep concern about an apparent re-escalation of inflationary expectations over the last month--[manifested] in various ways, especially in the rise of long-term bond yields to new highs, as I pointed out--I think there is a lot to be said for picking ranges just in terms of public announcement effects that are both broad, because as I have already indicated we need the flexibility in view of the economic uncertainty that lies ahead, and that would tend to ensure that we do in fact get continued deceleration in monetary growth. Our record since October has, in fact, been very good on that. But I am afraid that there's some skepticism among market participants and others that we may not persist. One way of putting that skepticism to bed, or at least helping to diminish it, would be to have upper limits on our ranges which even if hit would still involve slightly less monetary growth in 1980 than in 1979. For that reason, I would support alternative II with respect to both M-1A and M-1B because even if we hit the upper end of 6-1/2 percent in the case of M-1A, that would be less than the 6.8 percent growth of last year. And even if we hit the upper end of the alternative II range of 4 to 7 percent for M-1B, growth would be less than the 8 percent growth we had last year. And for the same reasons, I would choose the alternative III ranges for M2 and M3. The upper end of the alternative III range for M2 is 8-1/2 percent, below last year's 8.8 percent actual. In the case of M3, the alternative III range of 6 to 9 percent is below the 9-1/2 percent actual we had last year. So if there is any sense at all in what I am saying about the public perception of the maximum [rates of growth] we specify, assuming that under our new operating procedures we didn't exceed the upper limits of the ranges, those upper limits would involve at least a 1/2 point decline from the actual rates of monetary growth in 1979. As for whether we should target all four of these, Mr. Chairman, I have grave doubts. I think M-1A is still so influenced--or perhaps contaminated, to use a word my research staff is fond of using--by past and ongoing institutional changes that I personally would be prepared to drop it right now and put our faith in M-1B.",686
-fomc-corpus,1980,"I don't think there's much difference between M-1A and M-1B, barring this legislative change; the difference is a small number.",30
-fomc-corpus,1980,I found more to the change [unintelligible]. I think there was some confusion last time. Wouldn't M-1B--,28
-fomc-corpus,1980,"They both will. The problem is that if we get the law change, M-1B will rise both because it's taking [funds] out of M-1A and out of M2.",41
-fomc-corpus,1980,Only because it's taking funds out of M2.,10
-fomc-corpus,1980,"Yes, it will only rise because it's taking funds out of M2. M-1A will go down. [M-1B] will rise because it's taking out of M2; and M-1A will decline because [funds will be taken] out of that aggregate.",59
-fomc-corpus,1980,"Well, in short, I would like to make a pitch for targeting M-1B and M2 as opposed to targeting M-1A and M-1B, [as suggested] in the draft directive language. Our own experience in the past has led us to place somewhat more confidence, in terms of the old definitions, in M2 as a predictor of inflation and real GNP. Of course, it remains to be seen whether that is going to hold for the new M2. But based on some of the statistical tests that we've done, M-1A is certainly the least reliable predictor of real GNP of the four aggregates mentioned. The differences are quite significant, and that's why I am somewhat disillusioned about M-1A. We've tested it retrospectively and view it as a considerably poor forecaster of future real GNP. That is the main reason I would like to drop it. Those are my recommendations, Mr. Chairman.",194
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"I think we face more inflation and less recession than would have been [the case] before recent changes in the economy. Now the question is: How does one finance a higher nominal GNP with a given amount of money supply? In Chuck's calculation you have to look at the nominal GNP and ask how it can be financed from the rise in money, and a rise in velocity is very logical. Moreover, one can't say nowadays that we would get some rise in velocity out of rising interest rates because presumably we wouldn't. So we're dependent, really, on the amount of money growth in the effective money supply--that is, the amount of money growth plus the regular growth in velocity at a constant interest rate. And I think the staff puts the drift in the demand function at about 2 percent. Since we've opened up the question of the aggregates, I would like to express some doubt not only about M-1A, on which I share what others have said, but M-1B. In general I think we are not yet including everything that acts like money, and we probably never will. Money market accounts and mutual funds are not in M-l, although I would suspect that they have a very strong effect on people's holdings of demand balances. That is, they aren't used for transactions--their velocity is low--but they are very good substitutes for a cash balance. I hear that brokerage firms are now setting up, in effect, zero balance overdraft facilities. If that takes over, one needs no cash balance at all any more; one can just finance one's current needs against one's stock holdings. There are Eurodollars, of which we [include] what seems to be a small part in the aggregates. I don't think we capture even all the Eurodollars owned by U.S. residents because we don't know their total and we certainly don't include any part of Eurodollars owned by nonresidents, even though one would think some of those dollars are going to be used in the United States, not for purchases of goods and services but for purchases of assets, which influence our interest rates and so on. So, I think the monetary aggregate [targets] are really symbols of restraint--orders of magnitude, but not to be taken at face value. If we did take them at face value, I'd say look at M2 and you will find that under alternative I [the staff] projects [growth at] 9-1/2 percent, the upper limit. That's more than [the projected] nominal GNP increase for 1980, which I believe is about 8 percent, so we'd be over-financing in those terms. This does not allow for any drift in the money function.",547
-fomc-corpus,1980,There's no drift on M2.,7
-fomc-corpus,1980,"There may be no drift in M2, but that depends on how one believes these extraordinary items, Eurodollars and so forth, impinge. Well, that leads me to alternative III. I think we do need wide ranges because it's simply impossible to target several aggregates and make them consistent using anything like a single number. I would place a great deal of weight on M2 for the reasons I have given. I think [alternative III] is consistent with financing [a nominal] GNP increase of about 8 percent.",106
-fomc-corpus,1980,Mr. Willes.,5
-fomc-corpus,1980,"Thank you, Mr. Chairman. I just couldn't disagree more with some of the comments I have heard and I agree entirely with some others. Chuck and I have this running discussion about how we finance nominal GNP. He has his view. My view is that if you try to do [it his way], you just chase your tail. If in fact there is a relationship between money and inflation, by persistently trying to finance nominal GNP we end up generating more inflation--even at an accelerating rate--which therefore we have to finance and so on. So I would hope we would not take that [route].",124
-fomc-corpus,1980,"Oh, I don't disagree with that. It's a question of whether one thinks this [degree] of weakness in the economy is reasonable.",27
-fomc-corpus,1980,"That's right. Now, what I find most puzzling--and I will copy one of Fred Schultz's lines, which I always thought was mine, and that is that I have a very simple mind--",41
-fomc-corpus,1980,"Well, some of us will agree with that!",10
-fomc-corpus,1980,"I would think, if we agree that the outlook is very uncertain, that rather than arguing for more flexibility we would argue for less. That's because if the time pattern of the economy is very unpredictable, then there's no way we can respond to change it in a predictable way and, therefore, we ought not to be responding. We ought to respond less rather than more, the greater the uncertainty about the outlook. As a consequence, unlike Nancy's and John's earlier suggestion that we do all we can to preserve our flexibility, I would say just the opposite. I think we ought to pick a path that we want to follow for the long term and stick to that path as long as we can unless we receive major information that suggests we're way out of [line] for one reason or another. Of course, rational expectations would say that even if we got such information, it's not clear we could do anything about it and, therefore, we ought not to respond. Having said all that, obviously, I would much prefer the specifications of alternative III. That looks like a very large drop for M-1B from [growth of] 8 percent in 1979 to [a range with an upper limit of] 6-1/2 percent in 1980. But the Bluebook says on the previous page that for the last six months M-1B growth has only been 6.1 percent, so the drop isn't as big as it might appear from the [table] on page 6. So, I would go with alternative III. I must say I am in the group that thinks the range is too wide. I would be concerned if money [growth] dropped, assuming we are measuring anything corresponding to money, down to 3 percent. On the other hand, I would certainly hate to see it above 6 percent. So, I'd prefer a narrower range but would not want growth to go above 6 percent on M-1A or 6-1/2 percent on M-1B.",409
-fomc-corpus,1980,"There's a [trickiness] of these figures. I think it's fair to say that M-1A was artificially high last year because we did get some transition [flows] into NOW and ATS accounts, part of which came out of M2. Mr. Kimbrell.",57
-fomc-corpus,1980,"Mr. Chairman, one specific thing I would like to see is that the 1980 targets be related to the 1979 targets and not the 1979 results. We are all [talking about] the uncertainties. Of course, there does not seem to be much uncertainty about [the risks of a] recession and all of us are accepting that there are going to be inflationary tendencies and expectations. And I feel that our actions should attempt not to provide any unnecessary opportunities for strong money growth. I would hope that we indeed will begin to lower these monetary goals gradually. For that reason I also accept the thesis of narrower ranges, not more than 2 percentage points, and frankly with a strong determination to achieve them and control [money growth]. So I would [narrow] the alternative III ranges and I end up with 3-1/2 to 5-1/2 percent on M-1A, 4 to 6 percent on M-1B, and 6 to 8 percent for M2.",211
-fomc-corpus,1980,Mr. Smoot.,5
-fomc-corpus,1980,"Governor Partee argued for alternative I, based on the higher anticipated nominal GNP. Looking at my own staff's projections, our nominal GNP figures would be somewhat higher than the Board's. But they also encompass a money supply growth rate in the 4-1/2 to 5 percent range. Depending on which one of those I pick, I am indifferent between alternative II and alternative III, which I think is where you were, Chairman Volcker. If I had to choose, I would choose alternative II based on the observation, which is made quite clearly in the Bluebook, that all of these alternatives suggest a lower rate of growth in money than occurred last year. And if we pay any attention to the long-term trend in money growth, then we are coming down from a higher trend level. I must say that I have faith, as you do, that the staff's ranges are consistent; at least the numbers for M-1B, M2, etc., appear to be consistent, and I wouldn't quibble with those. So, based on that, we would be agreeable to alternative II.",225
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Mr. Chairman, unlike the humility of Mr. Schultz and Mr. Willes about being somewhat simple-minded, I must be humble in saying that my mind finds things very complicated. I have tried hard to move toward being simple-minded on some of these things. We have different approaches to some of these problems. However, I find that the factors are so complicated and have such a margin of error that I must stick to the 3-point range. Some people might accuse the Fed of being a bit cowardly because the range is so wide. But the factors that we are dealing with are indeed so complicated that we must allow ourselves this flexibility. I feel, if anything, even more strongly than John Balles put it that we are [making this] unduly complicated. Again, I am striving toward being a little simpler. We are making it hard, and even harder for you, Mr. Chairman, when you try to explain to your audience on Thursday why we have decided to use both M-1A and M-1B when both of them will need adjustment when we get NOW accounts. And I agree we will get them nationwide. I think we'd look a lot more sensible to forget M-1A--as I said last time and I'll say it again this time--and call it Ml, show some change, and not give the impression by stressing M-1A that the lion has labored and has produced a mouse. There's too little change from the old M1 in what we are proposing, and I would rather see us stick with M-1B and give the explanation of the adjustment in NOW accounts in a simple-minded fashion rather than try to adjust both M-1A and M-1B to NOW accounts when they come. This is the way in which my attempt to be simple-minded would direct us. I'd prefer alternative II with the 3-point range. I'd obviously prefer to concentrate just on M-1B and call it M1, [with a range of] 4 to 7 percent.",411
-fomc-corpus,1980,Mr. Guffey.,6
-fomc-corpus,1980,"Thank you, Mr. Chairman. Chuck Partee has moved from one recommendation to another from last month to this month and I will also, but going the other way. Last month we were looking at a somewhat weaker economy and it seemed that perhaps the inflation rate would fall off a bit through 1980. Also, the deceleration from what actually happened in 1979 to what I would like to consider our target --the midpoint [of any of] the ranges [we select]--from about 7 percent [growth] to 5 percent for M-1A, for example, seemed fairly fast. And that is the reason last month that I would have opted for what now appears to be alternative I. But things have changed, at least to my mind. We're now looking at a bit stronger economy through 1980, as I tried to outline earlier today. Secondly, and more importantly, inflation quite likely will stay at the present level or even accelerate as we get into the latter part of next year. As a result, what we do on the monetary side seems extremely important. That leads me to say that I would go to alternative II, which has a midpoint--what I [consider] the target--of 5 percent. Whatever we've said about ranges, they are unimportant to me except in how the public perceives them. I would hope whatever targets this Committee sets, whether on the long run or the short run, that the Desk at least in its month-to-month or day-to-day operations will look at the midpoints. So, I am looking at 5 percent for M-1A or 5-1/2 percent for M-1B. And I share Bob Mayo's view on going to M1 and doing away with M-1A and M-1B. I think they will confuse more than we will be able to explain.",382
-fomc-corpus,1980,Mr. Timlen.,5
-fomc-corpus,1980,"Mr. Chairman, I consider myself neither simple-minded nor complicated-minded, but just poorly educated for this forum. Having said that, I would have some preference on the technical side for the wider 3-point range shown. In terms of the aggregates to focus on, my preferences would be M-1A and M2. We have commented around the table about growth in bank credit and I do think the Desk should be asked to keep an eye on that number, which has looked so high the past year. My position is no different than it was last month. I look forward to having the yearly goals show a gradual reduction in the aggregates. I am most impressed by the comments Peter Sternlight made yesterday about inflationary expectations in the market. I think there will be a great focus on these goals as you announce them later this month; people will be looking for an indication of the posture of the Federal Reserve at this particular point in time. I might say, too, that as they look at our long-term goals, they will [do so with] the immediate impression of economic developments at the start of the year. January, I believe, will look strong. It may have an impact on the entire first quarter; people may not discount it, as Fred Schultz has suggested, as being all due to good weather. So, my preference is alternative III as stated in the Bluebook. And I would pick up the thought that Nancy Teeters noted earlier: That we will have opportunities to change the ranges at midyear in the event that some of the gloomy prospects do actually come to fruition. But I don't share the gloomy prospects personally.",329
-fomc-corpus,1980,Governor Coldwell.,4
-fomc-corpus,1980,"Mr. Chairman, it seems to me that we have been talking here about a series of figures which, quite frankly, I don't completely understand and in which I have a great lack of confidence. The redefinitions seem to have added about 2 percentage points to these past figures. We are questioning the function; we are questioning the seasonals. I think the expectations have shifted on us. And if we are talking about supporting nominal GNP growth, I would observe that we had a 6.8 percent growth in M-1A last year and, if I read the correct line on this table, it supported an 11.3 percent increase in nominal GNP.",136
-fomc-corpus,1980,With a 300 to 400 basis point increase in interest rates.,14
-fomc-corpus,1980,"Yes, that's quite correct. In the coming year it looks to me as if we're talking about a GNP increase anywhere in the 8 to 10 percent range and maybe up to as high as 11 percent--that encompasses most of the forecasts I heard this morning--and making some progress in reducing the stimulation that both monetary and fiscal policy have added these past few years. I have to come out in favor of a much tighter monetary policy. And I would pick up on some people's comments in that I would hate to see another 6 percent increase in the monetary growth. So, I would put the target at 3 to 5 percent, centered on 4 percent with a 2-point spread.",143
-fomc-corpus,1980,That's [alternative] III plus.,7
-fomc-corpus,1980,"Is that for M-1A, Phil?",10
-fomc-corpus,1980,M-lA.,4
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"Well, I am looking at where we want to be at the end of the year. I can't conceive of our ending up at 11 percent bill rates and a 7 to 8 percent unemployment rate. I would [be inclined toward] an M1 target of 5 percent, but that implies 11 percent on the T-bill and that's only a drop of one percentage point in that rate. So, I come out somewhere between alternatives I and II. I also think that our primary problem this year is going to be keeping above the minimum rather than going over the top of the monetary growth [ranges]. So, I would prefer alternative I but I could settle for alternative II.",139
-fomc-corpus,1980,We're out of names.,5
-fomc-corpus,1980,"Paul, we have talked about the kind of minds we have. I think we can all claim to have confused minds. And it's clear that that's going to be the problem you face in your presentation. I would urge that we be sure to have the contrast between last year's targets and this year's targets on a similar basis so that people can understand whether the policy formulation is an increase or decrease or remains the same.",82
-fomc-corpus,1980,"I happen to agree with that. I am confused. Were we going to present the comparable figures on the old basis? Was that your intention, Mr. Axilrod, if I may interrupt?",40
-fomc-corpus,1980,We hadn't intended to but we can.,8
-fomc-corpus,1980,I missed that in the Bluebook.,8
-fomc-corpus,1980,"We presented them in an appendix in the Bluebook, giving the comparable figures to alternative II. That will be a decision for someone to [make]. That does run the risk of adding to the confusion, I might add.",45
-fomc-corpus,1980,"I understand. I think you have to leave that to us, but I personally have some sympathy for doing it this particular time and then maybe forgetting about it.",32
-fomc-corpus,1980,Those would be the figures on the same basis? We won't present last year's on last year's basis and this year's on this year's basis--,27
-fomc-corpus,1980,"What I think we will do is present last year on last year's basis and on this year's basis. The question is whether to present this year's target on this year's basis and on last year's basis, [showing] what the equivalent target is.",49
-fomc-corpus,1980,It seems to me that we have to get this into perspective.,13
-fomc-corpus,1980,There's no difference for M-1A.,9
-fomc-corpus,1980,"It sounds complicated, but it's just two columns.",10
-fomc-corpus,1980,"Yes, that's right. There's no difference for M-1A. That's the same as the old Ml, as I recall, for the year as a whole.",33
-fomc-corpus,1980,"I have a tendency to want to eliminate the confusion [caused] by too many numbers. We only add to the confusion. So, I would be inclined to use M-1B at the moment as being the most meaningful, although I share Henry's feeling that it's not a very good measure still in terms of--",65
-fomc-corpus,1980,"If I could just interject a comment: I understand the longing for simplicity, but I am afraid the reality is complicated. And M-1B is the figure that is going to be most thrown off by the uncertainty about NOW accounts. It is just a fact of life.",56
-fomc-corpus,1980,"Mr. Chairman, just as a response to that: I assume from the Bluebook, Steve, that these different alternatives were set forth on the assumption that we would not get nationwide NOW accounts.",39
-fomc-corpus,1980,"That's right, at this point.",7
-fomc-corpus,1980,"If we do get them, we'll obviously have to go back to the drawing board.",17
-fomc-corpus,1980,"Well, we'd have to make an estimate, and the estimate that is likely to be most different is for M-1B.",26
-fomc-corpus,1980,I think you should emphasize in the press briefing that we are quite possibly going to have to change the specifications.,22
-fomc-corpus,1980,"Yes, we'd have to change the targets, not the definitions. You see, the danger is that we could get a big transfer from savings accounts into M-1B, and that's going to make that figure look very peculiar. And we won't know it in advance.",54
-fomc-corpus,1980,"I think the admonition that we are not casting these in concrete forever is a very important one at this stage. We have a chance to look at these again based on [unintelligible]. The inflation problem still dominates the public's attitude both toward our policy and what we are trying to achieve, and I would certainly want those numbers to look lower than last year's in terms of how they are set up. I think I'd probably come out with alternative III.",93
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,"Mr. Chairman, I favor alternative II with a range of 3 percentage points. Given the outlook for inflation over the next year, I think we're really going to have to show some reduction in the rate of growth in the aggregates. While I agree with Governor Partee that we want to be mindful of the amount of tension that we create in the economy with respect to what we expect on nominal GNP growth, on the other hand I also agree with Governor Wallich that we want to look at this point at M2 with regard to the provision for nominal GNP. That brings me to alternative II, with the range remaining at the wider 3-point spread.",134
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Mr. Chairman, last month I argued for alternative III, but on further reflection that seems a bit too tight, so I would move to alternative II. I would keep the 3-point range, however, because I think it is important for our credibility that we end up with a result that's within the range. I think the experience of the last few months may have led us to believe that we can control the money supply much more finely than in fact is going to be the case. We have been very lucky, you know, in the last few months. In this last month all of the misses in our estimates offset each other nicely; that is, the deposit mix estimates were offset by the excess reserve estimate. Furthermore, even though we came in low on M1, we solved that problem by revising the seasonals. We're going to run into times when we find we are not going to be able to control the money supply quite as readily; and if we move to a very narrow range, we may regret it.",207
-fomc-corpus,1980,Mr. Schultz.,4
-fomc-corpus,1980,"Well, I am not opposed to some degree of confusion. Last meeting it seems to me that we had a pretty hard time being very precise about these things. At the last meeting, I made mention of Heisenberg's theory of uncertainty, which in physics is a theory that when you try to observe sub-atomic particles the act of observation changes the way they act so you never know exactly where they are. I think that some of the same principles apply here and it seems to me that we should not try to be too precise at this point in time. These numbers are going to be revised. That's clear. Some time during the year, for some reason, we're going to have to engage in some revision. So, I would agree with Mr. Winn that there is some considerable impact in terms of [reactions to] the numbers we announce and I would come down on alternative III.",180
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Mr. Chairman, I am inclined pretty much along the line on which Bob Black started this discussion in that narrower ranges would seem desirable. And if we take a narrower range, then it seems to me that alternative II is appropriate. If we retain the wide range as stated in the Bluebook, which I am characterizing as wide, then I would be inclined to alternative III so as to get the ceilings down a bit. I am impressed also with Governor Wallich's comments. In fact, I have been inclined to postulate that the pace at which money substitutes or near monies are developed is quite possibly a function of the degree of restraint that we are attempting to impose upon the system. Consequently, the system may have substantial leakage or, alternatively, substantial elasticity. And that would tend to argue in favor of moving to pretty low numbers for the growth rates of the items reported here. I rather expect that is what we will experience as we move through the next two or three years and that we will have to move to growth rates in these conventional measures well below any that are currently contemplated if, in fact, we are going to make much impact on inflation. In presenting your views, I would think you are going to have to say something about 1981 as well as 1980. And it seems to me some rationalization along that line may be required in terms of fitting the growth rate numbers projected for 1980 with the idea that we need to have an annual reduction in the growth rate numbers until we do get to a non-inflationary environment.",315
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"Mr. Chairman, I am a little at a loss to understand why some of our colleagues, who I know are much more economically sophisticated and learned than I am, express confusion and concern as to whether or not we have a fundamental policy mandate and whether or not we can accomplish that. If one looks at this in a simplistic fashion, [one thing is] certain: We have told the world that our primary objective is a reduction in inflation accomplished on a gradual basis so as to avoid, if possible, drastic recessionary consequences. And we have said we're going to accomplish that objective by gradually reducing the rate of growth of the monetary aggregates. It seems to me that there has been overwhelming approval, both in the press and the public, and very little expression of disapproval of this basic policy objective. To me the biggest problem facing us, as I hear from people in our community, is a broad doubt or skepticism as to our willingness or ability to accomplish these objectives. I vehemently disagree with those of you who say that it is questionable whether or not we can gradually reduce the growth of the monetary aggregates. We can do it. We can do it either by controlling the path of total reserves or controlling the monetary base or a combination of both. I am a little concerned about the fact that we don't spend more time reflecting on what the monetary base and nonborrowed reserves and total reserves have done, as described on page 2 [of the Bluebook], because these are specific ways whereby we can accomplish our monetary aggregate growth [objectives]. In order to do what we've said we're going to do, we have to strive for a 5 or 5-1/2 percent rate of growth in M-1A or M-1B over the next year. I don't think we can react to short-term shortfalls or overruns on these [aggregates]. Anybody who says what has happened in the last two or three weeks is a cause for alarm just doesn't understand how this process works. We have to set long-term targets and we have to stick with those long-term targets unless and until there are fundamental changes in public thinking and fundamental changes in our policy that would [point] toward our retreating from these longer-term targets. I would agree with Mark and others that it would be preferable, if we could possibly swallow this enormous step, to narrow our ranges so that we indeed can accomplish a 5 or 5-1/2 percent growth. I don't think it's our job to try to position ourselves so that our targets are so broad that we can always say we accomplished our targets if the world [falls apart] while we're protecting our own reputations. Our reputation is on the line. People totally and broadly subscribe to what the Chairman has announced and I don't think we can enjoy the luxury anymore of vacillating. The fat is in the fire and I think a narrow range under either alternative II or III around 5 percent for the M-1A and M-1B targets would be the best way to accomplish this.",614
-fomc-corpus,1980,"There's obviously a majority for retaining a 3-point range, as there was last month. I would defend that in my own mind by the uncertainty of the figures that Frank Morris and others have referred to and the real uncertainty in the economy, which goes in the direction of [our needing] a little leeway. I would note in that regard that I don't know of another central bank in the world, however monetarist oriented, that has a narrower target than 3 percentage points.",98
-fomc-corpus,1980,The Bank of England?,5
-fomc-corpus,1980,"No. They have a 5 percentage point range, as I recall, 4 or 5. Four, I guess.",26
-fomc-corpus,1980,The Swiss have just a point or two.,9
-fomc-corpus,1980,And a pretty good inflation record.,7
-fomc-corpus,1980,But [their target] varies with the rate of inflation.,12
-fomc-corpus,1980,"Do the Swiss have a pretty good record? They had something like a 15 percent increase in the money supply in some recent year, and they abandoned the target.",33
-fomc-corpus,1980,"I mean the range has to be seen relative to the rate of inflation. At 10 percent inflation, 3 percent [growth in money] isn't much. At 2 percent [inflation] it would be a great deal.",47
-fomc-corpus,1980,I think we can get off this subject.,9
-fomc-corpus,1980,"The Swiss did that on a contrived basis, though, to make their goods more competitive. It wasn't because the mechanism is not workable.",28
-fomc-corpus,1980,"Be that as it may, the greatest single view is for alternative III. There is a certain amount of clustering at alternative II, and one for alternative I. And there are some in between alternatives II and III and between II and I. One possible approach would be to adopt the Balles approach, which he justified in part in terms of the desirability of getting all the upper limits no higher than the growth we had last year. He [suggested] a combination between alternatives II and III, using the alternative II ranges on the Mls and something like the ranges in alternative III on M2 and M3, if I understood him correctly. I assume the staff judgment as to the internal consistencies of these ranges is not so precise that that becomes an impossible [combination].",157
-fomc-corpus,1980,"No, it doesn't become impossible, Mr. Chairman. But I remember last year that the old M2 ran above the projection, and that is the aggregate the Committee has come closest to cutting down to just about the lowest that is economically sustainable. I would just add that point. I think we gave very low, or conservative, estimates for M2. So there is some danger in it.",79
-fomc-corpus,1980,"Remember, you have money--",6
-fomc-corpus,1980,"Which way is the risk more? If interest rates decline, do you think M2 would balloon or not?",22
-fomc-corpus,1980,"Well, in the old days, I would have said it would have ballooned. Nowadays, with interest rates so far above ceiling rates, we don't have that effect. We have put the money market funds into M2 and there is going to be a lot of substitutability between the money market funds and other elements of M2. The risk is for higher growth if interest rates decline, but I don't think it is nearly as great a risk as it used to be.",96
-fomc-corpus,1980,"I might just point out that M2 [growth in 1979] was very close to the upper limit on alternative II, John, and for M3 [actual growth] was the same as the upper limit on alternative II. The aggregate that is really low is bank credit. I don't quite understand that.",63
-fomc-corpus,1980,"Well, these are in my judgment very narrow differences. Let me just try, after everybody has listened to all of this, two alternatives: alternative III straight and alternative II straight. I might say it didn't make much difference in clarifying any strong preference to add the views of nonvoting members onto those of the members; they're split in about the same way. So just for the voting members, after hearing each other, how many would want alternative III?",92
-fomc-corpus,1980,"Mr. Chairman, this will just be--",9
-fomc-corpus,1980,"I am just talking about a flat ""III.""",10
-fomc-corpus,1980,"Really, between the one or the other--",9
-fomc-corpus,1980,"Now let me try ""II."" Who would find alternative II ""acceptable""? Four. Let me try the Balles alternative and see how many would find that acceptable.",33
-fomc-corpus,1980,Read it.,3
-fomc-corpus,1980,"It's alternative II for M-1A and M-1B, if I understand it correctly, and alternative III for M2 and M3. Maybe that would be the nicest, if we could achieve a consensus on that.",46
-fomc-corpus,1980,What about bank credit? Is that alternative III?,10
-fomc-corpus,1980,I've been implicitly assuming that bank credit takes a subsidiary role in this as it indeed has in the past.,21
-fomc-corpus,1980,"It is, of course, one of the figures.",11
-fomc-corpus,1980,"One could argue about that, I suppose.",9
-fomc-corpus,1980,It's so violently different from [the actual experience in] 1978 and 1979.,19
-fomc-corpus,1980,I would like to have somebody explain the Balles approach to me. I find Steve's comments important here. Why shouldn't it be alternative III on M-1A and M-1B and alternative II on M2 and M3? That would seem to me more consistent with what actually happens in the economy. Am I looking at it the wrong way?,72
-fomc-corpus,1980,I would prefer that.,5
-fomc-corpus,1980,John wants the top of the range below last year's [actual].,13
-fomc-corpus,1980,I want the top of the range at least moderately below.,12
-fomc-corpus,1980,"I understand what he proposed. He's just taking a somewhat mechanistic approach. But I am thinking of what actually happens in the economy. It seems to me that if we're going to go away from alternative III, which is the alternative I continue to prefer, where we should ease is in M2 and M3 rather than the other way around. Is that the wrong way to look at it?",79
-fomc-corpus,1980,"Well, that seems to be a bit in line with Mr. Axilrod's suspicions, for whatever that's worth. On the other hand, it doesn't achieve Mr. Balles's visual purpose.",41
-fomc-corpus,1980,"I don't understand that there's any particular reason to ease on M-1A and M-1B because I have some real questions about velocity. But if Mr. Axilrod is right, the figures on M2 and M3 are likely to be more stringent than those on M-1A and M-1B.",66
-fomc-corpus,1980,Do you all realize that alternative III means essentially no decline in interest rates this year?,17
-fomc-corpus,1980,That's what the staff says. I have a little uncertainty about what that figure--,16
-fomc-corpus,1980,"Is that a proposal, Mr. Chairman?",9
-fomc-corpus,1980,"Well, I can't have too many proposals on the table at the same time. I don't know whether Mr. Balles wants to retreat to Mr. Schultz. I am willing to try your original one and just see [what support it commands].",49
-fomc-corpus,1980,I would be interested in the vote on my proposal. I didn't see a show of hands yet.,20
-fomc-corpus,1980,"What we're talking about now is what is acceptable to the biggest group we can get, I think. I can try the Schultz alternative, too, to confuse the issue further, but let me try the Balles alternative at this stage.",47
-fomc-corpus,1980,You got 3-1/2 votes.,10
-fomc-corpus,1980,"Well, let's try the Schultz alternative. This is exactly the opposite. Alternative III on M-1A and M-1B and alternative II and M2 and M3.",36
-fomc-corpus,1980,"This just means acceptable, not necessarily preferable?",9
-fomc-corpus,1980,This means acceptable. That is precisely right. Are we really saying nothing is acceptable here?,18
-fomc-corpus,1980,"Well, I got more than he did!",9
-fomc-corpus,1980,"No, you didn't.",5
-fomc-corpus,1980,I got 5 votes.,6
-fomc-corpus,1980,The only thing I am convinced of is that we are in a range where the differences are very difficult to perceive.,23
-fomc-corpus,1980,It's [as if we] perceive more [differences] than there really are.,17
-fomc-corpus,1980,"You had 8 for alternative III, Mr. Chairman.",12
-fomc-corpus,1980,"You sure did. And that was a preference, not just acceptable.",14
-fomc-corpus,1980,"Well, I am a little reluctant to go to alternative III. It is clear that that has a plurality, but whether it is the one that maximizes the satisfaction around the table is another question.",40
-fomc-corpus,1980,"Well, I can't really offer a compromise since I was for alternative I.",15
-fomc-corpus,1980,You were the only one. Maybe you're the only one who can offer a compromise.,17
-fomc-corpus,1980,We can't possibly get close.,6
-fomc-corpus,1980,"Just looking at what maximizes satisfaction for all, I urge again the Balles approach with a more sympathetic attitude by people around the table.",28
-fomc-corpus,1980,Maybe somehow it will work out.,7
-fomc-corpus,1980,Is there any understanding as to where in the range the Desk would be shooting for?,17
-fomc-corpus,1980,"Well, theoretically, we are shooting for the midpoint, based on what we know now. We may modify that in the short-run decision; we haven't gotten there. But for the year as a whole the implication is that the best judgment we can make is that we're shooting at the middle of all of these, which gives us some leeway on [M2 and M3] presumably, if we're really shooting at the middle of the [target for Ml].",92
-fomc-corpus,1980,"My presumption, Mr. Chairman, is that of course we would aim for the midpoint, but I would also very quickly add that in view of all the uncertainty we would want to be able to move either way, including to the top of the range. I think we ought to keep that flexibility.",61
-fomc-corpus,1980,"I would agree with that. But as of now I think we are saying the central tendency is the midpoints of these ranges, which gives us some potential leeway in deliberately moving away from the midpoint and also gives us some leeway in the reconciliation among these various numbers. I suppose the implication of that, to sell [this] alternative now, is that if we were literally aiming for the midpoints throughout the year and M2 and M3 prove to be a little tight relative to the Mls, we would end up with a slightly lower M1 and a slightly higher M2 and M3, relative to the midpoints. If the staff estimate is correct and everything went perfectly, that's presumably the way [it would turn out]. We would end up with the midpoint, theoretically, halfway between alternative II and alternative III.",167
-fomc-corpus,1980,"Mr. Chairman, if the Committee is willing to accept a range of 2-1/2 points, an almost perfect compromise is to take the bottoms of alternative II and the tops of alternative III.",41
-fomc-corpus,1980,That's not a bad idea.,6
-fomc-corpus,1980,I'd feel more comfortable with that than with the Balles approach.,13
-fomc-corpus,1980,Did you say leave these where they are?,9
-fomc-corpus,1980,3-1/2 to 6 percent.,10
-fomc-corpus,1980,You're narrowing all the ranges.,6
-fomc-corpus,1980,The bottoms are from alternative II and the tops are those in alternative III.,15
-fomc-corpus,1980,That runs counter to a clear majority view about keeping a wide range.,14
-fomc-corpus,1980,"Yes, it does.",5
-fomc-corpus,1980,But it appeases some of the rest of us.,11
-fomc-corpus,1980,That results in odd midpoints.,7
-fomc-corpus,1980,"You obviously know [the area we're in]. I really am resistant to getting down to 1/4 points. If what we're aiming at for M-1A is halfway between [the midpoints of] alternatives II and III, [that difference is] 1/4 of a percentage point and I think we're really there with the Balles approach as a practical matter.",76
-fomc-corpus,1980,"Are we not likely, though, to end up with a situation in which we're going to miss on both sides with the Balles approach? M2 and M3 may be strong and M-1A and M-1B could be pretty weak.",51
-fomc-corpus,1980,Presumably these are the best estimates we have. I will not vouch for the inter-relationships between them. [They represent] an unbiased estimate of the consistent--,34
-fomc-corpus,1980,"We rounded these to 1/2 points, by the way. For M2 and M3 I think the [actual] differences are 1/4 points among the alternatives.",37
-fomc-corpus,1980,We're now unrounding them. Let me urge upon you at this point the Balles alternative. How many find that acceptable after this further [discussion]?,31
-fomc-corpus,1980,"To show you how weak I am, I'll vote for it. As I do so, I am being dragged kicking and screaming into this. I would much prefer the other.",35
-fomc-corpus,1980,"How many was that, sir?",7
-fomc-corpus,1980,Six.,2
-fomc-corpus,1980,"If I [add my vote], it's a majority. But I can't believe that when we get down to a 1/4 point there is no combination of numbers that does not provide a happier situation.",41
-fomc-corpus,1980,"Could you try Steve's range, because its width is 2-1/2 points as opposed to 3?",24
-fomc-corpus,1980,And not emphasize midpoints?,6
-fomc-corpus,1980,But there's no substantive difference between them.,8
-fomc-corpus,1980,But it's the way it is perceived.,8
-fomc-corpus,1980,"It is the way it is perceived by the public, Paul, that's important. I agree there isn't all that much difference but the perception by the public--",31
-fomc-corpus,1980,It's the top of the ranges that scares me to death.,12
-fomc-corpus,1980,We could widen the range to 3 to 6-1/2.,16
-fomc-corpus,1980,"Well, I don't think we want to go in the direction of widening the range. There are all sorts of ways we can get a quarter peoint difference between the averages.",35
-fomc-corpus,1980,"But the problem, Mr. Chairman, is not the quarter point difference on the midpoint. Where people separate is on where they think the bottom ought to be or where the top ought to be. And that's why Steve's proposal, I think, will get most of the votes. It's not the quarter point difference; it's where one is willing to let it go on one side or the other.",79
-fomc-corpus,1980,"I think that's a correct appraisal. I think the market will look at it that way, too.",20
-fomc-corpus,1980,We have a tremendous amount riding on our ability to be within these ranges--SEVERAL. Yes.,21
-fomc-corpus,1980,"--and to cut the range to 2-1/2 points makes it rough. And the possibility of inconsistencies here, even though we are within the staff's ranges--",36
-fomc-corpus,1980,What are we talking about specifically?,7
-fomc-corpus,1980,3-1/2 to 6 percent.,10
-fomc-corpus,1980,"Why don't we just see what the vote is, Mr. Chairman, on the bottom of alternative III and the top of alternative II, widening the range by 1/2 percentage point.",38
-fomc-corpus,1980,"That's what I suggested, but he--",8
-fomc-corpus,1980,It has some merit.,5
-fomc-corpus,1980,"If we want to compromise, we should go to 3-1/4 to 6-1/4 percent.",25
-fomc-corpus,1980,"That's the straightforward compromise, but I think we look foolish if we get into quarter points.",18
-fomc-corpus,1980,We would bill the 3-1/2 percent [as appropriate] on the grounds of the great uncertainty in the year ahead.,27
-fomc-corpus,1980,"We could accept Steve's [suggestion] as long as we don't focus on the midpoint. The midpoint gives us a quarter point and looks foolish. A narrower range, other things equal, looks better. I see the risks; we might miss. We're much more likely to miss on the up side than on the down side.",66
-fomc-corpus,1980,What I foresee is the possibility of misses if the relationships aren't right here. We may be within on M1 and out on M2 and M3.,31
-fomc-corpus,1980,"If we do it the other way, we have a better chance of being within something.",18
-fomc-corpus,1980,"But that's precisely why people care so much about either the bottom or the top. Even though we may miss, if we're going over the top, that raises the flag a lot faster than if we're still within all the ranges.",45
-fomc-corpus,1980,I have noticed that people worry less when we go under than when we go over.,17
-fomc-corpus,1980,It depends on one's point of view.,8
-fomc-corpus,1980,"Well, I'll go back to my original question. What are you going to say about last year's ranges?",21
-fomc-corpus,1980,About last year's ranges?,5
-fomc-corpus,1980,"People are going to compare ranges and ranges, not--",11
-fomc-corpus,1980,"Well, what we're going to tell them is that on M1, depending upon how you look at it, we were somewhere around 5.5 or 6.8 percent.",37
-fomc-corpus,1980,"That's what we hit, but [the question is]: Are we setting our objectives lower or higher?",20
-fomc-corpus,1980,"All of these objectives, properly interpreted, will be lower. It may take some interpretation.",18
-fomc-corpus,1980,"But didn't we say 3 to 6 percent last year on Ml? Sure it has changed, and so forth--",24
-fomc-corpus,1980,"Well, we said 4-1/2 to 7-1/2 percent by one interpretation, with 1-1/2 percent ATS--",32
-fomc-corpus,1980,"That's really what it was, when you come right down to it.",14
-fomc-corpus,1980,"Well, I don't like this way of skinning the cat, but do you want to do these 2-1/2 percentage point ranges? Let's see who finds the 3-1/2--",42
-fomc-corpus,1980,What are we talking about? The 2-1/2 points?,15
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"John, I assume you'll go with this proposal.",10
-fomc-corpus,1980,"Well, we get no more votes for that one than the other one.",15
-fomc-corpus,1980,Straight alternative III got the most votes.,8
-fomc-corpus,1980,"No, I don't think so.",7
-fomc-corpus,1980,Take an acceptable vote on alternative III; I think you'll get 9 out of 12.,19
-fomc-corpus,1980,"Mr. Chairman, another compromise would be to take a flexible midpoint. Take the [average of the] midpoints from alternatives II and III and say you expect variations around that of 1-1/2 percentage points on either side, as we have in the past.",55
-fomc-corpus,1980,That would be 3-3/4 to [6-3/4 for M-1B].,22
-fomc-corpus,1980,It gets us to quarters.,6
-fomc-corpus,1980,"Would it help, Mr Chairman, if we used M-1B as opposed to M-1A as the starting point?",26
-fomc-corpus,1980,"Well, the figures are supposed to be the same. I don't know how to--",17
-fomc-corpus,1980,"Yes, but M-1B has the most potential for fluctuation.",15
-fomc-corpus,1980,"But M-1B has the most long-run potential. M-1A, if you read it as ""MIA,"" is ""missing in action.""",32
-fomc-corpus,1980,"M-1B is ""misinformed bunch.""",11
-fomc-corpus,1980,"It seems to me that the logical thing, without getting into tiny fractions, is either to do the Balles approach or the reverse of the Balles approach, which is about as much of a compromise as one can get, retaining the wider ranges. Now, that avoids quarter percents on either the midpoints or the outside [limits of the] ranges. Who do we have reconsidering? Or who wants to make another proposal?",87
-fomc-corpus,1980,"In the interest of simplicity, I am prepared to shift my vote to alternative III.",17
-fomc-corpus,1980,"The trouble with alternative III--frankly, I have no particular problem with it--is that it's going to make some people more unhappy than any of the other alternatives.",35
-fomc-corpus,1980,But only 1/2 of 1 percent were unhappy!,13
-fomc-corpus,1980,"There's a multiplier here, Paul.",7
-fomc-corpus,1980,Let me put it this way: It makes me unhappy but in the spirit of unanimity I would change my vote and go with alternative III.,29
-fomc-corpus,1980,It's a full percentage point drop in the growth rates from last year. Doesn't it mean that we're going to have an increase of 2 percentage points in the unemployment rate and no change in interest rates?,40
-fomc-corpus,1980,That's probably right.,4
-fomc-corpus,1980,Where are interest rates in [that scenario]?,9
-fomc-corpus,1980,"Well, I surely share [that concern] with you.",12
-fomc-corpus,1980,"Even taking all the probabilities in the staff estimate, the likely rate of [GNP] growth is between .8 and -2.2 percent. That is just not a very good economy, gentlemen, to have 12 percent interest rates.",49
-fomc-corpus,1980,"But, Nancy, on the other hand, we'd get a rise in the rate of inflation.",19
-fomc-corpus,1980,"We're going to get that anyway, Henry, from OPEC over the first three months of this year.",21
-fomc-corpus,1980,"If we're going to get it anyway, you better be down where I am.",16
-fomc-corpus,1980,"Actually, alternative III, you have to remember, is much more lenient than where Governor Coldwell would like to be. So that--",28
-fomc-corpus,1980,"Associate me with that, too.",7
-fomc-corpus,1980,"Of course, he won't be here to--",9
-fomc-corpus,1980,"No, I am going to be out in the ranks of the unemployed with fixed incomes to pay the price--",22
-fomc-corpus,1980,"Well, I would recommend to you the Balles position. But if you're bound and determined to go to alternative III, we'll go to alternative III. Let's try Balles once more.",37
-fomc-corpus,1980,I'm not going to vote for it this time.,10
-fomc-corpus,1980,Things are coming my way!,6
-fomc-corpus,1980,How many did you get? What was the count?,11
-fomc-corpus,1980,Five. MR. PARTEE &,7
-fomc-corpus,1980,Five; we've lost one!,6
-fomc-corpus,1980,"Well, I tried, Mr. Chairman.",9
-fomc-corpus,1980,"That's the end of Balles, et al.",10
-fomc-corpus,1980,"The ""et als"" are still around.",9
-fomc-corpus,1980,My next move would be to alternative III.,9
-fomc-corpus,1980,"With great reluctance, I will try ""III.""",11
-fomc-corpus,1980,"Nine, Mr. Chairman.",6
-fomc-corpus,1980,It is a mistake.,5
-fomc-corpus,1980,"Why, Paul? What's your principal reservation about it?",11
-fomc-corpus,1980,"My reservation is not the substance of it, but that I don't think it correctly gets to the midpoint of the range of opinion.",26
-fomc-corpus,1980,"Well, go back and try the Schultz approach again. That looks to me as if it buys a good share of those of us who are concerned about--",31
-fomc-corpus,1980,By the Schultz approach you mean just reversing--,9
-fomc-corpus,1980,Reversing the Balles points.,8
-fomc-corpus,1980,"Oh, I am perfectly happy to do that. Let's try that one.",15
-fomc-corpus,1980,"Take M-1A and M-1B of ""III"" and M2 and M3 of ""II.""",24
-fomc-corpus,1980,Let's see whether that captures--,6
-fomc-corpus,1980,Seven.,2
-fomc-corpus,1980,Seven? Doesn't it make you two even a little happier?,12
-fomc-corpus,1980,A 4-1/2 percent rate of growth for Ml? No.,16
-fomc-corpus,1980,"Well, if that's the case, we better stay with alternative III.",14
-fomc-corpus,1980,I think everyone is stuck on III; that's okay.,11
-fomc-corpus,1980,"So, it's alternative III?",6
-fomc-corpus,1980,How would the chair vote?,6
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,You would vote for it?,6
-fomc-corpus,1980,"Well, I'll vote for alternative III if that's what everybody wants to vote for. I don't see the significance in the 1/2 percentage point difference that some other people apparently see.",37
-fomc-corpus,1980,"Well, I don't either, but it takes me a whole point [lower].",16
-fomc-corpus,1980,"Oh, I understand.",5
-fomc-corpus,1980,"Mr. Chairman, is the staff to assume that in making its GNP projections, it should take the 4-1/2 percent rate of growth for M-1A as a center point? That is a lower rate of growth than we had.",52
-fomc-corpus,1980,I presume that in some sense that must be the implication.,12
-fomc-corpus,1980,You realize we're already in trouble in terms of being in conformity with the Administration's forecast. At least you have to do the testifying on Humphrey-Hawkins. We're already inconsistent; this is making it worse.,44
-fomc-corpus,1980,The President has given up on Humphrey-Hawkins for this coming year anyway. He moved out [the time period in which to reach the objectives].,31
-fomc-corpus,1980,He may have moved it out but the Administration's forecast is markedly different. And we will have to go up to the Hill and say we're going to keep money so tight that there is no way that the Administration's forecast can be realized. That's about what it comes down to.,56
-fomc-corpus,1980,"I am really much more concerned about M2 and M3 than I am M-1A or M-1B because at these interest rates and these inflation rates I am very unsure of the connection between the two. And I think there is going to be a demand shift this year. The staff indicates that they can see no indication yet, but--",71
-fomc-corpus,1980,"[It can] hardly be bigger than it was last year. We already had a great big demand shift in the recorded figures for last year. For M-1B, which I think a lot of people would support as the better redefined money, our midpoint will be 3 points below what we realized last year. Three points!",68
-fomc-corpus,1980,"Well, that figure is a little artificial because we had the shift into ATS and NOW accounts.",19
-fomc-corpus,1980,"This is a question of fact, Mr. Chairman. What impressions do you have as to whether the Congressional Committee considers the ranges as having a very strong implication that we'll move toward the midpoint? I haven't gathered that that was true in the past; we have ranges with the precise idea of being flexible. In-house we may well aim for a midpoint. But in terms of the Congress, is my impression wrong that they look on these as ranges we feel free to utilize fully depending on unfolding conditions?",99
-fomc-corpus,1980,I can't answer that question. It probably implies a degree of sophistication on the part of Congress that is beyond any generalization.,25
-fomc-corpus,1980,"There seems to be a feeling around the table here that if we adopt alternative III, we're struck with the midpoints. I don't think we are, frankly.",32
-fomc-corpus,1980,What else is the Desk going to aim for?,10
-fomc-corpus,1980,What's the purpose of having the range?,8
-fomc-corpus,1980,"We'd certainly have a tendency right now to aim for the midpoint, not knowing anything else. That's pending further information.",24
-fomc-corpus,1980,"That is true in the short run, Paul, but as the year moves on, we have that flexibility. We just finished using it the last time.",31
-fomc-corpus,1980,"Yes, in the short run.",7
-fomc-corpus,1980,We sure did.,4
-fomc-corpus,1980,"Mr. Chairman, I don't know if this will be helpful, but one possibility--in the spirit of what has been discussed --is to take the 3-point ranges for M-1A and M-1B of alternative II and to lower the top ends of M2 and M3 by 1/2 point.",66
-fomc-corpus,1980,"Well, I was going to suggest the opposite. If there's more of a concern about M2 and M3, maybe we should take a 1/2 percentage point off the top of the M1 ranges.",43
-fomc-corpus,1980,Then you have more substitutability among the deposits?,11
-fomc-corpus,1980,And it leaves us a little more leeway on M2 and M3.,16
-fomc-corpus,1980,I'd go for that.,5
-fomc-corpus,1980,"Presumably they are, theoretically, a little more volatile anyway.",13
-fomc-corpus,1980,2-1/2 to 5-1/2 percent on M-1A?,19
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,[For M-1A] 3-1/2 to 6 percent--a compromise between alternatives II and III on both the Mls.,31
-fomc-corpus,1980,All right. I'd go for that.,8
-fomc-corpus,1980,And 4 to 6-1/2--,11
-fomc-corpus,1980,"It's 4 to 6-1/2 percent on M-1B, which is probably going to have to be revised anyway.",28
-fomc-corpus,1980,I'd be happy.,4
-fomc-corpus,1980,"And leave the 6 to 9 percent and 6-1/2 to 9-1/2 percent [for M2 and M3, respectively].",34
-fomc-corpus,1980,"What was M-1A, please?",9
-fomc-corpus,1980,3-1/2 to 6 percent. And M-1B is 4 to 6-1/2.,26
-fomc-corpus,1980,What about M2 and M3?,8
-fomc-corpus,1980,They're the same as in alternative II.,8
-fomc-corpus,1980,There's something wrong.,4
-fomc-corpus,1980,"There's a bit of logic in it, I think.",11
-fomc-corpus,1980,"That's logical, and I like that.",8
-fomc-corpus,1980,"Just a comment on that, Mr. Chairman: The reason I was turned off by alternative II for M2 and M3 is that if we went for the upper end of that range, which I presume we could, that would result in no decrease at all in the growth rates of those two magnitudes for 1980 from what we experienced in 1979.",74
-fomc-corpus,1980,If we go right to the top.,8
-fomc-corpus,1980,We also have to recognize that they're rather uncontrollable by us with money market funds and Eurodollars and Caribbean dollars and RPs in there.,29
-fomc-corpus,1980,"We lose that visual effect, but it's getting argued that the economics are a little against us in terms of the uncertainty and it gives wider ranges. I think there's a certain sense in doing that. It has the disadvantage that--",45
-fomc-corpus,1980,So the midpoint on M-1A would be 4-3/4 percent?,18
-fomc-corpus,1980,That's right. [Unintelligible] mislead with that quarter percent.,16
-fomc-corpus,1980,"That's just raising it, on average, because the lower ends don't really mean anything.",17
-fomc-corpus,1980,"Well, they could.",5
-fomc-corpus,1980,It's raising depending upon where we begin.,8
-fomc-corpus,1980,"Well, it seems that we'd very likely do something if it came out there. Even I would be prepared to do that.",25
-fomc-corpus,1980,"You say raising on average. Depending on what one is looking at, it's accepting the upper constraint of alternative III on M1. That's the one you're worried about.",33
-fomc-corpus,1980,"Well, I was more worried about M2, and there we have an increase. Raising the lower constraints on M-1A and M-1B doesn't really accomplish anything.",36
-fomc-corpus,1980,"Well, let's try this one. I appeal to you: Anyone around this table who is good enough to know the difference between 1/2 point, with great [conviction], is pretty good.",41
-fomc-corpus,1980,Is that for simple or complicated minds?,8
-fomc-corpus,1980,Does it have any appeal?,6
-fomc-corpus,1980,I'd vote for it.,5
-fomc-corpus,1980,Want another straw vote?,5
-fomc-corpus,1980,"Just to be sure I am with you, read those numbers one more time.",16
-fomc-corpus,1980,They are: 3-1/2 to 6 on M-1A; 4 to 6-1/2 on M-1B; 6 to 9 on M2; and 6-1/2 to 9-1/2 on M3. Who finds that acceptable?,65
-fomc-corpus,1980,Here we go!,4
-fomc-corpus,1980,Eight.,2
-fomc-corpus,1980,And I make nine.,5
-fomc-corpus,1980,What did we finally get on the vote for straight alternative III?,13
-fomc-corpus,1980,I think about the same.,6
-fomc-corpus,1980,"I had seven, not counting--",7
-fomc-corpus,1980,"Seven, not counting me. So we got one more vote out of this one, right? Let's go with that one then. All the people who like narrow ranges ought to be enchanted by that 1/2 percent [reduction in the ranges for M-1A and M-1B].",61
-fomc-corpus,1980,The narrower M1 range.,6
-fomc-corpus,1980,"Which one did you go with, the last one?",11
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,I thought we had more votes for alternative III.,10
-fomc-corpus,1980,"I thought so, too.",6
-fomc-corpus,1980,Try again.,3
-fomc-corpus,1980,"No, I had seven not counting the Chairman. Want to try it again?",16
-fomc-corpus,1980,"What was the vote on the last one, Murray?",11
-fomc-corpus,1980,Eight plus the Chairman.,5
-fomc-corpus,1980,"I think the Chairman is saying that we may have had more votes on that, but those who are the unhappiest would find this last one acceptable. Is that your reasoning, Mr. Chairman?",40
-fomc-corpus,1980,"I don't know quite what I will find at this point, frankly.",14
-fomc-corpus,1980,I can go either way.,6
-fomc-corpus,1980,"In light of this vote, I'll shift from my last vote and make it even. I voted for alternative III in the spirit of compromise, but now that I know we can get 8 votes for this, which is more acceptable to me, I would like to switch my vote and make it [9].",62
-fomc-corpus,1980,Let's have a vote on this compromise and see what we get.,13
-fomc-corpus,1980,Maybe I ought to reactivate my proposal?,9
-fomc-corpus,1980,Let's take a vote on the latest proposal. Is everybody clear about what we are voting on?,19
-fomc-corpus,1980,The same thing that we just voted on.,9
-fomc-corpus,1980,"That's right, the 3-1/2 to 6, 4 to 6-1/2, 6 to 9, and 6-1/2 to 9-1/2.",45
-fomc-corpus,1980,What about bank credit? Are we going to have to put that in?,15
-fomc-corpus,1980,"Bank credit, I guess, is 6 to 9 percent.",14
-fomc-corpus,1980,6 to 9.,5
-fomc-corpus,1980,What about M2?,5
-fomc-corpus,1980,Henry thinks it's too high.,6
-fomc-corpus,1980,"If we expect to get it, we're going to have to raise marginal reserves.",16
-fomc-corpus,1980,"Chairman Volcker Yes President Balles Yes President Black Yes Governor Coldwell Yes President Kimbrel It's mighty hard, but I vote yes, too. President Mayo Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes First Vice President Timlen Yes Governor Wallich In the spirit of compromise, yes",64
-fomc-corpus,1980,"Well, I appreciate your swallowing all these 1/2 percentage point differences! I think it's probably more important to swallow the 1/2 point differences than to achieve the 1/2 point.",41
-fomc-corpus,1980,"Well, can we swallow something real now?",9
-fomc-corpus,1980,"Yes. After all this time, we have a great decision. How much problem are we going to have with our even narrower differences on the short-run ranges? Do you want to try to do this [before lunch]?",44
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Maybe we can just vote without any statement from anybody. It might be better.,16
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"Let's see where we are without going around the table. Do you want to say a few words, Mr. Axilrod--very few?",29
-fomc-corpus,1980,"I will skip the introductory part, a page and a half, which says that interest rates aren't projected to come down as much as they used to be because the economy is projected to be stronger. [Secretary's note: For the full text of Mr. Axilrod's statement, see Appendix.]",60
-fomc-corpus,1980,"If I understand this precisely, your alternative B, at least for M1, reiterates the target we already set at the last meeting.",28
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,And this can viewed as kind of a mid-quarter relook at that.,15
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"But M2 is a little below, right?",10
-fomc-corpus,1980,The [new] M2 is a totally different concept.,12
-fomc-corpus,1980,We didn't set a target for that.,8
-fomc-corpus,1980,That's right. It was the old M2--,10
-fomc-corpus,1980,That target was 7 percent; that's what confused me.,12
-fomc-corpus,1980,That's right. And it is in fact running a little low relative to the target.,17
-fomc-corpus,1980,But you think this 6-1/2 percent that you have here for the new M2 is roughly consistent with the 7 percent that we had on the old M2?,37
-fomc-corpus,1980,I would guess it's a shade lower because the old M2 is running a shade lower. It's either consistent or a shade lower. I haven't worked it out in detail month by month on money market funds.,41
-fomc-corpus,1980,But it contains very different components.,7
-fomc-corpus,1980,"Oh yes, that's right. That's why. It has money market funds--",15
-fomc-corpus,1980,"But it has been running higher than 6-1/2 percent, apparently, because you have the implied growth for January to March of 5-3/4 percent.",36
-fomc-corpus,1980,"Yes. The actual growth in M2 is 8.3 percent because, among other reasons, we had this very sharp expansion in money market funds in January, which we've been expecting to slow.",40
-fomc-corpus,1980,"There's a question of procedure we have to decide upon, which is whether to reiterate or change the targets that we had for the first quarter. [We can comment on] any tentative feeling that we have about the second quarter but we don't have to put the second quarter into the directive, and I think it's probably inappropriate to put the second quarter in the directive at this point. So, if people agree with this, the only thing we have to have in the directive is a number for the first quarter.",102
-fomc-corpus,1980,"To be clear, Mr. Chairman, alternative B, as we construe it, is simply reiterating the Committee's policy of last time with respect to M1.",34
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,That's in new terms and takes account of the actual growth that occurred in January.,16
-fomc-corpus,1980,And in both cases--just slightly in the case of Ml and a little more than slightly in the case of M2--the rate of growth in January was above our targets [for the quarter].,40
-fomc-corpus,1980,"Yes. But, again, this is a totally different M2.",14
-fomc-corpus,1980,"Yes, after we translate them.",7
-fomc-corpus,1980,But the old M2 is running a little lower relative to target than we had expected.,18
-fomc-corpus,1980,"So if we take alternative B, conceivably we could shade it a bit in the light of our earlier discussion. But I think we're talking--",30
-fomc-corpus,1980,"I think what we'd shade is the second quarter. After all, the first quarter--",17
-fomc-corpus,1980,"Well, that would be my inclination. Looking at this in view of what we just decided, the second quarter figures may be a little high. But we don't have to decide upon that now. Otherwise, what you're saying is that ""B"" is basically reiterating what we said before, which does imply a little slower growth rate in February and March than we in fact had in January. That's because January was high in M2--and M1 came out a little bit on the high side, but not very much--because of the money market fund bulge. I would suggest to you, but I don't want to hasten you if there's some vital question that I am missing, that just for the first quarter ""B"" is reasonable. I think it's not only in line with what we decided last time, but what we want to continue to decide.",173
-fomc-corpus,1980,Are we content with a point target here? Is that the way we should read this?,18
-fomc-corpus,1980,"This is the central tendency, obviously. Last time we worded it 4 to 5 percent on Ml. We could raise the question again of whether we want to continue with that wording. We said 4 to 5 percent on M1 and about 7 percent on M2. I suppose what we'd be saying here is that the Committee reiterated--if you want to word it that way--the 4 to 5 percent range on Ml. And on the new M2 basis, we'd shave the target a half point.",108
-fomc-corpus,1980,"There could be some argument, Paul, that we're farther along in the quarter and should narrow that range. Or we could say 4-3/4 percent, which is--",36
-fomc-corpus,1980,"Well, I don't feel strongly about that. Even on the new technique we're not that close. This is a pure matter of preference; we can word it either way. I don't have any--",39
-fomc-corpus,1980,"I would prefer to word it ""4 to 5 percent.""",13
-fomc-corpus,1980,"I think there's a lot to be said for stability from month to month in these directives, unless there's a major reason to change.",26
-fomc-corpus,1980,"Particularly if we keep that same wording, we'd be a little hard pressed to [rationalize] changing it by a quarter percentage point, which one could argue we might want to do on the basis of the long-term range, all else being equal. But that's such a fine adjustment. More substantively one could argue, given what's going on, that we might want to be tighter or easier.",81
-fomc-corpus,1980,I would argue for alternative C with a borrowing level of $1.6 billion.,17
-fomc-corpus,1980,1.6?,4
-fomc-corpus,1980,"That is about what they had, $1.5 billion, for alternative C.",17
-fomc-corpus,1980,"I think ""C"" is clearly saying, given what we know now that we didn't know last time, that you want to be a little tighter.",30
-fomc-corpus,1980,I think we should stick to where we were.,10
-fomc-corpus,1980,"""B"" says that we want to play it about where we've been playing it; ""A"" says we distinctly want to be a little easier. I think those are the choices here.",37
-fomc-corpus,1980,"I'd keep ""B.""",5
-fomc-corpus,1980,"Yes, I think we ought to stay where we were until we go off in a big way, which we'll do soon.",25
-fomc-corpus,1980,"While I prefer what Phil Coldwell said, I would vote for ""B.""",16
-fomc-corpus,1980,"Are there any other comments? I really don't want to rush this, but I think we ought to go to lunch if we don't have a consensus here. If there's a lot of argument that we should be distinctly tighter or if the differences are massive, [maybe we should break for lunch]. In fact if we took ""C,"" I think we would have to raise the targeted level of borrowing. I don't know what is consistent, but I--",89
-fomc-corpus,1980,They have $1.5 billion in the Bluebook.,12
-fomc-corpus,1980,"The measure of tightness in the face of higher inflation is not the money supply. It is really the interest rate, or the real interest rate. I see that as having come down.",38
-fomc-corpus,1980,It depends upon whether you're looking at the long-term or the short-term rates.,16
-fomc-corpus,1980,"It doesn't bother me to tighten the money supply, not because I think that's the proper response but because I think it will have the desired result.",29
-fomc-corpus,1980,It will have a result all right. It will really knock housing and autos in the head!,19
-fomc-corpus,1980,Willis.,3
-fomc-corpus,1980,"Paul, there's another question. Maybe this is not relevant, but in view of our unwillingness to come to terms with the lagged reserve question and in view of my nervousness with respect to our luck in holding out on this setup, is this perhaps the appropriate time to raise the question, given the fluctuations in borrowings and the growing differential between market rates and the discount rate, about changing the rate as part of this picture of [unintelligible]?",93
-fomc-corpus,1980,You mean the discount rate?,6
-fomc-corpus,1980,The discount rate.,4
-fomc-corpus,1980,It's always a relevant policy variable. But to some degree there's a choice. We can be easier on the reserve provision and raise the discount rate. We can be tighter on the reserve provision and not raise the discount rate.,44
-fomc-corpus,1980,But the danger is that we will lose control in the latter case.,14
-fomc-corpus,1980,I think we should be clear on what overall response we want and to me that is expressed in the funds rate.,23
-fomc-corpus,1980,"I think we have a chance here to make a nibble into that long-term range; and if we give that up now, we may not have a chance later on.",35
-fomc-corpus,1980,"Well, the funds rate is theoretically not predictable under what we're doing. But if we go toward ""C,"" we are biasing it, presumably--",30
-fomc-corpus,1980,On the upper part of the range.,8
-fomc-corpus,1980,"--on the upper part or for an increase from where we are. Not knowing anything else, I don't know what would actually happen. But presumably we would push the level of borrowings up a bit, which might or might not push the funds rate up. In ""B,"" we would not push the borrowings up, which might or might not be accompanied by stability in the funds rate.",79
-fomc-corpus,1980,Initially.,2
-fomc-corpus,1980,"Initially. And it's all going to be looked at--. The last money supply figures we have are weak, right?",24
-fomc-corpus,1980,"I am a little hesitant because I haven't seen the last [figures] on the new basis. On the old basis they were weak, but I haven't seen the new ones on the new weekly seasonal pattern yet. The old figures were weak, but we had expected a considerable rebound.",57
-fomc-corpus,1980,[Unintelligible] foreign deposits.,9
-fomc-corpus,1980,"Well, I don't know how to [interpret] the silence of most people. But Governor Coldwell has expressed himself for wanting to tighten up a little here.",32
-fomc-corpus,1980,I would prefer alternative B.,6
-fomc-corpus,1980,"It seems to me that we might very well get a bulge in money as we get into the spring, for one thing because of those [tax] refunds. Isn't that the time to do the tightening if there's going to be a tightening--when we have a demonstrated increase in the money supply?",60
-fomc-corpus,1980,It raises a problem.,5
-fomc-corpus,1980,"Given the most recent behavior of the published money supply and given the value in some continuity and not wanting a feeling of too much fine-tuning when nothing is clearly going wrong, I would suggest that we reiterate the directive that we had last time which says 4 to 5 percent [on Ml]. I think we have to change the M2 figure because of the change in the definition of M2.",82
-fomc-corpus,1980,Do you want to add M-1B into the directive also?,14
-fomc-corpus,1980,"We could add M-1B into the directive, but I think it ought to be done the same way, with a range, whatever the consistent number is.",33
-fomc-corpus,1980,In our view it's--,5
-fomc-corpus,1980,You think it's 3/4 of a point higher. I am surprised there's that much difference.,20
-fomc-corpus,1980,In that period it was 3/4 of a point.,13
-fomc-corpus,1980,Maybe we could say 4 to 5 percent for M-1A and 1/2 point higher for M-lB.,27
-fomc-corpus,1980,About 1/2 point more.,8
-fomc-corpus,1980,And 6-1/2 percent for M2. That looks a little--,17
-fomc-corpus,1980,As newly defined.,4
-fomc-corpus,1980,And we'd make it clear that these are the newly defined numbers.,13
-fomc-corpus,1980,"Your borrowing level for ""B"" would be $1 billion?",13
-fomc-corpus,1980,"The average borrowing for January was $1.2 billion, and that's what we were suggesting as the initial level. I would add that, following that very sharp spurt in borrowing last week, partly because the Desk is aiming at [a lower level], borrowing has been running much lower this week; it's averaging about $892 million so far.",69
-fomc-corpus,1980,"But consistent with ""B,"" you're talking $1 billion?",12
-fomc-corpus,1980,"We mentioned $1.2 billion in the Bluebook. Previously, at the last meeting, $1 billion was discussed; but borrowing seemed to be running higher than that. So it's a fuzzy question as to where precisely borrowing is going to want to end up. But we suggested $1.2 billion.",62
-fomc-corpus,1980,"The borrowing figure has been very fuzzy recently, to say the least. Whatever figure we think about now might be adjusted fairly promptly in the light of whatever numbers come in. What I am saying, partly in the interest of consistency, is that we are looking for M-1A between 4 and 5 percent and M-1B between 4-1/2 and 5-1/2--or we could say 1/2 point higher. I don't know if there's any preference between those. Then there is somewhat of a technical problem in that we don't get the M2 figure as early, but I think it could be said that we believe this is consistent with an M2 figure, as newly defined, of about 6-1/2 percent.",157
-fomc-corpus,1980,That says that nothing has happened since the last time we discussed this.,14
-fomc-corpus,1980,"Basically, I think it does. That's the issue: Whether we want to take this opportunity to make a change in what we laid down a month ago.",31
-fomc-corpus,1980,"Well, I think there has been a distinct perception of a higher rate of inflation by the public. And there has been a challenge on whether or not we are still hanging in tough.",37
-fomc-corpus,1980,I think alternative B represents some restraint. Restraint is continuing and we're beginning to see it in the things that I called attention to. I would not like to see us change from alternative B.,40
-fomc-corpus,1980,"The only reason we don't have a considerable shortfall is because of that seasonal adjustment. Otherwise, we are hanging with a policy that gives us a shortfall.",32
-fomc-corpus,1980,"Well, this is the issue. It involves not just what we want to do now but has some future implications as to how much we want to fine-tune these numbers at monthly intervals or the intervals at which we meet. Sometimes we are going to want to change them, I think, so I am not completely allergic to it. This would be a very small change between ""B"" and ""C.""",82
-fomc-corpus,1980,It's also partly a perception of front-end loading.,10
-fomc-corpus,1980,"Consistent with the decision we just made for the long run, ""B"" has a very slight amount of front-end loading, if you mean by front-end loading going below the--",37
-fomc-corpus,1980,More restraint.,3
-fomc-corpus,1980,"Well the January-to-March growth implied by ""B"" is well below what happened in January. So, by definition, we're going to get some tightening.",32
-fomc-corpus,1980,"In any event, we will get a slight amount if these numbers come out that precisely. All these numbers imply a slightly slower rate of growth than what we actually had in January. And I think we could say in the policy record at the very least that that implication exists.",55
-fomc-corpus,1980,"Mr. Chairman, if it's your preference to state this as ranges of 4 to 5 percent and 4-1/2 to 5-1/2 percent, is the implication that the Desk would aim for the midpoint?",48
-fomc-corpus,1980,"Yes, I think that is true for this period. I have a slight preference for a range just because we are never going to hit the exact figure anyway--we're not that good--and it just indicates that there's a little [flexibility]. But the implication clearly is that for now we aim for the midpoint. Now, what we do as the period [progresses] if we get outside it in either direction and whether it's practical to get all the way back to the midpoint [is the question]. There is some flexibility [with a range], but I don't feel strongly as to whether it's stated as a midpoint or--",126
-fomc-corpus,1980,"With the understanding, whether it's in the record or not, that we would in fact [aim] for the midpoint, I for one would find it acceptable. My preference would be to be a little more precise in the instructions to the Desk as to what to aim for and recognize that we might not be able to hit it.",66
-fomc-corpus,1980,"Well, let's separate these two questions. Let me just get a show of hands. Who basically wants to keep the midpoint where we had it, with the modification that means [given] a change in the [M2] definition, but does not want to say that we want a different basic [objective for] money growth in the first quarter? This recognizes that that means a slightly lower rate of growth in February and March than we in fact had in January.",93
-fomc-corpus,1980,"Nine, Mr. Chairman.",6
-fomc-corpus,1980,"Well, that seems to be the preference. The subsidiary question--I think it is distinctly subsidiary--is whether you want to word it the way we did last time, as I suggested with the new definitions, or do you want to word it as 4-1/2 percent?",58
-fomc-corpus,1980,I would prefer to word it the way we did last time.,13
-fomc-corpus,1980,Could we have a show of hands on that?,10
-fomc-corpus,1980,Five.,2
-fomc-corpus,1980,"Maybe we want to word it the other way then. It's about evenly split, but I--",19
-fomc-corpus,1980,"I think we're better off stating them all as ""abouts""--""about 5"" and I guess ""about 6-1/2.""",29
-fomc-corpus,1980,"All right. The alternative is saying about 4-1/2 percent and--. Well, I think the 6-1/2 percent ought to be worded differently because we don't have that number right away and we can't have the implication that we're following that week by week because we just don't have it. So, with that change in language, it's 4-1/2 percent for M-1A and 5 percent for M-1B, which I notice is halfway between ""B"" and ""C."" And then ""The Committee believes that is consistent with about 6-1/2 percent for M2 as newly defined.""",133
-fomc-corpus,1980,"How do you explain, Paul, why we have a point target even with the ""about"" in front of it for the short run and we have a range for the long run?",37
-fomc-corpus,1980,Because that's the way the Manager [operates].,10
-fomc-corpus,1980,We run on a reserve path. What we're aiming for is a reserve path that's built on the midpoint if you pick a range or the approximate point if you pick an approximate point.,36
-fomc-corpus,1980,"I hate to introduce this again, but what we did once was to say 4-1/2 percent--it happened to be 4-1/2 [unintelligible]--and it was clear in the record, though I forget just how, that lower was better than higher.",61
-fomc-corpus,1980,But that still seems to me an instruction to the Manager.,12
-fomc-corpus,1980,"It's an instruction to the Desk. Okay, I buy that.",13
-fomc-corpus,1980,The last paragraph still has [unintelligible] but in the second [to last] paragraph the instruction is to run his reserve [operations] so as to be consistent with growth of about 4-1/2 percent.,47
-fomc-corpus,1980,I think that's right.,5
-fomc-corpus,1980,He's going to miss--maybe or probably.,9
-fomc-corpus,1980,"But I don't really think it makes any difference what instruction will be given to the Manager [initially]. The [question] is whether or not to put people on notice that nobody is good enough to meet [a precise] target, and we may imply that by using a small range. But I don't think it's a very significant question. Shall we vote? It's 4-1/2, 5, and 6-1/2 percent stated as ""abouts.""",96
-fomc-corpus,1980,Initial borrowing is at $1.2 billion or about $1-1/4 billion?,19
-fomc-corpus,1980,"Borrowing is at $1-1/4 billion, let's say. Okay.",17
-fomc-corpus,1980,"Chairman Volcker Yes President Balles Yes President Black Yes Governor Coldwell No President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice Yes Governor Schultz Yes Governor Teeters Yes First Vice President Timlen Yes Governor Wallich No Nine for, two against.",54
-fomc-corpus,1980,I will take up the scheduling at lunch. Thank you.,12
-fomc-corpus,1980,"The meeting can come to order, gentlemen and lady. We have a lot of business to dispose of at the start and I will try to find my agenda, if you will excuse me a moment. We have the election of officers. First of all, we have the election of the Chairman--I keep getting reminded that this position is not statutory --and we need a nomination.",76
-fomc-corpus,1980,"Mr. Chairman, after great soul-searching until late last night, and contrary to the exhortations of many people around this table, I have decided to nominate Paul Volcker as Chairman of the FOMC!",43
-fomc-corpus,1980,Do we have a second?,6
-fomc-corpus,1980,"Second. You saved him, Fred!",8
-fomc-corpus,1980,Pressure will do it every time!,7
-fomc-corpus,1980,Is there an objection? I shouldn't put it that way!,12
-fomc-corpus,1980,I move that the nominations be closed.,8
-fomc-corpus,1980,Without objection. We need a Vice Chairman.,9
-fomc-corpus,1980,"Mr. Chairman, I nominate Anthony Solomon as Vice Chairman of the FOMC.",17
-fomc-corpus,1980,"This can't take effect until he takes office, so it would have to be dependent upon his April 1 inauguration date. Is there a second? SEVERAL. Second.",35
-fomc-corpus,1980,"Without objection we will have Mr. Solomon become Vice Chairman upon his taking office. We have staff officers to select. As one of those staff officers, I would nominate Mr. Altmann to be Secretary. Perhaps Mr. Altmann will read the rest of the nominees.",54
-fomc-corpus,1980,"Fine. Assistant Secretary, Normand Bernard; General Counsel, Neal Petersen; Deputy General Counsel, James Oltmann; Assistant General Counsel, Robert Mannion; Economist, Stephen Axilrod; Adviser for Market Operations, Alan Holmes; Associate Economists from the Board: Edward Ettin; George Henry; Peter Keir; James Kichline; Edwin Truman; and Joseph Zeisel. Associate Economists from the Reserve Banks: Anatol Balbach; John Davis; Richard Davis; Thomas Davis; and Robert Eisenmenger. That's the list, Mr. Chairman.",114
-fomc-corpus,1980,Apart from the fact that we seem to have a plenitude of Davises--pardon me?,20
-fomc-corpus,1980,And no Managers.,4
-fomc-corpus,1980,"The selection of the Managers comes in a later agenda item. If there are no objections to those officers, they will be appointed. Now we need a Federal Reserve Bank to execute transactions for the System Open Market Account. That has traditionally, as you know, been the New York Bank. Do we have a motion to that effect? SEVERAL. So moved.",73
-fomc-corpus,1980,"Without objection. Now we need to select the Managers. The present Managers are Mr. Sternlight, Domestic Operations and Mr. Pardee, Foreign Operations. Do we have a motion to [reappointment them]? SEVERAL. So moved.",49
-fomc-corpus,1980,Without objection those appointments are made. Now we need to approve the minutes of the last meeting. Do we have a motion?,25
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Do we have a second?,6
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection, the minutes are approved. And I guess we are now to the report on foreign operations since the last meeting, Mr. Pardee.",30
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"Scott, you mentioned the possibility that some parties may be suffering major losses by reason of the decline in the price of gold. Would that include any major commercial banks?",33
-fomc-corpus,1980,"Well, not U.S. banks. A few of them have operations in gold, but they are mainly merchandisers of gold in that they buy from either the IMF or out of European markets, or in the past from the U.S. Treasury.",51
-fomc-corpus,1980,[What about] European banks?,7
-fomc-corpus,1980,"One or two European banks could be sitting on losses. On the other hand, they are very well capitalized. I think they can withstand such losses.",31
-fomc-corpus,1980,"Scott, you said that the fundamentals--inflation expectations, the current account, and so forth--were not in favor of the dollar. Do you see continuing strong pressure for the dollar to go up in the face of that?",46
-fomc-corpus,1980,"No, one of the reasons we repaid our debt so quickly was that there is the risk of a snapback. As I say, the only thing that is supporting us at the moment is really the interest rate differential. Market expectations toward the dollar are still very bearish.",55
-fomc-corpus,1980,"The question I would like to raise more broadly is, insofar as we do anything in the market at all, should we restrain the dollar more than we have? We share with the Bundesbank in the proceeds of their support operation. In any event, if there is a strong movement, one can't do very much. But if the dollar goes up, say, three pfennigs in one day, wouldn't it be better to absorb some of that?",92
-fomc-corpus,1980,"Well, the rise of the dollar has been almost totally during the European hours, and the Bundesbank has been prepared to in one operation or the other. By the time we come in, the market is pretty limp. We have been able to do small amounts. We haven't wanted to do too much for fear that the market psychology would turn against us saying: ""Aha, the United States is trying to drive the dollar down again."" So it's a very, very delicate question. On the other hand, the Bundesbank has had some of the same problems with the mark that we had back last fall when the dollar was going down and we were having trouble stopping the slide, even though we were intervening in big amounts.",146
-fomc-corpus,1980,The market moves against the intervention is what you are saying. The dollar goes up in Frankfurt against the Bundesbank intervention and doesn't go up in New York despite the absence of intervention.,36
-fomc-corpus,1980,"We have been prepared to operate a little, but [the dollar] has been pretty steady in New York.",22
-fomc-corpus,1980,We need to ratify the transactions since the last meeting. Do we have a motion? Second? SEVERAL. Second.,26
-fomc-corpus,1980,[Approved] without objection. You have a recommendation?,11
-fomc-corpus,1980,"For once I don't have to recommend any swap renewals. But I do have a rather complicated transaction to describe, so that I can be authorized to complete it. When the dollar came into demand in late February, early March, the Bundesbank supplemented its spot sales of dollars with forward sales of dollars against marks for delivery in early May. The choice of dates was related to the domestic liquidity situation in Germany. Mark liquidity was expected to be more ample in early May than in early March, so the forward sales of the dollar would help mop up some of that excess liquidity. The total was equivalent of marks. Since the Bundesbank was sharing half of the mark proceeds of its spot sales of dollars with us at the time, and we had no idea how long the dollar would remain in demand, we asked them if they might also share the proceeds of the forward sales. It took them several days to come back with an answer; and when they did, they set some conditions that required consultations on our side within the Federal Reserve and with the Treasury. In the meantime the dollar continued to rise and the System continued to make good progress in repaying swap debt. In view of the Treasury's need for marks to cover the Carter notes, we finally decided to offer the forward marks to the Treasury, and the Treasury agreed. In response, the Bundesbank raised no objection. But after further review on their part, they insisted that the Federal Reserve as the central bank of the United States be the direct counterparty on the forward contracts rather than the U.S. Treasury. Subject to your approval, the solution we have worked out is that the System would enter into two sets of forward contracts: one with the Bundesbank to obtain the marks directly from it, so that as the central bank of the United States we are sharing in that operation; and the other between the Federal Reserve and the Treasury to pass the marks directly on to the Exchange Stabilization Fund. These transactions would be at the same rates, so there is neither profit nor loss to the System. The reason I am laying this out to you is that the Bundesbank As Manager, it is difficult for me to argue that these transactions would be Exceptions have to be expressly authorized by the Committee. Consequently, I am requesting authority from the Committee to make an explicit exception to the rule so that we can complete the deal. The Treasury needs the marks since it still has a short position of $3.3 billion of marks under the Carter notes. Since some of the Treasury's mark debt is at even higher mark rates than those on these contracts, the cost comparisons are not excessively unfavorable to the Treasury. Moreover, should the System need to incur additional swap debt before May, the Treasury is willing to cancel all or part of its purchases from us so that we could use the marks in repayment. The transactions are quite complicated but essentially mean that the U.S. authorities will gain an additional worth of marks to work with should the occasion arise. That's my recommendation.",601
-fomc-corpus,1980,But at what cost?,5
-fomc-corpus,1980,I take it?,4
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"in today's markets, it's the Treasury who bears [the cost], and they want to bear it.",20
-fomc-corpus,1980,We don't know where the rate will be in May.,11
-fomc-corpus,1980,Why does the Bundesbank,5
-fomc-corpus,1980,"It's a matter of that nature, yes. They prefer",11
-fomc-corpus,1980,"Was the Treasury a party to the original agreement, Scott? That is, did they agree that those forwards ought to be sold?",26
-fomc-corpus,1980,"No, but they were the ones who suggested that we should raise the question of this 50-50 sharing with the Bundesbank. As soon as they heard about it, they were the ones who pressed the Desk to inquire whether the Germans would be prepared to--",53
-fomc-corpus,1980,"It was the Bundesbank's decision to buy in the first place; but as soon as the Treasury heard about it, they wanted [to participate].",30
-fomc-corpus,1980,"There was no objection raised by Treasury, or for that matter by the Federal Reserve.",17
-fomc-corpus,1980,Does that reflect the judgment of the Treasury on the outlook for the dollar?,15
-fomc-corpus,1980,All this discussion took place when [the transaction] was at about the market rate. It's just that with the lapse of two or three weeks since the transaction took place it's no longer the market rate.,40
-fomc-corpus,1980,"Scott, at what rate do we get these marks back [from] the Treasury, if we need them?",22
-fomc-corpus,1980,"Well, I am sure the Treasury would insist on a rate of around 175, 176. The average rate is 175-1/2 or thereabouts.",34
-fomc-corpus,1980,I think we probably wouldn't want them back.,9
-fomc-corpus,1980,"No, if the situation arises, I will [undertake] a very complicated negotiation to avoid our getting stuck with them.",25
-fomc-corpus,1980,"Well, this seems more technical to me than real. The original transaction was at a market rate and what we are doing is back-dating in some sense--not literally back-dating, but it's no longer at the market rate. The Treasury wants the marks and we are a conduit. I don't see any big problem in this myself.",68
-fomc-corpus,1980,I move we accept this.,6
-fomc-corpus,1980,Is there any real question about it? I think we just have to write the exception in such a way so that the circumstances are clear as to the fact that this was not an off-market transaction when it took place.,44
-fomc-corpus,1980,And we're not committed to buy them back from Treasury?,11
-fomc-corpus,1980,"No, I don't see that we should be committed. I don't understand that part. I don't see where we would want to buy them back. If we have to intervene on the other side, the Treasury can use the [mark] balances [it holds] and it would take the loss. I don't think we want to take them back at the off-market rate.",74
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,This was a transaction that was initiated by the Germans and it automatically involved us to the extent of 50 percent?,23
-fomc-corpus,1980,It didn't automatically. They've been giving us 50 percent of their intervention at our request and this falls into that pattern.,24
-fomc-corpus,1980,I see.,3
-fomc-corpus,1980,"They originated the intervention but they have been giving us 50 percent, and they will give us 50 percent of this. It just happens to be a forward transaction which hasn't been [consummated] yet. It falls into the regular pattern, but what is different about it is that it is a forward transaction.",64
-fomc-corpus,1980,"Forward, yes.",4
-fomc-corpus,1980,Do they regularly engage in forward transactions?,8
-fomc-corpus,1980,"No, I believe they did it for liquidity reasons.",11
-fomc-corpus,1980,"Yes, liquidity.",4
-fomc-corpus,1980,"They were doing a lot of intervention and the effect was to drain liquidity. They didn't want to drain that much liquidity at the time, so they did a forward. That's why they did it, as I understand.",43
-fomc-corpus,1980,In fact they are now,5
-fomc-corpus,1980,"I don't think they have done any forward transactions recently. This was all during a limited period. Well, without objection we will provide that exception. Mr. Sternlight.",34
-fomc-corpus,1980,"Paul, before you turn to that: What's our posture for the month ahead in this area as the markets bubble?",23
-fomc-corpus,1980,"Well, I think Mr. Pardee has described our present posture. We would certainly buy some marks, to the extent that the mark is at these levels and to the extent that it is strong in New York. But as he points out, it hasn't been terribly strong in New York. The Bundesbank has agreed to share with us their intervention, but we will pass it on to the Treasury at this point since we are out of debt and the Treasury is under water by whatever the number is now.",101
-fomc-corpus,1980,"$3.3 billion. Yes, we can continue; and they are continuing to share.",19
-fomc-corpus,1980,"Do we have any mark balances now? We have a few mark balances, don't we?",18
-fomc-corpus,1980,"Yes, $100 million worth of marks.",9
-fomc-corpus,1980,"Essentially, we will pass along our share of their intervention to the Treasury until the Treasury gets balanced. If the dollar remains that strong and indeed we do any intervention in New York, we will pass that on to the Treasury, too.",48
-fomc-corpus,1980,"Yes, everything. The problem will remain if the dollar comes under selling pressure. I think we are going to have to give quite a bit of ground before we start operating very vigorously in defense of the dollar because the Bundesbank certainly won't help us for a long ways down.",55
-fomc-corpus,1980,"There is a great concern in Europe generally about their currencies depreciating because of the internal inflationary repercussions, and everybody wants their currencies to appreciate at this point. I think it's only that our interest rates have prevailed here at the moment. But the danger is that they will raise their interest rates, which is one consideration we had in mind in handling our discount rate the way we did--not to give them such a strong signal for raising their interest rates. I am not sure we are going to avoid it anyway, but it was quite clear when I was over there last week that they were not looking forward with any joy to an increase in the U.S. discount rate. They felt it would force them to raise their rates.",146
-fomc-corpus,1980,"Shall I proceed, Mr. Chairman?",9
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"Peter, would you have been able to come closer to the total reserve path if we had contemporaneous accounting?",22
-fomc-corpus,1980,"I really don't think it would have mattered a great deal, President Morris. I have not regarded the lagged accounting as a significant impediment to achieving the [path], as long as we are able to make the kinds of adjustments we make in the nonborrowed path to bring speedier adjustments to the growth of the aggregates. I don't think it matters a great deal.",75
-fomc-corpus,1980,Isn't it true that the one-week bulge in the money supply practically made it impossible for you to hit the total reserve path in the last three weeks?,32
-fomc-corpus,1980,"Well, even with contemporaneous accounting, we are going to get bulges at times; and if we didn't provide the reserves, [the reserve needs] would be met at the discount window. The banks would have to borrow, or would have to do something, to get the reserves to meet their requirements.",62
-fomc-corpus,1980,"You do have to be prepared to change your nonborrowed path frequently, I take it, as these borrowings numbers come out in ways that are unexpected.",32
-fomc-corpus,1980,I think that is right.,6
-fomc-corpus,1980,"There will be a lot more of that in the future, too, Peter.",16
-fomc-corpus,1980,"Certainly so, given the new look at the discount window.",12
-fomc-corpus,1980,"But, Chuck, how do you know which way it's going? If we are making an adjustment in the nonborrowed, borrowings go up. It's hard to see which one comes first here. If we lower the nonborrowed path, that almost dictates an increase in the borrowings.",59
-fomc-corpus,1980,"Well, that certainly is true. But I think we do it by looking at total reserves, too--by seeing what's happening in total reserves relative to our path. What I worry about is that there may be a number of necessitous borrowers. There may be a lot of nonmember borrowers who will come in once this bill passes. So we could have a surge in borrowing, which is not really a reserve balancing decision but just a portfolio balancing decision on the part of those institutions, that we would need to adjust for in our nonborrowed [path].",113
-fomc-corpus,1980,"There is no question that if new borrowers come in for emergency reasons or because they are new, we will have to make an adjustment to allow for that. But I think this elasticity in the borrowing numbers is very bothersome whether we are on contemporaneous or lagged accounting. The contemporaneous might help. When are we going to have our report, Mr. Axilrod?",76
-fomc-corpus,1980,"Well, at any time. Following the previous FOMC discussion, we looked up all our old work on the various proposals that the Presidents put forward. And we'd be prepared to bring the issue of lagged reserve accounting plus some of those other issues before the Board at any time. If the Board were going to consider it, I would suggest that it be done in such a way that if any change were made, it could go into effect when the new [law] goes into effect--that is, six months from the time of [its enactment]. So, in that time frame--within a couple of months or earlier--we would certainly be prepared to bring something to the Committee.",140
-fomc-corpus,1980,We are going to be prepared to have a discussion of that at our next meeting?,17
-fomc-corpus,1980,Do you mean on the other measures in addition to the lagged reserve accounting that the Committee has already discussed or just--?,25
-fomc-corpus,1980,What are they?,4
-fomc-corpus,1980,"Well, lagged reserve accounting, staggered reserve settlements, and a few other things.",18
-fomc-corpus,1980,You are going to be prepared with all of this?,11
-fomc-corpus,1980,"Well, we could be.",6
-fomc-corpus,1980,Let's try to do that. I think it's a major hazard to introduce something that is going to be as difficult as this for the banks to handle on top of all this other stuff that we have been giving them.,43
-fomc-corpus,1980,"My only point was that if the Board and the Committee wanted to do away with lagged reserve accounting, the time to do away with it is when the whole new reserve system goes into effect, [when it is] applicable to other institutions.",49
-fomc-corpus,1980,I understand that consideration. Mr. Roos.,10
-fomc-corpus,1980,"I think my question was probably answered, Mr. Chairman. As I understand this process, every day you have a total reserve path target in mind, right?",32
-fomc-corpus,1980,"I would say that what we have in mind from day to day is more of a nonborrowed objective. Although as I described, in certain circumstances, such as when we get a bulge of borrowing over the weekend that may have been caused by banks anticipating a discount rate action, it seems sensible to come in below, let's say, a nonborrowed interim objective.",75
-fomc-corpus,1980,But the figure on borrowings is available to you on a [daily basis]?,16
-fomc-corpus,1980,"Oh, I get a tentative figure every day, yes.",12
-fomc-corpus,1980,"So, if you have a total reserve figure in mind and you know what the borrowings are, can't the adjustment almost automatically be made on the nonborrowed side to give you the total? If you know borrowings and if you know what total reserves should be, then can't you simply adjust the nonborrowed part of this to give you the total reserves you want?",75
-fomc-corpus,1980,That's where the lag comes in. We have to meet the [required] reserves.,17
-fomc-corpus,1980,We know the required reserves; we can't change the required reserves for that particular week. And the required reserves govern the total reserves.,26
-fomc-corpus,1980,"I recognize that. But if we offset, or if we don't supply the required reserves, what happens? Do we have to accommodate the needs of the banks? Or could we not stick by our total reserve target, and if they are short, they would have to scramble to adjust their operations to what we want to do.",65
-fomc-corpus,1980,"If we don't provide the reserves in nonborrowed form, they will have to get the reserves either through borrowings or be deficient in their reserves.",30
-fomc-corpus,1980,Is that a bad thing?,6
-fomc-corpus,1980,"Well, it depends on what degree of pressure we want to impose on them at that moment.",19
-fomc-corpus,1980,Are we fearful that interest rates will [rise]?,10
-fomc-corpus,1980,"The Committee has set bounds on the funds rate. If total reserves were the overriding objective, bar nothing, then we could drive interest rates up to just about any point, I would think.",38
-fomc-corpus,1980,And even then we can't affect total reserves. The banks are just going to borrow. What we can affect is how much they borrow in any particular week.,31
-fomc-corpus,1980,But we can affect the degree of pressure they are under so that they will start making adjustments.,19
-fomc-corpus,1980,"Well, we do want to do that, don't we?",12
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,And we did that.,5
-fomc-corpus,1980,"I think we get an arithmetic impossibility if total reserves are set and we change nonborrowed reserves for every dollar change that occurs in borrowings to try to go along a path we have in mind for total reserves. It makes it impossible for the banking system to balance, given the fact that we have a two-week lag on deposits. And they would be in violation of the law.",78
-fomc-corpus,1980,"Well, they can [have a] reserve deficiency for a week, for a little bit.",19
-fomc-corpus,1980,But it's not very big.,6
-fomc-corpus,1980,"The important point really is the one you made a while ago, Chuck, about the need for reassessing the nonborrowed reserve target more frequently. I was on the call and I sensed that we really ought to be doing that; we did speed it up last month, but I would like to see even more.",64
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"[Unintelligible] keep the level of borrowed reserves at about what we would hope to have it. And to the surprise of most, if not all of us, the necessity of frequent adjustments just didn't come along for a long time. It looks as if perhaps February might have been the month when it could have been used. The question, as you look back in a little post-mortem, Peter, is whether it would have made any difference. Would it have helped the cause, so to speak, in preventing total reserves from getting too big, if we had done what we thought we would have to do on that October 6 game plan, which is to put the discount rate up?",142
-fomc-corpus,1980,"Well, of course, the discount rate was moved in the middle of February along with the Desk taking measures to impose greater reserve restraint. There was a certain amount of pressure that emerged almost automatically out of the process just by our sticking to our nonborrowed path when the banks were demanding additional reserves. That automatically imposed some increased need for borrowing. And then a further downward adjustment was made in the nonborrowed path to increase the degree of pressure, and at about the same time the discount rate was raised. So by forcing the banks to borrow--I think it was around $1.8 billion--at an even higher discount rate, we put still greater upward pressure [on rates]. What we got, as I described, was a very substantial move in short-term rates of 3 or 4 percentage points over a few weeks. And I think it got some banks feeling that they were staring very hard at the possibility of a crunch and the prospect of just not being able to fund themselves. So in that sense the program is working; it has [produced] very real restraint for the banking system. I don't know that bigger moves or earlier moves in the discount rate would have done anything more than was being done [through our operations]. I don't know that we should have [done] more because I think we were imposing quite a bit of restraint.",273
-fomc-corpus,1980,"One other question, Mr. Chairman. I would like to ask Steve something in this case, in conjunction with the Bluebook alternatives. Steve, would it be reasonable or even feasible for the staff to attempt to estimate a level of the discount rate that would be consistent with the money growth targets?",59
-fomc-corpus,1980,"Well, I share much of what Mr. Sternlight says. If you want to estimate an interest rate that would produce these results--I was hoping this method would get away from that a little--it seems to me that, if anything, it would be more like the federal funds rate. In essence, if you look over a long enough time period, it doesn't matter very much what part of the total reserves is supplied by nonborrowed reserves and what part is borrowed. What really matters for determining the money supply is the amount of reserves, the total base out there to support money in some multiplier sense. And over a long enough period, it can't really matter whether that's through nonborrowed reserves or borrowed reserves. In the very short run because of this mix, with required reserves fixed, it does matter because it affects the behavior of the funds rate given the discount rate. But if we put in a high discount rate, then for any given total reserves we would have less borrowed reserves and more nonborrowed. If our estimate of the discount rate is low, we'd have the reverse situation. So, while we could do that, we would simply be changing the mix between nonborrowed and borrowed reserves for any given level of total reserves that would support the money supply. I don't think that would be very helpful to you; we would be glad to do it, of course. I think in February the alternatives before the Committee were: making an adjustment in the funds rate fast by raising the discount rate; making it more moderately by gradually lowering the nonborrowed path; or making it even more moderately by keeping the nonborrowed path and letting a gentle rise in borrowing take place instead of a rapid rise. What was actually done was to have a small rise in the discount rate and a reduction in the nonborrowed path, which was somewhere in between all those alternatives.",378
-fomc-corpus,1980,"Well, if I could, I'd just raise one more point. In asking my own staff to review what went on during that February period, it seemed pretty clear to us that the staff here and in New York had done a fine job of guessing what the multiplier was going to be, what the total reserves should be, and what the nonborrowed path should be. There was very fine work on that. Yet the net outcome was that total reserves got out of hand on the up side for a while. What I am trying to get to the bottom of, with the benefit of hindsight, is how you and Peter now think that could be headed off in the future.",135
-fomc-corpus,1980,"Well, our views are probably marginally different. A difference is that I might allege that we could hit the total reserve path week to week. I don't think it's very important to do it, but we could without lagged reserve accounting. But we'd have to have very large movements in the federal funds rate because we'd have to force the banks, within the statement week, to adjust their deposits to the total reserves we'd put out there. We'd have to force them to do it. Without lagged reserve accounting that is possible. With lagged reserve accounting, that could also occur. If we allow enough pressure on the funds rate, they could make the adjustments in deposits but we just won't see it in total reserves until two weeks later. So within a very short-run period it would look as if we were missing our total reserves; but actually we'd be getting adjustments in deposits that would be [evident] in required reserves two weeks later and we'd really not be off very badly. We would just be over path for a while and then we'd be back on path. That's the essence of what Mr. Sternlight is saying and I wouldn't quarrel with that particular statement. Indeed, the money supply is coming back on target now, or seemingly so, if March turns out as we are projecting it. There has been a rapid response to the rise in the funds rate that has occurred, just as happened in October, which may be a coincidence or it may be that the lags [in response to changes in] the funds rate are not six months [but are closer to] one day. It's hard to believe the latter but something like that has happened for two successive periods. I am not sure whether I have answered the question, but I think I at least came close to it.",360
-fomc-corpus,1980,May I ask Steve a question? The advocates of contemporaneous reserve accounting argue that there would be less volatility in the funds rate than under lagged accounting. Do you subscribe to that?,37
-fomc-corpus,1980,"Oh no, I think there would be quite a bit more, for one reason. The one [internal] reason is that Mr. Sternlight really won't be ""able""--and I put the word in quotes because I don't mean that he's really managing the funds rate--to adapt his operations as readily because in the current week he won't know required reserves. [Suppose] this week we're going to provide $100 in total reserves. Given the fluctuations in deposits that occur from week to week, we really won't know whether the required reserves in the week relative to the $100 in total reserves would be $20 or $90. If they turn out to be $20, Mr. Sternlight is going to find that as he puts in nonborrowed reserves, there are going to be huge declines in borrowing and huge declines in the federal funds rate. And he's not going to have any alternative but to chase those borrowings down and put in more nonborrowed. Because of the volatility of deposits week to week, I think we'd be certain to get more fluctuations in the federal funds rate. However, with the system we're now operating on, where he knows required reserves and we make adjustments on an average path for a four-week period, we make those adjustments so that we [take into account] the required reserve pattern that we know for certain over the two weeks ahead. And we tend to make the borrowings the same in each of those weeks. So we let nonborrowed reserves vary with the deposits while tending to hold the borrowing stable in an average path for a four-week period. I know that sounds like gobbledygook, but it is what we do.",336
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"I wonder if I may ask two questions? The first one is to Steve. Steve, on contemporaneous reserve accounting, how much of a change in deposits would you need in order to sweat out $1 of reserve deficiency?",45
-fomc-corpus,1980,"I am not sure I get the gist of your question, Governor Wallich.",16
-fomc-corpus,1980,It depends on what the multiplier is.,8
-fomc-corpus,1980,"The multiplier on demand deposits at the moment is roughly 6. So if we took put in $1 of reserves, we ought to get $6 more, roughly, in demand deposits. But that is not certain; if we put in reserves, they may end up in currency or anywhere else for that matter. But that's the multiplier on demand deposits; it's a lot higher on time deposits.",79
-fomc-corpus,1980,The point I am trying to get at is: Isn't the additional adjustment you get from contemporaneous reserve accounting relatively small? You need a very large movement in deposits in order to overcome a small deficiency or surplus of reserves.,44
-fomc-corpus,1980,"Contemporaneous reserve accounting, as nearly as I can tell, does only two things for you. First, it absolutely can remove interest rates in some sense from your consideration. If you believed that there was a multiplier that the staff could predict, you could set total reserves; you'd have to chase borrowing up and down but you could come closer to hitting that total reserve target in a given week. Lord knows what interest rates you'd have, but you might have the money supply. So the interest rates would be forced to adjust to the reserves. We wouldn't be doing what we do now, which in some sense is to make adjustments in nonborrowed reserves to deliberately force more interest rate pressure on the system. The system would evolve its own interest rate pressure either up or down as we put in the total reserves. So contemporaneous would do that for you; it would remove some little element of prediction we still have as to what interest rates we want to see in order to achieve the money supply [objectives]. That element is left in lagged reserve accounting. The other thing it does, of course, is to speed up the response by 2 weeks. The latter isn't all that important presumably because 2 weeks out of 52 weeks is not any big deal.",254
-fomc-corpus,1980,And you can anticipate it anyway but--,8
-fomc-corpus,1980,"What it really does, in my mind, is to remove the necessity of making judgments about where you want interest rates to be. But that's a judgment the Committee may not want to remove.",38
-fomc-corpus,1980,We'd have to be willing to let the interest rates go anywhere.,14
-fomc-corpus,1980,"We will have to have an exhaustive discussion of these questions when we put contemporaneous reserve accounting squarely on the table, so perhaps we shouldn't waste too much time now. I don't think we are going to change [our procedures] at this meeting.",50
-fomc-corpus,1980,"May I ask my other question? Peter, what determines your decision to buy coupons? You mentioned that you bought nearly $1/2 billion.",29
-fomc-corpus,1980,"Well, we were in the midst of a period of sizable reserve provision and it was a judgment that we should divide up that purchase. We anticipated the need to provide for an outright increase in the portfolio of some $1-1/2 billion. It seemed appropriate to do the bulk of it in the bill area, but we had not bought any coupon issues for a few months and just in accord with the past dispersion of our buying it seemed appropriate to do some portion of it in coupons.",99
-fomc-corpus,1980,Would you have done about the same had the bond market been different?,14
-fomc-corpus,1980,We want to keep in mind that we don't want to buy at a time when issues are very scarce and we'd have a sharp impact on prices. Certainly the fact that the coupons were available would make some marginal difference in our decisions.,46
-fomc-corpus,1980,"Yes, so you were stabilizing the market?",10
-fomc-corpus,1980,We did a bum job of stabilizing!,9
-fomc-corpus,1980,Unsuccessful.,3
-fomc-corpus,1980,Mr. Guffey.,6
-fomc-corpus,1980,"I would like to ask what may be the same question John Balles asked but in a little different way. Had we raised the discount rate early in March, having in mind that through the period total reserves would be over [path] by about $700 million plus, would you not [conclude] that we'd have come closer to the total reserve path and that the adjustment would have been a bit quicker? I guess the alternate question is: What would you have projected for interest rates? Would they have been any higher absent the anticipation [of a discount rate move] that was going on?",119
-fomc-corpus,1980,"If you had taken a further upward discount rate action from 13 percent, say, to 15 percent, I would have predicted a faster adjustment of the money supply only if that rise in the discount rate also meant that you were going to permit the federal funds rate to rise substantially. If you weren't going to permit the federal funds rate to rise substantially, I would assume that that upward adjustment in the discount rate would merely have meant that total reserves would be the same over time but with less borrowing and more nonborrowed. But if you had permitted the funds rate to rise, I would assume banks would have tightened loan terms and maybe sold off some assets, resulting in lower bank credit, lower money growth, less required reserves and, therefore, less total reserves down the line several weeks later.",159
-fomc-corpus,1980,I hope we can proceed here with some dispatch. Mr. Eastburn.,15
-fomc-corpus,1980,"I have just an informational question. Steve, some time ago there was discussion about having some papers on the function of the discount mechanism, the rate and so on. We now have a new situation with the surcharge and also the likelihood that we'll be making loans to other institutions--in a couple of weeks, possibly. In that connection, what are your plans on this background material?",76
-fomc-corpus,1980,"Well, I have seen first drafts and, in some cases second drafts, of a sizable number of papers. Of course, the Board's decisions have in a sense ""prejudiced"" some of the conclusions. [Secretary's note: These decisions involving special reserve and other measures were made in conjunction with the President's anti-inflation program announced on March 14, 1980.] We were proceeding with our study and the analysis on a schedule that got interrupted because of other work. We were trying to get some materials before the Committee at this meeting. Whether we can do so at the next meeting or if it will be after that I am not certain, in view of what is going on. But we are on course. We weren't including emergency borrowing in that study because that is taken care of in other ways. This was really a study of how the discount window might best interact with the present reserve [supplying] methods.",189
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"Peter, on the unsuccessful unwinding of some of these GNMA futures with the failure of a firm or two: Do you see any more problems ahead on that score with [more of those market instruments] reaching maturity?",44
-fomc-corpus,1980,"In a way, I have been surprised, given the extent of rate moves in the market, that there haven't been more problems cropping up in the GNMA area. It may be that they had enough of a scare last October when there were fears of problems in the GNMA market. From that point on, I have had the impression that activity has been curtailed in those GNMA futures. Some of the regulators have gotten after their constituents--the S&Ls and credit unions and banks to some degree--to warn them about undertaking investment activities that may not be suitable to their investment objectives. But, at the same time, I can't rule out the possibility that some of those problems could crop up again. I don't have a sense of any pending disaster there, but there could be some more [unintelligible].",165
-fomc-corpus,1980,"Let me just say on these questions on discount rates--I didn't hear the last answer Mr. Axilrod gave--that I am not sure it makes a great deal of difference whether we move the discount rate or not, except for its signalling influence, which might have been considerable. That's because we could adjust the borrowings, presumably, to achieve the same result. The reason the discount rate was not moved--let's be clear about it--is that we were waiting for this program, and it seemed inappropriate to raise the discount rate when the Administration was trying to negotiate these pending changes. The judgment was either right or wrong; but it was a judgment we made. It certainly would have been disruptive to that process if the discount rate had been raised in the middle of it when we said we'd have a coordinated announcement. Mr. Kichline.",171
-fomc-corpus,1980,Ratification.,3
-fomc-corpus,1980,"Oh, we need the ratification of domestic operations.",11
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Second?,2
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection they are ratified. Mr. Kichline next and then I think we will go straight to Mr. Axilrod. We can then have the Committee discussion in which I would like to get as much flavor as you propose to give in the limited time we have of what is going on out there in the financial markets and in the banking system. We get all sorts of complaints about the availability of farm credit or small business credit or mortgage credit. It is very hard to judge, I think, [the degree] of total restraint we have and the kinds of problems, institutional and otherwise, that are arising. The more flavor on that we can have, the better.",138
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Mr. Axilrod.,6
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"In connection with that distinction--the willingness or need of banks to borrow at the discount window--I think it is important that we all reiterate publicly or otherwise the fact that this change in the discount rate procedures does not imply any greater willingness on our part to tolerate borrowing. I think your discount officers ought to make that point to borrowing banks rather explicitly. We don't know how they will react. One can argue it either way. But any tendency for them to think that the window is open because the rate, at least the surcharge, is closer to the market rate, should be discouraged or we will get a perverse reaction from this action. I think a little more than usual calling to borrowing banks may be justified under the circumstances to point out to them rather directly that this is no invitation to borrow. Let me just say in connection with setting the stage here that the Chase Manhattan Bank said it is raising its prime rate to 19 percent today. At the same time it is instituting a small business base rate which remains at 18-1/4 percent, effective immediately. They used some language [in their announcement] indicating that they think this is consistent with the philosophy of [the measures] announced by the Federal Reserve. They said they have some special [concern] for small businesses and they're acting to ease the strains that small companies face in borrowing money. The special rate applies to companies with assets of $1-1/2 million or below and bank loans of $1/2 million or below. With total bank loans of $1/2 million, that implies that a company is borrowing one-third of its total assets. The bank said the small business rate would apply to several thousand of its smaller customers.",347
-fomc-corpus,1980,"They've ignored the farmers, haven't they?",9
-fomc-corpus,1980,They don't have a lot of farmers in Manhattan.,10
-fomc-corpus,1980,"There may be more farmers in Manhattan, though, fairly soon!",13
-fomc-corpus,1980,"With their $10,000 tractors.",8
-fomc-corpus,1980,"We can have a general go-around with comments. But apart from the general business situation, any comments that you have about how far this restraint has gone and how far it needs to go and what the special problems are, as I said, would be very welcome.",53
-fomc-corpus,1980,"May I ask Steve a couple of questions first? Steve, I'm a little confused about the relationship between M2 and the other aggregates [in the Bluebook alternatives]. First of all let me ask this question: Is the relationship between the new M2 and GNP pretty similar to the relationship between the old M2 and GNP that people often looked at? I'll get that answer first.",78
-fomc-corpus,1980,My memory is that we have ended up with a somewhat better relationship. I had better not answer; my memory is a little off on that.,29
-fomc-corpus,1980,"For the second more important question, let's look at alternative B. The implied rates of growth for February to June for M-1A and M-1B were lowered by 1-1/4 points from the growth rates for December to June, but the growth rate for M2 has only been lowered by 3/4 point from 7-3/4 to 7 percent. Now, given the new actions, with the likely impact on money market funds, are we to [understand] that you believe there will be strong growth in MMCs and 2-1/2 year certificates? How do you get that strong--",131
-fomc-corpus,1980,"It may turn out that we seriously underestimated the growth that would occur in money market funds over the first two months of the year. So there was a much bigger expansion in M2 than the Committee, in effect, wanted at that time. We have assumed that growth in money market funds would drop from here on to a rate just slightly above what it was late last year. However, that was without taking into account the latest 15 percent marginal reserve requirement on those funds. Taking that into account, we would think that their growth would continue but at a much slower rate. Using a rule of thumb that Governor Partee introduced to the staff many years ago--and it's been difficult to find a [better] one--I would say that something like 50 percent of that money would go into M2 type deposits and another 50 percent would go into large CDs and Treasury bills that are not in M2 but are either in M3 or liquid assets. I don't think that's too bad a view because roughly 50 percent of the liabilities of funds are due to institutions and another 50 percent to individuals. So I would expect that, if anything, the 7 percent M2 figure you are referring to may be a shade stronger than might develop in light of the program. But I wouldn't expect the difference to be large. That's as far as we've been able to go [in our analysis].",280
-fomc-corpus,1980,"If I understand these inter-relationships correctly, the December-to-June figure you show has a monthly base, but if it were on a quarterly base the way the yearly target is, the implied 4th quarter to 2nd quarter figure for M-1A in alternative B, for instance, would be 5-1/4 percent.",71
-fomc-corpus,1980,That's right. Those rates are on--,8
-fomc-corpus,1980,That's somewhat above the midpoint [of our long-term range].,12
-fomc-corpus,1980,That's correct.,3
-fomc-corpus,1980,And even alternative C is above the midpoint.,9
-fomc-corpus,1980,"Slightly, that's right. That would be 5 percent, just given the way the quarterly averages work out relative to these monthly patterns.",29
-fomc-corpus,1980,"Steve, even with alternative C, growth would end up in the second quarter as a whole running slightly above the middle of our range.",27
-fomc-corpus,1980,But well within the range.,6
-fomc-corpus,1980,"Well within, but above the middle of it.",10
-fomc-corpus,1980,"That assumes a very strong April, so we get the money in early in the [quarter]. If it didn't work out that way, it would be a little lower, I would think.",38
-fomc-corpus,1980,"Well, the April growth rate is only 8 percent in alternative C.",15
-fomc-corpus,1980,"I mean it is strong relative to the other months. But if [that pattern were] reversed, it would lower the quarterly average growth.",28
-fomc-corpus,1980,Mr. Eastburn.,5
-fomc-corpus,1980,"Just a quick technical question. It seems to me that April is rather critical to the decision we make today and I am trying to get a fix on your feeling about the probability of those numbers. Your estimates and the New York staff's estimates, I gather, are somewhat different on this.",58
-fomc-corpus,1980,I think the direction is the same; it's the magnitudes that are different.,16
-fomc-corpus,1980,"New York has a stronger estimate for April, partly because of the tax refunds.",16
-fomc-corpus,1980,"It's quite a bit stronger, isn't it? Is that the basis for the strong April in both cases?",21
-fomc-corpus,1980,"We did not put in any specific estimate for tax refunds because we haven't observed them having an effect yet in late February or early March when they began. If we put one in, we would add only a couple of percentage points, roughly.",48
-fomc-corpus,1980,And New York has them in?,7
-fomc-corpus,1980,"Yes, that's part of the difference; I really don't know if that's the whole difference.",18
-fomc-corpus,1980,"But [the difference] is very substantial, Peter, in April. Dave, New York's [estimate] is about twice what the--",28
-fomc-corpus,1980,"Yes, there's a very big difference.",8
-fomc-corpus,1980,The overall difference is about 8 percentage points but my impression was that the tax refunds accounted for about 3 or 4 percentage points of that.,30
-fomc-corpus,1980,"Steve, could you say anything about your feeling of confidence in that?",14
-fomc-corpus,1980,"I was hoping not to. I consider this as reasonable an estimate as a group of human beings working together might come to. I didn't give you the specifics, but it assumes roughly a $1 billion increase in M1 in the week of the 19th, which is the week we're in, another $2-1/2 billion in the week of the 26th, and then very little increase thereafter. But that gives us a high April figure because from February to the end of March M1 will have increased 12 percent, roughly, and that gets into the April figure. I wouldn't doubt, given our GNP projections, that we're going to have a second-quarter rate of growth close to what we've estimated here on average, something like 4-3/4 percent. Whether it's going to come with a large April or a large May or a large June, or whether it will be an even distribution among those months, I really can't be very certain. It would be misleading to say that I feel extremely certain about this; I don't. But I don't think it's unreasonable. It would be what a reasonable set of people would come to at this point.",236
-fomc-corpus,1980,"I think it's fair to say, in the light of history, that there is no feeling of certainty about any of these numbers.",26
-fomc-corpus,1980,It's my understanding that a refund will feed directly into the money supply. Is that right?,18
-fomc-corpus,1980,"Well, there will be checks received by consumers. The uncertainty is what people will do with them. Will they deposit them directly in their savings and time accounts--in which case it will go into M2--or will they put them in their demand accounts? And if they put them in demand accounts, will they hold them for one or two days? In that case it will have some effect on M1 but a very small one. That is the reasoning [underlying our estimate]. If people put the funds into demand accounts, we wouldn't expect them to stay there long. Why would people want to hold more demand deposits? So, they would either transfer the funds to another asset, such as a money market fund or a T-bill or something, or start spending them. In that case, any little upward effect would begin coming down in May and June and July. The only evidence we've really had was on the tax rebate program where checks were sent out to people as a tax rebate; those very clearly had a discernable money supply effect. On these kinds of refunds, we don't have the experience that would enable us to be very certain about [the effect]. So, we are waiting for something to happen; we haven't seen it yet and we may not see it this whole--",259
-fomc-corpus,1980,"Well, suppose the refund is real and it occurs. Is that enough to knock us off of our money path growth?",24
-fomc-corpus,1980,"Well, as we said last time and this time also, we think the effect in the three months of March, April, and May might be on the order of 1 to 3 percentage points [unintelligible] and then unwinding to that extent in June and July and piddling out in August. That's our estimate of what might happen. But we haven't deliberately put that in.",81
-fomc-corpus,1980,You have a big seasonal in April to take care of this in a normal way?,17
-fomc-corpus,1980,"Yes, but the refunds this year are estimated to be about $12 billion above the average of the last two or three years. So it's more than normal.",32
-fomc-corpus,1980,What is the normal?,5
-fomc-corpus,1980,"They are estimating about $46 billion, I think, so $33 billion or so must be normal.",21
-fomc-corpus,1980,"I don't remember the exact number. I don't know whether Darwin [Beck] has it. Well, this year we're estimating the individual tax refunds to be somewhere on the order of $48 billion. In 1979, total refunds were $36 billion. Reading back, in recent years they were, in billions of dollars, 36, 34, 31, and 29. So you can see that it's a quantum jump this year on the order of $12 billion. In March of the previous four years the refunds were around $9-1/2 to $10 billion; this year they will be around $13.7 billion, according to these estimates. So it's a jump of $4 billion in March and roughly $3 to $4 billion in April.",158
-fomc-corpus,1980,Who would like to make some general comments?,9
-fomc-corpus,1980,I would just like to respond to the one question you raised about farm credit.,16
-fomc-corpus,1980,"Well, respond more generally, too.",8
-fomc-corpus,1980,"We have recently done a survey of our country banks and they tell us they are as tight as a drum, and the farmers tell us [the banks] are as tight as a drum. Yet we have very few of the country banks trying to pass on those loans to the city banks, which are not tight as a drum. When we get behind that, [we find that] they're passing them off like crazy to the PCAs and so on, but they're reluctant to pass them off to their city correspondents simply because the price is so high. So it's not really a question of availability in the normal sense, but a question of their unwillingness at least to this point to try to pass those higher rates on to their farm customers who are used to substantially lower rates. Now, I don't like the implication of that, in terms of the direction we seem to be going, which is to give preference to small businesses. But I think that is the real issue in their mind. It's not that the money is not there; it's just that they're unwilling, so far at least, to contract for the higher price. The only other comment I would make is that, like many others, I was disappointed in the movement in the President's program for fiscal 1980. That puts a little extra burden on [monetary policy] for this year. Therefore, to the extent that we do err, I think we're going to have to err on the tighter side rather than the easier side. For fiscal 1981, I favor the reverse of that. If the deficit in fiscal 1980 is around $35 to $40 billion and then in fact [the budget] really does get balanced in fiscal 1981, that's a $35 to $40 billion [swing] in one year. That strikes me as a little larger than we've normally accommodated and unnecessarily runs the risk of aggravating whatever recession we're in. It's too bad [the effects] weren't evened out a little, with a little more in '80 and a little less in '81. I think that has implications for us in terms of how hard we press during the next few months.",437
-fomc-corpus,1980,"On a cash basis, isn't the budget going to be in some surplus between April 1 and the end of the year?",25
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"Yes, but it normally has a big seasonal.",10
-fomc-corpus,1980,"I understand that, but just on a cash basis--",11
-fomc-corpus,1980,"May I piggyback on Mark's comments for a minute? On your agriculture point, Mark, I wasn't sure I followed you. Is it that the banks are not making loans at close to the prime rate but are falling further below? Is that what you're saying?",54
-fomc-corpus,1980,"Well, the country banks have loaned out about everything they have. But typically, now, given the current prime rate, the loans are at below prime, and they're reluctant to pass those on to the city banks.",44
-fomc-corpus,1980,"Well, the city banks won't buy them except at a discount--",13
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"--is what you're saying. We have that same experience, and the banks in our area are very tight.",22
-fomc-corpus,1980,The country banks?,4
-fomc-corpus,1980,"Yes, the country banks. There is some complaint, too, on the way the Farm Credit Agency credits enter into this. Some of that is not credit we're trying to discourage, like Farmers Home Administration per se. The more Farmers Home Administration does, the less of that type of credit the commercial banks will do, and they are restive about that even though they are tight.",76
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Mr. Chairman, our staff has about the same economic forecast as the Board's staff. I have a gut feeling that if the forecast is wrong, the result is likely to be a deeper recession. I am thinking primarily in terms of the financial strains that the system will be under. I think we've all been amazed at the willingness of consumers and businessmen to take on loans at extremely high rates. And it seems to me the counterpart of this is that we may go into a recession [with] an awful lot of strains that are likely to lead to a deeper recession. One sector in particular that is showing great strains even in a forward moving economy is the savings banks; the situation in New England is getting critical. I was a little shocked yesterday to find out that they may be in a position to have ordinary access to the discount window within as little as two weeks. If that's the case, we have an awful lot of issues to resolve. As you know, in the past we have not loaned to organizations that were clearly insolvent. The fact is that all the savings banks in New England probably are insolvent if their assets are valued at current market rates.",234
-fomc-corpus,1980,"That's true of many banks, too.",8
-fomc-corpus,1980,"It's true of banks, too, but it's much more the case with the savings banks, particularly in New England where the average yield on their portfolios is very much lower than on the West Coast. That's because (a) we've been a slow growing region; and (b) New Englanders don't change their houses as frequently as people in California do. That has led to a very old and very low yielding portfolio. So, not only do they have liquidity problems but they have very serious earnings problems. Most of the savings banks in New England will probably show a deficit in earnings this year. There are other complications. There is this new dual rate which was set up to deal with large commercial banks. I think that is perfectly fine, in light of the fact that that's where the growth of credit has been most pronounced. But some of the most seriously troubled savings banks in New England have assets in excess of $500 million. And the question is: Do we want to charge them the premium rate? Another problem is that most of the savings banks in New England are not insured by the FDIC. We have a state fund which amounts to about $250 million. What do we do when that fund is approaching its limits? We're going to have an awful lot of issues in this whole area of lending to thrift institutions coming down on us very soon that will need to be addressed.",276
-fomc-corpus,1980,"What do you conclude from all this for our current posture? Tighter, easier, unchanged?",19
-fomc-corpus,1980,"Well, I think our current posture is doing the job. I would advocate the alternative B approach. I don't see where the situation now requires a tighter posture. We have to evaluate what needs to be done. And I think we're going to see, as the staff is forecasting, a major collapse in housing in the next few months.",67
-fomc-corpus,1980,Mr. Timlen.,5
-fomc-corpus,1980,"Mr. Chairman, I haven't talked to [any business contacts] since Friday, except to that group of bankers who were here yesterday. But I must say that through Thursday of last week, businessmen, and by that I mean mostly industrialists, were still telling us in New York that they have great confidence in 1980 being a pretty good year--maybe not a record year but a pretty good year. It's true that the money market banks and the medium size and large regional banks have all been approached for, and have granted, loan commitments. And I know a few of them are very uncomfortable about meeting those commitments. In upstate New York some of the country banks have been expressing a great deal of concern about the effect of the current level of interest rates on local small businessmen. I think local small businessmen are not unlike the farmers in the Midwest. There are stories that automobile dealers are just closing their businesses because they can't finance their inventories; rather than go bankrupt, they retire. We have the impression that inventories are generally modest, although for some small retailers they are pretty minimal. I have the impression that in New York City retail sales are pretty good, but that may not be the case outside of the city. We've had some indications that in the first two months of the year there have been price increases, particularly by the large grocery chains. Some people explain that as the reason for all the coupons we're getting in our Sunday newspapers. In effect, it's giving back the anticipatory price increase. We also have in our area the same grave concerns that Frank has in Massachusetts and New England generally. Our thrifts are in very bad shape. Three of the ten largest mutual savings banks in New York were in the red for 1979, and probably more will be in the red for 1980. It is disintermediation on the one side and terrible earnings on the other side. My own feeling is that if the consumer hadn't been running out of gas before last Friday, he certainly has had his accelerator taken away from him as of Friday. On the other hand, though, we're hearing that some companies are accelerating the timing of their annual wage increases. For example, if an annual review was to be in July or August, they're bringing it forward. So the consumer may have a little extra money in his pocket. The Board staff's projections of the outlook for the next 15 months seem pretty reasonable. In all the circumstances, my thought is that we should hang in there, which is probably what ""B"" does. That would be my idea of hanging in there.",520
-fomc-corpus,1980,"Mr. Forrestal, what wisdom do you bring us from Atlanta in your first presence here? Welcome.",21
-fomc-corpus,1980,"Thank you, sir. It's nice to be here at this interesting time. Shifting to another part of the country, Mr. Chairman, the Atlanta District shows a remarkable reversal in attitudes concerning the economic outlook, it seems to me. Just a month ago our directors and businessmen generally were virtually discounting any recession, even a mild one this year. But in a month's time that sentiment has changed remarkably, as I say. They now almost uniformly see a recession developing and perhaps a deeper recession developing later this year. That even comes from our South Florida directors who had been reporting very, very bullish conditions right through last Friday. These sentiments, of course, were voiced before the President's program and the Federal Reserve program. It's interesting to note that this change is attitudinal and not based on any real change in basic economic conditions. Conditions in the District generally are about the same as they were, although, of course, we have had some softness in real estate sales and construction activity and a slowing in retail sales. That has been reflected, too, in a less rapid run-up in bank credit than in other parts of the country. But the perception of the future is that we're in for a very difficult time. Our business people and directors see automobile dealers, farmers, small business people, and thrifts being hurt pretty badly and I think there is a real fear at this point of a credit crunch coming along. While I don't have any data, and my staff hasn't given me any data about small banks, I have an intuitive feeling that some of the small banks in the District are probably in much the same condition as savings and loans, although perhaps not to the same degree. My personal feeling, after hearing all of this from people around the District, is that the pessimism is perhaps a little overdone. Recession, in my judgment, would not be all that bad if we are going to get prices under control. In terms of policy, it seems to me that we've got to get the monetary aggregates under control. February was perhaps a one-month aberration, but there was a run-up in the aggregates. That, together with negative market reaction to the President's program, is really going to fuel inflationary expectations. Indeed, as has been remarked here, with energy costs increasing in the short term we could have an increase in inflation. That is bound to cause consumers to lack confidence in what has been done by the Administration, and we could have an increase in inflationary expectations with the obvious results. So my judgment, Mr. Chairman, which is a little different from the staff's at the Atlanta Bank, is to err on the side of greater restraint. While alternative B seems to me a viable alternative, whereas I would not consider alternative A to be viable, my preference would be to go for something along the lines of alternative C to demonstrate in the near term to the markets that we're going to continue with this program of restraint.",592
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, we are in general agreement with what the staff has [projected]. If we were to shade it a little, we'd shade it along the lines that Frank Morris described because of the unrest we see in financial markets, along with weaker housing and also probably weakness in investment, all of which we think may be more than the staff is estimating. I would add one other caveat and that is the feeling on our part that the international situation may be weaker than is generally being assumed. So we would shade the forecast toward a little deeper decline than the staff has indicated. By the same token, we would expect perhaps a more rapid recovery. The staff is actually showing no growth in real GNP between the fourth quarter of '80 and the fourth quarter of '81, and we think [GNP growth] will probably be positive. On the policy side, it seems to me that the best thing we could do is to continue the policy we've been following. I think you said it all, and very well, yesterday before those bankers when you stressed that the backbone of our policy still remains our efforts to control the aggregates. Not everyone heard you yesterday; there may be some general doubt that we'll do that and some expectation that we'll back away. So, one could make a case for going with alternative C. But it seems to me that alternative B is strong enough to underscore our determination. The rates of growth in the aggregates for the last part of that six-month period are substantially below what we actually had in the first three months, or think we had in the first three months. They are below our targets, so ""B"" seems to us to be the best of the alternatives. So far as the federal funds range is concerned, I would prefer to drop the top and also the bottom of that range. I think we are now to the point where we can do that. I would not want to raise the lower end, a possible alternative suggested in the Bluebook, since I would like us to be in a position to let rates come down pretty fast, if they do tend to do that in the face of a controlled set of growth rates in the aggregates. I am sure that the Committee is not going to agree to abandoning that range; against that background, 11-1/2 to 18 percent looks about right to us.",474
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"Mr. Chairman, the crosscurrents are so extreme that it's difficult to sort them out and get a fix, particularly with last weekend's adjustments not being factored into many people's thinking. Three or four things, I think, are interesting. One is that we turned off commercial construction--that is, apartment houses, office buildings, and so forth--completely in October, and it turned back on in an unbelievable fashion in January and early February. We've turned it off again, I think, really in the last couple of weeks; there are just no deals being made. But the profits picture that is coming through on the deals that have been made are so unreal that it's almost unbelievable. With the acceleration of rents and with [builders'] fixed costs not moving up, the flows back to profits are very, very high. That's particularly true where tax relief occurred, in California and Texas and places like that. In spite of increased operating expenses the profits picture is almost unbelievable. So, if we get any stability in [interest rates], my guess is that those [activities] will explode on us again as building picks up. The second thing I'd report is that the major chemical companies are showing profits in the first months of the year, and I've seen figures for month-to-month developments. While these are worldwide operations and one can't sort it out [for individual countries], it was interesting to me that the price increases from January of last year to January of this year were over 30 percent. Now, I don't know how the price increases were divided up worldwide, but these are pretty substantial price changes. They have those [changes] built right into June--this was before last Friday--so there's a big move in some of these factors. And their earnings are unbelievable. While building has phased down and the automobile industry is staying a bit soft, [businesses] in our area are reporting unbelievable orders and profits expectations. Our railroad people are reporting really quite good operating results, much better than they had projected. And this is across the line, [even] with the downward push occurring in their automobile business. Our banks are showing a mixed picture. Many of them are pretty well loaned up and are not seeing too much demand because of rates in agriculture and some other areas. On the other hand, they are not seeing any problem with respect to delinquencies or slow pays or any of the normal [signs] one sees on that score. We had, of course, in the last couple of weeks this tremendous drive to increase commitments. Their customers were told that lines of credit wouldn't be honored and they had to convert those into revolving notes. So there was a tremendous scramble to offset the anticipated [government credit] control system by such things as price increases and wage increases and also by an explosion, really, in lines of credit. They were taking to their boards demands for loans that were 5 to 6 times their normally weekly increase. We really don't know what the outlook is because we don't know how people will adjust; it's a crude guess that we're making. In view of your statement yesterday and other concerns, I am very concerned about the [potential] April bulge, which could be much larger than is shown here. And unless we react to that, our own credibility is going to be questioned even though [we expect the bulge to unwind]. We can't say ""Oh well, it's going to go down in May and June, so we'll get back on target."" I have a feeling that we have to respond to current developments. While the targets of ""B"" seem to me appropriate, in order to make those targets I'd like to raise that funds rate range by 2 points, let's say, to 13-1/2 to 20 percent, to give the Desk [the flexibility to respond], if necessary, if we get this kind of bulge. I don't want to raise it just to raise it. But unless we respond to the increase, which could be quite large in this period, we're going to have a real credibility problem. I am impressed with those who watch the Desk. They will tell you exactly what the intervention points were; they don't see any change in terms of our intervention points which [they say are apparent] to the market. People, in spite of all the changes, are reading [our operations] as if we were operating under the old guidelines. While their perceptions are wrong, they still are perceptions; and we're dealing with perceptions as people interpret what we're doing and how they will react.",914
-fomc-corpus,1980,We're certainly not dealing in eighths anymore.,9
-fomc-corpus,1980,"I know, but it's amazing to me that they can tell you what hour we intervened and at what rate. That hasn't changed. But I am really concerned about this April bulge and how it will be interpreted.",44
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"At times like this, Mr. Chairman, regional differences do show up rather starkly. West of the Rockies there are precious few signs of any present or impending recession, particularly as our directors view [the situation]. With the obvious exception of housing and autos, things seem to be moving along at a very rapid rate. There is continued strength in consumer spending; it's almost hard to believe. I believe much of that still reflects a ""buy it now before it gets more expensive"" approach. Labor demand in defense-related industries and high technology industries such as electronics and aerospace is contributing to continued strength in employment in the District. Loan demand remains strong at banks and, despite the recent flooding in California, agriculture all around the West seems to be in pretty good shape. I think the difference between West of the Rockies and what Mark was reporting probably stems from the predominance of large branch systems around the West. I know that in California our three largest banks are among the three largest agricultural lenders anywhere in the country. And, of course, a good part of that lending is to agri-business, but they take reasonably good care of the smaller farmers as well--to the extent that we have some of those around the West, and we do. Demand for lumber you'd think would be falling out of bed because of housing, and yet exports to the Pacific Basin area have made up a good part of that. So, in short, while this may not be applicable to the national scene, our directors just don't see any signs of recession in our part of the country nor do they believe one is ahead for the regional economy. With regard to the national scene, it's obviously a different picture.",336
-fomc-corpus,1980,Your area covers a not insignificant part of the national scene.,12
-fomc-corpus,1980,"True. Well, with regard to the Bluebook alternatives, I can't really add much to what has already been said. All things considered, I would agree with much of what Willis Winn mentioned: One more month like February and our credibility is going to be in bad shape. We recently had the first of the ABA/FRB seminars, which originally was supposed to cover the subject of regulation under that plan that you encouraged us to get into. We had, I thought, a very good meeting. We had a number of people from the Board as principal speakers, some of the division directors and also Governor Wallich as a principal speaker on monetary policy. We got quite a bit of flak as I remember, Henry. There was quite a bit of skepticism expressed in that audience about whether we were going to stick to our announced target of ongoing restraint because of what those February numbers were showing--and they were aware of them by then--on the money supply. Another month like that would really undermine our credibility a great deal, so I share Willis' view about doing something about the April bulge if we can. And I think we probably should. In general, however, I would go along with the specs in alternative B.",247
-fomc-corpus,1980,"I think we ought to have a coffee break now, but let's make it short.",17
-fomc-corpus,1980,"I have to address myself to conditions before last Friday. At that time businessmen in our area were generally feeling pretty good about current business, but I suspect that's changing. My own guess is that we are going to have a recession of at least the magnitude of the Greenbook projections and perhaps deeper. In view of that, my inclination was to go with alternative B. But having listened to Steve about the April bulge, I do have a concern about that, which tilts me toward ""C."" Perhaps there is some way of going with ""B"" and watching closely to see what happens and moving later on in the period or of striking a halfway point between ""B"" and ""C."" That's about where I would come out at the present time.",151
-fomc-corpus,1980,Do we have the technical capability of offsetting that refund?,12
-fomc-corpus,1980,"Well, there is some funds rate that would do it. But I would quickly mention that there is no certainty that [the projected] bulge is going to appear. We took 5 percentage points out of the seasonal factor this year relative to last year; and cumulatively that seasonal factor has been adjusted over the past two or three years to take 15 percentage points at an annual rate out of April growth. So, it's not absolutely certain that the bulge is going to appear.",98
-fomc-corpus,1980,I am interpreting this as the best estimate on the part of reasonable people of what's going to happen.,20
-fomc-corpus,1980,Exactly. I just want to be covered both ways.,11
-fomc-corpus,1980,"If you look at page 7 [of the Bluebook], Dave, which shows the monthly profile: In alternative B, for example, April has a growth rate of 8.6 percent for M-1A and May has two dashes, which I assume means 0, and June has 2.8 percent growth. Something could be taken out of April and put it into May as far as the path is concerned.",88
-fomc-corpus,1980,"Yes. I am sure that is true. And in ordinary conditions, I wouldn't care. We could certainly tolerate these numbers. But the point, which has already been made, is that the credibility of the System in that short period of time--",49
-fomc-corpus,1980,My point was simply that we wouldn't necessarily have to move to alternative C; we could change the profile of alternative B.,24
-fomc-corpus,1980,Mr. Guffey.,6
-fomc-corpus,1980,"Thank you, Mr. Chairman. The agricultural sector has been reasonably well covered in the comments made by Mark Willes and Bob Mayo. Our banks supplying credit to the agricultural sector are very tight with respect to loan/deposit ratios. But contrary to what Mark suggested, we have found that the country banks are facing up to their problem and raising their interest rates to agricultural borrowers. They have no outlet for the loans even at these higher rates, however, because the correspondent banks are not prepared to pick them up, even at a discount, at the rates the credit is being extended. [Cattlemen] are withdrawing from filling the feedlots again as they turn their present stock, which implies less meat in the future I suppose. Secondly, as we go into the planting season, a period of high agricultural [loan] demand, there is a bit of a safety valve, if you will. There is still a lot of grain in the hands of the producers, which can be sold at the lower prices now prevailing. That would suggest that there will be a considerable squeeze on farm profits in the period ahead. But I don't think the restraint program will have a great impact on the agricultural sector immediately. The grain embargo probably will have as great an impact as the restraint program. What I am really trying to say is that there are tough times ahead in the agricultural sector. Turning to policy, Dave Eastburn captured my concern very well. In the Bluebook we are looking at a 4-month period instead of the usual 2-month period or even a quarter. It seems to me that credibility of the Federal Reserve System may be the more important aspect, at least of near-term policy. The potential bulge in April is part of the problem. I'd hate to go back to the [procedures used] prior to October 6 and focus on interest rates. But I think it's extremely important--for international and domestic reasons, inflationary anticipation, and other things--that we not permit [the funds] rate to come down very far in the next month or two. As a result, ""B"" looks very reasonable to me. I would be inclined to move a little closer to ""C"" because of the potential for interest rate movements if indeed the demand for money begins to ease somewhat because of the lower projection of growth. And as I understand it, the restraint program may depress that another half percent over the year. How that will roll into the [next] two months, I don't know. So, ""B"" would be reasonable and I would be inclined to move a little toward ""C"" if that were the sense of the Committee. I would also set the federal funds range by raising the lower end and reestablishing the 4 percent spread, thus coming out with a 14 to 18 percent range with the anticipation that interest rates would remain in the upper half of that range for at least the next 60 days.",592
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"Well, [Mr. Guffey and I] are both from Missouri, and my approach to [policy] will underscore the great diversity of thinking that occurs in the great state of Missouri, Mr. Chairman. Very briefly, the general condition of the economy as we see it is a fairly level one with the exception of the building and real estate areas and automobile sales and manufacturing, which are obviously quite weak. Just last week we had a group of savings and loan people in for lunch, and they reported very severe trouble, as your savings bank people are experiencing, Frank. Our agricultural loan demand continues strong. Basically, we haven't sensed any significant weakening in the last few weeks. With regard to policy, I would favor alternative B. I would resist like the plague any narrowing of the fed funds range. If anything, I would favor a widening of it; I certainly wouldn't seek that, but I would oppose a narrowing of it. With regard to this matter of credibility, I wonder if it isn't incumbent upon all of us to go out of our way in the weeks and months ahead to explain what we are trying to do and have our staffs at their various speaking [engagements] concentrate on explaining it, too. I think there is a general lack of knowledge. Within this room there is the capability of telling people: Don't look at the weekly figures; don't even look at the monthly figures. I don't think we have to be slaves to this problem of credibility. We should be missionaries and salespeople to the greatest extent possible and explain how we are trying to operate now. Anyway, that's the gist of my point of view.",329
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Mr. Chairman, I would only add on the agricultural side that I think some of the trauma accompanying the announcement of the grain embargo has subsided. There is a much calmer approach to the problem and a little more Federal government credibility than [earlier] in the farm community, although they are still somewhat skeptical. We are, of course, in a very poor position on autos and housing throughout our District. But capital goods are still running quite strong. This is typical of what one might call ""this stage of the cycle."" I feel more comfortable than I did last month with the Greenbook [forecast], yet I would not be surprised if we got down to a minus 5 percent quarter [for GNP] before this forthcoming recession is over. I think we are getting closer, much closer, to the peaks that we keep visualizing and postponing, and we could easily have a credit crunch--though I don't know how best to define that--perhaps in the next 4 to 6 weeks. Having said that, I would be happy enough with ""B,"" but I would tilt also a little toward ""C,"" agreeing with what Dave had to say. On the federal funds range, though, I would just leave the [lower limit of] 11-1/2 percent. It has no real significance now and I wouldn't want to see us push that up at this point. It restricts our image of flexibility when it gets published. Instead, I would just go to the 20 percent on the up side and be done with it, recognizing that that would give us cover for an interim period, rather than have to go back frequently to jiggle it up another half or one percentage point. I don't see any objection to going to the 20 percent, given the rate structure we have today.",366
-fomc-corpus,1980,Mr. Rice.,4
-fomc-corpus,1980,"Well, Mr. Chairman, generally I go along with the staff forecast. It seems to me that the new anti-inflationary program will have the effect of making the coming recession deeper than it might have been and might even bring it on sooner. If I have any skepticism at all [about the Greenbook forecast], it's in the area of the timing of the recession. The economy appears to be continuing strong, or relatively so. If I read the Redbook correctly, most of the businessmen around the country report remarkable equanimity in the face of the economic situation; they just don't seem to be excessively concerned about--or, in any case, feel confident that they can deal with--whatever is down the road. It's pretty difficult to find evidence of weakness in the economy aside from housing and autos; one has to look pretty hard. One has to look behind the industrial production figures to see that there would have been a decline in industrial production had production of autos and parts not risen. Also one has to note that capacity utilization in the primary processing industries and materials-producing industries has declined. And, of course, the average workweek has declined somewhat. These are about the only signs I see of any emerging weakness. So, I feel that our posture at the present time is about right, with the appropriate tautness in financial markets. I don't think alternatives B and C leave us much to choose between. Actually, [for M1] the difference between them amounts to about $900 million at the end of June, and that doesn't strike me as being very much money out of the total money supply. So, it doesn't really matter too much to me whether we choose alternative B or C. If we choose alternative B, it appears that we will have a slightly larger volume of money starting in April and a less substantial rate of increase in the third and fourth quarters. On the other hand, if we choose alternative C, we will have a lower rate of increase in the second quarter and a higher rate of increase in the third and fourth quarters. Given the current situation, it would seem to me better on balance to lean harder in the second quarter and increase the restraint then; that will [show through] in the third quarter and allow for a slightly higher rate of increase in those quarters when we expect the recession to hit. Alternative C would probably be more consistent with that scenario than alternative B, but I have to repeat that really it doesn't make a great deal of difference. On the funds rate, for now I would favor a ceiling of about 18 percent, but I am prepared to raise the ceiling if market conditions [warrant].",532
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"It's very difficult to tell what effects our policies are having. These high interest rates may hit some borrowers very hard but they don't seem to hit others at all, and the net effect one can't predict. I see that Charlie Schultz, after the President's program was announced, predicted a 2-1/2 percent rise in GNP for 1981, so he doesn't seem to think that this has a very powerful impact. I am particularly concerned about the inflation forecast. I view the forecasts of both our staff and the Administration as wildly optimistic. The very slight recession that we are anticipating is very unlikely to make that kind of dent in the inflation rate. Of course, we have a history of always underestimating the rate of inflation. I am aware of the repercussions of a firm policy at savings banks, small commercial banks, and elsewhere. As these [problems] come toward us, we have to be prepared to meet them, and I think we should meet them in a liberal way--stretch our powers as far as they can reasonably be stretched. But we should not be obsessed by the concern that the recession may last a little longer or even be a little deeper. As I look back over our record, I am impressed that we never stopped fighting recession. We moved imperceptibly from fighting the last recession and its consequences into worrying about the next recession. And that recession concern essentially has dominated our thinking and has brought us now to 15 percent inflation. It's a situation with very poor options, but I lean toward the firmer ones. That is, I lean toward ""C."" The market has not been impressed by our policy package except abroad. The bond market hasn't responded very much. Short-term rates are actually down. I think there is a real danger that if we now give the impression that we are about to relax our general credit restraint behind a shield of selective credit controls, we will get the worst of both worlds. We'll get the selective controls not working--I have not been very enthusiastic about them anyway--but we should do what we can not to disavow them completely. That is best done by not throwing any burden on them and by holding to a firm general control. I think it's important at this time not to convey the impression that the regular discount rate, which wasn't changed, is the discount rate and that essentially we have taken evasive action in trying to avoid raising the discount rate. We should so operate on nonborrowed reserves that there is a good amount of borrowing at the surcharge so that the rate acquires some credibility. Finally, I share the concern about the April bulge. If we have taken 15 percent out through the seasonal adjustment, there must be a lot of money out there--in reality, people don't draw checks on seasonally adjusted checking accounts--and that may have its effect. So in addition to ""C"" generally, I would like to see a funds range of 14 to 20 percent. Thank you, Mr. Chairman.",604
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Mr. Chairman, it seems to me that our posture of restraint had begun to bite before this past weekend. [If it was] biting before this past weekend, presumably it will bite a little more now. I have to admit I've held such views on several earlier occasions, so I don't know how much weight to put on my current view. We did hear reports last week, however, of several real estate developers being cut off by large banks in our District. Our recent survey of the agricultural credit situation does not reveal the tightness that has been reported elsewhere in the country. And I do have the impression that our farmers are among those who are carrying excessive inventories at the present time, largely in the interest of deferring income tax liabilities. I don't know to what extent the Greenbook projections assume that the capacity of people to adjust to an inflationary environment is behind us or to what extent it might still be ahead us. In my area I see indications of a good deal of capacity to adjust further. Some of this, of course, flows from the firm linkage that seems to have developed between that area and foreign sources of funds for investment. Just to indicate the extreme to which this seems to be going: I am told that at the present time builders in our major centers who complete expensive houses which they don't sell promptly to local purchasers sell them to foreign buyers who then furnish them and rent them out. And this is a means of investing funds at obviously very low rates of return currently for the purpose of getting into real estate, in this instance in fairly modest-size packages. There are a lot of small business firms being sold to foreigners as well, all the way from the family-size motel to the family-size manufacturing firm. That seems to be going on yet at a rapid pace. I note that the oil drillers have been in Washington recently; they have about as much reason for being here at the present time as the farmers had a year ago and two years ago. The number of active rigs is at a 23-year high; the increase during the past month was almost spectacular and the increase over the past year was also very strong. So, the signals are mixed. As I say, it seems that credit is biting but activity is still very strong and the outlook is strong. I think there's also a good deal of capacity yet on the part of individuals to adjust the management of their financial situation to continued expectations of inflation. Possibly one indication of this is the alacrity with which they are willing to give up accumulated interest on CDs for the purpose of turning them in and getting a new one which will carry a higher yield. This has resulted in actual lines of people at banks in some recent weeks when the new rate announced was significantly higher than the rates on outstanding CDs. As to monetary policy, the ""C"" proposal seems preferable today, primarily for the reasons that Steve Axilrod outlined in his oral remarks. Others have commented along that line. That's all I have to say.",601
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"Mr. Chairman, I am in favor of alternative ""B."" Even [with ""B""] the rate of growth [for M-1A] in the period from April to June would be dropping to almost half of what it was in the first two months of the year; even compared with the first three months, it's very low. If we go to alternative ""C,"" we're going to be cutting growth relative to the first three months in half, and that implies to me a very stringent credit market. If people think they've had stringency these [past several] months, it's only going to get worse if we go to the more stringent specifications. I will be very brief: I support alternative ""B"" as it now stands with the 11-1/2 to 18 percent range on the federal funds rate.",166
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"Well, I don't know what's going to happen to the economy. Perhaps I am associating with people who are in difficult situations and have become very pessimistic, and it may be affecting me. So, I may be more pessimistic than I ought to be. I would point out that the projection seems to me very, very sensitive to the saving rate. The projection shows no increase in the saving rate in the second quarter and, therefore, the second quarter continues to be not a bad quarter. If in fact the saving rate should increase in the second quarter, it would be a bad quarter for the economy. And that could happen. On the other hand, the projection has sizable increases in the saving rate in the third and fourth quarters, and those are the quarters of major recessionary movement. Whether those increases occur or don't occur will affect the character of that pattern. So, we still have the uncertainty that has been with us for some time, and that is: What is motivating people and how might [their behavior] be changing? I do feel that everything that has happened in the last month has increased liquidity preference. The rise in rates, which was very sharp and very noticeable, and the cutting off of credit cards to certain low income groups, even before the President's program, have been played up in a major way in the local press here in Washington. The feeling that one might need to rely on one's resources more and on other people's resources less in the period ahead leads to an increase in liquidity preference, which would tend to give us rather larger money numbers, generally speaking, relative to GNP than was the case before. I also think that the relationship between M1, or narrow cash balances, and the real economy is changing adversely. That is, it takes more and more M1 in order to get a particular real income; or we get less and less real outcome for the same M1 we had before because of [higher] cash balances, to the extent that people are buying more with cash and not using gasoline credit cards and so forth. The credit lines that have been extended, many of which may call for compensating balances, and the fact that we are forecasting more and more inflation, mean either that a given M1 is going to carry with it a higher interest rate or lower real activity, or both. And I think both is probably the case. So it seems to me that it's just the wrong time to be departing from the notion of a rather normative, reasonable increase in the monetary aggregates. I would very much resist moving to a lower aggregate path like alternative C. If we get the recession, Emmett, which I believe we will, I think we'll find that the demand for money in the second half of the year will be low enough so that our problem won't be so much the upper end of our range but keeping growth within the lower end of our range. That brings me to one more point, which is that I would hate to have somebody ask me what I was doing during the crash and have to remark that I was defending our credibility. The people who say let's keep those interest rates up there, regardless of what happens, are really walking into a major trap for the economy and for the Federal Reserve. I very much want to disassociate myself from that. I would go with alternative B. I would adjust that path and slice a little off April and put it into May. I think that has the same effect, if there is a bulge in April, as going with alternative C. I am sympathetic to the idea that we need more room in the funds rate range because there is a very good chance of a big bulge, and the Manager ought to be able to move if there is a bulge. If there is no bulge, I wouldn't expect him to move. Therefore, I rather like the idea of a 14 to 20 percent range on the funds rate which, with the rate now at about 16-1/2 to 17 percent, means we have some room on both the up side and the down side.",824
-fomc-corpus,1980,"Could I just ask a question? Isn't it true, if we stick to the 4-3/4 percent annual rate of growth under alternative B, that we are going to have to reduce the rate of growth later in the year?",48
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"A little, but that will be easy to do because there is a much lesser demand for money in a recession.",23
-fomc-corpus,1980,Assuming we have a recession.,7
-fomc-corpus,1980,That's all this is really saying--how far one is going to let interest rates decline in the second half of the year.,25
-fomc-corpus,1980,"But we are setting the timing of the recession rather precisely, it seems to me. And I am not too sure that we're going to get it starting in the second quarter.",35
-fomc-corpus,1980,"Well, your suggestion will certainly help assure that we'll get it because if we cut the path in the immediate period to come, I would guess we're talking about 25 percent interest rates. And I think that--",42
-fomc-corpus,1980,"Well, we're really just talking about a few hundred million dollars [of added M1 growth].",19
-fomc-corpus,1980,That's all right; it's a very hard thing to bring about. It involves more in M2 and M3.,23
-fomc-corpus,1980,You're absolutely right.,4
-fomc-corpus,1980,It's quite a lot on the margin.,8
-fomc-corpus,1980,Governor Schultz.,3
-fomc-corpus,1980,"I doubt that we can get out of this situation without a recession, and I think the unkindest thing we can do is to drag this on. It seems to me that the greatest pain can come if we let it go on and on and our financial institutions really do begin to go under. Small businesses and others can stand a lot of pain for short periods of time but if this keeps dragging on, they will be in deep trouble. I would worry very much about a big bulge in April. I am not strongly influenced by alternative B or C; somewhere in that area would suit me fine. I would like to see the upper end of the federal funds range raised to 20 percent. My feeling is that we ought to be very resistant to a big bulge in April.",159
-fomc-corpus,1980,"Let me make a few observations that occurred to me in listening to all this. First of all, it's clear that the economy is fairly level, so any month we look at these figures we're going to find some things down and some things up. What that means for the future isn't very clear. There's considerable strength and resiliency over broad areas of the economy or it wouldn't be holding level or a bit on the up side in the face of a decline in housing and a decline in autos and some other industries. What stands out to me is that we haven't any room to grow here, given the declines in productivity and other pressures on the economy. And if we tried to stimulate growth very much, we really would have no chance of dealing with the inflationary psychology; we'd in fact face a blow-off on the inflation side if we don't already have a blow-off. Secondly, in my opinion--and everybody can be his own psychologist--at this point we don't have many believers in the view that inflation is about to ease off or, indeed, that the economy is about to fall out of bed. There is more nervousness than there used to be and some people are beginning to question whether they shouldn't change their views. It was characterized for me in talking to some farmers from Iowa the other day, and I think their attitudes are probably similar to [those held by people in] other sectors of the economy. A couple of them sitting near me said that they had bought some land last year at prices they considered exorbitant but they bought it confidently with the thought that prices would be even more exorbitant this year. And they are wondering whether they made a good buy. In fact, they're beginning to wonder whether they could sell it or should sell it, but they haven't seen any evidence of a decline in land prices up until now. They were getting worried but they hadn't seen anything. I suspect that a lot of industrialists are thinking the same thing in their own way. The fiscal policy program--and I think it has been underestimated a bit in the public press for a variety of reasons, political and otherwise--I certainly don't think was strong enough to change these attitudes in any significant way. It may be to the contrary in the feeling that if anything is going to be done, it's going to be done through the credit policy side. So far as the outlook is concerned, it seems murky to me. I hear all these fears of recession and I even share them. But if you ask me analytically whether they are any more certain now than they were a year ago when we began hearing the same things, I don't know. I am pretty well convinced that it's going to start some time and that there's a risk, when it starts, that it may be greater than anybody is projecting. But I thought that a year ago, too. Just when it will really start, who knows? I know we--all of us, I think--have misjudged the timing again and again. I share the thoughts that some people have expressed, most recently Governor Schultz, that we better get this over with in terms of minimizing the total pain over a period of time. I am worried about those financial institutions, and the worst thing that can happen to them is [for us to] fail to do the job and get the interest rate turn fairly soon. But the way to get the interest rate turned is not by hastening it prematurely. If we have another false start, we'll be in considerable trouble even though that clearly runs the risk of overkill. That risk is greater in its inverse logic than if it's not killed at all; we'll be faced with the same dilemma later on. In that connection, in getting out of our dilemma as best we can, I put considerable emphasis on one aspect of the voluntary program, which is to get banks to begin saying ""no"" on some loans and not to put all the pressure on raising the prime rate. If the loan demands come home to roost [and they take the latter approach], it will exert pressures throughout the money market as they go out and try to finance the loan increase. If we accomplish nothing else in the next few weeks--and I think the time is very short--if we can get that message to the banks and they can get the message to their customers, we have some chance of at least moderating the short-run interest rate pressures. I don't think we have a chance of dissipating them but we do of moderating them and getting some element of rationing in the area of the market where it does not now exist, namely among the bigger business borrowers. I would urge you to move promptly on that voluntary program and get the questionnaires out and to begin on occasion, or maybe more than on occasion, a consultative process with the banks, particularly the biggest banks in your area very promptly. We have the April problem that has been referred to, and all of these things incline me toward resolving doubts in the direction of greater tightness in the very short run rather than the opposite. The worst thing we could do is to indicate some backing off at this point when we have an announced anti-inflation program. We have political support and understanding for what we have been doing. People don't expect it to be too easy. There is an understanding that a lot of burden has been placed on credit policy, and there's a willingness to be supportive for the moment in that connection. I would not give all that much weight to the degree of support we're going to get if this is dragged out indefinitely and we have to go through this process once again. Where that leaves me in terms of ""B"" and ""C""--I don't think anybody mentioned ""A""--is that at this particular juncture I find the focus a little long, frankly, for me to come to any great conviction between ""B"" and ""C."" I share much of Governor Rice's feelings about those alternatives. I do attach some significance to the fact that if we took ""B"" literally, while the numbers as presented on page 6 of the Bluebook look low, [they imply] running above our annual targets in the way we calculate those targets. If we were going to be at the midpoint of the annual target, it would require a considerable decline in the second half of the year from the 5-1/4 percent quarterly growth pattern implied by ""B;"" and even ""C"" is above the midpoint of the annual target for M-1A. You are shaking your head ""no.""",1315
-fomc-corpus,1980,"""C"" would mean 4-1/4 percent per quarter for the rest of the year.",20
-fomc-corpus,1980,"""C"" is 5 percent for the first two quarters, as I have calculated it, and the midpoint [of our annual target] is 4-3/4 percent. It comes close to the midpoint but is a little above.",48
-fomc-corpus,1980,"Yes, because February is behind us.",8
-fomc-corpus,1980,"Oh, there's no question that we have recorded a high number for February, which has contributed to that result. But we have recorded it. But again, I [wouldn't] worry too much about where this comes out within a range of 1/4 or 1/2 or even 3/4 percentage point on a February-to-June number, since all of those differences are within our normal range of error anyway. That doesn't excite me terribly at this point. Other people may have different shadings but whether we're looking at ""B"" or ""C"" or something in between in the four-month time perspective, I believe it catches the spirit of what a number of people are saying anyway, to say that in the next month or so--certainly before we next meet--we should be leaning toward taking our chances on being certain to be near those numbers in that very short-run period. I am not saying we can guarantee that we will be within those ranges at any expense of interest rates or anything else. But when we're making up the paths and deciding what the level of borrowing should be or whatever, we ought to be resolving doubts and making sure March is as low as projected and April is no greater than projected or that both of them are lower than projected because that's where our principal vulnerability lies--in this two-month period. If April is anywhere near as strong as the New York figures suggest, we'll be above the ""B"" alternative. I feel quite certain that we at least ought to be leaning in the other direction, and reasonably hard, during these next six weeks or so. We don't want to give the market a false signal if the money supply comes in very low for a couple of weeks that we are relaxing too quickly during this immediate time frame, when we've just announced these new programs and there is the kind of feeling in the country that I think exists. There is plenty of time before June to take account of any shortfalls we might have in the money supply if that happy event should occur in the very immediate future. I don't know what the March data are going to show. If March came in under Mr. Axilrod's projections and we were facing--in terms of our seat-of-the-pants judgment or the pit of our stomach or whatever--the kind of bulge that is projected for April, we ought to be delighted with a low March figure. So, I am suggesting that we lean in that direction. And whether we come out between ""B"" and ""C"" over a four-month perspective concerns me less than [that we take] this posture I have suggested before the next meeting. We could reconcile my longer-term concerns by making it someplace between ""B"" and ""C"" but in the end I could probably tolerate either. But I do feel rather strongly about not giving any false signals in the very short run at the risk of any overkill that might be implied by that.",592
-fomc-corpus,1980,"Would you consider taking a shorter period of time--in other words, setting a target for March through May?",22
-fomc-corpus,1980,"I could, but it's probably going to take a lot of arithmetic here. As I say, we're going to be meeting again in a month and we can fine-tune the quarter further then. So that really concerns me less than an understanding about what our posture should be in the next month and how we will reconcile all the doubts and errors and fluctuations in figures that we're going to have during that time period. Whether it's expressed as aiming at ""C"" or being extremely resistant to anything above ""B"" doesn't concern me so much because I don't think those differences are great. I would put money in the bank if that happy day arose at the end of March or early April and the bulge that is being projected did not appear in that extreme form.",151
-fomc-corpus,1980,What would you do to the funds range?,9
-fomc-corpus,1980,"Well, I don't feel terribly strongly about that because we obviously have a very flexible technique for changing that range if the occasion arises. But in the spirit of what I am saying, if the Committee wanted to raise it--particularly the upper end--such a decision would reflect the attitude I am talking about. I don't know whether we'd have to use [the full range] or not, and there's no implication that we'd go out and use it because it's there. I don't have any particular expectations that the rate would have to [reach that upper limit] or that [raising the limit] carries any connotation at all that we will aim at it. I do think that we should resolve the doubts on the borrowing number by putting it a little higher rather than a little lower. And in that connection, I am not quite sure where we are specifically. I have lost track of this recently. I know borrowings are running over $3 billion on an average basis, but you were talking about a $2-1/2 billion figure as--",209
-fomc-corpus,1980,"We have suggested a borrowing assumption of $2-1/2 billion on ""B"" and about $2-3/4 billion under ""C.""",31
-fomc-corpus,1980,"I don't know what the right number is, but assuming you judged those two correctly, I would be inclined to use the higher number. I am talking about the very short run for the staff's initial planning. Now, if the money supply came in lower, you would reduce it.",57
-fomc-corpus,1980,The higher number would be more consistent with the behavior of borrowing in the last two weeks. We're having a hard time interpreting whether demand or technical problems--,30
-fomc-corpus,1980,"I think the market is confused at the moment, understandably, about what all these recent actions mean. One interpretation is that we would deliberately try to ease pressures on the money market. [Market participants] are looking for the substitute in this voluntary program. There's another interpretation that says that's not true. The former interpretation would not be helpful at this particular point in time, although in a general sense what we're aiming at is partly to avoid the extremes, perhaps, of a further jack up [in interest rates]. That's a little different from saying we're aiming to ease from where we are or [unintelligible] of easing from where we are. But I have a concern that if things went the wrong way and if people were not over this psychological hump about inflation--which I don't think they are, although we may be beginning to shake people a little--and they relapsed and thought we were easing, that would involve the greatest chance that we'd get a continued big loan demand, which would drive up the prime rate and give us higher rates. I think we're in a perverse situation here. If those commitments are ever drawn upon, the banks are going to be panicky and they're going to be putting their rates way up to protect themselves. So you can have something concrete to shoot at--and let me just say again that the least of my concerns is precisely whether it's ""B"" or ""C"" over a full four-month period--and to capture slightly the flavor of what I am saying, let me suggest the following: For M-1A, use 2-3/4 percent for the February-to-June number; put the funds range at 14 to 20 percent, say, which again is no goal to shoot at obviously in either direction, but I'm trying to pick up the flavor of what has been said around the table; and aim at $2.7 or $2-3/4 billion or something like that in borrowings in the very short run. And for this immediate period, and I am talking about a few weeks here, let's reconcile doubts in the path-building--which are plenty, given the performance of borrowings recently--on the side of being happier about an undershoot of the present projections for March and April than an overshoot.",460
-fomc-corpus,1980,"Where are borrowings? Where were they last week, Steve?",13
-fomc-corpus,1980,Around $3.4 billion. And they're averaging $3.1 billion thus far this week and were $1.9 billion yesterday.,28
-fomc-corpus,1980,With quite a lot of excess reserves out there?,10
-fomc-corpus,1980,"It's worth keeping in mind that one reason borrowing has been high was the anticipation of something happening in the discount rate. Something did happen and there's a much greater uncertainty factor than usual, given the whole surcharge situation now. I think there is more need for flexibility in whatever understanding the Committee reaches on that borrowing level.",62
-fomc-corpus,1980,"If borrowings were, let's say, in the $2-1/2 to $3 billion range, what part do you think would be at the 13 percent rate and what part at 16 percent?",43
-fomc-corpus,1980,"I don't know. But I actually went back to [estimate what that breakdown would have been in] the fourth quarter of '79. And if actual borrowing [and its distribution] hadn't changed because of the surcharge--it would have, but if it hadn't--it turns out that of the average daily borrowing of $1.8 billion in that quarter, $1.2 billion would have been at the surcharge. So, about 2/3 of it would have been at the surcharge rate. But what it actually will be over the next four weeks, I really have no idea. It has been a little higher than I would have suspected. If these banks try to avoid [paying the high rate] by not borrowing and we put in a target of $2-1/2 or $2-3/4 billion, that ought to put upward pressure on the funds rate.",179
-fomc-corpus,1980,"I missed a little of this. Any of the borrowing figures we're talking about now are below the recent level, which raises a little question, I guess.",31
-fomc-corpus,1980,"I think that's appropriate, Paul. My guess is that the big banks will back away from the window and try to preserve their flexibility.",27
-fomc-corpus,1980,"Well, we just don't know. I think that's possible. But it's implicit in this that we start at what is a lower level of borrowing than we have had just recently. And if the money supply figures were coming in a little high relative to the projections we now have, we might raise [the borrowing level] a bit. I guess that's the implication of what we're saying.",76
-fomc-corpus,1980,"I was assuming, Mr. Chairman, that one of the implications was that the Committee didn't want to be as accommodative in April as we had in [the Bluebook] and that for whatever path the Committee decides we might lower both March and April and shift a little of that into May and June.",61
-fomc-corpus,1980,"Mr. Chairman, I object strongly to raising the floor on the funds range. I have a feeling that when we hit the recession we're going to hit it very suddenly and that we may very well get into a credit crunch. It seems to me that it would be wise to keep the wide band and as [much] flexibility as possible. It also goes with my long-range feeling that we do want to have a very wide range on the federal funds rate and let the market determine the rates over time. We have broadened the federal funds range, and I think that was a move in the right direction. I don't mind going to [a ceiling of] 20 percent, but I don't particularly want to raise the floor.",146
-fomc-corpus,1980,"I find it very difficult to conceive that we're going to get to the lower end of the range before the next meeting anyway. This is probably the least important number we put down. And from that [perspective], it doesn't bother me.",48
-fomc-corpus,1980,"I agree with that, but the idea of keeping the range wide in case we do get into a crisis situation appeals to me.",26
-fomc-corpus,1980,"It does seem to me, though, Nancy, [given that] we have raised the discount rate since the last meeting, that to accept that floor, which is slightly below the 12 percent discount rate [unintelligible]. Operationally, one has to figure that banks would first pay off the borrowings before the [funds rate] went lower. So, logically, there is a basis for a one point increase.",87
-fomc-corpus,1980,"I still think the wider the range, the better, because we really don't know what we will be getting into in the next two or three months. And the possibility of a credit crunch is out there; it's not an impossibility at all.",49
-fomc-corpus,1980,It's quite probable.,4
-fomc-corpus,1980,"That would press the upper end, not the lower.",11
-fomc-corpus,1980,"It depends on what happens afterwards, Henry.",9
-fomc-corpus,1980,"I think we're talking about the visuals of what is announced a month from now and I can't convince myself that this is an absolutely crucial decision. One could argue that raising the funds range is consistent and reinforces the notion that we're not backing off. On the other hand, if we don't change it, it can be interpreted as an indefinite widening of the range. Well, we have a small mechanical problem. It is small in one sense; I don't know that it affects anything. The staff has written the directive tentatively to include a growth range for the whole first half of the year, which makes it even less sensitive to what we're talking about in the next month or two. I don't know whether that's a good way to word it or not. The only problem with wording it for the second quarter--and we can all convert this into a second-quarter growth rate--is that we don't know exactly what the [first-quarter] base is at this point. The equivalent of what I suggested, which is 2-3/4 percent for 4 months, would be about 4-3/8 percent for the first half. And that begins to look a little too fine. We could say 4-1/4 percent. The last published target we had was 4-1/2 percent for the first quarter, which I take it we will exceed.",275
-fomc-corpus,1980,Make it 4-1/2 percent for the half-year then.,15
-fomc-corpus,1980,"We can put in 4-1/2 percent for the half-year, which is right on ""B."" It doesn't capture the flavor that I thought [we might want to convey] of putting it a little below that. But in very round numbers, it's not very different. When we get down to the point of how to express it within a 1/4 of a point, it's difficult. The 4-1/2 percent certainly implies no change. It implies a lower growth rate in the second quarter than in the first, given what we know at the moment. It's a little easier than I suggested, but I suppose we could take care of that by some language which says that at least for the moment--I am talking about the period to the next meeting--we want to be sure not to exceed [that growth rate].",171
-fomc-corpus,1980,"I think in October or sometime the language--not the number--was something like ""4-1/2 percent or a little less.""",28
-fomc-corpus,1980,"Yes, maybe we can use that language. I think it captures what I am trying to say, maybe better than I said it. Well, let me review the bidding here. Suppose we put the directive the way it is written [in the Bluebook] and talk about the entire half-year [target as] 4-1/2 percent or a little less. For the funds rate range, we would move the upper end to 20 percent. On the lower end there's obviously a difference of opinion, which is going to be resolved. And in terms of the projections given to us, we will lean to being within those projections for the March-April period in setting the nonborrowed path target, interpreted as $2-3/4 billion of borrowings right now.",158
-fomc-corpus,1980,That looks low to me.,6
-fomc-corpus,1980,"Which one? The borrowings, Henry?",9
-fomc-corpus,1980,"Based upon the very recent experience, it does look a little low.",14
-fomc-corpus,1980,"Well, the very recent experience, yesterday, was $1.9 billion.",16
-fomc-corpus,1980,I am not sure one day's borrowing is--,9
-fomc-corpus,1980,Except that it was the first day after the surcharge.,11
-fomc-corpus,1980,We just don't know how the big banks are going to react to this dual rate.,17
-fomc-corpus,1980,"I know we don't. I think we'd have to say that if we start off there and that level of borrowing appears--though it's never this clear--to be accompanied by a falling federal funds rate and an indication of higher money supply growth, we'd raise [the borrowing level].",55
-fomc-corpus,1980,But there would be almost no borrowing at the higher rate.,12
-fomc-corpus,1980,We don't know.,4
-fomc-corpus,1980,I don't think we're capable of deciding this.,9
-fomc-corpus,1980,They will be borrowing at the higher rate when the funds rate is at 18 percent.,18
-fomc-corpus,1980,"What I am trying to get is some flavor. We have to make a decision as to where to put [the initial borrowing assumption]. I'd be perfectly happy to put it higher and resolve the doubt that way in the first round. In any event [the staff] needs to know what we're aiming for. I am saying that for the March-April figure together we'd be unhappy if [money growth] were not at that rate and we'd rather tolerate a shortfall. Having said that, there's no promise we're going to confine [money growth] to that rate.",113
-fomc-corpus,1980,Then you can't really confine the borrowing.,9
-fomc-corpus,1980,"Well, I don't mean to confine it. All I am looking for is some assumption to go on. If you want to forget about that, we'll solve it otherwise on the understanding that we're aiming for 4-1/2 percent or a little less [M-1A growth] for the first half of the year. Now that brings us basically to ""B"" or less.",79
-fomc-corpus,1980,"Do you want to define ""little""?",8
-fomc-corpus,1980,"Well, less than, say, minus 1/2.",13
-fomc-corpus,1980,We're not talking about minus tenths.,8
-fomc-corpus,1980,"Governor Partee, that's a reduction ad absurdum.",11
-fomc-corpus,1980,"No, but I don't think we want [money growth] to bomb in the next few months. And I can't accept more or less than--",29
-fomc-corpus,1980,"Well, nobody's talking about more or less being minus ten. We'll resolve these doubts on the side of less rather than more. And if that gets translated into the March-April number as projected, we'd be happy to come in lower than higher.",50
-fomc-corpus,1980,"Mr. Chairman, just to be clear: At the moment we're projecting 4.6 percent [as the average M-1A growth for March and April], and we'd target on that if nothing else were said. In light of this discussion, I would propose that we tend to even it out [over the four-month period ahead]. That is, we'd target on something like 3 percent or a little higher in March-April which would mean May-June would be around 3 percent or thereabouts; the two periods would be roughly even. March would be low and April high, but pressed down relative to what we show now, depending on what the data we get tomorrow look like.",140
-fomc-corpus,1980,I resist a little the precision that's implied that we can make it 2 percent less than an uncertain projection that--,23
-fomc-corpus,1980,"Oh, no; I was talking about what we'd target on, not what we'd achieve.",18
-fomc-corpus,1980,"Well, that's one way of putting it.",9
-fomc-corpus,1980,"If you did it that way, that would show real resistance to that April bulge, if it occurs.",22
-fomc-corpus,1980,"Yes. We would be targeting on [a smaller] bulge. If it started coming in even as high as we have projected, we'd begin resisting.",31
-fomc-corpus,1980,"I don't think we should kid ourselves, either. If the New York projections turned out to be right and there were enormous upward pressure [in April], I don't think we're saying we would raise the federal funds rate to 25 percent in order to get [money growth] down to the plus 6 percent [upper limit of our long-term range for M-1A].",75
-fomc-corpus,1980,"We're not saying that, are we?",8
-fomc-corpus,1980,I don't think we're saying that. I just wanted to [clarify that].,16
-fomc-corpus,1980,"The funds rate would not go over 20 percent, at least not without a meeting. What happened to Richmond's projections? Is Richmond no longer in the projection business?",34
-fomc-corpus,1980,"We began to have as many misses as the Board's staff, so--",15
-fomc-corpus,1980,So you gave it up?,6
-fomc-corpus,1980,"I think it is correct to say, as of now anyway, that we're not going to resist the April bulge, whatever it is, beyond a federal funds rate of 20 percent.",38
-fomc-corpus,1980,Unless we have a meeting.,6
-fomc-corpus,1980,"I don't know how to interpret the silence, but maybe we ought to have a vote.",18
-fomc-corpus,1980,On what?,3
-fomc-corpus,1980,"A little less than ""B.""",7
-fomc-corpus,1980,"The directive will be expressed as 4-1/2 percent for the first half of the year or ""a little less,"" if you want that modifier in there. On the funds range, there's some uncertainty here, but I take it the upper end is 20 percent. And I don't know [about the lower end]. You don't want a change at all, Nancy.",76
-fomc-corpus,1980,I'd like to keep it at 11-1/2 percent. I just think it's a good idea.,22
-fomc-corpus,1980,"I like the broader range, too. There's some slight--",12
-fomc-corpus,1980,I'd like to keep the 11-1/2.,12
-fomc-corpus,1980,"Let me just see what the consensus is. [One option is that] we don't move the lower end but put the upper end at 20 percent. And that would be all that appears in the directive for this discussion, right?",47
-fomc-corpus,1980,"Right. [The range shown in the directive] would be 11-1/2 to 20 percent, if that's what you mean.",29
-fomc-corpus,1980,I suppose the M-1B that is consistent would be 5 percent or a little less.,20
-fomc-corpus,1980,"Don't you think ""somewhat less"" is a little more dignified?",15
-fomc-corpus,1980,"""Somewhat less."" Operationally we understand that. And there would be some language in the discussion to reflect--though I'd hardly put it in these terms--that we want to take particular care not to exceed that rate in the period immediately ahead. To remain within [the six-month target] is roughly the way to say it, I guess, as the March-April average would work out. We won't put the borrowing [assumption] in the directive, but you understand what the implications are for that. So, the precise specifications are only the first two numbers, but there will be discussion [in the policy record] about the importance, during the period immediately ahead, of resisting an increase in the money supply beyond this six-month target.",150
-fomc-corpus,1980,"I just want to be sure what that means, Mr. Chairman. The average March-April rate of growth between ""B"" and ""C"" is about 4-1/2 percent. I was not going to build a path on that but on a lower rate of growth and then shift some of it into the May-June period.",70
-fomc-corpus,1980,What is the average?,5
-fomc-corpus,1980,"It's about 4-1/2 percent--between ""B"" and ""C""--for March-April. Now, we only know 5 days in March for sure, so March in some sense is an unknown. What I think is consistent with the Committee's discussion--I want to be sure of this--is that rather than the 4-1/2 percent for March-April and about 1 percent for May-June [implied in the Bluebook], I should shift some of that growth into May-June. So you would be resisting at a lower rate of growth in March-April.",125
-fomc-corpus,1980,How much lower?,4
-fomc-corpus,1980,"Well, I think we can take care of that in the discussion. I was just trying to avoid some wording that relied upon an internal projection.",29
-fomc-corpus,1980,I understand. I just want to be sure that what we're planning to do is clear to the Committee.,21
-fomc-corpus,1980,But how much lower in March and April?,9
-fomc-corpus,1980,"Well, I think we'd have to wait until we look at the numbers and Mr. Sternlight and I have a chance to chew it over. But one thought would be simply to make March-April 3 percent and May-June 3 percent in round terms and even it out. We generally tend to use an even [pattern] if we can. It doesn't seem likely that growth in March and April will be even, but maybe for the two months it wouldn't be unreasonable to target it that way. Then if March turned negative at minus 1 percent, say, April could be plus 7 percent. That would be an example. Or if March turned out to be plus 2 percent, then the April [path] would drop down to a plus 4 percent rate or something like that. It may not be that even; it will depend on what it looks like.",178
-fomc-corpus,1980,"Mr. Chairman, in light of Mr. Pardee's comment that the only thing that is keeping the dollar strong in foreign exchange markets is the level of interest rates in this country, I have some difficulties in not moving up the floor [on the funds rate range], as a few people have suggested, to 14 percent. A 14 to 20 percent range at least is a 6 percentage point spread as compared with the 4-point range we started with. That 14 to 20 percent would be my preference.",107
-fomc-corpus,1980,That seems to be the only element on which there may be some substantial disagreement. Do you want to vote on the other parts and leave that open or vote on the whole thing? Let's do it the other way around and see how many Committee members want to move to a 14 percent [lower limit] as proposed. That seems rather reasonable to me. Let's look at two choices at this point: Move it to 14 percent or leave it where it is. Who wants to leave it where it is?,102
-fomc-corpus,1980,"Four, Mr. Chairman.",6
-fomc-corpus,1980,Who wants to move it to 14?,9
-fomc-corpus,1980,Five.,2
-fomc-corpus,1980,And I didn't vote. I assume we have one or two [who didn't express a preference].,19
-fomc-corpus,1980,Only one. There are only 11 members. SEVERAL. I don't think it's critical.,20
-fomc-corpus,1980,"Well, do we have a consensus at 13 percent?",12
-fomc-corpus,1980,It isn't how high we raise it; it's whether we need to move it at all.,18
-fomc-corpus,1980,I would prefer 13 over--,7
-fomc-corpus,1980,Let me just try 13 and see whether that--,11
-fomc-corpus,1980,"As opposed to 11-1/2, I'll vote for 13.",16
-fomc-corpus,1980,You want it as high as you can get it.,11
-fomc-corpus,1980,[Unintelligible] because it's not high enough.,12
-fomc-corpus,1980,I think that's five.,5
-fomc-corpus,1980,"Well, I just don't know the strength of conviction of the various sides here. But if we make a Solomonic judgment--",26
-fomc-corpus,1980,How many people will vote for anything?,8
-fomc-corpus,1980,The [decision] certainly should not rise or fall on this issue.,14
-fomc-corpus,1980,"Let me just try the 4-1/2 percent for six months and the formal specification of 13 to 20 percent, which has the merit of being a compromise if nothing else. Is that generally acceptable? Okay, let's vote.",49
-fomc-corpus,1980,One question: We have 4-1/2 percent or somewhat less for M-1A and 5 percent or somewhat less for M-1B. Do I assume the 7-3/4 percent for M2 stands?,49
-fomc-corpus,1980,"Oh gosh, poor M2 got lost in the shuffle.",12
-fomc-corpus,1980,"Last time the directive said ""about."" We could say ""about"" and I suppose that would be good enough.",23
-fomc-corpus,1980,I'd rather let it stand.,6
-fomc-corpus,1980,"We'll let that stand. Shall we have the ""about""?",12
-fomc-corpus,1980,It's running a little high.,6
-fomc-corpus,1980,About 7-3/4 percent and then 13 to 20 percent on the federal funds rate range.,23
-fomc-corpus,1980,Okay?,2
-fomc-corpus,1980,"Chairman Volcker Yes President Guffey Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roos Yes Governor Schultz Yes Governor Teeters Yes First Vice President Timlen Yes Governor Wallich No President Winn Yes Ten for, one against.",50
-fomc-corpus,1980,"Having in mind the special credit restraint program that the Federal Reserve announced last Friday, there may be some advantage in including a sentence in the directive that would make reference to the rate of growth of bank credit falling within a range of 6 to 9 percent. To have that as part of the directive would be supportive of your commentary over the last 3 or 4 days.",76
-fomc-corpus,1980,"Can we say that for the first half of the year? I would agree with the thrust of what you're saying, that something here in the directive would be useful.",33
-fomc-corpus,1980,We can't have 6 to 9 percent in the first half. It's not possible.,18
-fomc-corpus,1980,"We don't think it's possible in the first half. Given the strength we already have, it would take an enormous reduction.",24
-fomc-corpus,1980,Maybe the number is not the precise number that we want.,12
-fomc-corpus,1980,We'd have to put it in terms of the whole year.,13
-fomc-corpus,1980,"It's already in for the whole year, but it's not--",12
-fomc-corpus,1980,It's not very prominent in terms of what people can see.,12
-fomc-corpus,1980,"I wonder whether we shouldn't try to get something in this directive. Maybe we just can't put a number in at this point but we can say ""taking account of the need for restraint on bank credit"" or some language of that sort.",47
-fomc-corpus,1980,Make it qualitative and not quantitative?,7
-fomc-corpus,1980,"We could say ""taking account of our needs in bank credit, consistent with the 6 to 9 percent [objective] for the year.""",29
-fomc-corpus,1980,"Or we could say ""Close attention will be paid to bank credit"" or something like that.",19
-fomc-corpus,1980,"Well, let's see if we're in agreement. We'll try to work on some phrase, which probably has to be qualitative rather than quantitative for the six-month period, and get it in there. And let's get some discussion in the earlier nondirective part [of the policy record] about the importance of bank credit, too.",65
-fomc-corpus,1980,You could easily look to a marked slowing over the next two months from the recent [rate].,19
-fomc-corpus,1980,"Yes. Maybe that's the way to put it in: ""Taking account of the need for a slowing in the rate of growth of bank credit over the next few months, consistent with the objective for the year."" There are a couple of other items that we should be taking up, if I can find [my agenda]. We have the [proposal] regarding the authorization for domestic open market operations. To the best of my knowledge there have been no questions raised about that. If we can get that approved, it would be helpful.",106
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,"Without objection, that is approved. The same for the authorization for foreign currency operations. No questions have been raised.",23
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,There is a housekeeping amendment in one paragraph.,9
-fomc-corpus,1980,"What is that, Mr. Altmann?",9
-fomc-corpus,1980,"There is just one housekeeping amendment. In line with the changes in organization that the Committee approved last August, in effect changing the titles of the Managers, in paragraph 6 of the foreign currency authorization where the word ""Manager"" appears, we would simply change it to ""Manager for Foreign Operations.""",59
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection. Now we go to the authority for lending securities. This is more substantive. We've reviewed this at intervals, quite a few intervals. I take it the proposal is to continue it unchanged. If nobody has any problems with that, I would hope we could approve that with equal expedition.",59
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection, that's approved. The warehousing of foreign currencies, I think, falls in the same category. If you want to have a discussion of that, I would propose a very short-term approval of [the current procedures] and consider it at a meeting when we have time to discuss it. But if it doesn't need any discussion, we'll approve it for another year.",75
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection, it's approved for another year. The only remaining item we have is the date of the next meeting, Tuesday, April 22.",29
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Approved without objection.   Thank you.,8
-fomc-corpus,1980,"Can we come to order, ladies and gentlemen? I am delighted to say that our Vice Chairman, Mr. Solomon, who was duly elected in absentia last time, is with us today. Welcome to your first meeting. I am sure you'll find out about the wonderful ways of the Open Market Committee very quickly. First, we have the minutes.",70
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,"Without objection, we will approve the minutes. Mr. Pardee.",14
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Comments or questions?,4
-fomc-corpus,1980,"Scott, how would you rate the relative importance of the declining rates and prospective declines in rates vis-a-vis the Iranian situation, so far as weakness in the dollar is concerned?",35
-fomc-corpus,1980,"Much more important are the interest rates. On the Iranian situation, when you talk to different people they'll give you different interpretations even on the same day. For the moment interest rates are the dominant factor in peoples' minds in the exchange markets.",48
-fomc-corpus,1980,"But if we kept the aggregates under control successfully for the next several months, would interest rates and prospective interest rate movements mean as much as they do now?",31
-fomc-corpus,1980,"In a couple of months the exchange traders might be thinking about something else. The [focus of their] attention tends to shift from time to time. Currently, given that there is a feeling that we're in a period where interest rates are topping off and people are uncertain as to how far interest rates are likely to go down or whether they will stabilize, rates are the dominant factor. The exchange market people look a little at the aggregates. I was a bit surprised and rather pleased that the decline in the aggregates reported on Friday did not lead to a sharp sell-off of the dollar, given the sensitivity the market is showing toward monetary questions in the United States at this point. But they look mainly at interest rates and less at the aggregates.",147
-fomc-corpus,1980,Has that mix changed any? I know that has been true for a long time.,17
-fomc-corpus,1980,"It depends in some banks on whether they have monetarist economists that they have to listen to; but they work with interest rates. And I'm afraid, with this 1.4 [number released] this morning, that we're hearing again from the market that there has not been any improvement on inflation in terms of the CPI.",66
-fomc-corpus,1980,Following up President Black's question: The market knows the projections are for falling interest rates. These forecasts are also derivable from Treasury bill futures and the like. Do you think the exchange rate discounts these future declines in interest rates so that if they materialized there would be no further exchange rate effect?,60
-fomc-corpus,1980,"It's a question of [timing]. We surveyed corporate treasurers yesterday to find out what they were thinking at this moment. Several of them related practically the same view: They expect that sooner or later interest rates may decline in the United States--that it's necessary--as we move into a recession. But as I indicated in my report, if interest rates come down faster--before there is a demonstrable improvement on inflation and internationally on the trade [and] current account balances--then we're heading for trouble. So there is some expectation that interest rates may recede, and certainly plenty of hope that they will at some point, from this particular group of people. But the traders and corporate treasurers are telling us that it's a matter of timing in terms of when the interest rates come down and when these other things start improving.",168
-fomc-corpus,1980,The consumer price index isn't going to come down for three months.,13
-fomc-corpus,1980,What are the price indexes doing in other countries?,10
-fomc-corpus,1980,"They are beginning to level off, I'm afraid, certainly in Germany and Switzerland where they are running around 6 percent or 5 percent. Wholesale and producer price indexes are still very high in many of these countries. Japan is still reporting very high increases, but they are beginning to level off, too, as the oil shock gets filtered into their price mechanism. But the consumer price indexes are behaving better in some of these countries.",86
-fomc-corpus,1980,What are German interest rates doing? Are they off their peak or not?,15
-fomc-corpus,1980,Today they're off a little. The Euro-mark is about 9-1/4 percent and the three-month rate on interbank [loans] is down below 10 percent.,37
-fomc-corpus,1980,What were they at the peak?,7
-fomc-corpus,1980,"Euro-marks as against Eurodollars were around 17 percent as against 9 percent. We're still at a differential of about 7 to 8 percentage points, depending on which measure we use.",41
-fomc-corpus,1980,That's close to the peak.,6
-fomc-corpus,1980,It's not appreciably off the peak.,8
-fomc-corpus,1980,"Well, it was at about 10 percentage points before, close to 10-1/2.",21
-fomc-corpus,1980,Any other questions?,4
-fomc-corpus,1980,"A question, I guess to Ted Truman: In the summary of the Greenbook, the staff concluded with a paragraph about the outlook for the dollar, which as nearly as I can remember has said about the same thing for the last year or two, whereas the dollar has had some ups and downs. I wonder if this is because that is the best you can do or [Laughter]--",79
-fomc-corpus,1980,"Well, the dollar has had some ups and downs. However, for the last 18 months, or in fact since shortly after the November 1st program, the dollar on average has not moved. It has moved in a band of about 5 percentage points on average and our projections have been more or less within that same range. As far as your second question is concerned, about whether that's the best we can do, my feeling and the staff's feeling is that there are a number of conflicting forces at the moment. On the one hand, we have the prospect of interest rates coming down; that's something that the market looks at very closely, in part because that's the cost of money. That's a different phenomenon than the monetary aggregate targets, which are a function of what is going to happen to inflation and the economy over a longer term. I would differ with Scott in that I think the market believes and has appreciated the fact that our trade and current account positions are relatively good and will continue to be relatively good, partly because of what our domestic projection is, and that should tend to give some strength to the dollar. So, it's really those two conflicting forces that lead us in some sense to a projection that the dollar will remain in the range it has been for the last year or so. As far as the technical side of the projection is concerned, we did in fact raise it from 88.5 to 90, but that's a relatively small difference. It's in the same range where it has been for the last 18 months or more.",313
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"We hear a good bit of publicity about domestic credit problems. The Chrysler story is in the paper this morning, and so forth. I hear no mention of international credit problems, and that seems to me to be an exposure that gets overlooked in the assessment. I don't know whether you have any feel for this or not.",64
-fomc-corpus,1980,"There are several people who might be able to answer that. In terms of the non-oil-[producing] less developed countries, there is a lot of discussion about that.",36
-fomc-corpus,1980,That's the sort of thing I mean. It seems to me that's a problem that is ahead of us in spades.,24
-fomc-corpus,1980,"I think both the Board staff and our staff, as well as other staffs, are looking at this very carefully. We're moving into another period where the whole discussion of recycling is very important. Since the 1974-75 period scared so many people, perhaps we're in a little better shape coming into this one. People talk about Brazil and a few other countries that will have big problems, but of course the [unintelligible] decided not to talk to the IMF. I don't know, Ted; you might want to comment on that.",110
-fomc-corpus,1980,"Well, as we said in the presentation to the Committee in February, it's not clear how the international credit problems will impact on the dollar per se or on the U.S. economy. There is a feedback between the policies that are adopted by other major oil importing countries in this framework [in terms of their effect] on the dollar and the international credit situation. So, if Japan and Germany and the United States, for example, decide that they do not want to sustain the kinds of current account deficits that everybody seems to be projecting at least for this year and next year, then we could have problems. It's not clear how it would impact on the dollar, but the impact on banks and the financial system could be quite severe.",146
-fomc-corpus,1980,"The difficulty of the non-oil-[producing] LDCs in borrowing sufficiently and the need to draw down reserves will probably lessen the pressures for diversification out of the dollar. On the other hand, the probable failure of the substitution account negotiations may increase diversification pressures by the OPEC countries. My own view is that right now the best estimate is probably that we'll be nip and tuck with the Germans on the external current account deficit. The picture is not as optimistic as it was when we thought a couple of months ago that our deficit would be significantly lower than the German and Japanese deficits. I agree completely with Scott that in the short run, meaning in the next month or two, there is likely to be pressure on the dollar if the decline in interest rates moves very precipitously. But I think the outlook in the longer run, a few months from now or later in the year, is sufficiently reasonable that we're unlikely to have any major dollar pressure of the kind that we saw in October 1978. But in the period immediately ahead of us, as these interest rates move very sharply--if they do--I think that will cause us problems.",231
-fomc-corpus,1980,What is the capital conversion situation now? Have the Germans stopped that?,14
-fomc-corpus,1980,But we're not getting any now.,7
-fomc-corpus,1980,"On the capital conversion? No, they haven't had many issues lately.",14
-fomc-corpus,1980,"If they had them, presumably we would get them. But they just haven't had any.",18
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,"I wonder whether it wouldn't be desirable to have some downward pressure on the dollar, with the economy moving into what could prove to be a pretty sizable recession. Wouldn't it be nice to have a little better export market?",44
-fomc-corpus,1980,"There are considerable lags. You're talking about effects in 1981-1982, not now.",21
-fomc-corpus,1980,"Yes, I know. But we don't know how long the recession is going to last either.",19
-fomc-corpus,1980,"On the other hand though, Chuck, until the inflation rate does begin to go down, the reasonably stable dollar is one of the few things we have going for us. It is considered an anti-inflationary influence to a modest degree, so I think we would be well advised to try to make sure, as best we can, that any decline in the dollar is a reasonably gradual one.",80
-fomc-corpus,1980,"Well, I agree with that.",7
-fomc-corpus,1980,"Not to resist a decline, but [to ensure] that it is a gradual one.",18
-fomc-corpus,1980,The trouble with declines in the dollar is that they get a certain momentum of their own.,18
-fomc-corpus,1980,"And, of course, the thing that would bring the inflation rate down the quickest in the short run would be lower interest rates because the CPI is being affected so greatly [by] mortgage costs and other indirect costs of higher interest rates.",47
-fomc-corpus,1980,"These all strike me as rather unorthodox ways of coping with our problems: Depreciate the dollar, bring down interest rates, and fight inflation. Now, I don't think you really meant this seriously, but it sounded a little ominous because there are people who do believe that.",58
-fomc-corpus,1980,"One more question. The freezing of the Iranian assets [added] one aspect to the diversification desires of other nations. Did the suggestion in the latest of the President's proposals that we seize them--not only freeze them but seize them--to meet various expenditures, etc. have any further repercussions?",59
-fomc-corpus,1980,"Well, the whole package, as I indicated, is that as long as the United States is exposed, whatever we do to act unilaterally in Iran is seen as bad for the dollar. The indications out of the European ministries meeting today are that perhaps they will help us, and that is giving the dollar a little lift. But, as for individual items within the package we put together, it's hard to isolate what the effect on the dollar has been.",93
-fomc-corpus,1980,We need a motion to ratify the transactions.,10
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,"Without objection. As for recommendations with respect to operations, we took an action last month regarding these forwards with the Bundesbank, which we would turn over to the Treasury. I would hope that we could still do that. I take it that the Bundesbank is taking the position that if we have any swaps outstanding, we have to use [the proceeds] first for that. I don't know if you can arrange to get the swap repaid before then, Mr. Pardee. If not, let's negotiate vigorously so that the Treasury gets [the funds].",111
-fomc-corpus,1980,Gets to realize its losses!,6
-fomc-corpus,1980,Mr. Sternlight.,5
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"Peter, I'm very curious about what happened to the expected April bulge. As you know, the Committee was concerned that it not be allowed to happen. I'm not quite sure we were looking forward to a negative bulge. Do you have any insights into what was going on?",56
-fomc-corpus,1980,"Well, the aggregates have proved once again their lack of short-run predictability. We thought we had a sure thing going with April because [the money supply in] April has bulged every year for the past 4 or 5 years it seems.",51
-fomc-corpus,1980,"You can't believe in anything anymore, can you?",10
-fomc-corpus,1980,I'm not sure that I can pinpoint any special factor. I don't know if Steve wants to add anything. In New York our faces are even redder than those of the Board staff because we were anticipating an even greater bulge.,46
-fomc-corpus,1980,"Well, the growth rate [of Ml] in April of 1976 was 6.6 percent; in 1977, 9.2 percent; in 1978, 12.6 percent; and in 1979, 14.7 percent. My memory is that there is genuine weakness in the unadjusted deposits. If one compared year over year and applied the seasonal factor of 1976--that is abstracting from all the adjustments we've made--the increase would be something like the 6.6 percent recorded in 1976. I assume there is some possibility that we've over-adjusted because in the process there is a certain amount of coincidence of random factors. It's a conflict of terms, but something like that may have happened. And we may see [some rebound] in May and June. I'll have some comments on that in my own briefing. But other than that, we have no special explanation; there are no special factors that we could think of, unless income really is being destroyed at a very rapid rate here. But we don't have any substantial evidence of that yet.",226
-fomc-corpus,1980,I heard Chuck mutter under his breath that it might have something to do with the weakness in the economy.,22
-fomc-corpus,1980,Do we know what happened in April 1975?,11
-fomc-corpus,1980,"Yes, [M1 growth in] April 1975 was -3 percent. In fact, one has to go back to 1970, 1971, and 1972 to have high Aprils again. They were between 7 and 8 percent in those three successive years.",60
-fomc-corpus,1980,I see.,3
-fomc-corpus,1980,In April 1975 we were just coming out of recession.,13
-fomc-corpus,1980,"Well, in terms of money demand--",8
-fomc-corpus,1980,"I might say, Governor Partee, that the -3 percent of April 1975 was followed by a May of 13 percent and a June of 16 percent.",35
-fomc-corpus,1980,So much for that!,5
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Well, I was going to raise a question as to whether the seasonal adjustment might not have been a factor. But I would also like to ask Peter whether he could comment on his confidence or lack thereof in the projected rather strong money growth for May and June shown in the report which I believe was put out in New York.",65
-fomc-corpus,1980,"Well, I don't really want to claim any paternity for the money projections that are made in New York! I look at all those projections with great skepticism. In projecting a fairly strong May and June, basically I think our people felt that they did not see a reason at this point to change the quarterly growth patterns, which they tend to feel a little more confident in than the month-to-month gyrations. And to have the quarterly growth come in as they had seen it before, having had a weak March and April, one is driven to project a rebound in May and June.",117
-fomc-corpus,1980,"But they use, do they not, something approximating the Greenbook outlook for the general economy?",20
-fomc-corpus,1980,"They would be basing it on their own [forecast], but that is not a very different outlook in this case.",24
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, I can think of one small technical factor that might have affected [money growth]: The delay in mailing out the [tax] refunds might have made the money hit balances a couple of days later, but probably no more than that. If we figured it correctly, that would account for maybe $800 million or something like that but the estimates for the week of the 16th were revised down to about $4-1/2 billion. However, one thing we wondered about was whether or not the high interest rates and the greater availability of money substitutes such as the money market mutual funds may have led people not to build up their balances in anticipation of the tax date quite as [early] as they have in the past. How to measure that, I don't know. But we also were wondering about this great weakness, and that's all we could come up with as a possible explanation for it.",183
-fomc-corpus,1980,"The delay does have an effect. Our estimate is slightly higher than yours through the week of the 16th. We have some slightly counterbalancing upward effect in the week of the 23rd; we assume it will be washed out by the 30th and probably have a trivial effect on the month on average. But we are assuming that M1 for the week of the 23rd, the week we're in, rises by something like $3-1/2 billion from the week of the 16th, in part because of this delay. Of course, if that doesn't develop, the negative for April will be much bigger.",130
-fomc-corpus,1980,What about people paying off debts?,7
-fomc-corpus,1980,"Well, they can pay off debts out of almost any asset. They may be paying them off out of cash or they may be letting other assets run down. I just have no way of knowing until we get the quarterly flow of funds.",48
-fomc-corpus,1980,"But, Steve, didn't you say yesterday that there is no evidence that people are moving into other types of money?",23
-fomc-corpus,1980,"Yes, so far. I'll have some of that in my own briefing. But that's right; thus far we don't have evidence of money moving into higher order Ms. We don't have data yet for Treasury bills or complete data on debt.",47
-fomc-corpus,1980,I gather that there wasn't anything more than the availability of more data that led to these downward revisions.,20
-fomc-corpus,1980,In the money supply?,5
-fomc-corpus,1980,"Yes, for the week of the 16th.",11
-fomc-corpus,1980,"No, we don't have anything more than we normally have as the weeks go by.",17
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"Mr. Chairman, before we feel that our inability to forecast monthly behavior of the aggregates reflects some sort of weakness in what we're doing, I think we should keep in mind the fact that even the most ardent monetarists have never believed it is possible to control money or to avoid fluctuations on a month-to-month basis. If we see an undershoot or an overshoot in the short term, even though it might seem desirable to lean against that deviation through the operations of the Desk, I really don't think we should. Nor should we feel that because the aggregates are unpredictable on a month-to-month basis it in any way detracts from the wisdom of how we are conducting our business.",138
-fomc-corpus,1980,"If there are no other comments, we have to ratify the transactions.",15
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,"Without objection, they are ratified. Let's turn to the staff report on the economic situation.",19
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"Since we've identified with such accuracy past financial relationships, I think we ought to have our economist discuss prospective financial relationships.",23
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,We can have some general comments about the economic situation and policy implications and we'll return to a more precise discussion after an initial go-around. Mr. Winn.,31
-fomc-corpus,1980,"I had a question I wanted to raise, which may be more on the technical side than the general side, Paul. Do you want to hold that?",31
-fomc-corpus,1980,"I think it's fair to ask questions at this time, too.",13
-fomc-corpus,1980,"Okay. Steve, you have made an income analysis for money demand in the period ahead. If one looks back at many previous credit crunches, one sees that after the economy turns down, we get a bulge in credit demand. The margins start to narrow; sales are off and inventories are up and there is continued price pressure for more carry. So, first, there's the seasonal adjustment [problem] that makes me quite nervous about May and June. Now, this may or may not happen, but there is also the possibility, it seems to me--with interest rates turning a bit and attitudes changing a little--of a rather substantial increase in borrowing in the May-June period as well.",140
-fomc-corpus,1980,"We actually have projected a rather sharp drop in borrowing in the second quarter, largely because we assume a very substantial liquidation of liquid assets built up by corporations.",31
-fomc-corpus,1980,But that runs out eventually.,6
-fomc-corpus,1980,"That's right. So the sharp drop levels off, but with borrowings at a lower level. And, of course, we have some weakening in the consumer demand area. So, we don't have any substantial build-up in borrowing demand ahead of us. Over the long run, of course, we could probably foresee some business desire to restructure balance sheets, but that's a shifting of the borrowing patterns. We simply don't see any bulge, really, in credit demands.",93
-fomc-corpus,1980,"But if you talk to some of these businessmen, they don't have [unintelligible] they can hold out without having to come back in. They are out now. Rates have scared them off and they are using up what they have.",49
-fomc-corpus,1980,"That's right. There is pressure; they're not generating internal funds to any substantial degree. It's true that we have them running down their liquid assets. There is some built-in pressure generated against expanding their spending to a great degree. We don't have a vast expansion in spending; and to the degree that pressure is on them, it might constrain their spending actually at current rates.",74
-fomc-corpus,1980,"Don't you think, Willis, that they followed a different inventory policy this time?",16
-fomc-corpus,1980,"They kept inventories pretty tight; but if sales drop off, they still are faced with having to carry [inventories].",24
-fomc-corpus,1980,"They seemed to cut production very fast, too. I don't know.",14
-fomc-corpus,1980,The adjustment is not quite as easy as we like to think of it sometimes.,16
-fomc-corpus,1980,"Let me say in connection with all of these confusing money figures and related numbers, that we took some actions in March that were unusual, to say the least, on consumer credit, on the voluntary program, on the money market funds, and all the rest. And we had interest rates at levels nobody ever saw before. I suspect this has led to some uncertainty and adjustments of a magnitude we can't quantify very well. We may have had a lot of ""money"" held in the form of Treasury bills for instance; we just don't know. It's not in our M2 and M3 figures. I suspect there may be something to what Fred said--and we will not find out until later--in that a lot of people may be scared about consumer credit, and they may now be taking some money out of the bank and repaying their charge cards or something else. It's just a very uncertain period, too uncertain to reach conclusive judgments about anything. Unfortunately, we only find out about these things later when we get more numbers and get some more perspective as to whether we are getting a rebound or not. We just don't know at this stage. Mr. Roos.",235
-fomc-corpus,1980,"I'd like to pursue, if I may, the reasoning that Steve expressed. It's my understanding that back in October we adopted a policy of letting interest rates flow freely. Indeed, interest rates did move up rather dramatically and we did not act to impede that upward movement; we let them move. Now, Steve, if I understood you correctly, you expressed concern that if we permitted interest rates to decline dramatically, there could be adverse reactions from markets and other sources in terms of inflationary expectations--that they may misread that in spite of the fact that the Chairman has repeated frequently the possibility that interest rates might decline and that it would not be a signal of any easing of our determination to deal with inflation. I have two questions. One question is: Isn't it illogical to let rates move one way and then get ""antsy,"" if I may use a bad phrase, when they move the other way? Secondly--and I might pose this question to the Chairman--if we permit interest rates to drop, can't we in our published records, or through comments by the Chairman and others, explain that this is in no way any retreat from our primary concern with inflation? In other words, one of the things that I think causes the concern that you expressed is that in the past we have acted with a degree of mystery and secrecy and let the markets draw their own conclusions. Can't we comfort them and explain the rationale behind what we are doing?",289
-fomc-corpus,1980,"In answer to the first question, President Roos, I was trying to bring before the Committee the various concerns that the market would see and also the economic analysis. I was not expressing my own judgment, particularly, on one or the other aspects of this. The only thing I can say is that, empirically, in recent periods when interest rates have gone down, we have had a great hue and cry in the market that may or may not have been rational. It has probably had effects on the thinking of those who spend and those who invest; and it has brought forth the view that perhaps inflation isn't going to be conquered. That just seems to be a market event and I wanted to bring it before the Committee. On your second question, since it was addressed to the Chairman--",158
-fomc-corpus,1980,"You don't want to express any judgment about the persuasive powers of the Chairman, Mr. Axilrod? [Laughter] They are limited I would say.",32
-fomc-corpus,1980,"Are they limited, Paul, by the tradition of our taking an action and letting people decide what caused us to do what we did or are they limited for other reasons? I think your persuasive potential--and it isn't salary-setting time, so I'm not polishing the apple--is enormous. [Laughter] But I think the Fed has traditionally not used that potential in past years because we thought we should just take actions and let the people out there decide why we did.",94
-fomc-corpus,1980,"The only answer I could give you is that we would get a mixed reaction. Some people will believe it. People of monetarist persuasion will believe it more than others. Some people don't believe the underlying theory, so they have no reason to believe it. And there will be people in between. But I don't know whether there will be more or less [confusion]. There was certainly a lot of confusion in late November, December, and early January for a variety of reasons. People saw the reserve figures going up, which was one confusing aspect. The money supply figures weren't going up, particularly, but the reserve figures were; and interest rates were going down. We get all different constellations of events. But I think you are misled if you think that pure persuasion is going to convince people. It may have an impact, but we are going to get mixed reactions.",178
-fomc-corpus,1980,I would just remind you of how he charmed Gail Cincotta. VICE CHAIRMAN SOLOMON(?). The ability to persuade is asymmetrical also.,33
-fomc-corpus,1980,"That's probably right. People believe what they want to believe. If they saw the inflation rate coming down, they would be more persuaded. But we are in this unfortunate position where I suspect the consumer price index, anyway, is going to remain at or above--or maybe if we are really lucky a little below--its current level for three months because of the extraneous question of the oil import fee and the way the interest rates get factored into that. We probably will have three months of that, which will carry us into July. Now, maybe if we are lucky, the producer price index will begin showing some declines; that depends partly I suppose on how they treat the oil import fee in the producer price index. I don't think [the impact] is negligible. We are far better off if we see the aggregates under clear control and a given interest rate movement than if we see the aggregates shooting up and interest rates going down; the latter would be the worst of all worlds. Governor Wallich.",202
-fomc-corpus,1980,"I'd like to follow up on what Larry said. I think it is perfectly possible to convince the market that we are sticking to a fixed money supply policy. That doesn't mean that we are not engaging in a very stimulative policy at a time of recession. That's exactly the nature of that policy. It's not really a policy; it's a procedure. And it's analogous to building strong automatic stabilizers into the fiscal system where without tax cuts the recession will produce a large deficit which, of course, is very stimulative. Here we have generated a procedure that is highly restraining when demand for money rises against a fixed supply because interest rates rise sharply; and it's highly stimulative on the way down. So we convince the market that we are on track with our aggregates. All that we are telling them is that we are going to have low and extremely stimulative interest rates. Their analysis will be quite correct. Now, if it's a question of proving that we are following our policy, I think we can be persuasive. But that doesn't mean the market will believe that we are not following a policy that has very stimulative effects. So, I think we need to look at the reality--namely, that we would be stimulating very severely if we let interest rates go down--rather than at the procedure. The procedure says we haven't changed our method of feeding money into the economy. All that makes very relevant what Steve said: That we may have to modify our path. We may be able to do this within the limits of the [annual] ranges of 4 to 6-1/2 percent for M-1B and 3-1/2 to 6 percent for M-1A. I think we would not have to go outside those ranges, at least for the remaining two months of the first half of the year. It would be very alarming if we went to money growth rates for the second quarter that would make us maintain the 5 percent rate of growth from December to June because we would have to have two months of very high growth rates in order to overcome the weakness of March and April. This is an occasion where we ought to allow a little base drift: Let the past be the past and make sure that in May and June we do not have very large increases in the aggregates. Now, to the extent that the funds rate can contribute to controlling that, we should be concerned about the funds rate and not let it drop very low. Our techniques of supplying reserves, of course, can give us a better handle on the expansion of the money supply. And when we get to talking about specifics, I'd like to supply some more specific suggestions on how large an increase we ought to aim at.",547
-fomc-corpus,1980,Our present target is not 5 percent. It's 4-1/2 percent or somewhat less.,21
-fomc-corpus,1980,"That comes out of the movement in the previous period, I think.",14
-fomc-corpus,1980,For December to June the Committee last time voted on 4-1/2 percent or somewhat less.,21
-fomc-corpus,1980,"It's consistent with the numbers you gave, which are the average over the longer run. Henry mentioned M-1B also.",25
-fomc-corpus,1980,"Do you accept the fact that if we keep money growing slowly, there is a direct effect on output? Isn't that part of the risk?",28
-fomc-corpus,1980,"No. I don't believe there is any direct effect from money to the economy. The economy in my opinion runs on interest rates. The effect from money goes to interest rates and from there it goes to the economy. And the prescription for a fixed rate of growth of the money supply, far from being a neutral and noninterventionist policy on the economy, is a policy of very extreme intervention. One might even call it fine-tuning. You want wide swings in the interest rates and that's what we get by having inelastic growth of the money supply. [Rates] are high in expansions, which restrains, and are very low in recessions, which stimulates. There may be very good reasons normally for stimulating strongly in a recession and then as demand for money builds up again to get interest rates rising early in the expansion. But in our present predicament, where we have to worry more about inflation than anything else, I don't think we can afford this remedy.",194
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, I agree with the staff's further downward revisions in the projections for the forthcoming period. And if I had to guess, I would say that they still haven't got them quite low enough, because I just don't see any area in the economy that seems to have significant strength. Housing is headed much lower, I think. The consumer is grossly overextended. We are getting grass roots reports of growing personal and business bankruptcies. The Redbook, and particularly the addendum that the New York Bank sent in, suggests that inventories are not as closely in alignment with needs as we had thought earlier, and that was the main thing we were counting on to keep this recession relatively moderate. And I would guess that there is probably going to be greater-than-expected weakness abroad, so that this recession might well take on more of an international cast than I think most people are assuming at this moment. If I am right on this, then prices will probably come down somewhat more rapidly than the staff and most other people are assuming. I have a lot of sympathy for what Henry was saying, primarily because I think we have made errors in the past. By the same token, when it comes to policy, I think we would be well advised to stick to the targets that we adopted last time, which inclines me toward ""B."" The only thing that causes me problems is this estimate of a sharp decline in the aggregates in April. If that [occurs], in order to stay on this targeted path we have to have growth in May and June in the principal aggregates of over 9 percent, and I think that would scare the devil out of the market and lead people to conclude that we had abandoned our October 6th policy. So, if April does come in that weak, then I would want to hit the midpoints of the ranges sometime later--maybe in September or somewhere down the line rather than try to get [growth] back to the midpoints by June. What I'm really saying, I guess, is that we ought to stick to the reserve target. And I would like to see rates come down, if that's the natural fallout of this. That should help prevent April from being so low and would permit us, hopefully, to hit the midpoints by June.",460
-fomc-corpus,1980,"April is pretty well gone, I'm afraid.",9
-fomc-corpus,1980,"Well, probably so.",5
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Well, Mr. Chairman, I think we have the first big test of our new operating procedure ahead of us. It may be more severe than the staff has projected because we feel the second quarter is likely to be weaker than the staff forecast. If at this juncture we begin to revise our money growth targets, then in effect we are back to managing interest rates again. If we abandon, for all practical purposes, our money growth targets at the first occasion we find interest rates that are uncomfortable, then how is the market going to have any confidence that when we require uncomfortable interest rates on the up side we will not then also abandon our money growth targets? We would be right back to where we have been. Now, to stay on the course, particularly if the economy is weaker than the staff projects, is going to be uncomfortable. I think we're going to have to live through a period of weakness in the dollar because of the very short time horizon of the foreign exchange trigger. And we will get talk--no matter how persuasive our Chairman is--about the Federal Reserve letting loose too soon. But we've simply got to ride it through. Rather than viewing lower rates as stimulative, as Henry does, I would view them as a force for mitigating the severity of the recession, because there is no question that we are in for a very sharp decline. The issue is: Do we want a monetary policy that is going to make the recession, if anything, sharper, steeper and longer than the staff has forecast? So, it seems to me, it is fish or cut bait on our new operating procedure in the second quarter--whether it is at this meeting or some other meeting.",339
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"First, Mr. Chairman--and it's possibly a trivial question--on page I-24 in the Greenbook it's reported that one of the reasons for strength in exports of nonagricultural commodities is the high price of silver in [the form of] exported coins. Is that a significant business?",60
-fomc-corpus,1980,"Yes, exports of coins were something over $2 billion at an annual rate in January and February.",20
-fomc-corpus,1980,"Aside from the silver price, was that about a normal volume?",13
-fomc-corpus,1980,"Well, we don't have volume figures for it; and in fact, we never will. That is one of the problems in putting together the first-quarter GNP numbers. The price increase clearly is some of it, as well as other random factors in terms of when the exports actually take place. But the two together, and they will never be unscrambled in the statistics, gave us a big increase in the fourth quarter.",85
-fomc-corpus,1980,And this is a product in which I take it we compete in the world market?,17
-fomc-corpus,1980,"It so happens that we had a lot of silver exports and that they were very high priced in that period, which results in a big increase in nonagricultural exports in that period. I don't think it goes beyond that. The price has since come down, so even if we have a normal level of exports, we are going to get lower nonagricultural exports.",76
-fomc-corpus,1980,But it is silver exports in formal coins rather than--,11
-fomc-corpus,1980,That's how it's recorded on the statistics; that's the only information I have.,15
-fomc-corpus,1980,"With respect to the general economic forecast, I have no particular quarrel with it. It seems to me that the direction and the amount of the revisions from a month ago are quite appropriate in the circumstances. With respect to the remarks that have been made here that were oriented to policy, I think I agree with everything that has been said.",68
-fomc-corpus,1980,That's not possible! [Laughter],8
-fomc-corpus,1980,"It seems to me that it is. When we adopted our current policy posture, we did it knowing that it was going to give us strong swings in interest rates as we undertook to determine whether or not stabilizing the rate of growth of the money stock imparts stability or instability to the real economy. So as I see it, we decided that we would find out whether all of the statistical analysis that has been made through the years has a firm basis. And it seems to me that we should stick with it until we do find out whether stability or instability flows from stabilizing money stock growth. We've redefined money with the idea that we're bringing that back to the real world concept, so to back away right at this point in time would just preclude our achieving what it seems to me is at stake.",163
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"I agree that there's a sizable decline in activity now in process. It was inevitable, I think. But it's probably worse because of the policies we've followed over the last six months in defense of a principle. The principle was that in the absence of knowledge about how interest rates should move--because we have so little knowledge of the rate that people are willing to pay based on expected rates of return and on inflation--we would provide aggregate growth that we thought appropriate to a moderation of the inflationary course. When we get into a decline, it has always seemed to me extremely difficult to forecast how far it might go because there are dynamics involved. There have been shocks: Chrysler, a major bank that has been referred to, silver, and the possible failure of a brokerage firm. There are shocks of that kind that can affect attitudes and deepen, more than anyone anticipated, the reduction in spending that people are willing to undertake. And what we have are the automatic stabilizers to guard against this becoming cumulative and self-reinforcing in its downward movement. Now, the automatic stabilizer in the case of fiscal policy, of course, is the fact that we get budget swings. And the automatic stabilizer we've introduced in monetary policy is the fact that we'll get interest rate swings as we hold to particular ranges of growth that we're willing to see in the monetary aggregates. Not to let that automatic stabilizer work would risk a self-reinforcing cumulative decline in activity because we don't know what is happening, as we didn't on the up side, to people's willingness to pay rates of interest for the use of money. I think, Henry, that one ought to distinguish between the automatic stabilizer principle and the setting that we put it on, which is the longer-run presumption. We have a setting for M1 growth; I won't say M-1A or M-1B because I want to say it's approximately 5 percent. Now, if the underlying rate of inflation is 10 percent, which I think it is, or if it's 15 percent, which you think it is, that's a very, very tight setting on monetary growth because it means there isn't much of anything left for real growth. In fact, it would suggest that unless the inflation rate comes down significantly, there won't be any real growth in the economy. And that is very much analogous to a setting in the budgetary posture of, say, a full employment budget of $100 billion. It's quite similar. It seems to me that we deliberately chose a tight setting and we ought to stay with a tight setting; but it also seems to that me we ought to let the automatic stabilizer work because not to do so would be very much like the actions of this group in the period from 1929 to 1933. We could get a reinforcing decline in activity that is propelled by monetary contraction. And we can't stand that kind of risk for our economy or for the world.",591
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"I don't know that I can add much to the comments of my three colleagues to my right except to say that I'm essentially in agreement with them. It certainly took a great deal of courage for this Committee to let interest rates rise to these extraordinary levels that we've seen, and I think that was the right thing to do. I'm beginning to see encouraging signs, at least, that we've broken the back of inflationary expectations. I think we should be equally courageous on the other side, while sticking to our monetary targets. If that implies that interest rates are going to decline, that doesn't bother me one bit. As far as the foreign exchange value of the dollar is concerned, I've never believed--and I don't think it's the view of this Committee--that some given level of the dollar is an objective in and of itself. Obviously, we want to prevent disorderly changes from one level to another. But as far as interest rates coming down being an implication of sticking to our present monetary targets, that certainly wouldn't bother me in the short run because of the extraordinarily high levels from which they'd be declining. Our credibility would be badly undermined, as others here have said, if we abandoned the monetary growth targets and went back to some implicit view of a proper level of interest rates. I think we can and should persuade the market that what we're doing is a steady state course here; and if one implication of that is declining interest rates, so much the better. That will teach them that we can operate on both sides of this market. Personally I wouldn't be very much concerned about the implications of declining rates in the near future if we stick to these present targets.",331
-fomc-corpus,1980,Mr. Guffey.,6
-fomc-corpus,1980,"Thank you, Mr. Chairman. The new operating procedures seem to me a bit more effective when we're seeking to. restrain credit on the up side than when we're trying to encourage the extension of credit on the down side. As a result, I've been pleased with what we've been able to do on the up side, but I am concerned about where interest rates will go as we move into a recession. Like Ernie, I agree with much of what has been said here this morning; it seems to me it's all relative. If we move into the May-June period when things are very weak, having come from a period when we've successfully--hopefully--killed off inflationary expectations and people are wondering what is going to happen and they see interest rates drop not to the 13 percent level implied by alternative B but maybe to 10 percent, then we may lose all that we've gained over the last 60 days by going to a 20 percent prime rate or a 19 percent federal funds rate. Thus, I think this Committee does have a responsibility to moderate [the movement of interest rates] on the down side. It's not that rates can't go to 13 percent or maybe to 10 percent, but they shouldn't do it in a 30-day period or perhaps even in a 60-day period. I would be concerned if we just turn those rates loose even with a down side of, say, 13 percent. If we're looking at a very weak economy and indecision by those who take down credit or hold money, then it is perhaps true that within a couple of weeks we'll find that 13 percent is not the right level; so via a [conference] call it will go on lower. I would hate to see that take place. If the staff is correct that to achieve [the money growth of] alternative B we're talking about increasing nonborrowed reserves at a 20 percent annual rate through those two months, I think that's far too fast and would add confusion to the market rather than stability. And I think right now we need stability.",417
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Well, Mr. Chairman, most of my points have been made. I would stick with the targets. I would not see any objection, however, to our interpretation of ""about"" 4-1/2 percent being 4-1/2 percent or a little less rather than 4-1/2 percent or a little more. Okay, so that's fine-tuning, but I think we can lean in that way for one reason or another. Having said that, I would only add one other point: I think the main advantage of the credit restraint program that we have embarked upon, with great pain, is that it perhaps has added the public awareness frosting to the cake, if I may put it that way. The average consumer--I think for the first time really--has made an association, even just from reading the front page of his daily paper, that somehow credit restraint does have something to do with inflation. I've heard even from builders, believe it or not, that they can wade through this and that the whole idea that the banks are now clamping down a little on consumer credit and so forth is great in that it is going to help a great deal on inflation. All right, maybe that is overly magnified. But I think we have the public's attention in a way that our October decision failed to get public attention. It was still a market-oriented attention that had some limited significance outside of the financial community but [the average consumer] really didn't understand it. They understand it when the First National Bank of Chicago puts in the paper that they're going to charge $20 for a Visa card. They understand it when they find that on their Sears bill they have to pay 10 percent rather than 8 percent of the outstanding balance. These things come home. I think the main advantage of the credit restraint program has been in public education; and that in itself can have a tremendous effect on inflationary expectations, giving us a few months.- In the meantime, during the difficult period that Paul referred to, for the next two or three months, we just have to grit our teeth and bear it. If interest rates go down, that's fine; but I would tend to lean a little toward the lower end of our aggregate range--if not clear to the [lower] margin, a little below the midpoint.",471
-fomc-corpus,1980,Mr. Eastburn.,5
-fomc-corpus,1980,"Just a couple of comments: On the theological issue, I come out with a view that we did make a decision back in October and that it was a very fundamental decision and we ought to adhere to it on the down side as well as the up side. In my scale of preferences, I'm going to worry more about a very sharp undershoot of the aggregates in the foreseeable months than about too sharp a decline in interest rates. And on a more technical scale, if we're going to have a decline in rates, I'd prefer to see it begin and proceed rather smoothly than to try to hold rates up and then all of a sudden have a very sharp drop, say, in the second half of the year. So, if it's going to happen, we ought to let it start to happen.",159
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,"I have no reason to disagree with the revised projections of the staff. It seems to me pretty clear that as a result of recent developments the recession is going to be more severe, that the recovery is going to be weaker, and that we'll be in a period of recession for a longer time than originally expected. I agree with much of what Governor Partee has said and what Frank Morris has said. I have very little to add to that. It seems to me that the basic risks are that if we revise our targets downward, we risk making the recession worse and that if we stick to our current targets, we risk some misunderstanding of our policy and the inflationary psychology in the market might worsen. I would be clearly inclined to take that latter risk. I find it hard to imagine that whatever inflationary psychology might develop as a result of a temporary expansion in the rate of growth in money would last for a long time in the face of a nominal GNP growth that is roughly twice the rate of growth of the money supply. In other words, if we allow money to grow at 4-1/2 percent against a nominal GNP growth of twice that amount, I find it difficult to believe that inflationary psychology can continue for very long against those facts. Therefore, I am inclined to stick with our current targets. And I would see the period that we're in--where we demonstrate that we are sticking with our course and are maintaining our goal of restricting money supply growth--as an opportunity to educate the public on our operating procedure and what it means as well as on our determination to stick to our goals for growth in the money supply.",330
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"I don't have much to add to what has been said. I would like to remind you that it took us two months to raise the federal funds rate by 5 full percentage points. And if you're uncomfortable about the period ahead, I'm very uncomfortable about the period we've been through. We choked the horse. Now, do you want to completely strangle him or do you want to be able to ride him a little further down the line? I find these interest rates outrageously high. And March housing starts are real housing starts; they're not a seasonally adjusted number in the middle of the winter sort of thing. If we get low housing starts in April and May, we aren't going to have any housing this year. And we're obviously not going to have very many automobiles built. We went into this with the idea that we would do it as an automatic stabilizer and that if [rates] went up, they went up. They went a lot higher than I ever anticipated. And I think they've done a lot more damage than most of us know at this point. We should stick to our policy and, if anything, make some allowance for [rates] to go down a bit further. It's time that we come off [these high rates]. We've always had the reputation in the past of staying [with a policy stance] too long; this policy was designed to get us to the point where the market was signaling what the interest rates were going to do. It seems to me the market is signaling rather strongly that the peak is past; we should take that signal and let the market rates go down. I'd like to support Bob Mayo's comments about the March [credit control] program. He's the only one who mentioned it this morning. The six of us here [on the Board of Governors] have been fighting all these questions and answers and appeals and everything else; I think we've had a tremendous amount of impact both psychologically and on banks as to what the growth rates are going to be. Those standards are in place regardless of what happens to interest rates in the market. And finally, on the international scene, interest rates are going to have to come down in this country over the next 18 months. Whatever happens out there is going to happen. If we drop them suddenly, we're going to get a market reaction; if we drop them slowly, we're going to get a market reaction; if we keep them up, we're going to get a market reaction. I view the international [situation] as one we're going to have to live with; we will have to take whatever comes out of it rather than try to gear our domestic policy at this point to controlling the international value of the dollar.",543
-fomc-corpus,1980,"No one else has volunteered but there are a few people [who have not commented], like Mr. Willes.",23
-fomc-corpus,1980,"I promised my wife I'd be quiet today. But as long as you've given me the opportunity, I'll just make a few brief comments. We had Yoshiho Suzuki from the Bank of Japan in our Bank the other day and asked him to give a speech to some local people. It was very interesting to hear him in that speech analyze the Japanese experience where they have wholesale prices, because of oil imports, going up by about 24 percent and the consumer price index going up by about 7 percent. They in the Bank of Japan ascribe that to their willingness to hold firmly to fairly stable rates of monetary growth. We found that a pleasant message, as you can imagine, in Minneapolis.",139
-fomc-corpus,1980,Are profits being squeezed? Is that how that works?,11
-fomc-corpus,1980,"To some extent, profits have gone down. Also they have found reductions in energy utilization being forced by the policy and so on. There has also been a cut in real incomes because wages have not adjusted. They haven't allowed wages to [rise with inflation].",51
-fomc-corpus,1980,And 5 percent productivity [growth].,8
-fomc-corpus,1980,"And 5 percent productivity [growth]. That doesn't hurt. It's a question of what leads what; and that's a whole other discussion, which I won't take time for. The only other thing I'd say, Mr. Chairman, is that I've listened to this discussion today with great interest and was particularly interested in the way Chuck posed the issue. As we look over the history of what the Committee has done, what the economic profession has done, and what the economy has done, it seems to me that we ought to have very modest objectives because it's not at all clear that we understand in a very detailed way how this complex system of our works and how we can intervene in such a way as to make it work substantially better. Therefore, it's a question of trying to minimize perceived risk. And it seems to us, given our current state of understanding, that the best thing we can do is to lay out for all the world to see a fairly simple policy procedure, a rule that we're going to follow. I think it's very hard to lay out such a rule in terms of interest rates because interest rates are subject to too many variables. But we can lay out such a rule in terms of the growth in the aggregates. It's not going to get us to heaven; it's going to have some undesirable consequences from time to time. But on average monetary policy is probably less disruptive if it is more predictable than otherwise. As a consequence, it seems to us that the decision we made last fall was a wise one and we ought to stick to it. And we ought to be rigorously consistent about that because at least over time, as the markets come to understand that we are going to be rigorously consistent, we will reduce substantially not only the risk associated with our own policies but the over-reactions that the market sometimes makes to their perception of our policy. So, as others have said, if interest rates are going to go down, I think this is one time when we just ought to let them go down because we've got to make sure that we establish the credibility in the basic policy thrust that we've been following.",423
-fomc-corpus,1980,Governor Schultz.,3
-fomc-corpus,1980,"Well, I certainly would agree that it is important that we continue with a course that strengthens our credibility. I believe we have made the right moves in going to a different kind of procedure. I think it's important that we hold to that 3-1/2 to 6 percent [Ml] figure for the year. But while I want interest rates to go down--I think it's important that they go down--I really am concerned about the speed with which they go down. We have to keep in mind that this is where the action is right now. The country is looking to the Federal Reserve. Like it or not, we are in the eye of the storm. And people look at interest rates. We've done a lot of things. If there's anything to be said for the whole credit control program--and in my view there's damn little--it's the shock effect. And it has had a shock effect. It was important. [Changing] inflationary expectations was crucial. Why did the actions we took on October 6th not work better? Because people thought [our actions] were just going to be overridden by other things that were happening. So we see interest rates at these awful levels. But people are looking at those interest rates; and if they see them come down too rapidly, they're going to say the Fed has given up [on inflation]. And we're all they have to look to at this point in time. Let's not panic and do something that will tend to negate the strides we've made. We're getting there and we're getting the job done. A fed funds rate of 15 to 16 percent wouldn't bother me much, but I must say that if it starts getting down around 13 percent or below, under these circumstances, I would get really nervous. As you know, we haven't been that good with our forecasts or projections. It does look as if this economy is weakening very rapidly and going off a cliff. But I would remind you that it looked pretty weak in October. It looked as if we had done the job then. Now, [the evidence] is stronger this time, and I feel pretty well convinced; but I don't see the necessity for letting interest rates just absolutely also fall off the cliff. I think the implications of that are very important. We can do something here which says we will stay within the target ranges, but let's not panic on these interest rates. I'd let them come down slowly. I hope we can hold these fed funds rates; I think they're important. I like our new operating procedure but interest rates, whether we like it or not, are a perception that other people have. And I hope we don't get in too much of a hurry and blow this.",546
-fomc-corpus,1980,"I guess we've left you the unusual privilege of going last, Mr. Solomon.",16
-fomc-corpus,1980,"Well, that's the privilege of a new boy. I want to second very strongly what Fred Schultz said. I think we ought to stick with the ""B"" targets and accept the March-to-June targets that fall out. I'm perfectly willing to see a decline in interest rates, but I really would urge you not to permit too precipitous a decline. I would like to suggest, in view of the fact that the staff is projecting a 16 to 17 percent funds rate as compatible with the alternative B targets, that we ought to have a phone consultation if it looks as if the funds rate is moving down very precipitously and significantly penetrating the 16 percent range. The reason I say that is because, like Fred, I feel that people judge our credibility--at least all the people I speak with in New York--not simply by a mechanistic adherence to the aggregates. They also judge our resolve and our credibility, particularly given the fact that they have had considerable skepticism about it in the past, by interest rate movements as well. And I believe in your October 6th statement, Paul, you did say that this was not a mechanistic formula and that judgment would be used. Interest rates should go down. They will go down. It's not going to do any damage to the economy if the decline is somewhat more gradual. So, I would hope that we would have a phone consultation if it looks as if they're going to go significantly below the 16 percent level that the staff is presently projecting as consistent with those ""B"" targets.",312
-fomc-corpus,1980,"Well, why don't we have a break and come back to this and be more operational in our comments after the break?",24
-fomc-corpus,1980,"Let me distill a bit what I think I'm hearing and what I'm thinking. The big change we've had--though we've had a lot of changes since the last meeting--is that we certainly have some evidence of an economic decline that we didn't have before. I for one still think it's a little premature to make very conclusive judgments about what kind of a recession we're going to have. I'd say also that it takes a little while to meet the definition of a recession. We've been fooled before. I do think that in all probability we are going to have a recession. What makes it a little riskier than before, and I thought it was risky before, is partly that special credit restraint program. I think it did send a message to the consumer and others psychologically and we may get a more sudden reversal in consumer spending than in some sense we'd like. Consumer spending was very high relatively, as you know; and if there's an attempt even just to make it normal relative to income, that would involve a big change in economic activity, which would then reflect back on the other sectors of the economy we've been reasonably confident about--inventories, and plant and equipment, and all the rest. On the other hand, we've already had a substantial adjustment in housing and domestic car sales. You know, the car business is interesting. The first-quarter selling rate was not bad at all, but a lot of it was imports. The domestic car companies just can't sell anything other than four-cylinder front wheel drives, and that's not likely to change in a hurry. But it's a little extraneous--not in its impact in economic activity but in its causation, although I'm sure it's complicated by the credit situation. All I'd say is that there is some uncertainty, particularly when one looks at the other side and the inflation side. Two months ago everybody was going for leather and wanting to buy in anticipation of inflation; I think that mood has changed. But when attitudes fluctuate as rapidly as they have, it's a little premature to say attitudes couldn't relapse the other way. And looking at a longer-term perspective, there's no question in my mind that in considerable part inflation is what got us into this dilemma. And it is recognized as a major problem. Indeed, all things considered--the amount of pain going on in the housing sector, agriculture, small businesses, and elsewhere--we have a considerable amount of support for keeping the inflation [problem] out in the forefront among the public at large and more directly politically. We get a lot of criticism these days, and I don't want to underestimate that; but there's also quite a lot of understanding about what we've been up to and the importance of it. Certainly the Administration has taken a cautious view and has gotten out in front on the credit program itself in terms of the extraordinary credit measures, and apparently it is willing to live with that. All of this has given rise to an immense amount of confusion in the minds of the public, as nearly as I can read it, which may increase the risks of a substantial recession. But it's entirely premature to think that [people] have forgotten about inflation, particularly when they're going to be faced with these high price numbers for a number of months ahead. In that sense I don't think we're in a situation where there's any course of action that is risk-free or even in some sense a ""winning"" course of action because there's a lot to be lost by a resurgence in inflationary expectations and there's a lot to be lost by accelerating the recession; and I'm not sure that there's any real room between those two contingencies. It has been implicit in everybody's comments that we have to keep our eyes on both [inflation and recession] as best we can. All I'm saying is that I don't think there's any perfect answer or any right answer that goes between them. So far as interest rates are concerned, we ought to remind ourselves, as a number of people here have, that they were extraordinarily high and that there is some psychological feeling about [letting] them go down. But they weren't all that low in January and February, and anything we're talking about in terms of a range of interest rates is still an increase over roughly a 6-week period. Markets are always going to be more suspicious of our intentions when rates are on the way down. But I don't want to lose all perspective; I suspect anything we come up with is not going to be, in a broader perspective, a very low level of interest rates. The international [situation] is hard to figure. Just in the past couple of weeks it has been perhaps typical that the dollar got very weak before interest rates really came down--or at least rates had only gone down a little--on the suspicion that they were coming down. And since they actually came down the dollar hasn't been strong but it hasn't been under enormous pressure either, presumably in part because [the decline] was anticipated by the earlier turn of events. I don't know quite what [markets] are anticipating now, but I'm sure in the end that that's going to be affected by a feeling of confidence about [our policy] more than a specific level of interest rates, within some limited range anyway. It may be that changes affect psychology more than amounts; I don't want to discount that as being a very tricky problem, but I don't think we know just how it's going to break precisely. In terms of specifics, we started out talking to some degree in polarities here--whether we should keep to the targets or whether we shouldn't in some extreme. It is easy to conclude in the early part, not so much in the latter part, that the extremes are overstated. I'm not very happy just in a tactical sense--in terms of figuring out what to do next and the psychology and all the rest--that we had this decline last week in the money supply. But we have to remind ourselves that that was one week and that April is one month and God knows what [the money supply] will do next week and next month. We just don't know. If we keep this in any kind of longer-term perspective, such as what has happened since October, the general judgment one would come to is that we're pretty much on target. If these money figures mean something over a period of time--and we've always said that they're relevant in a 6-month to 1-year perspective--if we go back a year, we're above our present targets but we're pretty clearly in a moderating phase. Even if we look at them in a quarterly perspective, the first quarter on a quarterly average basis was a little higher than our target but December-to-March was lower than our target. Just how one puts these numbers together makes some difference. I don't want to put too much importance [on one week], although I personally would have been happier if that last drop in April hadn't come about. I don't think we can throw everything out of perspective [because of] one week or even one month. I would assume from what people have said, and I certainly agree myself, that we're going to keep with this general targeting procedure and keep with the general targets that we have. It's a question of how to implement them. We are very uncertain about the short-run projections, as uncertain as we have ever been, after just having gone through much of April where everybody was projecting a big bulge on the up side and instead we are getting a bulge on the down side. And we're not only uncertain about the projections. Unfortunately, we are probably more uncertain now than before--given the special credit programs, given the psychological confusion in the markets, and. given the confusion more generally--about just what these fine new techniques we have that look all right in the 6-month perspective mean in a 2-month perspective. Just where to set the level of borrowings and the nonborrowed reserve path is not exactly a science at this point. And that is the real judgment I think we have to make. So, it seems to me, in general terms, we are sticking with the targets. Alternative B is roughly what we have now. I say roughly; I guess it is precisely the targets we have now except that we added the proviso ""or somewhat less"" [at the March meeting]. As a first approximation, I would think something like that and maintaining the ""or somewhat less"" [proviso], particularly in the light of what I will say next, is appropriate. It comes down to a question of how to manage it. If we take literally what the Bluebook says--and I'm not sure how much money one should put on these precise relationships, as I implied before, but we don't have anything better at the moment--we're talking about a general judgment based on the work we have done of a level of borrowing, at the start anyway, of something like $1-3/4 billion. That in Mr. Axilrod's judgment, around which I would surround considerable uncertainty, implies a federal funds rate of around 16 percent or maybe a little higher at the moment.",1823
-fomc-corpus,1980,Does that include First Pennsylvania?,6
-fomc-corpus,1980,"Yes, that included [an allowance of] about $500 million, when we were [calculating] that--",23
-fomc-corpus,1980,"Actually it included about $500 million of [borrowing by] First Pennsylvania, so one might say the equivalent is a little higher than that to allow for the fact that they are borrowing $600 million at this point. But that's fine-tuning. It's not all that far from where we are. There has been a lot of talk about interest rates. I suppose what people mean when they say interest rates is the federal funds rate. We've had quite a decline in market rates, particularly in the long-term rates relative to the normal fluctuation in long-term rates. They've gone back three-fourths or more of the [amount] they went up in January and February. Some long-term rates may be very close to where they were in January; the CD rates seem to have moved down faster than the federal funds rate. The Treasury bill rate is down to 12 percent, plus or minus, depending upon which [maturity] you look at. As Peter said earlier, that's down 3 percentage points or more from the peaks. So in terms of the interest rates people are looking at in the market, there's probably room here for a decline in the federal funds rate that wouldn't even be reflected much in these market rates because it has already been anticipated in some sense. I don't know whether that's fair or not. We just don't know how it will hit the markets psychologically because people may then anticipate the next move in the federal funds rate. But I do recognize in making the judgment about where we set the borrowing level, consistent with our techniques and amid all the uncertainties, that there are some implications for interest rates. There is a little danger, particularly in the short run, because we don't know what all these recent money supply figures mean. Among the unfortunate things that could happen--and there are quite a few of them--if we propelled the funds rate to the extreme low end [of the ""B"" range], it could get low enough so that it affects the whole string of market rates. If we began getting in May and June increases [in the money supply] of 9, 10, 11 percent or generally in the high area, which is what the econometric relationships would say, in a month or two months from now we're going to be saying that we have to pull back in the other direction. And presumably at that point the recession would have moved somewhat further and I suspect we'd be in an extremely awkward position at that time of not being very eager to [tighten]. Perhaps I've leaned too far toward the risks, whether in the exchange market or more importantly--and I don't think they're unrelated--of in some sense having given up and [seeing] inflationary expectations rise again, having been [unintelligible] to a degree. And then, as I say, if the aggregates were really running high in a relatively short time period, having been through a rather futile experience in this difficult business, we will be sitting here facing exactly the opposite dilemma we are in today of saying to ourselves: How much do we really want to tighten--tighten in the sense of interest rates or borrowing--at this point? What I am suggesting is that I'm not sure we have to make a change in the basic aggregates decision we made last time. Monetary growth is running short of that at the moment, which definitely implies some relaxation of money market pressures and the borrowing level. We've already gone some distance in that direction; we'd go somewhat more. We would expect to see the federal funds rate decline from its present level. I don't know what that means for market rates. I'd suspect, if anything, not much change to some further decline. If Steve is right, that means 16 percent plus or minus on the federal funds rate in the short run. I don't think we can be sure of that, but let's say he's right; I don't know what range to put around it. But with a 4 percentage point range we can feel our way ahead on that perspective. We meet again in four weeks according to our present schedule; that's an unusually short period of time. By that time we will know whether we're getting some reaction or whether the straightforward projections of the money supply are being borne out. I do not mean that we would not in the normal course of events make some further judgment on the reserve path and the borrowing path if the money supply continued to be weak in the next four weeks. The option is clearly open--I don't know whether I want to pin it down precisely but we can do so if you want--to consult, if in my judgment the degree of decline in the federal funds rate seems to be troublesome in terms of interpretations of our policy, whether those interpretations were manifested domestically or internationally. We can always have a consultation, and I certainly would be prepared to do that. But I think we ought to recognize that the probability is that there will be some decline in the federal funds rate. Again, I don't know what that means for other interest rates, but the short-term outlook would definitely be for a decline in the federal funds rate as we see it today. Now, if we suddenly get a burst in the money supply figures, maybe that won't amount to much [of a decline]; but if we had a great drag in the money supply figures, we would [expect] some decline fairly immediately. I don't know what the funds rate is doing now Peter, but--",1087
-fomc-corpus,1980,It's about 17 percent.,6
-fomc-corpus,1980,"--with the high level of borrowings earlier this week and some softness in the money market today and presumably even more tomorrow, it will already have pointed in that direction because the level of borrowings currently is too high. It's very simple in a technical sense, I suppose, [for the funds rate] to persist at a lower level next week. That's what one would expect the market to do under these conditions. I think that's a fairly clear outlook for the very immediate future. It probably will be in the 16 to 17 percent area by the end of next week anyway, maybe throughout the week, just on this kind of decision which is basically an alternative B decision. I think that's where I would leave it. One could argue either side of this. You could say that you don't quite believe Mr. Sternlight--and I would agree that there's a lot of uncertainty--and that the business scene is so uncertain you would push for more money [growth] and take a much lower federal funds rate in the process. I suggested why I think that may be imprudent in the very short run. You can take the opposite view and say it's too much risk, so let's not have the federal funds rate decline at all. I think that would probably be a mistake in this period, too. I'd play it in between, which happens to come out [to alternative B].",277
-fomc-corpus,1980,"Paul, are you specifying a funds rate target? Is that what we're going to be doing?",19
-fomc-corpus,1980,"No, I'm just telling you where I think the funds rate is likely to be with [an alternative B] borrowing target.",25
-fomc-corpus,1980,I see. I don't think there's any problem if Steve is right and we get around 7 percent money growth in May and June. But what if we got zero money growth in May and June?,40
-fomc-corpus,1980,"We won't know that in the short run, so I'm really talking about what we will do in the next two or three weeks. We're going to meet again in four weeks. We will know more, obviously, two or three weeks from now, and we may want a consultation. I'm just setting the dial at the moment and telling you what I think the result will be. I say it with some temerity or some uncertainty because we don't know all that much about these relationships in the short run. But that is my best guess. The dispersion around the guess is rather wide. I myself suspect that the risk, if that's the right way to put it, would be that the funds rate would come out a little lower rather than a little higher than what Steve has suggested. All I'm suggesting is that we adopt this course and rely upon him for giving us the best single point estimate in a very uncertain situation.",183
-fomc-corpus,1980,"I might add, Mr. Chairman, that we set that $1-3/4 billion [borrowing level of alternative B] before the banks this week suddenly decided to borrow more. So I would go on to say that there's a lot of uncertainty in this borrowing/funds rate/ discount rate relationship here. But our best judgment at the time we set this was that $1-3/4 billion of borrowing would be roughly consistent with this whole pattern.",93
-fomc-corpus,1980,"I'm saying basically that something like ""B"" looks right--or, more specifically, what we adopted last time, which is now ""B"" in terms of the December-to-June period as a whole, or 4-1/2 percent growth just looking at M-1A. We said about the same thing for the others. Technically we said ""or somewhat less"" for M-1B and M-1A. And we said what for M2.",97
-fomc-corpus,1980,[About] 7-3/4 percent.,11
-fomc-corpus,1980,"So this alternative does have a lower figure for M2 than we had last time, reflecting the decline in M2. I think what has happened in M2, certainly in part, is that we just shut off the money market funds; and I'm sure there was some substitution between money market funds and Treasury bills, which are not in M2. So I'm not certain that involves a real or substantive economic difference. It just reflects what we count in M2 and what we don't count in M2. If we look at M-1A and M-1B, alternative B with the proviso ""or somewhat less"" is precisely what we decided last time. The difference, of course, is that growth has to be much faster than that in the last two months to come up into that range, which is why the level of borrowing is being reduced from $2-3/4 billion or whatever we had last time to $1-3/4 billion.",195
-fomc-corpus,1980,"Another approach would be to say ""somewhat more or less.""",13
-fomc-corpus,1980,"Or ""around.""",4
-fomc-corpus,1980,"That depends. It gives a little feeling of how cautious we want to be about moving down the borrowing level I will say instead of the interest rate level. If we say ""or somewhat less,"" there's a little more room for being a bit more cautious in moving down the borrowing level.",57
-fomc-corpus,1980,That's what we said last time.,7
-fomc-corpus,1980,"In any event, consistent with ""B,"" we'd have to move it down. There's no question about that.",22
-fomc-corpus,1980,"Wouldn't it be a little better to set a borrowing level of about $1-1/2 billion plus emergency lending and any special contingencies since, as I understand it, included in that $1-3/4 billion is that uncertain situation and we don't know what else may arise?",59
-fomc-corpus,1980,"We could do that, except it should be $1-1/4 billion, I think.",20
-fomc-corpus,1980,I think what we're really saying is roughly $1-1/4 billion plus whatever that emergency borrowing or seasonal borrowing or whatever happens to be.,29
-fomc-corpus,1980,"As we did the projections we thought $1-1/2 billion would be more consistent with the projections. But we defer to Steve, if he feels that his 16 to 17 percent assumption and staying on alternative B is more consistent with $1-1/4 billion.",57
-fomc-corpus,1980,"In that connection, Steve, remind me: What has borrowing been ex this special borrowing situation?",19
-fomc-corpus,1980,"In the first three weeks of April, ex the special borrowing, it has been running around $1.8 to $2 billion. It was about $1.8 billion in the week of the 16th. This week, though, it has moved up to around $2 billion. That, of course, is with the funds rate running 18-1/2 to 19-1/2 percent. So our thought was that with the funds rate running in the 16 to 17 percent range, the borrowing level would drop from what it has been running.",117
-fomc-corpus,1980,"Another thing is that if we had the regular discount rate at 16 percent, I think we'd be pretty sure the federal funds rate would not rapidly go much below 16 percent. Whether our surcharge exerts any drag at all on the funds rate as it goes down to 16 percent isn't clear. But there's very little borrowing at that rate except for the special situation. My own guess is that it would exert a very minor drag rather than a really strong drag.",93
-fomc-corpus,1980,"We're also below [path] on total reserves, aren't we, Steve? That would be another reason for adjusting the borrowing down.",26
-fomc-corpus,1980,"Yes. I should be clear, Mr. Chairman, that the borrowing level in alternative B was on the assumption that rates would come down. And the borrowing level in alternative C--",36
-fomc-corpus,1980,By rates you're talking about the federal funds rate basically?,11
-fomc-corpus,1980,"Yes, the funds rate. Alternative C was more like the borrowing that we had [earlier]. And even that was shaded a little lower because we thought the funds rate would be more like 18 percent, which is a shade below what it had been. So we did put in something that carries with it an easing in the funds rate.",69
-fomc-corpus,1980,"Yes. I realize that, but you said your guess is around 16 to 17 percent or somewhat lower. I guess that means 16 percent.",31
-fomc-corpus,1980,I'd say it means 15 to 17 percent.,11
-fomc-corpus,1980,"But it also implies in the normal course of our operations that if the money supply in the next week or two continued weak, assuming for the moment that Steve is right, [the funds rate] would be lower. [Money growth] would have to be quite a lot stronger probably [for the funds rate] to be much higher. But I have no particular feeling about the federal funds rate range we have [in alternative B]. It might be logical to reduce the upper end since--",97
-fomc-corpus,1980,It would be rather nice symbolically to move the upper limit down to 19 percent.,18
-fomc-corpus,1980,Or 18 percent.,5
-fomc-corpus,1980,"Well, that gets a little tight. I like 19.",13
-fomc-corpus,1980,I personally wouldn't like to see it go up to 20 percent again. I'm not at all sure I'd want to see it go up to 19 percent.,32
-fomc-corpus,1980,"After all, we could get a spurt in the money supply. The fact.that we've had two minus months increases the odds that we're going to have plus months. That's the only rule that I have and--",43
-fomc-corpus,1980,"Unfortunately, it hasn't worked that way over extended periods in the past, for example in the summer of 1979 and a good part of '76 and '77. We have a long history of sustained overshoots and undershoots, and that's what I think we have to guard against now.",61
-fomc-corpus,1980,"We're talking a little out of perspective. In perspective, with this unexpected drop [in M1] last week from a level that was already running a bit low, we start from a lower base; but it's still one week's figure and heaven knows what the future will bring. We can't all be speaking. Mr. Winn.",65
-fomc-corpus,1980,"Paul, the seasonal adjustment for April makes me fairly nervous, so I'd like to get a bit of feeling for May before we pump in an inordinate amount of reserves in the next week. I think the danger of being whipsawed is very great. I haven't any concern about your suggestion.",59
-fomc-corpus,1980,"Of course, we don't pump reserves in unless we have a shortfall.",15
-fomc-corpus,1980,"No, I understand.",5
-fomc-corpus,1980,"Not beyond what I said. But if you're interpreting what I said as ""pumping,"" it is ""pumping"" a bit.",27
-fomc-corpus,1980,"With the inflation problem being what it is and with the fact that everybody doesn't read our policies the same way, a flip in our policy on inflation at this time could be most unfortunate, given all the other things we've done to move in the other direction.",51
-fomc-corpus,1980,"Well, let's get some other comments.",8
-fomc-corpus,1980,"I think your proposition makes a lot of sense. It's a good mini-max solution to the very uncertain conditions that we face. If you add the idea that we would consult (a) if the rates seemed to be coming down faster than we'd like to see them or (b) if the aggregates were coming in quite low, which in my view would be the greater [probability], I think what you suggested is probably the best we can do at the present time. Then we'll just [deal] with it day to day.",106
-fomc-corpus,1980,"I'm agreeable to it, too, Paul. It's a nice intermediate course, and it is only four weeks to the next meeting. We could get a reversal or it could get a lot worse. So I would suggest, as I think you did, that we take a point off the upper end of that [funds rate] range and live with ""B"" and expect the funds rate to come down some from where it has been, maybe to the area of 16 percent or a little below. It might have to go down further if we get great weakness in the aggregates; it wouldn't have to go that far if we get a good rebound.",131
-fomc-corpus,1980,"Thank you, Mr. Chairman. I feel some discomfort in what I'm about to say in the sense that it may be taken that I don't have great faith in our new procedures. But maybe it's because of uncertainty. I'd feel somewhat more comfortable if we were to move toward ""C,"" [which has 4 percent growth for M-1A]. [Our directive] now has 4-1/2 percent or somewhat less. I'd also point out that the ""C"" [growth rates] are well within the ranges that we set for the year as a whole, the 3-1/2 to 6 percent for M-1A, for example. So it wouldn't do great violence but would recognize that we have gotten a bit less [money growth thus far] in the first half of the year. And as a result, I'd feel more comfortable with it. I take some comfort also from your statement that if the funds rate gets to the 16 percent level, whether we adopt ""B"" or ""C""--and I don't think it makes much difference which one we choose in the short run--there will be a consultation. And the point of that consultation would be to discuss whether or not interest rates should continue to drop very quickly. I have a considerable concern that we should not in the next two weeks, or even before the next meeting, be at a 13 percent rate, for example, which is the bottom of the funds range [under ""B""]. Thus, I would prefer to move to ""C,"" with the understanding that the consultation would indeed take place at about 16 percent and we could discuss whether or not the rate should go below that in such a short period of time.",346
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"I would subscribe to ""B,"" Mr. Chairman. I think your analysis is totally consistent with the facts of life. I don't want to belabor the 20 or 19 percent upper limit on the funds range other than to say that any change in it, to the person who concentrates on minuscule parts of what we're doing, might imply that we still have an inordinate concern about the fed funds rate. But I don't feel strongly about that. ""B"" basically makes good sense to me.",102
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"I'm afraid I don't like any of the three [Bluebook alternatives]. I'd like something a little stronger. It doesn't mean that we'd have to get outside of our range. We can live within the 4 to 6-1/2 percent annual range on M-1B, which [is the aggregate] I like to think in terms of. We would have to have a lower growth rate for the March-to-June period and, therefore, for May and June. We'd have to go a little below [the growth rate in] alternative C for M-1B for the second half of our half-year period, to something like 3-1/2 percent perhaps. Bear in mind, if you will, that this does mean a substantial increase in liquidity in the second half of the year because nominal GNP, according to our forecast, is going to grow at 5 percent and M2 on the path in alternative B is going to grow at a higher rate than that. So we're going to accumulate liquidity on the way down. I don't know how fast we're going to come out of the recession.",225
-fomc-corpus,1980,"Isn't M-1B growth just about that, 5 percent?",15
-fomc-corpus,1980,"Well, [you are] talking of ""B."" But now look at M2, which is after all what guides bank credit mostly. If that has a reduction of velocity, I see considerable accumulation of liquidity. In any event, after all that has happened, I think we'll be sitting here a year. or a year and a half from now and I will then be asking that we stick by our targets. And some members of the group will say: What? You're trying to cut off this expansion at 8 percent unemployment? I fear the logic of the argument is going to cut both ways at that time. That's why I'm willing to budge now on my side, but I hope you'll support my side next time around. As far as the funds rate is concerned, I don't care if we cap it at 19 percent if the aggregates turn out to be as fast as [estimated] and we follow the alternative B target. If that [monetary growth] were reached, we would probably find [the funds rate] moving back to the top of its range and we would have to have a consultation. I very much think we ought to put a floor on the funds rate [that would trigger] a consultation at 16 percent at the minimum.",254
-fomc-corpus,1980,Who else wants to say something?,7
-fomc-corpus,1980,Henry has a one-way ladder. Have you noticed? It keeps ratcheting up as we go.,21
-fomc-corpus,1980,"""B"" sounds fine; I'm not a bit uncomfortable with funds in the 15 to 17 percent range and I think having a consultation point makes a lot of sense. Maybe I just don't know quite enough about how the projections are put together to have great belief in them, but on the track record they have been [unintelligible].",69
-fomc-corpus,1980,It's one of those things you're better off not looking into too closely!,14
-fomc-corpus,1980,"I'd really just like to sneak up on this animal a little in case he springs at me. So, rather than borrowing at $1-1/4 billion plus the emergency or the special lending, I'd like to start at $1-1/2 billion and if things look a little weak, then we can move back down in line with the sort of technique we're talking about here. It seems to me that we have time and, as you say, this last week may have been quite an aberration. We may get a big change in these numbers. If we started at $1-1/2 billion and the aggregates continued to come in weak, it would be easy enough to move borrowing down to $1-1/4 billion.",151
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"I don't have any problem with ""B."" And I think it would be desirable to move the top [of the funds rate range] down to 19 percent. It's not clear to me what the consultation point is. Is it 16 or 15 percent?",53
-fomc-corpus,1980,Or is it the money supply going negative? We have a consultation any time we get a big number but we don't seem to have very many consultations when we get little numbers.,35
-fomc-corpus,1980,"Well, we won't have a consultation, presumably, if the money supply is coming in weak.",19
-fomc-corpus,1980,I know.,3
-fomc-corpus,1980,"When the funds rate drops as a result, we will have a consultation.",15
-fomc-corpus,1980,"The implication, in terms of a consultation, is that we would have a combination of two things. We can make a formal decision on it if you want to, but we would have a combination of a weak money supply and a sharply declining funds rate. If the money supply were not coming in very low, we wouldn't face the interest rate constraint so to speak. So the consultation would basically be about the money supply coming in low or the interest rate coming in low, whichever way you want to look at it, because presumably it would be the same [phenomenon].",115
-fomc-corpus,1980,"I'm not uncomfortable with consultation at 15 percent. I wouldn't mind seeing it get down in that range, but it would make me feel--to use Larry Roos' term--a bit antsy below 15 percent.",45
-fomc-corpus,1980,"But Fred, if I may, Mr. Chairman, the factors that would essentially cause interest rates to decline would be a softening of economic activity and a softening in the demand for credit of a substantial scope. If that were to happen--if the economy were in a seriously weakened condition and credit demand fell off--and, let's say, we consulted, our only option it seems to me would be to pull money out of the economy with great force. And boy, that would certainly put the final kobosh--if I may use another Missouri expression--on the recession. Is that correct? I don't know what part of the world that expression came from. But that would really drive a very serious nail into the recessionary situation and would be procyclical and accelerate a recession.",159
-fomc-corpus,1980,"I think you're probably overstating the possible significance of what would be happening in a 2- or 3-week period. I think what you say is true if one looked at it in a long enough perspective. But we're dealing with uncertain seasonal adjustment factors, uncertain week-to-week numbers, and an extremely uncertain relationship between borrowings and the money supply in a 2- or 3-week time period. That is all we're talking about.",89
-fomc-corpus,1980,"I'm not as experienced as the rest of the people at this table, but it doesn't seem to me that we need a formal decision in this regard. We ought to give the Chairman an indication, as he himself suggested I guess, that when the funds rate gets down to the 16 percent range, more or less, he would initiate a consultation. I don't think that requires any kind of formal instruction. And at that point it really is a question of making a judgment on what is happening not only in terms of the fed funds rate and the interest rate picture but on the aggregates and the rate at which reserves should be fed to the System. I think it's just a prudent measure to take, and I hope we would all be able to combine on asking you to pursue that.",156
-fomc-corpus,1980,"I think we ought to look at other interest rates, too, because the funds rate has become a very poor indicator of the rest of the spectrum of rates. If bill rates, for instance, were to fall more rapidly than the funds rate, that would be a further signal to the market.",59
-fomc-corpus,1980,"I don't know who has not talked yet. I don't think you have, Emmett.",18
-fomc-corpus,1980,"Well, I'm prepared to go along with what you suggest. Alternative B seems right, and I would be willing to see one point knocked off the top end of the federal funds range to 19 percent.",41
-fomc-corpus,1980,Who else has comments? I seem to have a number of Committee members who haven't--,17
-fomc-corpus,1980,"I can support alternative B and taking off the one percentage point [on the funds rate range]. I think we're more likely to run into a problem of not being able to maintain the growth rates of the money supply, [which may mean we would] need a consultation. I also think that the spread between the federal funds rate and other market interest rates may be a function of the surcharge. I think the banks are doing everything they can to keep out of the window and not pay the surcharge and, consequently, there's greater demand and greater pressure on the funds rate and on other rates. So that gap may just have developed out of our own actions rather than anything drastically different in the market. So I would support ""B"" and a 13 to 19 percent funds rate range. I don't know about the borrowings. I think we're almost going to have to play that by ear. We may just have to end up with a range on the borrowings [and see] how they come in.",201
-fomc-corpus,1980,"Well, let me fine-tune this a bit further, if I can, after listening to people here. What I would continue to propose is the same language in the directive that we had last time, which in some sense is ""B"" minus. It's this language of ""B"" [Ml growth] or somewhat less, which has some significance. I don't feel strongly about the federal funds rate, but there seem to be more people who would like to knock it down to 19 percent, I guess, Murray. In thinking about the borrowing again and listening to these comments, I would modify what I said to this extent: I'd suggest that we start out with $1-1/2 billion with the intention, if in the next week or so the money supply were developing more or less as projected, of it probably being at $1-1/4 billion in the second week or the third week from now. I'm just being slightly more cautious; if the money supply were kicking up above what we're now projecting, we'd probably stay at the $1-1/2 billion for a while.",222
-fomc-corpus,1980,Is that exclusive of the big bank borrowings?,10
-fomc-corpus,1980,"Yes, these figures all exclude the big bank borrowings. So that's a slight modification toward a little more caution than has been suggested.",27
-fomc-corpus,1980,"I interpret that, Mr. Chairman, for constructing the path--it's only four weeks here--as putting in $1-1/2 billion for the first two weeks and $1-1/4 billion for the last two weeks. What would actually develop--",53
-fomc-corpus,1980,"I guess so, but the last two weeks would be affected by what happens. We might move a little more rapidly toward the $1-1/4 billion if money came in low; or if it came in high, we would--",48
-fomc-corpus,1980,I think that would happen if the data we get tomorrow or next week--,15
-fomc-corpus,1980,"If the money supply were right on the present projections, we'd presumably get down to $1-1/4 billion.",24
-fomc-corpus,1980,Two weeks from now.,5
-fomc-corpus,1980,"Two weeks from now, yes.",7
-fomc-corpus,1980,"We don't have the borrowing in the directive, do we?",12
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,"Well, Mr. Chairman, I think one thing we should have learned in the last few months is that we are unable to forecast the volume of borrowing.",31
-fomc-corpus,1980,"Well, we have to have some flexibility here. But it's useful to discuss this just to get some sense of which way the caution should be exercised in the short run. What we're saying, I think, is that we want to see some increase in the money supply, first of all, to meet these targets. We are willing to see some short-run decline in the federal funds rate to achieve that, and that is reflected in the lower borrowing figure. But there's also a healthy feeling of caution about not moving so fast that we have to reverse ourselves. So that caution is expressed in going down tentatively over a period of time on the borrowing number. That's in substance the way I would interpret [this directive]. That leaves Henry with some concern. Does that help you infinitesimally?",159
-fomc-corpus,1980,It helps me infinitesimally.,8
-fomc-corpus,1980,"May I ask a question? If the fed funds rate goes below 16 percent, will that make the 3 percent surcharge on the discount rate sustainable? Would there would be a large amount of pressure to take that off as not being appropriate? I don't know enough about this--",56
-fomc-corpus,1980,"I don't know, either, but it certainly would tend to bring the borrowing down pretty fast if we had a 16 percent--",26
-fomc-corpus,1980,There's not much borrowing at that rate.,8
-fomc-corpus,1980,There's very little borrowing at that rate now.,9
-fomc-corpus,1980,Except at one bank.,5
-fomc-corpus,1980,"That's a separate decision. Obviously, it would raise the question at the very least. How much pressure it will bring I suppose is a judgment as to whether we want to give that kind of overt signal at that particular point in time. There's no doubt that the question will arise. I'm not sure it would arise very forcibly at 16 percent, but if the funds rate began to go below 16 percent, then the question would arise.",88
-fomc-corpus,1980,"The only question that remains in my mind is whether or not we want to say ""or somewhat less."" It would be helpful to me if Peter would give me some interpretation of how it would affect his actions any differently if ""somewhat less"" were in or not.",54
-fomc-corpus,1980,"That really has more to do with the construction of the paths than specific Desk action. Having the ""or less"" gives me a little sense or tone of being a bit more accommodative of lower growth. Steve might want to comment on that.",49
-fomc-corpus,1980,"Operationally, I think there are two things, President Eastburn. If we construct the path on 4-1/2 percent, which is the exact point, then the ""or less"" would mean to me that if total reserves were falling short a little, we would not make a big upward adjustment in nonborrowed reserves to offset that. That would be the immediate operational [effect]. We'd just let the normal drop in borrowings occur and work its way through. The other thing that could be done, but which the Committee hasn't followed, of course, would be to set the initial path not at 4-1/2 percent but 4-1/4 percent. But assuming the path is set at 4-1/2 percent, it would mean to me that when total reserves are falling somewhat short we wouldn't rush in to raise nonborrowed reserves to offset that.",181
-fomc-corpus,1980,"Well, I think we've accepted this kind of operation where the path is set consistent with the 4-1/2 percent but we have a slightly higher borrowing figure at the beginning than the one in the center of Steve's frequency distribution. I happen to think that frequency distribution is a rather flat bell instead of a--",64
-fomc-corpus,1980,"Yes, but with some limits to it.",9
-fomc-corpus,1980,"Well, are we ready to vote?",8
-fomc-corpus,1980,Does this imply consultation at 16 percent?,9
-fomc-corpus,1980,"I think I have the message on consultation. Don't hold me to an exact number. If the federal funds rate drops to 16 percent on one day, on Wednesday afternoon or even on another day, don't stay right close to the telephone. If there's a problem in that area, I'll let you know. I have a sense that if the money supply is running low and interest rates seem to be going down below that level, people want a checkpoint. And I understand that.",95
-fomc-corpus,1980,"Well, I agree very much with Tony. I think we have to be careful not to make this too formal because if it is formal, it ought to be in the directive.",36
-fomc-corpus,1980,"I understand [the thinking] about the 16 percent. But the real sense of what we're saying, consistent with these directions, is that if the money supply persists in coming in low, that is what is going to make the interest rate go down. So we could state it as--",58
-fomc-corpus,1980,Consultation if we have low money supply.,9
-fomc-corpus,1980,Consultation if the money supply doesn't seem to be coming up. Are you ready to vote?,19
-fomc-corpus,1980,"This is 4-1/2 percent on M-1A, 5 percent on M-1B, with ""or somewhat less"" in the case of both, and a federal funds rate range of 13 to 19 percent. M2 is 6-3/4 percent; that's the alternative B specification for M2. Chairman Volcker Yes Vice Chairman Solomon Yes President Guffey Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roos Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich No President Winn Yes Ten for and one against.",117
-fomc-corpus,1980,"[To complete the agenda] I just have to remind you that there is a meeting set for Tuesday, May 20. We have a little time, and I won't take all of it. But a memo was distributed to you and we thought we would have a discussion today, though not a prolonged one, of these different ideas of reserve --what do we call it, Mr. Axilrod? It's not reserve management; that has the wrong connotation. It's reserve computation, I guess.",100
-fomc-corpus,1980,Various reserve proposals.,4
-fomc-corpus,1980,"The Board, of course, openly will have to decide that. That material has been sent out to all the Reserve Banks and there is going to be a meeting of the Bank economists about it, isn't there, Steve?",44
-fomc-corpus,1980,"Yes, I believe--we'll talk to Mike [Keran]--it's May 2. We, Mr. Lindsey, Mr. Simpson, and myself, will be meeting with the various Bank economists to discuss it in detail.",47
-fomc-corpus,1980,"Pending that discussion, any recommendations have been left out of that document. That is my understanding; I have not read it myself.",26
-fomc-corpus,1980,"That is right. We think we've covered the issues that the Committee members have raised. One is mildly irrelevant, as we're told it's illegal.",28
-fomc-corpus,1980,Totally irrelevant?,4
-fomc-corpus,1980,We've changed laws these days.,6
-fomc-corpus,1980,"Unless the Committee members would like to suggest other options, we hope to have this discussion with Mr. Keran's group and then be prepared to have a more pointed memorandum, with this as background, for the Committee at a later point.",48
-fomc-corpus,1980,"This is just your opportunity, if you had a chance to read it, to convey any violent feelings you might have had about something left out of this or any tentative conclusions.",35
-fomc-corpus,1980,"Which one is illegal? Excuse me, Henry.",11
-fomc-corpus,1980,"That takes the fun out of it, if you--",11
-fomc-corpus,1980,"Well, I always favor ones that are unpopular or illegal! I just thought I'd save some time.",20
-fomc-corpus,1980,"Paul, this is a very technical matter and it has many ramifications. Sometimes before when we've had a very technical matter, for instance on the directive, a subcommittee was appointed. I wondered whether this would lend itself to that kind of treatment. I guess by implication this examination by the Reserve Banks is a subcommittee in some sense. I don't want to carry this too far. And then I assume this is not before the Open Market Committee.",89
-fomc-corpus,1980,No. The final decision is going to be a Board of Governors decision. That's right.,18
-fomc-corpus,1980,But [we will present it at] a joint Board and President's meeting. We weren't assuming this to be part of an FOMC meeting since it's a matter to be decided ultimately by [the Board].,42
-fomc-corpus,1980,"Are we going to be able to have a discussion about it next month, in substance, do you think?",22
-fomc-corpus,1980,"Oh, yes; that's our idea.",8
-fomc-corpus,1980,The schedule will be that first it will go through the Reserve Bank economists together with the Board economists.,20
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"Then the document is going to be modified to reflect the discussion and it will presumably have some recommendations, or differing recommendations, at that point.",28
-fomc-corpus,1980,There are no recommendations in this document except implicitly.,10
-fomc-corpus,1980,Right. So we will try to schedule a substantive discussion of this at the time of our meeting prior to the Board of Governors having to decide this.,30
-fomc-corpus,1980,"But it is important that we make a decision fairly soon, because if we are going to make a change, both Reserve Banks and commercial banks are going to have a lot of work to do.",39
-fomc-corpus,1980,"Yes. My problem with this in part is that whatever is nice conceptually, given all the other burdens put on the Reserve Banks--or all of us at this point--with the membership and the special program and the seasonal borrowing privilege and the operational problems, this may create [problems] for the banks on top of all the other things they're doing now at our request. We have a real hazard. I think we have to make a pretty persuasive argument, particularly if we're going to do it quickly on top of all these other things. I think one can draw the opposite implication: That if it's a marginally good idea and we want to do it but [our desire is] not overwhelming, we might want to wait a while just to let the banks get out from under some of these other special things we're imposing on them now.",169
-fomc-corpus,1980,"But if we were to do it, the logical date would be September 1 when we bring in all of these new institutions, If we are going to make a change, if we could make a decision next month, that would give us five months to prepare.",53
-fomc-corpus,1980,"I must say that is one view on the Board staff. We're going to have to get these techniques out now. They really are going to be tested. But it's going to be impossible to run on our current method after September 1st--with all the phase-in, phase-down, sideways movements, [vault cash] counting as reserves, and not counting as reserves--because we won't know what we're doing.",83
-fomc-corpus,1980,"Mr. Axilrod doesn't fully share that view, I presume.",14
-fomc-corpus,1980,I don't think we're going to be any worse off than we are now.,15
-fomc-corpus,1980,We'll be no worse off to we'll be in an impossible [position]. And some people think there's no difference between those two.,25
-fomc-corpus,1980,"Well, at least we'll have better data. I think that will be a big step forward.",19
-fomc-corpus,1980,"[Unintelligible] then the assumption is interesting enough. Again, this may be a minority view. But the estimate of the nonmember banks is that the way we do it now will be better than if they were reporting daily for some indefinite period.",52
-fomc-corpus,1980,I have to mention the credit unions.,8
-fomc-corpus,1980,Could I raise a question on a different subject if we're through with this one?,16
-fomc-corpus,1980,Sure.,2
-fomc-corpus,1980,"In view of the policy action taken today, based on the prospects for the economy and so forth, I'd raise a question as to what kind of posture we should be taking now that we're getting our first reports on our consultations with the big banks and big holding companies [regarding the voluntary credit restraint program and its] 6 to 9 percent [limit on overall credit growth]. Just by way of example, for all member banks in the Eleventh District thus far total loans have increased at a 12-1/2 percent annual rate. But in March they did not increase at all. Now, these first reports are going to give indications that [credit growth] will run well in excess of 9 percent, so we have geared up for some rather hard-nosed consultations calling for plans, projections, etc. It seems to me that we could rather easily get into a posture here that would look foolish, and that's not a very good posture to be in. So I raise a question as to whether you have any advice in that respect.",210
-fomc-corpus,1980,"I have a gut reaction, but let's see what Governor Schultz's gut reaction is first.",18
-fomc-corpus,1980,"That's pretty nice! My gut reaction is for now just to go ahead and get in their plans and talk to them. I'm not ready yet to give up too quickly on the first go-around. I'm perfectly willing to take the chance of looking a little foolish; I think we're going to look foolish no matter what we do. I don't think that's a situation we can get out of with credit controls, but I'd hate to give up too quickly on this thing. My feeling is to have a talk with them and then next month, if it looks as if things are easing off, then we can begin to ease off. We may eventually have to face the question of whether we want individual banks to cut back below 9 percent if it looks as if the total for the country is going to be at 6 percent.",164
-fomc-corpus,1980,"Well, it's a little early to judge that, I would think. And it's very hard to lay down any sense of rigidity about this. But as a matter of common sense, take your case. You have banks who probably are not unlike what we are finding in a lot of areas. You say [loans] are increasing at an annual rate of 12 or 12-1/2 percent for the first three months or a bit more than three months.",94
-fomc-corpus,1980,That's an average. So presumably half of them are well above that.,14
-fomc-corpus,1980,"First of all, that's not a figure that's absolutely out of sight. And second, you say [that credit growth] is slowing down. It seems to me you should have a consultation with those banks, as Fred is suggesting. But you're not in a situation where you would jump up and down on the table or whatever and say they have to be back within 9 percent by a certain date. You say: ""Look, you were a little high or were quite high in the early part of the year; the most recent information we have shows it slowing down, and we presume it's going to continue to slow down. You have a program in place and all the rest and we'll look at you again next month and see if it has continued to slow."" But you don't tell them to stop making loans at this point to get within 9 percent in the next 30 days or 60 days or 90 days.",185
-fomc-corpus,1980,But it's a regional problem to some extent.,9
-fomc-corpus,1980,"Well, to the extent we have a regional problem--. I don't know if other people have a sense of this at this point. Well, here's a question: Suppose there is a 20 percent loan growth in a particular bank. Is that something we should stomp on?",55
-fomc-corpus,1980,What is it? Is it non-priority loans? Is it take-over loans? That's another aspect of consultation.,23
-fomc-corpus,1980,"Well, it will be heavily loaded with oil and gas loans, almost inevitably.",16
-fomc-corpus,1980,In the second respect.,5
-fomc-corpus,1980,Real estate loans have been very strong also.,9
-fomc-corpus,1980,"But if you had a bank with 20 percent [loan growth] and it's not in a priority area, I think you have to be tougher on that bank than on a bank that's way below and consistent with the program. I don't think we can just say that the program [does not apply] for that banker when he comes in with a 20 percent figure. That's in the interest of fairness, I agree.",84
-fomc-corpus,1980,I'd look foolish.,4
-fomc-corpus,1980,"If our economic projections are correct, then we ought to be phasing out this program in about two months anyway. VICE CHAIRMAN SOLOMON(?). In New York only one commercial bank has come in over 9 percent.",47
-fomc-corpus,1980,"At an annual rate? That surprises me. Well, you have no problem. VICE CHAIRMAN SOLOMON(?). We do have a bit of a problem with three bank holding companies. But we're looking into the data one more time.",49
-fomc-corpus,1980,"I'd say this isn't the time to stomp on them the way we would if the economy were running away. MR. BAUGHMAN(?). Well, I've gotten what I asked for.",37
-fomc-corpus,1980,"Were there any other feelings on this, while we're on the subject? I was going to [bring this] up after lunch.",26
-fomc-corpus,1980,"I don't want this analogy to sound too strange, but I think credit controls are little like the Vietnam war. We need to decide earlier rather than later to declare that we've won and pull out. And it seems to me that we have a particularly difficult problem with some regional differences that in a way are discriminatory. As a consequence, the sooner the overall situation allows us to say ""Okay, we've done it and we can now scrap it,"" the better off we will be because we are putting some institutions--through no fault of their own, really--through a harder vise than other institutions. And that's one of the undesirable effects.",126
-fomc-corpus,1980,"I think that's right to an extent, and nobody is going to be [happier than I] to get rid of [the program] when the time comes. It's just a question of when the time is [right] psychologically, which is difficult [to gauge]. But given the situation we're in now, as opposed to two months ago before we had the program, I'd say we can afford to be a little more understanding of a bank that has a legitimate regional growth problem. That was within the framework of the original program anyway; it was just a question of how it should be administered.",120
-fomc-corpus,1980,"Well, that's very helpful.",6
-fomc-corpus,1980,"It looks to me as if oil and gas loans ought to be priority items, too, if we can extend that priority list. MS.TEETERS. Not publicly.",34
-fomc-corpus,1980,"Hang in there, Nancy.",6
-fomc-corpus,1980,"Of course the problem, I suspect, is that many oil and gas people are not getting the loans that they wanted. But the language that we use to one bank--",34
-fomc-corpus,1980,I know.,3
-fomc-corpus,1980,"--has to be reasonably consistent with what we say to another bank. If a banker says ""Gee, I talked to Bob Black and he told me I could draw all the oil I wanted in West Virginia"" and then some other banker says ""That's not the message I got from Willis Winn""--",59
-fomc-corpus,1980,[Unintelligible] in Cleveland.,9
-fomc-corpus,1980,"Remember, if that's a loan to an oil company, that doesn't mean that it's a loan for the purpose of drilling an oil well. It might be for some entirely different purpose.",36
-fomc-corpus,1980,Like borrowing silver!,4
-fomc-corpus,1980,"That wasn't the kind I was talking about though, Chuck.",12
-fomc-corpus,1980,"By and large I think you can be tough on the qualitative guidelines [unintelligible] gas drilling, but I don't think you should be giving them any sense that this is an open season on takeover loans or silver loans or something like that.",50
-fomc-corpus,1980,We'll regard this as a dance instruction. We'll tip-toe around it until it is demised.,20
-fomc-corpus,1980,Any other comments on this program?,7
-fomc-corpus,1980,Let's go to lunch!,5
-fomc-corpus,1980,"Let us proceed, ladies and gentlemen. We need to approve the minutes.",15
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Do we have a second?,6
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection, the minutes are approved. Foreign currency operations.",12
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Are there any questions?,5
-fomc-corpus,1980,"Scott, I was struck by your emphasis on the good cooperation we have had. That certainly has been true in many instances. But wouldn't you say that the whole episode of the rise of the dollar several months back and the [subsequent] decline was an instance of different rate intentions and different preferences for up or down on the part of the two central banks and that, therefore, we always had operations in one market but not in the other? On the way up, the Bundesbank held the dollar down in their market and we did little in our own. On the way down, we held the dollar up in our market and the Bundesbank did little to keep it from going down. So, I draw the lesson from this experience that we ought to move toward somewhat more comprehensive coverage of the markets; each of the central banks should be potentially present in both markets at the [same] time. I think that could probably be worked out.",190
-fomc-corpus,1980,That doesn't solve the question of [how] we reach agreement between the two central banks.,18
-fomc-corpus,1980,"What we would do, Tony, is to agree that the central bank that wants the bigger intervention prevails. If we are willing to put money on the line to hold the dollar up, the Bundesbank [operates] in Europe. It has to be done for our account, but they would do it. We would have to agree on a method of communicating with them. And if the Bundesbank wants to have the bigger intervention, then they would prevail and we would do [the intervention] for them in New York if necessary, or they could do it directly.",115
-fomc-corpus,1980,"But that means we would have a mechanistic formula whereby whichever side is more anxious to hold the currency up prevails. Even though there are departures from time to time between the Bundesbank's thinking and ours, if the dollar were too strong by their standards, during that period of time there would be some divergence between us, which would have to be combated with telephone calls and that sort of thing. But the more typical condition is one where the dollar is on the weaker side and, as we have seen in the last few weeks, we get relatively good cooperation from the Bundesbank. I have the feeling that would continue to work better than to switch to the kind of approach you are outlining, Henry. I also am reluctant to have the main burden for supporting the dollar put on the United States more than it has been. We have been playing our role and doing our share in the last year or two. It's not benign neglect. But I think it is important that other key central banks also play a major role, and I am afraid that the implication of your suggestion is that the United States would end up being the sole supporter of the dollar. I would rather live with the difference of view between us and the Bundesbank during periods of strong dollar activity than start a whole chain of events moving whereby we end up being the sole supporter of the dollar.",272
-fomc-corpus,1980,"Well, I don't think that would be the result of what I suggest. But perhaps we should examine this--we can't debate it here--and see if we can make some progress with it.",39
-fomc-corpus,1980,"I have seriously considered putting in a double shift--that is, having people in the trading room at the Desk during the night hours when the European markets are open. We already monitor the Far Eastern markets, but there have been occasions when there was a slippage between the time operations ended in the Far East and the Bundesbank picked up its operations in Europe. But for us that's a major expenditure of personnel and other resources, and I'd rather do that only if I felt it would be worthwhile for our people to stay up during those hours.",108
-fomc-corpus,1980,By worthwhile do you mean in terms of likely operations or in terms of a special emergency that might happen?,21
-fomc-corpus,1980,[I'm talking about monitoring] operations and whatever feedback we might get from the European markets. We would be monitoring their intervention as well as what is going on in the market at the time.,38
-fomc-corpus,1980,"I don't know how much that would cost but it seems like a good idea to me because what [happens now], as we see, is that we sometimes wake up here and the dollar is down 1 percent and the Bundesbank has done nothing. And by that time it is too late to push the dollar back up.",67
-fomc-corpus,1980,"We can explore that more. There are some disadvantages. It will become known that the Fed is staying awake and is willing to intervene in the Far East markets. The key point is that it will be known that the Fed is willing to intervene in the Far East markets and is doing 24-hour intervention. A 24-hour monitoring may make sense, but I don't think we want to accustom the Far Eastern markets [to our] playing too big a role; that view would tend to be encouraged if they begin to see more and more Fed intervention in those markets. On the other hand, whenever we have thought instability was likely, Scott or Gretchen have put people on to monitor [developments]. And we have where necessary, and a bit reluctantly, [unintelligible] role in Singapore as compared to New York and to some degree Europe.",172
-fomc-corpus,1980,There is no one more reluctant than I am. A 24-hour day is unthinkable.,20
-fomc-corpus,1980,I am a little surprised that you say there was equal intervention going up and coming down. I got the impression that there was massive intervention by the Germans and the Swiss when the dollar was rising and that they haven't done anything on the way down--and we've done relatively little. Is that right or wrong?,61
-fomc-corpus,1980,"They've done more on the way down in recent weeks as a result of these mutual concerns. They're afraid that the dollar will start declining and [the monetary authorities will] have to intervene and undercut their monetary policy, and they want to maintain a certain policy restraint. And we have this other risk that we are running with a sharp decline in interest rates and that a sudden decline in the dollar will trigger a speculative crisis against the dollar.",88
-fomc-corpus,1980,But the amount of intervention since we started out is nowhere near what it was on the way up.,20
-fomc-corpus,1980,"Yes, I agree with you. They sat very heavily on the dollar when it was rising, and ferociously so. And they didn't help very much at first when the dollar began to decline. But again, in more recent weeks with this convergence of interests, they have been very helpful. We haven't had to intervene much, partly because of this atmosphere we are in. And I still feel that the environment we've had since October 6 has been conducive to effectiveness of intervention because exchange traders are nervous; they are concerned that if they take a short position in dollars, interest rates might all of a sudden back up and it would become a very expensive speculative bet for them. So, since October 6 we have not yet had to do the type of massive intervention in support of the dollar that we had to do before, even with the environment we have had in the last month.",177
-fomc-corpus,1980,"Governor Teeters, it wasn't only the foreign central banks that were supporting their own currencies. We were intervening substantially to find the marks to cover the Treasury's intermediate-term debts. We may not even have done enough in that regard. So we, too, were trying to take advantage of the improving dollar availability to pick up the marks that would cover the Treasury's debts. We did it in substantial size.",82
-fomc-corpus,1980,We didn't show up in the market until the dollar was around 190.,15
-fomc-corpus,1980,"That is another aspect of this two-party system. We had different reserve objectives. We would have liked to pick up some more D-marks. The Bundesbank was very unwilling to lose dollars because they were running a current account deficit [and were] worried. Nevertheless, the Bundesbank sold a great many dollars and we picked up as many marks as we would have liked. We could have arranged this the other way; had we done the D-mark support we would have gotten the marks and the Bundesbank would not have spent the dollars. So we did this to some extent by sharing the intervention proceeds, but not fully.",125
-fomc-corpus,1980,Do we have a motion to ratify the foreign exchange transactions?,13
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Seconded.,3
-fomc-corpus,1980,"[Without] objection they are ratified. Do you have a recommendation, Mr. Pardee?",20
-fomc-corpus,1980,"Yes. The Swedish Riksbank has asked if the Federal Reserve would increase its swap line by $200 million to $500 million. You received last night two memoranda on the Swedish situation--one by me and one by Mr. Caprio of the Board's staff. As I indicated, the Swedish authorities expect a financing problem on the order of $4 billion, which this year they plan to cover largely through official borrowings abroad. Of this, some $2-1/4 billion has already been arranged and additional loans are in the early stages of discussion. In requesting an increase in the swap arrangement with the Federal Reserve, Governor Wohlin of the Riksbank expressed concern that the Riksbank needs more backstop in the form of short-term bridge financing than it currently has. The Riksbank uses an intervention approach based on a currency basket and finances its intervention out of the proceeds of the official borrowing. In light of the current economic and political uncertainties, the krona is vulnerable to a sudden burst of selling pressure, and the Riksbank may be obliged to [obtain] dollars in the market at a faster pace than they are raising them through financing. In their view, the increase in the Federal Reserve line would give them an added cushion in addition to their dollar reserves and their other short-term facilities. Governor Wohlin has stressed that the Riksbank has no immediate need to draw on the Federal Reserve, but he does not wish to rule out the possibility that they may come in for a drawing at some point. Now, as you can see from the memo, the Swedes are passing through a difficult time. But under Governor Wohlin the Riksbank has acted to firm up short- and long-term interest rates and is pressing with some success for a reduction in the fiscal deficit. The Federal Reserve's agreement to increase the swap line could strengthen his hand in some of those negotiations at home. On the basis of these various considerations, I recommend that the Committee agree to the $200 million increase. But given that we are living in a world in which we haven't had many changes in swap lines in recent years and haven't had much experience with drawings on those lines, I would like to introduce one wrinkle: That we make the increase for one year and that we review the whole matter at the end of the year when we consider the renewal of the whole [array of] swap lines and decide then whether we want to put it on a permanent basis or not. So, I would recommend a 1-year increase from $300 million to $500 million, with a review at the end of the year.",529
-fomc-corpus,1980,What are your reactions?,5
-fomc-corpus,1980,"I support the recommendation. I spoke with the Swedish Governor when he called me and he emphasized that they would only be drawing [on the line] as bridge financing for periods of up to about two months. And if we approve Scott's recommendation, I think we should tell them not only that the increase is only for one year but that each time they want to draw, they would have to check with us and tell us what actions they intend to take and give us a firm indication of the time period in which they intend to [repay the drawing], probably up to a maximum of about two months. I think there is a larger reason for going along with this, which is basically that Sweden dropped out of the snake; it is not a member of the EMS. And to some extent their request to increase their swap with the United States tends to symbolize something we haven't seen in recent years, namely that the United States is the pivot and plays a critical role in the international monetary system. I think there is virtually no cost for us. And not only would we be cooperating with a G-10 country, but in a subtle way [the swap line iincrease] would tend to underline the fact that the United States has a critical role. I would recommend it.",254
-fomc-corpus,1980,Are they making any arrangements with the Bundesbank or anybody else?,13
-fomc-corpus,1980,"Well, I asked them that. They have They do not have the ordinary kind of swap line with the Bundesbank. Scott, do you want to explain what that arrangement with the Bundesbank is?",40
-fomc-corpus,1980,"Well, I'm not fully clear myself [but] the Bundesbank does allow other central banks to accumulate marks up to a certain amount before they ask those banks to cash them. So, it is more of a facility on the reserve currency side. The Swedes are borrowing marks quite frequently and they might want to keep some of them for a while. That's the arrangement.",74
-fomc-corpus,1980,Do we have any other arrangements on our swap lines with a takeout arrangement similar to what you are suggesting?,22
-fomc-corpus,1980,"For most of them, each time a central bank wants to [draw on] a swap line we have some discussion as to what the conditions would be and what the period would be. Normally in the past, though, swap drawings have been made for six months or a year. This would be somewhat unusual. Our conditions would be tighter in that this is bridge financing and would probably not be for more than two months.",84
-fomc-corpus,1980,"I do think we should have that very firmly set down. It could be done in two ways: Either we set down all the conditions when we take action now to raise the line; or we do what we sometimes have done in the past, which is to treat an existing line as a framework for discussion, not as a commitment on our part to lend. For example, Mexico has a line--what is it, $700 million? Italy has $3 billion and England has $3 billion. We take this as a framework for discussion of both the terms and the amounts. I don't know what lends itself better in this case. They many want to draw very soon and it might make more sense to lay down all the conditions at the start. But we shouldn't let it slide and then find that they are about to draw without our having had the chance to make clear what the frame of reference is, as Tony specified. I very much agree with him that we need a firm takeout; they have to say that they will go to the Euromarket [even] if conditions in that market are not very propitious when the drawing matures.",231
-fomc-corpus,1980,What are the risks of not applying conditions to the swap line? Everybody seems to be in agreement. I don't know what--. Isn't Sweden a good credit risk?,33
-fomc-corpus,1980,"Yes, Sweden is a good credit risk. I think the only risk, if you want to use that word, is that it becomes awkward later on with other countries if we do apply conditions and they ask why we didn't apply them to Sweden. Our posture always has been, even if the country is a good risk, that we want to be in a position of applying reasonable conditions. Now, in the case of some countries--",86
-fomc-corpus,1980,So long as they don't apply them to us.,10
-fomc-corpus,1980,"It's an asymmetrical relationship. We don't exactly play the IMF role, but it is true that in the case of some countries that are less creditworthy--take Mexico--we would want to know what their stabilization program was and what the policies intended to get them out of trouble were going to look like before we would let them make a [large] drawing on the swap. In the case of Sweden, we can't say that this should be bridge financing [until they could get funds from] the IMF because they have only, I think, $4 billion in external debt; it's not a country that one would push to the Fund. We have to give them some direction. But there is some danger, if we don't have some sense of the conditions, that we will have more difficulty with other countries in applying conditions when they are really needed. I think that's the reason for having some understandings, rather than the risk of not being repaid.",190
-fomc-corpus,1980,"They take the exchange risk, is that right?",10
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,And the interest rate is the U.S. bill rate? And you are proposing 60 days?,20
-fomc-corpus,1980,Roughly.,4
-fomc-corpus,1980,Ninety days is so conventional. I don't much like saying 60 days. It sounds as if we have some particular problem with Sweden. I would think a 90-day maturity--,38
-fomc-corpus,1980,I was a little concerned on reading those memoranda that Sweden isn't in very good shape.,18
-fomc-corpus,1980,"Oh, no, it isn't. They just had a long strike, you know.",17
-fomc-corpus,1980,"It raises the question in my mind why they aren't borrowing in Europe, and whether we are to some degree conceivably--",25
-fomc-corpus,1980,They are borrowing.,4
-fomc-corpus,1980,Officially?,3
-fomc-corpus,1980,"Yes, they are making official borrowings in the Euromarkets.",15
-fomc-corpus,1980,"No, the Eurodollar. I mean from European official sources.",14
-fomc-corpus,1980,Are you asking why they want to raise the short-term swap lines?,14
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"Well, remember, there is political importance to their not being in the European Monetary System. The Germans were furious when [Sweden] dropped out of the snake. That [furor] has died down and there's reasonable cooperation, but I think they would look to the supplier of the currency in which they keep their reserves since they are not members of the EMS. Now, we could always make it a condition, but I would advise against it, that they ask for a similar swap line with the Bundesbank.",103
-fomc-corpus,1980,Why are they having trouble with the BIS? MR. PARDEE(?). Because that's the seat of the European Monetary System and the members of the Board there are--,33
-fomc-corpus,1980,"Sweden is a member of the BIS, isn't it?",12
-fomc-corpus,1980,"Yes, and it has a swap line with the BIS.",12
-fomc-corpus,1980,They have a swap line they just--,8
-fomc-corpus,1980,"They have drawn on it, with BIS agreement, but they have not gotten agreement from the BIS to increase the swap line.",25
-fomc-corpus,1980,How big is their swap line?,7
-fomc-corpus,1980,"It's million. On the point of when we impose conditions, I would rather wait and see what the circumstances are when they come in for a drawing. We can then review it with the [Foreign Currency] Subcommittee and put on the conditions that are more or less specific to the circumstances at the time. That is why I think this review procedure and a 1-year limit on [the increase in the swap line] gives us a little more control. They are not in good shape, but this all relates to 1980. We don't know what 1981 will bring. But I think our side will be better able to monitor it if we do it this way.",136
-fomc-corpus,1980,"If we do this, we have to announce it right away--meaning within three or four days--right?",22
-fomc-corpus,1980,"Yes. It should be included in the Selected List of Actions that would be available for inspection [this coming Friday]. We don't need to make a public announcement as such. It would also be in the Policy Record, and any conditions attached to the increase in the line would presumably appear in the Policy Record, which might be somewhat counterproductive from their point of view. May I just add simply that the Procedural Instructions with Respect to Foreign Currency Operations require that there be advance approval by the Subcommittee of any drawing up to a certain amount and by the full Committee beyond that amount. So [approval of a drawing] is not automatic under our procedures.",130
-fomc-corpus,1980,"What are they going to say when this is announced? MR. PARDEE(?). As little as possible. We were discussing having it come out on a Friday afternoon. It's coming very shortly after this strike, and they did not want the market to think that they were acting in response to the adverse publicity of the strike.",65
-fomc-corpus,1980,"Well, we are going to have to say something, it seems to me.",16
-fomc-corpus,1980,"Well, we can say that the Federal Reserve and the Riksbank agreed on an increase in the swap line from $300 million to $500 million. Full stop, unless we want to add that this shows a cooperation between the two central banks--or some language like that which we have worked up in the past.",64
-fomc-corpus,1980,"It's no problem for us, but it is a bit of a problem for them.",17
-fomc-corpus,1980,They are aware that we would have to publish this increase within a very short period of time and also that we would have to publish any operations under the swap line with the usual lag of one month.,40
-fomc-corpus,1980,"It will be a little longer this time because we don't have a June meeting, won't it?",19
-fomc-corpus,1980,This comes out earlier [than the Policy Record].,10
-fomc-corpus,1980,This coming Friday.,4
-fomc-corpus,1980,"Well, it seems to me that in terms of conditions we shouldn't discriminate between the Swedes and others. I think 90 days is reasonable and renewal for another 90 days is reasonable. I'm mainly concerned about a takeout because even though Sweden may be a good risk--it certainly still has a very high rating in the Euromarkets in terms of the spread at which it can borrow--they may for that reason decide to let it go. So [the drawing may extend] to 6 months, to 9 months, and to a year. That is where we want to be sure that they can't overrun. And it can be done very simply by agreeing that they will go to the market to pay it off.",148
-fomc-corpus,1980,"Well, this doesn't strike me as perfection in terms of a precedent, but at the same time I see no strong reason to turn it down. I do think we need an understanding now that they are going to pay it off. I don't have any problems between 60 days and 90 days or whatever and we can even exclude a renewal. But I think they ought to be told that this is a temporary increase; we are just talking about a 1-year increase at the moment. We can have a further discussion when they draw, but I think it has to be against the background of a clear understanding now.",124
-fomc-corpus,1980,I thought it was 90 days.,8
-fomc-corpus,1980,It's 90 days for the drawing.,8
-fomc-corpus,1980,"The increase in the line from $300 million to $500 million would only be for one year. As for an actual drawing, they would advise us ahead of time that they would be drawing on it and there would be a 3-month limit to the bridge financing.",54
-fomc-corpus,1980,I think that's reasonable.,5
-fomc-corpus,1980,"Well, with that understanding, are there any objections? It just looks to me as if Sweden may be in trouble before the end of the year on this.",32
-fomc-corpus,1980,How dependent are they on foreign oil?,8
-fomc-corpus,1980,"They are terribly dependent. They have the highest per capita consumption of gasoline--imported gasoline --in the world. We happen to have some domestic [production]. Also, this recent wage settlement of 11 percent does not improve their competitive position, although it doesn't worsen it. If you look at the weighted basket of currencies against which they keep their exchange rate, the wage increases in those countries on a weighted basis also work out to [an average of] around 11 percent. There's a major rethinking going on in Sweden; I think they are at a pivotal time. About 65 percent of their GDP goes through the public sector and there is an increasing reaction against that. There is a feeling that they've got to come up with a tough energy policy and that they have to shrink public sector expenditures. A whole new debate is beginning.",168
-fomc-corpus,1980,But the current account deficit is $750 per Swede.,12
-fomc-corpus,1980,"Yes. They have probably the highest standard of living in the world and they owe only $4 billion. The current account deficit, they believe, will be between $3-1/2 to $4 billion; I noticed that the Board's staff thinks it will be closer to $5 billion. They do not have any creditworthiness problem. But unless they change their policy, I think they will be in trouble in two to three years.",89
-fomc-corpus,1980,"Do I hear any objections? [Hearing none], that is approved and we can go to Mr. Sternlight.",24
-fomc-corpus,1980,"I'm sorry, I have some other comments. I'd just note that there will be some first renewals of swap drawings in the days subsequent to the next FOMC meeting. Normally, in our renewal cycle we report on these at this time. [Each] is just a first renewal, so no action by the Committee is needed. We have swap drawings of $141 million worth of German marks and $74 million worth of French francs that are up in July. I would hope that we would have paid them by that time, but for the record I am mentioning them now.",116
-fomc-corpus,1980,Mr. Sternlight.,5
-fomc-corpus,1980,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1980,Questions?,2
-fomc-corpus,1980,"Yes, Mr. Chairman. Peter, I'm a little confused about your April operations. You attempt to achieve our aggregate growth targets, as I understand it, through the establishment and achievement of certain reserve paths--either for total reserves or the base. Is that correct?",53
-fomc-corpus,1980,"We are trying to achieve nonborrowed reserve levels that have been associated with the Committee's targets. I don't think we are able to achieve, on a month-to-month basis, the Committee's monetary growth targets.",43
-fomc-corpus,1980,"Well, I noticed [in] the Bluebook that [the staff], as I assumed the Committee as a whole would be, again was trying to understand the reason for the rather substantial drop in the rate of money growth during [April]. Now, during that month actual reserve growth was 2.7 percent for total reserves and 1.9 percent for the monetary base.",76
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,"Let me ask you this: Do you have specific figures in terms of the monetary base, for example, that you try to achieve as a guide for your operations?",33
-fomc-corpus,1980,"No, not in terms of the monetary base. But we do have specific figures for nonborrowed reserves that we are trying to achieve--in this case for both the 4-week interval and week by week. We have an objective that can be modified from one week to the next because of technical factors. On one occasion we added some to the nonborrowed [path] because we were so far below on total reserves going through this period.",90
-fomc-corpus,1980,"These figures--the 2.7 percent, say, on total reserves and the nonborrowed part of that--I assume are significantly lower than the path that you sought. Is that a fair statement?",42
-fomc-corpus,1980,"Total reserves are certainly lower. The nonborrowed figure, as I mentioned, is coming out about on track.",23
-fomc-corpus,1980,"Let me just ask this, pursuing this line of questioning: Isn't it possible for you to achieve or at least to get closer to your path objectives than these two figures? It's mechanically possible to do, is it not?",44
-fomc-corpus,1980,"Well, as I say, on nonborrowed we are coming out about on track for this period. For the total reserves, I think one can get a different view depending on what intervals one takes. I tend to think of this as the four-week block of time between Committee meetings. And total reserves are coming out well below the path, by some $850 million, on our estimate.",79
-fomc-corpus,1980,"What adjustments can you make, or do you make, if you see that we are coming out below the desired path, to supply reserves so they come out to a higher level? I thought you almost automatically try to adjust for that situation.",48
-fomc-corpus,1980,"Well, part of the whole procedure that we are on now involves an almost automatic adjustment, because if total reserves are coming in weak and money supply is coming in weak, aiming for nonborrowed reserves means that there is going to be less demand for borrowing. I described how the borrowing had fallen off and with that [interest] rates had dropped off quite sharply.",73
-fomc-corpus,1980,"When you observe that, Peter, can't you take compensating actions to inject reserves?",17
-fomc-corpus,1980,"In part what happens is that it is an almost automatic response because as we aim for the path of nonborrowed reserves it calls for less borrowings, and conditions ease. And over time--not within a month's time but over some longer time--this is supposed to generate greater monetary growth.",59
-fomc-corpus,1980,Couldn't you achieve a base path objective if you wanted to?,12
-fomc-corpus,1980,I'm not sure we could achieve it; I think we could come closer than we did if there were no federal funds rate constraint.,26
-fomc-corpus,1980,"In other words, within the family, to be candid, is it the federal funds constraint that really causes us to miss these paths occasionally?",28
-fomc-corpus,1980,"Not entirely. Over a period of time that may be true. But we are running into precisely that problem now, and that's what the debate will be this morning, I presume. But the Desk provided nonborrowed reserves more or less on path. It could have speeded that up, and we would have run into our federal funds constraint, and we will run into it now. That doesn't mean that the [level of] reserves would have come up to the path right away.",97
-fomc-corpus,1980,"It's somewhat like a freight train, you know. There's the engine and the caboose. And what happened is that we've now jerked forward and the borrowings have gone down.",36
-fomc-corpus,1980,"We went right through all the borrowings, so we are face to face with--",17
-fomc-corpus,1980,"If you have an engine where both ends of that train are going in opposite directions, you have a very strange situation.",24
-fomc-corpus,1980,"I think there is a certain amount of looseness in the relationship, and the looseness that has been used up this month--",26
-fomc-corpus,1980,"We did run into the funds rate constraint during the period, and the Committee acted on it.",19
-fomc-corpus,1980,We are now in the rarified atmosphere--one we haven't operated in before--where we have no borrowings.,23
-fomc-corpus,1980,"Let me ask a question. Aside from any constraint that may arise in the lower end of the fed funds rate range, isn't it the directive of the Committee to the Manager to achieve the target on nonborrowed reserves, given the Committee's borrowing assumption? If the actual borrowing level comes in lower than the assumed borrowing level, is he supposed to take additional compensatory action to go higher than the target on nonborrowed reserves in order to compensate? I didn't assume--",94
-fomc-corpus,1980,It's possible.,3
-fomc-corpus,1980,"It's possible, but there's no clear--",8
-fomc-corpus,1980,"Well, it's a matter of judgment in between meetings; Mr. Axilrod sits there and scratches his head and Mr. Sternlight does and occasionally I do.",33
-fomc-corpus,1980,"Mr. Chairman, isn't this the dilemma that plagued us over the pre-October period, though, where we had incompatibility between our fed funds objective and other objectives?",34
-fomc-corpus,1980,"We would have run short on total reserves, and certainly the monetary base in any [case], even this time. But we don't escape, I suspect, all the dilemmas of the real world by whatever we said in October. And we are there right now.",53
-fomc-corpus,1980,"A lot of people in the real world--and I'm sorry to [belabor this] but I know we have them in the real world where I live--are hoping desperately that when this incompatibility occurs we will do what we said we were going to do: Keep our eye on the reserve growth targets and let interest rates fluctuate. That really is the fundamental issue that we face, and I think our credibility--",83
-fomc-corpus,1980,[Interest rates] had a lot of flux in the last month.,14
-fomc-corpus,1980,"This is attributing to the money supply a significance that I see hardly any economists attributing to it. The money supply is a means of getting [desired] interest rates. People who want a stable rate of money growth want wide fluctuations in interest rates. So we can always decide how much interest rate fluctuation we want to have and go from there without subordinating our decisions to the money supply. [If] we say that we don't want interest rates to move outside a certain range, then it seems to me that we've made the judgement that interest rates are to prevail up to a certain point.",120
-fomc-corpus,1980,"Well, we've announced our targets to the Congress not in terms of interest rates but in terms of aggregates. We've never mentioned interest rates in our targets to Congress.",32
-fomc-corpus,1980,"But if the money supply is a means of controlling interest rates, it is a better means than for us to set [interest rates] arbitrarily low, as we have in the past.",38
-fomc-corpus,1980,"In the interest of facilitating the discussion, I think these issues will arise in a more practical way a little later.",23
-fomc-corpus,1980,"Mr. Chairman, may I ask Peter a question? Is there any reason to expect a further back-up in short-term interest rates?",27
-fomc-corpus,1980,"Not from what I see here, particularly. If monetary growth should speed up, certainly it would be possible.",22
-fomc-corpus,1980,It depends upon why it speeds up. Short-term interest rates are down this morning. That's the long-term trend through 10 o'clock this morning!,30
-fomc-corpus,1980,There was a time when we used to think an increase in the money supply would cause interest rates to fall.,22
-fomc-corpus,1980,"It depends. If the economy gets stronger and credit demands increase and the money supply rises, interest rates would rise. If we're pushing up the money supply, then presumably they would fall.",37
-fomc-corpus,1980,"But, if the economy remains weak, with an increase in the money supply one would expect them to fall.",22
-fomc-corpus,1980,"They might, yes.",5
-fomc-corpus,1980,"All of this discussion does point up the importance of the discount rate, however. That's because we could have moderated the fall in the funds rate, the [final] standard, if borrowings had been above zero. That is something we are going to face in the period ahead, and thus the Board [should] give considerable [thought to] what to do with the discount rate. So long as borrowings remain at zero, we have nothing to operate against but the funds rate--the fall of the funds rate itself--if we try to achieve these targets.",113
-fomc-corpus,1980,That's all we have anyway.,6
-fomc-corpus,1980,"We have to ratify the domestic transactions. Without objection, they are ratified. Mr. Kichline.",23
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,I wonder whether we shouldn't pause for a little discussion of the economic situation. [I hope] it doesn't go on too long because there are particular technical issues on the financial side that will need some discussion.,41
-fomc-corpus,1980,"If you assume that we have a mortgage rate of around 12 to 13 percent for the rest of the year, do you have any projections as to what the level of housing starts would be later in the year?",44
-fomc-corpus,1980,"Yes, we have housing starts rising to a little over 1 million units by the end of this year and continuing on up to about 1-1/2 million units next year. Our forecast for the remaining months of the current quarter is for a bit further decline on average. But starts would average 900,000 for the current quarter and then begin drifting up next quarter so that they are at an annual rate of over a million by the time we hit the end of the year. That's essentially what we have built into our forecast currently. I might note that for mortgage rates to get to that level they would have to decline further in conventional markets. They are not there yet.",138
-fomc-corpus,1980,"May I ask: In your projection of personal income did you anticipate the number that came out yesterday, which was essentially zero?",25
-fomc-corpus,1980,"Yes. In fact that was largely based upon the labor market developments in April, which we had available. Wages and salaries declined at about a $7-1/2 billion annual rate. And that's one of the principal ingredients giving us for the second quarter a virtually unchanged saving rate even though consumption spending is declining very rapidly. So, we think we've roughly captured that.",75
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"I wonder if you would talk a little about your projections on the saving rate, Jim. What bothers me is that you have such a small rise in the saving rate over the next year when one considers that it has been abnormally low and that we seem to see every evidence that people are trying to pay down debt and improve their financial position. And, of course, if that saving rate were to come in significantly higher than you have projected, it would imply a considerably weaker economy.",97
-fomc-corpus,1980,"That's quite correct in terms of the forecast that we have, in which the saving rate really never gets to 5 percent and then drifts lower. That is at least a percentage point below what one might have expected on the basis of experience prior to the last two or three years. There are a number of factors involved. Essentially, one is that we believe individuals will attempt to retain their standard of living. And when one looks at the composition of price changes, relative price changes have been extremely large for necessities such as food, energy, and housing. So, our view is that one of the elements driving the saving rate down recently has been the surge in the relative prices of necessities; and individuals have been willing to let the savings side slip as an attempt to maintain their standard of living. We expect that to persist. We also tend to believe that the saving rate may have been adjusted lower as a result of the inflationary experience [and will remain low] through this forecast horizon, even though the rate of inflation is declining. It's still very high by historical standards, and there clearly has been a change toward spending as opposed to saving. And I think it will be hard to get consumers around to the view that they want to save substantially larger portions of their income once they have adjusted in this fashion. Admittedly, it is a very difficult part of the forecast. It often comes out as a residual. To go about this, we use the saving rate as a check and then begin asking questions about it and whether we believe it's appropriate. If consumers' attitudes change quite differently and in the aggregate they feel squeezed in terms of their financial positions, as they ought to, then the saving rate might tend to be higher. And if it were, of course, other things unchanged, activity would be weaker.",363
-fomc-corpus,1980,Mr. Eastburn.,5
-fomc-corpus,1980,"I tend to be at least as pessimistic as the projections. There's one other factor that could enter in and I wonder if you have explored it, Jim. And that is the [potential] catastrophic aspects of this, with large numbers of bankruptcies both in the nonfinancial and financial side--in municipal finances and so on if they accumulate.",69
-fomc-corpus,1980,"That's one of the major risks in a forecast like this because [the downturn] is deep enough and it also started with many sectors being in what we would perceive at least to be a vulnerable position. [So], even though one is looking for that kind of evidence, those developments tend to be unpredictable and could pose serious downside risks for the forecast. We have been looking very carefully, for example, at the corporate sector, and the aggregate numbers there do not provide any comfort at all. There has been a great increase in downgradings of corporations and cutbacks in capital expenditure plans, some of which seem to be stemming from the financial side. You mentioned also the government sector, and we are clearly getting a squeeze there with real expenditures declining; but with the Administration's effort to curtail the rate of growth in federal expenditures, a good chunk of that [spending] falls on the state and local sector. So there are sufficient concerns in the nonfinancial sectors as well as the financial sectors to be aware that something may go wrong, and that could very easily set off expectations in an adverse [direction]. That is one of the risks that would argue for the possibility of seeing even lower numbers. They may not materialize, but we are at the point where there are [enough] warning signs to be cautious.",266
-fomc-corpus,1980,"Individual bankruptcies are already up very substantially, but there is a real question as to whether that's related to the new bankruptcy law--how much effect one can assign to that.",35
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,What about the $20 billion budget deficit that you have for fiscal '81? Do I understand that that would be even larger if the import fee were cut out?,33
-fomc-corpus,1980,"Yes, that includes $10 billion, roughly, in receipts. So if nothing else changed, the deficit would be in the neighborhood of $30 billion.",31
-fomc-corpus,1980,So from your standpoint this is a swing from a $16 billion or so surplus projected by the Administration?,21
-fomc-corpus,1980,"Well, some of the developments in Congress have lowered that, though, so the numbers coming out of the Senate side were a small surplus. But the numbers are all on the plus side. I might note that we have not assumed passage of the withholding on interest and dividends and that's worth something like $3-1/2 billion. We've assumed that some of the expenditure cuts won't materialize, given the much weaker economic forecast that we have. That's worth $4 or $5 billion more in direct expenditures than we have assumed. And the remainder is accounted for principally by weaker receipts, higher unemployment insurance compensation, higher interest rates, and that sort of thing. So, we've [made some assumptions] on the expenditure and tax sides, but the bulk of it is the different view of the economic outlook.",161
-fomc-corpus,1980,"I think's it's a very reasonable assumption, but it is a very important ingredient in the Greenbook presentation.",22
-fomc-corpus,1980,Any other comments or questions? We will turn to Mr. Axilrod.,16
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,I [am tempted] to suggest that you might get into the more technical problems. But maybe we will defer that and get whatever reactions we have at the moment to as far as you have gone. Governor Partee.,44
-fomc-corpus,1980,"Well, on this question of strategy for dealing with a shortfall, I just don't know; I have a feeling of discomfort about it. I suppose what it amounts to is that having suffered an unprecedented decline we ought to be prepared for an unprecedented increase to make it up, should it occur. Therefore, if we had a sudden surge, restoring us closer to the trendline, that would be all right; that should be permitted without any difficulty. If we don't have that, the question is: How hard should we push to get [money growth] turned around? As a matter of procedure, I feel it's incorrect in May to use the whole rest of the year to try to get back within the range because we may well continue to have adversity in reaching the numbers desired. And if we do, the shortfall will get worse and worse and harder and harder to adjust to. So, without speaking to the policy issue, I just think that procedurally it is better to have a fairly moderate period in which we plan to recoup our losses rather than a long period. Therefore, [aiming to get] back to path by September strikes me as much sounder than [getting] back to path by December, which is the alternative given. As long as I have the floor, I might just go on. I think there is a fair possibility that something big--really big--is going on out there in the economy and that in fact we may not get a rebound in money supply or credit demand for some while. If that is so, the decline in final demand that is occurring will destroy income; and the destruction of income will result in a further weakening in final demand. And if that's the situation, that is a classic depression situation developing in the economy. The worst possible thing that could happen would be to continue to see credit and money contract because that would perpetuate and deepen the decline and really get us to the point that Dave was raising. Nobody ever projects what would happen if we had a wave of bankruptcies because there is no way to project it. We so seldom have a wave of bankruptcies that we just can't see how bad things might be if that occurred. The last real big wave was in the 1930s. And, of course, it created grave effects on expectations and attitudes and the willingness to spend and so forth. So, if there is something big going on, it's terribly important that we stop the decline in money and credit. If there isn't something very big going on, we will get a turnaround without doing an awful lot, in which case it won't turn out to be such a big problem. So it seems to me that the risks are all on the one side, and we ought to structure our operations and our policy to recognize those risks.",563
-fomc-corpus,1980,"May I ask a question of Steve? Steve, what you have done is [to present] two alternatives here, both of which are geared to reaching the midpoint of the range. Now, Governor Partee feels that structurally it is better to do it by September. But doesn't it leave us a lot of flexibility if we attempt at this point to target the midpoint of the range by December? It gives us the flexibility, if we have a substantial shortfall, to look at the lower end of the range as an alternative if money growth is not very rapid over that period.",116
-fomc-corpus,1980,"That's precisely why I suggested September, because in fact we might continue to have a shortfall relative to our expectations, in which case having targeted on December we will have no more room. I think we will be lucky if we are within the ranges at all this year. But it's just a question of how quickly we try to get back [within them].",71
-fomc-corpus,1980,It makes a big difference which M one looks at. It may be true of Ml; M2 and M3 don't look so bad.,28
-fomc-corpus,1980,"And maybe L is even; as Steve points out, those T-bills may be pretty high.",20
-fomc-corpus,1980,The analytic significance of L escapes me.,8
-fomc-corpus,1980,It's pretty good when you have a decline in M2 and M3 simply because people bought Treasury bills.,21
-fomc-corpus,1980,It always happens; in every credit crunch it has happened.,12
-fomc-corpus,1980,That's why the analytic significance is high. Governor Wallich.,12
-fomc-corpus,1980,"I'd like to make the opposite case, and in fact express some concern about getting back on track even in December. There is at least a good chance that we have had a demand shift and that we would just be pouring in money when [instead] we should have taken account of the diminished demand for money. Nobody can say how likely that is at this time. There are some indications--and I think it has a rather fair probability--so I'd give it weight. Certainly the situation seems to be rather similar to what we had from the fall of '78 through the winter of '79. There was an unexplained shortfall, though not as drastically concentrated in one month; I think we had close to four or five months of negative M1 growth. Then, in the spring and summer the aggregates took off. For a while we said that was just compensating for the shortfall of the previous six months. Suddenly, in August-September we realized what was happening: That the aggregates were running away, that it was not a compensatory movement, and that we were going into an accelerated inflation. And we took the strong measures of October of last year; even that wasn't enough and we had to do it again. So I think the pattern of having a shortfall and then trying to catch up--or allowing the aggregates themselves to catch up--has existed in the past. And it seems that it can be very dangerous. Furthermore, under alternative B, M-lA would be growing at 9.5 percent and under alternative A it would be growing at 7.6 percent. Even if these very high rates of money growth didn't lead to an inflationary situation, which is not likely given that we probably are going into a substantial recession, it nevertheless would be an uncomfortable situatuion to be moving at those rates of speed and then suddenly either in October or January have to turn off the faucet and get back on track [to a path that] would be more consistent with moderate growth. In other words, at that time, when the recession would probably be at its deepest, we would be confronted with turning off the faucet and raising interest rates if we were to move as fast as these alternatives imply. I would not like to be confronted with that calamity. We can handle all of this, I think, within our existing target ranges, if we aim at the lower edge. I have a rough sense that we should aim [for growth in M-1A] by December at 1-1/4 percentage points lower than the midpoint. We would be saving ourselves about 2 percent growth or a little more. And taking down the aggregates by that much, [as I've] proposed here, would not get us to very rapid rates of expansion. We would not incur the danger of overshooting and would not run the risk of having to confront a sudden change of pace that would raise interest rates.",588
-fomc-corpus,1980,Mr. Eastburn.,5
-fomc-corpus,1980,"Well, I would like to shift the argument back to what Chuck started with. We really are dealing with probabilities here, and that's what makes it so very difficult. There is a possibility that we have had a fundamental shift in the demand for money. There is a possibility that we are in for something bigger, perhaps bigger even than the staff has projected. It's very tempting to say: Let's avoid that kind of decision and just deal with the immediate problem and face this issue later. I don't think we can [wait] because there's too much at risk. So we have to cast our lot on [one side or the other]. And I cast my lot on the side that says the probability is that we will have a persistent shortfall in money growth. My reason for this is historical experience. A shortfall has tended to happen when we have had recessions and probably will happen even more in a recession of serious magnitude, which is the kind I believe we are going to have. I think we should anticipate that and get back to the [money growth] path as soon as we can; that to me would require us to try to shoot for [a return to path by] September rather than wait until December. I think Chuck is absolutely right that if the other [scenario] turns out to be the case and we find ourselves with rather large increases in the money stock, we can pull back from that. But I believe the risk is more on the other side, and I would prefer to move more rapidly to get back to path.",309
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, I recognize the possibilities that Governor Wallich has outlined, and he outlined them very well. But I feel that if we don't [do something to] be on target before long, we may get almost impossible pressures against us to ease later on [by more than is desirable], at about the time the economy is recovering. And that's the time when we usually make our mistakes. So I come out about where Governor Partee and Mr. Eastburn did, and I would align myself very closely with the remarks they made. I have some specific [recommendations to make] later on regarding the federal funds rate ranges, the level and width of the ranges, and also the wording of the operational paragraph.",144
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Mr. Chairman, one major problem I have with the funds range of alternative A is that if we were to vote for a 10 percent floor, after having given the Manager a 10-1/2 percent floor in our last telephone conference, I don't think we could honestly or with a straight face say that we are trying to control bank reserves. Quite clearly, de facto, we would be moving back to controlling interest rates. Now, if we are faced with a foreign exchange crisis, then we ought to be honest and say that we are going to keep the federal funds rate where it is for the next month, hoping that the fundamentals of our balance of payments will improve and that, therefore, we are temporarily abandoning our policy to control the rate of growth of bank reserves. As far as I can see, alternative A is out for that reason unless we are willing to admit that we are going back to controlling interest rates, as we have done before, though the results of that [operating procedure] were not terribly satisfactory. So I would like alternative B, but I would like a funds rate range of 8-1/2 to 12-1/2 percent.",239
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"Mr. Chairman, before we try to make a decision on ""B"" or something else, I'd like to ask a question of the staff. Do you, Steve, or any of your colleagues, have a judgment as to the extent to which the special credit restraint program of March 14--otherwise known in some sections of the country as ""Jaws II""--might be a very inhibiting factor in getting back to path? We have scared off a lot of bankers around the country [by] having them appear before Vice Chairman Schultz with their boards of directors and submit daily reports and all sorts of other things. Unless we ""unscare"" them pretty quickly, I'm concerned that, while it's always hard to push on the string, in this case it will be impossible. I've given you my view. I was really asking for yours.",169
-fomc-corpus,1980,"I have a judgment; perhaps Jim also has one. I would say that it probably did have some effect on bankers' attitudes, or at least it seems so from the data. But perhaps even more importantly, it seems to have had some effect on consumers' attitudes. Spending has been very weak and I think that weakness is associated with a reluctance to use credit. There have been reports all over the papers and it [is evident] even in one's personal experience that people have some reluctance to use credit. Going along with that there has been some shift, apparently, to using cash and a shift to paying off debt and reducing spending. Whether the end of these programs would change those attitudes is an open question, of course, because once a person finally decides something is right, for whatever reason, I simply don't know whether the ending of a program is going to change his mind substantially. That's particularly so if we're in the middle of a recession when the program ends and people have some doubts about future income prospects. But those are subjective judgments and we have precious little evidence other than to note that the sharp declines in bank credit and consumer debt are very coincidentally related to the imposition of the program. That suggests a change in attitudes, and I think it's the attitudes of both the lenders and the borrowers.",264
-fomc-corpus,1980,"May I comment on that from an anecdotal point of view on the basis of talking to bankers and others all over the country who are involved in credit extensions? I think Nancy [Teeters] would corroborate what I say. Well, I don't know that for sure but I think so. It's clear that [the credit restraint program] was a real shock to the consumer. If the credit controls are removed, the people I talk to do not believe there will be a resurgence of the same attitudes the consumer had before. They believe this effect is not reversible. So I think it's important to get them off because they are having a serious effect on the economy at this point. I just worry about how we are going to get them off if we're going to have an easy money policy, too. It could be pretty difficult to do both at the same time, and I would hope that we would keep that in mind as we are talking here.",190
-fomc-corpus,1980,"Of course, Fred, if we take credit controls off and it has no impact--if people don't go back to spending--then we can do both simultaneously.",32
-fomc-corpus,1980,[We would say] we're taking them off because our prior tight money policy was successful.,18
-fomc-corpus,1980,We'd say that we're not really using it. We'd try to ease our target growth.,18
-fomc-corpus,1980,Certainly we'd say monetary growth is lower than ever--,10
-fomc-corpus,1980,Let me comment further on what Fred was saying. The reports I've been getting are that credit sales have just plummeted. And it shows up on the profit reports of Penneys and Sears that came out this morning. Another aspect that people seem to be worried about is that purchases of household durables were so strong in the second half of last year that [that sector] is not going to rebound. Everybody has a new refrigerator. The other aspect of this is that consumer debt is unbelievably high; and with a very low saving rate the chances of a rebound in consumer spending such as we've had in previous recessions are much lower this time. I think that is already built into the staff's forecast.,141
-fomc-corpus,1980,"If I can end my comment, Mr. Chairman: I suspect the March 14th programs--this is just an intuitive feeling on my part--have done the job that we hoped they would do, and that was essentially to break the back of inflationary psychology. Therefore, I think those programs have outlived their usefulness and they will simply get in our way if we try to restore monetary growth, whether to the lower end of the range or the middle of the range by September or December. I hope some very serious consideration will be given to how quickly [the economy] can unwind from those programs. My instincts are to go along with the alternative B target and to get that restoration done more quickly than by the end of the year. That's about the way I would come out. But I fear that the credit restraint programs, unless visibly relaxed--I know you alluded to that possibility in public--are simply going to be one more inhibiting factor getting in our way.",198
-fomc-corpus,1980,I have a great vacuum of volunteer speakers here.,10
-fomc-corpus,1980,"Mr. Chairman, I think this is a time when we need to go back and restudy some of our history on these things. The problems of our undershoots and overshoots are a little sobering it seems to me. It's a problem, really, of the gaps that occur in this process. It's not just [a question of] when we get back on target, because the gaps are never corrected. I think our [undershoot] problem is something to be concerned about. I share some of Henry's concern as to what we do [later], but it seems to me that we have an even more important problem as to what we do now. Consequently, I'm in favor of making an effort to get back on path by September. But I doubt that even the funds range specified in alternative B is going to do that. I think we have to have a wider funds range if we're going to be serious about our efforts, and I'd be inclined to consider a 7 to 14 percent range--not knowing what is happening on that score--as a basis of approaching our target by September rather than December. One reason is because the gap between now and December is going to be a painful thing for you to have to testify about in January or February because I think [the members of the Congressional Committees] are loaded for bear. Others have studied the misses we have had in the past, and it seems to me that we ought to learn a little from history in our approach to the current problem.",306
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"First, on the credit restraint program: I, too, think it should be dismantled, but in parts. The time is already ripe for getting rid of the consumer part. I don't see any particular damage in taking it off piece by piece if only because, based on some of our traditional observances, the bank credit hangs on after activity starts down. But also as a counterbalance, I feel we should keep at least the special deposit on the money market mutual funds for perhaps a little longer than some others have suggested simply because of the public perception. If we take the special deposit off, people might feel the Fed is out of its mind to do that if we really believed in limiting their growth in the first [place]. We know the reasoning, tying it to what the mutual funds invest in, but I think the public perception would give us a black eye. And phasing out the equity [requirement] on the bank side too soon would give us a black eye. But I think a case can be made for dumping the consumer credit [part] pretty fast. Moving on to our policy question, I lean the way Willis does. We should be getting back on target or we will have a credibility problem again. I don't think [our recent adoption of] a 10-1/2 percent lower limit has strained our credibility but [adopting] any lower limit higher than 8 percent would tend to strain the credibility of our decisionmaking today when it comes out because, for better or for worse, we have announced that we're going to concentrate mostly on [achieving] our targets for the aggregates. Sure, we can change those targets in July if we wish, but for the moment we haven't given any indication--and I think properly so--that we have any desire to change those targets. So I, too, would prefer ""B"" or almost a ""B-"" to get us back [on path] by September--we can always have a consultation in between [meetings]--and I'd pick figures of 8 to 14 percent [for the federal funds range]. I consider the 10-1/2 percent [lower limit], which could become a sore point, something like a temporary intervention point, if I may draw the analogy from our foreign exchange side. I would like to consider it that rather than as a real constraint that might upset our credibility on what we said in October and again in March.",493
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Mr. Chairman, I don't feel that I can dispel any of the uncertainty that has been cited here today. It is a very uncertain situation. On the credit restraint program, I think it would be desirable to announce that it seems to have achieved its objective for the time being at least and, consequently, all required reporting under it will be discontinued with, say, the May reports. But [I'd say] the program itself is being put in cold storage for reactivation if and when it is needed. That latter part is simply on the assumption that it would be politically expedient to say that forthrightly [rather than imply] it at this point in time. But it does seem to me inappropriate to continue a fairly comprehensive reporting program in an environment where it's not doing anything useful for us. I think it will look rather foolish to the people who are reporting under the program and not--",180
-fomc-corpus,1980,You'd [take] off the special deposits too--not just the reporting but also the special deposits?,21
-fomc-corpus,1980,"Well, yes. But we're not getting any of those anyhow, are we?",16
-fomc-corpus,1980,I don't know; we got some from the mutual funds.,12
-fomc-corpus,1980,"On the monetary policy issue, it seems to me that the risks are on the side of a fairly extended period of [money growth] running well below target and that, therefore, we should move fairly quickly and fairly decisively to try to get back within our announced target ranges. So between alternatives A and B, that would lead me to favor ""B"" and it would lead me also to suggest that the bottom of the funds rate range should be reduced probably to 8 percent from 9 percent or, if not that far, I could go with Frank's 8-1/2 percent. That's all I have, Mr. Chairman.",130
-fomc-corpus,1980,Mrs. Teeters.,5
-fomc-corpus,1980,"Well, all the news has been consistently bad. Every day brings in another indication of greater depth of the slump. And it seems to me that the risks are all on the down side at this point. If we look at the staff forecast, they have made the recession deeper but somewhat shorter. And the total recession isn't much greater [before] some upturn. Probably it will be both deep and long, the worst of all possible combinations. As a result, I think we should get back to our targets or we should be providing to the economy the sort of support that it needs at this particular point in time. So I would support alternative B, moving back by September, and a lower range on the funds rate. This does raise problems on the international side. If we move to where the interest rates are dropping to the 7-1/2 or 8 percent range, we may encounter some heavy drains [of funds to abroad] and heavy pressures on the dollar. I think we have to face up to the fact that if we move to accommodate our domestic policies, it will have some international implications. It seems to me that we should openly face the fact that we're probably going to have to intervene rather heavily to keep the dollar where we want it to be in terms of international exchange rates. So the directive today should not only focus on domestic monetary policy but on how we are going to cope with the pressures, as they develop, in the international market.",295
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"Mr. Chairman, I think it is important to understand fully the nature of the decision we made on October 6 and the potential or lack of potential for accomplishing what we said we were going to accomplish. As I understood the meaning of what we said in October, it was that we were going to set fairly long-range targets for the growth of money. By law we have to do that. We have announced those targets to Congress and we've announced them publicly as targets for a span of one year. [We said] that in any targeting of monetary growth there are inevitably going to be some overshoots and some shortfalls. That is a part of the process. And if our objective is to achieve longer-range targets, when we have a significant shortfall such as we have [now] we will take steps to compensate for that shortfall by expanding the rate of money growth in order to bring us back into the target range. I've always seen it as similar to the process of steering a large ship. If the ship swings off course, you attempt gradually to bring it back onto course. And in my opinion, these overshoots and shortfalls are not totally beyond our control. If they were, then we would be making better use of our time to be back in our various Districts trying to administer the various programs of a local nature. We do have the ability at least to influence the growth of money in a very significant manner. I think not only is the credibility of our October 6 program at stake, but the very credibility of the Open Market Committee is at stake in terms of whether or not we perform what we've said we were going to accomplish. I wish there were an alternative C that could get us back to the range even before September, but being a realist I guess alternative B is the best we can accomplish. But also being a realist, I would bet a Christmas turkey--although I'm not a betting man--that there's no way of accomplishing alternative B and getting us back within the range by September with the constraint of a 9 to 14 percent federal funds target. I see no reason why, after we've finally gotten into better habits than in the past by having a broader fed funds range, we're all of a sudden [talking about] narrowing it again. I think we should have a 5 to 15 percent fed funds range on alternative B, and I would certainly prefer alternative B to alternative A. Let me just close by making one further observation: As our Chairman has said repeatedly, as have others among us, accepting a reduction in interest rates in times like this should not be construed as an easing of monetary policy. As for concern about the adverse effect that a further reduction in interest rates would have on the international exchange markets, the day that any of us says that publicly, [people will say]: ""Look, the Fed is retreating to its old practice of concentrating on the stabilization of interest rates."" If that is said or if that is perceived, I think we'll have a catastrophe in terms of the value of the dollar on international exchange markets that will far overshadow the effects of seeing interest rates continue to drop gradually, if that is a necessary adjunct to achieving the objectives that were stated in October. I feel very strongly that it's a critical time [for us to persist] in what we're doing. I've felt a great deal of pride in taking to the hustings with the message that we are serious in what we're doing and we're going to stick with it. If we vacillate now, Mr. Chairman, I think the game will be over.",722
-fomc-corpus,1980,Mr. Schultz.,4
-fomc-corpus,1980,"I am amazed, and I must admit disturbed, at the fact that I haven't heard the word inflation mentioned around this table this morning. My word, it was only two months ago that we were wild about the subject and terribly concerned about it. I admit that we're in an unusual period. Things have moved exceptionally fast. But I don't think we can seriously say that we're out of the woods on inflation. And it seems to me that at least we ought to continue to think about it a little. We do have evidence that things are getting somewhat better and are likely to get better in the future, but that certainly is not in the bag. And the perception out there is absolutely crucial. There aren't very many people around the country who understand our change from a federal funds operating target to a reserves operating target. But a lot of people understand that what the Fed does is crucial in the fight against inflation. And there are people who still do worry about inflation. If we move too rapidly, that could have some very serious attitudinal effects [on the] psychology of inflationary expectations and could subvert [any progress we've made in that area]. The other side is that I think the economy is weakening very rapidly and will turn down very sharply, and I want interest rates to come down. But if they come down too fast, the result can be counterproductive. If we want mortgage rates to stop coming down [so rapidly] we have to let them back up a little. There is volatility. We gave up some things when we went to this reserves operating target and one of those things was some stability in interest rates. The volatility in interest rates does have an impact on people. They see interest rates jumping up and down and they say: ""What is happening in the country?"" Those interest rate risks get greater and lenders want to protect themselves against them so they don't bring interest rates down as rapidly. We need to think about the rapidity with which we're [lowering the funds rate]. I don't know if we [should] take these lower targets of alternative A; I do believe we need lower funds rates targets than we have in that alternative. But if we [implement them], are we really going to [reduce] the interest rates that have an impact on people any more rapidly than we would if we proceeded a little more slowly or had a little steadier approach? I think [a slower steadier approach] would avoid a lot of risks. So, I'd certainly like to argue for alternative A, but I do admit that the funds rate target would have to be widened some.",520
-fomc-corpus,1980,Mr. Forrestal.,5
-fomc-corpus,1980,"Well, Mr. Chairman, we share the [view that there are substantial] uncertainties in the present situation but I must confess that we don't share the pessimism about the economy that I've heard around the table this morning. We certainly would not want to minimize the extent of the downturn that has occurred. On the other hand, we don't view the recession as overly severe at the present time, nor do we think it's going to be as severe as it was in, say, 1973 and 1974. We have some things operating in our favor it seems to me. For example, inventories are in much better shape then they were. The construction sector of the economy is not as important as it once was. There are other sectors that provide a cushion for us. We have a fairly prevalent underground economy, which seems to be functioning pretty well. There are also some built-in structural [elements] in the economy in our favor: We have the food stamp program, the trade assistance program, supplemental benefits, unemployment compensation, and so on. Moreover, at the present time interest rates are coming down, particularly on mortgages, which I think is going to foster a rebound in that sector of the economy and also perhaps in the auto industry as we get lower rates there. So there are [developments] in the economy that are going to help us in the long run, and my concern is with the long run and not the short run. We have had a couple of months with very low monetary aggregate growth or a decline, but only a few months. And I don't think we ought to be bullied into acting too quickly because inflation certainly is still a problem. Now, if the credit restraint program comes off, that's going to [provide] greater impetus to consumer expectations. And inflation is still going to be with us. I think we're going to get a rebound in the monetary aggregates in June and July. So for those reasons I hope that the Committee will not overreact to the declines that have occurred and that we will take a more gradual approach to bringing the targets back to their paths. Also, I don't interpret alternative A as a departure from our October 6 strategy. I think it does reflect the desire to get back to our [monetary growth] paths but over a more gradual period of time. So I feel that alternative A is the better approach. Whether the 10 to 14 percent federal funds target is the way to achieve that, I don't know. I think a number a little lower than 10 percent might be in order. But we do have the option of looking at that between meetings, as we have done in the past, and that might be a desirable way to go.",545
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,"Well, Mr.Chairman, I favor alternative B for the reasons that have been given by a number of people. I'd like to assure Governor Schultz that I'm still very much worried about inflation and hope that we will bring it under control. But at this time I believe the risks of undershooting our targets are greater than the risks of overshooting. And I feel that if we adopt alternative A and find in September or October that we are far short of our targets, then we will be in a position--if we take our targets seriously and I certainly hope we do--of having to pump in reserves at a very rapid rate, thereby running the risk of giving the wrong impression again that we're panicking and that we are moving too rapidly toward monetary ease. For that reason, it makes much more sense to try to get back on target as early as possible. In this case, the earliest practical time is September and I would hope that we could do it [by then]. I'm also, at the same time, comfortable with the federal funds constraint of alternative B. I'm perfectly prepared to stay with a 9 percent lower limit for the time being. And if that constraint prevents our reaching our targets as we move toward September, then I would be prepared to lower that 9 percent at the right time.",262
-fomc-corpus,1980,Mr. Solomon.,4
-fomc-corpus,1980,"As a relative newcomer to this Open Market Committee, I've been struck by the very frequent reference to losing our credibility if we don't stick to the targets. It seems to me, first of all, that the target is a range and that it's perfectly appropriate to come in at any part of that range, if we can, rather than to zero in always on the midpoint. But the larger issue is that we seem to have a misunderstanding of what the Committee's October 6 decision was. I thought the Chairman said publicly that there would be somewhat more emphasis on targeting monetary aggregates and less on the.fed funds rate and that judgment would be used; there was not a mechanistic formula. If that is a correct understanding of what he said, and if he was reflecting the decision of the Committee at that time, then quite clearly some people in this Committee are not on line with the public articulation of [that decision].",183
-fomc-corpus,1980,"Just to be accurate the phrase used in the release was ""more emphasis,"" not ""somewhat more emphasis.""",22
-fomc-corpus,1980,"Okay, I stand corrected but I think my point is still a correct one. You did say that it was not a mechanistic formula and that judgment would be used. Now, in a world where there is so much uncertainty, I recognize that there is a good possibility that we will undershoot but there's also a good possibility that we will overshoot. I don't believe the Federal Reserve System is so different from any person or institution in the policymaking arena that they should ignore the importance [of the maxim] that in a world where there is great uncertainty the prudent thing to do is to move gradually. Larry Roos said that our commitment was to gradual changes in the money supply, although his recommendation was to use the faster path to get [back on track] by September. It seems to me that we need to consider the public's perception of us as central bankers, with a world of great uncertainty on both sides. We need to maintain a certain public perception and level of confidence in what we are doing rather than make what others see as very major changes. We may think that we are being consistent. But as Fred Schultz said, the outside world does not [understand] what we are doing in terms of this very sharp volatility. For us to move to supplying nonborrowed reserves--particularly since there's an assumption of virtually no borrowing if alternative B is accepted--at roughly a 9 percent rate is completely inconsistent with any responsibilities we have toward the long-run objective on the money supply, which is our principal objective as central bankers. And, hopefully, there is a connection in terms of the rate of inflation. My understanding was that the Committee had as its long-run target a desire to edge down the money aggregate targets as occasion permitted in order to achieve a long-run reduction in the rate of inflation. I am concerned about our terms of reference in our discussions here where everybody's position is completely predictable, including mine. And I frankly don't know how we break out of this situation. But if there's no room for judgment--if it's going to be get back on path even [if reserves have to] increase at a rate of 9 percent over the next few months, then it means with an assumption of no borrowing that the Manager will be committed to achieving the nonborrowed reserve target. And he probably will achieve that. That would not necessarily result in the aggregates behaving exactly in line, in proportion, but they will certainly go in that direction. The second point I want to make is: How can we expect to maintain interest rates at lower than everybody's expectations regarding the lowest likely pace of inflation? There is nobody who assumes that the rate of inflation is going to be below 10 percent even by the end of the year.",550
-fomc-corpus,1980,I think it will be.,6
-fomc-corpus,1980,"Well, then I take it back. There is one person. Even Bill Miller said that he would hope to get it down to 10 percent by the end of the year. And we're talking about maintaining short-term rates at lower than the rate of inflation. What is going to be the reaction of long rates, which have the biggest impact on the real economy, if there's no confidence in the Fed as the guardian of monetary prudence and a strong anti-inflationary effort? We're going to get a perverse reaction. When we raised short-term rates as part of the November 1st package, there was a greater confidence that the Fed was coming to grips with the problem of inflation, and long rates actually declined. If there is a widespread perception that we are running a short-term interest rate policy with rates significantly below the rate of inflation, I think we're going to have a perverse reaction in the long markets. And that will have a more damaging effect on the real economy. So, I would hope that the Committee would opt for a more gradual approach in this area of great uncertainty. Therefore, I would urge that we adopt alternative A or something lower than the midpoint area. And I would hope that we would not endorse a fed funds rate floor which is significantly below the rate of inflation, as some people here have suggested.",269
-fomc-corpus,1980,"Mr. Guffey, are you the last one here?",13
-fomc-corpus,1980,"Well, it's fortunate, I think, because Tony Solomon just synthesized my feelings both for moving somewhat gradually and for building stability. I would also point out only as an addendum to what he said that if we [adopt] alternative A and shorten the horizon to September, if the estimates are right, by the end of September we would be above the lower bands of M-1A and M-1B, and that to me is an acceptable performance. I also feel rather strongly--and the argument has already been made--about people's perceptions if the federal funds rate is allowed to go much below the perceived rate of inflation for the remainder of the year. But it points up again what I believe to be the operating reality: If we have no borrowings whatever, the bottom of the funds range that we set today will be a constraint if at any time within the next week or two the staff finds that the projections are not quite as strong as those put forth in the Bluebook. So, we'd really almost be choosing a lower federal funds constraint wherever we set that. I would opt to set it not much below the 10 percent level. Thus, I would like to adopt alternative A--and maybe it will [get us] back to path by September--recognizing that if the staff is right we'll be within the range established for the year as a whole.",276
-fomc-corpus,1980,"Mr. Gainor, do you have two words you want to say?",15
-fomc-corpus,1980,"Mount St. Helens has covered the Ninth District with [inorganic] ash but it hasn't wiped us out yet, Mr. Chairman. We favor adherence, as closely as possible, to the money supply targets set by this Committee previously. We think they were reasonable targets in the long-range [plan to reduce] inflation, and we'd like to see them followed. We would favor alternative A as a means of getting there and we would widen the range for the funds rate. We would favor dissolution of the credit restraint program as early as it can reasonably be done.",113
-fomc-corpus,1980,"Okay, let's drink coffee quickly. I won't deprive you completely!",14
-fomc-corpus,1980,"Well, let me see if I can sort this out a bit. We've done a lot of talking about the risks in the situation, and they undoubtedly exist. The obvious risk is the presence of recession, and when that [occurs] one always has the feeling of being in a bottomless period. Indeed, there is a certain degree of risk that we are in a more bottomless period than we would expect or like to be in. We have the risks of the exchange market situation. I will only mention that; those risks are fairly obvious. I don't think we can deal with them. I don't have any confidence that we can deal with them through intervention anyway. I have nothing against intervention [in principle], but I have no confidence that we can sit here and escape responsibility or concern by saying that we can intervene because intervention is not going to take care of the situation fully if it really develops in an adverse way. I repeat: That is not a prejudice against intervention, particularly at the right point, which is probably about now--before [the situation] deteriorates, or earlier rather than later in an effort to maintain a feeling of stability [in the foreign exchange markets]. And we have the risk of inflation that Fred Schultz talked of eloquently. That's not a risk; it's here. It affects psychology. I think [the psychology] has improved somewhat, and it will affect how well we're going to do in coming out of this recession. I think we ought to recognize that we're in a situation that has impossible aspects to it. There is nothing we can do here by fiddling around with either interest rates or the money supply, for instance, to reduce consumer indebtedness, which is very high. And that is undoubtedly affecting consumer behavior at the moment, apart from all the [credit control] programs that we have. And there is nothing we can do about the fact that the saving rate is very low and that there may be efforts to move it higher, and that's related to the indebtedness situation. I'm not even sure in some longer-range perspective that there's anything we should do about it because we've been complaining about the saving rate being too low. The car industry has problems of its own. They couldn't sell rear-wheel drive cars even when credit was available and people wanted to buy cars. All I'm saying is that we're not going to solve the world's problems by what we do here. It doesn't mean our judgments are not important, but we're living in a difficult period with problems on all sides of us. We have to evaluate how those various risks impinge upon each other. When I look at all these risks, what impresses me is that the greatest risk in the world is not whether we miss our targets or not. I don't want to miss our targets, but we have to put that in perspective of what is going on in the rest of the world. I don't think we can avoid some judgment about what we should do to minimize those risks. We can't escape them. But I don't consider it a full answer to say we set down a target some time ago and we've got to hit the midpoint of that target, as much as I would like to do that in general. There has been a certain amount of discussion of the credit restraint program. I think that program probably is having some effect; it's very hard to [quantify]. I want to get out of it myself. I've spoken to that point publicly. It's a question of how to do it both substantively and, in terms of our general posture, gracefully. I would expect some movement on that very shortly. I would make one other general point: I get comments sometimes from outsiders and from insiders that if we take some action--let's say we remove all of the credit restraint program tomorrow and we drive the interest rate down to 5 percent--and if we explain to the market that that's really a tight money policy, then all the psychological implications will be gone. I want to tell you that it just isn't possible. I'm not going to cure in a speech what we do in substance. There are concerns about the direction of policy and there's a lot of confusion. I'm not saying speeches aren't important or statements aren't important. But people who want to believe black aren't going to believe white when we make a speech. A sense that we're giving up will contribute to higher interest rates rather than lower interest rates in the long-term area. And what happens to the monetary aggregates may have something to do with that, too. I'll just give you a case in point. I did make a speech last week in which I said the money supply, I hoped, would go up. I had expected it to go up; I had in mind that we probably would be pushing it up if nothing else happened. And interest rates promptly went up.",965
-fomc-corpus,1980,So did the money supply.,6
-fomc-corpus,1980,"Well, I knew the money supply was going to go up for a week when I made the speech. But I thought the reaction we were going to get from that increase in the money supply was going to be an increase in interest rates in the short run. That's partly why I said it. [I figured] we might as well get it in reaction to the speech instead of in reaction to the number. All I'm saying is that the market is going to react in its own way to some extent regardless of what we say, however important what we say is. Just don't be under any illusions that we can reverse attitudes by making a statement. When we look at the more specific decisions we have to make, I would just make a couple of comments that I think perhaps were not adequately reflected in the earlier comments. Presumably these ranges that are set down and their accompanying federal funds rate ranges reflect our best professional judgment--I'm speaking in a corporate ""we"" now--as to what a consistent relationship is. I have expressed before my underlying skepticism about the accuracy of these kinds of projections. I have not lost my skepticism. All I say is that we don't have much to go on in this area and this presumably is the best judgment that Mr. Axilrod and his cohorts have made about what level of the federal funds rate is consistent with the targets that he's presented. Secondly,--",277
-fomc-corpus,1980,Following up on April!,5
-fomc-corpus,1980,"Having made the best judgment, that's exactly right. I yield to nobody in my skepticism about these things. I am equally skeptical of anyone else's projections--maybe even more so, if that's possible. The point has been made by several people that the ranges are in fact ranges. Nobody has ever committed, at the extreme, to meeting the midpoint of a range. The thing that preoccupies me a little here--and I recognize that this is also the staff's best professional judgment--is that the M2 and M3 figures are not as bad, in the sense of a decline, as are the M1 figures. We've been putting an awful lot of weight on M1 because we get it weekly and it's a more immediate operating variable. But we used to do an awful lot of talking about how important M2 and M3 were; and a lot of people thought they were more significant [than Ml]. I suspect, if we are relaying suspicions, that if have growth in M1 of the magnitude indicated in the Bluebook for either of the [alternatives], that growth of M2 is going to be higher than growth of Ml. But they're [projected to be] practically the same. I suspect, particularly if it does turn out that interest rates are lower, that there could be quite an inflow into savings forms that would produce a somewhat higher figure for M2 than for Ml. And we don't have to do all that much better on M2 and M3 to be within our ranges. In fact, M3 is projected to be within its range in May.",321
-fomc-corpus,1980,"I should add, Mr. Chairman, that our long-run forecast, of course, is for interest rates not to be lower but actually to edge up.",31
-fomc-corpus,1980,"Yes. So, these may well be consistent under that kind of projection of interest rates. But if interest rates in fact turned out to be lower, which is the gut instinct of a number of people around the table and a gut instinct that I can understand, I think we're going to find that M2 and M3 are running better than shown in the projection. We could clearly end up in a situation where M2 and M3 are pretty much, let's say, around the midpoints of their ranges and M1 is running quite soft. I don't know how one reconciles that even if our targeting allows for [differing] weights and all we look at is the targets. We have to balance the desirability of meeting these targets against some sense of what the attitudes are toward what we're doing in the short run and over time. That has been amply discussed by various people already, and we have come out with somewhat conflicting views about what that means for policy. I'm told that you have a revised first-quarter GNP figure, Mr. Kichline, which you might as well throw into the conversation.",225
-fomc-corpus,1980,"The revisions came out this morning. The Commerce Department had previously indicated that real GNP rose 1.1 percent in the first quarter; they now indicate the rise was 0.6 percent. Final purchases are roughly the same at a 1-1/2 percent rate of increase. And now there is indicated to have been a small liquidation of inventories in contrast to a small accumulation. I would only note that the composition has changed a fair amount, but in general final purchases are where we thought and inventories are a bit lower.",108
-fomc-corpus,1980,"I'm not sure that that really changes anything. Maybe it's good that inventories are a little lower. I do think, in making a specific decision, that we have a technical problem in the sense that we are in unknown territory when we are dealing with the possibility at least that we're not going to have any borrowings, which is about where we are at the moment. In one sense, I suppose that could be an advantage. If we don't have any borrowing, we know that the nonborrowed reserves are going to be the reserves. And if we put out the reserves, presumably the money supply should follow--overlooking a few multiplier difficulties and all the rest--in time. But it also creates the problem that we may have a vacuum in the market for the federal funds rate between wherever we are and zero. And the question arises as to whether we really want a vacuum between 10 percent and zero. Nobody [has proposed] going quite that far. Well, Mr. Roos came pretty close; we could at least split the difference.",210
-fomc-corpus,1980,I didn't specify [a fed funds range].,9
-fomc-corpus,1980,More than one may not have specified.,8
-fomc-corpus,1980,"I think zero is a bit of a possibility, unless we constrain the funds rate.",17
-fomc-corpus,1980,"The point of this is that there is a good chance that at least in some weeks--for more than an isolated week as some of you [have suggested]--the lower end of the federal funds range will become a constraining influence on the speed with which nonborrowed reserves are provided. That depends in part, of course, on precisely where the path is set in the short run, and these tables on page 7 aren't very enlightening in that respect because the--",95
-fomc-corpus,1980,"I suppose also we could cut the discount rate, Mr. Chairman.",14
-fomc-corpus,1980,"You know, I'm not even sure how relevant that becomes in these circumstances. We just don't know. I don't know whether or not $1 billion of excess reserves and a 13 percent discount rate will give us a federal funds rate of 7 percent instead of zero. We really are in an area of unknown relationships at the moment. I would judge that nobody is going to be very concerned if M1 or any of the Ms increased quite rapidly in the short run. I'm thinking of the situation where we have a higher increase in the money supply than currently projected over the next few weeks and it might be incorporated in a path that ran through September or December, whatever point we picked. If we began in the short run to run above that path and we mechanically applied [our procedures], we would drive the federal funds rate up in the short run. As I interpret the discussion, [we would not want our decision] to lead to that kind of conclusion. That is, if we can pick up some money supply in the short run without raising interest rates, nobody is going to be very sad about that. I'm not sure that's going to happen, but if it does, I don't think people want [to see rates rising]. I don't know what that says about the top end of the funds range. But in that event I don't think people are contemplating that the federal funds rate would go up to 14 percent, the top of the range as set forth here, even though a very literal path approach might produce that result. Maybe I just ought to pause and see whether that's a common agreement.",320
-fomc-corpus,1980,"The question is: What do we do with that $850 million shortfall in reserves? That's money in the bank, I might say. Do we first permit an $850 million increase?",38
-fomc-corpus,1980,"Well, that's one way of putting it. In a sense, that would make up [for] April and nobody would be much disturbed about it. Putting it extremely, I would begin to get disturbed by an 18 percent increase in the money supply in one month.",54
-fomc-corpus,1980,And the associated move in the funds rate. If we put in the $850 million regardless--,19
-fomc-corpus,1980,"No, I'm not saying put it in regardless. I'm just saying if it happens to arise now. I don't think that's going to happen and perhaps we don't have to look at that extreme. But in essence what I'm saying is that we would permit some of that $850 million to be made up without any concern.",63
-fomc-corpus,1980,"I would interpret that operationally, Mr. Chairman, as meaning that if it so happens that required reserves in the first two or three weeks of this forthcoming period come in significantly higher than these paths call for, that we should adjust the nonborrowed path up, given that [earlier] shortfall, in order to avert a rise in the funds rate immediately.",74
-fomc-corpus,1980,A rise in the funds rate of real significance anyway. I'm talking about it going up to 13 or 14 percent or probably even 12 percent. That's a--,34
-fomc-corpus,1980,"Mr. Chairman, are we as a Committee accepting the conclusion that we really see great dangers in freely rising and freely falling interest rates? When interest rates went way up, did that cause disorderly markets?",41
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Did it really? Didn't the markets adjust to it? I hate to see the stock market go down or up. But why is that different than the interest rate markets?,34
-fomc-corpus,1980,"Well, I'm not sure I have to argue that point at great length. What I'm saying, approaching it from a different direction, is that we don't have to resist some recovery from the shortfall in the aggregates that we've already had.",47
-fomc-corpus,1980,"With all the concerns I have, I wouldn't want to see interest rates jump up now. I think people, at least people abroad, would think that we've really gone haywire.",36
-fomc-corpus,1980,"We'd have a different situation if we were within the target range or high in the range and the funds rate jumped up. That's not the situation I'm talking about. Then we might well say okay, interest rates have to rise. But we've had a big shortfall.",54
-fomc-corpus,1980,"Do you feel in your contact with the public, Paul, that nobody out there knows that we are no longer trying to control or stabilize interest rates? Hasn't that message reached anyone overseas or here or anywhere?",42
-fomc-corpus,1980,"I think it has reached quite a few people. But we have a skeptical audience out there. Some people would say, if they saw the money supply going up and interest rates went up: ""Oh, your policy has gotten easier."" They will pick whatever variable they want to pick at the moment to attack us if they're skeptical to start with. I don't think we can completely win in this game. I suppose nobody attaches a very high probability to the contingency I just described, but we constantly are surprised. And I think Steve's conclusion from my general comment is probably what we would do mechanically. We would just in effect start from a higher base, feeding out reserves within some limit--in a sense within the $850 million that we're behind--should that happen. Before we get to the precise numbers, this does imply that if we operate on a path--let's say ""A"" or ""B"" at this point--and we don't have any borrowings, our [instinct] is that if the actual Ms come in below whatever path is set, we may have some excess reserves and may be pushing down the funds rate. The question then becomes: How far do we want the funds rate pushed down? The differences between ""A"" and ""B"" are not all that great in terms of the short-term fluctuations we [typically] have, or could easily be exceeded by random fluctuations. The funds rate constraint may become much more important than which precise path is chosen in the short run. But we are biasing the chances of meeting the bottom end of the funds range. I myself would not want to bias it strongly toward constantly running into excess reserves of big amounts if we can avoid it at this point, so that we're constantly operating on a funds rate constraint. Given that we're not forsworn to meet the midpoint of a range--and certainly given a feeling that if the funds rate goes down, M2 and M3 probably will be stronger than projected and they are not all that far below the ranges now--I would not set the short-run M1 and M-1B targets as high as in ""B.""",429
-fomc-corpus,1980,"For the two months, for May-June?",10
-fomc-corpus,1980,"I'm just talking about May-June at this point. As everybody has indicated, the critical point is going to be that funds rate constraint. We have the opportunity for consulting on that as time passes but I want to get some general sense of what seems appropriate at the moment. We've been operating at 10-1/2 percent; that's being threatened now. Given a balance of all the risks and forces, I think we're talking clearly about something below the present constraint. I feel that 10 percent is rather close to the present constraint and that we can live with a constraint lower than that. Whether we want to go all the way to 9 percent is a question of how much we want to consult. I would be concerned at the moment about going below 9 percent. I'd feel a little more comfortable, at least for an interim period, if we could adopt a technique [similar to what] we used at the last meeting by putting in 9 percent or something like that with some understanding that if it went below the 9-1/2 to 10 percent area, let's say, we could have a telephone check to discuss whether, or at least how promptly, we wanted to go to 9 percent. Nine percent doesn't bother me particularly, and we have six weeks until the next meeting. That's a long period of time, and maybe we will want the funds rate to go below 9 percent before that next meeting. But as a judgment sitting here at the moment, recognizing that we're at 10-1/2 percent, I think 9 percent would be a pretty big move in the market's perception. It may not be too big in terms of the objectives for the aggregates that we want to reach over a period of time. That may be a reasonable answer: Putting in 9 percent now, recognizing that it can always be changed with some check in the form of a consultation when it's [somewhat] above 9 percent. Every time we've had these consultations we have withdrawn the funds rate constraint. I would think that is likely at these levels in the future, too, but it may be useful just to have the opportunity to check. We really haven't had any [occasion] since last October where we have let the federal funds constraint persist for any period of time. But that does not mean that there isn't a certain amount of comfort, I suspect to all of us, in taking a look at it when it passes some point that is considered significant to some of us or to all of us.",508
-fomc-corpus,1980,I interpret what you're recommending to mean that we will take a look at it when it reaches 9-1/2 percent before a decision would be made to move down to 9 percent. Is that what you said?,45
-fomc-corpus,1980,"Yes. That is what I'm suggesting on the funds rate. On the aggregates target, you now have a projection for May and June of what specifically, Steve?",32
-fomc-corpus,1980,Of essentially 4 percent for May and 10 percent for June--an average of 7 percent.,21
-fomc-corpus,1980,"That comes close, in one sense, to alternative A. That could be biased up a bit, but that's the actual projection now. It may be consistent to bias that up a little in terms of the federal funds constraint that we're talking about--to have a higher federal funds constraint for a slightly higher target through December.",64
-fomc-corpus,1980,"Mr. Chairman? Could I raise a question about the target range and the target itself? It's my understanding that while we set these targets in terms of ranges, we set our objective toward the midpoint of the range, the implication being that if it got above the midpoint we'd be a little nervous and if it got below the midpoint we'd be nervous. I sense now some fudging of this objective of trying to hit the midpoint of the range. I hear people say it's not the midpoint that's so important as long as we're within the range. That's not my understanding [of what we decided earlier].",118
-fomc-corpus,1980,"Well, I can only answer for myself. Everybody probably has his own opinion; that's how we get agreement on ranges. That midpoint is the central tendency of what we're looking for when we set the range. That doesn't say, now that it's five months later--and, of course, we'll look at these ranges again in July--how individual members of the Committee may feel in the light of what has happened in those five months. They could feel more comfortable being in the upper half or the lower half or whatever. There is no feeling, certainly in my mind, that there is something magic about keeping a precise midpoint as an absolute target throughout the year. Otherwise, we might as well just set a point target and not even look at it in the middle of the year.",155
-fomc-corpus,1980,I'd say it's a matter of the point at which one begins to get nervous.,16
-fomc-corpus,1980,"I would say that, certainly, the month after we set the target almost any deviation would make one ""a little nervous,"" in your terms. But I don't think that's inconsistent with someone saying six months or eight months later that in the light of everything that has happened over those months, he might be nervous about hitting the midpoint. He might prefer to be above it or he might prefer to be below it. I don't remember the exact circumstances but I do remember that in October we said we wanted to come within the range. At that point we had in mind the upper end of the range, but nine months had passed [since we set the target for 1979]. And I don't think anybody, if they felt nervous at all, felt that being in the upper part of the range was too high, even though it was the upper part and not the midpoint of the range that had been set nine months earlier. I think that's natural.",189
-fomc-corpus,1980,I was thinking about what we decided within the last two or three months.,15
-fomc-corpus,1980,"I think it's true that in the last two or three months we've consistently thought the midpoint of the range remained about appropriate. There is a question now, after the big shortfall in April--a much bigger shortfall in M1 than M2 or M3. I don't view it as a betrayal for somebody to say that under all the circumstances he'd now feel more comfortable with growth in the lower part of the range. Indeed, next month we get an opportunity to change the range entirely.",98
-fomc-corpus,1980,"This is the practice of most other central banks. They typically, though not always, state ranges; sometimes they aim at the upper end and sometimes they aim at the lower end. The Swiss do it differently, but the British, the Canadians, and [unintelligible] use a range.",60
-fomc-corpus,1980,"It's done partly so there is a chance of being within the range. If we have a point target, we're going to miss it.",27
-fomc-corpus,1980,I understand that.,4
-fomc-corpus,1980,But it's also true that we can say that it depends on circumstances where within the range we want to fall.,22
-fomc-corpus,1980,It's a question.,4
-fomc-corpus,1980,"I'm saying that it's more than giving ourselves a safety margin. We may change our emphasis as the year passes. Let me try to be more specific, just for operating purposes. I'm proposing setting a short-term range that is probably more consistent with ""A"" than with ""B"" for the next six weeks, but with a caveat which is more consistent with ""B"" than with ""A."" That is, if things developed in a way that Ml began exceeding that short-term range, we would not resist it. We'd even go beyond the implied ""B"" in the short run without forcing a significant level of borrowing under those circumstances. It's an upwardly biased ""A,"" so to speak.",140
-fomc-corpus,1980,Is that what you call being specific?,8
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"Mr. Chairman, doesn't the Desk have to know what we're shooting for in order to [operate]? Do they just sit there and see what happens out in the wild blue yonder and then try to do something cosmetically to make it appear we've achieved that? Don't we have to give the Desk certain specific instructions?",63
-fomc-corpus,1980,Mr. Axilrod will now interpret the instructions.,11
-fomc-corpus,1980,"Well, if I understood the Chairman correctly--and taking a number for purposes of an example--if the Committee said to focus on May-June at something like a 7 percent growth for M-1A but tolerate higher growth in view of the [April] shortfall, we would set a total reserve path consistent with that 7 percent and a nonborrowed path roughly equal to the total reserve path because borrowings are at minimal levels. If in the very short run deposits turned out to be stronger, we would raise the path because the Committee said it is willing to tolerate stronger deposit growth. We wouldn't try to keep to this original path set on 7 percent if higher growth, within the Committee's own tolerance ranges, suddenly began to develop. So, we would raise the reserve path in order to [accommodate] that. On the other hand, if the aggregates turned out to be significantly weaker, we would not lower the reserve path. We'd still shoot at the nonborrowed and total reserve paths but that might then call the bottom of the funds rate range into question fairly promptly, which would require Committee [consultation].",230
-fomc-corpus,1980,"We may have constraints that are inconsistent when we complete the story, and Mr. Axilrod has just completed it in effect. We're saying: Provide enough reserves, which we can do reasonably accurately now because we don't have any borrowings, to meet the base objective; we will tolerate an overshoot of that. When we get to the undershoot question, we're going to be constrained, potentially. If the actual level falls below that path, the question is whether we're going to be constrained by the [lower limit of the] federal funds range. On that I'm suggesting 9 percent with a check at 9-1/2 percent. And it may well be that either an overshoot or an undershoot is going to run into a constraint that the Committee will want to resolve. We do not have a set of specifications that permits the Manager to operate freely between the meetings without potentially running into an inconsistency. I expect we will be better equipped to resolve an inconsistency later rather than now, should one arise. And one could quite well arise.",212
-fomc-corpus,1980,I think we're going to hit the funds rate constraint this week.,13
-fomc-corpus,1980,Do you mean by this statement week?,8
-fomc-corpus,1980,"Yes, this coming week.",6
-fomc-corpus,1980,"Well, in the coming week we might.",9
-fomc-corpus,1980,"We'll be right down on 9 percent and we'll be below the target growth and will immediately face the problem. We just don't have any room, given the weakness in the economy.",36
-fomc-corpus,1980,"Well, you're making a guess about what is going to happen. That's not Mr. Axilrod's conclusion but you may be right. I won't say you're not right; it could well happen that way. If it does happen that first week, we have the constraint and presumably at the end of the week we will have to face it. If we operated a full week under the constraint, then we'd have to consider whether we wanted to operate another week under the constraint.",95
-fomc-corpus,1980,"Wouldn't it be wiser to make the funds rate range wider, but with the idea that if it hit certain points we would consult before it goes down? Make it 8 to 14 percent so we'd have a full range of 6 percentage points. The presumption is that it's going to go lower, not higher.",65
-fomc-corpus,1980,"Well, again, that's your presumption. And it is the presumption of a lot of people around the table. It doesn't happen to be the presumption of the people who [constructed] the table [in the Bluebook]. I tend to agree that it might happen at least in a number of weeks, but I--",66
-fomc-corpus,1980,"Paul, it seems to me that the whole idea of moving toward aggregates was to create a situation where we wouldn't have to depend on presumptions. I'm not saying that Steve is wrong but the whole idea of having a wider range is to make it possible to flex as developments occur, without depending on a staff forecast.",63
-fomc-corpus,1980,"Yes, but we've just--",6
-fomc-corpus,1980,I guess what you're saying is that you don't want to flex below 9 percent.,17
-fomc-corpus,1980,"That, I think, is the substantive issue.",10
-fomc-corpus,1980,And I'm saying I do; so we're in fundamental disagreement.,12
-fomc-corpus,1980,"But you also don't want to flex above 12 percent do you, Paul?",16
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,So why have a band higher than 12 percent if we wouldn't tend to implement it?,18
-fomc-corpus,1980,"It's a visual matter of which we want to put in. It's implicit in what I said earlier: Unless we have really explosive growth in the money supply, we're not going to resist it.",38
-fomc-corpus,1980,"We have very little basis for knowing where the lower level ought to be, or the upper level really. The problem is likely to be on the lower end, but it could be on the upper end.",41
-fomc-corpus,1980,"It's going to be a while before it's the upper end if we adopt the bias that I suggested. It has to be several weeks anyway, I suspect. It would take a couple of weeks of $5 billion increases.",44
-fomc-corpus,1980,"That's probably right. I'd hate to see us narrow that, though, while we had an 8-1/2 percent--",26
-fomc-corpus,1980,"The substantive issue is how low one is prepared to see the funds rate go, or how high--though [not] many people think the latter is a real problem--in the particular circumstances.",39
-fomc-corpus,1980,The advantage of your [proposed] checkpoint is that we will have a chance to observe how the foreign exchange markets are responding and how the data are coming in. And we do have a long period between meetings.,43
-fomc-corpus,1980,"Mr. Chairman, in that one week that might elapse prior to our consulting, couldn't a lot of potentially damaging work be done by the Desk? In other words, if they're bumping against the bottom end [of the funds range], couldn't they be pulling out reserves and couldn't that exacerbate the recession and make us look bad?",67
-fomc-corpus,1980,It depends upon your view--whether you think we're going to look bad if the federal funds rate drops to 6 percent one week and goes up to 9 percent the next.,36
-fomc-corpus,1980,"Well, we have had a run of minus numbers on the aggregates. I'm inclined to agree with Larry. Adding another week to the extreme rate of decline will make us look much more like the Open Market Committee of 1930.",46
-fomc-corpus,1980,"I think Tony Solomon's point about not getting the interest rate below the rate of inflation is relevant, even though we are talking about the funds rate. Also, even though I realize all of us don't have a vote on this [Committee], I think you should be aware that the International Monetary Fund in its consultations with the U.S. [representatives] criticized us for the rapid declines in interest rates and also for going to rates that, as they said, are in all probability no longer positive in real terms. They said that would seem inappropriate. So that is a judgment of technically oriented people who believe that we should not go--",127
-fomc-corpus,1980,"Come on, you mean [unintelligible] said it.",14
-fomc-corpus,1980,"We are members of this institution, and they apply the same rules to everybody.",16
-fomc-corpus,1980,I understand they also told us that we should certainly achieve our aggregates objectives. They're just like the Joint Economic Committee.,23
-fomc-corpus,1980,"We can't ignore completely what others say of us because there are two sides to every exchange rate--our side and the others. This was a judgment that these people made, just as it could be the judgment of other people abroad, [because there are] consequences for the dollar and consequences for inflation.",60
-fomc-corpus,1980,"Amazingly enough, I find myself somewhere in between Governor Partee and Governor Wallich.",19
-fomc-corpus,1980,You could still be wrong!,6
-fomc-corpus,1980,"I really am in the morass. They're on the mountain tops and I'm down in the swamp. What is the big difference among us if we're going to consult at 9-1/2 or 9 percent? I don't understand what the big deal is on whether we set the lower constraint at 9-1/2 or 9 or 8 percent. If we're going to consult each time, why can't we change it to 9 or 8-1/2 percent?",99
-fomc-corpus,1980,There's a six-week [intermeeting] period. And it seems to me of great value to keep that range fairly wide because then the unanticipated things will be automatically caught by the market.,38
-fomc-corpus,1980,"If you use that argument, you're not accepting the consultation part. If you accept the consultation part, I don't know why it makes such a difference.",30
-fomc-corpus,1980,"I think I'm talking with historical accuracy when I say that since October it has not made any difference what the federal funds range was, in fact, except that it triggered consultation. Consultation has been triggered either by informal understanding or by the actual range put in the directive.",53
-fomc-corpus,1980,May we ask Mr. [Sternlight] whether that's true? I'm not questioning what--,19
-fomc-corpus,1980,"I'm not saying that it couldn't [make a difference] in the future, but historically it has not.",21
-fomc-corpus,1980,"It seems to me that when we had a 20 percent top, we were a little eager at times to put some reserves in when we were getting very close to that top.",36
-fomc-corpus,1980,"I think at the 20 percent top it had some influence. No consultation was called at one point. [The directive] called for putting the funds rate up to 20 percent and we just left it there. That's the clearest case, at the top, when [a consultation] was not called.",62
-fomc-corpus,1980,"Well, [we stopped] at 10-1/2 percent. Over the last two weeks we were way short on reserves and we stopped [supplying additional reserves] on account of the 10-1/2 percent.",47
-fomc-corpus,1980,"We were [not] short of the path at that time, I don't think.",17
-fomc-corpus,1980,"Well, clearly, we would have had to call a consultation on Thursday or Friday if a meeting weren't scheduled for today. We had a consultation the week before and that range then became a limiting factor.",40
-fomc-corpus,1980,"I don't mean to suggest that these ranges never were a limiting factor for a few days. I'm saying that as soon as they became a limiting factor for a few days we had a consultation and we changed [the range], with the possible exception of that 20 percent situation. We would have had a consultation if the 20 percent rate had lasted for another few days, I think, but the rate turned [down] before--",86
-fomc-corpus,1980,"Yes, but at 13 percent we raised it last time [from] 11 to 13 percent and went a couple of days with the 13 percent.",33
-fomc-corpus,1980,"As I say, we've gone a couple of days--three or four days at times or maybe a whole week--where the range has had some influence. Eventually we've had a consultation and the range has been changed. I don't mean to suggest it hasn't had some influence in the short run. All I'm saying is that when it has had a constraining influence long enough to [trigger] a consultation, we have changed it. It may well have an influence this time, but what we're talking about is an influence for a week and then having a consultation.",111
-fomc-corpus,1980,"Mr. Chairman, I don't know if this would be helpful to Governor Teeters, but perhaps she's worrying that if the bottom of the range were stipulated at 9 percent rather than 8 percent it might be an inhibiting factor in the speed with which we approach the bottom of the range. I don't think it would affect operations. That is, we wouldn't try to hold the rate at 9-1/2 percent because the bottom of the range was 9 as compared with 8 percent. We'd go ahead and provide reserves until we hit the bottom and we'd have a consultation. It wouldn't inhibit the process of getting there.",127
-fomc-corpus,1980,"I don't mean to suggest at all that these limits, if we ran into them, would not be effective for some days until we consult. I'm just saying that every time we've had a consultation we have in fact changed the range. The history is one of not sticking to these ranges between meetings.",59
-fomc-corpus,1980,"Well, I'm reacting to Frank's point that if we vote [for a lower limit] too close to the 10-1/2 percent, we would be going back too rigidly to setting interest rate targets. I think market conditions are such that the market is more or less going to override us at some point, so we might as well have the leeway to ride with the market even if we consult on every half point as the rate goes down on whether we want it to move down that next half point. I just think we would look better with a wider range.",117
-fomc-corpus,1980,"The range is being narrowed from [6 points] to either 5 or 4 points, which is a whale of narrowing.",26
-fomc-corpus,1980,You're talking pure cosmetics--what appears in the record of this meeting. We're not talking about pure cosmetics when we're talking about what the bottom of the range should be because that may become the effective rate and we're going to have a consultation to see whether we want to change it.,55
-fomc-corpus,1980,"Well, I'd rather have the cosmetics look right and have a wider range and have an understanding that there is a touch point that we wouldn't go through without a consultation, if Murray will let us do that short of recording it in the Policy Record.",49
-fomc-corpus,1980,Somebody tells me this is being tape recorded.,10
-fomc-corpus,1980,"We have in the past had some reference [in the Policy Record] to the notion of a consultation but I think if [the understanding] were so specific as to be a checkpoint, it probably ought to be in the Policy Record.",47
-fomc-corpus,1980,We actually did specifically have that? Was it for the last meeting or the previous meeting?,18
-fomc-corpus,1980,We didn't have a figure in the last--,9
-fomc-corpus,1980,"I don't remember [if it was] this last meeting or the meeting before, but we were rather specific about it.",24
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,We did it differently.,5
-fomc-corpus,1980,Let me retract the word checkpoint. Can we say there's a zone through which we would not wish to pass without considering together the implications of such a passage?,31
-fomc-corpus,1980,Would you refer to this as the twilight zone?,10
-fomc-corpus,1980,"I think if the Committee indicates as it passes through that zone that it doesn't see a need to change the fundamental range, Mr. Altmann might not view it as a vote that needs to be reported.",41
-fomc-corpus,1980,"That has been the practice. I think if it gets to be regular, it probably should be a vote.",22
-fomc-corpus,1980,"I guess that is the difference. When we did it the other time, we did not vote. We had a consultation without a vote, right?",30
-fomc-corpus,1980,"It was April 29th, wasn't it?",10
-fomc-corpus,1980,"Yes, [when the funds rate was] at 16 percent the Committee met and, though it met, it decided [to retain the range in] the directive.",34
-fomc-corpus,1980,"That's right, we didn't have a vote. I think that is the difference.",16
-fomc-corpus,1980,"And there was no vote on the 16 percent, as a matter of fact. It was just an understanding that at 15 or 16 percent, whatever it was--",35
-fomc-corpus,1980,16.,2
-fomc-corpus,1980,The point at which the consultation--,7
-fomc-corpus,1980,"Why don't you let individual members of the Committee call you when they think that Chuck's zone is being approached? And when more than half have called, you can call a consultation.",36
-fomc-corpus,1980,"What if he can't be reached, Henry?",9
-fomc-corpus,1980,The rules of procedure provide that three members can request that a meeting be called.,16
-fomc-corpus,1980,Three members?,3
-fomc-corpus,1980,He'll spend all his time on the phone!,10
-fomc-corpus,1980,"Mr. Chairman, if I understand the way we have operated in the past, if we have a consultation and the rate is within the range established by the Committee, then no vote is taken at that consultation. Isn't that correct, Murray?",48
-fomc-corpus,1980,I think that's what it amounts to.,8
-fomc-corpus,1980,There doesn't need to be a vote.,8
-fomc-corpus,1980,"Well, I don't believe there ever has been one. There has only been a vote when we've lowered or raised the range from what the Committee set at the meeting. Therefore, I would be opposed to setting a range now with a lower limit below 9 percent. And I would also like the caveat the Chairman has put forth that there be consultation at 9-1/2 percent. At this point I feel fairly strongly that a federal funds rate below 9 percent would not be acceptable.",100
-fomc-corpus,1980,"Mr. Chairman, I think it's more than the process. There is a very fundamental issue at this stage. The way this meeting is going and the way opinion is apparently evolving, we are getting right back to setting interest rate ranges and the stabilization of interest rates, and I could not go along with that. I think we're turning the corner, all for the worse, to right back where we were.",81
-fomc-corpus,1980,"There is no compromise, either.",7
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,"We will unquestionably have a difference of opinion at that end of the table, anyway. But I think we've got to resolve it.",26
-fomc-corpus,1980,"Mr. Chairman, there's another question we need to deal with, and that is whether we mention specific short-run numerical targets in the directive. If we narrow the ranges and don't mention any targets, it's going to be viewed as more than cosmetic when people find that out. I think they will conclude essentially what Larry has stated. I would urge us to put down whatever we agree to in the way of numerical targets rather than leave that blank and specify merely the federal funds range.",95
-fomc-corpus,1980,"We have been doing that, haven't we?",9
-fomc-corpus,1980,Yes we have.,4
-fomc-corpus,1980,[I thought] 7 percent growth in M-1A was the target.,16
-fomc-corpus,1980,"Well, we have a [draft] directive that is written in more general language. I'm not sure I'm completely happy with it but I can't think of an alternative. Mr. Axilrod could not think of an alternative. If someone has a bright idea, we can--",55
-fomc-corpus,1980,"The alternative was to put down 7 percent, say, if that's what you voted for. It would be stated in the Policy Record very clearly that 7 percent was the target but that you would permit some overshoot. Our thought behind not putting specifically in the directive a number for growth over a two- or three-month period was that it would be better understood in the Policy Record where it would be surrounded by the analysis of the shortfall and all that. So we tried to phrase the directive to reflect what we thought the Committee might be trying to do in general, which was to [foster an increase] back into its range, and leave the specificity to the Policy Record. We could put the specifics back in there, and they'd appear at the same time [as the directive was released as part of the Policy Record.].",168
-fomc-corpus,1980,"The presumption was that the specifics that Steve had in mind would be in the Policy Record. The alternative was putting in at least 7 to 7-1/2 percent [in the directive] and some language saying that we'd tolerate some growth above that. Now, we're talking about the period before the next meeting only.",66
-fomc-corpus,1980,"Yes, that's the other thing that bothered me a little because [that would cover] only two months and that seemed like a very short period to focus on particular aggregates. It gives a sense of short-run control over the aggregates.",46
-fomc-corpus,1980,"I suppose we could say just what you have here: ""In the short run, the Committee seeks expansion of reserve aggregates consistent with growth of M-1A...."" Maybe we should leave out the ""over a period of months."" And then we can say that in the period before the next meeting, or over the two months, the aim will be to achieve growth of at least 7 to 7-1/2 percent with some tolerance for growth above that.",95
-fomc-corpus,1980,I think it's a bad precedent to start being that specific in the public record. I'm not arguing now for any particular policy. I'm just talking in terms of the long run.,35
-fomc-corpus,1980,"We're going to miss it, you know, one way or the other.",15
-fomc-corpus,1980,"We might miss it and, of course--",9
-fomc-corpus,1980,"We could say: ""...seeks expansion over the next two months of M-1A, M-1B and M2 at rates high enough to promote achievement of the Committee's long-run objectives."" It implies higher growth than the long-run targets without being at all specific about it.",58
-fomc-corpus,1980,"We can say ""growth over the first nine months of 1980"" or something like that, essentially what we've done in the past.",28
-fomc-corpus,1980,I vote for keeping Steve's language. I think we'll get into less trouble later on.,18
-fomc-corpus,1980,"Well, it's really not at all specific.",9
-fomc-corpus,1980,"What was your language, Governor Partee?",9
-fomc-corpus,1980,"""Seeks growth in these aggregates over the next two months at rates high enough to promote achievement of the Committee's longer run objectives."" Then we could [cite] the monetary growth over the first nine months of the year, or something like that.",50
-fomc-corpus,1980,"We'd have to put in some modifier about over what period of time, because otherwise it would sound as if in the next two months we are going to--",32
-fomc-corpus,1980,"Well, to seek growth over the next two months at a rate high enough to promote achievement of the Committee's long-run objectives implies the whole year. Or you could go to a nine-month [figure]. We were trying to avoid deciding at this point whether you were getting back in the range by September or December.",63
-fomc-corpus,1980,Maybe it ought to be modified.,7
-fomc-corpus,1980,"I think we ought to be specific and say ""promote its longer-run objectives for the year"" or something like that.",25
-fomc-corpus,1980,"Yes, that's what we had in mind.",9
-fomc-corpus,1980,Everybody has a gut feeling. My gut feeling is that we're going to find M2 and M3 coming up better than Ml in terms of the targets.,31
-fomc-corpus,1980,"Well, they did when the money supply was running so fast last summer. They've been within their targets all along.",23
-fomc-corpus,1980,"M3 has touched the upper end and the lower end, but has remained well within the [band] on average, which is more than M1 has done. Well, we have a substantive question to decide here. I take it that wording of the directive is reasonable?",55
-fomc-corpus,1980,But we have to have point estimates for our growth targets for May-June in order to establish some reserve [objectives]. You never specified what you wanted those to be.,35
-fomc-corpus,1980,"Well, no I didn't.",6
-fomc-corpus,1980,Those point estimates would appear in the Policy Record?,10
-fomc-corpus,1980,"No, for voting purposes.",6
-fomc-corpus,1980,"I'm saying 7 to 7-1/2 percent, I suppose, but with tolerance on the up side.",24
-fomc-corpus,1980,What about M-1B?,7
-fomc-corpus,1980,I'm just working off Steve's numbers. You had what--a little less than 8 percent for M-1B?,25
-fomc-corpus,1980,"Well, 7-1/2 to 8 percent [for M-1B] would be consistent with 7 to 7-1/2 percent for M-1A. And for M2 I would say 7-3/4 to 8-1/4 percent would be consistent.",64
-fomc-corpus,1980,So you are going the alternative A route?,9
-fomc-corpus,1980,"This is broadly consistent with alternative A, with a willingness to overshoot.",15
-fomc-corpus,1980,If fortune should smile on us.,7
-fomc-corpus,1980,At this point I don't know what fortune,8
-fomc-corpus,1980,What is the M2 consistent with that?,9
-fomc-corpus,1980,Around 8 percent.,5
-fomc-corpus,1980,"We're talking about figures for the actual path. That's not quite the equivalent of the figures [mentioned here], which are for a longer period. We're just talking about now through the meeting date in July.",40
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Logic would have [unintelligible].,9
-fomc-corpus,1980,"In a completely symmetrical world, but I'm not playing in a symmetrical world right now.",17
-fomc-corpus,1980,"Well, you have taken the fed funds range that is consistent with the staff's alternative B.",19
-fomc-corpus,1980,"With ""B."" That is correct.",8
-fomc-corpus,1980,"In fact, if you want to make the switch, I think we could do it the other way.",21
-fomc-corpus,1980,"And you want to put in a 9 percent funds rate with consultation at 9-1/2 percent, did you say?",27
-fomc-corpus,1980,"Yes, [we'd consult] before we get there, figuring that that's more than a full [percentage point] drop in the federal funds rate. It may well come next week. I don't know for sure whether it will. It will depend on what our money supply figures show, so we don't know yet. And the significance of what rate we put in there is probably what Roger said--it [determines] when we need a formal vote of the Committee to lower the rate as opposed to a consultation. Well, let's just try it out.",111
-fomc-corpus,1980,A show of hands?,5
-fomc-corpus,1980,"Yes, a show of hands on acceptability is what we're looking for at this point. Are the specifications clear? These do not appear in the directive, [except] the one for the federal funds range. On the others, we have the general language in the directive. We have a reserve target which we expect is almost certainly consistent with no borrowing, with tolerance on the up side because if some borrowing developed, we presumably would raise the path. So unless we have an extremely strong rebound in the money supply, we're talking about no significant borrowing during this period--only frictional levels of borrowing. Let me just try the 9 percent [lower limit for the] funds rate. I don't think the 14 percent [upper limit] is real, but let's maintain it for visual [purposes]. What is the range now? I don't even know.",172
-fomc-corpus,1980,It's 10-1/2 to 19 percent.,12
-fomc-corpus,1980,We still have 19?,6
-fomc-corpus,1980,We lowered that.,4
-fomc-corpus,1980,No we didn't; it was only [lowered from] 20 to 19 percent.,19
-fomc-corpus,1980,"Well, we're making this tremendous 5 percentage point drop in interest rates, Larry! It's an enormous tolerance, which we really--",26
-fomc-corpus,1980,"In other words, we're narrowing the range significantly, Mr. Chairman.",14
-fomc-corpus,1980,We're back to where we started out in October.,10
-fomc-corpus,1980,"How many find that acceptable? One, two, three, four, five. I thought it was you who proposed it, Emmett?",28
-fomc-corpus,1980,"No. The funds rate range is what I proposed, but not the money growth target.",18
-fomc-corpus,1980,You want a higher path?,6
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,The [problem] is that [a higher path] is inconsistent with this funds rate.,18
-fomc-corpus,1980,I want alternative B both with respect to the aggregates and the funds range. I have accepted the funds range specified here as consistent with the [higher] growth ranges [of alternative B].,37
-fomc-corpus,1980,"We're not talking about this September/ December question. We're talking about the rest of May, June, and the early part of July.",27
-fomc-corpus,1980,"I know, but that relates to whether we're going to get back [to the target range] in September or in December.",25
-fomc-corpus,1980,You're taking it off of alternative A rather than alternative B.,12
-fomc-corpus,1980,"Also, an implication is that if the numbers come in higher, we are not going to push the funds rate up.",24
-fomc-corpus,1980,"That is correct. Well, who has an alternative?",11
-fomc-corpus,1980,"My alternative would be to raise the point [targets] for M-1A, M-1B, and M2 to make them essentially the midpoints between alternative A and alternative B for the 2-month period and to establish an 8 percent lower end on the funds rate rather than 9 percent. That would be my suggestion.",69
-fomc-corpus,1980,"Quick consultation, say, at 9-1/2 percent?",14
-fomc-corpus,1980,"We would be reviewing it. The Chairman could call for a telephone conference as we got down into the lower end of the funds range, yes. I wouldn't want to be too specific because Murray might make us put it in the Policy Record. But the Chairman could have a call at 9-1/2 percent, as the rate was moving from 9-1/2 to 9 percent, with an 8 percent limit on the published range.",92
-fomc-corpus,1980,"I don't think that represents a reasonable compromise. I am sympathetic with the Chairman's need to form some kind of consensus, given the difference in views. That tips it very heavily toward the view you expressed earlier, Chuck; it's not a reasonable compromise.",50
-fomc-corpus,1980,"Well, I'd compromise between alternative A and alternative B. I spoke in terms of alternative B. I would rather have a funds rate of 7 percent; I just specified a funds rate of 8 percent. I compromised compared with what I would otherwise have done. He asked if there were any suggestions and that was my suggestion.",66
-fomc-corpus,1980,Another thing we can do to compromise further is to take your specifications of 7 to 7-1/2 percent and so on for the Ms and to make [the funds range] 8-1/2 to 14 percent.,49
-fomc-corpus,1980,With consultation at 9-1/2.,10
-fomc-corpus,1980,With consultation at 9-1/2.,10
-fomc-corpus,1980,I could go that far.,6
-fomc-corpus,1980,"Your proposal, Nancy, says what about the aggregate targets?",12
-fomc-corpus,1980,"The aggregate targets would be 7 to 7-1/2 percent for M1, 7-1/2 to 8--",29
-fomc-corpus,1980,Everything is the same with an 8-1/2 percent [lower limit on the funds range] instead of 9.,26
-fomc-corpus,1980,I couldn't accept that.,5
-fomc-corpus,1980,I think that's good; I would go with that.,11
-fomc-corpus,1980,"I can accept Chuck's, but I couldn't accept 8-1/2 percent. It looks like fine-tuning.",25
-fomc-corpus,1980,I'd go along with that in the interest of a consensus.,12
-fomc-corpus,1980,"Well, that's about as far as I can go. Let's try that one.",16
-fomc-corpus,1980,Chuck's was 8 percent?,7
-fomc-corpus,1980,We're voting on Paul's specifications [with a] drop in [the lower limit on] the funds rate to 8-1/2 percent?,29
-fomc-corpus,1980,Should we put that one to a vote?,9
-fomc-corpus,1980,This is with consultation as we approach 9-1/2 percent?,15
-fomc-corpus,1980,We'll see whether Mr. Axilrod's judgment here is correct.,14
-fomc-corpus,1980,"Chairman Volcker Yes Vice Chairman Solomon Yes President Guffey Yes President Morris Yes Governor Partee No Governor Rice Yes President Roos No Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes President Winn Yes It's 9 for, 2 against.",51
-fomc-corpus,1980,Okay.,2
-fomc-corpus,1980,"We may have a long day ahead of us. If we don't use it all up with the Open Market Committee meeting, we'll use it up [discussing] monetary reform legislation. With that in mind, we will have lunch around the table in a convivial atmosphere. I am told that people worry about food and drinks being spilled on the rug. We'll see whether we can have lunch in the august Board of Governors meeting room without spilling anything on the rug; if we do spill, we won't be able to have lunch around the table again.",109
-fomc-corpus,1980,Either that or the Governors can't have [a rug]; it's one of the two.,17
-fomc-corpus,1980,I'd like to welcome Governor Gramley officially to this august body in a new guise. He is completely unfamiliar with the table; I believe we literally have a new table since you were last here. So we welcome you to the table literally and figuratively.,51
-fomc-corpus,1980,Thank you very much.,5
-fomc-corpus,1980,"We have several First Vice Presidents with us today because of the absence--for various reasons--of some of the Presidents, and we welcome you. I don't think we have anything else of that order of business, Mr. Altmann. We need to approve the minutes then.",55
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Did I hear a second? Without objection the minutes are approved.,13
-fomc-corpus,1980,That's the same problem I have in the Board meetings!,11
-fomc-corpus,1980,Mr. Pardee.,5
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"Mr. Chairman, I think it's worth emphasizing one point, which is that the reluctance of the Bundesbank to intervene directly in support of the dollar on as large a scale in the last few days--which means depressing the D-mark--is [related to] the fact that they are at the bottom of the EMS. So there is this contradiction and dilemma for them. Basically, cooperation with them on intervention had been very good, But they have this dilemma, and they are very, very aware of it.",103
-fomc-corpus,1980,"They also seem to take the attitude that if we are going to allow the funds rate to move sharply in response to reserve-based techniques, they logically should let the dollar rate respond more. I don't think we should accept that argument. One could argue just the other way: That precisely because it is necessary for us to tolerate wider fluctuations in the funds rate, we want to make a greater effort to avoid repercussions on the dollar rate. We have to try to persuade them of that; they don't accept that now.",102
-fomc-corpus,1980,In November of 1978 we put together a $28 billion emergency package. Is that still in existence?,22
-fomc-corpus,1980,"No, we didn't have $28 billion, Nancy. We would have had $30 billion, but that included $10 billion of Carter notes. Of the $10 billion of Carter notes, we actually ended up selling--I don't remember the exact figure.",51
-fomc-corpus,1980,"About $6.5 billion. VICE CHAIRMAN SOLOMON(?). We still have [our holdings of] Swiss francs pretty much intact; but Treasury balances of Deutschemarks, where the pressure is, are [nearly] depleted. They have ended up, in a sense, more in a hole than we are. If you compare our swap drawing with their using up the balances--they owe that money for a longer term--they're in the hole by about $3 or $4 billion.",102
-fomc-corpus,1980,When are those first Carter bonds due?,8
-fomc-corpus,1980,Not until September of next year.,7
-fomc-corpus,1980,That's a little more than a year away.,9
-fomc-corpus,1980,"Well, we must have most of the $20 billion.",12
-fomc-corpus,1980,How much did we have and how much do we have left?,13
-fomc-corpus,1980,We have about $2 billion left.,8
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,That $30 billion was theoretical in the first place.,11
-fomc-corpus,1980,What did we actually have out of the $30 billion?,12
-fomc-corpus,1980,"Treasury balances are $2+ billion in marks, not including their swap balances, and $1.2 billion in Swiss francs.",27
-fomc-corpus,1980,What do we have left in the swaps now?,10
-fomc-corpus,1980,"In the swaps? They've only used about $1 billion, so we have about $6 billion left.",21
-fomc-corpus,1980,One billion out of how much that we have in Germany?,12
-fomc-corpus,1980,We've used $1.1 billion.,8
-fomc-corpus,1980,"And what's the limit with Germany now, $6 billion?",12
-fomc-corpus,1980,Six billion.,3
-fomc-corpus,1980,"No, it's $9 billion.",7
-fomc-corpus,1980,The swap line is $6 billion.,8
-fomc-corpus,1980,"It's $6 billion, and the Treasury has $1 billion.",13
-fomc-corpus,1980,"The Treasury considers itself short right now under the Carter notes by over $3-1/2 billion, [so] we are in a hole.",30
-fomc-corpus,1980,I don't think I got an answer to my question.,11
-fomc-corpus,1980,The answer to your question is that we can get more resources at some stage if the Treasury wants to go back and negotiate a new Carter note.,29
-fomc-corpus,1980,"All right, but that doesn't tell me how much--",11
-fomc-corpus,1980,The man who negotiated the last Carter notes is sitting next to you. He's not at the Treasury now.,21
-fomc-corpus,1980,How much did we actually draw in November of [1978]?,13
-fomc-corpus,1980,"Governor Teeters, of the $30 billion, we have $20 billion worth of resources [in] notes [and] currencies now available. And there's a net plus, in some sense, in the unused portion of the $10 billion Carter notes, which in round numbers is $4 billion. That's the answer, I think, to the question you asked.",73
-fomc-corpus,1980,"Okay, thank you.",5
-fomc-corpus,1980,How much of the Carter notes come due a year from September?,13
-fomc-corpus,1980,A year from September only one comes due and there's another one [due] in December. I think the total amount is about $1.5 billion.,31
-fomc-corpus,1980,"Yes, but then they start coming due about every 6 months for about 2 more years, Fred, because I originally put them out with 3- and 4-year maturities. Then we had scheduled them at 3-1/2, 4-1/2 and 2-1/2 and 3-1/2. So a whole series is coming due. The question of availability depends on how we look at our debt. Looking at it very short term and ignoring the fact that we owe this money and are going to have to get it somewhere else later on, we still basically have sufficient resources. We have quite a few billion dollars, although in previous periods when the dollar came under heavy pressure we spent as much as $5 billion a month [in intervention]. This problem is getting more and more serious, and I think in our considerations of domestic policy we probably have to be a little more sensitive to it than we have been in the last few months.",201
-fomc-corpus,1980,"Even if we are able to repay, which I hope we will be, we won't really be getting out of debt. We'd be substituting dollar debt for D-mark debt, which is an advantage. But that's really the best way to look [at it] until our current account improves.",58
-fomc-corpus,1980,"Our current account, of course, looks relatively good compared to other countries' current accounts. In round numbers, the deficits are $12 to $15 billion in Germany, $15 billion or more in Japan, and $5 billion in France. There's a small deficit in the United Kingdom, despite their oil, whereas our projections are for close to balance this year and a surplus next year. Some people [expect] a surplus this year. If one just looks at current accounts, we don't look too bad; in fact, we look very good. But people obviously are looking at other things, too. Of course, it's affected by the recession.",130
-fomc-corpus,1980,What about recession?,4
-fomc-corpus,1980,"I think a major question is whether or when we can expect some interest rate declines in the rest of the world. [Foreign officials] are a little ambivalent about it. They're in the same position we are. They want to maintain this psychological posture of getting on top of inflation and not appearing to yield to it. And they haven't had much improvement on the inflation front, although in some countries they've had a little. On the other hand, they're becoming a little worried about a business slowdown and perhaps a world recession and [there is] some sentiment that easing might be a good idea. But nobody wants to be first. Nobody wants to show the white flag on the inflation front. So they're quite ambivalent.",143
-fomc-corpus,1980,"But [I'd point out] one thing. I assume the members of this group are aware that there is one quasi-phony component in our current account calculation. We are figuring in for 1980 $40 billion of services income from abroad. In practice, we are only going to get about half of that because we are counting as services income for the United States all profits earned abroad by American companies, even if those profits are reinvested abroad. Therefore, in terms of what crosses the exchanges, we still need about $20 billion of capital income to validate a so-called equilibrium current account. I think I've made my point clear. If I haven't--",132
-fomc-corpus,1980,Is this unique to us?,6
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Other countries don't do it?,6
-fomc-corpus,1980,"No, the other countries don't do it.",9
-fomc-corpus,1980,"No, they don't do it.",7
-fomc-corpus,1980,"We changed a few years ago, presumably to get on the same basis as other countries. But we have so much more foreign investment. It's much bigger for us than for anybody else.",37
-fomc-corpus,1980,"I think President Solomon overstated the figures somewhat. If you correct for both sides, as both the inflows and the outflows are counted on that basis, the difference is about $15 billion.",40
-fomc-corpus,1980,"It's $15 billion, not $20 billion this year?",12
-fomc-corpus,1980,"Yes. Last year, in fact, the adjustment on the reinvested earnings was $14.5 billion or something like that.",27
-fomc-corpus,1980,"When we look at gold market developments and some of these flows, I wonder if we're not being a little oblivious to the fact that it's not all economic considerations that are causing them, with the Saudi situation now surfacing. In terms of the news, it's a potential Iran. We hear rumblings out of places like Nigeria and South Africa that we may get big money market flows, which have nothing to do with interest rate differentials or the economic outlook or anything of [that nature], although I don't know how to put a number on it.",110
-fomc-corpus,1980,"I think that's right. Common wisdom in the market, however, is that the [noneconomic factors] on balance probably have helped us a little so far. There is some political instability in Europe particularly, but not with so much [unintelligible].",52
-fomc-corpus,1980,"On the other hand, with our freezing of the Iranian [assets], if you were a Saudi trying to maneuver would [the United States] be where you'd want to put [funds]? I don't know.",42
-fomc-corpus,1980,There is some indication that SAMA is now making direct investments in this country in bits and pieces of $50 to $100 million. We first heard about it from the Texas bankers. It began 5 to 6 months ago and seems to be continuing.,52
-fomc-corpus,1980,We've had some substantial increases in SAMA purchases of Treasury obligations. But I don't think we are getting the same percentage of their investable surplus.,29
-fomc-corpus,1980,"No, the real difference this year is these other countries with current account deficits. Even the Swiss, the Germans, and the Japanese have advertised the availability of their government securities to the Saudis in particular, which they never did before; and they are selling them. The French also are selling a fair amount of securities to the Saudis. I don't know [whether they are selling] to other people too, though they probably are, but they are selling to the Saudis and they didn't do that before. The Saudis had great difficulty getting investment outlets. Now they have more open to them.",120
-fomc-corpus,1980,"In a sense, every country with a good currency can expect some inflow--in fact, a very large inflow in the aggregate --from these sources. The Germans, the Swiss, the French, and the Japanese probably all benefit from this to an extent that they don't seem to want to admit. So they've generated concern about their deficits that I think is needless. They can count on some financing automatically. They don't have to go out and borrow the money.",93
-fomc-corpus,1980,Is it considered a political no-no to sell gold in the current environment?,15
-fomc-corpus,1980,"Oh, I don't think so, necessarily. I don't think it's a political problem in the sense that you may be suggesting. It's a question of whether it's very useful or desirable at this stage. [If we sold gold], we'd have to do it alone; I think that's pretty clear. It isn't anything that's ruled out a priori, but it's a practical matter of whether it's a good idea.",79
-fomc-corpus,1980,"Well, it's between selling assets and borrowing money. That seems to me the significant difference.",18
-fomc-corpus,1980,"The psychology, Ernie, is that [selling gold] seems to be much more effective if it's a component of an overall package of forceful measures than if it is done by itself. In the present climate it would look like a major act of weakness. And that might spur some additional dollar selling unless we did it on an enormously massive scale, not just the levels that we have before. On the other hand, if the situation gets to a point where once again we have to begin thinking carefully of a package, then along with some monetary policy measures it would be appropriate and add to the effectiveness--this is my own personal feeling--to do some substantial gold selling. And in that situation I think the Congress would understand that. We'd have less of a political problem also. So I think both factors operate.",163
-fomc-corpus,1980,"I should say, in connection with the political problem, that I don't think there are any great political constraints so far as the thinking in the Administration is concerned. There are politicians who would make a noise that would reflect upon the credibility of the action. If we sell some gold and then immediately get some congressional opposition, the market would say: ""Well, they're not going to sell very much because there's too much opposition."" And, therefore, it might not be very productive in terms of the impact we'd want to achieve.",104
-fomc-corpus,1980,"There would be some grass roots opposition to it. I can report that, but I don't have any impression--",22
-fomc-corpus,1980,"Perhaps I spoke a little misleadingly because that kind of opposition, I think, does reflect on the credibility of the action. It raises questions about whether it could be sustained and what the [total] amount would be and whether it's really an accepted technique or not, even though in some sense I think it's not a political deal for the Administration except in terms of appraising that reaction. I can't quite see the Congress opposing it in a formal sense but there would be a lot of noise by these limited groups. We have to ratify these transactions.",110
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,"Without objection, they are ratified. Do you have any recommendations, Mr. Pardee?",19
-fomc-corpus,1980,"I'd simply note that first maturities of six swap drawings on the Bundesbank in the amount of $190 million will be coming up over the period before the next FOMC [meeting]. I expect to roll those over, renew them, if we do not have a significant reflow in marks that would enable us to repay them.",67
-fomc-corpus,1980,We presumably will renew those as necessary--if necessary. Hope springs eternal. Mr. Meek.,20
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"Let me interrupt you just a second for a clarification. It may be that I was up too many hours yesterday, but did I read the Bluebook wrong? On the first or second page, where the paths were shown, I thought it said we are marginally above the minimum targeted growth. If I look at the figures, it looks as if we are marginally below. Then there was a footnote on page 3 that said we changed the target [for total reserves] and made it a little higher; but it said the original target was $43,377 million and the subsequent target was $43,293 million, which is lower.",131
-fomc-corpus,1980,"It's supposed to be the other way around. Steve gave an actual yesterday, if that still stands. The figures are transposed, aren't they, Steve?",31
-fomc-corpus,1980,"Well, no. The figures actually got changed at the last minute, so the marginally above was correct when it was written. It's wrong with regard to M-1A and M-1B; and M2, of course, is well above. It should read that with regard to M-1A and M-1B we were marginally above; the figures were changed at the last minute and the text was not. I think that's the answer.",94
-fomc-corpus,1980,So the path is below what was originally--,9
-fomc-corpus,1980,"No, the path is above because of M2.",11
-fomc-corpus,1980,But the footnote seems to be wrong on page 3. I'm just gratified that I read this correctly. I found something the matter with it.,31
-fomc-corpus,1980,"Steve, yesterday you gave figures which indicated that the target had been raised over the period by some $170 million.",23
-fomc-corpus,1980,"Yes, the footnote numbers seem incorrect. I'll get those numbers. The $43,377 million is not the original target but the one we now have; $43,293 million was the original target. Those are simply transposed.",48
-fomc-corpus,1980,I just wanted to demonstrate that I was wide awake when reading your report!,15
-fomc-corpus,1980,You are quite right; those figures are transposed.,11
-fomc-corpus,1980,Now that we have had that little ego trip--!,11
-fomc-corpus,1980,Mr. Meek.,5
-fomc-corpus,1980,[Statement continued.],4
-fomc-corpus,1980,"You were supposed to absorb reserves [to remain on] the path, right? I thought you absorbed less reserves than the path called for.",28
-fomc-corpus,1980,"In fact, yesterday there was less demand for matched transactions than we had planned to make. So we wound up doing less than we expected. And there is quite an abundance of excess reserves to be mopped up today.",44
-fomc-corpus,1980,Your point is that the mopping of the reserves is justified not just by the weakness in the foreign exchange markets but also by the reserve path.,29
-fomc-corpus,1980,"Indeed. We had considered going in early, but the dollar began to strengthen at about the time we were prepared to go in, so we held off until our normal intervention hour.",36
-fomc-corpus,1980,Comments or questions? These actions in the last six weeks do not provoke any questions?,17
-fomc-corpus,1980,"I might say, just to make clear that we are all listening carefully, that I keep hearing about market perceptions that we have moved back to a funds rate objective with a very narrow range. Do you hear that?",43
-fomc-corpus,1980,"Yes, I think there has been some feeling in the market to that effect. It is a problem we get into when borrowing at the discount window is at frictional levels because it is somewhat indeterminate whether the funds rate will be in the 8-1/2 to 11 percent range. The result is that when we put in reserves at 9-1/2 percent, people chose to interpret that as being the top of some range; similarly, it has been quite clear that we have been defending 8-1/2 percent as the bottom of the range. It's a box that we tend to get into. I think yesterday's action of mopping up reserves when funds were trading at 3-3/4 percent caused the market to pause at first blush but the action was later construed as being consistent with our normal operating procedures.",172
-fomc-corpus,1980,Isn't that market perception contributing perhaps to the weakening of the dollar and an implication that we may be repeating some of the mistakes we have made previously that were inflationary?,34
-fomc-corpus,1980,"Well, there's always concern in the market about the level of interest rates and the general thrust of policy.",21
-fomc-corpus,1980,In other words the markets are really in doubt as to whether we are determined to carry through with a primary emphasis on controlling reserves?,26
-fomc-corpus,1980,I wouldn't say that that is in question.,9
-fomc-corpus,1980,"The market is doubting whether we have an objective of fighting inflation and whether we are going to let interest rates decline or push interest rates down long enough so that it will encourage these flows of funds into marks, Swiss francs, and other currencies.",49
-fomc-corpus,1980,But I mean those market--,6
-fomc-corpus,1980,"Whether we follow the aggregates or not is an academic point. They follow the M1 numbers, which come out on Friday --or this time on Monday. But the emphasis is on the thrust of policy toward inflation.",43
-fomc-corpus,1980,There are two markets that we are talking about here. The government securities market is always very obsessed with trying to invent a federal funds rate range if one doesn't exist. They react to what we do as though it has significance when it doesn't have any.,50
-fomc-corpus,1980,Do you tell them that it doesn't have any significance?,11
-fomc-corpus,1980,Of course.,3
-fomc-corpus,1980,Good.,2
-fomc-corpus,1980,We have a proposal to raise the intermeeting limit [on changes in System holdings of securities]. What is the intermeeting period?,26
-fomc-corpus,1980,It would be for the period through the 12th of August.,14
-fomc-corpus,1980,I take it the limit is normally $3 billion [and the proposal is to raise it] to $4 billion because we are getting a decline in reserve requirements that is going to have to be offset in the normal course of events.,47
-fomc-corpus,1980,How much do we have to offset?,8
-fomc-corpus,1980,What is the decline in reserve requirements?,8
-fomc-corpus,1980,It's $3-1/2 billion in the week of June 30.,16
-fomc-corpus,1980,Is $4 billion enough if you have $3-1/2 billion to mop up?,19
-fomc-corpus,1980,It's right on the edge on our [staff's] estimates. The Board [staff] has somewhat lower estimates. But it seemed prudent to have adequate room. These estimates are notoriously unreliable.,38
-fomc-corpus,1980,"I think, Mr. Chairman, that we want to be very certain that we mop up any reserves here. I can't understand why in the world the market thinks we won't, but there seems to be some view of that. So if it's right on the edge, I would make it higher; I would propose $4-1/2 billion.",70
-fomc-corpus,1980,"Well, $4 billion would be quite adequate, I think.",13
-fomc-corpus,1980,But you said that was right on the edge.,10
-fomc-corpus,1980,The $3 billion [normal limit] is right on the edge.,14
-fomc-corpus,1980,"Oh, I see. I misunderstood you.",9
-fomc-corpus,1980,"We can always change it again; fine-tuning this figure doesn't have much significance. But if you are convinced that $4 billion [is appropriate], is there a motion to that effect?",38
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Seconded.,3
-fomc-corpus,1980,"Without objection, we approve until the next meeting a $4 billion limit. We need ratification of the transactions. Can I have a motion to that effect?",32
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Seconded.,3
-fomc-corpus,1980,"Without objection, we approve your operations since the last meeting. [Before] we turn to the economic situation, I might just [raise] another point here so that you are aware of it. You might already be aware of it; I believe you have been sent a copy of the resolution that Mr. Proxmire and Senator Garn have introduced about Federal Reserve policy. This arose essentially out of the report by Arthur Burns' Committee to Fight Inflation, which is made up of an ex-Secretary of the Treasury, an ex-Chairman of the Federal Reserve Board, and a few distinguished ex-Congressmen. Among other things the report said that Congress, as Mr. Burns had suggested in a speech last September, ought to support the long-term thrust of monetary policy toward restraint against inflation and ought to reinforce that commitment by a Congressional resolution. That language was in the Committee's report and apparently Mr. Proxmire read that and thought it was a good idea. So he has introduced a resolution, the language of which I have examined in its present form word by word. It seems fairly unexceptional but I have a little concern, frankly, about the whole exercise. It starts off with all these [whereas phrases]--whereas the Congress has the constitutional power, and whereas the Federal Reserve is an agent of the Congress, and whereas the Congress can tell the Federal Reserve what to do, whereas this and whereas that--[and then says] we support [the Federal Reserve] in this general long-range intention [to restrain inflation]. It seems to me the kind of language that could easily be converted in some other circumstances to say whereas we think interest rates are too high we direct you to lower interest rates. So, it may not be the most desirable precedent in the world, but I'm not sure there is anything we can do about it. I just have a little worry about it. We have not been active in supporting this but we have not been active in working against it either. My own [instinct] is to let events take their course. But there may be an effort--and there's danger in this--to put in some different language in the operative paragraphs that could give us a little difficulty. We will wait and see, I guess. As it is, I think it's unexceptional. I don't know how helpful it really is, but you ought to be aware of it. Maybe it is helpful; I don't know.",496
-fomc-corpus,1980,Do you think Mr. Proxmire knows the implications of this resolution with regard to real output and employment?,22
-fomc-corpus,1980,"Well, the third paragraph says ""to maintain full employment and balanced growth.""",15
-fomc-corpus,1980,"Yes, but there is a phrase that says ""get back on the targets for the aggregates."" I see your point. There are a lot of things in it; they could change it from year to year.",42
-fomc-corpus,1980,"It worries me a little, frankly. I'd just as soon it didn't come up. I discussed it with Arthur and I'm not sure he's so happy himself that this [process] has started. I'm sure he's convinced that he thought it all through, but I don't know what we can do.",58
-fomc-corpus,1980,When did you talk to Arthur Burns?,8
-fomc-corpus,1980,A couple of weeks ago.,6
-fomc-corpus,1980,"Well, I talked to him the day before yesterday, and he told me that the resolution as originally introduced had been much more specific and that he had Proxmire make it much more general and so forth. So it was a bigger problem when--",50
-fomc-corpus,1980,"Well, the main difference between [the current version] and what was initially introduced is that the first sentence talked about the long run anti-inflationary policy and so forth--I can't remember the language--but had a phrase in it about long-term interest rates. It said, in effect, that [such a policy] could bring down long-term interest rates in the context of dealing with inflation. Arthur got them to take out the specific reference to interest rates. In fact, the reference wasn't bad because it was in the context of bringing down inflation. But it's illustrative of the kinds of things we could get in a resolution of this sort some time in the future that would be very difficult. Looking at this, my own feeling is that we can't go out and say we don't [favor] a resolution that says Congress supports our long-term efforts to deal with inflation. But I feel a little nervous about the implications of this for the future. Indeed, there may be an attempt to modify this in the present. What I am saying is that if it just died quietly, I wouldn't shed enormous tears; there may be some other aspects of this that aren't apparent. Undoubtedly, I will be asked to comment about it in my testimony. I suppose I am forced to say it's a fine resolution.",261
-fomc-corpus,1980,What else can you do? It would be like talking against motherhood to oppose it.,17
-fomc-corpus,1980,"Well, I think you would be justified in going on to say that it might create--I don't know how to phrase this but you'd have to handle it cautiously--dangers for the future.",39
-fomc-corpus,1980,"Yes, I could say that I don't think it is wise for these resolutions to be all that specific but that a resolution with this kind of general sentiment is [fine].",34
-fomc-corpus,1980,Could you say that if Congress wants to influence Federal Reserve policy directly that the appropriate way is to do it by legislation rather than resolution? I would expect that [such] legislation would not [be enacted]. That is a tough statement. But we could be snowed with these resolutions and the pressure--,60
-fomc-corpus,1980,"I did ask if there had ever been a resolution quite like this, referring to policy. And I think it is true--well, at least nobody was able to tell me off-hand--that there has not been. The nearest thing to it was the concurrent resolution, adopted in [1975], which in part gave rise to the whole monetary targeting exercise. In some of its initial versions that did talk about interest rates; [those phrases] were pretty much extracted, so the resolution became largely procedural instead of referring to the objective of policy except in the broadest way. But there have been many attempts to introduce resolutions like this. There has been a resolution circulating in Congress in recent months about bringing down interest rates. It never got anywhere, but it had some signatures on it. There have been other attempts of that kind, which weren't pressed very hard. We weren't able to find any precedent for this kind of thing actually passing in Congress. I don't know if there is anything else to be said about it but I thought I'd ask for any reactions you had. And you ought to be aware of it.",222
-fomc-corpus,1980,I don't see how it could be opposed.,9
-fomc-corpus,1980,"Well, Mr. Kichline and Mr. Zeisel, it's up to you. MESSRS. KICHLINE, ZEISEL, and TRUMAN. [Statements--see Appendix.]",41
-fomc-corpus,1980,"Let me interrupt you. If I remember correctly from the Bluebook, this is an artificial 4-1/2 percent in a sense because it doesn't allow for a depression of M-1A from NOW accounts and so forth.",47
-fomc-corpus,1980,"Yes. Whatever shifts occur would be subtracted from that. So if the shift were one point, the number would be 3-1/2 percent; and if it were 2 points, it would be 2-1/2 percent, etc.",53
-fomc-corpus,1980,A shift over and above what is already assumed in M-1A and M-1B?,20
-fomc-corpus,1980,These are shifts that could be related to the introduction of nationwide NOW accounts beginning around the end of this year. So the 4-1/2 percent subsumes whatever is going on now. This is the new introduction--,45
-fomc-corpus,1980,"So, if I understand correctly, the target doesn't fully allow for what is going on this year.",20
-fomc-corpus,1980,"Well, given what is going on this year, we think that 4-1/2 percent is more reflective of unchanged policy than 4-3/4 percent because there seems to be a little more movement out of demand deposits into NOW accounts.",51
-fomc-corpus,1980,So you're just saying that the 1/4 percentage point allows for that.,16
-fomc-corpus,1980,Yes. It's a small amount. We raised M-1B a bit. MESSRS. KICHLINE and ZEISEL. [Statements continued.],32
-fomc-corpus,1980,"That was a very complete and very comprehensive presentation. I'm sure it leaves a certain amount of questions in peoples' minds. I have two or three myself, so I might start. We will spend a little time here on the economic outlook before we get to the aggregates discussion. Your forecast, obviously, has a very low recovery in disposable income in '81 by historical standards. You also have a low increase in productivity. When we have a low increase in productivity somehow we have to have a low increase in disposable income. But there's a certain amount of chicken and egg involved; if we had a faster recovery, we might get more productivity. I guess I'm groping for a question here. How low does the rise in disposable income have to be [to reflect] the fact that productivity is not performing the way it used to and how much is [related to] a sluggish recovery in some sense?",181
-fomc-corpus,1980,"Well, the point you made earlier applies to virtually all of the variables in the sense that we get low growth in disposable income in part because of the sluggish improvement in employment, which is related to the sluggish improvement in output, which is consistent with the sluggish improvement in productivity. The question is: Where does one get aboard the--",66
-fomc-corpus,1980,"Well, how much of it is the other way around? I'm asking how much [reflects the fact] that anything is going to look less buoyant than it looked before because we get less productivity growth, all other things equal.",47
-fomc-corpus,1980,"Of course, any improvement in productivity performance would give us the potential for a greater increase in real income. In a sense that's partially endogenous and partially exogenous. Our projection of sluggish productivity growth is consistent, as I mentioned earlier, with our projection of the very sluggish recovery in output growth. But it's also consistent with the longer-term problems that seem to be plaguing productivity performance. We have an underlying trend rate of growth of productivity of less than 1 percent at this point. If productivity were performing, let's say, as we thought it was back in the late '50s and '60s--at another 1-1/2 or 2 percentage points above that--that would give us the potential for a considerably improved outlook. So that could be very significant.",157
-fomc-corpus,1980,"Your capital spending assumptions tie into this productivity assumption, too, don't they?",15
-fomc-corpus,1980,"Well, over the longer haul, obviously, that's correct. Over the short run it would not be a significant variable.",24
-fomc-corpus,1980,I'm thinking really of the capital spending that's already in place or under way.,15
-fomc-corpus,1980,"The capital/labor ratio, as I'm sure you know, has deteriorated in recent decades and people feel that that has played a significant role in the deterioration of productivity. But a lot of other factors appear to be operating as well.",47
-fomc-corpus,1980,"I'm sure this has something to do with the chart you've labeled ""Prices II."" There's a striking difference here. In '75-'76 [the percentage rise in] the gross business product deflator went down, my word, from 12 percent to 4 or 5 percent. Now you say it can't go down much. Of course, it had gone up very sharply. But how did we manage to get it down 7 percentage points or thereabouts in only a year or 18 months and now we can't get it down?",108
-fomc-corpus,1980,"Look at the previous [chart], Paul.",9
-fomc-corpus,1980,"Well, several things are operating. One factor is the behavior of energy and food [prices], and I think we ought to abstract from those. But even [so] we had a very significant deceleration. Part of the answer is the very vigorous recovery in output and productivity during that period. The productivity swing between 1974 and 1975 was about 8 percentage points; it went from about a 3-1/2 percent decline to a 4-1/2 percent increase. We are figuring on a recovery in productivity of a little more than half that. So in a sense we don't get the improvement in unit labor costs and the removal of pressure on prices that such productivity--",141
-fomc-corpus,1980,"You have a 4 point [swing], if I understand you correctly.",16
-fomc-corpus,1980,"Well, yes.",4
-fomc-corpus,1980,"Actually, if you flip the page and go back to [the chart labeled] ""Prices I,"" the numbers on the top panel of that chart show the peak was in the fourth quarter of 1974 when unit labor costs were up 14.9 percent [from a year earlier]. The fourth quarter of 1975, one year later, was the low point [when the year-to-year increase was about] 4 percent. So we had [nearly an 11] percentage point swing in unit labor costs in that particular period.",110
-fomc-corpus,1980,"We had an 8 point swing in productivity during that period, so we must have had a 4 point swing or so in compensation?",28
-fomc-corpus,1980,I don't have [compensation figures] quarterly; I have hourly wages figures.,16
-fomc-corpus,1980,"Compensation is [charted] on the previous page; that shows around 3 percent, I think.",21
-fomc-corpus,1980,It was 2-1/2 percent to 3 percent [unintelligible].,19
-fomc-corpus,1980,"Wasn't there another factor going on during that period, though, that affected all of these variables on both compensation and prices? The wage-price control program [affected] 1974. There was an enormous catch-up increase, which inflated the rates of increase; and when that was over, everything settled down again. That was an important part of the improvement that took place.",75
-fomc-corpus,1980,"That was a very important component. We had an explosion and then a deflation, so that played a significant role temporarily. A combination of forces was operating that I'm afraid cannot be exactly disassociated from one another.",43
-fomc-corpus,1980,In some sense it could be argued that you are rather pessimistic on both compensation and productivity.,19
-fomc-corpus,1980,"Well, we are pessimistic relative to past cyclical performance. And I think the productivity assumption is a very tenuous one. There are alternative explanations of why productivity declined, and one could very easily suggest that we may get a bigger rebound. At the same time, on the compensation side we have a situation where real wages have declined for a substantial period of time. In fact, I would view it the other way around on the compensation side: We think we have a good forecast given the assumptions. But one could very easily think that there will be more intense upward pressure on wages and that compensation might not slow as much as we have built into our forecast.",133
-fomc-corpus,1980,Because real wages are declining?,6
-fomc-corpus,1980,"Well, in a sense that puts pressure on the bargaining units and on workers who wish to command higher nominal wages to offset that.",26
-fomc-corpus,1980,All [I'm talking about is] this pessimism relative to earlier cycles. It's pretty deeply related to the productivity picture one way or another.,28
-fomc-corpus,1980,It is very deeply related. I think that's absolutely correct.,12
-fomc-corpus,1980,"Is that really true? If you had a higher productivity growth plugged into your forecast, unless you had a change in the monetary and fiscal policy, wouldn't the main effect of that simply be a lower rise of employment with the same increase in real GNP and hence the same increase in real disposable income? If you look back at the charts, the biggest increase in real disposable income was in '77, when by no means did we have highly favorable productivity developments.",92
-fomc-corpus,1980,"We'd also have a good deal less pressure on unit labor costs and prices and presumably the ability, therefore, to move into a different fiscal position as well.",32
-fomc-corpus,1980,"If you removed policy constraints and found that policy were more expansive, then you would have a larger rise in real GNP.",25
-fomc-corpus,1980,"But what we have provides the basis for allowing that, I believe.",14
-fomc-corpus,1980,"I would agree with Lyle. I think you're substituting manhours for lack of gain in productivity. So you don't actually get a difference in real output in the forecast period, but I think it does lead to pessimism on the price front compared to what might otherwise be the case.",58
-fomc-corpus,1980,"To the extent it came out in lower prices, with the same money and fiscal assumptions you get more output.",22
-fomc-corpus,1980,What effect do you get from the fact that energy prices in manufacturing never made very much difference? They were so low in terms of the costs. Now the situation is quite different; a lot of manufacturing firms are thinking in terms of capital expenditures of the kind that lower their energy costs. What does that do? Is there any way to calibrate that sort of thing?,74
-fomc-corpus,1980,"Well, that's one factor. It tends to cut several ways. One of the arguments is that, given the rising cost of capital, firms will tend to substitute more labor for capital. It depends on the industry. In fact, President Morris had a conference at the Boston Fed about this whole role of energy and productivity and capital investment, and it's a cloudy area. But the balance of thinking is probably that energy prices for many firms are a relatively small part of total costs. So it's hard to sort out where that will fall; one has to do an awful lot of disaggregated work. We think that it probably on net adds something to capital investment demand, but relatively little if you abstract from what's happening in the energy sector directly. And that's obviously a different animal.",155
-fomc-corpus,1980,"Let me just ask one more question. On these charts of econometric exercises with and without tax cuts, is there a lower real GNP in '83 with a tax cut? If I understand it correctly, you also have a lower unemployment rate. Offhand that somehow seems inconsistent.",57
-fomc-corpus,1980,"Well, unemployment adjusts with a lag. And these are rates of growth. We have a higher level of real GNP but these are rates of growth of real GNP.",35
-fomc-corpus,1980,"Okay, you still have a slightly higher level of [real GNP].",15
-fomc-corpus,1980,"That's right, but it's reversing. The difference in the unemployment rate in 1982 is 0.8 percentage point and in 1983 it's a half percentage point. So the gains on the unemployment side are disappearing, but with a lag.",50
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"Mr. Chairman, that was a fine presentation. I have only two questions. One has to try to put monetary policy in the context with the thrust of fiscal policy, and in the first section of your report you have a table on the federal budget and also one on the high employment budget. My question has to do specifically with the high employment budget assumptions. We've had some discussion of this before, Jerry, as you surely remember. To refresh my recollection, what unemployment rate are you assuming here?",101
-fomc-corpus,1980,"I think it's about 6 percent. Governor Gramley, do you recall?",16
-fomc-corpus,1980,"If it's the official one, it's 5.1 percent.",13
-fomc-corpus,1980,And this uses the official one?,7
-fomc-corpus,1980,"Yes, we'd be consistent with that.",8
-fomc-corpus,1980,In the last several months there was a generalized governmental review of the calculation of this high employment budget and an agreement on the calculations involved. So we're using that.,32
-fomc-corpus,1980,"Well, as you know, this calculation is very sensitive to differences in the unemployment rate assumption. A lot of observers, including my staff, think that the non-inflationary full employment rate is somewhat higher than 5.1 percent and may be closer to 6 percent. Have you made any alternative calculations? What would happen if you assume 6 percent, for example?",77
-fomc-corpus,1980,"We have done that in the past. We have not done that this time. The way we use this high employment budget in our own approach is to look at the change in the budget from one year to another. Differences in the unemployment level used mainly affect the level of the budget rather than the swings from one year to the next. And I might note that for 1980 and 1981 this projection has a fairly dramatic increase. On a calendar year basis we are going from a surplus of roughly $18-1/2 billion in 1980 to [a surplus of] $39 billion in 1981. Now, the levels would be different if we calculated the budget on a higher unemployment figure; but the swing, we think, is indicative of the thrust of policy.",159
-fomc-corpus,1980,"You'd just raise [the non-inflationary full employment rate] by 0.9, would you? Is that effectively what you would do?",32
-fomc-corpus,1980,"Well, by how much is the question, Chuck. I'm trying to get some range of estimates here as to how restrictive fiscal policy is going to be and I doubt that it's going to be as restrictive, in terms of the level, as what the staff shows. What I was trying to find out is what the level would be with a 6 percent assumption.",73
-fomc-corpus,1980,"Well, we have not done that calculation, and I don't have in mind any rules of thumb that would allow me to give you an answer right now.",31
-fomc-corpus,1980,Okay. Maybe we can talk about that later.,10
-fomc-corpus,1980,We can certainly do [the calculation] and circulate it.,12
-fomc-corpus,1980,"If I may, Mr. Chairman, I have one more question. It's related to the chart entitled ""Domestic Nonfinancial Sectors,"" the opening chart in the fourth section. I'm particularly interested in the reality of what will be going on in financial markets in terms of federal borrowing, broadly defined. The red bars on the chart show federal borrowings. Did I understand you to say that that is on the unified budget basis? In other words, what I'm trying to get at is: Does it include that very large and growing amount of off-budget activities--the mortgage pool, the government sponsored enterprises, and what have you?",125
-fomc-corpus,1980,"No, it does not. It includes the Treasury issues and a small amount of agency issues. It does not include FNMA or the Home Loan Banks, for example. We have numbers that start at $75 billion for 1980; there's a narrower definition of the budget and it does not include the off-budget items.",65
-fomc-corpus,1980,$75 billion?,4
-fomc-corpus,1980,"That includes the off-budget agencies, just not the sponsored ones, doesn't it?",16
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,It does include the off-budget?,7
-fomc-corpus,1980,"It depends upon how one defines off-budget. My understanding is that it literally includes the off-budget agencies but it doesn't include the [agencies] not owned by the government, [such as] FNMA and the Home Loan Banks.",47
-fomc-corpus,1980,"That's right. It captures the [funds raised by] the Federal Financing Bank, for example, as a Treasury issue.",25
-fomc-corpus,1980,"How much bigger would the number be if you included the so-called privately owned, government-sponsored enterprises and the mortgage pools? I have a hunch it would be considerably bigger, but I'm not sure.",40
-fomc-corpus,1980,"Yes. One of the problems here, by the way, is that this chart covers ""nonfinancial"" [as defined] in our flow of funds accounts. We consider the sponsored agencies to be the financial sector, so we are dealing with a different concept here. But in 1980 we have sponsored credit agencies raising about $11-1/2 billion of funds and in 1981, $20 billion. So [compared] to these numbers, you get [borrowings of] something like $87 billion under that broader definition in 1980 and $120 billion in 1981.",122
-fomc-corpus,1980,"That makes a difference, doesn't it?",8
-fomc-corpus,1980,"Oh, yes.",4
-fomc-corpus,1980,Thank you.,3
-fomc-corpus,1980,Governor Gramley.,4
-fomc-corpus,1980,"I have one detail question and then two substantive questions. This Administration forecast [that you show] is not yet published, is it?",27
-fomc-corpus,1980,"No, it is not.",6
-fomc-corpus,1980,This is the one coming out in July?,9
-fomc-corpus,1980,Is this firm?,4
-fomc-corpus,1980,We understand that the economic assumptions are firm as a basis for the midyear review. What are not yet firm are the precise outlays and receipts--the budget side associated with the economic forecast. But it has not yet been presented officially; my understanding is that it will not be delivered until July 21.,62
-fomc-corpus,1980,"The first substantive question I'd like to ask Jerry. On the compensation per hour projection, you noted that one element of optimism isn't in the line shown here--the fact that it includes an increase in compensation due to payroll taxes in 1981. So, in fact, in order to get this performance, private compensation would have to improve still more than the line indicates. But isn't there yet another element in it in the sense that this year we are looking at a rise in wage rates of roughly 1 percentage point faster than we had in 1979? And that's not showing up in the compensation per hour figures because we're getting a shift in mix, for cyclical reasons, that is going in the other direction. In 1981 that shift in mix will not be taking place; on the contrary, it will be reversed.",167
-fomc-corpus,1980,That's correct.,3
-fomc-corpus,1980,To get the kind of performance in compensation that's shown here we're going to have to have a very significant slowdown in the rate of increase in average hourly earnings adjusted for overtime and mix.,36
-fomc-corpus,1980,"That's correct, and we do build in a calculation of the effects of mix on the compensation figures. The average hourly earnings index itself declines between '80 and '81 by slightly more than 1 percent. I don't have a figure for the fourth quarter '81; it would be a bit more than that, though, as opposed to a compensation decline over that same period of 0.3. So the point you're making is absolutely correct. The underlying wage adjustment has to be greater than the compensation decline that we show.",105
-fomc-corpus,1980,"The second question I'd like to direct to Mr. Kichline. In the discussion of the assumptions on the first page, you've noted that M-1A goes up by 4-1/2 percent. But the Bluebook says something else is involved that I think we need to be aware of, namely that the assumptions about interest rates that are plugged into the forecast include an assumption that the money demand function drops by 3 percentage points both this year and next. So if the demand function had been unchanged, M-1A growth of 7-1/2 percent would be required to give us the same amount of monetary stimulus. Isn't that correct?",134
-fomc-corpus,1980,"That's right. In effect, the way to view the 4-1/2 percent [M-1A growth] is that it has the power of old-time 7-1/2 percent money, old-time being pre-1974 money.",52
-fomc-corpus,1980,Thank you.,3
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"First, I think the staff forecast is very well put together. My staff's forecast is close to that of the Greenbook but I personally feel a little more pessimistic just because I think we're coming out, I hope, of a very wrenching inflationary experience, which I believe tends to lessen our ability to rely on econometric models. And I think some of our past sins, so to speak, in not encouraging enough capital formation and productivity in this country are catching up with us. Maybe I'm just getting older, but this causes me to distrust even more than usual the figure factory, if I may call it that, on the projections for 1981. So, I'm just a little more pessimistic personally. I have one detail question on the unified budget. You are more optimistic than the Administration for fiscal '80. Following up on Lyle's point, is this $55 to $60 billion [deficit projected by the Administration] fairly set at this point or is the [potential] variation really more than you've indicated here? And why are you more optimistic? Is this a shift--shall I call it a political shift--of a deficit from one period to another by the Administration?",242
-fomc-corpus,1980,"Well, the early number the Administration was working with on outlays was something like $578 billion, $3 billion higher than the staff's estimate. Now, that may come down a little. We looked back at the last eight fiscal years, from 1972 through 1979, and the mid-session review has overestimated actual expenditures by about $2 billion. That's about 1/2 percentage point. So we feel reasonably comfortable that we're close, given past experience. On the receipts side, the Administration had $519 billion as an early number as opposed to [our] $523 billion. That relates, as I understand it, to some tax multipliers, the response of tax receipts to income over the last three or four months. And it's a messy business. So I would view [the two projections for] 1980 as really quite close. The real issue is 1981.",182
-fomc-corpus,1980,"Well, [comparing] the $59 billion Administration [preliminary deficit estimate], for what it's worth, and your $52 billion, I take it that you feel the receipts will do a little better. That's part of it?",47
-fomc-corpus,1980,For 1980?,5
-fomc-corpus,1980,"Yes, for 1980, the year we are in right now.",15
-fomc-corpus,1980,"Yes. We have $4 billion more in receipts than their preliminary number. And as I say, it's really a technical matter. Their forecast is not materially different from ours for the second and third quarters--the last two quarters of the fiscal year.",50
-fomc-corpus,1980,"This is also minor, but do your projections for '81 assume that what the Congress is trying to do on speeding up corporate tax collection [will materialize]?",32
-fomc-corpus,1980,"Yes, it includes that; it excludes certain other things. It excludes, for example, the withholding of interest and dividends. We made some adjustments where we felt it was quite unlikely that the Congress would be willing to go along with the Administration's proposals.",51
-fomc-corpus,1980,Thank you.,3
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, our differences with the staff forecast have widened a bit this time. For 1980, we believe that the drop in real GNP will probably be greater than the staff is projecting. This concern stems mainly from three factors: the growing evidence that the international situation may be weaker than we've been assuming, the conditions in the construction industry--and specifically housing--and retail sales. If you plot housing starts and retail sales in real terms opposite similar periods of other postwar downturns, this time they practically drop off the chart; the drop is far greater than anything we've had before. And we don't believe that that weakness has yet spread to other parts of the economy to the extent that it likely will. So, expecting this greater weakness, we think the unemployment rate will probably be higher by the fourth quarter than the staff is projecting, though we think the rise in the deflator will be less. We have estimated the deflator at 8.5 percent versus [the staff's] 9.4 percent for the four quarters ending in the final quarter of this year. And in 1981, more differences [emerge] because we firmly believe that if we stick to our targets on the aggregates, as I think we will, then the outcome will be much better than the staff is projecting. We are guessing that we might have an increase in real GNP in the neighborhood of 6 percent as compared to the 2.5 percent forecast by the Board staff. This would mean a good deal less inflation and it also should mean less unemployment. Our forecast is a guess too, of course, but we feel [the results could be] quite different from what the staff has projected.",344
-fomc-corpus,1980,"Is that because compensation goes up a lot less in your forecast, Bob? How do you have less inflation? That's what I'm asking.",27
-fomc-corpus,1980,"Well, we keep the money supply under better control.",11
-fomc-corpus,1980,"I understand that. But looking at the factors of costs and prices, is it better productivity?",19
-fomc-corpus,1980,"Yes, I would think so. If we make progress on the inflation front, I think people's expectations are going to turn around very markedly. And we have [projected] more private investment than has been assumed, offering commensurate increases in productivity.",51
-fomc-corpus,1980,"Well, not [until] next year, though.",11
-fomc-corpus,1980,Mr. Eastburn.,5
-fomc-corpus,1980,"I was interested in the estimates of uncertainties accompanying the forecast, which were based essentially on a number of simulations. I wonder if you'd take a minute to put that into qualitative judgmental terms and let us know what you think the chances are on the up side and on the down side of the forecast.",60
-fomc-corpus,1980,In 60 seconds.,5
-fomc-corpus,1980,"As you know, we do recognize that forecasting point estimates is not the way to go in terms of associating some degree of [certainty with the forecast]. We believe there is a standard error associated with any forecast, and that's why we've attempted to work with the model in generating ranges of uncertainty or confidence intervals. In that memorandum we used the model to try to calculate the probabilities of hitting the Humphrey-Hawkins targets as defined by the Administration's forecast.",92
-fomc-corpus,1980,I wasn't clear on that. Let me make sure I understand. The Humphrey-Hawkins targets are the Administration's forecast in the terminology you're using?,31
-fomc-corpus,1980,"Well, in the short term, yes. The first two years are defined as the short term; they represent projections but in fact are short-term Humphrey-Hawkins targets.",36
-fomc-corpus,1980,When you say Humphrey-Hawkins targets do you mean the Administration's projections that are in these charts?,22
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"That's not what Messrs. Humphrey and Hawkins had in mind, though.",16
-fomc-corpus,1980,"In general, I would say that with the monetary policy we have assumed--looking at the model results in both years, particularly 1981--there is a fairly small probability of [an outcome] within a narrow range of those targets. I didn't go into this in the presentation, but a good deal of the difficulty revolves around the Administration's [forecast of] 13-3/4 percent growth in nominal GNP with interest rates not much higher than they are currently. That tells you something: Really, their implicit monetary [growth] assumption has to be high. So the exercise we've gone through suggests that there's a fairly wide range [of uncertainty] associated with the point estimates we've presented for the broad aggregates, for 1981 in particular. And looking at the Humphrey-Hawkins targets, there's a fairly low probability of [an outcome] within a narrow range of those targets--particularly of hitting the unemployment and price projections simultaneously.",190
-fomc-corpus,1980,"May I follow up and ask another related question, which is a simple one? How confident do you feel in your Greenbook projections and what side are the errors on?",34
-fomc-corpus,1980,"Well, given the policy assumptions, I feel fairly comfortable with the real side forecast that we have. I know there's been a tendency for economists to underestimate the strength in the economy at turning points. But in general we have built in very restrictive monetary and fiscal policy assumptions relative to past cyclical experience. At the same time, on the price side I feel reasonably comfortable. I find it very difficult to expect much greater price improvement next year, particularly in light of what is happening on energy; and food prices aren't going to help. Both of those were positive forces in 1975. So I feel reasonably comfortable with [our forecast of] both prices and real GNP. If we're wrong, it may well be that some of the assumptions are wrong. And I would prefer to stop there.",159
-fomc-corpus,1980,"In other words, two plus two still equals four but maybe it's--",14
-fomc-corpus,1980,"All this depends upon one's judgment of this 3 percent shift in M1 demand. What was that shift in the past year, say?",28
-fomc-corpus,1980,"Very little, if you mean over the course of 1979.",14
-fomc-corpus,1980,I was thinking of the past 12 months.,10
-fomc-corpus,1980,"From reading the model--which is all this is talking about--in the year 1979 there was virtually no shift. There was a little downward shift, but I wouldn't take the model that seriously on that. For the year ending in the second quarter of 1980 there was a shift of about 3 percentage points, all of which occurred in the second quarter.",75
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"As far as the forecast is concerned, which I view as very well done, I find myself much closer to the Administration's than to the staff's, certainly for 1981. I think we have to count on a high nominal GNP, quite possibly a good rise in real GNP, and an even higher deflator than either the Administration or the staff have. The latter is based on [our past] experience of always tending to underestimate inflation. We've had a very patient labor force. Outside the strongly unionized sectors wage increases have been very low, and one must anticipate that at some time there will be a concerted push to make up for that. We also have to bear in mind that, in a sense, our staff forecast is a formal exercise based on an assumption of a given rise in money supply. And that is interpreted optimistically with a 3 percent [demand] shift. We have never been successful in sticking by our money supply targets and I fear that the same thing will happen again. That means that we have no very clear ceiling on the up side and that there's a real possibility of going to higher rates of inflation and much higher rates of nominal GNP than any of this says. Well, let me just ask one small technical question. Jerry, you were skeptical about business fixed investment spending, partly on the grounds of low capacity utilization. Isn't there a chance that we are once more overestimating our true capacity, as I think we did the last time round, and that the pressure begins at lower capacity use levels? And secondly, given the high increases in wages that firms [already have implemented] and that seem ahead, isn't it possible that they may put more emphasis on modernization than expansion?",349
-fomc-corpus,1980,"As far as the first point is concerned, it's always possible that we are estimating capacity incorrectly. But we have tended to scale down the effective capacity level in our index by introducing a factor of downtime that is much greater than we had earlier. So I think we're far more realistic in terms of effective capacity than we were, let's say, 6 years ago. As far as the latter point is concerned, certainly that [possibility] is there. The tendency to shift toward capital because of the [high] relative price of labor versus capital has existed and continues to exist. We have tried to build that in. What we've viewing here is a cyclical performance rather than the longer-term secular considerations which really bear upon that to a greater degree. We also are moving out of a period in which pollution control and related expenditures have borne such a heavy weight relative to total expenditures, as they did a few years ago. So that's a factor lowering the possibility for [business investment] expenditures.",197
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,My question has been answered.,6
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"I'm curious about your projection [for the external sector]. I know you said yesterday that the real growth of our trading partners was strong--and Japan's was quite strong--in the first quarter. But [these countries] seem to me to be subject to the same pressures that we are: high interest rates and rising oil prices. What makes you think that we're not going to export our recession and have a worldwide recession, which I assume would weaken your forecast markedly?",93
-fomc-corpus,1980,"I'd make several points. We are definitely assuming that [other countries] will have a slowdown. [We expect real GNP] growth to go from approximately 4 percent in the last two years, 1978 and 1979, to 1 percent. To some extent zero is an artificial number in this context; indeed, the same forces will be operating on them, including higher energy prices. On the other hand, as shown in the second [international] chart called ""Activity Ratio,"" they also didn't expand as rapidly, so they in some sense are in a less strongly pronounced cyclical position than we are. As I said, for two of the countries we are expecting what one would classify as a recession this year. Those basically are the answers I would give you. As far as exporting our recession, clearly [our economic performance] has some impact on them but it's easy to exaggerate that effect these days. We are [relatively] less important in the world economy. In fact, we now account for under 20 percent of world trade whereas a number of years ago we were a third of world trade. There's less feedback effect on the rest of the world, with probably two important exceptions. One is Canada, which had negative growth in the first quarter--2 percent at an annual rate. And their statistics are looking just like ours, with housing starts falling out of bed and so forth and so on. There's Japan, too. The automobile situation suggests--[unintelligible] other factors determining it--that there may be a little less of an impact on Japan than one would normally expect because of the continued demand for small cars.",334
-fomc-corpus,1980,But that is one of the risks in the forecast. Things could be considerably worse--,17
-fomc-corpus,1980,"Yes, but we may be going through the same phenomena. I've asked the staff about that. We're worried about that with a nine-month lag, right? In general, we've been forecasting a slowdown in every [Greenbook] and we haven't seen it yet in the numbers. After real growth in the first quarter on the order of 3 percent, depending on how you cut the numbers--which is a healthy annual rate--we estimate that the G-10 countries will get something like 1 percent growth for the year. That means growth is going to have be something very close to zero on average [over the final three quarters].",127
-fomc-corpus,1980,There will be a few further complications if the LDCs don't get financed. Governor Partee.,20
-fomc-corpus,1980,"I'm fairly comfortable with the forecast. I have a feeling that the staff might be on the optimistic side with regard to prices. I noticed that food price increases are really nothing exceptional at all in this forecast and intuitively I would have expected a considerable burst in food prices later this year and early next year as animal inventories are reduced and can't go any lower and we get a very substantial reaction in meat prices. I also agree with Lyle that the pressures on compensation are all going to be on the up side of this forecast rather than the low side. And then I'm not really sure about energy; that's a wild card. [The staff has] a 16 percent increase year-end to year-end, which is fairly modest; on the other hand, one could make a case that a surplus would make even that a rather large increase. I'm just not sure about that. If we did have a little more in prices, we might have a little less real growth, given the policy assumptions. And that would be the tendency, I think, as the year goes on. In addition, there is no allowance here for shocks. One can't have an allowance for shocks, but in fact many of the main features of our economy in the last few years have been conditioned by unanticipated shocks. And there could be more in the future--the large country difficulties, large company difficulties, large bank difficulties, whatever they might be--that could adversely affect the outlook. As far as the money number is concerned, I think assuming that 3 percent demand shift is a very conservative stance for the staff to take. Remember what that means. If the demand shift were less than 3 percent, interest rates would be higher than forecast given GNP; and they're already forecast to be pretty high. Back in '75 we didn't put in much demand shift, and we [forecast] very high interest rates rather early on in the recovery, [and those rates] never materialized. So I think taking a sort of midpoint figure for a continued demand shift is conservative and the proper way to go. If it's [more] than this, we'll have credit conditions that are a little easier than forecast. But given the great uncertainty in this area--and I don't understand the thing nor do I think the model is much good--the staff assumption seems proper and conservative. And we ought to keep that in mind.",478
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"I think this balance sheet ratio page is telling us something. It shows us very clearly that compared to 1974-75 the corporate sector is less liquid, the household sector is substantially less liquid, and the commercial banks are less liquid. At the same time, we are going into a recession of about roughly the same scale as the one in 1974-75, but we are coming out with a much more sluggish recovery than we had in 1975 and 1976. And throughout the whole period debtors will be carrying substantially higher interest rates than they've ever carried through a recession. This seems to me to add up to a much higher level of business failures and loan losses at banks than we've seen before. Would you want to comment on that?",153
-fomc-corpus,1980,"I don't know that I'd say ""before"" and refer to 1974 and 1975. We had very special factors then, involving particularly the REITs. I do think, however, that the combination of high inflation, which is really the problem behind this whole chart, as well as sluggish income growth in general portends difficulties for individual units in the business sector, in the household sector, and probably in the state and local government sector as well. I don't know that I would want to [compare the current situation with] what I would view as a very special period complicated by the recession in 1974-75, but there is clearly a potential for delinquencies and business failures that should not be ruled out.",148
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"I think somebody ought to be optimistic here and try to search for what might be a more positive approach or we are going to have all the probabilities on the wrong side of the forecast. Your housing starts figure, as I understand it, is for single-family homes.",53
-fomc-corpus,1980,"No, it's both single-family and multifamily.",10
-fomc-corpus,1980,Combined.,2
-fomc-corpus,1980,"Well, the inventory of single-family homes is rather a puzzle in terms of the overhanging supply, which may be larger than it seems. But in apartments and the whole commercial area, one can't beg, borrow, or steal space. One gets the feeling that that could snap back somewhat more quickly than it has in other cycles. So that's a positive [note].",74
-fomc-corpus,1980,"One can't beg, borrow, or steal space, but with the rent control laws and all that does anybody want to build?",25
-fomc-corpus,1980,"Yes, it's starting to pick up in some areas. At least the builders and the people in the financing area are talking about a fairly sharp turnaround, Paul. So that's a positive. Second, if one looks at these declines, how much is psychological and how much is real in terms of the shock effect that we had? And to what extent can we have factors that will go the other way? For example, my guess is that while the 1972 to 1979 budget experience indicates that expenditures fell short [of the estimates], I have greater confidence in the Administration this year so I think that may not be the case. We may get a bigger deficit in 1980 than has been projected, [particularly] if we get the tax cut--and at least the discussions of that seem real. And perhaps people are not being sophisticated in their analysis and are simply taking the present deficit and then adding on the tax cut, whatever that may be. You talked about a deficit in the area of $110 billion for next year. In that environment what kind of reaction will we get in terms of peoples' behavior? Third, [in the area of prices] I realize the animal problem gives one pause but, on the other hand, the grain prospects look quite good. So I don't know to what extent we might get a stand-off on the food side. Psychologically we have the problem that gasoline is about to run out our ears in terms of storage. What happens if we start to cut gasoline prices? I realize the Saudis and others are talking about raising [prices for] crude, but what kind of psychological impact will we get from that kind of development and from the scare [tactics]--the ""look what lies ahead with $110 billion deficits"" and that kind of talk? Will we again get some psychological reactions? We have talked about the shift in demand for money and so forth. But when we look at these capital ratios, have we made allowance for that shift in terms of how they will behave, even though you've commented on the deterioration that has occurred versus previous cycles? So, I'm trying to search for things that could give us a positive push at this time rather than the more negative kinds of inputs that we hear.",452
-fomc-corpus,1980,"I thought you were going to introduce some animal spirits to overcome the animal inventories! Well, one of the difficulties of having so comprehensive and able a presentation is that it provoked a great deal of discussion and [consumed] a great deal of time. Nothing looks very happy, except Mr. Winn's last interjection. As I judge this, we have a problem in that if we base our analysis on any kind of traditional analysis, econometric or other, we run into all sorts of dilemmas. And it makes one wonder how all this can be reconciled except by saying: ""Let's have a more expansive budget and a more expansive monetary policy and then everything will look all right on these traditional grounds."" That's if we ignore the inflationary implications, which I take it we can't ignore. That is the dilemma we have. We don't have a situation where we can play the game the way we have played it traditionally. I don't think we can, anyway. Well, if we are going to have any coffee break at all, we can go chew on that physically as well as mentally for a few minutes and come back and enter into the policy discussion.",233
-fomc-corpus,1980,"We spent a long time on the business outlook; I think we should have spent a long time because [the staff presentation] was interesting and illustrated some of our problems very amply. But I don't think we are going to get beyond the long-term ranges before lunch, so I suspect we will [continue the meeting] after lunch. We have to consider these forecasts a little, in preparation for the Humphrey-Hawkins testimony. We have some figures, as you know, from the Presidents and from the Board members, and we ought to have at least a little discussion about how they came out and how they should be presented. Let me defer that for later. I guess it could be argued that we ought to do that before the policy [decision], but I won't be that logical. I'll do it afterwards. But I do think we need some time to discuss non-monetary policy matters. So [the meeting] may run a fair amount of time this afternoon. I won't try to finish before lunch; our meeting will have to continue afterwards anyway. I hope to finish [our work on] the long-term aggregates before lunch at the very least. I have the sense, as I suggested before, that this presentation of the business outlook, which is based upon past relationships and past performance of the economy, does point up very well our dilemmas and the basic issue we face. It's a philosophical question almost as to how we approach a system which in some sense has run out of steam in terms of the postwar presumptions, if I can put it so grandly. The economy has been getting less liquid for 30 years. We have had rising inflation for 15 years, I suppose. Both of those factors, and I'm sure some others, have changed the nature of the economy and the nature of expectations, and they have implications for cyclical analysis. If one assumed that expectations were stable in some sense and weren't affected by inflation, the overwhelming thrust of what comes out of the business analysis is that we should have a big tax cut, an easier budget, and a substantial increase in the monetary aggregates, and everything will go along happily on past cyclical grounds. We'd have room for a bigger recovery and everything would move as it did in previous cycles. We could look ahead, if not happily, on a more or less even course [consistent] with past history. I doubt that it will be so simple because expectations will be affected. We will get financial market repercussions from that kind of policy that are probably inconsistent with that [historic] evolution. We'll get exchange market reactions that would be inconsistent with following that course. I don't think there's so simple an answer. It's not the answer that our policy to date, anyway, has suggested. On the other hand, the opposite view--that if we just keep clamping down on the money supply all the problems are going to disappear nicely and the inflation rates are going to come down much faster than these projections show and the various dilemmas will be reconciled in the next year or two in a very happy kind of way--doesn't leave one feeling entirely comfortable in the pit of one's stomach. At least not me. I suppose it's a matter of raising the questions; it's not only what we should be doing, but what we think the analog should be in other public policies, whether fiscal policy or wage-price policy or otherwise. Those are appropriate questions, particularly for me. I think they are always appropriate for the Committee but there's a certain spate of testimony we have to deliver in the next couple of weeks on a whole range of economic problems, from monetary policy to fiscal policy, to wage-price policy, to silver, to the Monetary Control Act and everything else. So we do have to think implicitly or explicitly about complementary policies as well as about our own policy and approaches. With that very general introduction, maybe Mr. Axilrod can set out the more specific considerations with respect to where we go on the aggregates this year and next. Let me just say one other thing in that connection. We obviously have to review the aggregates and announce a rather specific conclusion for this year. We also have to say something about next year, but the degree of specificity with which we state [our objectives for] next year is quite an open question. We can go all the way from saying these are our preliminary ranges--we wouldn't say final in any event--for M-1A, M-1B, M2, M3, and bank credit in a manner similar to what we would do for 1980 to the other extreme of indicating a qualitative direction. Or we can alight anyplace in between those two extremes. It is an open question we should resolve regarding whether we want to go with one of those extremes or some place in between in terms of what we say in the Humphrey-Hawkins report. I think it's useful to be as specific as we can be in the first go-around here--as specific as we can in getting individual views, however generally we want to [cast it] as a consensus for the Humphrey-Hawkins report.",1031
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"You did not consider the possibility--maybe it shouldn't be considered, but let me raise it--of correcting, in a sense, the M-1A/M-1B relationships for what has gone on so far.",44
-fomc-corpus,1980,"Well, we did. We assumed that an unchanged policy from what was adopted in February meant that M-1A growth could be about 1/4 point below the midpoint of the range and M-1B growth about 1/2 point above the midpoint.",54
-fomc-corpus,1980,But that's not reflected in the ranges you are proposing.,11
-fomc-corpus,1980,"We didn't change the ranges, but we spelled that out as an assumption.",15
-fomc-corpus,1980,"Theoretically, we have the option of--",10
-fomc-corpus,1980,That's right. That's why I particularly stressed M-1A and possibly M-1B; but M-1A is a more logical candidate.,30
-fomc-corpus,1980,"Just to put this in context: The charts that you have drawn later [in the Bluebook] for the short-run ranges are based upon what we know through June. M-1A and M-1B are both below the cone [for the year thus far]; in fact, they're below the channel. If we took the estimate you have for July--which may be in a state of flux, but just so the Committee can appreciate it--M-1B would be just about at the lower end of the cone, whereas M-1A would still be below the cone. You have M-1B almost back in the cone--not quite, I guess, but very close to it.",143
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,Projecting M2 into July--June is already [plotted on the chart]--it looks a little more clearly above the midpoint.,28
-fomc-corpus,1980,"That's right. We expect that by the time the year is out, M2 will have grown [at a rate] somewhat above the midpoint.",29
-fomc-corpus,1980,And M3 will be just a little below the midpoint.,12
-fomc-corpus,1980,Do you have an M3 estimate for July? I don't know whether you do or not.,19
-fomc-corpus,1980,"I do have one. The July rate of growth for M3, at 5.8 percent, is weaker than that for M2 and M1 because we still have very weak bank credit demands and consequent reductions in large CDs.",47
-fomc-corpus,1980,"What you basically have for the July projection is: M-1A below the cone, though probably within the channel; M-1B just about at the lower side of the cone; M2 higher in the range; M3 a little low in the range; and bank credit--what, below the bottom of the range?",67
-fomc-corpus,1980,"Yes, well below the range.",7
-fomc-corpus,1980,After having run for a year or more above the top of the range. It does suggest that we could reduce the M-1A range on technical grounds; I guess one could justify a half point reduction in the lower end.,46
-fomc-corpus,1980,"Yes, one of the considerations--to repeat what Steve just said--is that for this year one might take the point of view that M-1A particularly should be reduced. If we do that, just keep in mind what we might want to do for '81 and what visual appearances we want to give of--",64
-fomc-corpus,1980,I mentioned the lower end of the range. Your point about the top end is very well taken.,20
-fomc-corpus,1980,"I would have some arguments against doing that in addition to the problem that it creates for '81. Number one, the credibility issue of having stated targets and leaving them alone at this point is worth thinking about. The other is that if we start fooling around with these ranges and try to get them a bit tighter or [the expected outcome] a little more in the middle of the range, it's likely to get us into trouble. We have to fight Proxmire all the time anyway because he is always trying to get us to narrow the ranges; and at some point that is going to give us problems. I think we should try to hold out for somewhat broader ranges.",136
-fomc-corpus,1980,"I will remind you in that connection, as Fred just implied, that we got some criticism last year--I don't think it was serious--that the logic was to reduce the width of the ranges at [the midyear review]. I don't suggest that we should necessarily do it, but we should have that in mind. That is, we ought to reject it consciously if we don't do it, because one can make the argument in pure logic that we ought to be a little more certain now about where we are going to end up at the end of the year than when the year began. Let's hear what you have to say in general about this matter, Mr. Eastburn.",136
-fomc-corpus,1980,"Well, I'd like to [harken] back [to] what you said earlier and what Fred just said. The thrust of your introductory comments was that [people] behave differently these days because of expectations than they would ordinarily.",46
-fomc-corpus,1980,One might argue that anyway.,6
-fomc-corpus,1980,"Well, I think it's very true. In light of that, it seems to me that this exercise we go through twice a year goes beyond policymaking so far as the aggregates are concerned and goes to the public impact in terms of creditability and expectations. I would prefer your statement to be fairly simple. I'd say, first of all, that we are reaffirming the anti-inflation stand that we have been maintaining and, consistent with that, that we are going to maintain the targets we had established for 1980. I'd indicate the uncertainties involved in doing that. We talked at great length here about the shifts and the uncertainties involved in the shifts; and if we are uncertain about them, [why] talk about that publicly at great length? It seems to me that would not enhance our credibility but would create a great deal of public confusion. And I would not indulge in a lot of fine-tuning among the various averages. That to me would even further compound that problem. So for 1980 I would stick with what we have; I'd do any qualitative explanations necessary but leave the numbers where they are. I would confine comments on 1981 to a qualitative statement that we intend to pursue our long-term policy of gradually reducing the rate of growth of the money supply without being specific about the numbers at this time.",268
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"I am very close to where Dave is on this. I think it would be a terrible mistake to adjust these ranges. This probably will be the first real test from a credibility standpoint of whether we are fulfilling what we announced our policy would be last October. To horse around or to adjust the range to accommodate what is happening rather than what we set out to achieve would be very detrimental to our credibility. I think consistency is terribly important. I part company [with Dave], if I understood Steve's remarks about the inflationary consequences of moving back up into the range, in that I think that we should say publicly--I think you should tell Congress--that we have fallen below the lower limits of our announced ranges for the narrow aggregates and that we are going to do what is necessary to get back within the ranges. But no one should construe that as having inflationary implications other than over a very short period of time. We are going to get back into these ranges because we do not want to exacerbate the recession we are in. We don't want to make it worse by continuing [to foster] growth of the narrow aggregates below the ranges. And I think we should make at least a strong statement--we don't want to be specific--that going into 1981 we are going to reduce gradually the rate of growth of the narrow aggregates. Incidentally, our people did a study of M2 and they feel that M2 is not an accurate predictor of GNP, so I'd resist moving to place greater emphasis on our M2 targets. But I think we ought to tell Congress what we are going to do--that we are going to correct for this [current] undershoot and that next year we are going to continue our policy of gradually reducing the rate of money growth. We will enforce our credibility by being candid. I don't think we ought to play games.",376
-fomc-corpus,1980,"Well, I don't think we ought to associate a change in the ranges--if we think we have good grounds for a change --with playing games or horsing around. All ""B"" is arguing is that a technical adjustment is required.",48
-fomc-corpus,1980,"Don't you think, given the tendency of the Open Market Committee in past years toward base drift, that people--or at least interested market participants and others--knew that we were playing games in those days to make ourselves look good?",47
-fomc-corpus,1980,"I think there is something to what you say, looking at history. And I'm not arguing for changing the ranges; but I just don't want to associate any change, particularly in this case when we could argue that we have a technical reason for making the change, with playing games. We said a certain range was valid at one point; I don't think we can say that it's valid forever just because we happened to say it [once]. Don't change the ranges lightly without a good reason is what I think you are saying. Don't revert to changing them automatically because we change them every quarter to take account of what has happened. I just don't want to overstate the case for not changing. Mr. Baughman.",143
-fomc-corpus,1980,"Mr. Chairman, as to the general economic and psychological setting, I am persuaded that we are in a situation where our conventional belief no longer stands up that monetary and fiscal policy, if handled appropriately, have the capacity for nudging the economy along a path toward full employment and price stability. And I am persuaded that we will not be able to achieve those desirable objectives without engaging in some direct interference in some of the price and wage making processes. But even if that's true, it seems to me that the best contribution monetary policy can make is to behave as if that were in fact the situation and hope that somewhere along the way the necessary [steps] will be taken to address the structural rigidities in the economy.",143
-fomc-corpus,1980,"Pardon me for interrupting you, Ernie, but you reminded me: I would appreciate it if people, when they are making their comments, would express any assumption they are making about fiscal policy or wage-price policies--as you have just done to an extent--and say what they think is appropriate. Your comment on wage-price policy just reminded me of it.",74
-fomc-corpus,1980,"Well, turning to what's immediately at hand, I think it's a close call as to whether to make any adjustments in the targets that were announced last February. I can make a fairly persuasive case either way, I think. It seems to me that we are under rather strong pressure to do something with the 6 to 9 percent range on bank credit. Of course, if we do that, then we have made a change and that opens up the whole set of ranges for other changes. If it were not for that, I would come out on balance for no change. If we were to come out [for no change], we could just incorporate some words rationalizing that any time we are aiming at a family of targets, we obviously are not going to be able to hit all of them. And in this circumstance we are simply pursuing policies which, as things have developed, give greater priority to the money measures than to the credit measures. With respect to next year, we have a choice of being either fairly specific or quite general. If we go the route of being quite general, we should reiterate with some firmness of conviction, as already has been suggested and as we have done previously, that we are of a mind to move to lower rates of monetary growth until such time as we get to that level of growth which is judged to be consistent with full employment under conditions of price stability. But as next year has the potential of giving us a fairly unusual looking set of numbers, until such time as we get to the point of presenting those numbers it might be appropriate now to take a little time to elaborate on the point that as the new legislation goes into effect, we think it's going to have a substantial impact. Just by way of illustration, its impact could be such that a posture of moderate slowing in the rate of growth of our narrowest money measure might bring our target for growth of that particular measure down to zero. So I would want to try to get across that idea. It seems to me that if we are going to get much benefit in the economy from monetary policy in this next year or so, it has to flow pretty much from getting across the idea that we are going to impose a policy that will continue to move in the direction of being consistent with price stability, whatever those numbers might be. That's all I have right now.",472
-fomc-corpus,1980,You assume a tax cut next year or the desirability thereof?,13
-fomc-corpus,1980,"Well, I take it as a given that there will be one. It's not something that I have endorsed in any of the speeches I have made.",30
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Mr. Chairman, I'm quite comfortable with alternative 1 as stated, [namely to maintain] the present ranges. I would, of course, do the proposed revision of the bank credit range. But I don't consider that in the same box as the four aggregates. As a matter of fact, I think we have gone out of our way to make it clear to the [Congressional] Committee--I'm relying on memory here, so someone can correct me if I am wrong--that [our aggregates targets] would be ""associated with"" bank credit expansion of such and such. We've said that bank credit isn't a target in the sense that the aggregates are a target. As far as next year is concerned, I subscribe also to the idea of [describing our objectives] qualitatively. I see no reason though, Mr. Chairman, why you in your testimony couldn't indicate that we are at a different point in terms of the outlook for the ranges for this year--that at this time we are closer to the low end of the range for M-1A and a little higher than the midpoint for M-1B, and so forth. You could do it qualitatively without disturbing your credibility; I think it would enhance your credibility. And for next year, somewhat differently from Larry, I would put a little more reliance on M2 because I think it is a more stable aggregate against which to measure than M-1A or M-1B. We are going to have a lot of volatility and unpredictability even [though we're more than] a third of the way through the year. So I would lean toward more reliance on M2 looking forward. It isn't as important in calendar year '80, but I think it is very important in calendar year '81. So, I think you can indicate qualitatively [how] we are leaning in our thinking without getting into quantities and without disturbing credibility. Fred Schultz's point is very apt that Proxmire would like nothing more than to see us try to fine-tune some of these ranges. He would say: ""Aha, you are working in my direction but you are too cowardly to come out with a point estimate."" I would argue very vociferously against either fine-tuning or a point estimate.",459
-fomc-corpus,1980,"One problem you remind me of--it is more of a potential problem--is that if we put more emphasis on M2 and also say qualitatively that we are going to reduce its range, my impression is that we may maximize the tension between the economic projection and the monetary projections.",57
-fomc-corpus,1980,"Well, you have to go further than I indicated, Paul, in that M2 has certain qualities that remove it a little from transaction accounts. That's why we have M1. I don't see any harm in indicating that we may not be able to reduce M2 but that we expect or hope to have slightly lower M1 ranges. I don't think that would get you in too much trouble because M2 does include the ingredients of housing finance and so forth. That would not detract from the credibility of a qualitative statement of that type.",108
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Mr. Chairman, I don't think there is a compelling case to change the ranges this year, although I wouldn't object to revising M-1A down by 1/2 of one percentage point. For next year, I disagree with most people who have talked so far. I think we ought to give some numbers for next year. If we fail to do so, we could generate some adverse psychology to the effect that the Federal Reserve is not willing to speak except in very vague generalities. On the other hand, the problems of setting ranges for M1 numbers for next year are really formidable. I disagree with the staff recommendation that M-1B should be boosted by only 1-1/2 percentage points next year; that's much too low. If in the current situation we are getting a boost of 1-1/4 points to M-1B and then we go to national NOW accounts, [the effect will be greater]. The NOW account is a much more marketable concept than the ATS account; furthermore the S&Ls, since they do not have demand deposits, cannot [offer] ATS accounts. So the 1-1/2 points seems much too low. Now, if we go with 2-1/2 points, which is closer to where I think we are going to come out, then we will get some very strange numbers. For example, for M-1A we will get a range of -2 to +1 percent and for M-1B, 5-1/2 to 8 percent. I just think our ability to set ranges for M-1A and M-1B next year is so limited that we'd be much better off simply telling Congress that, due to this new technology change coming next year, we can't do a very good job at estimating and, therefore, we are only going to set a target for M2 next year. Now, we could add M3 to that and set targets for M2 and M3. And I would say for M2 that we are going to scale down the range by 1/2 percentage point to 5-1/2 to 8-1/2 percent. If we are not willing to make any commitment, even a tentative one, on what we are going to do in '81--particularly if you are [testifying] at a time when the foreign exchange markets are very turbulent--we are likely to get adverse psychological feedback. I don't see any real hazard to [my suggestion]. We are going to have to come up with some scaling down of the [ranges] and 1/2 percentage point is about as small as I can accept.",545
-fomc-corpus,1980,Despite the fact that it's inconsistent with the economic outlook as presented? It's only 1/2 percentage point more inconsistent than the present range.,28
-fomc-corpus,1980,"I don't think 1/2 point is going to make very much difference, Mr. Chairman.",20
-fomc-corpus,1980,Except that it is in the wrong direction.,9
-fomc-corpus,1980,What would you say about taxes and wage-price policy?,11
-fomc-corpus,1980,"We ought to scrap wage-price policy. I don't think it has contributed anything in 1980, and in an environment such as we are going to have in the next couple of years I think the marketplace could do a better job than presidential guidelines. Presidential guidelines might end up providing a floor for wage increases in the kind of soft situation we are contemplating.",71
-fomc-corpus,1980,Do I infer from what you are saying that you are much more optimistic about the wage outlook than the forecast suggests?,23
-fomc-corpus,1980,"Yes, I am, because I think we can affect expectations if we really demonstrate to the marketplace that things are changing, that we are doing things differently.",31
-fomc-corpus,1980,We can't affect existing contracts.,6
-fomc-corpus,1980,"Yes, but remember, 80 percent of the American labor force is non-union. It doesn't [work under] any contract. On taxes, I would urge the Congress to set that issue aside until they come back in the next session and treat it as a tax reform issue rather than as a consumption stimulus issue. One could make a good case for offsetting the increase in social security taxes for the consumer and one could certainly make a case for investment stimulus. This, of course, is essentially what is in the package. It seems to me, again psychologically, that it would be better to do this when the economy is turning up rather than having the Congress make a panicky, seemingly fine-tuning, effort before it goes out for re-election.",152
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, like several of the others who have spoken, our preference for 1981 would be the retention of the existing ranges. I come out pretty close to where Dave Eastburn and Larry Roos came out but, of course, I wouldn't want to overstate my case as you said Larry was close to doing. So, I feel pretty much the same without overstating it. Just attribute [the overstatement] to him! If we lower our targets now--and because of where we are I know there is a real temptation to do that--people are going to interpret it as meaning that we have just forgiven our misses as we have done in the past. That's just one step away from their concluding that if we overshoot on the up side as we come out of this--which is where we usually have made our mistakes in the past--we will do that just as readily [this time]. So, that is the principal reason I would stick with these targets. But we ought to recognize that there are other aspects of credibility involved, and one is that to achieve these targets--to get anywhere near the adjusted midpoints of the ranges for M-1A and M-1B--we have to have pretty darn rapid rates of growth in those aggregates between now and the end of the year. And I'm convinced that a substantial body of the financial public is apt to conclude that we have thrown in the towel [on fighting inflation] unless we do a very good job of explaining that. I think you, Mr. Chairman, and the rest of us will have to combat that in talks if indeed we do decide that is what we want to pursue. I am also aware that this course will probably weaken the dollar temporarily, but if we don't go ahead and move our aggregates up [into the ranges], the intensification of the recession here will probably damage our trading partners to a considerable extent and there will be feedback effects here. And those effects may even be more serious so far as domestic activity is concerned. We also ought to bear in mind that the real way to deal with the foreign exchange problem is to deal with inflation rather than to worry about temporary differences in interest rates. And I do think this policy will be the best way to deal with inflation over the long run. So on these grounds, we would favor approaching the adjusted midpoints--maybe I should say asymptotically or rather slowly anyway--of the ranges for M-1A and M-1B and we would weigh M-1B considerably more heavily than the others. We also would favor shorter-run specifications that would be consistent with that kind of long-run policy. For 1981 I think it's vital that we follow through and announce that we have lowered our targets, as we have been promising to do every time we have [testified]. I'd make an effort to lower these gradually, but steadily. I think Frank Morris made a good point in suggesting that we ought to avoid saying much about the technical adjustments now. I would favor lowering all of the ranges about 1/2 percentage point but point out that we will have to make adjustments later on. I know that's not going to eliminate all the confusion that will emanate from this statement, but it might reduce it. So far as the last question you asked, I would not favor a tax cut but it seems inevitable given the political situation, so I am assuming that one will take place. And I agree with Frank Morris that jawboning is practically useless. I would say it might have a marginally positive effect if monetary and fiscal policy are doing what they are supposed to be doing. But a tax cut is probably inevitable, so I imagine we will have it in some form.",752
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"Well, I feel we ought to reduce the ranges for 1980. I realize it looks a little like base drift in fitting the goals to suit the achievements, but the alternative of bringing the achievements back within the ranges that were our goals could be very damaging. That would mean a rapid [rate of] increase in the aggregates. We'd have to go for a number of months at rates of growth in M-1A, and M-1B even more so, that in the past have been regarded as indicating inflation and perhaps a reversal of our policy. We would have to drive interest rates down somewhat further to severely negative rates. And then we would have to make a turnabout at some point in order to get back on track; [with money growth] having sharply risen back to track, we'd have to slow it down, thereby suddenly raising interest rates after [previously] having driven them down. I think all these gyrations would be damaging, and we are not likely to do them [when needed]. We will find ourselves missing or somehow avoiding the very painful issues involved in these interest rate movements. So I would favor bringing down the M-1A and M-1B ranges 1/2 point for 1980. For the next year I share the philosophy that we ought to announce a reduction. I am very apprehensive that we will be far out of reach with regard to the development of nominal income on one side and the reduced monetary aggregates targets are concerned. I see the additional problem of M-1B. I, too, would be surprised if there weren't a more rapid switch [to NOW accounts], causing M-1B to increase more rapidly and M-1A to slow. It looks as though M-1A is really a diminished, vanishing species as far as most people are concerned. And I think perhaps Frank Morris' suggestion of focusing on M2 and M3 for '81 and explaining that under these conditions we cannot be very specific about M-1A and M-1B is a way out. We would do what we should do--indicate a reduction; that is what I would recommend. But we wouldn't quite trap ourselves in so difficult a situation as we would if we named lower numbers for the M1 aggregates.",461
-fomc-corpus,1980,"Wages, prices, and taxes?",8
-fomc-corpus,1980,My response there is that we ought to go to a tax oriented incomes policy. I see in the Washington Post today that they are revising--,29
-fomc-corpus,1980,Last gasp.,3
-fomc-corpus,1980,"It just won't die because it's a reasonable suggestion. As for a tax cut, if we had the choice, I would postpone it into late '81.",31
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"I'm quite satisfied with the specifications of the ranges at this point. Remember, they are ranges, and if we get into the lower parts of them or the upper parts of them we've met our targets. We don't have to hit the 4-1/2 percent or 4-3/4 percent [midpoints] right on the nose. It seems to me that it would not be wise to lower them, simply for credibility reasons, even if we say it's a technical adjustment. Just leave them alone. I'd also point out to you that I don't think there is an overwhelming need to change the bank credit number because we know there has been a tremendous substitution of commercial paper for bank credit. And if we take [account of] the total sources of credit in [that measure], then the 6 to 9 percent range is one that is achievable. It's just a technical development in the market rather than anything that should make us change our targets.",192
-fomc-corpus,1980,"If I can just interrupt, I meant to ask--and maybe you already said this Steve, though you don't have it this way in the table--if we keep the ranges unchanged, is the technical case intellectually, in the sense of your best forecast, overwhelming for changing bank credit or not?",59
-fomc-corpus,1980,"Yes, our forecast for bank credit is literally 4-1/2 percent.",17
-fomc-corpus,1980,That's fourth quarter-to-fourth quarter?,8
-fomc-corpus,1980,"Yes, December to December it's around 5 percent.",11
-fomc-corpus,1980,That's consistent with these--,5
-fomc-corpus,1980,"Yes, that's consistent with the 4-1/2 percent [forecast for M-1A], etc.",23
-fomc-corpus,1980,But if you add in commercial paper what happens to it?,12
-fomc-corpus,1980,"I don't have that rate of growth in mind, but I don't think it would be that low.",20
-fomc-corpus,1980,"It probably would bring growth within the range, if we [took into account] the substitution in commercial paper.",23
-fomc-corpus,1980,I'd have to calculate it.,6
-fomc-corpus,1980,It has been several billion dollars in the last couple--,11
-fomc-corpus,1980,"Yes. It strikes me as the same kind of animal. [Issuers of commercial paper] have just shifted where they are getting [funds]; and due to the technicalities of the prime rate relative to market rates it's a reasonable thing to do. So, we could just explain that there has been a shift in the way the market is [behaving] and keep the same range. For next year, I really am disturbed that everybody wants to lower [the ranges]. Have you not looked at what the federal funds rate would be if we lower them? The funds rate in the fourth quarter of 1981, if we lower our targets, would be 15 percent. How much mortgage activity do you expect to have if fed funds are at 15 percent? There's a limit to how far we can push down on money growth and not just absolutely strangle this economy. And given the uncertainties of the outlook at this point, I think the safest thing to do is to say that we are going to stay within the same ranges next year. We have wide enough ranges to lower the actual outcome, to come in at the low end. But to set out now to push short-term rates up to the 15 percent area seems to me outrageous, frankly. It would almost completely negate any real growth that we are going to get over this period. The housing market certainly won't come back. The thing to do is to say that we will aim to get within the ranges and that we aren't sure we are going to hit the midpoint of every one of them. I'd stick to the bank credit range as modified, and then say at this point that we simply plan to continue [those ranges] through next year rather than that our total task in life is to reduce the rate of increase in the money supply year after year. I don't think that's what it is.",374
-fomc-corpus,1980,"Wages, prices, and taxes?",8
-fomc-corpus,1980,"On wages and prices, I don't see that we have a hope of getting it through Congress. On taxes I think the most beneficial tax cut we could get--this should sound familiar--is to cut out the social security tax increases, which would probably do more to lower unit costs than anything we could do at this point. That has a direct impact on wages. They can take out the increase in January and dress it up as a removal of health insurance [unintelligible]. And if the accelerated depreciation were put in, we'd probably get the best combination of tax reduction and one that goes directly into people's incomes right away. It wouldn't get all tied up in a refund a year later, in the way it has been done several times before. So, if we state our preferences, I'd certainly go for social security relief.",166
-fomc-corpus,1980,Governor Gramley.,4
-fomc-corpus,1980,"Let me start with the tax issue first. I agree with Frank that we ought to encourage the Congress not to consider this until after the general election. I think the chances of getting a well-structured tax cut would be much better if it could be considered later this year rather than in the heat of election politics. I would like to see a significant part of the tax reduction go to a reduction in payroll taxes, but not all of it. We ought to strongly encourage the Congress to allocate a substantial share of the overall tax reduction to business investment incentives because I think that's critically needed for the future. On wage-price policy, the way wages and prices behave in a complex modern economy leaves really no alternative but to try to use voluntary guidelines to supplement monetary and fiscal policies. I wish I could agree with Governor Wallich that a TIP would work, but I don't see any kind of TIP that is feasible. So far as the targets are concerned, I want to start with 1981 and work backwards. If I have understood correctly, the staff is saying that if we want to keep the unemployment rate from going up further, from roughly 9 percent at the end of 1980, we are going to have to provide for an increase in Ml, however defined--not worrying for the moment about NOW accounts and so on--of roughly 7 percent unless we have a very favorable shift in money demand. And Steve is saying that the chances of not getting that favorable shift in money demand are not trivial. I would say that, indeed, they are not trivial; it may not happen at all. So I think it would be a serious mistake for us to decide at this juncture that we ought to lower the target growth rates for the narrow monetary aggregates for next year. I'm more pessimistic than the staff on the outlook for inflation next year. But we can't possibly run a viable long-run monetary strategy to reduce inflation if we follow a strategy that pushes the unemployment rate well above 9 percent. I just don't think that's viable. Now, the logic of my position for 1980 and my interpretation of what has been happening recently says we ought to lower the growth ranges; substantively I agree with Governor Wallich completely. But I don't think we can lower them now for the rest of 1980 and then raise them for 1981. So, I would be inclined to leave the targets where they are for 1980; but I would be entirely happy, unless we have a reverse shift of the money demand function, to see the actual growth rate of the narrow monetary targets fall below the targets for this year. I would be quite prepared to explain to the Congress that when we have a shift in money demand to pump out enough money supply to stay within those ranges is murder. It would just ruin any chances we have for getting inflation under control over the long run. So far as M2 is concerned, my feeling is that we have a range that looks inconsistent with the M-1A range and that we ought to be prepared to raise that. And if we are reluctant to raise the whole M2 range, then I'd raise the upper end. It is a new kind of aggregate.",644
-fomc-corpus,1980,Are you talking about '80 and '81?,10
-fomc-corpus,1980,1980. What I would do for 1981 is simply say that at this juncture we have no basis for changing our views on the appropriate growth rates and for now I'd leave them where they are.,42
-fomc-corpus,1980,"If I understand you, for M2 for 1980 you would--",15
-fomc-corpus,1980,I would be inclined to raise the range for M2 for 1980. One way to do it would be simply to raise the upper end and say 6 to 10 percent.,38
-fomc-corpus,1980,Or let it go a little over.,8
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Chances are that M3 will be within [its range] and we could be a little over on M2 and a little under on Ml.,30
-fomc-corpus,1980,"I'd be prepared to [accept] that, too.",11
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"Mr. Chairman, my posture would be to emphasize the rapidity of change we've experienced and the likelihood that we may encounter continued rapid changes down the road. I'd indicate the kinds of changes that have taken place and that may take place in the future. I would keep monetary policy unchanged but stress that maintaining policy might involve some fluctuations in interest rates ahead, some of which may be adverse. In view of the rapidity of change and the many uncertainties, I would be extremely hesitant to be very specific about next year. Inflation developments may go one way or the other in the fall, which may influence [our decision]. We have the technological changes with nationwide NOW accounts. We have the uncertainty with respect to taxes and a whole set of [unintelligible]. So I would be more concerned [about making sure] that policy is appropriate with respect to the changed circumstances, whatever they might be. And I'd say that [ranges] will be announced in February, with the thought of then being very specific. With respect to taxes, I would be inclined to talk about tax reform, not just the deficit side of the picture, and to stress the importance of waiting until there is a chance to consider those moves deliberately rather than hastily. I am very sympathetic to the social security tax problem--what it means cost-wise, income return, and all the impacts--and the need to do something on the investment incentive side. That may require a cut in expenditures, depending on the circumstances when [the Congress] starts to consider this. So I think they are caught in that. As for wage-price policy, I don't feel that does much good; I'd [rely once again on] market forces.",340
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"Mr. Chairman, earlier on you raised the question of the Proxmire resolution and didn't get much of a response. I was mulling over the opportunities as well as the risks of supporting that resolution and I would come out recommending that you support it if you're forced to take a position. If at some future date the Congress goes down the road that you fear it might and begins talking about setting interest rate levels, we could resist that kind of resolution at the appropriate time. To resist the current proposed resolution I think would be a mistake. Such a resolution would strengthen our hand in terms of not following a usual vigorous countercyclical policy in view of the ongoing very serious nature of inflation.",139
-fomc-corpus,1980,"If I may just make clear my own position at the moment, which is always subject to change, it is not to resist it or to support it. In other words, if I get asked ""Is this a good resolution?"" I'd say it's a fine resolution. But I'd try not to be out there in front.",64
-fomc-corpus,1980,"Yes, I think that would be wise. The dilemma that you so well described earlier is going to come home to roost, obviously, in your testimony. I agree with a number of other observations made around the table a little earlier that the markets, both domestic and international, are going to be extraordinarily sensitive to all the nuances of what you have to say. And I think it is quite important to separate policymaking from public perceptions at this point because the impact of the announced ranges on inflation psychology and what is assumed to be the course of actual growth is going to be extraordinarily important. I certainly agree that we ought to resist any narrowing of those ranges, if you get pushed into speaking to that either in your testimony or in response to questions. We should try to keep the maximum flexibility because of all the changes going on both in the economy and in financial innovations; with nationwide NOW accounts pending we are going to need that flexibility I am sure. You asked us to speak about assumptions on tax cuts and wage-price policy. I am pretty cynical regarding the ability of wage-price policy, if it's continued, to do anything realistic to change the way the world runs. If I were a betting man, I'd bet that there will be a tax cut sometime in '81. If we have an opportunity to speak to how it ought to be structured, I would certainly support the statements others on the Committee have made that we ought to aim for tax reform designed to stimulate productivity and capital investment and take the edge off the impact of high and rising payroll taxes. My own hunch is that there is going to be little, if any, real restraint on the fiscal policy side in terms of the actual budget or even the high employment budget. That's because if you look back at what happened to the unemployment rate during this period of expansion that ended last January, we never even got close to getting down to a 5.1 percent unemployment rate. So I think that rate is very unrealistic when calculating the impact of a full employment budget. That leads me to the conclusion that monetary policy is still about the only game in town in terms of exerting any anti-inflation effect. But we are faced with the usual dilemma that there is a long lag between the time we move toward restraint and when it shows up on the price front, which may not be until several years from now. Having wrestled with whether or not to change the ranges, I think we would be well-advised just to keep the present ranges and not change their width either. There would be too many problems to explain if we begin tinkering with the ranges for 1980; therefore, I would [support] the views already expressed not to fuss with them. But, of course, in terms of policymaking in future months, we want to reserve for ourselves the right not to hit the present midpoints for all the reasons that have been set forth. With respect to 1981, I would also agree with the view expressed earlier by many other speakers that we should avoid getting overly specific and try to avoid getting pinned down to explicit numbers, especially in view of all the uncertainties connected with the impact of pending nationwide NOW accounts. I favor keeping [our targets for] 1981 as much as possible in qualitative terms but I hope on balance that your testimony would imply, if not make explicitly plain, that in terms of longer-run strategy we are still working very hard at getting the inflation rate down, even if that involves more aggregate growth for next year than we may have for this year. That's about all I have on that.",721
-fomc-corpus,1980,Mr. Schultz.,4
-fomc-corpus,1980,"Well, my point of view is strongly driven by something that we haven't talked about yet, and that is that we are still kind of on a honeymoon and that the tough times are ahead. The technique that we are using implies that at some point in time, when the economy begins to strengthen, unemployment will still be high and probably rising and interest rates will begin to go up. And that is when the moment of truth will arise. That is the period that Governor Wallich is afraid of in that he thinks it will put us in the cowardly camp. I don't believe that's correct. But it is important that we follow a strategy that gives us the best opportunity to stick to our guns in spite of what may be at that point considerably more pressure than we are presently feeling. Therefore, my approach would be to hold to the present targets and to ease toward them reasonably slowly, which would mean aiming to reach them in December. I would not like to see us [promote rapid growth] to reach them in September, which would mean that the fourth quarter would be the period in which we will start to see interest rates rising rapidly. It would put us in that box quickly. For 1981 I believe the 4-1/2 percent figure is sufficiently restrictive for us to be using in our thinking at this time. However, it's very important that we give ourselves as much leeway as we can. I would like to suggest that for 1981 we comment along the lines that the aggregates will be generally at or below the present targets. We are all very uncertain about the state of the economy. We all recognize how difficult forecasting is currently and it would not help us much at this point to be specific. I would like to see us have the opportunity to have a little more running room at the end of the year. So far as the bank credit figures are concerned, I don't think they are very critical. The monetary aggregates are much more important. I certainly would not be opposed to Governor Teeters's approach that we say [bank credit] is running below the target range but that's because of a shift in the type of debt [being used] or something like that. So far as wage and price guidelines are concerned, I don't think they make much difference at this point. There is a possibility that somewhere down the road they may make some difference. There is something to be said about rational expectations in terms of getting inflation down over time and, although we can't have a social contract like they have in other countries, I believe that some wage-price guidelines together with a variety of other things can make a difference. As far as the tax cut is concerned, I favor one; I favor a tax cut that will help on inflation and help in terms of savings and productivity. Therefore, I would agree that we ought to do something about depreciation or investment tax credits or something in that area. I agree the timing would be much better if it could be put off until next year. If it can't, let's have it as late as possible.",613
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"I agree 100 percent with Nancy. I would use the same ranges again, recognizing that for 1980 we expect--and to some extent plan--to come in at the bottom end of the range on M1 and maybe well up in the range on M2. I think that's probably better than making any kind of technical adjustment. And I agree that we can explain bank credit by emphasizing [commercial] paper, the way Nancy did, rather than corporate debt generally because people understand that paper is a direct substitute for bank borrowing, depending on rate relationships. For 1981, I agree with both Nancy and Lyle. I don't see any chance of reducing these ranges without possibly having considerable impacts on the economy. Now, a number of people have said they don't know what to do with M1, so let's reduce M2. But M2, as somebody pointed out earlier, is a source of housing credit in substantial part and has the money market mutual funds in it, which are still growing pretty rapidly. The top end of our range now is 9 percent. We can't ignore the fact that nominal GNP is going to have to go up quite a bit because, much as we dislike it, there's going to be quite a lot of inflation. And [reducing the M2 range] isn't the way to stop that inflation. Therefore, it seems to me that we'll be lucky if we can keep M2 within that 9 percent [upper limit] next year. The strategy I would follow would be to say that 1981 is a long time off but we anticipate having something like the same kinds of ranges for 1981 that we have had this year and we would hope to reduce growth within these ranges as inflationary pressures abate--assuming they do. You can make that comment: We will do it as we are able to do it, as inflationary pressures are reduced. On wage-price control, I would get rid of that program as soon as possible. I think it is totally discredited in the country and it is best to get rid of [that bureaucracy] and let it rest for a year or two and maybe try something better next time. We can say that market forces are going to lead toward more moderate settlements in labor [contracts] later. One of the difficulties in continuing the program is that we have to recognize the cost of living. And if we do, that's going to lead us as it did this year to raise the Reserve Bank budgets rather than reduce them. The change in the wage-price guidelines led us to increase Reserve Bank salaries and that's a very fine example of a counterproductive effect from that [program]. It's our own salaries that have to be limited--not somebody else's, but everybody's in this room. I don't see any sense in arguing the tax issue. There will be a reduction next year. It needs to include some consumption tax reduction because consumers are too hard pressed, but I like the idea of making it a payroll rather than a general income tax reduction.",608
-fomc-corpus,1980,"I agree with everybody. It's obvious to me that there is going to be a tax cut next year. I just hope it's a good one--that is, one that consists in part of a reduction in payroll taxes but also increases investment incentives. From my point of view it should have at least these two objectives: To increase investment incentives, and hopefully have the effect of increasing productivity, and to reduce the payroll tax burden. I would also add that it's terribly important to get people to start to think in terms of tax reform as soon as possible. This is separate, of course, from the immediate tax cut issue that is going to have to be dealt with. But the sooner we begin to think in long-range terms about tax reform, the better, because it has all kinds of implications for productivity and stimulating investment, and so forth. With respect to wage-price policies, I have a good deal of sympathy for Henry's tax-based incomes policy. I don't think there is much chance of getting it, but I certainly would have a good deal of sympathy for it. Absent a high probability of getting it, I would probably find myself agreeing with Governor Partee that we should just forget about the wage-price guidelines. But, again, I don't know how politically realistic that is at the present time. With respect to the aggregates, I would favor maintaining the current ranges for the reasons that have been given already. I think the credibility problem--I'm speaking now about 1980--is a real one. We ought not be in a position of having it said that when the aggregates move in a way that's uncomfortable for us we adjust the ranges. I don't think we ought to tamper with the ranges for 1980. Therefore, I would support alternative I, maintaining the present ranges, and not worry too much about where the aggregates come in within those ranges. With respect to 1981, I would favor strategy 1, again for reasons that have already been given. We ought to say that we have no reason at this point to adjust the ranges downward in 1981. I hasten to add that six months or a year from now, when we are considering them again, we might well want to adjust the ranges. But I see no reason to commit ourselves now to reducing the rate of growth in the aggregates. To do so would run the risk of reducing the rates of growth in money at a time when unemployment is rising. That is a realistic possibility, it seems to me, and I would not want to be in a position of mechanically having to follow a policy which requires us to reduce money growth at a time when unemployment is still rising. So I would favor stating that we see no reason at the present time to change the targets for 1981; however, if the situation unfolds in such a way six months from now or a year from now that it seems necessary or feasible, we will certainly consider it.",590
-fomc-corpus,1980,Mr. Solomon.,4
-fomc-corpus,1980,"It seems to me that the question is not what assumption the Federal Reserve is making in regard to tax policy, but how you will answer questions on policy recommendations that the Committee will ask you. Substantively I certainly agree with Lyle Gramley and a lot of others that the responsible thing to say--and I hope you will say this, Mr. Chairman--is that the size and the composition of the tax cut should be considered early in the year. However, I'd like to make a point which I sometimes think the American public doesn't quite understand [regarding] why, if everybody says a tax cut is inevitable next year, it shouldn't be legislated now. So I think you have to point out two factors: One, that the tax cut and the composition of that cut can't significantly affect the course of the economy for the rest of the year; and secondly, if you choose to, and you may not choose to, that the politics involved in an election year are not conducive to the kind of carefully studied and deliberately planned tax cut that is appropriate. I also feel that wage-price guidelines, even though they have not been very effective in the last two years, are an absolute essential. I think it's appropriate to point out that they worked in periods during the '60s, that there will be an opportunity for whichever Administration is in power to start with a fresh slate, and that certainly if they can be made much more effective they will add both to a better recovery and higher employment as well as a lower inflation rate. And they should go hand-in-glove with consideration of the tax-cut policy. As far as the aggregates go, I also share the overwhelming consensus [developing] here that we should not change the aggregates for 1980. But I think it's important to point out at least that we expect M-1A and M-1B to come in toward the lower end of their ranges. If we don't say that, we may get a very adverse market impact. As for 1981, I am similarly concerned about what the market impact will be both in domestic markets--[that is], long-term market rates--and the foreign exchange markets if we fail to say or at least to imply that there will be some edging down of the targets. In a certain sense, it has almost become widely expected of the Federal Reserve. I'm not disregarding the substantive problem that Nancy and Chuck pointed out, and I realize that we shouldn't lock ourselves into anything. Certainly we should not be specific, but I am a little concerned about the market impact. If we were to fail to [say something of that nature], that would be a noticeable omission, and I would hope that with your usual skill you will be able to waffle. I hope you will bear in mind that we are talking with one eye on the market. I guess that pretty much summarizes [my views].",581
-fomc-corpus,1980,"I would just note in connection with that last comment that it is not a question of my dancing around and answering the questions. That is one thing. But in our lovely staff report we have to put in black and white what we believe the prospects are for next year, however vaguely that is stated. The official distillation of our intentions for next year is going to be there in a sentence or two or three sentences or whatever. It's a little harder to waffle without being obvious about it.",98
-fomc-corpus,1980,Perhaps we could invent a typo for this and scramble the sentence--,13
-fomc-corpus,1980,Have we heard from everybody except our First Vice Presidential associates?,12
-fomc-corpus,1980,That's correct.,3
-fomc-corpus,1980,Mr. Forrestal.,5
-fomc-corpus,1980,"Thank you, Mr. Chairman. Perhaps I should begin by saying that when Governor Partee talks about Federal Reserve salaries I would take some exception, but perhaps I'll save that for another forum.",38
-fomc-corpus,1980,That's what everybody always does when they talk about their own salary.,13
-fomc-corpus,1980,"With respect to the longer-term targets for 1980, Mr. Chairman, I think the choice is a difficult one between maintaining the status quo and lowering them. I have some sympathy for the view Governor Wallich has expressed, but on balance I would prefer to see the targets remain unchanged for 1980. Having said that, I do think we ought to strive to come in at the lower end and certainly not exceed the midpoint of those ranges. And we should state publicly that we will be coming in at the lower end so as to avoid any market misinterpretation of our ultimate motives. With respect to 1981, my present feeling is that we should probably reduce the ranges, but I think it's premature to be very specific about our intentions because of the uncertainties that everyone else has [mentioned]. I think a tax cut is inevitable in 1981. My own preference would be to have it in the form of tax reform and be later rather than sooner, but in the present political environment I expect a tax cut will come at least in 1981 if not sooner. On wage and price policy, I don't have much to say except that I don't think that policy has been very effective and the sooner we dismantle the bureaucracy that's administering those programs the better off we'll be.",259
-fomc-corpus,1980,Mr. Gainor.,5
-fomc-corpus,1980,"With respect to wages and prices, I agree entirely with Bob Forrestal that the best thing we could do is dismantle the program as soon as possible and I'd recommend that. On the issue of a tax cut, we assume a cut of the magnitude projected, around $28 billion. We'd prefer that we not have it. If we have to have it, though, we'd like it to be deferred, preferably until after the election. With respect to 1980, we favor continuation of the existing ranges, alternative I. I think that's consistent with what we told Congress and everyone else earlier in the year and we should follow through on that commitment. As to 1981, we favor strategy 2, which supports the concept of an orderly reduction over time in the ranges that we're aiming toward. In deference to the point that Ernie made about legislative uncertainty and so on, it's probably better to waffle on how we state our plans for 1981 but I definitely think strategy 2 is the right one.",204
-fomc-corpus,1980,Mr. Czerwinski.,6
-fomc-corpus,1980,"Mr. Chairman, there is little that I can add to what has already been said. Our position with respect to wage and price policy would be identical to what Bob Forrestal has enunciated.",40
-fomc-corpus,1980,I think the First Vice Presidents' position on wage-price policy is related to their dislike of wage-price policies by the Federal Reserve Board.,27
-fomc-corpus,1980,I don't understand the implications. We don't have to raise them as much.,15
-fomc-corpus,1980,"With respect to taxes we, too, think that a cut is inevitable and would prefer to see it come late in 1981 if possible. On the long-run targets for 1980, our preference would be to maintain the existing [ranges]. For 1981, we would favor some slight reduction.",62
-fomc-corpus,1980,"Mr. Chairman, would you just record me--because you hadn't asked the question on wage and price controls--as being strongly opposed to them.",29
-fomc-corpus,1980,That's a big surprise!,5
-fomc-corpus,1980,"I think he understated his case, Mr. Chairman!",11
-fomc-corpus,1980,"Well, let me try to summarize so we can conclude, if feasible, before lunch. On taxes, first of all, let me just say that I [expect] to be asked to testify formally on taxes, as it will be coming up before other committees. In a sense, what I say would be my personal testimony, but the question is to what extent I can speak for a wider group if asked. There seems to be a consensus, though not everybody spoke to the point of what we want as opposed to what we expect, that there is no eagerness for moving on taxes immediately in a broad-brush way. There may be differing degrees of sympathy for a tax cut eventually. I think everybody would say it depends partly on conditions. But the idea of trying to [delay its enactment] is certainly widely accepted [by this group] as nearly as I can see [as is the view that] the cuts ought to be gauged as much as possible in terms of their direct impact on prices and costs and productivity. There is considerable sentiment--I don't know what I think about this frankly--[for reducing] the payroll tax. I recognize the benefits but I also worry about the future of the social security discipline if payroll taxes are [not imposed] directly. But I recognize that it is a major avenue to look at in connection with the tax cut program. I could probably speak pretty broadly by saying that there is a desire for this to be looked at later and not right now and not be too definite about the later. The later could conceivably mean at least September but preferably after the election. On the wage-price issue, there's a greater difference of opinion, obviously. I don't have any set view on this at the moment but I have a feeling that the pessimism [about the effectiveness of the program] that has been expressed by the staff is widely accepted in our thinking in terms of the difficulty of [making progress on] the wage side of the [equation]. I'm not sure there's anything to be lost, frankly, by saying that if you people in the Congress are talking about a tax cut, a pre-requisite you ought to think about among other things, is a concord between labor, business and government on a guideline that's substantially below the present guideline. [This has to be done] in the context of all the problems we have, including the potentially inflationary implications and all the rest. I don't think it does much good to talk about guidelines in the present area. But I'm not sure there's anything the matter with stating that as an objective at the moment. And to the extent we raise the issue, it may even slow down the immediate drive for a tax cut until we all see how things develop over the remainder of the year. Now, that's purely a personal reaction at this stage, but I'm not sure there's anything to be lost by it. I'd go all the way by somehow relating it more specifically to wage increases but I don't know how to do it. If anybody had a bright idea on that score, it probably would have been thought of already. Not that your idea wasn't bright, Henry. I don't suppose I could speak more broadly about that approach but I have some sympathy for putting it that way as part of an argument for deferring consideration of the tax cut at the moment. On monetary policy itself, the consensus is pretty clearly to keep the ranges unchanged for 1980. I basically agree with that in terms of simplicity in presentation. It bothers me a little because some things are going on that would justify a change, and in ordinary circumstances they ought to be recognized. Even on a technical level, on the relationship between M-1A and M-1B--which is a pretty darn technical matter due to the NOW accounts--ordinarily we would say we [now] have more experience and we ought to adjust that relationship. But I recognize the arguments that were presented pretty fully around the table for taking the simple approach. Most people suggested, and I would certainly agree, that consistent with that approach we would not be disturbed if, as is likely, the M1s came in at the low end of the ranges. We might also say that it's possible M2 will come in at the upper end of its range and that M3 will be in the middle or lower part of its range. But the ranges are there and we are not changing them partly because they are ranges. Nevetheless, we don't consider it undesirable or inconsistent with our intentions if we have that kind of pattern among the ranges. In fact, if we don't say that, we're almost forced to change the ranges because of the apparent inconsistency in the relationships among the different Ms. On bank credit we may be able to finesse along the lines that have been suggested. That's a little harder to do than if we hadn't put so much emphasis on that measure in connection with the credit control program, but let's suggest that bank credit may come in even below the lower end of its range. However, due to the rise in commercial paper and so forth that does not disturb us so greatly that we have to take it into account. Let me just stop there. Does all that express the consensus for 1980 clearly enough? We don't change the ranges, but explicitly in my comments we say that we are satisfied with a low M-1A and also recognize that M-1A probably should be low relative to M-1B in terms of the ranges but that this is a technical matter. Thus the M1s generally might well come in quite low in their ranges and that would not disturb us. M2 similarly could come in high in its range and that would not disturb us, and M3 may be near the middle of its range. And that is the basis upon which we are reaffirming the ranges this year.",1178
-fomc-corpus,1980,"Mr. Chairman, if we are satisfied that M-1B will come in fairly low in its range, are we going to be willing to have it come in higher in '81?",38
-fomc-corpus,1980,It's going to have to.,6
-fomc-corpus,1980,"We can reopen the question of '80, but at this stage before considering '81, have I captured the consensus for the staff and the writing they have to do for the testimony? In a very formal sense the numbers are the same, but the interpretation is of some considerable importance here.",58
-fomc-corpus,1980,I think that captures it exactly.,7
-fomc-corpus,1980,"Okay. For '81 I think we are in much more difficulty, frankly. We have a real dilemma, inconsistency, tension, or whatever you want to call it between the projections and what we'd like to see happen in the economy. If the staff estimates mean anything, in a very straightforward way what they imply for the aggregates--I'm not saying we should accept it--is higher [rates of growth]. On the other hand, we can express the conflict very directly by looking at this resolution that Mr. Proxmire has prepared, which I was urged to accept and I'm prepared to accept. The final clause of that resolution says we are going to gradually reduce the rates of growth in monetary and credit aggregates in a firm and stable manner. If we accept that resolution one day, that presumably means we should be reducing the monetary and credit aggregates in a firm and stable manner, including in 1981. I take it that virtually everybody--there were one or two contrary opinions--in resolving this dilemma said [we should express our targets for] 1981 in qualitative terms and in effect waffle a bit. I think I agree with that. I will just tell you that it's easier to say it around this table. When we say that in public, people will ask: ""You've been putting more emphasis on numbers and you've said you were going to reduce the ranges, so why do you now refuse to say more straightforwardly that you are going to reduce them even by 1/2 or 1 percentage point or something? You couldn't possibly have been suggesting that you were going to go more slowly than that."" I attach great significance to that [argument] and I think there will be a market reaction, too. The market will attach some significance to the fact that we are not willing to go up [to the Congressional hearing] and say we are putting forth a lower number. It's not that I really disagree with the fact that we had better be qualitative. But it's not as easy [to carry out] as the comments around here suggested; that in itself will have some implications for how our actions are interpreted. Dave?",427
-fomc-corpus,1980,"I think you're entirely right. It's not easy. On the other hand, if you surround your discussion of 1980 with a good deal of qualitative explanation about the uncertainties regarding the shifts in demand for money, and so forth--and extend that into 1981--you will have provided the background for a good deal of waffling.",69
-fomc-corpus,1980,"I don't think that avoids the problem, but I agree with what you are saying. Whatever else we say about '81 we ought to say that there is a lot of uncertainty about the M1s and particularly about the relationship between M-1A and M-1B. Somebody here put it very dramatically with zero on one and 7 percent on the other or something like that. I don't know where we will come out at the end of the year when we have to make those projections, but there ought to be some discussion of that problem and the fact that those particular numbers may look quite different but in a meaningless way in a sense. When we actually put forward the numbers they might look different--both of them--from what we had in '80. One may be significantly lower and the other may be significantly higher.",167
-fomc-corpus,1980,"One possibility would be to say that our presumption at this very early stage is that the Committee will wish to continue its long-run fight against inflation by some gradual reduction of the aggregate targets but, given the uncertainties on all these technical aspects such as the shift in the demand for money and a few other things, we feel it's definitely premature to come up with even tentative or preliminary [numbers].",78
-fomc-corpus,1980,[Unintelligible.],6
-fomc-corpus,1980,"Either that Nancy, or leave the top where it is and drop the bottom a little and that will make it look as if we're cutting it down some.",31
-fomc-corpus,1980,"Look, one of the problems we are likely to face next year is that we will be tempted to set a target that is too low and we will exceed it. And it seems to me that our credibility in the long run is going to be worse off if we exceed it than if we are realistic about what we can accomplish. Given the fact that it's 12 to 18 months off, it seems to me very reasonable to widen the ranges at both ends at this point.",96
-fomc-corpus,1980,"What do we have to say in the directive, Mr. Secretary, about 1981? Nothing, do we? This isn't a directive question, is it?",33
-fomc-corpus,1980,"I can answer that perhaps by telling you what we said at this time last year. After citing the ranges for 1979, the directive said: ""The Committee anticipates that for the period from the fourth quarter of 1979 to the fourth quarter of 1980 growth may be within the same ranges, depending upon emerging economic conditions and appropriate adjustments that may be required by legislation or judicial developments affecting interest bearing transaction accounts."" That language was in the directive adopted [in July 1979] and was repeated each month.",106
-fomc-corpus,1980,In what [part of the] directive does that appear--in the operating [paragraphs]?,19
-fomc-corpus,1980,"It's in the longer-term paragraph, isn't it?",10
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,Why do we need it in there now?,9
-fomc-corpus,1980,That was the decision made at the time that the Committee considered it.,14
-fomc-corpus,1980,I thought that's what the Humphrey-Hawkins Act called for.,14
-fomc-corpus,1980,"It calls for a decision, but I don't know that it says how it has to go in [the directive]. We have to put down some language in the report anyway, but I don't quite see why it has to be in the directive. Steve has some [suggested] language. Let me just try it out in terms of the tenor of it. ""Looking ahead to 1981, the Committee decided to work toward a further slowing in monetary growth rates that is consistent with an orderly reduction in the rate of inflation, while taking into account the impact on individual aggregates of the introduction of NOW accounts on a nationwide basis, a change in public preference for deposits and closely-related assets and emerging economic conditions."" I suppose it's that last phrase that--",150
-fomc-corpus,1980,And of the need to keep some of our [citizens] employed.,15
-fomc-corpus,1980,I think you forgot to include the international considerations.,10
-fomc-corpus,1980,I'm not sure I would want that first sentence.,10
-fomc-corpus,1980,I just looked at this language a minute ago. It takes the approach of saying we would like to get them lower but then putting a caveat on it. I suppose the question is whether we want to say--,43
-fomc-corpus,1980,"Suppose M-1A comes in at 3.55 percent for 1980, just within the lower end of the band. Would we really want to say that for 1981 our objective is to get a lower figure?",48
-fomc-corpus,1980,"Well, it probably will be for M-1A; M-1B is going to give us the trouble, I think.",27
-fomc-corpus,1980,M-1A would come in better only because of what happens to NOW accounts.,17
-fomc-corpus,1980,"That's right, only because of what is--",9
-fomc-corpus,1980,"[Unintelligible] talk about ranges. We might want to have somewhat [narrower] ranges but even that is too risky, I think. But certainly we wouldn't want to say that in 1981 growth is going to be lower than the point estimates that we have for 1980.",62
-fomc-corpus,1980,"Well, we can get a certain amount of leeway in the M1s because of the technical problem. I think we just ought to say flatly that in the case of M-1A and M-1B, NOW accounts are likely to have a big influence. So M-1B could well be above what it was this year and M-1A might be below. But that's just taking account of the shift between the two categories; it somewhat obscures whether in fact it's lower on the average, if we want to take that approach.",113
-fomc-corpus,1980,"If we have the maximum shift on M-1B of 5 percentage points, with a midpoint of 5-3/4 percent the midpoint could be 10-3/4 percent. If we have the maximum shift on M-1A, the midpoint would be 1-1/2 percent.",64
-fomc-corpus,1980,"Because of that complication for next year, which we can explain without quantifying, we in a sense get off the hook. The real bind is M2, which isn't changing in concept, isn't subject to these distortions, and isn't subject to the same so-called demand shift as M1. I'm not sure we can say this, but at one point I thought we might say that in general we are moving these ranges lower and we are going to move as fast as we can but it may not be possible to do that next year for M2. That implies it's possible for M1, but nobody will ever know what M1 is because of all these shifts. But it gives some warning that we may not reduce the M2 range.",149
-fomc-corpus,1980,We still have the housing market out on M2. We wouldn't want to emphasize reducing that on a long--,22
-fomc-corpus,1980,"No, I'm saying we would tell them we may not reduce M2 and leave every implication that we're reducing M1. Then when they ask by how much and we have to give them some figures that are affected by NOW accounts and one can't tell--",50
-fomc-corpus,1980,M-1B is going to be increased.,10
-fomc-corpus,1980,"It will be. We would explain that M-1B will go up because of [the NOW accounts], but it's not a real increase; it's only a statistical increase.",35
-fomc-corpus,1980,I think the markets would like that even less than if we were more general. That may get us in trouble.,23
-fomc-corpus,1980,May I ask a technical question? Is it possible to target on M2?,16
-fomc-corpus,1980,"Oh, sure. We were giving some consideration to elevating M2 in emphasis in our targeting procedures this time. In the end that seemed [unlikely to] solve the Committee's problem and it involved a little more difficulty in terms of the continuity of the presentation. As you say, next year there's an obvious case for it. But, again, I would stress that money market funds are in M2 and RPs are in M2, and we don't have a lot of experience with how those components are going to behave.",106
-fomc-corpus,1980,"We can target on M2 but of all the aggregates it's the least easily controlled, and we're going to have more misses.",25
-fomc-corpus,1980,We have enough trouble with the M1s. Why go to M2 when it includes two things we have absolutely no control over?,27
-fomc-corpus,1980,"One way we can resolve this target for next year is the way Fred suggested. I don't know whether we want [to or not]. It's fairly straightforward to say the [1981] targets are going to be at or below [the 1980 targets]. I think it's a [choice] between saying that and saying in effect what this other statement says, which is that we'd like to be a little below [1980] but we are not sure we can be.",95
-fomc-corpus,1980,"Mr. Chairman, I would like to emphasize what Governor Teeters said. There's a real trap in setting M2 targets that we think we can achieve because, with these new monetary instruments, we can't. As Steve just pointed out, M2 is loaded with [components] over which we don't have even indirect control--the money market funds, overnight Eurodollars, RPs, and what have you. I think that's a real snare that we ought to be very cautious about.",98
-fomc-corpus,1980,I question that proposition. I don't think M2 is going to be any more difficult to control than M1.,23
-fomc-corpus,1980,"Well, we have a difference of opinion. That's what makes horse races and stock markets.",18
-fomc-corpus,1980,"Well, M2 is getting more stable. In the past it has slowed when interest rates went up. Money market mutual funds are likely to go up when [rates rise] so that's a stabilizing element.",42
-fomc-corpus,1980,"There are two conflicting forces working. It's less directly controllable in one sense, but it has a much more stable relationship with the economy than--",29
-fomc-corpus,1980,And these shifts in balances tend to take place within M2 rather than out of it into something else.,21
-fomc-corpus,1980,"Well, for '81 the consensus [though we're not unanimous] is that we have to be qualitative rather than precisely quantitative about it. Nobody wants to propose an increase. I would suggest, and it seems to capture the majority but not the full consensus, that we make subtle noises about how we'd like to get [the ranges] down but heavily qualify it. The alternative is to be more neutral about it and say we're either going to have [the ranges] the same or lower.",97
-fomc-corpus,1980,"Mr. Chairman, could I make an observation? On M-1B, if we had known when we set these long-run targets that we would hit the midpoint or the revised midpoint of 5-3/4 percent, I think we would have been reasonably happy with that. We had expansion of M-1B in 1978 of 8.2 percent and in 1979 of 7.6 percent. And if we get it down to 5-3/4 percent [this year], that degree of deceleration seems plenty rapid to me. If we do that, then I don't have any problem with decelerating further in 1981. But if it comes in at 2 or 3 percent or something like that [in 1980], we have a problem for 1981. I would like to see us push that [growth rate] up toward the midpoint [while] we're in a recession which I think is probably going to be as serious or more serious than any postwar recession. And then next year, I think we can do what we said we would do.",227
-fomc-corpus,1980,"I agree with you totally, Bob.",8
-fomc-corpus,1980,Do you ever formulate the preliminary targets for [the year ahead] in relation to the targets rather than the performance?,23
-fomc-corpus,1980,"Well, we are relating it now to the targets, which I think is part of the difficulty. Where we would want to come out in terms of changing [the ranges] and the actual number we would want next year does depend upon where we come out this year. If growth in the M1s comes in very low this year, as is possible, certainly we might want [their growth] to be higher next year. And it would not be inconsistent with this gradual deceleration notice. But we really are talking now about the imagery of target against target rather than target against actuality.",118
-fomc-corpus,1980,"That was my presumption until I heard Bob's comments just now. Of the two choices you've put to us--hope to get [growth] down but heavily qualified as against being neutral--I prefer the [former]. My reason is that if it's heavily and sufficiently qualified, it's not a constraint on our flexibility to do what we decide later on has to be done in view of the situation at that time. But I think it will come as a bit of a shock to the market if we are neutral, for the reasons I [mentioned] earlier. So it seems to me that in this imperfect world we live in, we're better off making a bound in the right direction even though it's qualified enough so that we reserve the flexibility of the Committee to do what it thinks best--",156
-fomc-corpus,1980,"Let me suggest that whatever we decide we put a footnote, in effect, in the report--I don't know that it literally would be a footnote--noting that we are talking about a target here. We don't know where 1980 will come out but if M1 did in fact come out very low in 1980, [our] target in 1981 may in fact [be consistent with] a higher M1 in 1981 than in 1980. So we would encompass that possibility, which I think is very likely to happen.",115
-fomc-corpus,1980,"I think we're better off just talking about the ranges, Paul. It will exacerbate Tony's problem if we have a footnote that says we may have a higher M1 and we may not.",40
-fomc-corpus,1980,"Why don't we do what is necessary to keep M1 where we want it, in the middle of the range? Why do we feel that we have to wait and see where it comes in when, indeed, through open market operations we have it within our ability to have it come in, at least over a period [of time], roughly where we want it?",73
-fomc-corpus,1980,"Would you do that even if the last two months required us to go to some fantastic growth rate, say, 20 percent?",26
-fomc-corpus,1980,"Well, we can resume with that as the subject of our agenda immediately after lunch. I think we agree, at least tentatively, on an unchanged range [for M-1A] this year and for expressing the view that it might come out in the lower part of that range.",58
-fomc-corpus,1980,But I understood the consensus to imply that we wouldn't do anything extreme to force M-1A into the range if it happens to grow slowly all the rest of the year except the last couple of months.,41
-fomc-corpus,1980,"By ""anything extreme"" what do you mean other than to reduce interest rates?",16
-fomc-corpus,1980,"We can only answer that question with a subsequent discussion [in which we characterize our views] with precision. It's a little difficult because we don't have precise words in front of us. I suppose Steve's formulation of words, hastily done, is one option in which we express a hope but not a commitment to get [growth in the aggregates] down next year. But the approach that Tony just supported seems to be consistent with what a lot of people said. Let me ask: How many people would rather do it that way?",106
-fomc-corpus,1980,Which way?,3
-fomc-corpus,1980,"That we say in general terms that we'd like to see the aggregates lower but whether it's possible or not depends upon a reassessment at the end of this year in the light of all the circumstances, and we are going to look at it [then].",50
-fomc-corpus,1980,That's really the point.,5
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Now [the question is] whether we put it in the directive.,14
-fomc-corpus,1980,"Well, let me worry later about whether we put anything in the directive. The [policy record] is going to include a discussion of the difficulties surrounding M1 next year anyway because of the NOW accounts problem. All that should be in there in qualitative terms in any event. But just in terms of giving the thrust, our basic policy over a period of years is to reduce these [ranges]. We're not exempting '81 from that approach, but we're not committing now to saying that it can be done. We'll decide more precisely six months from now in the light of all the circumstances at that time.",121
-fomc-corpus,1980,"Mr. Chairman, how does that differ from four years ago when Arthur Burns said in commencement addresses that we're going to gradually reduce the rate of money growth and we equivocated and procrastinated and that's why we're in this pickle today?",46
-fomc-corpus,1980,"In that particular respect, it does not differ. It's the same as what he used to say four years ago. But I am assuming that the Committee is not prepared, which I think is the question you asked, to say right now that tentatively the ranges [for 1981] will be X, Y, and Z and that those ranges are lower than the ones for this year. I excluded that [option] because there wasn't much support in the Committee for it.",96
-fomc-corpus,1980,"Mr. Chairman, don't the facts indicate that the Committee has not equivocated in that respect? If I remember the numbers right, in 1977 the growth rate of M-1A was 7.7 percent; in 1978 it was 7.4 percent; in 1979 it was 5.1 percent; and in 1980 it will undoubtedly be less yet. The problem is, Larry, that money and prices do not track closely together. And while that deceleration in monetary growth was taking place, the rate of increase in prices accelerated. That's what we have to live with, whether we like it or not.",132
-fomc-corpus,1980,"But, Lyle, we believe that there is a direct tracking of the rate of growth of money and prices and also the rate of growth of money and output.",33
-fomc-corpus,1980,"Well, I think we have lunch approaching.",9
-fomc-corpus,1980,"Before we got into that discussion, what you said just prior to that sounded pretty good to me. It was somewhat in accordance with your talents: It was even more waffling than what Steve had to say!",43
-fomc-corpus,1980,Steve is not waffling enough for me.,10
-fomc-corpus,1980,"I would like to waffle a bit more than what Steve said, and I thought you had done that very effectively.",23
-fomc-corpus,1980,I could certainly agree with your waffle. Your waffle I like.,13
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,Has my waffle been recorded?,6
-fomc-corpus,1980,Just put a little syrup on it and we'll--,10
-fomc-corpus,1980,That's what you're likely to do!,7
-fomc-corpus,1980,Was somebody listening to that [closely] enough to try to [put some wording together] after lunch?,22
-fomc-corpus,1980,"I would suggest that your waffle, Mr. Chairman, is probably one that would fit better in the policy record. And the Committee could be silent in the directive.",33
-fomc-corpus,1980,I'm not quite sure why we need anything in the directive. It's not a decision. This kind of vague statement isn't going to affect what we do before the next meeting anyway.,35
-fomc-corpus,1980,"I'm told that my subommittee, of which you were a member at the time, proposed that it be in the directive. I can't remember why.",32
-fomc-corpus,1980,"Well, I can't remember why either. Unless somebody can think of a reason, let me propose that it be in the report but not in the directive. I don't see off-hand what purpose it serves in the directive since it's a vague statement anyway.",50
-fomc-corpus,1980,Coming back to this proposed waffle: Before you ask for a show of hands you ought to make people understand what the alternative is--the second thing they're going to be asked to show their hands on--which I gather is a completely neutral statement.,49
-fomc-corpus,1980,"Completely neutral? It's not neutral in the sense of raising the range, but neutral as between changing it or not changing it.",26
-fomc-corpus,1980,"Okay. Even though I welcome the adherence of Chuck and Lyle, I'd like to--",18
-fomc-corpus,1980,That makes you suspicious of it?,7
-fomc-corpus,1980,"Well, what you said in your reformulation of Steve's [wording] is that consistent with our long-run policy, we would like to see the aggregates lower in '81 as well, but we don't know if we can make it for such and such reasons. What I would like to suggest we say--again because I'm thinking of the market impact, which could be very damaging to all of us--is that consistent with [our long-run policy], it is too early for us to indicate anything specific because there are too many caveats and we just don't know where we are going to come out. In other words, to say to the market that we don't know if we can make it--",141
-fomc-corpus,1980,"Well, that is not the language that I would use. I would suggest, particularly since it's 2 o'clock, if there is a willingness to work in this direction--and that seems to be the consensus--that we see if our staff can come up with a formulation before the end of the meeting that incorporates words that we can look at a little more specifically. We can't resolve it just--",80
-fomc-corpus,1980,"We're not committing to the waffle, though, by doing this?",13
-fomc-corpus,1980,"Not at this stage, no. Why don't we have a few sandwiches for the time being.",19
-fomc-corpus,1980,"We're suggesting that the staff, rather than have lunch, eat their work!",15
-fomc-corpus,1980,"Well, we have sandwiches right next door, I believe.",12
-fomc-corpus,1980,"Mr. Chairman, with regard to President Solomon's point on--",13
-fomc-corpus,1980,"If we work on this waffle, it finally will be a pancake.",14
-fomc-corpus,1980,We are going to have waffles for lunch!,9
-fomc-corpus,1980,The Open Market Committee will be known as the International House of Pancakes!,15
-fomc-corpus,1980,"Tony, the law says the Committee has to say something about it.",14
-fomc-corpus,1980,It does? In the directive?,7
-fomc-corpus,1980,"No, not in the directive, but in the report. [Lunch recess] [Secretary's note: Typically, after lunch the Chairman would have called the meeting to order and made some opening comments. No such remarks by the Chairman were captured on the tape and included in the raw transcript.]",58
-fomc-corpus,1980,I don't want to get there by September; that's what has me--,14
-fomc-corpus,1980,"Well, growth may [not] even be to the midpoint in September [but] then it would have to slow down after September.",27
-fomc-corpus,1980,Is that what it says? I didn't recall that.,11
-fomc-corpus,1980,You made me think that this [unintelligible].,12
-fomc-corpus,1980,"No, at least to the midpoint [by the] end of the year. But [alternative B] brings us to the midpoint at the end of year. If you're satisfied with [ending] up below the midpoint--",44
-fomc-corpus,1980,"Then you are between ""B"" and ""C.""",11
-fomc-corpus,1980,"I don't mind that much, but I don't want [growth] to get too high in September. That makes me nervous.",25
-fomc-corpus,1980,"I can't make a subtle [technical] statement without you here, Mr. Axilrod.",19
-fomc-corpus,1980,We've been waffling.,6
-fomc-corpus,1980,"Well, I assume you've been waffling. But let's leave the waffling until a little later and go to the short-run decision, which may confirm or not confirm the decision on the long-run for 1980. When I look at the alternatives put down for us [in the Bluebook] for these ranges on the monetary aggregates, I would reject alternative A on a number of grounds, including the immediate implications it may have for the market. But perhaps even equally important is the consideration that Governor Schultz and others mentioned about going full speed ahead with a high aggregate figure at the moment and a low interest rate only to have to screech in the opposite direction in a relatively short period of time. I have some of the same reservations about ""B."" But ""B"" brings us, if I understand this correctly, arithmetically to the midpoint of the existing M-1A range--",182
-fomc-corpus,1980,"Well, to 4-1/2 percent.",11
-fomc-corpus,1980,"--or just a hair below the midpoint of the existing M-1A range by December. It's not much, if at all, above the July figure, I guess. It would surround the July estimate, so that doesn't change it much. Alternative C would bring us inside the range but not to the midpoint by the end of the year, if I am correct.",74
-fomc-corpus,1980,"Under ""C"" [growth for the year] would be 3-1/2 percent.",20
-fomc-corpus,1980,"""C"" is below.",5
-fomc-corpus,1980,It's not below the range.,6
-fomc-corpus,1980,"Yes, it is.",5
-fomc-corpus,1980,"By the end of year, he said. You'd have to extend [that growth rate for the period from] September to December.",27
-fomc-corpus,1980,"If I read that chart right, ""A"" gets us to the middle of the range by the end of the year, ""B"" gets us just barely [in] it, and ""C"" gets us below [the range].",48
-fomc-corpus,1980,"No, by year-end--",6
-fomc-corpus,1980,The chart shows a September plot.,7
-fomc-corpus,1980,"By year-end ""C"" gets M-1A to the bottom of the range, 3-1/2 percent. Continuation of that 6 percent [growth rate results in] 3-1/2 percent growth for the year.",51
-fomc-corpus,1980,"I would reject ""A"" myself. If I do that, I can see two ways of proceeding, though I would have a rather strong preference for one of them, that seem consistent with what we've just said about the longer-term ranges--namely, that we won't change the ranges this year, but we would not be disturbed by being in the lower part for M1, particularly for the M-1A number. Consistent with that approach toward the longer-term ranges, it seems to me we could theoretically operate on ""B."" And if we didn't like the results we were getting in one direction or another, we'd accept the shortfall. I say in one direction or another, which operationally in the short run might mean running into the lower federal funds rate constraint. Alternatively, we could adopt ""C"" for the initial path-making exercise, [using] the same approach as we did in June when it worked out, maybe by coincidence, to everybody's satisfaction. That involves setting a minimum growth path, which is again consistent with what we just said about the long-term, but if the number comes up higher--consistent with both the growth path and the federal funds rate constraint we set for ourselves--we'd accept the higher growth, for awhile anyway. Presumably we wouldn't accept it forever if it gets too high. But in the short run, presumably until the next meeting, we'd accept it unless it was very violently high. If we look at the period since May, that's what we did. It happened to come up, although we may have had some recent [revisions] so it's a bit higher than what we were projecting at the time. It certainly came up higher than we projected it for June. Essentially we did not permit the federal funds rate to rebound up to the point it would have rebounded had we held June to the number we notionally had in mind for that month. The results that were achieved, both in terms of the interest rate pattern and the aggregates pattern, seemed to me to put us further toward our ultimate objectives than we might otherwise have been. It worked out very well. I would interpret ""C"" in a modified way as a kind of minimum growth path we'd set, should we adopt that. It's not really ""C"" in a sense; it's an indication of the minimum growth path, and we'd accept in the short run any upward deviation in that--within some reasonable bound--by readjusting the path consistent with the interest rate constraints of the type we now have. That's what I would feel most comfortable with. We may achieve the same result, but with different kinds of risks, by starting with ""B"" and saying in effect that we would undercut ""B"" if we ran into the interest rate constraint on the down side. We would be more likely to run into the interest rate constraint on ""B,"" assuming we have a constraint in the general neighborhood of where we now have it. It seems to me that those are the two practical choices to focus on, consistent with our present stand on the long-run ranges. Let me put them on the table and see what your reactions are.",633
-fomc-corpus,1980,"Well, when we were talking about getting into the lower [part of the] range, I didn't mean the bottom. We don't have to slide around the bottom of that to say we're still in it. I'd rather go with ""B"" and make sure that we're approaching it. I don't think it would hurt us to have an 8 percent rate of increase in money supply over the next several months.",81
-fomc-corpus,1980,"I think it would look terrible. Nobody would remember that we had a shortfall before. Besides, they'd say that was just the way things should be. It's like somebody who is dieting and has missed a few meals and therefore feels he has to catch up on the caloric quota by eating something extra.",61
-fomc-corpus,1980,"But, Henry, that is just the reverse of what you used to argue. You always had to offset the overshoots.",26
-fomc-corpus,1980,In this particular case I think we have had a shift in the demand function.,16
-fomc-corpus,1980,"Let me say what I think is going to be relevant here, whatever [route] we take: The proposal I made for ""C"" suggests we'll probably exceed the 6 percent [shown in the Bluebook for ""C""]; the suggestion I made with ""B"" is that we wouldn't be above the 8-1/4 percent [shown] so, therefore, we might be below it.",81
-fomc-corpus,1980,"I don't think it means we would exceed [the 6 percent]. We would target on that and if we went over it, as we did last time--I agree with you that it worked out very well even though I voted against it--",49
-fomc-corpus,1980,"I just mean in terms of a frequency distribution. I don't know whether we would exceed it but presumably we bias [the outcome] in that direction. Let me just say that in either event, I think it's crucial where we put the federal funds constraint, if [we have one] at all. That is a variable that will be prominent in our discussion for the next few meetings, I suspect.",80
-fomc-corpus,1980,"I have one problem with the approach. ""C"" is what I'd like in principle; but the technique of accepting, by raising the path, whatever actual level of reserves is realized does get us back into a federal funds rate target with a very narrow range. The market thinks [we're doing] that already, and they're going to have it confirmed if we do it for a second period.",79
-fomc-corpus,1980,"It's not likely to recur in this period, though, Henry. That occurred because we gave the manager specific instructions that if [money growth] was coming in on the high side to let it go. I don't think we want to give him those instructions today.",52
-fomc-corpus,1980,"Well, if we were to limit the excess over ""C"" in a plausible way, I could see it.",23
-fomc-corpus,1980,"I didn't mean to imply--maybe I did--that wherever [growth] goes above ""C"" we would accept; I just meant within some reasonable range. If we had a 10 percent growth rate in one month, we might well accept that. Ten percent in two months we might not. At least it would raise a question; we'd have to decide that.",74
-fomc-corpus,1980,What would this mean if the Board staff's projections on M-1A in July turned out to be correct? They're now projecting 8.7 percent.,32
-fomc-corpus,1980,We'd accept it.,5
-fomc-corpus,1980,We'd accept it?,5
-fomc-corpus,1980,That's what [Henry] means--that it really does mean sort of running on the funds rate so long as the aggregate is reasonably--,27
-fomc-corpus,1980,I cannot deny that we'd begin running to some degree on the funds rate.,15
-fomc-corpus,1980,"That doesn't bother me when we're looking at an unstable money demand function. For a month or two, or maybe for the whole quarter, we may have to do that until we see how this goes.",40
-fomc-corpus,1980,"Mr. Chairman, we could accept the logic you're propounding here and come up with [a set of targets] halfway between ""B"" and ""C"" but keep the 8-1/2 to 14 percent [funds rate range of ""B""]. That's the way I would lean. I'd say 7, 8, and 8 percent--to the extent that we like point targets [for M-1A, M-1B, and M2] and we seem to have gone toward point targets in the short run for simplicity--as long as we understand what we are doing.",124
-fomc-corpus,1980,"That was my inclination, too; I would go along with Bob on that.",16
-fomc-corpus,1980,Are you sure you don't want to drop the funds rate range on that one?,16
-fomc-corpus,1980,I don't want to change it.,7
-fomc-corpus,1980,"I'd leave it at 8-1/2 to 14 percent. That's what it is now, isn't it?",24
-fomc-corpus,1980,An alternative is to go to 8 to 14 percent.,13
-fomc-corpus,1980,The funds rate is well above 8-1/2 percent now.,15
-fomc-corpus,1980,"We have a blended proposal here. I just want to make sure I understand you. You're clear on the funds range at 8-1/2 to 14 percent and clear on the numbers, which are basically halfway between the numbers [shown in the Bluebook for alternatives B and C]. What is not clear, for instance, is whether you would accept right now that 8.7 percent or whatever is projected for July. In other words, would you allow a little tolerance on the up side should the figures come out that way? What we're talking about is from now until August--when is the next meeting scheduled?",126
-fomc-corpus,1980,"It's August 12, in five weeks.",9
-fomc-corpus,1980,August 12. We are talking about the next five weeks literally.,14
-fomc-corpus,1980,I don't see any problem in accepting the 8.7 percent for July if it turns out that way.,22
-fomc-corpus,1980,I'm trying to refresh my memory--,7
-fomc-corpus,1980,"Actually, the latest data tend to shade that down, don't they? The data ordinarily are not very good but they are worse than usual today because of July 4th, as I understand it. But [the recent information seems] consistent with a somewhat lower estimate for July, I take it.",60
-fomc-corpus,1980,"That's right, and [money supply growth] has even weakened a bit more since I had a first report earlier today. It's in such a state of flux I hesitate to mention it at all.",39
-fomc-corpus,1980,"In the operational paragraph do you have to give pinpoint percentages for the third quarter or could you give a range? The way I read the language for the third quarter it says at annual rates of _ percent, __ percent and _ percent [for M-1A, M-1B, amd M2].",62
-fomc-corpus,1980,"Well, we can do what we want to do, but the [practice] has been to give a single point. We've often said ""about"" or ""around"" or we've given a percentage rate and said ""or above."" Consistent with what I said, certainly if we took ""C"" we would say at that rate or above, which we've said on a number of occasions. I don't think we've ever given a range.",87
-fomc-corpus,1980,We need a number to construct a path.,9
-fomc-corpus,1980,"Yes, we need a number to construct a path. And in a way a range sounds as if we're being very precise in that we're not going to accept anything below or anything above. So I react a little adversely to a range. But we have often used words like ""about"" or ""above"" to convey some [sense] of that.",70
-fomc-corpus,1980,"Well, I'd go along with Bob Mayo's suggestion, which Chuck supported, about taking the arithmetic average between ""B"" and ""C.""",28
-fomc-corpus,1980,"I'd round them off, too. [Using] quarters on the growth rate percentages strikes me as silly.",21
-fomc-corpus,1980,"What do we do about M2, though? That's all right for M-1A and M-1B.",24
-fomc-corpus,1980,"We could use 8 percent for M2, couldn't we?",13
-fomc-corpus,1980,"I just presumed that if this table was logically put together and we compromised on the others, we'd end up compromising on M2, too.",28
-fomc-corpus,1980,"But M2 is running high; if anything, we'd have to make it a little higher.",19
-fomc-corpus,1980,"No, this is the staff's projection of where it will run. The projection may be wrong, but I assume this takes account of the staff's best judgment of what is consistent between these numbers, looking ahead.",43
-fomc-corpus,1980,"Yes, that's right.",5
-fomc-corpus,1980,"What are the figures, Mr. Chairman?",9
-fomc-corpus,1980,"Well, Bob proposed 7, 8, and 8 percent. I suppose we would say ""about"" 7, 8, and 8 percent consistent with that. I take it that doesn't give us any great problem in July; if anything, those July projections are going to be reduced at the moment you have to go make up a path.",73
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,"That suggests to me, Mr. Chairman, that we ought to take a look at the low end of that funds rate range. We may not be getting the shift in demand that we thought; we may have our equations misspecified.",47
-fomc-corpus,1980,Undoubtedly we do; it's just a question of how much.,13
-fomc-corpus,1980,We can change that during the month if we find that to be the case.,16
-fomc-corpus,1980,"I would suggest that we have a real problem in lowering that at all significantly now, in view of both the domestic uncertainty but more precisely the exchange market uncertainty at the moment. My own feel for this situation, though one never knows, is that if the exchange market begins running--and it's on the verge of it now--that will raise the question and force it to our minds. I'm sure we'd have differing opinions about whether we have to make some overt ""tightening"" move to deal with the exchange market situation; I think that would be more inconsistent with what we're trying to do than accepting this delicate business of trying to skate through this period without getting the psychological screws loose. And they're very close to being loose.",144
-fomc-corpus,1980,At some point it would be very nice if we could get the discount rate down a little more. I think we need to be so careful that--,30
-fomc-corpus,1980,"I might say a word about the discount rate, too, because I think it's relevant here. The logic is to get it down for basically two reasons. I don't see any reason why we should in concept have the discount rate impede reductions in the prime rate, which at some point it may do psychologically. Beyond that, as somebody alluded to this morning, if and when we get a reversal in interest rates, the question is [whether] that might occur in a time period we are worried about. The discount rate then does have operational significance because it tends to put a ceiling on the funds rate or at least slow down any increase in the funds rate. And since presumably we don't want a big reaction upward in the funds rate from a fairly technical and maybe passing change in the money supply numbers, it would be nice to get the discount rate lower. It would be more than nice; I think we ought to try to do it. The problem we run into again involves domestic and international psychological problems. We've done a little exploration among the foreign central banks in the last few days to see what the chances are for taking the curse off a further movement [down in interest rates]. If [such a move] is interpreted as an easing, whether it's the discount rate or something else, what are the prospects that this would be hidden or submerged in other rate changes? The answer, I think, is ambiguous at the least. It's another dimension that can be thrown in here. It is not an irrelevant consideration in the framework of the next week or so because I can't say there is no possibility. If it doesn't happen pretty soon, I think [our foreign colleagues] will all go away on vacation and it probably won't happen until September. But it is a matter that is under consideration in a number of countries--so far with a negative answer. The situation is such that if one country moved, everybody probably would move; but nobody wants to lead the parade.",392
-fomc-corpus,1980,Would they follow us?,5
-fomc-corpus,1980,"No. I think we're irrelevant to this. We're not totally irrelevant, but they consider us off on a course of our own and somewhat irresponsible anyway. Whether we move or not doesn't have the same bearing as somebody important within Europe moving, or even if the Japanese move. I don't think there's much chance of the Japanese leading the parade, although they might.",71
-fomc-corpus,1980,The logical one to move would be France because she's also at the top of the EMS.,18
-fomc-corpus,1980,"There are all sorts of conflicts involved. They are in the same dilemma as we are basically. They'd like to move in terms of the business outlook but they don't want to give any sense to their own public, externally or internally, that they've given up on inflation. They're very sensitive to that. And the Germans are in a peculiar position because they're at the bottom of the EMS exchange rate [band]. So they ask how they can go first when the DM is already weak in their terms. The currency that is strong in the EMS is the French franc. The trouble with the French [making a move] is that they have a rising inflation rate at the moment. They're about the only country left where inflation is still rising. And while they have a sluggish business situation, they also say: How can we give a signal about inflation when the inflation rate is still rising?",175
-fomc-corpus,1980,They have a correlation between money supply and the rate of inflation. Both are running 13-1/2 percent.,24
-fomc-corpus,1980,"Well, if we show a willingness to tolerate an 8 percent funds rate before we do anything on the discount rate, it clearly limits our ability to move on the discount rate. So I would think that we would want to keep the 8-1/2 percent [lower limit] at this point.",62
-fomc-corpus,1980,"My own feeling about the discount rate is that we ought to move as soon as it's--I was going to say ""safe."" It's not going to be safe; as it stands we can't be sure there's going to be no reaction. But as soon as we feel there's enough protection somehow and that the risks of setting off something in the exchange market are minimized, we ought to go. I don't know when that will be.",85
-fomc-corpus,1980,"But we're so close to the logical level of, say, 10 percent that it would make a lot of sense given the enormous instability right now in the exchange markets. We've spent $600 million [in exchange market intervention] in the last three days; we ought to consider moving half a point, rather than a full point. We don't have the kind of spread that we had before.",78
-fomc-corpus,1980,Except that we're in great jeopardy that the prime rate will be below the discount rate. I think we're 2 points too high on the discount rate. It ought to be 9 percent.,39
-fomc-corpus,1980,Two points?,3
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"Well, it would be nice to move a full point but we just don't know whether we can or not at this point. We're arguing in a vacuum here because we don't really know.",37
-fomc-corpus,1980,"Well, as long as we keep it above the market rate, we've going to have no borrowings at all. That's going to influence our paths and everything else that--",34
-fomc-corpus,1980,"If we get the discount rate down in two moves, to 10 percent, they may very well be in the same range. We don't know what the fed funds rate is going to be.",39
-fomc-corpus,1980,"Well, I didn't mean to get us off the track.",12
-fomc-corpus,1980,"I don't think we ought to debate that precisely, but those are some of the background considerations to where this federal funds limit is set. What we have on the table is 7, 8, and 8 percent [for the monetary aggregates] and 8-1/2 to 14 percent [for the funds rate range].",68
-fomc-corpus,1980,"Could we have some more explicit comment by the proponents of this proposal as to what we would do if in fact the aggregates exceed these amounts by 1 percentage point, 2 percentage points, [etcetera]. I don't want to see the funds rate go below 8-1/2 percent, but I certainly wouldn't want to see it go to 14 percent between now and [our next meeting].",81
-fomc-corpus,1980,"Well, I don't know about the proponents but I would operate this [along the lines of] what I said on ""C,"" which is that we would tolerate some increase over 7 percent--just to look at that particular number--in the short run before the next meeting without pushing the federal funds rate up to anything like 14 percent. Now, [the interval before] the next meeting is so short that I really can't conceive of these numbers getting to the point where we'd want to exert very strong restraint, but I suppose they could. To try to be specific, suppose we got a fairly big July--significantly bigger than this [projection]--and we were coming into August, but [before the] meeting, and the August projection was for a 12 percent increase. I suppose we'd let the federal funds rate begin to go up and we wouldn't fully adjust the path to take care of a 12 percent increase, say, on top of a 10 percent increase--just to pick two numbers out of the air.",209
-fomc-corpus,1980,"Steve, what does July look like?",8
-fomc-corpus,1980,"I think it would be helpful if the lower limit were a little higher. We're going to be operating as if we were on a funds rate target even though we're not. Then at least the market should not get the signal that we've lowered these targets. I think they suspect that 8-1/2 percent is the lower limit, so if we went to 9 to 14 percent--",79
-fomc-corpus,1980,But they're going to read on Friday that 8-1/2 percent was the lower limit [set at the May meeting]. It has--,29
-fomc-corpus,1980,"Well, they will know it [for that meeting], but they won't know [what it is] for the future.",24
-fomc-corpus,1980,Will they think that we've raised the limit?,9
-fomc-corpus,1980,They may think we've lowered it.,7
-fomc-corpus,1980,I wouldn't want them to think we've lowered it and I'd rather not have them think that it is 8-1/2 percent at this point.,30
-fomc-corpus,1980,"Well, Mr. Chairman, as I understand the thrust of this, if the Committee opts for 7 percent and we wake up tomorrow and it looks as if our best projection is 8 percent, we'll set a path that will achieve 8 percent but the funds market can behave pretty much as it has been behaving. If [our projection] goes up to 9 percent, [the funds market] may still be behaving that way but we'll be getting to the point where we'll have to consult with you to see if we're getting outside the bounds.",110
-fomc-corpus,1980,"I think we'd probably accept 9 percent--I'm just giving a qualitative judgment--provided the federal funds rate is behaving as expected. If growth began getting above 9 percent, I think we'd probably have to consult.",43
-fomc-corpus,1980,"The problem that might come to the Committee more immediately is weakness because that would get reflected rather more quickly in a drop in the funds rate, and we won't know where it will stop.",37
-fomc-corpus,1980,And we'd be operating at the constraint; that's why the constraint is important.,15
-fomc-corpus,1980,"That's right. So the constraint could become operational if there's any weakness right away, and we'd have to come back to the Committee [almost immediately].",29
-fomc-corpus,1980,Is July a particularly difficult month as far as projections are concerned?,13
-fomc-corpus,1980,We've done research on that and they all are difficult! [Laughter],15
-fomc-corpus,1980,I agree completely with the staff.,7
-fomc-corpus,1980,"None is as [difficult] as April, though.",12
-fomc-corpus,1980,"Mr. Chairman, we've talked about the impact on the international scene, which I recognize. Is there any impact on fiscal policy in terms of what we do in this period? For example, if [money growth] comes in low and we don't lower the funds rate, are we really pinning ourselves to the wall in terms of people saying we are not going to support anything [to spur the economy], so it has to be done with fiscal policy? Then we might get a bigger tax cut than we'd otherwise get. I don't know the answer to that, but we don't want to miss that side of the equation either.",125
-fomc-corpus,1980,My general answer would be that whatever influence [our actions] have on that is going to be related more to what happens to interest rates than to what happens to the money supply in a very short-run perspective.,42
-fomc-corpus,1980,"Well, let's say the money supply falls short.",10
-fomc-corpus,1980,"I think it's going to be more influenced by some of the other data. If we get another 8 to 10 percent [decline in GNP and] an increase in the unemployment rate, we won't--",43
-fomc-corpus,1980,That's right; I mean that whole area.,9
-fomc-corpus,1980,"And if we get a sharp revision in the second-quarter number or something of that sort, that's going to put more pressure on fiscal policy than a one-month miss on the money supply.",37
-fomc-corpus,1980,"I don't understand Henry's point. If I understand you correctly, you feel that maintaining the 8-1/2 percent floor [on the funds rate range] would give the impression that we've eased policy. Why?",44
-fomc-corpus,1980,"Well, it increases the perception, or the misperception, that we're operating on a funds rate target.",22
-fomc-corpus,1980,"Then we ought to lower it, shouldn't we, to get it away from where the money supply is?",21
-fomc-corpus,1980,"Is that a misperception, Henry?",9
-fomc-corpus,1980,"Well, it depends on how one looks at it. I share your doubts.",16
-fomc-corpus,1980,"There's a fellow in Florida who always [proposes] as a toast ""Confusion to the enemy."" Maybe we'll do that, Henry; we'll confuse the enemy this time.",35
-fomc-corpus,1980,"But the funds rate hasn't been at the floor. After all, we're always looking at the weekly averages. The weekly average has run 9 to 9-1/2 percent in the last few weeks. We haven't been at the 8-1/2 percent floor even though we've been following the reserve paths.",64
-fomc-corpus,1980,I certainly wouldn't want the record to show that we raised the floor after the second quarter we've had.,20
-fomc-corpus,1980,"If we were to adopt ""C"" or anything like ""C,"" the record would show that we took action in terms of the monetary aggregates that would definitely deepen and lengthen the recession. We can be pinned on being too restrictive at this stage, too, which worries me.",56
-fomc-corpus,1980,"If we are too easy now, we'll soon have to face higher lower limits than we do now. Suppose the aggregates develop some momentum and then we have to slow them down in the last few months [of the year].",44
-fomc-corpus,1980,We could then [let the funds rate] move up through that range of 8-1/2 to 14 percent. We'd have to change the lower limit [if we ease too much in the near term].,44
-fomc-corpus,1980,"If the staff is anywhere near right, ""B"" assumes we get to 4-1/2 percent [M-1A growth] by December and ""C"" assumes we get to 3-1/2 percent by December. If we're taking a middle figure, we're definitely coming in somewhere along those lines, as Paul said, consistent with the earlier statement we agreed on.",78
-fomc-corpus,1980,"I think the various considerations have been pretty well laid out. Let me see what the sentiment is for 7, 8, and 8 percent--using the word ""about"" in the directive--with these numbers for the federal funds range, which are unchanged from a month ago.",58
-fomc-corpus,1980,From May 20.,5
-fomc-corpus,1980,"In this 7, 8, and 8 percent, with 8 percent for M2, is the M2 going to mean anything or is it going to be a throw-in as I--",41
-fomc-corpus,1980,"I think it means something. It doesn't mean [anything for the path]; the path is not set on that number. But for purposes of an example, suppose M2 came in very high relative to this [8 percent] number and the M1 numbers came in significantly low. I think that would affect our judgment as to how hard we pushed on M1 because we would be running high on the one and low on the others.",87
-fomc-corpus,1980,Would we give these about equal weight?,8
-fomc-corpus,1980,Let me say there's an approximation here.,8
-fomc-corpus,1980,"To me it would depend on why M2 was going up; if it were money market funds going out the window, I'd say no.",28
-fomc-corpus,1980,"Well, if money market funds were going up instead of people holding demand balances, I'm not at all sure the implications of that are bad.",28
-fomc-corpus,1980,"One might argue that if money market funds were going up, that ought to be weighed because they have some of the characteristics of a transactions balance.",29
-fomc-corpus,1980,What are we going to do about it if [M2] goes up?,16
-fomc-corpus,1980,Squeeze down harder on the others.,8
-fomc-corpus,1980,Which may make the money market funds go up even faster.,12
-fomc-corpus,1980,What will look better will be the 2-1/2 year certificate. Money market funds have been doing very well; they probably won't do that much better. But the 2-1/2 year certificate could improve and could give us expanded--,51
-fomc-corpus,1980,"We haven't been this precise recently; we used to be. But let me further amend the motion and say as an approximation that we will put some weight on M2, maybe 50-50.",40
-fomc-corpus,1980,"Well, 50/50 is a lot. It's not consistent with the reserve targeting process that we have.",22
-fomc-corpus,1980,"One thing we want to remember about giving M1 and M2 50/50 weight is that if M2 consists about half of M1, a 50/50 weight means we're giving independent components of M2 a 25 percent weight.",50
-fomc-corpus,1980,It's much less. M1 used to be half of M2; it's not anymore.,18
-fomc-corpus,1980,"Yes, that fraction has changed some.",8
-fomc-corpus,1980,One of them is about $400 billion and the other one is almost a trillion dollars.,18
-fomc-corpus,1980,"Well, I'm using very rounded numbers.",8
-fomc-corpus,1980,"Mr. Chairman, the [tenor] of this discussion means that when M2 is running a lot stronger than the targets--let's say it's running 12 percent and the target is 8 percent and it's all [caused by] money market funds--and everything else is running stronger, the staff has not in such a situation in the past cut back on reserves because the multiplier in M2 was off. If we did, as Governor Teeters said, interest rates would go up faster. And as a consequence of that, money market funds would go up faster and--",117
-fomc-corpus,1980,Then interest rates would go down more slowly.,9
-fomc-corpus,1980,"Well, either way. But, for example, in the last [intermeeting] interval we could have been cutting back on reserves because the money market funds were growing very rapidly. [Had we done so] interest rates would be higher and the MMFs would be growing even more rapidly.",58
-fomc-corpus,1980,"Well, we may be a bit inconsistent in saying this. I have to amend this motion further. The conflict comes between saying equal weight and saying we are going to tolerate an overrun. And I guess I've said both. So in a sense we wouldn't tighten up, even if consistent with tolerating an overrun the M1s arithmetically came out on target. We'd let them go for--",82
-fomc-corpus,1980,It's only five weeks until the next meeting.,9
-fomc-corpus,1980,"Yes, I know.",5
-fomc-corpus,1980,It's an asymmetrical equal weighting.,7
-fomc-corpus,1980,Sure! What is that?,6
-fomc-corpus,1980,"We probably ought to avoid trying to be technical about equal weighting. But [M2] is a consideration. Let's just end it there. So with these [nuances], the directive would say about 7, 8, and 8 percent, 8-1/2 to 14 percent [for the funds rate] and there's an understanding of some tolerance of being above [the growth rates cited]. And we don't ignore M2--that is the way to put it--when we're judging how much above to tolerate.",107
-fomc-corpus,1980,"Why don't we move the M2 rate up to 9 percent and make it 7, 8, and 9 percent?",27
-fomc-corpus,1980,It's easier to remember!,5
-fomc-corpus,1980,"I just have no basis for doing that. The staff tells me that this is the most likely relationship, and I don't have any independent--",28
-fomc-corpus,1980,"But they tell us that M2 is going to be out of line, so what the heck.",20
-fomc-corpus,1980,We could move it to 8-1/2 percent.,13
-fomc-corpus,1980,"I think what the staff has said is that M2 has been rising relatively rapidly compared to these others, but they don't expect that to be the case in the future.",34
-fomc-corpus,1980,"Has the staff said that 8-1/2 to 14 percent on fed funds is consistent with 7, 8, and 8 percent [which are] compromises?",37
-fomc-corpus,1980,"Well, at the time we wrote the Bluebook if we had had to say something--it would have been fine-tuning of a silly nature--we would have raised the lower limit from 8-1/2 to 8-3/4 percent or something like that. Given the data I now have on the aggregates, I wouldn't have. The data are in a state of flux; that's why it's better to have this meeting on a Tuesday.",92
-fomc-corpus,1980,"What is the rationale, though, on preferring the compromise over alternative B?",16
-fomc-corpus,1980,We don't have to push so hard.,8
-fomc-corpus,1980,"It's a little lower number but it's a tolerable number, Larry.",14
-fomc-corpus,1980,"I'd prefer ""A,"" obviously, beause it would get us [there] theoretically. We know that. The question is how much--",28
-fomc-corpus,1980,And then we'd need at least $40 billion to support the market.,14
-fomc-corpus,1980,"Well, how many people find the proposal that is on the table acceptable?",15
-fomc-corpus,1980,Voting members?,3
-fomc-corpus,1980,This is an acceptance with a waffle.,8
-fomc-corpus,1980,"It looks nearly unanimous, doesn't it? I think enough hands were raised that we can vote. We are voting now on the short run.",28
-fomc-corpus,1980,"Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roos Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes President Winn Yes President Balles Yes Unanimous, Mr. Chairman.",53
-fomc-corpus,1980,"Well, after that display of unanimity, let's return to the long run. I would interpret that vote as consistent with what I said earlier about the long-run targets for 1980, if we can call 1980 long run at this point. I don't know whether I can repeat what I said [with regard to] keeping the ranges unchanged numerically. We will explain that there are technical problems with the M1 relationships, but that's not central. We're not recognizing here that the ranges are [unintelligible]. We understand and accept that and we even think it's likely that the M1 number will come in toward the lower part of the range we have targeted. We think M2 will probably come in toward the higher part of the targeted range and that M3 will be someplace in the middle. We think bank credit may come in low and we'll explain that. I think that's the substance for 1980. Since we're just reaffirming numbers, maybe we can have a vote on this one part.",204
-fomc-corpus,1980,This is a sort of [unintelligible]. The short run wasn't very good but one goes along with it and now here comes the second shoe.,31
-fomc-corpus,1980,That's a Solomonic tactic. This is the Arabian [Solomon] of the Arabian Nights.,20
-fomc-corpus,1980,We will assert that these are consistent with the Administration's targets?,13
-fomc-corpus,1980,I think that's a very respectable position.,8
-fomc-corpus,1980,We have to do that. We have to say whether they are consistent.,15
-fomc-corpus,1980,"Well, let's have a little discussion about that whole issue. It's going to be even more relevant for '81. In substance that is what we're saying.",31
-fomc-corpus,1980,"After all, these longer-run targets are mostly for '80. We're not talking about '81 now?",21
-fomc-corpus,1980,"I'm dividing it into two pieces just to make it manageable, I hope. It's not really a Solomonic tactic; it's a manageability tactic. Can we have a vote on '80? Do you understand what it is? Numerically it's just where we are, but the discussion implied [nuances] which will appear in the report.",69
-fomc-corpus,1980,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Morris Yes Governor Partee Yes President Rice Yes President Roos Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich No President Winn Yes President Balles Yes,45
-fomc-corpus,1980,"For 1981 we have a more difficult problem. I don't know whether you have any language for us, Mr. Axilrod. Have you had a chance--?",35
-fomc-corpus,1980,"I have around 15 lines of language, which I--",12
-fomc-corpus,1980,Of language or anguish?,5
-fomc-corpus,1980,Both! It might be worth my reading it to you to see if it's even worth typing up and distributing.,22
-fomc-corpus,1980,Humility.,3
-fomc-corpus,1980,It depends upon how many nuts you threw into that waffle!,12
-fomc-corpus,1980,"Before we get to the language, [let's return to our earlier] discussion about what [needs to be] in the directive. In substance--but the lawyers may want to talk to this--I don't see why we need any [elaboration] in the directive. And therefore, I would say we're talking about the language that will provide the core of the report for talking about '81. But [the directive] could be further elaborated with language, particularly with some mention of NOW accounts and all that business and why we arrived at this conclusion.",112
-fomc-corpus,1980,Is this something we have to take a vote on?,11
-fomc-corpus,1980,"I don't think we necessarily have to take a vote on it, frankly. On the other hand, the argument for taking a vote is that the law specifically asks us to state--I forget the [precise wording of] what the law asks us to do. It asks for a Committee judgment--",60
-fomc-corpus,1980,It asks for a statement of the Committee's plans and objectives with respect to money and credit growth.,20
-fomc-corpus,1980,"We must give the Committee's statement of its plans and objectives, so I lean slightly--but I don't think it's compelling--toward having a vote on it as a Committee statement. But we have to have some method of indicating it's a Committee consensus. Maybe we can just indicate that this is the Committee's consensus without arguing over it.",68
-fomc-corpus,1980,"I think that would be legally acceptable as far as the rules of procedure of the FOMC and the Humphrey-Hawkins Act itself are concerned. Going back to the earlier point on the directive, there is no requirement in the Humphrey-Hawkins legislation [regarding what you include] in the directive. Nor is there such a requirement under our rules of procedures.",76
-fomc-corpus,1980,I don't know why it was in there before. I may have had some very persuasive reason myself; I don't even remember the discussion. But it doesn't seem to be operative in terms of anything we're doing now.,42
-fomc-corpus,1980,All I can conclude is that the other members of that subcommittee were more influential than the two who are here!,23
-fomc-corpus,1980,"What would happen though, Mr. Chairman, if you were asked in your testimony whether this was unanimous? How would you answer [if] we didn't take a vote? In other words, there is a difference of opinion, I'm sure, on this '81 situation. How do we resolve that in terms of reporting to Congress?",66
-fomc-corpus,1980,We talk in terms of consensus.,7
-fomc-corpus,1980,"Why don't we see how close we can come to a consensus? If we can get a strong enough consensus, maybe we'll take a vote; if not, we--",33
-fomc-corpus,1980,"There's no doubt that I have to be able to say it's a consensus. Now, I don't know if we have to take a formal vote to say it's a consensus.",34
-fomc-corpus,1980,"After all, the very fact that it's a fairly general statement and a very preliminary one makes it more logical that it was a consensus view rather than a vote.",32
-fomc-corpus,1980,"Well, [not having] a vote doesn't say it wasn't a consensus. [Whether or not] we're voting, that's what this is.",28
-fomc-corpus,1980,"Yes, but it's not as [unintelligible].",12
-fomc-corpus,1980,"If we try to sharpen this pencil too much, we're going to be voting on what words you use in the testimony. I think this is getting ridiculous.",31
-fomc-corpus,1980,"That's right. I'd like to stop short of that, frankly.",13
-fomc-corpus,1980,"Yes, I think this is putting the Chairman in a very peculiar position.",15
-fomc-corpus,1980,"I really thought we had enough agreement in substance to leave the drafting of the words to you and the staff, Mr. Chairman.",26
-fomc-corpus,1980,I'm happy to accept that view without even introducing the complications that can be quibbled about. If it is the consensus that it can be left to the staff and myself and the understanding is that it's--,41
-fomc-corpus,1980,As long as you don't commit us to lowering the ranges.,12
-fomc-corpus,1980,On that we want a vote.,7
-fomc-corpus,1980,Do you accept that we will try to lower the ranges but that the announced--,16
-fomc-corpus,1980,"No, I don't, Henry. I'm really not committed to that.",14
-fomc-corpus,1980,"It's not ""committed."" [The Chairman] will use that earlier language that we talked about.",20
-fomc-corpus,1980,I'm not sure I even want to try to lower them.,12
-fomc-corpus,1980,"Obviously there are some, Nancy, who are committed to a consistent lowering [of the ranges]. So how do we--",24
-fomc-corpus,1980,"No, we are not committed to a consistent lowering.",11
-fomc-corpus,1980,He said some of us are.,7
-fomc-corpus,1980,I said there are some.,6
-fomc-corpus,1980,"Some of you are, but I'm not, frankly.",11
-fomc-corpus,1980,And how is that difference--the fact that it isn't unanimous one way or the other--described in the record?,24
-fomc-corpus,1980,It seems to me that we could say we will work toward lowering the ranges. Whether this will be possible and to what extent can only be determined in the light of the circumstances that we meet then. That wouldn't be a commitment as far as you're concerned.,51
-fomc-corpus,1980,"That's further than I want to go, Henry.",10
-fomc-corpus,1980,"Couldn't we put out a statement which said that it's the consensus of this Committee that policy in 1981 is going to aim toward contributing further to a reduction in inflation. With that in mind, the Federal Reserve will adopt its specific targets for the aggregates at the beginning of next year, but the objective will be to follow a policy which extends money and credit at rates that are consistent with a further reduction of inflation. We could all agree [on that] and make the specific decision later on. I think that [squares] with what everybody is saying.",112
-fomc-corpus,1980,"Yes, but that's saying almost nothing.",8
-fomc-corpus,1980,"I agree, but I think maybe we can get away with that.",14
-fomc-corpus,1980,Inflation would probably rise next year.,8
-fomc-corpus,1980,He will be asked the question of whether that means lower numbers.,13
-fomc-corpus,1980,"Well, then he can talk about the technicalities of M-1A and M-1B and so on during periods of--",27
-fomc-corpus,1980,Do we have to reflect unanimity on this?,10
-fomc-corpus,1980,"No, I don't think so. We'd like to have it all the time but if there's a real difference of opinion, I think we're stuck and we just don't reflect unanimity.",36
-fomc-corpus,1980,"Well, I'm afraid there is [a difference of opinion].",12
-fomc-corpus,1980,"I [suspect so], too. I don't think this [draft language] quite does it, Steve. It talks a lot about the technological complications, which I think should be in the statement someplace, but it doesn't seem to me to reflect adequately the views of all the members of the Committee in that there is a real uncertainty involved in the economic outlook itself. And that's going to affect--",79
-fomc-corpus,1980,I was a little afraid that would argue strongly against lowering [the ranges]. It makes it very clear.,21
-fomc-corpus,1980,Couldn't we adopt Governor Schultz's earlier suggestion? Could we agree on that--that we all want aggregate targets for 1981 at or below the 1980 ranges?,34
-fomc-corpus,1980,"Well, I would hope that that's a minimum we could agree upon. The real [problem] is that I am not sure that's right. I'm not sure that goes far enough for some people. I admit the difference isn't very large but I suspect it's real. And the only way I can see going further--just to try again out loud--is to say it is the general policy and intention of the Committee to seek lower growth rates over a period of time consistent with countering inflationary forces. The Committee will be examining 1981 in that light specifically, but the extent to which progress toward that objective can be made in 1981 will have to be evaluated in the light of all the circumstances at the time.",145
-fomc-corpus,1980,"Doesn't this get us to the nub of the whole philosophical issue of whether we put a greater priority on reducing inflation and enduring a certain amount of pain or bitter medicine--which are words we've all used regarding that process--or whether we will opt, if push comes to shove, for bringing relief to the economy at the risk of perpetuating inflation? It's very fundamental it seems to me.",78
-fomc-corpus,1980,"Well, that is part of it. The other part is how much one is persuaded about monetarist doctrine in general. I think those two considerations are entering in here, which makes it difficult.",40
-fomc-corpus,1980,"I don't know if you hear this, Mr. Chairman, or if it is just a product of where I live and work. But we hear constantly the overpowering, almost pleading, request from the groups we bring in, including labor leaders: ""For heaven sakes, do what is necessary to bring down inflation, even if it means high unemployment for a while."" There is a passionate pleading of that sort, and I really don't exaggerate when I say that.",94
-fomc-corpus,1980,"Well, it's easy to be influenced by the short run, and I recognize the trap that we can conceivably get into next year. But I feel uncomfortable right at this stage. It seems to me that it's perfectly illustrated by this [Proxmire] resolution, which presumably I have to support, however lukewarmly. If we come out with a statement for '81 that somehow seems inconsistent with that, there will be a lot of explaining to do that seems troublesome to me in terms of questioning our whole outlook [and] modus operandi.",112
-fomc-corpus,1980,Can't we put it in terms of not really knowing what is going to happen in the next six months?,21
-fomc-corpus,1980,"Well, I'm willing to go so far [and make] the kind of statement I just made: That while this is our general intention, specifically how far or whether we can do it in 1981 remains to be seen. Nevertheless, our bias is in that direction.",55
-fomc-corpus,1980,Can't we even say that the Committee is committed to bringing the money supply growth down to non-inflationary levels over time and that for 1981 we will have the monetary aggregates generally at or somewhat below the figures for 1980 depending upon conditions in the economy?,55
-fomc-corpus,1980,"But you're getting yourself into a box, Fred. We've been bringing the rate of the money supply growth down for the past four years and inflation has been going up. What is a non-inflationary rate of growth in the money supply?",49
-fomc-corpus,1980,"There's a lag though, Nancy, isn't there?",10
-fomc-corpus,1980,We don't know; we will keep bringing it down until we find out.,15
-fomc-corpus,1980,We don't know.,4
-fomc-corpus,1980,It must be lower than what we've had.,9
-fomc-corpus,1980,Or we have to do it longer.,8
-fomc-corpus,1980,"Mr. Chairman, if we don't at least hit that lower part of the ranges--and in fact if we begin to report month by month what the market is apt to perceive as pretty rapid [money growth] rates--I think we will have an extremely severe credibility problem.",55
-fomc-corpus,1980,Say that again.,4
-fomc-corpus,1980,"I'm saying that during the next few months, if [money] growth comes anywhere near what we're projecting, as we approach the midpoint of the target range we're apt to have a problem if we don't explain very carefully that we're just trying to get growth back up within the target range. If we do that and then when Paul testifies he doesn't say something about a lower range for next year, we're going to be hit by both sides on the credibility problem, I'm afraid. I'd really want to emphasize lower [ranges] if we could possibly persuade everybody to do that.",113
-fomc-corpus,1980,"Just to get to the substance, whatever the exact words are, my own feeling is pretty strong that we have to say something about a bias toward lowering the ranges next year. I'm willing to put in an escape hatch that says in the end it may not be possible. But there has to be some minimal expression of a bias in that direction--looking at both sentences in effect--or we will get ourselves in a difficult problem in the short run. We will anyway, I think, with the escape hatch, but it would be moderated. I recognize that when one looks at these projections of the economy and all the rest, one has to wonder how the hell we can do it. But I'm saying we've got to face up to that question. Put off the problems of tomorrow until tomorrow, right?",160
-fomc-corpus,1980,"Yes, but even with a 4-1/2 percent rate of growth in the money supply we'd have a very anemic recovery.",28
-fomc-corpus,1980,"I know, but it's still all a projection too, and--",13
-fomc-corpus,1980,"I find it ironic that we've reached agreement fairly quickly on 1980 and the next quarter and we're having so much trouble on the longer term with very general language. We basically have had three points of view expressed. There are those who would like to say simply that we'll be reducing the aggregate targets next year. There's the other extreme, which stays basically neutral and says we don't know yet. And there's the middle one, which you put forward, which shows some bias and some hope but not a commitment [to reduce the targets] and says that the situation has to be assessed at the time. It seems to me we ought to take a vote on all three or get enough people to raise their hands in support of the middle ground.",147
-fomc-corpus,1980,"I'm inclined to think that we're probably going to have to--or maybe should--end up with a vote. What I would propose is that we put together what you describe as the middle ground, indicating a bias but with a caveat. I can circulate the language and get a reaction to the precise language. If you don't want to bias it in that direction and feel strongly that you want a much more neutral statement, vote against it. And if asked whether this was unanimous, I'd say ""no;"" some people were doubtful and enough doubtful that we were going to make progress in that direction next year that they wanted to allow themselves, in effect, a bigger escape hatch. That may reflect the reality. I think we're better off doing that than trying to waffle on the whole point of [consensus].",161
-fomc-corpus,1980,"Mr. Chairman, if we expressed the intention to reduce the aggregates next year and conditions in February were such that it was just unreasonable, couldn't we take our action at that time instead of expressing the caveat and reluctance now? After all, this is purely a projection. If conditions deteriorated to where we wouldn't want to act on that projection in February, we'd still have the option of not making the reduction, would we not? I don't know what we accomplish by--",95
-fomc-corpus,1980,"Sure. We can do anything in February we want to do in the end. This obviously biases what we do in February. I'd just like to get a showing of hands on this and maybe [consider] some kind of voting procedure. We don't want to take a formal action, or a final action anyway, right now. I will circulate some language in any event. I will attempt to reach the widest area of agreement [along the lines of] what was described as the middle course: Some bias about [lower targets for] the long term, which encompasses 1981, with a statement that whether that will be possible specifically in '81 is going to depend upon an evaluation not only of all the technical factors but also an evaluation of economic conditions and the relationships between money and the economy when we have to make a final judgment in February or January or whenever it is.",175
-fomc-corpus,1980,You can try another caveat in that we really don't know what fiscal policy is going to be; that's still a wide-open area.,27
-fomc-corpus,1980,"Sure, that can be implied, too.",9
-fomc-corpus,1980,"Paul, there's another phrase you might want to use and that is: ""It's the present intent of the Committee...""",23
-fomc-corpus,1980,"Well, let me worry about the precise language. It will be circulated. Do I capture a sufficiently wide area of Committee opinion to make this the likely candidate to be worked on, subject to fiddling around with the language?",45
-fomc-corpus,1980,So long as it's not assumed that this is our expectation.,12
-fomc-corpus,1980,"Well, you'll have to judge that in itself in the end. Some people may want to [express] a different opinion. I'm trying to say something here, though not very much. I'm trying to express a bias without locking us into it. That's the intention.",53
-fomc-corpus,1980,Yes. I don't want to be faced in February with having it said that in July I promised to do this.,23
-fomc-corpus,1980,"I think it's clear that nobody is going to be faced with something like ""I promised to do it."" But I still want to maintain the bias. I sense that that's likely to capture the biggest number and come as near to a consensus as we can get. It may be a complete consensus. Is that right? Is that near a consensus?",69
-fomc-corpus,1980,I can go with that.,6
-fomc-corpus,1980,"That seems to be the case, so let's operate [on that assumption]. We'll get some language out before the end of the week and have some form of assent or vote or something so that I can say that it's a consensus of the Committee. Okay. Does that complete the meeting?",57
-fomc-corpus,1980,"There's just one minor technical presentational point, which I think is worth calling to your attention. The way the operational paragraph has been drafted, by putting M2 for the first time down at the bottom of the paragraph instead of saying M-1A, M-1B, and M2, it will give the markets the impression that we're downgrading M2. That's not the intention from the discussion, I gather. What was the reason for that switch?",94
-fomc-corpus,1980,It's not the first time. This is a reversion to what was the regular practice until the last meeting.,22
-fomc-corpus,1980,"It was not intended to downgrade M2, I take it?",13
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,Up until the last meeting it was done that way?,11
-fomc-corpus,1980,It was changed at the last meeting because there were no numbers in the directive at the last meeting. We simply have reverted to what has been the practice.,31
-fomc-corpus,1980,"I had the same question Tony did when I glanced at it. But if it was just a reversion to what was done in all the meetings up until the last one, I don't think it's a--",41
-fomc-corpus,1980,"If in fact we're going to give M2 some weight in the decisionmaking process, then I think Tony's suggestion ought to be considered. Maybe we ought to put it in the body of the operational paragraph instead of hanging it on the end.",49
-fomc-corpus,1980,"We're going to give it some weight, yes. I can do it either way. I don't think it's important that we've always done it the other way. I would go along with that; it's probably slightly better. This is just a question of whether we list M2 along with the M1s. Is that agreeable? Okay, the only other item on the agenda is that the next meeting is August 12th.",85
-fomc-corpus,1980,What about the forecasts?,5
-fomc-corpus,1980,"Oh yes, thank you--the forecasts. Do you want to hand those [tables] out? I don't know that we have to spend a lot of time on this but we'll see.",38
-fomc-corpus,1980,"You're just trying to get the range, right?",10
-fomc-corpus,1980,I'll show you. Do you all have copies?,10
-fomc-corpus,1980,"No, they're down at that end of the table.",11
-fomc-corpus,1980,"What we've done, as you will see, is to take the numbers that you submitted and that the Board members talked about. The Chairman exerted his prerogative of not putting down precise numbers. But we've divided it up to give a little sense of [the views of] the Board members, the voting Presidents, and the non-voting Presidents. My overall impression is that, for some reason, not voting may breed irresponsibility or something. But the ranges are very similar and fall within the range of the Board staff's projections for the major variables in both '80 and '81. There were a couple of outliers among the non-voting Presidents. We are not committed to any particular treatment of this in the report. What we did in the last two reports, I believe, was to show a range for Board members. I was asked the last time why we didn't include all Committee members. I didn't commit myself [to a change], but I acknowledged that that was a reasonable question. So my presumption is that we might as well show the range for all Committee members this time. I'm not sure there's any particular point in dividing it up between Board members and others. We could include non-voting Presidents or not, but the specific request was ""Committee members"" so my [suggestion] would be to combine the Board members and the Presidents and say this is the Committee's range. We've never tried to narrow the range very far. We've had among the Board members some discussion of whether the more outlying [views] couldn't converge someplace. There were some problems that arose when we discussed this among the Board, which relate to the problem that Chuck just raised, and I think we ought to discuss this a bit. We decided on the ranges. We're a little vague about next year, but we have to discuss their consistency with the forecast of the Council [of Economic Advisors] Mr. Kichline says on the basis of his scientific investigation that they are consistent, with a low order of probability. What do we say about that? How do you feel about the way we present these forecasts? And do any of you want to change your mind about the numbers you've already submitted very tentatively?",444
-fomc-corpus,1980,Are you likely to be asked the question--,9
-fomc-corpus,1980,"Excuse me, Nancy, but while I think of it, the most important question presentationally seems to me whether we present these forecasts with no tax cut, with a tax cut, or both. I am afraid, frankly, of just presenting a projection which says ""with a tax cut"" because I don't know how to avoid the implication that the Federal Reserve takes it for granted that there will be a tax cut and that it's desirable. The only argument against presenting it at least both ways is that the numbers look so sour without [a tax cut]. There's the problem of presenting a very sour economic forecast. How that gets resolved is beyond me. But that's the most important presentational issue.",140
-fomc-corpus,1980,"Also, if we do it both ways, one can subtract and see what the effect of a tax cut is.",23
-fomc-corpus,1980,"If we do it both ways [the questions is] why not have the tax cut. It's as if all these projections surely show: Mirabile dictu! If we have a tax cut, we get more growth and no more inflation, and anybody except a damn fool would have a tax cut. In fact, instead of a $30 billion tax cut, why not make it $60 billion because then we'd get still more growth and--",88
-fomc-corpus,1980,"Yes, why not make it twice as big?",10
-fomc-corpus,1980,"Paul, I would suggest that we present projections assuming no tax cut and then go on to say that if there is a tax cut of, let's say, $25 to $30 billion, then the picture would change. How it would change depends upon the composition and the timing of implementation because that makes an enormous difference as to how much stimulus would occur in fiscal '81. I'd give them some ranges. There is a good deal of uncertainty depending on the composition of the tax cut, so I'd make that a little more general.",106
-fomc-corpus,1980,"Well, I would prefer to approach it the way you are approaching it. But how does one handle this question? It sticks out even more sharply than it otherwise sticks out that our projection is for an extremely sour business picture and a very high unemployment picture for another 18 months, so why aren't we using policy--?",64
-fomc-corpus,1980,"The question you're going to get on this, regardless of how we present it, is how much of this is due to the difference in our fiscal policy assumption and how much is still due to the difference in our monetary policy assumption, because the CEA has a much easier monetary policy assumption than we have. That could be almost as embarrassing as whether we have [assumed] a tax cut.",79
-fomc-corpus,1980,Is the CEA assuming an easier monetary policy or do they have a different assumption as to that wonderful demand shift that's--,24
-fomc-corpus,1980,"Oh, they have lower interest rates.",8
-fomc-corpus,1980,6 percent.,3
-fomc-corpus,1980,They have lower interest rates. How do they get them?,12
-fomc-corpus,1980,"The public projection that goes up to Congress has an interest rate forecast now that's purely fictitious. That is, they are using a rule of thumb which says that for interest rate projections we will adopt the rule that real interest rates are unchanged. That [procedure] was adopted two years ago when they had to discontinue using the old rule, which was that nominal interest rates were unchanged. So to keep from having to forecast interest rates they said: Let's switch to a rule of real interest rate assumptions. And that's all that this monetary policy assumption means. It isn't a real assumption; it's just a plug.",120
-fomc-corpus,1980,"Another question that arises in our projections, now that I think of it, is that they show very little improvement on the inflation side--",27
-fomc-corpus,1980,Very little improvement on anything.,6
-fomc-corpus,1980,"--from year to year. In fact, for the non-voting Presidents the range is exactly the same and for the voting Presidents it's exactly the same. MR. KICHLINE(?). We excluded some outliers like--",45
-fomc-corpus,1980,"No, I'm looking at the wrong comparisons here. They're not exactly the same, but there's little difference; they show a decline [in inflation] of a quarter percentage point from year to year.",39
-fomc-corpus,1980,"Well, it is an opportunity, Mr. Chairman, for educating the [Congressional] Committee about the long run.",24
-fomc-corpus,1980,I'm looking at the wrong numbers again; they show a difference of one half percentage point.,18
-fomc-corpus,1980,But the unemployment figures don't look that bad. This says without a tax cut the range is 8-1/2 to 9 percent but with a tax cut--depending upon the composition--it probably would be a percentage point lower than that for the fourth quarter of 1981. So it's down to 7-1/2 to 8 percent.,73
-fomc-corpus,1980,But at the risk of more inflation in '82 and '83 perhaps. I think that has to be put in.,24
-fomc-corpus,1980,"Look at the unemployment rate under any of the projections for next year. I don't see how we can talk about a tax cut without, in effect, saying we should have a tax cut.",38
-fomc-corpus,1980,"Well, we're not saying that we shouldn't have a tax cut. We're saying we should wait a while and see what the numbers are going to be.",30
-fomc-corpus,1980,"[But their question would be]: Why do we have to wait, if that's your--",18
-fomc-corpus,1980,That's why I said earlier that you have to stress that the composition of it and possibly the magnitude will be affected by events in the economy over the next few months.,33
-fomc-corpus,1980,"Well, this is filled with booby traps, but we can't avoid them all. Along the same line, we used the CPI the last time. For technical reasons the CPI comparison from '80 to '81 will look less good than the other [measure], theoretically; I don't know how it will come out. We just thought tentatively that we'd not give the CPI [forecast] even though it's very good at the end of this year in some people's opinions. Well, we don't have to resolve this finally today but if anybody has great suggestions--and particularly if anybody wants to change his or her projection in a way that would affect any of this--let Mr. Kichline know in the next day or two. I suppose you just have to leave it to us as to how they're presented. Also, please convey any bright ideas on what we should say about the consistency of our whole approach to the CEA's [projections]. They say our computer tells us it's inconsistent, but we know it's consistent.",204
-fomc-corpus,1980,Certainly.,2
-fomc-corpus,1980,I take this silence as assent that we will work out the problem.,14
-fomc-corpus,1980,It seems it's late in the day.,8
-fomc-corpus,1980,Now where are we?,5
-fomc-corpus,1980,I think it's time for a compliment. I'd like to compliment the Bluebook this time. I thought it was very helpful and very good.,28
-fomc-corpus,1980,"On that note, I move we adjourn.",10
-fomc-corpus,1980,"Well, let me say in that connection that I thought the presentations this morning were very good. The Bluebook was well developed. I shudder, as I do every time, when I look at that Bluebook and all that stuff coming out of these computers about the more increase in money supply we have and the more tax cut we have the better everything looks!",73
-fomc-corpus,1980,"Mr. Chairman, that is not, I insist, what the Bluebook says.",17
-fomc-corpus,1980,"It may not be what the language says, but if one looks at those pages with all the alternatives, that's the conclusion--",25
-fomc-corpus,1980,Well. I don't think that's what the numbers say either. We'd say it even more obviously if we had put '83 in there. But we tried to compare a tax cut strategy with a no tax cut strategy and to look at that--,48
-fomc-corpus,1980,"I understand that [the outlook is worse] if one looks at a long enough period and all the rest, but I still would hate to see that Bluebook get into the press.",37
-fomc-corpus,1980,Shouldn't the Bluebook have a paragraph in it about the fact that the reaction of the financial markets may throw this whole scenario off?,27
-fomc-corpus,1980,I think the Bluebook always should have a paragraph in it saying that there are those who think this is all a lot of baloney and that everything is going to work out much better with the more restrictive policy.,43
-fomc-corpus,1980,They called us outliers and then took our [projections] out of the figures.,18
-fomc-corpus,1980,"While we're on the subject of the books, what about the Redbook?",15
-fomc-corpus,1980,"Well, I've had a little discussion about that. I asked Carl Scheld to look at that. Frankly, I find the Redbook less useful than it might be--not in the sense that it's not a very good idea to get these kinds of comments fresh from the market, but in its organization. It goes District by District and it's awfully hard for me--I never get through it, frankly--to get some sense of what is happening in a particular sector of the economy or what the latest feel is, which is what the Redbook is supposed to give, because the information is so dispersed. I'd like to see some reorganization, maybe only in the summary, so that it comes through a little more clearly. What should be clear, looking at all these reports, is that this is the latest feel we have for residential construction or for business investment and that these are the nuances in different areas or sectors of the economy. It's just a matter of organizing the material.",198
-fomc-corpus,1980,"I would hope that would be done just in the [summary], because I wouldn't like to lose that District [by District information].",26
-fomc-corpus,1980,"Well, let's pick up these papers with the projections; people are worried about these [getting out]. I worry a lot more about the Bluebook, frankly, than these wide ranges but--",38
-fomc-corpus,1980,These ranges are so wide that a reader would have to conclude that the Committee didn't know--,18
-fomc-corpus,1980,And that is an entirely reasonable conclusion.,8
-fomc-corpus,1980,"If it's all right, I don't think we need a break unless people want to break just for a minute or two. We want to discuss the Monetary Control Act a little and questions that arise with respect to that.",43
-fomc-corpus,1980,Couldn't we have a seventh inning stretch?,8
-fomc-corpus,1980,We can have a seventh inning stretch. We'll have a 5 minute break and come back for other [non-FOMC] matters.,28
-fomc-corpus,1980,"Let's come to order. We have two new faces at the table today. Another way to put it is that we have one new face and one old face in a new guise. I want to welcome Mr. Ford and Mr. Corrigan. You have great privileges as new members. You may speak first, last, or in the middle when it comes to delivering some cogent comments on what we should be doing. I'll give you a little time to think about that. We do welcome you around the table. I would like to mention and emphasize a matter on which I sent you a note. We had a leak about the aggregates [targets] for the year after our telephone consultation, which disturbed me. What disturbed me was not just the substance of it--though I don't think it would be considered the most damaging leak in the world in terms of the market [effect]--but that it could happen at all. I'm not suggesting at all that the only place a leak can come from is a Reserve Bank, but in this particular case the reporter identified [the information] as having come from a Reserve Bank or Reserve Banks. I suppose it might have come from Washington in other circumstances. Wherever it came from, there is nothing more corroding of the confidence with which we sit around the table or in a telephone conference and discuss [policy] than the fear that somehow there is going to be a leak of what is discussed. I just cannot operate in that way. I know of only one way to deal with this lack of confidence, which I don't want to have, and that is to diminish and diminish and diminish the [attendance at] meetings so nobody is here but the people who actually have to be. At least then we would have identified [the source of any leak] down to a smaller group. I don't think anybody wants to go in that direction, but that is one of the prices of having this kind of leak. I don't know where it came from, and I don't care where it come from in this particular incidence, but I do care about the matter in general. If you haven't already done so, I would urge you to take whatever [measures necessary to convey] the message in your own way within your own institutions to give us the best assurance we can have that this doesn't happen again. We are going to end up not talking very freely if it does. Enough of that. One other thing I would mention is the meeting schedule for 1981. I don't want your reactions at the moment but perhaps we can take that up at the next meeting and you can convey any reactions you have before that. You will recall that I raised the question some months ago--assuming we continue with the reserve targeting procedures--of whether the logic somehow suggested that we should have a meeting near the beginning of a quarter. We are compelled to do things according to the calendar: annually, quarterly, monthly, or whatever. Given that what we have been doing is setting the target for every quarter, the logic seems to suggest that it would be convenient to have a meeting near the beginning of the quarter or the end of the previous quarter. Then perhaps a reasonable checkpoint would be somewhere around the middle of the quarter. Doing that would mean intervals of six or seven weeks between meetings, typically, which is a little longer than what we have had in recent years. This year we are scheduled to have ten meetings. I would be perfectly happy to have more telephone updates between meetings if that seemed desirable--if it seems like a long time between meetings. But it still seems to me a rather attractive way of proceeding, assuming we're on this kind of targeting. I'd like to get your reactions to it at or before the next meeting and then we can set some dates so people can get them on their calendars, however we're going to [proceed]. I can send out some tentative dates after this meeting, just so we have something concrete to look at. But the general concept is more important than the particular dates at this point. I think that covers all the extraneous business. We need to approve more than one set of minutes. I take it there was a lapse in approving the minutes of a couple of telephone conferences, Mr. Secretary.",852
-fomc-corpus,1980,We need approval for the minutes of March 7 and May 6 and for the regular July 9 meeting.,23
-fomc-corpus,1980,March 7th and May 6th got lost somehow. Were they telephone conferences?,18
-fomc-corpus,1980,"Yes, they were telephone conferences.",7
-fomc-corpus,1980,We need a motion.,5
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,"Without objection, we'll approve them. Mr. Pardee.",12
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Is the Treasury behind in covering Swiss francs and Carter bonds?,12
-fomc-corpus,1980,They are fully covered on the Carter notes. The francs that we have accumulated recently have been put aside for payment of interest on those notes. They [have] discussed a little the issue of accumulating additional francs. [They are leaning to the view] that if we don't want any more they will acquire them. But we still have very modest balances for the System.,73
-fomc-corpus,1980,Comments or questions? Governor Wallich.,8
-fomc-corpus,1980,"Scott, you said that these countries would be quick to support their currencies. Do you see any indications that that attitude might change if they go more deeply into recession?",33
-fomc-corpus,1980,"It could, but the question of financing their deficits is very important. And they want to maintain a strong currency so they can get the funds. There's a tremendous amount of competition among the authorities to get OPEC funds at this point. Any slippage on your currency means that the money just isn't going to come in your direction.",66
-fomc-corpus,1980,Thank you.,3
-fomc-corpus,1980,Everybody really wants fixed exchange rates?,7
-fomc-corpus,1980,"No they want strong exchange rates rather than fixed. In fact, a gently rising exchange rate is--",20
-fomc-corpus,1980,Given that everybody can't have that. Governor Rice.,10
-fomc-corpus,1980,You said that the market accepted the reduction of the discount rate as largely a technical adjustment. Does that indicate to you that the market is becoming more sophisticated or was it just a happy circumstance of timing?,40
-fomc-corpus,1980,"Well, on that particular occasion, I talked to several people who tried to interpret it. As you recall, on that Friday there were two other elements [involved]. One was that the federal funds rate did ride up and the other was that a large increase in the aggregates was published later in the afternoon.",62
-fomc-corpus,1980,[Unintelligible.],6
-fomc-corpus,1980,"Several [market players] sent out letters or cables around the world from New York and other centers over the weekend trying to assess the implications. Those who said that the rising federal funds rate and the aggregates were important were right. And those who said that the Europeans were going to react negatively to the discount rate were wrong. They are very sophisticated but they can make mistakes, too. It's very hard to judge which way to read it. I raised the question with some of our senior people in the market as to whether the people who don't understand the Federal Reserve are making money at the expense of those who do. I think the [answer] is that it's more haphazard: That, in effect, handing the decision of determining interest rates over to the market on the domestic side is very much like the exchange market where we've turned to floating exchange rates. I had to scold some of the fellows a little in that they had been so pleased to have floating exchange rates and they should be able to take advantage of the freer market for money. But they're very nervous about it. So if sophistication is part of it, there's also a difference in the market now with these OPEC funds. The OPEC funds come right into the Eurodollar market in overnight money. It's sitting there. Where is it going to go? It's not going to stay necessarily in overnight money. And the sensitivity to interest rates is much greater than we have felt for some time. If the federal funds rate goes down, it means that the next day the Eurodollar rates will trail off in the Eurodollar market, which means that the fellows in OPEC and others who are moving money on that day will make a decision to put those funds that they are moving into marks or sterling or some [other currency] at that particular moment. If the federal funds rate is moving up at that point, giving signals to the Euromarkets to firm a bit, then the money will come our way. It's a very knife-edge sort of thing. There's much more volatility in the dollar exchange rate than we've had in other periods when not much was really going on.",430
-fomc-corpus,1980,How is our national interest adversely affected if that night the OPEC people shift some of their money into sterling? Whom does this hurt?,28
-fomc-corpus,1980,It's not a question of hurting or helping at this stage; it's just that there's more volatility.,19
-fomc-corpus,1980,Is that bad?,4
-fomc-corpus,1980,[It is] if all of a sudden we have a cumulative movement that is triggered by it.,20
-fomc-corpus,1980,Have we had such a--,6
-fomc-corpus,1980,"No we haven't. We haven't had it this month and we've been rather quick to operate. Of course, we're basically interested in acquiring as many marks as we can to clear the decks for the next problem.",41
-fomc-corpus,1980,"I think to some extent we can take some cheer from the fact that there is this much sensitivity to interest rates. It really reflects a neutral view about the likely movement of the dollar. The fact that we're running virtually in equilibrium this year and Germany and Japan have such large deficits offsets a traditional pessimism about the dollar. There is a neutral view and, therefore, we get very large movements of money in response to very tiny differences in interest rates. If [market participants] still had the same pessimistic view of the dollar that they had over most of the period in the last three years, then I don't think we'd see this much sensitivity to interest rates. We'd see consistent pressure on the dollar.",140
-fomc-corpus,1980,"The interest rate differential as reported yesterday supports [that view]. It is 400 basis points more adverse to the United States than it was at the beginning and the exchange rate is the same. There is obviously a stronger undertone of confidence in the dollar than before, as you say.",57
-fomc-corpus,1980,There must have been surplus OPEC funds floating around in 1974-75. How long did it take for them to settle down or disappear from the market?,33
-fomc-corpus,1980,In that case the surplus did disappear over the course of the next two or three years. By 1977-78 there wasn't much surplus left.,30
-fomc-corpus,1980,"Yes, but they must have had some investible funds that they didn't put some place permanently.",19
-fomc-corpus,1980,"Yes, a lot of that came in directly into U.S. Treasury bills and so forth. At that time there wasn't quite so much diversification as there is now. Also, the other central banks and authorities were not bidding so eagerly for the funds. Now the German finance ministry is working very hard to get as many marks in as possible. The Swiss have been very active, as have the Japanese. It has not been very open, but a lot of work is being done. And, of course, the French have quietly opened all the doors and windows for people to invest in francs. In some ways that's healthy since they are deficit countries and the money has to go some place, so it's better to go in places where it's in strong hands. But there is a difference this time. The OPEC countries are not so automatically putting their funds in dollars and holding them there, particularly in open ways such as in Treasury bills. And the others are pressing hard for funds to come to their way.",200
-fomc-corpus,1980,Do you have some recommendations?,6
-fomc-corpus,1980,Simply some renewals. With the Bank of France we have one swap drawing for $26 million. We've been repaying our mark swap debt but we have coming up in the next period some seven swap drawings in the amount of $382 million. All of these are first renewals.,57
-fomc-corpus,1980,"We do have to ratify transactions since the last meeting. If there are no objections to renewing the swaps, we will renew them if necessary.",29
-fomc-corpus,1980,If necessary.,3
-fomc-corpus,1980,Can I have a motion to ratify?,9
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection, they are ratified. Mr. Sternlight.",13
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Questions or comments?,4
-fomc-corpus,1980,"Peter, to what extent have these dealers who are under water hedged in the futures market when they met their underwriting responsibilities? Is it now fairly prevalent among all of them to hedge their positions?",39
-fomc-corpus,1980,It's more prevalent than it was. I don't have fully up-to-date figures on that. I expect that they are really long and really hurting to some degree.,32
-fomc-corpus,1980,What lag is there on their reporting their positions in the futures market?,14
-fomc-corpus,1980,"It's about a week or two. We're only getting those futures positions twice a month now, so we're not quite up-to-date on that.",28
-fomc-corpus,1980,Are we changing that or--?,7
-fomc-corpus,1980,"We're implementing a whole new set of dealer reports. We began one schedule, which we've been getting for just a month. Within the next few months we'll be getting a report that will have the futures position daily, but we don't have that phased in yet.",51
-fomc-corpus,1980,Governor Gramley.,4
-fomc-corpus,1980,"Mr. Chairman, I was wondering if we shouldn't talk a little about the way we respond to changes in the demand for excess reserves in terms of the implementation of open market policy. It isn't just a matter of letting interest rates move up in response to an increase in demand for excess reserves. If we do not treat that as though it were a change in the multiplier and adjust the target for nonborrowed reserves accordingly, then we're implicitly changing both our targets for growth of the monetary aggregates as well as the level of interest rates we consider acceptable. We wouldn't do that if we thought this was going to be a change of [some] duration for, say, a six-month period. We'd obviously make some adjustments. And I wonder if we ought to think about the possibility of doing that in the short run, recognizing of course that we'll have to reverse that once it goes the other way. I'm curious what your comments would be.",186
-fomc-corpus,1980,"Well, there is some adjustment. In fact, we make modest technical adjustments in the path, which are worked out mostly by Ed Ettin and Steve Axilrod in consultation with the Desk. There was a modest adjustment allowing for the higher level of excess reserves, although it went up only a small extent of the way, in the review that was conducted a few days ago. I think your point is certainly a valid one. Nevertheless, I would note that in a sense that [bulge] in excess reserves is not causing us to aim for significantly higher levels of borrowed reserves currently because at the same time the banks have been wanting to hold a lot of excess reserves they also--irrationally, perhaps--have come in [to the discount window] and done a fair amount of borrowing. So one could argue that we should also have allowed for the reserves they got via the borrowing route. But in the forward-looking part of our path we were not deliberately forcing the banks to borrow much more than that roughly $100 million level that had been the starting point for borrowings when the path was set up for this recent period.",227
-fomc-corpus,1980,"The trouble is that we can't do what you are suggesting, I don't think, in any particular week, and then the next week assume [the relationship] is going to go back to normal. That has more or less been the behavior.",48
-fomc-corpus,1980,"Yes, usually we have assumed that a high excess reserve week would be followed by a week in which excess reserves would be subnormal. But this time we figured that there may have been something unusual in the demand for excess, so our assumption was that excess reserves would come back more or less to normal rather than to subnormal.",66
-fomc-corpus,1980,"We can make some kind of guess, whichever way, in the following week. But we can't do anything in the actual week when that big excess arises, I don't think.",35
-fomc-corpus,1980,"Well, we know what required reserves are because required reserves depend upon deposits for a prior period. We know what actual reserves are on a day-to-day basis. So, as operations are going on, we know what level of excess reserves is building up and we would have to interpret this as an increase in demand for excess reserves. Then the question would be: Couldn't we respond to this with a recognition that we don't want to have changes in the demand for excess reserves affect either the growth rates for the monetary aggregates or the level of interest rates? There would be no real reason for doing so.",119
-fomc-corpus,1980,"Well, at some other level, I could say that in a way we did respond to that. In that last full week that had the $1 billion plus of excess reserves we were trying to take out the excess, but we had no expectation that we were going to be able to wring out all of it. To have wrung it all out probably would have sent the funds rate soaring. As it was, when we were taking out as much of the excess as we could, the funds rate was fairly easy at around the 7 percent level.",112
-fomc-corpus,1980,"I would emphasize that we do have the safety valve of the discount window. If something began to tighten the market, we'd automatically tend to get an increase in borrowing. That's the reason why it's important to have the discount rate well in tune with money rates. Fortunately it was changed just before [this situation occurred], or I suppose the funds rate would have gone above 11 percent.",76
-fomc-corpus,1980,"I agree, but we wouldn't use that approach for leaving our target for nonborrowed reserves the same irrespective of what happened to other factors affecting the multiplier. That's the safety valve we always want there for any basic changes in demand for money that come about.",51
-fomc-corpus,1980,"I guess we'll let a week occur, Lyle, before we change it.",16
-fomc-corpus,1980,"If we could forecast that, I think you are right. But every week is different. In that particular week, the banks went out and borrowed a large amount of money at the beginning of the week, which gave them the excess. But they had already borrowed it and that's the point at which the federal funds rate went up. And then it was too late.",73
-fomc-corpus,1980,"My thought would be that we really don't have to forecast excess reserves. What we want to do is to deal with the change in demand for excess reserves as it occurs. And as it occurs, we can measure it.",44
-fomc-corpus,1980,"How would you do it, Lyle?",9
-fomc-corpus,1980,"You're only responding to the funds rate then, aren't you, Governor?",14
-fomc-corpus,1980,You're responding to what you observe as the change in demand for excess reserves on a day-to-day basis. You have to be at least one day behind.,31
-fomc-corpus,1980,"But the one day behind is the day that screws it up. The banks already did the borrowing, which made the market tight.",26
-fomc-corpus,1980,"What specific things would you like to see done, Lyle?",13
-fomc-corpus,1980,"My thought is that this is really like a change in the multiplier. It's a shift in the demand for excess reserves which we do not want to carry through to a change in the growth rate of the monetary aggregates or a change in the level of interest rates. So if we see excess reserves building up over the course of a week--to be sure, we're always one day behind--we can make some allowance for it as the week goes on.",90
-fomc-corpus,1980,What would you do?,5
-fomc-corpus,1980,I don't have any answers off the top of my head. But this seems to me something we ought to be exploring as a possibility.,27
-fomc-corpus,1980,"The only thing I can add to this argument is that the daily pattern of excess reserves historically has been a very poor indicator of the excess reserves for the week. Sometimes there's a big buildup in excess early in the statement week and the average will be far away from that because it will drop off later in the week. Sometimes it's the exact opposite, as the people taking care of the reserve position in individual institutions are making their own predictions of what the daily pattern in the funds rate will be. As for that [recent] period when the excess reserves were very large, there had been similar periods in the past of substantial excess reserves, say on Thursday and Friday, but they had disappeared by the end of the [statement] week. So, it's very difficult to predict.",154
-fomc-corpus,1980,"I don't think we're going to resolve this here but, as I remember that week, unbeknownst to us they borrowed a whole lot of money on Thursday. We [questioned why] they would borrow so much money on Thursday. We thought they were going to end up with big excess reserves and we figured they would be reducing them [the next day] presumably. Then they borrowed a lot over the weekend. The market remained tight. By that time they were locked into the excess reserves and most of them were left in. If the excess was going to continue the next week and we knew it, then I think you're perfectly right. But I don't know how we can manage it within the week.",141
-fomc-corpus,1980,"Well, Ed's argument is a very persuasive one if what has happened on a day-to-day basis in the reserve period up to a particular point can in no way forecast what is going to happen over the rest of the period or what the average for the whole week is [going to be]. That's a persuasive argument for not, in effect, chasing our tail.",73
-fomc-corpus,1980,"I am concerned about the danger of chasing our tail because if excess reserves go up and we say there is this demand for reserves and we have to accommodate it and supply some more, then excess reserves might go up further. We would feel impelled to accommodate that again. Isn't there a danger that we'll find ourselves involved in supplying more reserves than are needed?",71
-fomc-corpus,1980,"I think there would be if we didn't take them back out after the demand went down. That's only possible if in fact we can use what's happening over the first three days of the reserve period, let's say, as a reasonable approximation for what's likely to happen over the period as a whole. What we need to look at isn't just what is going to happen in the last couple of days of the reserve period but what is going to happen over the period as whole. Maybe we could take a look at this to see whether or not your hypothesis is correct. If it is, then my suggestion has no merit whatever.",123
-fomc-corpus,1980,We'll take a look at it.,7
-fomc-corpus,1980,"Peter, with respect to the discount rate and your job of managing the availability of reserves, how would you describe the optimum relationship of the discount rate to the funds rate under the new operating procedures?",39
-fomc-corpus,1980,"I think we'd like to have a band for the federal funds rate a few percentage points wide so we have the most flexibility. It depends at any particular point on approximately what level of borrowings we're looking toward. In the recent period, when the objective was to have borrowings around the $100 million level, the relationships have made pretty good sense, with the discount rate at a point such that funds could vary from moderately below to something above the discount rate. [It helps] to have the discount rate somewhere well within that band where we would expect the funds rate to be moving.",117
-fomc-corpus,1980,[Preferably] on the high side of the band of your expected level?,16
-fomc-corpus,1980,"Well, I don't know. Yes, if borrowing is going to average as low as $100 million, I would expect the funds rate would more often fall below [the discount rate] than above. To pick numbers out, I'd say from 8-1/2 to 10-1/2 percent surrounding, in a somewhat lopsided way, a 10 percent discount rate.",79
-fomc-corpus,1980,Are you saying we should aim for a frictional level of borrowing--that that should be the norm?,21
-fomc-corpus,1980,"No, not for all time. I think it has made sense given the objectives that the Committee set out a month ago on wanting to achieve the aggregates that it specified.",34
-fomc-corpus,1980,"Let me try to answer what I think you're getting at. When we have a very low level of borrowings, frictional or very close to frictional, it's natural and convenient to have the discount rate above the federal funds rate, presumably not by too much. But if we have a sizable level of borrowing, which we don't have [now], the federal funds rate will go above the discount rate. And there's not much we can do about it. That's the dilemma we're in because the banks won't borrow unless the funds rate is above the discount rate. So we can't have a penalty [discount rate] under those circumstances. I may be exaggerating a bit, but if we try, it just keeps ratcheting the rates up.",148
-fomc-corpus,1980,We make it move up?,6
-fomc-corpus,1980,"Mr. Chairman, we were disturbed, as perhaps Frank was, that in the Bluebook for the first time there was a reference to the relationship between the fed funds rate and the discount rate. I think it would be a mistake in policy, or at least in practice, if we caused or inhibited the movement of interest rates for the purpose of maintaining some relationship between the fed funds rate and the discount rate. That's a totally new concept, I think.",91
-fomc-corpus,1980,I think you may be interpreting that the opposite of the way the staff meant you to interpret it. The idea is not to manage the funds rate below the discount rate.,34
-fomc-corpus,1980,It's to move--,4
-fomc-corpus,1980,"It just says that with a given level of borrowings this is what we would expect the federal funds rate to be. And the higher borrowings are, the higher the federal funds rate will be relative to the discount rate, wherever the level may be.",51
-fomc-corpus,1980,"Well, I must have misinterpreted that.",10
-fomc-corpus,1980,"If I interpret you [correctly], Paul, what you're saying is that it really doesn't matter what the discount rate is, as long as the level of borrowing is predictable.",35
-fomc-corpus,1980,"Oh, I think it does matter where the discount rate is. All I am saying is a very simple thing. It's very difficult or impossible in the short run to maintain a penalty discount rate when borrowings are sizable, given the way we do everything else--the lagged reserve accounting and these paths and all that. It's not hard to do, obviously, when the borrowings are minimal. But the problem that we had before--and that we may have now to a slight degree--is that when the discount rate was way above the federal funds rate and borrowings were in fact minimal, as soon as borrowings became appreciable the federal funds rate would jump way up to the discount rate. Whereas if the discount rate was lower, the discount rate is somewhat of a drag on that process. That is the main reason why some of us, at least, wanted to get the discount rate down. That way, as soon as we ran into any borrowing we wouldn't have too sharp a jump in the federal funds rate. During a period like we've had in the last three months, I would say it would have been very convenient to have a floating discount rate--to let the discount rate just go down with federal funds rate--and avoid all these announcement effects. But if we did that, what do we do when borrowings increase and we begin putting a little pressure on the money market? The discount rate would go up very fast and maybe we wouldn't want it going up all that fast. We haven't got any brake on the increase in the federal funds rates from a fairly low level of borrowings.",321
-fomc-corpus,1980,Unless we supply reserves.,5
-fomc-corpus,1980,"Yes, unless we prevented the [rise in] borrowing, in which case we wouldn't be getting the restraint we'd be looking for. That's the dilemma that we have perceived. If we could adopt a floating discount rate on the down side and an administrative one on the up side, it would be all right. But I think we'd end up with more confusion than we started with. We did have a problem on the down side because we were afraid every time we moved [the discount rate] that we would be giving rise to more expectations than we wanted.",110
-fomc-corpus,1980,The trouble is that we would need to float the differential as well as the rate in some way so that we've got moves from above to below the funds rate. To put it another way--,38
-fomc-corpus,1980,"We have to have the flexibility to send some kind of policy signal if our situation requires it. And if we were to have a completely symmetrical automatic relationship, we'd be tying our own hands.",38
-fomc-corpus,1980,"Well, that's another aspect.",6
-fomc-corpus,1980,"That was exactly what happened to us this last time. We wanted to get the discount rate down but we were very nervous about the foreign exchange problem. [Unintelligible] policy that had to come to an end. Then we changed the path. Given the change in the path, it became almost essential that we just go ahead and bite the bullet and lower the discount rate, which we did. It just so happened that we got lucky because at the same time the fed funds rate was strengthening. But the real reason was to attempt to lower that gap because, given the change in the path, we needed to do it.",127
-fomc-corpus,1980,"Back in the days when we were controlling the funds rate, it didn't make much difference where the discount rate was. But now I think it does.",30
-fomc-corpus,1980,"I think it does, too.",7
-fomc-corpus,1980,I think we need a concept of what rate relationships make the most sense in terms of controlling the rate of growth in bank reserves.,26
-fomc-corpus,1980,"Yes, but what I am resisting--and this confusion arises all the time--is the concept that there is a rate relationship that makes sense on both sides of the cycle. I don't think there is. There may be a general concept [that makes sense] when there's practically no borrowing. Then I would think, ideally, we'd keep [the two rates] pretty close. Look at the other extreme that we were facing maybe a month or two ago: Suppose we really forced excess reserves on the system; the funds rate might have gone way way down if we had done that. I am not sure we would have wanted the discount rate to go down to 5 percent, if that's where the funds rate had been going for a few weeks. And there's the more general consideration that Tony mentioned. I don't see how we get out of this box with an automatic rate, although it would have been convenient for a period of a couple of months or weeks.",191
-fomc-corpus,1980,It is implicit in your observations that there is little or no reluctance to borrow in this equation.,20
-fomc-corpus,1980,"No, I think implicit in what I am saying is that there is a reluctance to borrow and that's why we can't keep a penalty rate on the way up.",33
-fomc-corpus,1980,Is it also thought that the reluctance varies with the level of borrowings?,16
-fomc-corpus,1980,"I don't know whether I'd put it that way. There is a reluctance. And the higher the level of borrowings, the more we have moved on the reluctance schedule, so the higher the funds rate gets relative to the discount rate. The more reluctant borrowers we have, the higher the federal funds rate will be relative to the discount rate.",70
-fomc-corpus,1980,"It seems to me that if the reluctance to borrow increased with the level of borrowings, that would tend to moderate the suggested inability to maintain a penalty rate when borrowings are high.",38
-fomc-corpus,1980,"I think it's still harder, if I understand you correctly. I think we just move along a schedule of reluctance; we have more reluctant borrowers with a high level of borrowing. That means the federal funds rate will be more above the discount rate.",50
-fomc-corpus,1980,"I would like to ask Peter a question at this point. If we were to go along with the Banking Committee proposal to tie the discount rate to market rates, how do you see that affecting your ability to carry out the Committee's directive?",48
-fomc-corpus,1980,"It could have an effect on the way we tie in a level of borrowing in our path. I'm not sure I want to try to extemporize entirely on how it might impede our [operations]. But instinctively I feel it would call for some adjustment in the way we have operated in the past with a borrowing level that tends to fall out as the differential [changes]. We have had borrowing levels that rise because demands for required reserves exceed what we have allowed for in the path. If we also had a discount rate that was going to be moving up along with that, it could set in motion this kind of ratcheting process unless we made some adjustment.",133
-fomc-corpus,1980,"Isn't it a technique [that resembles] a halfway [move] toward closing the window altogether? If the gap between the funds rate and the discount rate--that is, the penalty-- were large enough, clearly, nobody would borrow. And we would be operating purely on nonborrowed reserves.",60
-fomc-corpus,1980,"I think it's quite clear what would happen if we didn't change our techniques, which might have some implications for whether to change them. What would happen is that we would get more volatility in the federal funds rate in the short run.",46
-fomc-corpus,1980,"Is it necessary to think of tying the discount rate just to the federal funds rate? If one is worried about the ratchet possibilities, another way to go is to tie it to some market rate of interest or to a combination of market rates. If looked at in that way, it would still be a penalty rate in some sense.",67
-fomc-corpus,1980,"But if we used the bill rate, Lyle, given what bill rates have done, we would have a different problem on our hands.",28
-fomc-corpus,1980,"Well, I was thinking of tying it perhaps to something other than the bill rate--to a combination of bill rates and other things--precisely because the bill rate is so sensitive to things like foreign demand and technical scarcities in the market.",51
-fomc-corpus,1980,"Well, the Canadians--",5
-fomc-corpus,1980,"One can also be judgmental rather than automatic in a formula. We could have a basket of rates but not reduce [the relationship] to a simple formula. We could vary the relation between the basket and our rate if we wanted to go the tying route, I think.",55
-fomc-corpus,1980,I don't think that would get us out of the problem we've been talking about because if we tied it to a longer-term rate it's going to switch from being a penalty rate to being a subsidy rate when the yield schedule inverts.,46
-fomc-corpus,1980,"We always used to show a three-way average rate to our directors, just as a point of contact, [using the rates on] finance paper, Treasury bills, and commercial paper--all fairly short term. We have had to abandon that recently. We give them the table but we don't talk about it because we think it's out of whack.",70
-fomc-corpus,1980,"If I remember right, Paul, after the change in procedure last fall there was to be a paper written by the staff on this whole question of the [funds] rate and the discount window.",40
-fomc-corpus,1980,"Yes, I thought there was. Where do we stand on all of this? We discussed this once before.",22
-fomc-corpus,1980,I think the legislation came along and preempted that to some extent.,15
-fomc-corpus,1980,I don't remember how far we got on that. We did have a preliminary discussion about it at one point. Did you ever circulate a paper?,29
-fomc-corpus,1980,"No, not to my knowledge. There are some drafts of some of the papers, but President Eastburn is right: The resources have been diverted for work on the Monetary Control Act.",37
-fomc-corpus,1980,"I had forgotten that that had never been done formally, and I think we ought to do it. Meanwhile, I have been answering Congressional and other inquiries along the lines that I have been expounding at this table. I don't think this situation is totally satisfactory, but I don't think the answer is just to [establish] an ""automatic"" discount rate for the reason that I suggested and for Tony's reason--whatever weight one gives that reason, which is something people have debated back and forth. I don't think technically we have the [alternative of doing that] without changing other things. I think it would call for rather profound changes in path setting, or maybe in whether we open up the discount window or close it, as Henry was suggesting.",150
-fomc-corpus,1980,"It's [further] complicated by the fact that we now have the thrifts in the situation, which involves Home Loan Bank rates and so on.",30
-fomc-corpus,1980,"Yes, Mr. Ford.",6
-fomc-corpus,1980,"With regard to the comment of what to peg it to: Should we go to a floating discount rate, my feeling--[given my prior experience at a commercial] bank--would be in line with what Lyle said. We should consider an alternative that no one here has mentioned [yet], and that is tying it to something like the bank issue rate on CDs. From the point of view of the money desk manager of a major bank--and those are the people we are dealing with--whether or not the bank goes to the discount window obviously depends on its alternative sources of funds. And in terms of maturity matchings, since borrowings through the discount window are not normally overnight but rather are done on a more than overnight basis, I would suggest that the staff in its analysis of this question look at the possibility of applying it to the reserve adjusted CD rate for major banks on large quantities of money. That would make the movements in the discount rate less volatile since a longer maturity [is involved] and would tie it to the alternative source of funds that money desk managers tend to consider. Also, we might consider having the discount rate normally set close to that reserve adjusted cost--perhaps a little below it to give us some leverage--because then [money managers] would want to come in if we set our rate just a little below, but the reluctance factor would sort of balance that out. It would give us some leverage over them.",290
-fomc-corpus,1980,"I was just going to comment that we did have a footnote in that earlier study on the discount window, which sort of reviewed the conclusions that come from these other papers we have been doing. The expectation is that those papers will be completed as soon as the staff gets through this other work that they are doing on the discount window.",67
-fomc-corpus,1980,We have to ratify the transactions of the Domestic Desk. Without objection. Mr. Kichline.,21
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Why don't we discuss the economic situation and outlook at this point. Mr. Eastburn.,18
-fomc-corpus,1980,"One of the most interesting questions is what is going to happen to housing because that may be a clue to how fast the recovery will be. I think the situation with respect to interest rates and the availability of money cuts two ways. A lot of people out there are watching mortgage rates and are waiting to get into the market if they think the bottom has definitely been reached. Therefore, if they see an upward movement in mortgage rates, that could induce some demand to become effective. On the other hand, there must be a lot of other people who will be discouraged as mortgage rates go up. Do you have any feeling about that, Jim?",128
-fomc-corpus,1980,"That has constituted a large debate in the preparation of our forecast. I would say that in the very short run we would expect the argument to hold that people will jump in. That is, if we are talking about a rise of just a few basis points, those folks who were out of the market in the second quarter but were on the verge of buying may in fact be prompted to move off the fence. In general, however, we believe the impact of tighter financial conditions--in the sense of rising mortgage rates throughout the forecast period, which is implicit in our forecast--would have a significant damping effect. There are two other factors and one is [particularly relevant]. Our forecast implies slower rates of increase in deposits at thrift institutions than in previous cyclical periods when interest rates declined and stayed low. I might mention another factor, which is that the growth of real disposable income in our forecast is really very small--certainly much smaller than in past cycles. And we expect that to act as a drag on generating effective demands for housing.",208
-fomc-corpus,1980,"One other factor is the effect of actions by the Federal Home Loan Bank Board. Monthly payments are the crucial [factor for most homebuyers]. If the FHLBB proposes that thrifts drop downpayments from 20 to 10 percent and that [mortgage terms] go from 30 to 40 years, that will considerably lower [the initial outlay and then] the monthly payments. What effect will that have on the whole picture? That's another factor that probably will be important.",98
-fomc-corpus,1980,"Oh, I think that's right. That whole area of alternative mortgage instruments is a positive feature, particularly for younger families. But past experience generally indicates that these [practices] grow fairly slowly, particularly in an environment in which the institutions are rather risk averse, which they seem to be. If one starts talking about going out 40 years instead of 30 years, in a fixed-rate environment with today's inflation I think a number of institutions will be fairly reluctant to move in that direction.",100
-fomc-corpus,1980,"Jim, why don't you tell us what happens to interest rates under the monetary assumptions we have? Where does the mortgage rate go?",26
-fomc-corpus,1980,"For the third quarter we have the quarterly average rate on conventional mortgages at around 12-1/4 percent, which is where it is now, and it goes to the 13-1/4 to 13-1/2 percent area by the latter part of 1981. So in effect, it's drifting up throughout this period.",70
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, the main point of difference we had with the staff continues to be that we expect less inflation than they have been forecasting recently. The Greenbook analysis places almost all the emphasis on the supply side. It talks about the effect of rising oil prices and food prices and unit labor costs causing inflation, but it really doesn't address this question of the continued deceleration we have had--and that we see prospectively--in the money supply. Nor does it address the shift toward a greater surplus in the high employment budget. We would place great weight on this slowdown in the money supply and some also on that shift in the fiscal mix. This will represent about the third year of deceleration in the money supply if [it continues] next year. If anything was right with that October 6 policy, somewhere along the way we are going see some effect on prices. And we think it will come sooner than the staff does. It's easy to forget that the rate of increase in prices had hovered at double digits before the last downturn and we got [it] down to 4-1/2 percent but we let the aggregates get away from us and [inflation] went back up. Most people don't remember that. We also think that if we are partly right on this, we will have less upward pressure on interest rates than the staff expects, both because of the removal of the inflationary premium on long rates and probably less growth in nominal GNP and more growth in real GNP than the staff is projecting.",306
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"It seems to me that the development President Black describes would imply either that there will be differential wage movements--because we know the movement in the organized sector is for fairly strong increases, the pressures would have to be in the much larger [non-union] sector--or very severe pressures on corporate profits. Is there any other place where a decline in interest rates would work or where productivity would [lead to] a decline in prices?",87
-fomc-corpus,1980,Raw materials prices.,4
-fomc-corpus,1980,The dollar could rise.,5
-fomc-corpus,1980,"The difference is that in 1974-75 we had a V-shaped recovery. For a short while we had very big gains in productivity, which were reflected in a big decline in the inflation rate. If we don't get the V-shaped upturn, the rate of gain in productivity is going to be a lot less; I guess that's the reason why you're pessimistic on prices, as I look at this chart.",84
-fomc-corpus,1980,"That's a principal reason. Unit labor costs in our view are going to be coming down, but precious little. We also have the social security [increase], I might add. That adds directly to business costs beginning in January, and we assume that will be passed through quite quickly. We have the food and energy situation added on, and it's hard to be optimistic there. So overall, our view is that our [inflation] forecast, given our GNP, is perhaps on the low side of what many people might come out with.",108
-fomc-corpus,1980,"I don't know how you forecast interest rates but in the long-term area with your mortgage rate, your bond rate must be up in the neighborhood of 13 to 14 percent. That would be an extraordinarily high interest rate compared to your price indices at the end of next year. It would be the highest real interest rate, in my memory anyway, for a long time. Any comment?",78
-fomc-corpus,1980,"I'll give you the answer you're looking for first, and that is that we forecast interest rates with great difficulty. It comes from a combination of the model exercise as well as judgmental forecasting. And we take the monetary policy assumption as given, which is 4-1/4 percent [M-1A growth] for 1981. Implicit in that [assumption] is a substantial further downward shift in the money demand function. So in effective terms money is growing more rapidly. But simply to hold money growth to 4-1/4 percent, even with a downward shift, implies to us a substantial further increase in interest rates.",131
-fomc-corpus,1980,Short-term interest rates.,5
-fomc-corpus,1980,"We have short-term rates rising above long-term rates by the end of this forecast period. So we're once again back to an inverted yield curve. That seems to me rather an unusual situation for a very sluggish recovery with inflation coming down, if people believe that. But it's very hard to envisage a significant decline in long rates unless one believes that price expectations are changing dramatically and that, in fact, our inflation forecast is wrong. Otherwise, yes, we come out with rising real rates. And that's one of the reasons why we have a sluggish recovery.",110
-fomc-corpus,1980,A $60 billion budget deficit doesn't help on the rate side either [even] if we keep our eye on the ball of the monetary aggregates.,29
-fomc-corpus,1980,"Well, I will agree that it's hard to forecast [interest rates]. Mr. Winn.",18
-fomc-corpus,1980,"I have to differ with my colleague on the left on price expectations. I sense quite a feeling that our inflation problem is not behind us. Labor is very restive, with food costs being a real trigger for their demands. Secondly, new car prices are going to surprise people. Every business that I can find is quietly trying to raise its prices to position itself. In that kind of environment, I think there's an explosive side. The other factor is the political environment on top of that, with everybody trying to out-promise everybody else. If we just look at what has happened to sensitive materials prices in the last few weeks as well as all of the others, it seems to me that, despite our roller coaster ride, we have not dented inflation expectations very much. I think we have a real groundswell for an explosive development on that side again. In spite of all we've done, we haven't laid to rest the inflation expectations very much.",190
-fomc-corpus,1980,"Mr. Chairman, I never meant to imply that we had at this point. All I meant to imply was that by next year, with a continuation of the policy we've begun, I would expect some significant effect on prices, or else our actions have been completely futile. And I don't think they have been.",62
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"It seems to me, Mr. Chairman, that we have a good news/bad news syndrome here today. In terms of recent economic statistics as well as the updated and revised forecasts of both the Board's staff and our own staff at San Francisco, we see a better outlook for the economy and better news on the unemployment front. But both sets of forecasts show a worsening picture on inflation.",78
-fomc-corpus,1980,"When you say ""better""--I just want to help Mr. Altmann a little [in preparing the record of Committee member's views]--are you saying better than the staff is projecting?",39
-fomc-corpus,1980,"No. I mean both staffs are now forecasting more inflation, less decline in real GNP, a shorter period for the recession, and less of a rise in the unemployment rate than they were a month ago.",42
-fomc-corpus,1980,I just wanted a clarification of your statement. You're not saying you are necessarily more optimistic than the staff?,21
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,"You're more optimistic than you were last month, which they are too.",14
-fomc-corpus,1980,"I find no quarrel with the general thrust of their updated forecast relative to where they stood a month ago. It's better on the real side, better on unemployment, and worse on inflation. To put our current recession in some perspective, for what it may be worth, we went back and looked at the behavior of prices during the last two recessions. We looked at the behavior of the GNP deflator--and I had forgotten this, frankly--but it turned out that at the end of the last recession, the GNP deflator was no better than it had been at the beginning of the recession. That was also true of the recession prior to that. In fact for the 1974-75 segment, it was four quarters after the trough of the recession that the inflation rate, as measured by the GNP deflator, hit its low point. Now, if I look at what seems to lie ahead--if the Board's staff and my staff are correct that this dip in the economy will be over by the fourth quarter of this year and we will then be into the next expansion phase, as weak and anemic as it may be--to the [projected] GNP deflator by the end of '81, which is four quarters after the now projected trough of the recession, I get very disturbed indeed. The Board's staff shows the GNP deflator still rising at an 8.7 percent annual rate. My staff would be a bit more optimistic. But that's an awfully high inflation rate to have at the beginning of the next expansion phase of the cycle. Also, with respect to the comments a little earlier on where long-term rates are headed, with special attention to the mortgage rate, I am distressed to see how high those rates are forecast to be. But I am also convinced that we won't get those rates lower than that 12 to 13 plus percent for both the corporate bond issues as well as mortgage rates until we get the inflation rate down. Obviously, long-term interest rates are very heavily influenced by both actual and expected inflation. I think we have a real dilemma here.",428
-fomc-corpus,1980,Mr. Corrigan.,5
-fomc-corpus,1980,"In terms of the real economy, Mr. Chairman, I would be inclined also to view it as a little better this month than it looked last month. I am also inclined to the view that, at least over the next couple of quarters, the real economy might be a bit stronger than the staff forecast. But I am only willing to say that for the next couple of quarters. I think, for example, that we may see a little more strength in housing in that period and that auto sales might be a little stronger than is suggested simply because of the greater availability of fuel efficient cars. Partly because of consumer credit reductions but also because of what's happening in the stock markets, consumer balance sheets are probably a good deal stronger than they were, which I think is consistent with that development. But looking out a bit further I see some risks, including the point that has already been made about what will in fact happen to interest rates and what that may mean for housing and capital goods. On the price side, we have a situation where in the near term the CPI certainly will look better. But my own perception, like that of others, is that the price outlook and [inflation] expectations actually have deteriorated in the last month or so. The unit labor cost situation, of course, looks terrible. The budget deficit situation, in terms of its implications for expectations, is a matter of concern. The weather and [its impact on] food prices is an unknown, but at least for now I think it can only work in one direction. And I sense a growing element of concern in the markets [about] the recent money statistics and what they may portend for inflation over a longer period of time. The fiscal [side], as has been said, is full of uncertainties. The one thing we are sure of is that the deficits are going to be big. Financing requirements of the Treasury are going to be substantial, whatever that implies. Certainly we think we know something about what it implies for interest rates. In summary, as I look at the situation, I think the relative risks have shifted. While we still have a weak economy, in the near term it may be a little stronger than we thought it was. But the price situation, if anything, looks a little worse--conceivably a good deal more than a little worse--rather than a little better.",478
-fomc-corpus,1980,Mr. Wallich.,5
-fomc-corpus,1980,"I share John Balles' view that the real sector looks a little better and inflation looks a little worse. I think that's a fairly general impression among forecasters. I also see two characteristics of our economy that seem to be visible now. It has very quick defenses against a sharp downturn, given that the downturn didn't go very fast. Automatic stabilizers went into action and seem to have been holding--",80
-fomc-corpus,1980,It went pretty fast.,5
-fomc-corpus,1980,That's what I said. It caught--,8
-fomc-corpus,1980,You say the downturn went pretty fast?,8
-fomc-corpus,1980,"The downturn went fast but didn't go very far. It caught itself pretty fast, and we are already beginning to feel the counterforces on the other side. That is, interest rates are already beginning to rise, which I think could choke off the expansion. In other words, the economy now reacts very quickly on both sides. What we have not gotten at all out of the recession is much adjustment. There doesn't seem to have been time for much adjustment in corporate balance sheets or household balance sheets. I don't think anybody's expectations and behavior patterns are likely to have been changed very much by this experience. Not to put too fine a point on it, nobody has gone broke. Nobody has been hanging on the cliff for a very long time except some of the thrift institutions. In other words, this has been a surprisingly mild recession. It is very unlikely to have [set the stage for] much long-term improvement if in fact it now takes off from here. It's not likely to change our attention, expectations, or behavior in a favorable direction if [the economy] bottoms out quickly and resumes a modest advance, as seems likely. So the conclusion I draw is that this is a situation that calls for continued restraint in order to get some more effect out of the situation.",254
-fomc-corpus,1980,"Mr. Kichline, I meant to ask you earlier, and I didn't, about consumer balance sheets. Governor Wallich says they haven't had a lot of time to improve all that much. There has not been much time, that's for sure; but the decline in debt at least has been much sharper, I think, than in earlier recessions. How does the improvement in the consumer's financial position look compared to earlier recessions? Do you have any judgment on that?",96
-fomc-corpus,1980,"As you know, the ratio of debt outstanding to disposable personal income peaked [last] summer, in the third quarter of '79. It came down a little in the fourth quarter and a bit more in the first quarter. We don't have a final second-quarter figure but, obviously, given what has been happening with the run-off in consumer debt and the slow growth in mortgage debt, there was a significant further improvement in the second quarter. I would think the change in debt outstanding we've seen in the second quarter is just a huge change in terms of historical [patterns of] debt reduction. So while it hasn't gone very far, my guess would be that it ranks with some of the largest declines in consumer debt outstanding that we've seen in a six-month period.",152
-fomc-corpus,1980,"Jim, I thought I saw some figures the other day that [the ratio] had peaked at 18 or so percent and has dropped now to less than 15 percent in this very short period of time.",42
-fomc-corpus,1980,"Yes, that's just for consumer debt. We've combined consumer and mortgage debt, and the mortgage debt helps that story because it grew at a much reduced rate in the second quarter. I don't have the figures at hand.",43
-fomc-corpus,1980,"Mr. Chairman, another point that Mr. Corrigan mentioned, which I think is worth remembering, is that we've had a very marked upswing in the stock market this time in contrast to a very very weak stock market in late '74 and in '75. We were massively destroying consumer wealth in that earlier recession and this time I think we're creating it. It would make a big difference if we took that into account, too.",87
-fomc-corpus,1980,"Yes, if one looks at both the asset side and the liability side, we really do have a--",21
-fomc-corpus,1980,"But didn't interest rates hold up for a longer period in the recession of 1974-75? We've had a terrific drop in interest rates, which is going to have a bouyant effect on the stock market at this point.",47
-fomc-corpus,1980,"I don't think they held up particularly. They didn't go down as fast as they did this time, but my recollection is that interest rates started declining about September or October '74 and continued on down into the spring of '75. In terms of timing there has not been a lot of difference, but the speed of movement is certainly [different].",70
-fomc-corpus,1980,Are there any other comments on the business picture?,10
-fomc-corpus,1980,"The stock market seems very unreal and a lot of people are predicting that we will have a correction. Of course, our former Secretary of the Treasury announced he was selling all his holdings and the market went up 20 points in the next two days!",50
-fomc-corpus,1980,It's based on his past record!,7
-fomc-corpus,1980,I see a lot of the investment people from LaSalle Street and almost without exception they are expecting at least a 75 to 100 point correction.,30
-fomc-corpus,1980,"Of course, that never happens when the judgment is unanimous that it's going to happen.",17
-fomc-corpus,1980,I know.,3
-fomc-corpus,1980,Mr. Altmann is left at this point with saying [in the policy record for this meeting] that you all agree with the staff's outlook. Is that the impression you want to leave him with?,41
-fomc-corpus,1980,"Basically, it's all right.",6
-fomc-corpus,1980,"I am impressed by the signs of the economy catching as we've [eased our policy]. I don't know to what extent we should regard that as unusual. The decline in consumer spending was exceedingly rapid and took us to pretty low levels in real terms in some areas such as automobiles. It may not be that unusual to have a little recovery after we've had a decline of that extent--a little catching up--particularly with money and credit conditions easing. So, I guess I am not as convinced by the evidence that the recession is nicely bottoming out and that it won't be very long before we get an upturn. I don't agree that this is conclusive since [the period of improvement] is so brief and since it seems any market would have a little see-sawing when big changes occur. I wouldn't agree with the comment that Henry made that nobody has gone bankrupt. I believe bankruptcies are at an all-time high all over the country. Small businesses are going bankrupt and the automobile dealers are having a major shakeup. It's just that no big companies have gone bankrupt because we didn't permit Chrysler to do so. Otherwise we would have had a big bankruptcy as we've had before. Also I would point out that there is a long tail on this. If Bob is right, even if the staff is right in their price projections, we're going to have a period of quite restrained profit performance. And when that occurs, there is a frequency distribution around it; some [firms] are going to be a lot less good than average and they might be bad enough to go bankrupt. So there's still a lot to be played out. What gives me most pause about being somewhat bearish about the outlook is the stock market, which has performed extraordinarily well, and sensitive industrial materials prices have moved up without fail for two months or more by a rather marked amount. And there are a lot of people out there who, unlike us, are putting their money behind their forecasts. They say that profits are going to go up--I presume in order to justify the stock market--and that prices are going to go up because of the demand for raw materials. And that does give me a pause. So, I am just uncertain. But I wouldn't be quite as favorably inclined on the outlook as the discussion around the table has [suggested] so far.",470
-fomc-corpus,1980,"I'd just like to add a few comments. I am very much in agreement with the staff's forecast for real activity. All the signs are now pointing to a fairly near-term bottoming out of the recession and to the recovery beginning in the monthly statistics before the end of the year, although it may well be that the real GNP figure would be negative for the fourth quarter. To comment further on what Governor Wallich was saying, I think the business community learns something a little different from each recession. In the recession of 1974-75 what the business community learned was that by Jove they better not have excess inventories. They didn't forget that. So they are reacting very strongly in this recession, as they did throughout the whole recovery. In this recession what I think they will have learned is that they better not borrow at the prime plus 2 percentage points because the interest rate risks they face are ferocious, given the kind of inflation that we have and given the policies that the Federal Reserve is now following. That is going to have a very, very sobering influence on planning in the business community in the next several years. I am more pessimistic than the staff on the price outlook for next year. I think compensation is not going to moderate as much as the staff indicates. More of a rise in prices relative to compensation than the staff has forecast is likely also. I think that's what the stock market is saying: That businesses are going to raise prices to get profit margins up as soon as activity begins to improve. That's exactly what Chrysler is doing in pricing its K cars. But the price situation for next year poses for us a very profound problem. The staff has a weak outlook for economic growth and a very weak outlook by historical standards for a recovery period, despite the fact that they're assuming--with no good basis for it, really, and they know that--that the money demand function is going to shift down again. If it doesn't and if prices go up still more than the staff is forecasting, then holding to the kind of targets that we have is going to produce a very, very sick economy. It's something we don't have to face as a Committee now, but it's something that is going to give us agony as the next 18 months unwind.",457
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"As perhaps the two newest members might not know, we base our projections on output and prices primarily on the rate of money growth, M-1B specifically. Our projections show a significant difference in what will happen depending on whether M-1B grows, for example, at a rate of 3 percent or 5 percent or 7 percent from the third quarter of this year on. Let me very briefly give you the different results that we would anticipate for GNP growth in 1981. If money were to grow at only a 3 percent rate, we would see real GNP growth throughout 1981 at a negative rate of minus 1/2 to minus 1 percent, whereas if we persist in our announced target of about 5 percent money growth, we would see positive real GNP growth of approximately 3/4 to 1 percent. If we lost our good judgment--that's a subjective statement--and permitted money to grow at a 7 percent rate, we would see real GNP growth at a rate of between 2-1/2 to 3 percent next year. Price-wise, there is also a significant difference. If we had the 3 percent money growth next year, by the end of '81 we would see a deflator of maybe 6-3/4 percent by the fourth quarter of next year. If we persist in our 5 percent growth, we feel that prices as measured by the deflator would rise at about 7-1/4 percent rate on an annual basis. And if we lost our good judgment and went to 7 percent growth, the deflator would be up close to 8 percent, as we see it, by the end of next year. So we feel there is a significant degree of responsibility in our hands in determining the rate of money growth and thereby influencing both prices and output for 1981.",383
-fomc-corpus,1980,"A lot of people might conclude from that analysis that good judgment is 7 percent, Larry.",19
-fomc-corpus,1980,But you don't know about '82.,8
-fomc-corpus,1980,"I'm a 5 percenter, Mr. Chairman. That used to be a bad word--5 percenter--wasn't it?",27
-fomc-corpus,1980,"I'm a little surprised at the strong change in sentiment based on so few facts. We have a few good numbers or a few numbers that aren't terrible. That's about what it comes down to. We don't have a good indication of what the third quarter will be yet. The labor force data on the payroll basis are going to catch up with us. We've just had some good luck on the size of the labor force in the last month or so. I would also point out that the past five years have been characterized by a good quarter followed by a bad quarter. It hasn't been a smooth recovery or [pattern of] growth anyway. Many times we thought we were on the verge of a recession and then recouped from it. So, I think [the economy] is just jiggling around. I am also terribly concerned about 1981 because I think we have a very strong possibility, with the low rates of growth that are being projected, that this will turn into a 1959/1961 situation where we'll have a double recession--one right after the other. There is just no strength in this particular forecast; [activity is at] very low levels. I think this forecast has the longest string of negative business investment--if it turns out to be as forecast--on record. That gives us a very, very poor outlook over a fairly long period of time. So I don't think we need to hit the horse any harder than we're doing at the present time. We've knocked it off its feet. Let's give it a chance to rest awhile and hopefully let it get up at some point rather than constantly pushing it back down again. I would say that if we move for any further restraint, we're almost guaranteeing that the housing market will not recoup. The prices of cars are such that nobody can buy them; and even though the industry is trying to push up prices, the consumer is in no position to meet those higher prices. We have a lot of uncertainties at this point. I think we've gotten something out of [our posture of restraint]. I'm worried about prices. But we haven't had any time at all for [our policy] to be reflected in the current statistics.",440
-fomc-corpus,1980,Why don't we turn to Mr. Ettin [and then have coffee].,15
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"Why don't we have what I hope will be a relatively brief general discussion or questioning of Mr. Ettin and then we'll get around to the [policy] specifications. We can divide it up. We have an hour and a quarter. Henry has put his hand up, too, but we'll let Mr. Eastburn go first.",66
-fomc-corpus,1980,"Right before we adjourned, Ed was giving some parameters for M2. I said to him [during the coffee break] that M-1A is not much good to us anymore and M2 doesn't seem very good either, so we're reduced to M-1B, I think.",59
-fomc-corpus,1980,Which isn't very good either. Don't look at these too carefully. That's [the message].,18
-fomc-corpus,1980,"It's the least worst, perhaps.",7
-fomc-corpus,1980,Try M3.,4
-fomc-corpus,1980,"I was just asking whether he had any guesses on that, particularly. I'm looking for something in the Bluebook, but I can't put my finger on it, about the presumption that the recent changes in interest rates are going to narrow the gap. How confident do you feel about that and what do you think the magnitude of that might be?",69
-fomc-corpus,1980,"We're reasonably confident that that's the trend, because as market rates rise relative to the ceiling rate on passbook accounts, we think that's going to slow down. It's hard for me to estimate how much that strength in savings deposits is adding to M-1B because the amount of ATS accounts relative to M-1A is relatively small. I would say maybe 1/2 percentage point, but that number is pulled out of [the air]. The point is that I'd make it on the modest side.",101
-fomc-corpus,1980,"I don't really think we can assume any of these numbers are the right numbers. We know M-1A is bad because more goes out of demand deposits than from M-1B; but to the extent [funds] go out of savings deposits into M-1B, that measure also is distorted. We just don't know the extent of this.",72
-fomc-corpus,1980,Maybe we ought to move to L.,8
-fomc-corpus,1980,"Well, I tell you: The M3 chart is such a beautiful one that I am tempted to move to M3; we're right in the middle [of the range].",35
-fomc-corpus,1980,"M3 is another of those [variables] that maintains its stability because one [component] goes down and something else goes up, which is a little suspect.",32
-fomc-corpus,1980,That's what we thought we were doing with M2.,11
-fomc-corpus,1980,"You had some comments, Henry?",7
-fomc-corpus,1980,I really want to say the same as Dave: M-1A is not much good and M2 is not much good. Isn't the main argument in favor of M-1A--and the reason why we keep talking about it--that it is used in the model?,56
-fomc-corpus,1980,That's the reason why the staff places particular emphasis on it.,12
-fomc-corpus,1980,Can't we re-program [the model] for M-1B?,14
-fomc-corpus,1980,"Certainly, but the model is not the problem.",10
-fomc-corpus,1980,"What makes you think M-1B is [any better]? To say that M-1B is better than M-1A, you are making an assumption that there is very little movement from savings deposits into M-1B. That may be true, but I don't think you know it.",61
-fomc-corpus,1980,"There is another guide that we could go to, which is to look at what happened in 1974-75. The impressive experience at that time was that we all underestimated--except maybe your distinguished predecessor by one--the increase in velocity that we were likely to get. So, I ask myself: Do we see something in the economy that implies a very large increase in velocity? All I can see is that we have had a tremendous experience of very high interest rates and, as someone just said, the economy has learned [from that]. As Lyle said, [firms] learned not to borrow at the prime rate plus two percent. I think they also learned not to have idle money around with a prime rate of 20 percent. So that may be the thing that has triggered a new increase in velocity.",165
-fomc-corpus,1980,"If I may, Governor Wallich, I would point out that to the extent that kind of [positive] ratchet effect would be hitting [velocity] after a sharp run up [of interest rates then], interest rates would be hitting money demand [negatively]. Each period with that impact should be shorter and shorter; indeed, the evidence we have is that when it first begin in 1974 it took a little longer than the next round. I think the evidence supports that the drop-off [in demand for M1] in the second quarter was very short-lived.",115
-fomc-corpus,1980,"Yes, one could argue just that. I think we had a big impact in the second quarter, but now because we have had that impact it will make the velocity relationship even tighter than it was before.",41
-fomc-corpus,1980,The staff projection for the third quarter [implies] a decline in every velocity measure.,18
-fomc-corpus,1980,"Well, that's simply the result of dividing a falling income by--",13
-fomc-corpus,1980,"But what is [velocity in] the second quarter, except the simple result of dividing income by money supply?",22
-fomc-corpus,1980,"Yes, but one has to think about what happens at a constant level of interest rates in order to measure the velocity trend. We have to hold the rates constant and then see whether or not there is an increase.",43
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"Well, I wanted to talk about this very subject. I wanted to indicate that I am somewhat dubious about giving much importance to M2 in the current environment for several reasons. Number one, our range for M2 was developed on the basis of a relationship the staff presented to us some time ago, which might have been right or might not have been right. Certainly, it is at least dealing with an instrument that has different components in it than before. Number two, the top end of our range for M2, an aggregate which includes most kinds of instant liquidity that people can think of, is 9 percent. That is about equal to the rate of inflation; so at the top end that means the real value of liquid assets will not change. That doesn't sound all that great. And we have the [prospect of] these shifts of the sort that Ed was mentioning, which do strike me as possible. M3 is better than M2, I think, because of the possibility that M3 components--that is, large CDs [primarily]--are moving to identified M2 components as a result of interest rate strategies and so forth on the part of holders. I don't find M-1A all that bad an indicator. I think what we have to recognize about M-1A is that it has a downward bias. That is, there is some shifting away from M-1A, and we can't quite quantify it, but the basis for M-1A's relationship to the economy is pretty well established over time and has been pretty well researched. M-1A still does have currency in it and it still does have demand deposits in it so that we see what the relationship might be. It seems to me the best thing to do is to look at M-1A principally and make an allowance--I don't care whether we make it a 2 percent allowance or what--for the understatement of the growth rate that is occurring because of shifts into other instruments. I think that's the safer way to go. An alternative way, along our usual lines of suggestion, is why not average M-1A and [M-1B] and say that's our goal, on the [grounds that] neither is right. One has an understatement and one has an overstatement, so let's take the average. It can't be all that bad. But I think M2 is very dangerous to use importantly in trying to steer monetary policy, and I would certainly advise against that.",502
-fomc-corpus,1980,Mr. Gramley.,5
-fomc-corpus,1980,"First, I'd like to compliment Ed on some perceptive remarks on the interpretation of these numbers. This is the kind of thing we always need to watch very carefully to see if we can analyze the particular factors that are influencing the growth rates of these numbers. None of them is perfect and we need to try to make some judgments about what is influencing their behavior. I guess I don't really understand, Ed, the comments that you made on ATS deposits. Let me ask a question first and then ask you to elaborate a bit. Do you have hard information on the ATS deposits? Or is this an estimated number based on an assumption that so much of the growth of savings deposits must be in ATS accounts?",140
-fomc-corpus,1980,We have hard numbers for member banks and estimates and samples for nonmember banks.,16
-fomc-corpus,1980,Could you make that point again that you were making about ATS deposits?,14
-fomc-corpus,1980,"The ceiling rate for ATS accounts and regular passbook accounts at commercial banks is identical, at 5-1/4 percent. One would presume, because our evidence is that everybody is paying the ceiling rate, that it would be unlikely that an ATS account holder would have both an ATS account and a regular savings account. It's probably one account. To the extent, for whatever reason, that passbook accounts generally have been strong, some of the [depositors] who would be increasing their savings account funds would call their account an ATS account. So the measure of those transaction balances would be biased upward.",121
-fomc-corpus,1980,Thank you.,3
-fomc-corpus,1980,"It's also true of NOW accounts, even though there is a penalty, a quarter [point lower return]. A lot of the NOW account total really, in a sense, represents savings accounts.",38
-fomc-corpus,1980,"While that's true, I feel less certain that the big run-up in savings may also be [spilling] over into NOWs because we have heard, and have some evidence, that people in fact have a NOW account and a savings account. I don't know how much weight to put on it. We don't know. I am more certain about it for ATS accounts because there is no ceiling differential.",80
-fomc-corpus,1980,"We [face] a real problem next year, in my role wearing my other hat as Depository Institutions Chairman, on whether to differentiate these rates. There is going to be a lot of arguing about that. Mr. Corrigan.",47
-fomc-corpus,1980,"Two quick questions, Ed. I am inclined to the same view that you articulated in terms of M2 and these asset preference shifts. If that's right, is it also your judgment that that pattern will likely continue for at least several months? If anything, presumably in this environment, we are talking about at least a couple of months in which money market certificates or savings certificates are going to be perhaps even more competitive.",83
-fomc-corpus,1980,"My answer, President Corrigan, would depend on how rapidly interest rates rise over the next several months. To the extent that market rates do rise, I think there will be some slowing in M2 because market instruments will look somewhat more attractive. But I don't think it will make a great difference.",60
-fomc-corpus,1980,"One other quick question. I have heard that there is already talk in the markets, for whatever it's worth, of a very, very, large money supply number this Friday. Do your numbers suggest that?",41
-fomc-corpus,1980,"Yes, our preliminary estimates suggest that in the week of August 6th there will be an increase in M-1A of over $3 billion. I think the market talk may be reflecting Mr. Sindlinger, who is expecting an $8 billion increase in the first two weeks.",58
-fomc-corpus,1980,The number I've heard--and I've heard it from two sources--is $4 to $5 billion on M-1. So I was just wondering.,31
-fomc-corpus,1980,Part of it also is the social security--,9
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"A couple of points. Ed made the point very well on savings bond redemptions; that has eased off a little now. But a lot of that money is just parked waiting for what people think will be [higher] interest rates, I think. Also, the Treasury has a 9 percent bond coming due August 15, which was subscribed to by a lot of [individuals], at least in our area. They are already making inquiries as to what [return] is available [on Treasury securities] and typically are saying: ""Oh well, I'll put [the proceeds] in a money market mutual fund when it comes due. So we will be seeing more of that, which again leads credence to the fascination with M3. But it also gets to the point that the further out we go in the Ms, the less control we have over what we are doing. So I think we have to be careful not to get too fascinated with M3. I'm inclined to differ a little with Chuck [on the relative merits of] M-1A and M-1B. We'd have to adjust either one of them, whatever we were doing, and M-1B may be the better one going out a year or so. Also, that is what the market is looking at. I think not much attention is paid to M2 in the everyday market. Whether Peter [Sternlight] and Allen [Holmes] would agree with that or not, [I don't know].",302
-fomc-corpus,1980,I think M2 gets less attention largely because it only comes out monthly. There has been some notice taken of it.,24
-fomc-corpus,1980,"We hope 18 months from now M-1B will be that number, and we will have washed out all these--",25
-fomc-corpus,1980,"Well, we hope so. We will have a different reason maybe a year from now. But the further out in the Ms we go, the more trouble we get into in terms of what we can influence. I feel we are better off sticking pretty much with M-1A and M-1B for the moment.",65
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"I'm in line with what Bob said. Our research department has done quite a bit of work recently in checking the predictive value of these various aggregates. Their conclusion is quite clearly that M-1B has predicted output much more accurately than the other aggregates. If we can ever get this material edited, Mr. Chairman, we will circulate our wisdom to this wiser body if you'd like.",76
-fomc-corpus,1980,We will look at it with great interest.,9
-fomc-corpus,1980,"Thank you, sir.",5
-fomc-corpus,1980,"Lyle, you had a comment?",8
-fomc-corpus,1980,I was just going to say that Mr. Sternlight is right [about M2]. And we might be well advised to choose an aggregate for which we only have monthly figures.,36
-fomc-corpus,1980,"Any other general comments? I take it there is a good deal of acceptance of some of Mr. Ettin's comments, and there is some question about being too serious about M2. Maybe I have misstated that. [Perhaps it's more accurate to say] we should look at it but there is some reason to think it may be somewhat distorted on the up side.",75
-fomc-corpus,1980,"Just a comment. If we are getting sufficiently frustrated with the aggregates, there is the old standby of real interest rates, after tax. We have done a certain amount of work on that now.",39
-fomc-corpus,1980,"The ""old standby"" of real interest rates?",10
-fomc-corpus,1980,"After tax, real interest rates.",7
-fomc-corpus,1980,Your old standby.,4
-fomc-corpus,1980,"I've mentioned it from time to time here. I just wanted to tell you that it's available now. It has been run through the computer, so perhaps it has acquired a little more--",37
-fomc-corpus,1980,"Along with Mr. Roos' material, you can circulate that. Now we have to turn to the serious business of the Committee. A number of people, John Balles and others, have described our basic dilemma in that we have both a serious inflation problem--or more pessimism about inflation and great sensitivity to expectations of inflation--against a rather shaky business recovery. So some of the things one might ordinarily think would be good for the business recovery may not be good for the business recovery if they maximize the inflationary uncertainties and have an adverse repercussion on the market for that reason. As one market caller put it to me the other day, if the money supply really goes up very sharply for a couple of weeks, we will have big increases in long-term interest rates. I think that is descriptive of the kind of dilemma we are in. I don't know how we get out of that without going through a painful process of deflating the inflationary expectations, which are not deflated yet. And I don't know how they get deflated without deflating the economy more than one would like to see it deflated. I don't have a ready answer to that.",236
-fomc-corpus,1980,"Paul, there is one other option that we haven't explored for a long time. It's probably not practical, but as I told a number of you, when I was in Frankfurt some years ago, Emminger said: ""Mayo, we've got one advantage here over you folks that we are never going to give up."" I asked: ""What is that?"" He said: ""We have no weekly figures on the money supply and we're never going to have any."" Arthur Burns even threatened at one point to put out daily figures on the money supply to point up the absurdity [of following short-term fluctuations so closely] and then obviously thought better of the idea. Is there any chance in the reporting from all these 40,000 customers we have now--it's probably too late even to suggest it--that we can solemnly decide that we should have only monthly figures on the money supply? Or is the world too sophisticated to accept that?",190
-fomc-corpus,1980,My instinct is that we couldn't get by with it. And I don't really think it would cure the problem. People would wait for the monthly figure.,30
-fomc-corpus,1980,"We couldn't do it unless we didn't collect them, Bob. Then we wouldn't have anything for our own use either.",23
-fomc-corpus,1980,"Well, that's the problem. But it's tempting to talk about; we'd have one eruption a month instead of four.",23
-fomc-corpus,1980,"It would help in terms of these intra-monthly gyrations, but I don't think it would deal with the dilemma that I am referring to, which is a real dilemma for the economy. Actually, the Washington Post had a good editorial just the other day. They put the same dilemma [in terms of] New York versus Washington. Washington wants to expand whenever the economy gets into a recession and New York will run for cover with inflationary expectations if that happens, which will undermine the expansion. Therefore, you can't do either. And I think there is a lot of reality to that. I don't know if it will speed up the process or not but, if I may, let me give you something to shoot at. When I look at these pretty charts--though obviously when we are talking about differences as small as those in ""A"" and ""B,"" it is not a widely different picture--I come away with the feeling that alternative A is not in any sense off course. Under alternative A, so far as the M-1A figure is concerned--it's not true of M-1B, which has been rising more rapidly--if we took off from M-1A the target for the quarter is the same as [the one we had previously]. It is consistent with a higher M-1B figure according to the current estimates, if they are any good, and a considerably higher M2 figure than we were talking about at the last meeting. But those charts don't give a very disturbing picture; in fact, they give a rather nice picture. If we held to it and just extended [money growth] at the same rate, M-1A would end up right at the bottom of the range for the quarter or a little above it by the time we got to December. M-1B, if I am right, would be just about in the middle, or maybe a bit below for the quarter and a little above in December. For M2, alternatives A and B are very close together, but it's high in either case. M3 is in the middle. We are dealing with an extremely [unintelligible.] The market, as nearly as I can read it, has anticipated some tightening which hasn't taken place. Maybe another way of stating it is that they also have a heavy supply of securities. They see better business news and anticipate perhaps a bigger increase in the money supply and assume that would bring a higher federal funds rate. That may or may not be true. I myself don't see any reason, particularly, to bias that question at the moment. If we are satisfied with something like the alternative A money supply figures, I don't think we have to do anything now to bias where we are in terms of the federal funds rate. I am talking, really, about the borrowing figure at the moment. If the money supply comes in higher, that doesn't imply, with our ordinary techniques, that [policy] would be tighter. But [in that event] we would have seen evidence that the money supply is in fact running even [above] this figures which looks all right. Or if it came in lower, we would be moving somewhat in the other direction. So I would be inclined, in general terms, to take something like ""A"" and unbias the decision this week. I don't know whether that means $100 million of borrowing or maybe a trifle less than that, but something in that neighborhood. And as I say, if the money supply comes in--just in M-1A terms with similar changes in the others--at 9 percent, let's say, the borrowings would go up and presumably we'd get an increase in the funds rate. If it came in weaker, as I guess the New York projection suggests, we could perhaps run down to truly frictional levels of borrowing and the funds rate might go in the other direction. But in either case, there would be better evidence than we have at the moment. I don't think it's clear that we are off course, if we discount M2 a little at the moment. So I don't see any reason for a bias at the moment in one direction or another, particularly given the sensitivities in the market. With the dollar in a little better shape, conceivably we could make the bottom end of the federal funds range a little less close to the current market level than it is. I don't know that we have much risk of running into either of those constraints, but it might look a little better. So we could alter that a bit if you wanted to, but those are the very general thoughts that I have. Why don't you proceed from there, Governor Schultz.",943
-fomc-corpus,1980,"Well, as everyone around this table knows, I believe that inflation is the major problem and that hasn't changed at all, so I think we have a long hard pull ahead of us. I believe, though, that alternative B would be a mistake at this time because it seems to me, short term, that we are already getting some restraint. Interest rates have already backed up some, and I think it is not likely that mortgage rates will come down from where they are. They might rise a little. One of the things we didn't talk about is the fact that mortgage rates are much more sensitive to bond rates because of the passthroughs. We have this enormous backlog of securities that are sitting there, and it's just hard for me to see that mortgage rates are going to come down any; they might even back up a little. We have already seen some of that in California, where they are particularly sensitive to this kind of thing. So it seems to me that the path we are presently on is already giving us some restraint. I get the feeling that we are doing reasonably well at this point and I don't see much sense in trying to shut down further. In addition, I have a feeling that longer term we may need some flexibility next year. I don't know what shape recession we're going to have--whether it will be a square root or an L or a W or whatever. But one characteristic I think it will have--and I think properly so--is that it will be a very slow recovery. I don't see how we can get out of the mess we are in without that slow recovery, because I don't see how we are going to be able to get unit labor costs down without some pain. And we are not getting very much pain in this economy at this time; corporations still are looking to increase prices, as President Winn said. And until there is some real restraint on them in terms of their corporate profit margins--and I think there will be next year--I doubt that they are going to start getting really serious about trying to hold wage rates down. So it seems to me that we are looking at a very slow period of recovery for next year. I have the feeling that I would like to go into next year [with money growth] near the middle of the range, and not biased toward the bottom, to give us the kind of flexibility we may need. So my feeling is that alternative A is much superior [to alternative B], both for the short run and the long run.",505
-fomc-corpus,1980,"I'd like to present the case for alternative B. The dilemma that I described earlier might be put in a little broader context. If you remember, last spring quite a few of us were a little worried about the undershoots in the aggregates and the fact that failure to achieve [our objectives for] them might unnecessarily and considerably exacerbate the recession that was then under way. I've been pleased, of course, by the catchup in the aggregates produced in the June and July figures--and they're pretty solid--and in the projected August figures. I suppose part of what determines how one comes out here depends on one's reading of the tea leaves on the business outlook but also on the judgments one makes as to which M is the lesser of the evils in terms of its reliability as a predictor. I have to say that on the outlook I came out much closer to the views Governor Gramley has articulated than the opposite view. And with respect to M-1A versus M-1B versus M2, the research that we've done at our Bank indicates that M-1B is a better predictor of future price movements than M-1A. Now, they're both obviously contaminated to some extent, but I think M-1B is less so than M-1A. For that reason, and because of the failure to achieve any significant progress thus far on the inflation front--especially if one looks at the staff's forecast on where inflation will be by the end of 1981--I am very concerned. So, all things considered--in view of the catchup we've now had on the Ms and in view of what I consider to be a less gloomy or, if you like, a more optimistic outlook in terms of the recession being shorter and shallower than we had earlier expected-- I'd begin to shade [money growth down] a little now. Speaking for this year as a whole, I'd move broadly in the direction of aiming somewhere in the lower part--certainly at or below the midpoint--of the range we have set for M-1B, which I would consider the most reliable of the three Ms for the moment. That may change next year when we get NOW accounts. But I wouldn't be unhappy if we reduced our sights a shade and tried [for growth in] M-1B at what we had said in July would be our target for the third quarter, which is around 8 percent. So ""B"" or ""B minus"" would be the way I would lean, Mr. Chairman.",508
-fomc-corpus,1980,"""B minus"" meaning even less than ""B""?",10
-fomc-corpus,1980,Yes. I'd like about 8 percent for M-1B for the June-to-September quarter.,21
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, I come out very close to the [approach] you advocated. I don't see much difference between ""A"" and ""B"" and I have a slight preference for ""A."" I lean, like most here, toward M-1B for the reasons indicated, although I duly heeded your admonition that we ought not to take this at face value. There's a temptation, I think, to go with ""B"" because of the inflation we see. But if the staff is right in its projections on M-1B, that would mean that its growth would decelerate to a rate of 5.5 percent this year from 7.6 percent last year and 8.1 percent the year before. That seems to me sufficiently fast deceleration to work toward gradually reaching a noninflationary rate of expansion in the aggregates. And it would set the stage for a further reduction next year, as we have promised every one we would [seek]. I do have a little concern about the overshoot in M2 because of the credibility problem, but the overshoot is very small; and as others have stressed, the [narrow] aggregates are looked at much more carefully than M2. And I think the points that Ed Ettin made about M2 are quite valid. But if for some unexpected reason M2 did come in high, we might want to take another look at it. I also have sympathy for your position that maybe we ought to [reduce] the lower end of that funds rate range. I have long stated that I don't favor any range on the funds rate, but I think we might be having in the aggregates the kind of [pattern] Chuck Partee was stressing on the behavior of consumer spending, where we have very rapid declines and then a bounceback. So with the abandonment of the special credit restraint program, the aggregates may have taken off more than they ordinarily would have. If that is the case, we might have to come down a little more on interest rates in order to keep the aggregates on target. Therefore, I would be inclined to drop the lower end to about 7-1/2 percent.",440
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"I want to second John Balles for many of the same reasons [he cited]. When we talked about the recession some months ago, it was frequently said that we shouldn't be too tight because of the danger that we might overshoot on the low end. Now we see that it's likely, although not certain, that this will be a milder recession than anticipated. And that doesn't give me any reason for wanting to go on a more expansionary course. I don't see much achieved by the recession so far. There have been no great changes in expectations. It may well be that a few years from now we will look at this experience as something that was unnecessary because it didn't produce anything except a resumption of inflation from a new higher plateau into new and higher levels. I think we're in some [danger] of concluding that because it's reasonable to expect the recovery to be slow we therefore ought to be relatively easy now. If we are relatively easy now, we will be prejudicing our policy next year toward being still easier, precisely because the recovery is likely to be slow. Finally, as I look at our policy for next year, if we take the hypothetical assumption that we go for the midpoint of the ranges that we've now supplied, which are 1/2 percentage point below this year's ranges, that will mean a drastic reduction in the rate of money growth in early 1981. For instance, on M-1A the range is 3 to 5-1/2 percent. So presumably we would have to shift to somewhere close to the midpoint of that from what on the present course is [growth of] 7-1/2 percent from the second to the fourth quarter of this year if we go with alternative A. If we go with alternative B, we will be shifting to the midpoint of 3 to 5-1/2 percent, or about 4-1/2 percent, from the 6-1/4 percent rate B implied for QII to QIV of 1980. If we look at M-1B a similar picture prevails; the midpoint of its range of 3-1/2 to 6 percent is 4-3/4 percent. And we would have to shift to that from 9-1/4 percent [growth] on ""A"" or 8-1/4 percent on ""B."" These could be some very drastic changes in course, if we really were to stick by our policy when the economy begins to turn around. I would rather minimize the degree of change that we have to introduce--not go down so far with interest rates now and not have to change their direction so drastically, or else abandon the proposed targets. That is why I would go with ""B.""",560
-fomc-corpus,1980,Governor Gramley.,4
-fomc-corpus,1980,"Mr. Chairman, I probably am as optimistic as almost anybody around the table about the prospects for the end of the recession in the near term, but it is still a forecast. And there is absolutely nothing in the statistics yet that suggests that a turn has occurred. We all agree, I think, that the recovery next year is going to be quite weak. I don't see any reason at all, therefore, to let interest rates go up at the present time. I don't mind staying where we are. I don't know if interest rates need to go down to shorten the recession but I certainly don't think we need to knock the [economy] in the head once more and make sure we have killed inflationary expectations. I just don't think that's a feasible course. We have to remember that the staff is forecasting a recovery so weak that unemployment does not go down at all. I think that's as weak a recovery as we need. I agree with Governor Schultz completely in that respect. But if the recovery is so weak that unemployment continues to rise, then I don't think we're following a policy that we can stick with over the long run. That's the only way we can deal with this problem: To look at it as a very, very long-run problem and a long-term commitment [on our part] to try to bring inflation down. So, I am quite prepared to go with your suggestion of alternative A. I would wonder, if we go in that direction, if we shouldn't do something about taking M2 out [as an operational variable] because if M2 keeps going up as rapidly as it has been, we might end up having to turn the screws to push interest rates up. And that may not be what we want to do.",349
-fomc-corpus,1980,What did M2 do in the last month?,10
-fomc-corpus,1980,It grew at a 17 percent rate.,9
-fomc-corpus,1980,I don't understand what Lyle means by taking M2 out.,13
-fomc-corpus,1980,"In the directive we have targets for M2 along with M-1A and M-1B and we're giving the same weight to the three; all three are mentioned in the directive as such. So if M2 were to exceed its target level, then we would begin to tighten up again, even if M-1A and M-1B did not.",74
-fomc-corpus,1980,"Well, from what I understand, the way the staff calculates the reserve paths, it is basically a qualitative correction of a path constructed primarily on M-1. If M2 is moving up very rapidly, it's not given equal weight by any means.",50
-fomc-corpus,1980,"It doesn't have much arithmetic effect, I agree, Tony.",12
-fomc-corpus,1980,"Well, it may; the only effect it can have is if we change the path on the basis of [its behavior].",25
-fomc-corpus,1980,"If we eliminate those aggregates that misbehave in our view, what kind of credibility do we have?",21
-fomc-corpus,1980,We're still left with the fact that at the end of the year the public and the Congress are going to see what the behavior of M2 was in relation to the targets.,35
-fomc-corpus,1980,They will probably also see that M-1A is at the lower end of that chart.,19
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"As a well-known Washington philosopher a few years ago was fond of saying: ""If the thing ain't broke, don't fix it."" I don't think the thing is broke here. It seems to me [the aggregates] have been moving rather nicely along their path with an interest rate performance that was, if not pleasing, at least acceptable to almost everybody after that abysmal April break in the numbers. And as you said, Mr. Chairman, a continuation of our earlier statement [regarding our objectives for the quarter], particularly in terms of the profile for M-1A but to a large degree for M-1B, would be alternative A. It seems to me that that's the path we have and it's working quite fine. So I would certainly [support] that. I do believe that there will be a tolerance in the society as a whole, though not in Washington, of higher interest rates if we can say: ""Look, we've had a big rise in the aggregates so we've got to resist that rise because that will bring inflation."" But if we have higher interest rates because we're fiddling around with a path that we earlier specified with the Congress--and if we're on that path or would have been on it had we not changed it--there isn't going to be that tolerance. I think that's a very dangerous game to get involved in. We may have an explosion in the aggregates; some are forecasting it. If we do, then we'll raise interest rates. But we may not. And if we don't, I don't think we have any basis for trying to bias interest rate movements upward. So I would take ""A"" for sure.",331
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,"Mr. Chairman, I come out very close to the position that you set forth for the reasons that you did and for the reasons set forth by Governors Schultz, Gramley, and Partee. I would simply emphasize that the outlook for the economy is for a slow recovery--one which will be lackluster and far from robust. It also looks as if it is going to be interest sensitive because, as has been noted, the recovery in housing is going to be interest sensitive and the recovery in investment is probably going to be interest sensitive. We have to note that under either alternative A or alternative B, we're likely to see some increase in interest rates. The increase in interest rates under alternative B will be significantly greater than under alternative A. And at this point we have to be very careful not to do anything unnecessarily that would choke off the recovery. It seems to me distinctly possible that fiddling around [and getting] interest rates up runs the risk, as Governor Partee suggested, of choking off the recovery before it begins. So it seems to me that alternative A is a much [safer] course to take.",226
-fomc-corpus,1980,Mr. Eastburn.,5
-fomc-corpus,1980,"I think it is clear that we have a timing problem here. It is compounded by the fact that we're in a cycle with no precedent and we don't really know how to time our action. On the one hand, Nancy's earlier comment is right that in the discussion about the business outlook we really are basing our opinions on some fairly small evidence over a short period of time. That would lead one to alternative A. On the other hand, Henry's argument has a lot of [merit] in that we're dealing with an exceptionally difficult situation and we have the possibility of [substantial] growth in the aggregates ahead of us. So perhaps we should take this opportunity to move earlier than we ordinarily would to meet that. Between those two positions, I come out about in the middle. I'd take ""A"" and shade it toward ""B."" There is a one point [difference in the growth rates] in the two alternatives, which is wider than we have quibbled about at times. I don't think it's quibbling too much to [aim for] something in the middle. That's what I'd do.",224
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"We are again, I think, magnifying very small differences. I could be comfortable with either ""A"" or ""B,"" but I lean toward ""A"" basically for the reasons that have already been stated. As for the recession, everybody is looking for good news now and I think they have over-emphasized what little good news has been in the papers. We probably have at least another six months to go before we get any real positive signs of economic recovery. I would rather, as the cliche at the moment goes, ""keep our powder dry"" and stick with ""A."" I do not worry at all about the overshoot in M2; in fact it helps, especially with M-1A coming out at the low end under either ""A"" or ""B."" It tends to illustrate again the fragile nature of these figures. It isn't that we should say cavalierly that the targets aren't worth anything, but let's be practical about it. We have our own little security blanket here of being at the low end on M-1A, in the middle on M-1B, and overshooting on M2. So what? It doesn't bother me. It gives us a beautiful array to illustrate our point that there is no such thing as the perfect aggregate. I would also comment that if we narrowed our ranges, which some of our friends on Capitol Hill wish we would do, it wouldn't solve anything. We might end up below on M-1A and way over on M2 and be in the same situation we are now. It wouldn't make us any better hewers to the line, if I can put it that way. So, I lean toward ""A"" as the solution.",347
-fomc-corpus,1980,Mr. Solomon.,4
-fomc-corpus,1980,"I hate to disappoint the Washington Post editorial [staff], but between ""A"" and ""B,"" I prefer ""A"" [even though I'm a New Yorker]. I have a slight preference for splitting the difference, as Dave Eastburn suggested, and going with a $75 to $100 million borrowing assumption. But--",64
-fomc-corpus,1980,"When you say split the difference, Tony, do you mean the July-to-September difference?",19
-fomc-corpus,1980,"Yes, and that would give us for July to September [6] percent for M-1A, [about] 7-1/2 percent for M-1B, and 9 percent for M2 with, as I say, a $75 or $100 million borrowing assumption. But if the consensus is for alternative A, I'd go along with that. I certainly prefer it to alternative B.",83
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"I have a preference for alternative B. It's not a sharp preference, but I base my position on a belief that because of increased business borrowing and the extent of borrowing by the government, an increase in interest rates toward the end of this year is probably inevitable. And if, as I sense, there is a reluctance among some of us to permit interest rates to rise because that would be viewed as contributing to cutting off the [recovery]--if indeed one were to occur--then I would see the prospect of expansionary policies ahead. So I'd much rather position ourselves in a more restrained position a la ""B"" than the other alternative. But I'm not going to dig in my troops on that particular decision because I don't think there's that much difference [between the alternatives].",156
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"I would prefer ""A."" For once we don't have to worry about the international value of the dollar currently, which is somewhat of a relief.",29
-fomc-corpus,1980,Wait a week.,4
-fomc-corpus,1980,"Yes, I know that. Given that, we seem to be on a pretty steady course and we're getting where we want to go with it. It seems unconscionable to raise interest rates when the economy is still going down--and I don't think anybody expects the third quarter to be a positive number on real growth. I would say if we are going to have to raise interest rates for international reasons, I certainly would like to save the room and do it at a later date. So I would come out in support of ""A"" and just leave [the path] the way it is at the present time.",125
-fomc-corpus,1980,"I don't think there has been much--let me use the word ""distortion""--in domestic monetary policy by international considerations in the time that I've been on the FOMC. There have been some considerations of timing, maybe a 1/2 point difference from time to time on the low end of the fed funds range. It hasn't been very significant.",72
-fomc-corpus,1980,"The position I've taken publicly, in the sense of responding to Congressional inquiries, is that it was a consideration in the background and tended to parallel the more important considerations of what we had domestically. [For example], we didn't press for as quick a makeup of the shortfall in the money supply as we theoretically could have. That was not a decision based just on international grounds, although that happened to be an ingredient in that decision.",87
-fomc-corpus,1980,I think the Congressional comment was that he'd make a very good prisoner of war because he'd tell the enemy--,21
-fomc-corpus,1980,I think [my statement] is also true. Mr. Winn.,14
-fomc-corpus,1980,"I am a bit on the fence. I guess I'd join those who favor splitting [the difference] in terms of the target set-up. I'm a little confused, as I listen to the conversation, as to whether we're following our resolve to try to target the aggregates or whether we're back on an interest rate course. It seems to me that we've all based this [analysis] on a projection of growth in the aggregates that may or may not occur. If it doesn't, then it seems to me that we have some responsibility to get the path back up and let the [funds] rate hit the bottom. If the aggregates explode, it seems to me that we have to face the interest rate problem right now. And we will have deferred it. I've been around this table for some time, and I've seen us drag our feet time after time and then get caught in a real squeeze. I'd rather face it now if this explosive problem--",188
-fomc-corpus,1980,"You are saying, I think, that the question to debate now is between assuming that the aggregates are going to explode and biasing the decision upward--",30
-fomc-corpus,1980,"No, I wouldn't bias it upward. I'd wait and see what happens. But if the aggregates explode, it seems to me we'd have to face it.",31
-fomc-corpus,1980,"Well, I didn't hear anybody saying anything different, but I agree the temptation historically has been not to do anything about it. Mr. Ford.",29
-fomc-corpus,1980,"Well, as one of the novices here, I must say I am very relieved by the narrow range and the bias of the two alternatives before us in that I see no danger that the markets--",39
-fomc-corpus,1980,You are not necessarily confined to those alternatives.,9
-fomc-corpus,1980,"I may choose at some future date to suggest a third. But I like the way the alternatives have been structured here because whichever way we go with this decision there seems to me no danger that we'll be reading in the newspaper--even without a leak but after due time when we release the [record]--that we biased ourselves toward getting off the path that we set last October. We will probably not be accused of loosening monetary policy based on limited information of a recovery, and so on. So either way we go, I think this decision can be viewed in the marketplace as a reasonable one. With regard to the arguments on whether we should make this minor adjustment toward tightness, [as in] ""B,"" I am persuaded by [several] things. First of all, I've seen virtually no evidence of price softening, which is what the name of the game is supposed to be as I understand it. [Our goal is] to promote a view in the world which says that we're determined to wring inflation out of the economy. And the facts as I have heard them and see them are that we're not seeing that price relief yet. The second argument that persuades me is the one that Mr. Wallich made, assuming he is correct about the course of the aggregates and that we will have to crank down the numbers later. For smoothing reasons, I find it rather persuasive to think ahead and to try to avoid the need to bring the aggregates down later at a time that may inopportune. Also, with the limited evidence we have that the aggregates may be expanding in the next few days, I would lean, along with the rest of the splitters, toward ""B.""",343
-fomc-corpus,1980,It's nice to have you aboard.,7
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"I would support ""A.""",6
-fomc-corpus,1980,"Mr. Chairman, I would be inclined toward ""B."" We see the economy essentially as the staff has in its outlook, with the exception of the strength in interest rates. I am inclined to view the strength we see in interest rates as temporarily greater than justified by what is happening in the economy. So I think there may be a softening rather than a continued rise in interest rates. The [behavior of] inflation, as has been mentioned, is critical. There has been no reference to the presumably substantial additional thrust to prices that is going to flow from the food sector. I think it's going to be very difficult to keep that from simply passing through, as our policies over a period of years have permitted energy prices to pass through and raise prices generally through the economy. I think it would take pretty substantial restraint to keep that from happening again, in this instance flowing from food. Also, I am inclined to think that we're seeing a rather rapid buildup in liquidity in the economy, whether it appears in the particular measures we call money or in other measures. In this inflationary environment, it's entirely possible that people will behave with less money the way they normally would behave with more money. So I think ""B"" would be the preferable posture right now.",252
-fomc-corpus,1980,Mr. Corrigan.,5
-fomc-corpus,1980,"Mr. Chairman, I am very comfortable with ""A"" at this time. I say ""at this time"" because I am inclined to the view that the near-term risks on the aggregates are probably on the up side. I am willing to wait and see what happens. But if in fact that strength in the aggregates were to materialize, a lot of this debate about rates would be academic because the mere fact of that strength would quickly reflect itself in higher interest rates in the marketplace in any event. If that too were to occur, we would be a lot closer to the kinds of real dilemmas we were talking about earlier, which were very well captured in Governor Wallich's comments about the task of getting back to where we want to be for 1981. So, I think ""A"" is fine for now, but if indeed the aggregates do run strong, we're going to to have a dilemma immediately in front of us. All of this underscores to me the point that somehow, somewhere, we have to get help from other elements of public policy in this [fight against] inflation. And I just don't see that coming. I'm not sure how or where we get it.",239
-fomc-corpus,1980,Mr. Czerwinski.,6
-fomc-corpus,1980,"Mr. Chairman, it is our view that alternative B might result in a more rapid run-up in interest rates than might be desirable. On the other hand, alternative A would push M2 above the top of its range, which might not be desirable from a perception standpoint, particularly with all the attention being given lately to the ranges established by the Committee. So for those reasons, we would tend to favor the ranges that were suggested by President Solomon, [about] 6 percent for M-1A, around 7-1/2 percent for M-1B, and about 9 percent for M2.",125
-fomc-corpus,1980,"Well, there seems to be a good deal of agreement around the table. I think what really happens between now and the next meeting is going to be determined, by everybody's specifications, by what happens to the aggregates. And since that range of uncertainty is much greater than the one percentage point difference between these figures [for the quarter], that is the perspective in which I would view this, as many people already have. My main concern is that we not bias this. The bias is more in the borrowing level that we start with than in the difference between ""A"" and ""B."" Actually, the difference between ""A"" and ""B"" is more than one percentage point for the remainder of the quarter; it's 1-1/2 percentage points. Considering the lags and all the rest, we don't have a lot of room for changing this between now and the end of the quarter. The predominant view is clearly ""A,"" but there was some sentiment for ""B,"" obviously, and some people were willing--and maybe prepared--to go in between. I suppose the practical choice is whether [or not] we go with A. If we did, I would be inclined to put the federal funds rate range at 8 to 13 percent if we want the [width of the range to be] 5 percentage points. It's 5-1/2 points now, but we could [set it at] 8 to 13 or 8 to 14 or 8 to 13-1/2 percent. So let me assume something like that for the moment.",322
-fomc-corpus,1980,Wouldn't that have a perceptions effect?,8
-fomc-corpus,1980,"Well, I've thought about that. I am not sure it's going to have much effect because it will come out a month [or so after this meeting]. [The funds rate] either will have been there or not have been there. I don't know; I may be wrong. I have thought about it and I am not sure it will have one because of the delay in the release of the record. I think it would have an effect if we were announcing this today. What do you think, Peter?",102
-fomc-corpus,1980,"Well, it's true that you won't announce this today. You will be announcing in a few days that at the July meeting the funds range was 8-1/2 to 14 percent. So if the market should see the Desk being more accommodative--if the numbers worked out that way --and funds were trading in the 8 to 8-1/2 percent range, then I think they would get the idea before [the new range is released.], perhaps even in the next--",101
-fomc-corpus,1980,"If the funds rate works out that way, I agree. But it won't work out that way, presumably, unless the money supply is also running pretty low.",32
-fomc-corpus,1980,What's the advantage of narrowing the range?,8
-fomc-corpus,1980,My purpose is not to narrow it; I just wanted to lower it.,15
-fomc-corpus,1980,Why don't we make it 8 to 14 percent and make the width 6 points?,19
-fomc-corpus,1980,I think 8 to 14 percent looks better; that leaves the top of the range at the same place.,23
-fomc-corpus,1980,[The top of the range] doesn't seem operational.,11
-fomc-corpus,1980,I think that would be important.,7
-fomc-corpus,1980,"What do you expect the funds rate to be with these specifications? You expect it to be around 10 percent, right?",25
-fomc-corpus,1980,"With borrowing averaging $100 million, I'd expect it to be a little more often below 10 percent than above, perhaps in a range of 9 to 10-1/4 percent.",39
-fomc-corpus,1980,So that's basically an increase in the rates over the month from where they are now.,17
-fomc-corpus,1980,"If you want 8 to 14 percent, that wouldn't bother me. Just to complete this, I would start off the borrowings at maybe $75 million--I'm thinking of the federal funds rate at around 9 percent or a little more, perhaps 9 to 9-1/2 percent now--if that's the [borrowing] number that's consistent with that [level of the funds rate]. We are just talking about the first week here really, but I'd be inclined to say $75 million. Let me just test the sentiment and see whether this in-between [number is acceptable]. The intention is to put the quarterly figure in the directive now?",133
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"So we are really talking about the top part of this [Bluebook] table if we assume that. And that's probably the safest thing. If we went halfway, the rates would be 6-1/2, 8-3/4, and 11-3/4 percent, if I calculated correctly. Now, that makes a bigger difference for the remaining part of the quarter, but those are the numbers that would appear in the directive. As I said, there was a clear majority for ""A."" Let's see whether people are happier with the halfway between numbers.",117
-fomc-corpus,1980,"Mr. Chairman, [some of] those who talked about splitting the difference were talking about the numbers for July to September. Just arithmetically, if you do it for the June-to-September figures, you are biasing the numbers a little tighter for the remaining two months of the quarter.",61
-fomc-corpus,1980,"June to September is what appears in the directive, right?",12
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"Presumably, it means the difference for the July-to-September figure is halfway in between, too, doesn't it? Isn't that correct arithmetically? It's just a bigger distance in between, in effect.",43
-fomc-corpus,1980,"Yes, but given the fact that July itself was stronger for each of the aggregates than the targets adopted the last time--",24
-fomc-corpus,1980,But don't we get the right July-to-September numbers if we average those numbers in the table below?,21
-fomc-corpus,1980,I don't think so.,5
-fomc-corpus,1980,I would think so.,5
-fomc-corpus,1980,It isn't immediately obvious to me.,7
-fomc-corpus,1980,Did we publish June to September last time?,9
-fomc-corpus,1980,What we would have is 6 percent [for M-1A for July to September].,19
-fomc-corpus,1980,We'll publish it in a few days.,8
-fomc-corpus,1980,"What we did before was 7, 8, and 8 percent.",16
-fomc-corpus,1980,"For the quarterly figure, right?",7
-fomc-corpus,1980,For the third quarter.,5
-fomc-corpus,1980,"If we took the midway point, what would you expect to happen to the funds rate?",18
-fomc-corpus,1980,"Well, it biases [the funds rate] a bit toward rising subsequently. I am saying we don't bias it at all initially. But in practice what it says, just looking at M-1A--if the arithmetic is correct--that we have an objective of 6 percent growth from now to the end of the quarter instead of 6-3/4 percent [under ""A""].",79
-fomc-corpus,1980,"But if we assume only $75 million in borrowing, we are going to be supplying more reserves.",20
-fomc-corpus,1980,"For the first period, that's right.",8
-fomc-corpus,1980,$25 million more.,5
-fomc-corpus,1980,"What we are looking at in practice is that if the $3 billion figure holds up for this week--I don't know whether it will--it will depend to some degree upon the projections thereafter. We will get a preliminary figure for the week after. But if the $3 billion held up and there wasn't any reason to think it was going to be reversed immediately, we would presumably have a higher borrowing level a couple of weeks from now. And your straightforward projection of ""A"" even implies a slight increase in interest rates, you believe.",108
-fomc-corpus,1980,"In my view, yes.",6
-fomc-corpus,1980,"Those estimates are obviously unreliable, but even [a forecast of] an ordinary figure for next week is unreliable. These figures have been jumping all over the place. But if [the estimate] held up, whatever path we set now is likely to imply more borrowings. That's one of the reasons I don't want to set the path so we get an increase now and then automatically get an increase two weeks from now. That, I think, is [moving] too strongly.",95
-fomc-corpus,1980,"Mr. Chairman, if that estimated $3 billion increase [in M-1A] holds up, I don't think anything would flow automatically from that in terms of raising the borrowing because we would build the paths assuming that $3 billion.",48
-fomc-corpus,1980,"It depends. Right now the $3 billion, as I see it, depends upon your projection--",20
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"If the $3 billion is a harbinger of [M-1A] running high, it's going to affect [borrowing]. We can technically allow for that if your subsequent projections say no [it will not run high]. But presumably you would want to allow for [an increase in borrowing] if the next preliminary figure is another $3 billion or so. There's an element of judgment here. You can wash it out completely if you think it's of no significance. But in the path--",100
-fomc-corpus,1980,"I have no reason to assume that our [estimate] is any more correct than Ed's, but our calculation is that alternative A does not involve even a slight increase in interest rates. It might involve a slight decrease in interest rates, depending upon the assumption.",52
-fomc-corpus,1980,"Well, we're saying interest rates. What I am talking about is the federal funds rate. I am not sure that the other rates aren't too high relative to the federal funds rate right at the moment. So if it worked out that we didn't get an increase in the federal funds rate, the other rates might come down again. We are talking now about expectations among other things. What we are talking about operationally, just to repeat it, is that if we went halfway in between, that involves knocking three quarters of a percentage point off the growth objective for the period between now and the end of September. And there's no assurance about that; we never come out that close. We are not going to have a 3/4 percentage point difference in any measurable way. What we will have is a somewhat higher level of borrowing and, therefore, a somewhat higher level of the federal funds rate however the aggregates finally come out. So the bias--well, bias may not be the right word. It sets up an increased probability of a somewhat higher federal funds rate, obviously, the more we reduce the aggregate numbers.",223
-fomc-corpus,1980,As contrasted to alternative A.,6
-fomc-corpus,1980,"Yes, as contrasted to alternative A.",8
-fomc-corpus,1980,"I think we are trying to walk a balance here because we don't want a perception in the markets that there has been a shift in policy. If it does work out that the fed funds rate is at the floor--that we have to move toward the 8 percent floor--which I would be willing to live with, particularly combined with the intermediate target between ""A"" and ""B,"" we would be flirting a little with a possible adverse reaction in the long market. There could be a perception of a definite easing. If we go for alternative A, we might be well advised to keep the funds floor where it is.",125
-fomc-corpus,1980,"There has been a great deal of discussion of that abroad, a great deal of exploration of that in the market and an interpretation of our actions. So, I think if they smoked out that we are willing to let the funds rate go to 8 percent on average, that would be regarded as a clear signal that we have eased.",67
-fomc-corpus,1980,It would be associated with weak growth in the aggregates.,11
-fomc-corpus,1980,"Well, if they understood the process correctly. But since they always look at the interest rate anyway--",20
-fomc-corpus,1980,"I would rather [not] lower the floor to 8 percent, Chuck, if we [went with] the compromise.",25
-fomc-corpus,1980,It's such a small issue that I am prepared to go either way.,14
-fomc-corpus,1980,"It's a question of which way the preference is. I'll put them both to a vote for preferences. Let me take the compromise first with an 8 percent floor in this case and an initial borrowing assumption, let's say, of $75 million. We'll take all of the decisions on the easy side and go.",62
-fomc-corpus,1980,Are they consistent?,4
-fomc-corpus,1980,"Well, anything is consistent. Who knows?",9
-fomc-corpus,1980,"What goes with this--""A"" or ""A minus""?",13
-fomc-corpus,1980,"""A minus.""",3
-fomc-corpus,1980,"This is ""A minus"" or ""B plus.""",11
-fomc-corpus,1980,What's the alternative?,4
-fomc-corpus,1980,"""A.""",2
-fomc-corpus,1980,"On ""A"" would you drop the floor to 8 percent, too?",16
-fomc-corpus,1980,"There may be a little argument about that. I'd be willing to, but--. Let me put it this way, just so you have two choices in front of you. One is 8 to 14 percent and $75 million not interpreted too closely--we're only talking about a $25 million difference here--with the numbers halfway between ""A"" and ""B."" That's one choice.",80
-fomc-corpus,1980,On June to September?,5
-fomc-corpus,1980,It's the same either way.,6
-fomc-corpus,1980,"It's the same, assuming the arithmetic translation is right. It involves different numbers, but the numbers are halfway between those in ""A"" and ""B."" That against ""A"" straight, let me say.",42
-fomc-corpus,1980,With 8-1/2 to 14 percent. Those are our two choices.,18
-fomc-corpus,1980,That and $100 million of borrowing.,8
-fomc-corpus,1980,"It's not a big difference, is it?",9
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,I find it hard to understand why we have a more liberal funds range with a more restrictive monetary growth rate.,22
-fomc-corpus,1980,"Well, it looks a little funny. The argument is Tony's here, in that he doesn't want to take too much risk of the funds rate going too much lower. So the more we risk it on one side, the more he wants to block out the risk on the other side.",58
-fomc-corpus,1980,Where are all these people who thought there was going to be explosive growth in the aggregates? I guess they are not represented.,25
-fomc-corpus,1980,My gut feeling is that [growth] is more likely to be up than down. But that's a feeling.,22
-fomc-corpus,1980,"But we never know. So if we are going to be perceived as planning our targets on M-1B, and M2 to some degree, I think it makes some sense to be a little cautious.",42
-fomc-corpus,1980,Let's take those two choices. Do you understand them?,11
-fomc-corpus,1980,"It's 8 percent and $75 million on the one and 8-1/2 percent and $100 million on the other. We are not offered anything ""better"" than that?",38
-fomc-corpus,1980,"What can be better than these wonderful options? As a matter of pure preference, it's likely to be 50/50, but let me just try. The first one is the halfway in between with the adjustments that I suggested.",46
-fomc-corpus,1980,Voting members only?,4
-fomc-corpus,1980,"Voting members, please. Five.",7
-fomc-corpus,1980,"That leaves me with straight ""A."" I'd like a show of hands to see if everybody is voting. That's five. I didn't vote. Who else didn't vote?",33
-fomc-corpus,1980,I didn't vote.,4
-fomc-corpus,1980,"Well, that's what I was afraid of. We have exactly [half who voted for each].",19
-fomc-corpus,1980,"Do you want to try a straight ""A"" with 8 to 14 percent and $75 million?",22
-fomc-corpus,1980,"Well, in some sense that's more liberal than either. What about that one? The trouble is we are going to get more intense feelings the other way, too. It seems as if these two choices are going to maximize the vote, and I suspect there is a lot of indifference between them.",60
-fomc-corpus,1980,"Why don't you try ""can live with"" on ""A""?",13
-fomc-corpus,1980,We could [all probably] live with either one of them.,13
-fomc-corpus,1980,I suspect everybody could live with either one.,9
-fomc-corpus,1980,Then you can state your preference.,7
-fomc-corpus,1980,"Yes, I guess it comes really down to my preference.",12
-fomc-corpus,1980,We're giving the Chairman unlimited power!,7
-fomc-corpus,1980,"Oh, I guess I'd go with the ""B plus"" or ""A minus"" one, whatever you want to call it.",26
-fomc-corpus,1980,Is it possible to get that sort of peculiar specification?,11
-fomc-corpus,1980,Sure.,2
-fomc-corpus,1980,The Committee can specify anything.,6
-fomc-corpus,1980,"I know, but I'd like to know if it works or not.",14
-fomc-corpus,1980,"Well, in fact, we are expecting the funds rate to fall well within the [range].",19
-fomc-corpus,1980,"Yes, we're just lowering the lower limit on the funds range; we may not use it at all.",21
-fomc-corpus,1980,"Yes, but the way we are setting the policy is to bias the funds rate up.",18
-fomc-corpus,1980,"Well, it has plenty of room to go to 14 percent.",14
-fomc-corpus,1980,But we are starting with [borrowing of] only $75 million.,15
-fomc-corpus,1980,"The Secretary points out to me, and he's probably right in one sense, that if we go halfway in between, we will have fractions that we have never used before for quarterly growth rates.",38
-fomc-corpus,1980,"Take them up one quarter point toward ""A"" and that will take care of everybody!",18
-fomc-corpus,1980,"Yes, except for the M-1A figure, which we could leave [at the precise average] of 6-1/2 percent.",30
-fomc-corpus,1980,"Maybe that is the way to do it. Let me try to modify this again. This comes a little closer to ""A,"" I guess. What would be in the directive is 6-1/2, 9, and 12 percent. I think that does look a little better somehow.",61
-fomc-corpus,1980,That's for June to September.,6
-fomc-corpus,1980,"Yes, that's what would appear in the directive.",10
-fomc-corpus,1980,"Again, are those consistent relationships?",7
-fomc-corpus,1980,"Look, the staff projection of a consistent relationship has been off by 2 percentage points, I think.",21
-fomc-corpus,1980,The staff takes an awful beating!,7
-fomc-corpus,1980,"I don't say that in any way as criticism of the staff but only of the reality of the uncertainty inherent in these numbers and the idea that we could project down to the quarter percentage point. That may be a better [formulation] anyway. Why don't we vote on that: 6-1/2, 9, and 12 percent in the directive.",74
-fomc-corpus,1980,And the funds range is what--8 to 14 percent?,13
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,And what about borrowing?,5
-fomc-corpus,1980,"We can put $75 to $100 million in there. If you want to say $75 million, that's fine with me. Whatever you say. When the staff makes that great judgment about how to handle the $3 billion bulge that appears next week, it will be more important than whether we have a borrowing assumption of $75 or $100 million, but I think we've given the staff a tone with which to approach this that they understand.",90
-fomc-corpus,1980,"If I had a different last name, I'd tell you it was truly Solomonic!",18
-fomc-corpus,1980,Does everyone understand what we are voting on?,9
-fomc-corpus,1980,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roos Yes Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes President Winn Yes President Balles Yes,45
-fomc-corpus,1980,I think you ought to congratulate Henry.,8
-fomc-corpus,1980,Governor Wallich will have a concurring statement.  September 16 is the date of the next meeting and we will discuss the future calendar at that meeting on the basis of some memorandum I will send you before then.,44
-fomc-corpus,1980,We can come to order and approve the minutes if somebody will make a motion to approve. Without objection we will approve the minutes. Mr. Pardee.,31
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Any questions or discussion? We have to ratify the transactions.,13
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Seconded.,3
-fomc-corpus,1980,"Without objection they are ratified. Do you have any recommendations, Mr. Pardee?",18
-fomc-corpus,1980,"Yes, in terms of first renewals on swap drawings, there are six drawings on the Bundesbank for a total of $301.2 million. And there are three drawings on the Bank of France for a total of $85 million, one of which is a second renewal for $24 million. The second renewal will require authorization by the Committee.",70
-fomc-corpus,1980,"I assume that if we have to renew these, we will do that without any objection. I don't think it takes any formal action. I might say that Mr. Pardee raised with me the question of whether we want to change the terms on the swap agreements. We can consider that perhaps next month; I'll talk to the Treasury first. The Committee discussed making the terms more symmetrical a year ago or two years ago--well, maybe both--",89
-fomc-corpus,1980,Both; [the first discussion was] about two years ago.,13
-fomc-corpus,1980,"Most of the swap agreements now say that when we are in debt, we share the loss or share the gain with the other central bank; when they are in debt, they take all the risk. So it's an asymmetrical arrangement and the Germans have raised the issue in the past. They didn't raise it again this year, did they?",68
-fomc-corpus,1980,They are prepared to at any moment.,8
-fomc-corpus,1980,"They probably will raise it again. They have raised it in the past and we have had some discussion of it. The arrangement looks peculiar the way it is [structured] now. Whether we gain or lose on the operation depends not only on the gain or loss but on the interest rate differential, because the other side of the bargain would be to shift to the foreign rate rather than [use] our rate on the interest rate dimension on the swap. We, this Committee, if I am accurate, arrived at a consensus either two years ago or one year ago or both that it would be a good idea to change this and [make it] more symmetrical. The Treasury agreed in principle but didn't want to raise the issue at that time for a variety of reasons. I forget just what the reasons were.",161
-fomc-corpus,1980,"My reason was very simple. At that point Proxmire was opposed to intervention and so was Henry Reuss. And the Exchange Stabilization Fund of the Treasury, because of paying off the Roosa bond guarantees, was beginning to run in the red--",51
-fomc-corpus,1980,To put it mildly.,5
-fomc-corpus,1980,"It's finally back in the black because the IMF drawing added to the resources, and the extra interest has helped on that. But at that time we were in the red and we would have gotten a major reaction from the Congress plus a very high level of unhappiness being expressed by both Proxmire and Reuss on intervention as opposed to free floating. So I said the timing was bad even though I agreed in principle. I think the conditions have changed now. Proxmire and Reuss are much more reconciled to a managed float and are not that unhappy with it, and the Exchange Stabilization Fund balance sheet has moved back into the black. Under those circumstances, I assume the Treasury would not object.",142
-fomc-corpus,1980,"Well, I don't know that for a fact; I haven't talked with them. And I don't mean to debate the issue today. I just want to warn you that it will probably come up [at our meeting] next month and we will provide a little more explanation and have some materials for the Committee. A logical time to bring it up is probably next month as we get ready for the [annual] renewal [of the swap agreements] in December. Mr. Sternlight.",96
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Questions or comments?,4
-fomc-corpus,1980,"Yes sir. May I start, Mr. Chairman? Peter, we did an analysis of the direction of interest rates in the period from June 13 through September 5. That's about a three-month period. And it's rather amazing, as you pointed out, that most short-term rates were up [significantly]--90-day certificates were up 239 basis points, 4-month commercial paper was up 236 points, and 6-month bill rates were up even more than that--and yet the fed funds rate increased by only 79 basis points according to our computation. Why would there be that enormous disparity? Why would the fed funds rate have risen so much less than other short-term interest rates?",143
-fomc-corpus,1980,"I'm not sure. It depends somewhat on the time period one takes. Mid-June was just about the low point in the market rates. The funds rate had come down in June, I believe, to the 9 percent area.",47
-fomc-corpus,1980,Doesn't the funds rate normally track these other rates?,11
-fomc-corpus,1980,"Well, I'm not sure which follows which. Normally, some of these other rates tend to build on the funds rate or on dealer financing costs, [which] tend to track fairly close to the funds rate. As one goes out in the maturity spectrum, there is a descending degree of tracking to the dealer financing costs.",64
-fomc-corpus,1980,"You mentioned in your report the sense of the telephone conference, which caused you to intervene in the fed funds market. Did you have a feeling from that call that you had some constraints on--",38
-fomc-corpus,1980,"I don't think it was a serious inhibition. I would not say that it was something that caused us to intervene; I would say that it was something that modified in some modest degree the form of intervention. We had some reserves to drain to meet our paths. We undertook those draining operations rather gingerly; for a few days, we got some help from the Treasury by getting them to raise their balance so that reserves could be taken out without the Desk having to enter the market in an overt way and be seen taking reserves out aggressively.",108
-fomc-corpus,1980,But you don't feel that--,6
-fomc-corpus,1980,"I don't think it stopped us at any point, really, from reaching our paths.",17
-fomc-corpus,1980,"That wouldn't have been a major contributing factor to the fed funds rate moving up only 80 basis points, whereas everything else was going up 250 to 300 basis points? We weren't holding the funds rate down, were we?",46
-fomc-corpus,1980,"We were not holding down the funds rate; we were seeking in late August to reach our reserve paths in a way that avoided putting aggressive new upward pressure on it. In any event, the funds rate at one point touched the lower bound of 8-1/2 percent in July, around mid-July, and was up to nearly 11 percent in August. So it may be to some extent just a choice of the time period in your comparison.",92
-fomc-corpus,1980,"Early in the period, Larry, the market was leading the funds rate in anticipation. And I think that's the base period pattern.",26
-fomc-corpus,1980,"Well, the dating might change your results. It is true that recently other short-term rates have risen more than the funds rate. But I don't think that is terribly unusual. After all, you are talking about 3- and 6-month rates as against a 1-day rate. There are times when people begin to expect a rise in rates, and the 3-month or the 6-month rate will move a little more than the funds rate under those conditions. In August we had a big resurgence in bank credit demand and large CD issues, which pulled up the CD rate in particular. I don't think that is extremely unusual, although those rates have moved up closer to the funds rate than had been the experience over the past two or three years.",152
-fomc-corpus,1980,Those figures in that period did seem to be [unintelligible].,15
-fomc-corpus,1980,"Well, if you used something like the past 5-week interval, the funds rate would be up something like 1-3/4 percentage points--from around 9 to, say, 10-3/4 percent--which is roughly [comparable to the move on] other short-term rates.",63
-fomc-corpus,1980,"Thanks, Peter.",4
-fomc-corpus,1980,"If we hadn't overshot our targets, [the funds rate] would have been up more, too, more than likely. I wonder if that didn't contribute to some of the rise in the other rates.",41
-fomc-corpus,1980,"Total reserves were [above the path]; we were about on target on the nonborrowed reserves. If the aggregates had not overshot the target, yes, that surely would have made--",38
-fomc-corpus,1980,"Peter, based upon nothing more than reading the newspaper, I have the sense that the market is a little less hypersensitive to our daily operations than they were two months ago. Is that true or not true?",42
-fomc-corpus,1980,"Just in the last week or two, I would share that sense. There was one incident during the period, which I mentioned, when we did some RPs and the markets really took off; but they just may have been reacting because they had overdone their sell-off during August. I wouldn't want to bet a lot of money that they have really matured to the point where they will take our operations as fully in stride as we'd like from day to day.",92
-fomc-corpus,1980,"Even though you're right that it hasn't been [the case] in the current [period], I still think there is a residue of misunderstanding about the Desk's operations. I hear that from all of my visitors--that the Fed is giving conflicting signals. They don't understand [our new procedures] completely no matter how much Paul has said on this. That's why we were thinking that a technical explanation by Peter and his people to the dealers, with the press listening in, might make a lot of sense. But it might be wise to wait on the timing of that until we sense that concern increasing again. At the moment things are quiescent.",129
-fomc-corpus,1980,"I think The New York Times has a different guy writing the articles now, don't they?",18
-fomc-corpus,1980,"That's true, but--",5
-fomc-corpus,1980,That fellow seems to have gone out of his way a couple of times to say that these operations are just to provide reserves or to withdraw reserves and they have no implication for interest rates.,37
-fomc-corpus,1980,"But he's quoting dealers, too. And some of the dealers who were critical a couple years ago are more relaxed.",23
-fomc-corpus,1980,It wasn't quite clear to me whom he was quoting. I thought maybe he was quoting Peter or you; I'm not saying that was so but I think--,31
-fomc-corpus,1980,[Unintelligible].,6
-fomc-corpus,1980,"Well, with the Times change, there is a better man on the bond market. But this period of misunderstanding did not involve just that one paper or just the press, Mr. Chairman. I think it was people in the market, too.",49
-fomc-corpus,1980,"The Wall Street Journal has changed its team. I noticed that Mr. Foldesse, or whatever his name is, who used to write --or used to misinterpret this--is no longer on that column in the Wall Street Journal. Is that his name?",52
-fomc-corpus,1980,"It's Foldesse. He is writing it sometimes, I think.",13
-fomc-corpus,1980,Is he?,3
-fomc-corpus,1980,Maybe he's on vacation.,5
-fomc-corpus,1980,Any other comments?,4
-fomc-corpus,1980,"I have questions, Peter, about the discount rate. First, has the rate level been a problem for you in the seasonal targets and so on? Second, what is the market sentiment about the discount rate and the changes in it?",47
-fomc-corpus,1980,"As to whether the rate level has been a problem, it has [made it] difficult in these last couple of weeks in terms of aiming for nonborrowed reserves in that we expected some greater borrowing. It has been hard to gauge just how much that borrowing would be. I think one of the factors was that the funds rate was 1/2 or 3/4 or sometimes even a point above the discount rate and there was an attraction to the discount window, which makes it harder to judge. I wouldn't say that it is a serious problem for us at this point nor do I get the sense that it has been that serious--some of you [from the Reserve Banks] probably know better--in the administration of the window. As to market expectations, there was some feeling around late August that there might be a move on the discount rate. That has died down some. Possibly it has begun to crop up again lately, but I have not heard too many comments on that.",199
-fomc-corpus,1980,Would a change be a substantial shock to the market?,11
-fomc-corpus,1980,"I think at the moment it would be something of a surprise, yes.",15
-fomc-corpus,1980,"Would it make your job easier if there were a change, or is that an unfair question?",19
-fomc-corpus,1980,I don't see it making the job easier.,9
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"Peter, when you made that adjustment of $150 million to the nonborrowed reserves target, what determined the decision to make it that amount and not $100 million or $200 million or some other number? This had to do with the overrun on the total reserves so, of course, by that decision you were determining the level of borrowing. The level of borrowing again determines the funds rate. So I'm trying to understand the structure of this reasoning.",91
-fomc-corpus,1980,"I'm not sure we have a closely reasoned rationale for just how we arrive at those [adjustments]. This is done in consultation with Mr. Axilrod and his staff, but it was with Ed Ettin at the time I believe. Were you there, Steve? We have close consultation with the Chairman as well. On this occasion and in other instances when that kind of adjustment was made, it was typically for some fraction--often roughly but not precisely half--of the overage or underage of total reserves from the path. I must say that on this particular occasion it was also because we had had a bulge in borrowing in the Labor Day week. And if no such adjustment had been made--if we had not reduced the nonborrowed path--it would have left us in a position of expecting almost no adjustment borrowing for the balance of the period. In a way one might say we backed into it by saying, in effect, that we probably wanted to keep adjustment borrowing in the $400 to $500 million area. And that contributed in a major way to that $150 million decision.",223
-fomc-corpus,1980,Do you use a monthly model or do you use some relationship between the funds rate and the level of borrowing?,22
-fomc-corpus,1980,I don't think it's that--,6
-fomc-corpus,1980,We don't have that pseudo-precision.,8
-fomc-corpus,1980,"Well, if the level of borrowing comes in higher than we would anticipate, [can't] you reduce the level of the nonborrowed reserves path accordingly? Can't you adjust your open market operations for the unexpected bulge in borrowing or the unexpectedly low borrowing if you ignore the effect on the fed funds market? Can't you just supply or withdraw reserves to compensate for what has happened?",75
-fomc-corpus,1980,"Yes, we could. There's always that question of how much we want to compensate for that high borrowing. We faced that kind of decision in [this statement] week.",34
-fomc-corpus,1980,"The Desk can't [adjust] in the short run. It's fixed. In a sense they could do it over time if people are borrowing more, as they may be now. They seem to be borrowing more than we would expect, given the differential from the discount rate. But in any particular week it is fixed.",63
-fomc-corpus,1980,Do we have to supply the reserves?,8
-fomc-corpus,1980,We have to supply the reserves.,7
-fomc-corpus,1980,"[Why] do we have to supply the reserves? If we did not supply those reserves, we'd force the commercial banks to borrow or to buy fed funds, which would move the fed funds rate up. What is lurking in the back of my mind is this: Are we, in effect, frustrating our ability to achieve what we want with the aggregates and with reserves because of possible concern about fluctuations in the fed funds market? In other words, do we accommodate that problem?",95
-fomc-corpus,1980,"We can force [the depository institutions] to borrow more in a given week, but we can't force the level of reserves lower.",27
-fomc-corpus,1980,"Yes, but by forcing them to borrow more, we are raising the funds rate. And the question here is: Are we in that more distant sense back on a funds rate target?",37
-fomc-corpus,1980,"You said it, Henry!",6
-fomc-corpus,1980,"Governor Wallich, as you know, with lagged reserve accounting there is simply nothing we can do in the current week other than determine the level of free reserves in the banking system with open market operations, given required reserves. And to the degree that there is a relationship--and it's pretty loose these days--between free reserves and interest rates, we are in some sense in the short run determining the funds rate. But in the longer run, of course, it's the market movement in the money supply relative to our target that will determine the funds rate.",111
-fomc-corpus,1980,"All this affects the funds rate, but I don't think one can say that doing what we did, which was a compromise in that one week, was aimed to affect the funds rate. You could argue that if we were pulling back the nonborrowed reserves, that would [imply] a funds rate objective--that we were forcing a higher funds rate.",72
-fomc-corpus,1980,"I was trying to say that, inevitably, doing that in one week would have an effect on the funds rate relative to not doing it in that week because required reserves are fixed. But over the longer run--though I don't know what the funds rate would be because of the looseness in the relationship between free reserves and the funds rate--it does not. That little [effect] passes away.",80
-fomc-corpus,1980,"I'm not saying that this was not the best way of coping with it. But conceptually, for instance, one could say that for every dollar of overrun on total reserves we will reduce the nonborrowed not by $.50, not by $1.50, but by $10. Well, that would have produced massive borrowing and the funds rate would have shot up. Presumably that wouldn't have been a very good decision with the reason being that one shouldn't disturb the markets unnecessarily. It's a question of how much of a disturbance to markets one is willing to accept in order to get closer to the total reserves path.",125
-fomc-corpus,1980,"Well, as Peter mentioned, this was done in the fourth week of a 5-week period. So one could ask: Should it have been done in the third week or the second week? It was delayed until the fourth week because there was some hope that what was in train in the first and second weeks, in terms of tightening, would show some evidence of bringing down required reserves. Then, by the fourth week we were still running well above our total reserve path, so by that time it seemed only reasonable, in view of past experience and past operations with this technique, to make an adjustment of roughly half. As Peter mentioned, if that adjustment hadn't been made at that time--and I would say maybe we should have done it earlier--then we would have had a very sharp drop in borrowing and maybe some drop in the funds rate in the short run, but I'm not sure. We had a large bulge in borrowing earlier without a lot of rise in the funds rate.",198
-fomc-corpus,1980,"We have been in one of these periods, which seem to be recurrent or almost perpetual, [where the incoming data on the aggregates seem to move] in one direction or another. It's not always in the same direction. But all of the actual preliminary figures and the estimates keep showing lower money supply figures than eventually materializes. We have had runs either of this sort or precisely the reverse before. But it doesn't seem to be random. It does--",90
-fomc-corpus,1980,It's a [long-running] characteristic. I've seen it--,12
-fomc-corpus,1980,"Well, I think it's because the economy is stronger than we are projecting, Paul.",17
-fomc-corpus,1980,"That may be, but I [don't] see why that would affect the actual estimates that are made. Why these preliminary numbers run low or high when they are supposed to be a kind of random sample is beyond me. But it seems to happen for weeks in a row.",55
-fomc-corpus,1980,"Nonetheless, I think the system is working, Henry, in the sense that the Desk has pushed the funds rate up 200 basis points, which I suspect is more than this Committee would have done if we had made an overt decision on it.",49
-fomc-corpus,1980,That's for certain.,4
-fomc-corpus,1980,"I hate to belabor this, but if we look at the quarterly average rates of money growth on page 7 [of the Bluebook], for example, we see that in the first quarter M-1B grew at 6 percent, in the second quarter it declined at minus 2-1/2 percent--[the number in the column labeled ""Alt. B""] is a misprint, I think--and in the third quarter its growth has skyrocketed to 12-1/4 percent. One can't feel that our basic objective is being met with those violent fluctuations. And I don't think those rates of growth in any way reflect any action that this group agreed upon or any policy or directive that we gave. They're just all over the lot. And what worries me is--",160
-fomc-corpus,1980,"I don't understand those numbers, frankly. Just stop for a second. That second quarter has a misprint in it?",24
-fomc-corpus,1980,"Yes, that's minus 2-1/2 percent, I think.",15
-fomc-corpus,1980,It should be minus 2-1/2 percent in both of those columns.,17
-fomc-corpus,1980,"But what worries me is that we will agree on something today for the next three months, or whatever period, and then we will hope like mad that somehow or other something out in the wild blue yonder will occur to enable us to meet that. I don't have the feeling that we really are causing the events to occur through our operations that we on the Committee have agreed upon from time to time.",80
-fomc-corpus,1980,"Well, I think that's quite true. But the question is whether we have control in the short run, and I'm afraid this recent pattern that you point to shows that we don't. Most of this increase in the third quarter came in one week!",49
-fomc-corpus,1980,"But we really do have to look at what Frank Morris pointed to, the behavior of interest rates. You don't like the behavior of aggregates. Interest rates have been the one thing that have been even more volatile. And I think that since the mechanism works through these interest rates, we really have had more leverage in what we have done.",67
-fomc-corpus,1980,"Well, we got criticized by the bankers when they were here the other day for having too much volatility in the money supply growth and too much volatility in interest rates. I told them they could criticize us for one or the other but not both at the same time.",53
-fomc-corpus,1980,Did you offer them interest rate controls!,8
-fomc-corpus,1980,We have had volatility in both. Why can't they criticize us for both?,15
-fomc-corpus,1980,I don't know what mechanism gets rid of the volatility in the one without increasing [the volatility in] the other.,23
-fomc-corpus,1980,"Well, Paul, maybe we ought to do some work to try to see whether we're approaching this in the most effective manner in terms of accomplishing what we have all agreed we ought to accomplish and whether the mechanism [we're using] is really the best one or not.",54
-fomc-corpus,1980,I think that's always a fair question.,8
-fomc-corpus,1980,"Mr. Chairman, if we do that, we ought to be sure we understand what our long-run objective is. As I view it, it is not to make the money supply grow by a steady amount quarter by quarter but to achieve a longer-run path of monetary and credit expansion that is conducive both to healthy economic growth and a reduction of inflation. I don't see the system as working out unfavorably just because the quarterly pattern is so erratic.",91
-fomc-corpus,1980,"These are all matters that we have to look at as time passes. I don't particularly like what has been happening in the sense that we have put all this money in the money supply and have had these quarterly fluctuations which don't seem to be particularly controllable. What is the significance of that? The most optimistic view is that these quarterly movements are not very significant. We had a decline in the second quarter and we have [now] made up for it. We will see what happens in the fourth quarter, but the jury is still out. We may have had a short-run bounceback here.",119
-fomc-corpus,1980,"But by having interest rates collapse as dramatically as they did, don't you think that we did a good deal to shorten the recession? Housing must have come back somewhat earlier and some other things may have come back earlier than they would have had we let interest rates go down gradually the way we otherwise normally would have done.",63
-fomc-corpus,1980,"And then as the economy [rebounded], the demand for money increased again and we found ourselves reacting against that. There is a demand side, Larry, and it has shown sharp shifts this year. We've worked against them and, of course, it's a question of judgment as to how strongly to work against the demand factors in the market. But by [historical] standards, we worked against them a good deal harder than we did in the past. We have had both a sharper decline in rates and a sharper, earlier recovery in rates than ever before in my recollection. And that is because of the change in policy announced last October.",129
-fomc-corpus,1980,"Chuck, I think we've made great progress. All I'm asking is whether from time to time we shouldn't review what we are doing and try to make it even better.",33
-fomc-corpus,1980,"If we do something along those lines, I would urge that it include an effort to see if we can't systemize the periodic adjustments in the path and find some way to appraise what the likely effect will be of [making adjustments of] $100 million or $200 million or whatever.",58
-fomc-corpus,1980,"I would call to your attention that Mr. Axilrod and Mr. Lindsey recently wrote a paper for the American Economic Association which addressed some of these questions. You might find it interesting reading. I suspect that you will not agree with it very much, President Roos, because the indication is that we need to continue to exercise some judgment and that we need to continue to look at interest rates to some degree. I also felt that it argued very strongly for keeping fairly wide target ranges, which I think is consistent with that as well. But there has been some thinking and some writing on that subject, and you might find that article interesting.",129
-fomc-corpus,1980,Mr. Winn.,4
-fomc-corpus,1980,"Paul, I wonder if the October 6th anniversary date doesn't give us an opportunity to make some educational efforts that are unrelated to the current market scene to reaffirm some of these things.",37
-fomc-corpus,1980,"Well, we have been considering how best to do that. I have a public appearance tomorrow; I may or may not take the opportunity to do that. But it is a matter that continues to concern me and we will find an opportunity. Mr. Black.",52
-fomc-corpus,1980,"Mr. Chairman, my point is related to the one that I believe Henry was making. It seems to me that we may have held off making the adjustments to the nonborrowed reserve target too long because we expected, on the basis of our projections of the demand for money, that we would get certain behavior. That's very hard to [predict], as all of us know. It's almost next to impossible to do, I think, so I would favor a little more prompt adjustments to the hard data we have in terms of setting our nonborrowed reserve targets.",113
-fomc-corpus,1980,"Could I differ with that? I see problems with that. There are times when, given the unpredictability of the markets, if we are in there too quickly making adjustments, we could be whipsawing the markets. And we will get all kinds of complaints about the unpredictability of Fed policy. I don't think there's any across-the-board rule of thumb that we can adopt on the frequency of adjustments. I think we have to leave it to the judgment of the people who are [tracking] this on the Board staff and at the Desk, regarding the chances that a certain movement will get reversed and whether we should move [immediately] or wait a day. I just don't see any other way of playing this.",145
-fomc-corpus,1980,"Well, we probably ought to find some time to discuss this at greater length. But following up on Mr. Solomon's comment, there is a danger [in making adjustments too promptly]. Let's take March, when the aggregates were running a little high. We were pretty tough then, but suppose we had followed this procedure and had made even sharper adjustments to the aggregates when they were running high in March. What would have happened in April? We in fact had a 16 percent [rate of] decline; one just doesn't know looking ahead. The problem is that this process apparently runs, like everything else in economics, with some lagged effect. And it's those lags that give us 90 percent of the problem.",144
-fomc-corpus,1980,"Mr. Chairman, could I just make a brief statement? I think Tony is right that we would get a lot of criticism from the market for more movement in interest rates, but I believe we would smooth out some of these abberations in the money supply.",53
-fomc-corpus,1980,"It's a question of what is important. Now, we can't answer these questions this morning, but I have begun to hear a lot of comments from people who say the volatility of interest rates in and of itself is a bad thing.",46
-fomc-corpus,1980,"Most people believe that, I think.",8
-fomc-corpus,1980,"I'm not just talking about market people. I've had a complaint from automobile companies that their dealers will not hold inventory because, while they perhaps can afford present interest rates, they're not going to get stuck with a big inventory of cars [with] the risk that the interest rate will go up to 20 percent on them and they can't get rid of the inventory. It's that kind of problem, which I don't think is irrelevant. I hear the same thing from the homebuilding industry. I don't know how justified that [complaint] is, but--",110
-fomc-corpus,1980,It's not necessarily bad.,5
-fomc-corpus,1980,I don't know.,4
-fomc-corpus,1980,It depends on what your economic objective is.,9
-fomc-corpus,1980,"It's hard to say. The housing people, of course, argue the same thing: That they'd go ahead at current interest rates, but they are afraid of getting caught in an upswing [in rates] before the house gets completed. So, I don't know whether it's good or bad. But there are a lot of problems here that are--",69
-fomc-corpus,1980,Capital goods can be built to order.,8
-fomc-corpus,1980,"Mr. Chairman, if I may just take one minute of the Committee's time: It's a little difficult to think of what is going on with the money supply in a vacuum, independent of what is going on in the rest of the economy. In the spring we had rather strange events: We had the introduction of a credit control program, which was rather unique in our history; we had interest rates going to levels that were unique in our history; and we had responses in the rest of the economy that were rather unique. Among those responses were that people chose to get out of debt rapidly and to get along with less cash by a huge amount. And the mechanism that the Committee put in place, as I would see it, was flexible enough--it could be a lot more rigid with certain institutional changes--to be responsive to those changes. I believe it's wrong to think that in the short run the money supply will behave only in the way the Committee a priori wants it to behave, Rather, in the short run it will behave in response to what is going on in the economy, only toned up in certain ways by what the Committee wants. It's an awfully big thing the Committee is confronting and in the short run it's very hard to influence it.",252
-fomc-corpus,1980,"Well, there is a range of issues to which we will be returning continually and maybe in a more orderly fashion than this morning. Mr. Kichline.",32
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"In view of the questions about the present economic situation and the discussion of a turning point and all the rest, let's just pause here for questions and comments on the business situation. And if anybody wants to volunteer attitudes toward tax reduction, I would be interested in hearing them. Mr. Black.",58
-fomc-corpus,1980,"Mr. Chairman, I wonder if I might ask Jim: What was the selling rate for automobiles in the first ten days of September?",27
-fomc-corpus,1980,"It was 7.3 million units using our seasonals, and in both July and August it was 6.4 million at an annual rate.",31
-fomc-corpus,1980,When do the leading indicators come out?,8
-fomc-corpus,1980,I don't know.,4
-fomc-corpus,1980,Not very soon.,4
-fomc-corpus,1980,It's usually at the end of the month.,9
-fomc-corpus,1980,Am I correct in associating the increase in employment with the reduced rate of decline in real output? I get an impression that probably no productivity gains are going on.,33
-fomc-corpus,1980,"We have a significant decline in productivity in our forecast for the third quarter. The decline in the second quarter was revised since the last Committee meeting. The early numbers showed a decline of 4 percent; it's now roughly 3 percent and we have forecast a further decline. That is, the increase in output is not sufficient to offset the substantial change in hours worked, and our productivity number in the current quarter is down about another 2 percent at an annual rate. So the productivity performance that is associated with this forecast is a distinctly poor one.",109
-fomc-corpus,1980,When people talk about the underlying rate of inflation corresponding to the average hourly increase in labor costs in the industrial sector are they assuming flat productivity?,28
-fomc-corpus,1980,"Well, people refer to different things. A standard approach is to use a cyclically adjusted productivity number, and those estimates range all over the lot. Our own is something like 3/4 of a percentage point. And it's assumed that businesses tend to respond to changes in productivity over a longer period of time and are not influenced by the quarterly changes. So, taking those kinds of productivity numbers on average, they would dispense with [the quarterly fluctuations] and say that the underlying trend is something like [a rise of] 1/2 to 1 percentage point. Using that kind of number gives us unit labor costs running about 9 percent. Compensation is 10 percent, and with 1 percent or so productivity you get unit labor costs of 9 percent.",155
-fomc-corpus,1980,Aren't hours worked going to be down in this coming quarter?,14
-fomc-corpus,1980,Just a small amount--3 percent relative to [a decline of] 8-3/4 percent in the second quarter. So they are still down.,32
-fomc-corpus,1980,"Three percent down. But you have a GNP estimate down 3 percent, roughly. I just--",21
-fomc-corpus,1980,"Well, I am referring to the nonfarm business sector. Nonfarm business sector output in this forecast is down 4.9 percent. Nonfarm productivity is down 1.9 percent and hours worked are down 3 percent.",47
-fomc-corpus,1980,But you implied that if you had had the retail sales figure when you made the forecast that the forecast would show less weakness than was in the Greenbook.,31
-fomc-corpus,1980,"Yes, we would take some of the gain in personal consumption expenditures out of inventory, so it wouldn't all show up. But I think we'd have at least a percentage point less decline; instead of a 3 percent decline in real GNP we would now have a decline of perhaps 2 percent or a shade under.",64
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Mr. Chairman, I have a question, which I could have asked last time too but didn't, on the gross domestic business product fixed weight price index. That is the index the staff uses in its projection as the best index of inflation. [The projection has for] the first quarter of '81 of [an annual rate of] 10.3 percent, for the second quarter 9.5 percent, and for the third quarter 8.5 percent. I can't understand what causes that tremendous improvement in the inflationary outlook in those two quarters. Also, my second question is: Why do we use this rather than the GNP deflator, particularly since we usually respond in terms of the GNP deflator when Congress or others ask us for figures along this line?",157
-fomc-corpus,1980,"With regard to the first question, the major change in this improved outlook is that we have assumed the increase in social security taxes in January. The employer portion will be cranked directly into unit labor costs obviously, and we assume that businesses will try to pass those increased costs through fairly quickly. So, the first half of the year is importantly influenced by the social security tax increases, and that effect tends to wear off. In addition, running with slack labor markets and unutilized capacity for an extended period of time we think will begin to make larger inroads on the level of inflation. But it's mainly social security affecting the first half and pretty much absent in the second half.",136
-fomc-corpus,1980,"In the 1980 pattern, though, you have a higher rate of inflation in the fourth quarter. I assume that's the Civil Service [pay] increase and you don't have that for the next year.",41
-fomc-corpus,1980,There's a Civil Service increase in here?,8
-fomc-corpus,1980,It's 9 percent.,5
-fomc-corpus,1980,"The big factor is the rapid acceleration of food prices that we have projected. On the second question you asked, on why use this one, all of the price indexes now present a [distorted] picture and we are frustrated as to which one to choose. We obviously shifted away from the implicit deflator because of the shifting weights, which give a distorted picture at times. You are quite correct that the Congress and others often refer to the implicit deflator. My own preference, frankly, is for something like the PCE deflator. But in a world in which we have rapid increases in energy prices, both the implicit deflator and the business fixed product deflator tend to understate what is happening because of the subtraction that is cranked into these numbers. So, you can put your money down and take your choice. There are many indexes available.",172
-fomc-corpus,1980,Mr. Corrigan.,5
-fomc-corpus,1980,"Jim, I have noticed--and this may be grasping at straws--that the average hourly earnings series for the months of July and August shows a very marked deceleration to around 4-1/2 to 5 percent on top of almost 10 percent for each of the first two quarters. Is there anything to that or is that just a statistical aberration?",76
-fomc-corpus,1980,"On average hourly earnings, I don't know of any quirky information in terms of the monthly numbers. We have assumed, in fact, on a quarterly average basis that the hourly earnings index will be running around 9 to 9-1/4 percent, down a little from the second quarter. These numbers are very volatile on a monthly basis but we have not altered our view that there is a developing trend that's very different from what we have seen in the first half of the year.",97
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"The economy seems to be coming around much faster than expected. This could be for one of many reasons, which could be very hard to disentangle. I'd like to get your reaction. One would be that the automatic stabilizers are stronger than we think, that the budget goes into a bigger deficit faster, and other such events. Another might be that our interest rate policy has been particularly effective. A third might be that the economy is just so inflation jittery that after people catch their breath they rush out and try to beat the game again. But in any event, we do seem to have gained a responsiveness to upward factors and lost a responsiveness to downward factors. I'd like to get your thoughts on that. Now, with respect to tax policy, I'd just say that if the economy is stronger than expected, interest rates presumably will be higher. Monetary policy in some sense would be tighter. A tax cut will make fiscal policy easier. So we would be moving exactly in the wrong direction on the fiscal/monetary policy mix--toward tighter monetary policy and an easier budget stance. That's just the opposite of what a growth-oriented economy should have.",231
-fomc-corpus,1980,"With respect to your question, I would link the second and third quarters together. If you look back at the misses in terms of actual performance relative to expectations, the second quarter was a big miss not only to the staff here but I think as a general matter. It was much weaker than before. So, I would think that the rather extraordinary measures taken in late winter or early spring had a significant impact, and in retrospect a greater impact than we would have judged at the time. It would not seem unusual, therefore, to find some snapback in the third quarter in some of those sectors that were sharply depressed. Now, [I don't know] whether that has occurred because interest rates are lower, consumer attitudes are different, monetary policy is different, the automatic stabilizer response is working, or fiscal policy [is easier]. I think in general one can say that we got off track in the second quarter and it's not unusual to see some snap-back. The critical question is whether in fact this is the beginning of a sustained sizable expansion in real activity. And assuming the monetary policy that's in the forecast, which we perceive to be restraining--consistent with some further rise in interest rates--even with the tax cut we do not believe that we are on the verge of seeing sustained strong expansion. It's quite possible that we could have a couple of months of fairly strong business news followed by some weakness. But I don't see that. The key issue is whether we are set up for continued strong expansion. I don't see that as a likely outcome at the present time.",314
-fomc-corpus,1980,This few months of weakness that you set out as a possibility: Could you visualize that going to the extent of GNP growth turning negative again?,29
-fomc-corpus,1980,"Oh, I think so. That's the double dip or the W or the extended L or any of the other exotic terms in fashion. I think that's quite possible. In the staff forecast, for example, we are talking about a small negative, and it doesn't take a great deal at an annual rate to find something that would flip that to positive or [more] negative.",75
-fomc-corpus,1980,"In our financial report for the Redbook, we included the views of some key financial experts in New York. And Henry Kaufman in those remarks is predicting a double-dip recession.",37
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,Are there any estimates yet as to the amount and the timing of capital expenditures associated with the energy programs that are now apparently getting shaped up and into form for financing either directly by the government or by government guarantees of the interest rates?,46
-fomc-corpus,1980,"We do not have anything in house and I am not aware that anything is available within the government. Our own assumption is that the program is being funded essentially with windfall profits and [will involve] synthetic fuel and that sort of thing. We have much longer lead times. It would not have an appreciable impact within the year 1981 but would be building over time. The energy sector itself in our forecast is fairly strong. We implicitly are using the energy sector as one that is holding up business fixed investment. That is, we'd have a sharper decline if it weren't for substantial energy sector investments. I can't answer your question directly, but I'm not aware of any such numbers around.",138
-fomc-corpus,1980,"Would you anticipate, assuming the program evolved, that we would be speaking about magnitudes of capital expenditures that would become a significant element in the trend of the economy?",33
-fomc-corpus,1980,"Yes, over the long run. But I really do think we are talking about a medium-term horizon, in the mid-1980s or so, given that these programs have long lead times. So, later on in this decade, if the programs continue, the dollars expended [will be significant]. In current dollar terms, expenditures of $200 billion plus over a period of time are being talked about. That, in fact, will be a principal feature of the business investment sector later in the decade.",103
-fomc-corpus,1980,"As to your question on the turning point, Mr. Chairman, I think the staff projection is about as good as can be done. I see no reason why it doesn't have as high a probability of materializing as any that might be made. And I certainly share the view that we don't seem to have the stage set for a sustained recovery. I would visualize the next year or so as an ongoing battle between monetary restraint and the deeply imbedded and still spreading inflationary thrust, with the result that improvements in employment and production may well be a casualty of the struggle between continued [monetary restraint] and the surging inflation thrust.",128
-fomc-corpus,1980,I don't know whether I should regionally adjust that comment; I interpret it as quite bearish.,19
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,That was a national comment; it wasn't a Texas comment.,12
-fomc-corpus,1980,"Now that you've provided an opening, there is a continuation of what strikes me as a rather unbelievable volume of new office building construction in all centers of significant population size through the Southwest. It does not seem to be slowing down. That is, new projects are being planned, funded, announced, and started. And the financing for them, particularly the equity money, almost without exception seems to come from foreign sources. I'm told that if you can't figure a project so that it looks as if it will be profitable and viable with some debt in it, that presents no particular problem. The suppliers of the equity simply supply more equity and are willing to take a fairly low computed return on the equity they put in. It just goes on seemingly without--",148
-fomc-corpus,1980,There must be some correlation between our ability to sustain office building and not do much factory building and the productivity figures.,23
-fomc-corpus,1980,That could well be.,5
-fomc-corpus,1980,Mr. Ford.,4
-fomc-corpus,1980,"You asked about where we stand on tax policy, and that's one of the things my staff has been looking at. We're very concerned about the explosive growth on the spending side that we've seen in the last year or so. It now appears that on a year-over-year basis federal spending both for defense and nondefense purposes is well up into the double digit range, well beyond earlier forecasts. I'm curious to know, Jim: In your projection and in your model of the federal deficit on an NIA basis, I take it that $67 to $68 billion shown is without the tax cut.",119
-fomc-corpus,1980,"No, we have a $28 billion tax cut in our forecast; [that is an assumption] we adopted two months ago or so. We have not changed it; we haven't matched it up with the Administration's proposal. So we do have roughly a $28 billion tax cut.",57
-fomc-corpus,1980,Effective January 1st?,6
-fomc-corpus,1980,"That's right. Well, retroactive to January 1.",12
-fomc-corpus,1980,You're saying that without the tax cut there would be a $40 billion deficit next year?,18
-fomc-corpus,1980,"Well, roughly. We'd have a somewhat weaker economy, we would assume, so receipts would be lower. So it wouldn't all be taken out. The Administration has a $36 billion deficit in fiscal '81 with their tax proposal, which is assumed to come along late in the fiscal year and that affects receipts principally in the following fiscal year.",68
-fomc-corpus,1980,"Well, I remember the President saying just a few weeks ago that there was going to be a zero deficit next year. So I [proceed] based on the trend in their forecast rather than the absolute level. Looking at off-budget spending trends that are coming on stream and adding them on to a realistic estimate of the deficit, I would come to the conclusion that we definitely have to resist a countercyclical tax cut at this time. It would lay the groundwork, as a couple of the previous commentators have noted, for a very tough situation for us early next year in that we would be looking at a lot of pressure in the financial markets with a possible crowding out scenario. We'll be caught in the trap of either having to create and be given [the blame] for a credit crunch or for letting the aggregates get away from us in the first, second, and third quarters of next year. And when we have already committed ourselves in public to reducing the rate of growth of the money supply I don't see how we can hope to do that if we have to do it in the context of a huge deficit developing early next year. So, I think we have to fight this countercyclical tax cut. But if we wanted to add something to what we say, I'd say it should be directed toward the need for a longer-term change in the tax structure that would emphasize taxing consumption more and investment and saving less, together with some indexed reduction over a longer period of time of the inflation premium in the tax structure on incomes of all kinds. I'd be inclined to continue to fight the tax cut as a countercyclical [measure] and start to fight for tax reform as a longer-term measure.",344
-fomc-corpus,1980,Mr. Gramley.,5
-fomc-corpus,1980,"Mr. Chairman, I'm basically in agreement with the staff's view on where the economy is going. In the near term I might be even a bit more optimistic than the staff. I've felt for some time that the recession is likely to be short and I think when we look back a couple of months from now we may find that July was the trough of the recession and we were starting to come out of it in August. But the long-run growth prospects that the staff sees are not good. And certainly the growth of 2 percent is far, far below what we have typically seen for the first four quarters of a recovery. I believe we need slow growth, and I'd be happy with 2 percent real growth. I do think Ernie is right that we're going to be struggling over the next year. I think we will struggle not just over the next year but over the next 5 to 10 years with the question of how we trade off real growth against fighting inflation. We're going to have to try to find a policy that will let us stick with the long-run battle against inflation and not try to get it done right away. Now, I want to call attention to the fact that I can agree with the staff's forecast for next year only if the kind of policy assumptions that underlie it [are realized]. They include a substantial tax cut at the first of the year and a monetary policy that I don't think is properly characterized as simply saying that M1 grows at the midpoint of the range we've been setting. [The reason is that] the staff's forecast hypothesizes a substantial reduction in demand for money. I'd like to have Jim expound just a little on his best judgment as to what the outlook for next year would be if in fact that drop in the demand function for money doesn't occur.",365
-fomc-corpus,1980,"I think I've heard this question somewhere before! As you know, we have assumed a further downward drift in the money demand function. For 1980, from the fourth quarter of '79 to the fourth quarter of '80, given what has happened and assuming no further downward drift, the drop amounts to about 3-1/2 percent. For 1981 our forecast assumes [a drop of] about 4 percent. That is the difference between the assumed actual money growth and that which would be predicted by the econometric model, which was estimated through mid-1974. It implies that there are financial innovations or other changes. We have assumed 4 percent [based on] what has occurred in several years in the past. But it's really a matter of faith, one might say, at this juncture. There is some basis for assuming it.",174
-fomc-corpus,1980,"Is that for M-1A, Jim?",10
-fomc-corpus,1980,"That's M-1A, right. Now if you take that away--",15
-fomc-corpus,1980,It's M-1A unadjusted? You just take M-1A at its raw value?,21
-fomc-corpus,1980,We've got NOW accounts--,5
-fomc-corpus,1980,"No, we don't. It's M-1A adjusted for ATS accounts. It gets very messy and complicated and is best left untouched here. But in any event if we take that away, we have in effect a tighter monetary policy than is assumed in our forecast. We did a model run which essentially limited measured money growth to 4-1/4 percent and had no drift [in money demand], and we get no recovery in economic activity at all. It's flat throughout 1981 and the deflator is .3 to .4 lower. So we're talking about nominal GNP down 2 to 2-1/2 percent from what we have in the forecast now, but we don't get a recovery in economic activity. And the model says that we get astronomical interest rates that are hard to believe--a bill rate of 18 percent or something like that.",175
-fomc-corpus,1980,Why are they hard to believe?,7
-fomc-corpus,1980,"It's hard to believe they'd be sustained, I think.",11
-fomc-corpus,1980,"Yes, if we extend this to the second quarter of 1982, we can see the collapse. Bill rates are, say, 18 percent and the deflator is 8 percent. It's hard to believe that that would persist for any extended period of time.",54
-fomc-corpus,1980,But it persists unless the economy has an even worse performance than that or unless the political pressures on us to give up are so substantial that we cannot persist.,31
-fomc-corpus,1980,"Right. I have no problem with that. I'm just saying it's not a sustainable pattern. At some point you have to get back into balance, which can occur from any of a number of sides.",40
-fomc-corpus,1980,What is the historical record on this drift in money demand?,12
-fomc-corpus,1980,"Let me just read [the numbers]: 5-1/2 percent in 1975; 4 percent in 1976; 1-1/4 percent in 1977; 1/2 percent 1978 and 1979, and we're estimating 3-1/2 percent in 1980.",68
-fomc-corpus,1980,It's not a steady series. It fluctuates rather--,11
-fomc-corpus,1980,"Oh, it's by no means steady.",8
-fomc-corpus,1980,"It fluctuates cyclically, doesn't it? That is to say, at the beginning of a recovery velocity increases more.",24
-fomc-corpus,1980,"This is not a velocity increase; it's a downward shift in the money demand function. This takes into account the cyclical movement in velocity that accompanies rising interest rates. This series is one that says: What would the demand for money be, given both nominal income and interest rates?",56
-fomc-corpus,1980,"I was thinking without rising interest rates. At constant interest rates, velocity tends to increase more at the beginning of a recovery. The explanation would be that people have accumulated some liquidity and some idle funds.",40
-fomc-corpus,1980,"I think what Governor Gramley is saying, Governor Wallich, is that in '75 and '76 we might have been making an analysis that we were at the beginning of a recovery and velocity would be increasing. That's true. But if we only said that much, we would have been underestimating how stimulative monetary policy really was in 1976 because in addition we had this downward shift in money demand. People didn't want to hold money, so velocity was going up in part also because of that. That's what this demand shift is; it already takes into account the impact of interest rates. And with that impact, people want to hold even less money, so we have an even bigger velocity. In effect, the measured growth of money in '75 and '76 of 4 or 5 percent or whatever it was in an economic sense was really more like 10 percent.",179
-fomc-corpus,1980,"Yes, but what you're talking about is an unexplained residual that we can't forecast. Isn't that really--",21
-fomc-corpus,1980,That's the problem with this. This is an error in an equation in which [unintelligible].,21
-fomc-corpus,1980,"You know the great faith I have in these equations in general, Mr. Kichline. But given that great faith, the naive question that [occurs] to me is: Why do we keep talking about this equation that had [an end point] of '74? Why don't we refit it through '79 or something?",68
-fomc-corpus,1980,"The period [since 1974] is one in which we have had lots of financial innovation going on; it [leads to] very unstable [relationships]. You can fit anything you want. We have an almost unlimited capacity to supply new equations or numbers. But you are quite correct in suggesting that one ought to be cautious in using this. Nevertheless, I think it is instructive in the sense that it's a money demand function that makes some economic sense.",93
-fomc-corpus,1980,But when you read off those numbers it sounded as if this demand shift that Governor Gramley talks about would basically disappear if you had used the last five years in fitting the equation. It would be in the equation.,43
-fomc-corpus,1980,"No, I don't think so.",7
-fomc-corpus,1980,It would be hard to fit that for the whole period and get [meaningful equations] because the co-efficients would be moving. You would be averaging through them and you'd get a result that would be neither fish nor fowl. It wouldn't pertain to the pre-1974 period or the post-1974 period.,66
-fomc-corpus,1980,"I was thinking about just fitting it for the post-1974 period. The average shift was what, 3 percent or something, in those numbers you read?",33
-fomc-corpus,1980,"If we throw out '75 and '76, it probably would still fit [the rest of the period]. It depends on what one thinks really went on in that period.",35
-fomc-corpus,1980,"Well, [if you throw out] '75, '76, and '80, you're right on track, but--",25
-fomc-corpus,1980,"The point that I want to make is that since we're uncertain about this shift--and I agree with you, Mr. Chairman, that we just don't know enough to put a lot of faith in these equations--what we're looking at is a policy course that we really ought to be assessing in terms of a potential for real growth at something between 0 and 2 percent. We really don't know where [potential] falls in that interval. It may fall toward the lower end or it may fall toward the upper end. So we're looking at a forecast for economic activity which will produce an unemployment rate that may hold steady or may rise very substantially next year. And that is the way we need to assess what we're doing, I think.",147
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"Jim's answer to your question, Mr. Chairman, reminds me about a forecaster friend of mine who was quoted in the paper recently on the outlook as saying that he had a whole pile of numbers in front of him and they were all useless. It is frustrating when one hears all the scenarios that could develop--the double-dip, the L, and so forth. But cutting through all that, if one looks back three or four months ago and considers the divergence of opinion then, there may be a little more unanimity on what is really going on or likely to go on than there was earlier, for whatever that may be worth. What seems to be showing through, particularly in comparison with the expectations of last spring, is that almost everybody would agree that the recession is going to be shorter than expected--that's the good news--and that inflation is going to be worse than expected, which is the bad news. And I know a few that I would consider to be reputable forecasters who are forecasting a boom in 1981. And therein lies our real dilemma. As I look at the Board staff's forecast on real GNP and the implicit price deflator and the unemployment rate--and our staff forecast is not significantly different on any one of those--the inflation picture is certainly discouraging, particularly in terms of past cyclical experience. You will recall that in the last recession the GNP deflator stood at 10.6 percent at the trough, the first quarter of '75. But a year later it was about half that amount. We really made progress in the four quarters after the trough of the recession. If one tracks [the progress] in previous recessions, [the pattern] is essentially the same. The real dilemma for us on the policy side is posed by the inflation numbers we are looking at in this forecast, where one year after the presumed trough of the recession, which is the fourth quarter of this year, we still have an implicit deflator of 8.8 percent, an unemployment rate of 8.3 percent and a real growth rate of somewhere around 2 percent. The question it poses is: How much, in fact, can demand management do to change this? I'm not happy about what I consider a reversed mix of monetary and fiscal policy that seems to be shaping up; I would share Governor Wallich's feeling on that. But as long as we have this kind of inflation outlook, which is certainly too high to be socially or economically acceptable--and ditto on the unemployment rate--it would be hard for me to favor a tax cut for the reasons that have already been set forth. I cannot support a tax cut in view of the outlook for persistently high inflation unless or until the federal budget gets changed in a way I don't think it is going to get changed. I think we are stuck being the only game in town in terms of gradually bringing some pressure to bear on the inflation problem. And as much as I would like to see tax reform, tax reduction net, I share your view that it's something we shouldn't encourage in the near future.",626
-fomc-corpus,1980,Mr. Solomon.,4
-fomc-corpus,1980,"We're estimating in New York that the fiscal year 1981 deficit, brought up to date with all the recent adjustments, is around $61 billion. Most of the people in Wall Street are also estimating a deficit in the $60 billion area.",49
-fomc-corpus,1980,Does that have a tax cut in it?,9
-fomc-corpus,1980,"That has in it a tax cut which represents basically the consensus [unintelligible]. Remember, we have the Reagan tax cut, the Carter Administration's, and the Senate Finance Committee's. [Our forecast] is based more on the Administration's [proposed] tax cut. It also includes the cancellation of the import levy tax and the withholding tax on interest and dividends, which revises the estimates. And there is a revision involving improved revenue because of the earlier bottoming out of the recession. I understand that the Administration has updated its estimate only to $41 billion so far. What they did was simply to take the mid-session figure of $29.8 billion and add the adjustment for the economic renewal package and the failure of the bill on withholding tax on interest and dividends. Having said all that, I don't see how we could oppose for substantive reasons, aside from the momentum, a moderate tax cut. I think a moderate tax cut makes sense. I agree with what I believe is the general feeling in the country that it ought to be focused in a more structural sense to promote investment and hopefully, although I'm not very sanguine about it, some improved productivity. The impression in the press, Paul, was that you took the line in your first appearance on tax matters that a tax cut probably would be advisable this year but was premature to consider at the time [of your Congressional testimony] and ought to be studied carefully. I had the impression, maybe an erroneous one, from the press that in your more recent appearance you seemed to be opposing any tax cut. There was an implication of that more than the emphasis on timing and composition in your earlier appearance. Is that an accurate press [account]?",343
-fomc-corpus,1980,"I don't know that I meant there to be any difference, really. Both times I conceded that they could go ahead now if they wanted, if they didn't put the expenditures up any higher than they are now projecting on the investment side. I don't think that's possible or practical. I don't think they're going to go along with just the investment side alone, but there's room [for that]. I am not ready to say that there's room for anything beyond that unless the expenditure trend looks better than I so elegantly expressed it in my last appearance. And I don't know what that [will be]. The Administration's pro forma projection for '82--with pro forma meaning just where current services will carry it--is for roughly an 11-1/2 percent increase in budget expenditures in fiscal '82, which is when their tax proposal would have its full effect. That might leave us with a balanced budget if the expenditures were no higher than that trend, if I recall these numbers correctly, at around the 6 percent unemployment rate. The full employment budget would still be in surplus, but the full employment budget assumes a lower unemployment rate than that by a substantial margin. Now, is that adequate? I don't know. I think it's borderline. That is where I come out.",254
-fomc-corpus,1980,"Well, we're not looking at the substantial additional deficits from the off-budget agencies, which are now moving toward $20 billion. Then there's the borrowing by the sponsored agencies, which also is on the order of $20 billion. I don't know if it's fair to throw that one in, but surely one has to add the off-budget agencies to the $61 or $62 billion.",76
-fomc-corpus,1980,"Right. But at the same time, given the increase in the tax burden and given the psychological attitudes in the country--and I'm not talking about politics in the narrow sense of the term--there will be an enormous loss of confidence in this country's future and in the vigor of the growth of this economy if people feel that they simply have to accept this increasing tax burden with no relief in sight. As I said earlier, I strongly support not giving any relief in across-the-board personal income tax cuts, even though those [taxes] are terribly onerous. But I think we have to do something to show that we're working toward a tax policy oriented toward structural improvement in the economy. I suppose it is analogous to my feelings on productivity. It's not a question only of tangibles, things one can quantify. It gets get into social, cultural, psychological, and work ethic attitudes around the country. In an intangible way the people's perception of the tax burden and what government is doing about it is a very important substantive factor in the economy. And I don't think we can just look at the numbers and say: Well, it's $60 billion and, therefore, because we know it's going to make monetary policy tougher we oppose it. Obviously, if we can bring down the expenditures side, that would be great. But I don't believe it's going to happen because of the defense component, no matter who gets [elected]. We have a choice among various unpalatable alternatives. If we can do something to get the spending side down, fine; everybody agrees on that. But the issue still is: Where do you stand on the tax cut?",329
-fomc-corpus,1980,"We are going to have a little difficulty with time here, if we don't move along. We have talk of a double-dip recession and we have a double-dip request to talk from Mr. Corrigan.",43
-fomc-corpus,1980,"Mr. Chairman, I can't disagree with the staff projection, although I put myself in the camp that thinks the potential for a W shape [outcome] is very real. But we are also in another period where I think there may an inordinate focus on what the next quarter is going to be, whether it's going to be a little plus or a little minus. In a sense that question is academic because when we look beyond those numbers and underneath the numbers what we really have to come face to face with is a rather dismal picture. We are almost a year after October 6, 1979; and the year was by any standard a very wrenching one. Certainly, I think one can conclude that if it were not for the role the Federal Reserve played, it would have been a heck of a lot worse. But the fact of the matter is, looking now a year later at the price numbers, for example, one can throw a very, very small net around the annual inflation numbers for 1979, 1980, and 1981. And certainly the prospects for the real economy are at best mixed. When I think about the whys of that, I am even more persuaded now than I was that the volatility and the uncertainty that we see still reflect a fundamental fear and expectation that somehow or other inflation is going to get worse. There is a recognition, I think often subliminal, that if inflation does get worse, the result will be even more instability. When I put that all together in the context of public policy, bypassing the tax question for a minute, it seems to me that we have another credibility problem to deal with. Up until now there has been a lot of discussion about credibility measured in terms of whether we stick to and hit these targets for the money supply. If one looks at 1981 and assumes that we stick to them and hit them, it seems to me that we are openly facing another credibility question. That is: Okay, we've done all this and we've hit these targets for two years in a row or whatever it will be, so where are the results? The credibility question that ultimately will arise is: Does it work, can it work, or will it work? And if we are looking at a situation at the end of 1981 that looks anything like the forecast, it's going to be even more difficult to justify the kind of policy we are talking about simply because people's frustration levels in terms of [unintelligible] and performance will have been eroded, I suspect. That's a back door way of getting to the tax question. My instinct is like a lot of other people's. Looking at the sheer numbers and the sensitivity of expectations and all the rest, my gut feeling is that a tax reduction, even a well structured one, would be counterproductive at this time. But at the same time, I also feel that there has to be a way that a tax reduction can be structured in a positive way, along the lines that Mr. Ford and Mr. Solomon spoke of. I am still very intrigued with the idea that somehow or other there should be a way to structure a tax cut that helps us get at the wage question. And I think the pressures are going to be enormous in that direction. I wish I could figure out a way to make some more sense out of it. But my bottom line on the tax cut again comes down to its structure and how it is done. If it's just a straight traditional kind of tax cut, then I would have to resist it.",718
-fomc-corpus,1980,Mr. Black. And I urge succinct comments by all.,12
-fomc-corpus,1980,"Mr. Chairman, we have no serious disagreement with the Greenbook forecast for the remainder of 1980. As for whether this flurry of favorable news we have seen constitutes an upturn that is already in progress or near, we are inclined to doubt that. We think it might be, as Jim Kichline suggested, in part a bounceback from the abandonment of the special credit restraint program. And I don't think we have yet seen the full reaction to the deceleration in the aggregates that we have brought about and that we have committed ourselves to doing. So the main difference we see from the staff's viewpoint is that we have more damping of inflationary expectations and less inflation than they do. As for the reasons, I'd just have to summarize by saying that we have more faith in our post-October 6th actions than I believe the staff does. It's easy to forget, as John Balles reminded us awhile ago, that we had a pretty significant deceleration in inflation as late as the '75 downturn before the aggregates got away from us. I'm also a bit encouraged by the flurry of indicators in the Redbook that we have had some weakening of price pressures at both the retail and the commodity levels. Finally, if the staff is right on its forecast of inflation, as most people seem to think--which I guess is more likely in some ways to be right than ours--then I would be very skeptical that we would have as much strength in the real economy as the staff projects.",303
-fomc-corpus,1980,Governor Schultz.,3
-fomc-corpus,1980,"My view is very simplistic. I have been on this Board a little over a year now and my attitude has changed fairly considerably. I've come to believe that inflation is intractable, dangerous, and overwhelms all other problems that we have. I think we are going to have a very slow recovery; I think we need a slow recovery. I don't see how prices and wages are going to come down unless there is pressure on them over a considerable period of time. I hope whatever Administration we have understands the luxury of having the first year of its Administration be one which follows a recession, which hasn't happened in a long time in the past. I hope they understand that they can do something next year that they may not have the opportunity to do any other time. My attitude on a tax cut is that it ought to be geared with inflation in mind. We should ignore questions of equity; we should ignore questions of stimulus. Our policy should be geared entirely to attempting to do something about inflation. I like the idea of doing something about depreciation. I like the idea of trying to offset somehow the social security [tax] increase. I think we have to have some consideration of a tax-based incomes policy. I don't know how that would work. I haven't been able to figure out anything that is practical. Our experience with credit controls leads me to believe that it's hard as the devil to have that kind of situation, so I'm not very sanguine about [devising] one that can work. But I believe some kind of an incomes policy is necessary because I think every single thing we do has to be geared to that one fact that inflation is the most serious problem we face. It's bigger than everything else put together and we've got to begin to get it down over time.",356
-fomc-corpus,1980,Mr. Guffey. Welcome back.,9
-fomc-corpus,1980,"Thank you, Mr. Chairman. I'm delighted to be here. Let me just start by saying that we would not differ greatly from the staff's projection on the economy. We think the coming quarter might be a bit stronger than their projection because we start from the premise, regardless of what the Chairman or others around the table may say about a tax cut, that a cut is in train and we are going to get one. We should be talking about the structure of that tax cut rather than whether or not we will or will not have one. Having said that, it also seems to me that we have not made any real progress against inflation as a result of the fact that people are now projecting a very short recession. Historically it's true that we don't see any movement on prices until well after the recovery is under way. What I'm afraid of is that our new procedures have done nothing more than shorten the cycle and that they will not produce an atmosphere that will permit any movement against prices this time. If we indeed have the kind of growth that the staff is projecting, which is modest to be sure, and if we have gone through 3 or 6 months of decline albeit very steep and we get no movement on the price side, then I think it will all have been for naught. That says to me that in the period ahead, since we are the only [game in town], monetary policy is going to have to be fairly restrictive. And we are going to have to face the criticism that Jerry just mentioned, but that's a year down the road. So I'd rather get something working now, even though we could have negative growth in the period ahead because of the tight monetary policy, given that we will get a tax break, and take that heat a year from now. Otherwise, we have will gone through a period that has netted us nothing and we are going to have to start again, whether it's incomes policy or some other type of governmental policy. Maybe that will come to pass, but I would like this Committee at least to put the kind of monetary policy in train that suggests that we may not have positive growth in the period ahead--that we may be looking for a W or a little longer [before recovery].",448
-fomc-corpus,1980,Mr. Roos. I assume you are going to have a statement of faith.,17
-fomc-corpus,1980,"Succinctly, I would say that at a time when both major political candidates seem to be competing for what they can promise in the way of a tax cut, I would strongly support what you have said, even if you have to overkill, in terms of opposing a tax cut until we get through the November [drama].",67
-fomc-corpus,1980,Does that conclude comments on this general subject? Mr. Winn.,13
-fomc-corpus,1980,"Paul, personally, I have been surprised at the bounceback. I don't know how many more months it will take to convince me that I'm wrong on that score, but I still have a question mark. But I think we have lost our benchmarks regarding the impact of certain things on economic activity. Take interest rates, for example, and the changes in financing practices that have taken place to offset [the effects of changes in interest rates]. There is all this building being done now with different kinds of financing where the interest rate per se is not as high, but a 10 percent gross kicker is established on top of any interest rate so that whenever we raise the level of rates it doesn't necessarily change the outlook in the [usual] sense of the term. [Lenders] have gone to financing that is not long-term; it's a 30-year commitment with a rollover every five years and a 2-1/2 percentage point change in interest rates either way adjusted over that [5-year] period of time. So there has been a lot of adaptability--in terms financing structures--to changes in rates, just as we have had adaptability in terms of money. I'm impressed as I watch the checks on the money funds flow through our office. When you see a check for $12 million drawn against balances that don't exist, you wake up to what is being measured and what velocity means. There was an announcement this morning by Master Charge about their introduction of new check concepts and plastic money to replace some of our measures [of money]. So, again, I think our benchmarks in terms of what we do [and the impact on] economic activity need to be reexamined. On the other side, I'm impressed with the sociological changes that are taking place in our society. Part of this goes back to the inflation issue. We ought not miss the polarization that is taking place in society between those who are being pinched by inflation and those who are not. It's no longer just a racial issue; it's showing up in a variety of ways. And that scares me, frankly, as I ponder what it means down the road. When one talks to doctors and psychologists and others about what complaints they hear [from patients], one finds that finance has suddenly become the biggest factor in their consultations. Personal bankruptcies in Ohio are the third or fourth largest in the nation and they are growing. Again, our benchmarks are lacking in terms of our ability to appraise what is happening on that score. There is a certain segment of our society that is really being squeezed by inflationary developments, and food prices are only going to add to this. So the pressure for a tax cut is going to be very real. The problem is that it won't really address the problem. It will just bail out a few people and the issue will come back again down the road.",573
-fomc-corpus,1980,"We are being squeezed for time, I keep saying. Governor Partee.",15
-fomc-corpus,1980,"I would say first that I think the bottom of the recession has been reached or is very close to being reached and that the economy is probably turning up right now. Secondly, I think it will be a sluggish recovery. The price increases will be so large that there won't be available income to spur more than just a very gradual recovery. We could get a month or two of good retail sales but then I think we will have a relapse and we won't have much of a growth rate. Basically that is what the staff is forecasting. Third, I do believe in the W [scenario], but it's likely to be a W that is a little more extended. I believe that 1982 will be the year of recession, similar to 1958 and 1960-61 when we had two rapid recessions in a period of great concern about inflation and a period of restrained policy in the late 1950s. And fourth, I think the second recession will bring the decline in income growth and, therefore, the decline in inflation. We have to get through this next year, and next year we will have a lot of inflation because of food prices. The years 1960 and 1964 and the 1974-76 period were affected quite a bit by a very favorable bump in agriculture. This year we will not be getting a favorable bump; it's going to go the other way. Therefore, the inflation rate will remain high so long as income growth remains high. But in the '82 recession I think income growth will slow considerably and the rate of inflation will slow considerably. So if we just sort of float along with this and try not to be too expansive or too restrictive and bring about some kind of change in the structure of the system over the next year or so, I think in time what Fred hopes for will be accomplished.",371
-fomc-corpus,1980,"Gee, I hope this room isn't bugged! The Federal Reserve predicts a second recession [after] next year.",23
-fomc-corpus,1980,That's just my own personal view.,7
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,"Mr. Chairman, I can be very brief. I mainly want to get on record on the tax cut question. I don't disagree in any major way with the staff forecast. The only reservation I would have on the staff forecast is the qualitative amendment that was made on the basis of the most recent retail sales numbers. I don't see any basis for a sustained expansion in retail sales, and I don't see anything in the personal income data or wage and salary numbers that would lead me to expect a strong or even a moderately strong resurgence in consumption expenditures. Like most people, I think we are seeing the signs of the early stages of the recovery, a very weak recovery. And anticipating the discussion that is coming up, I don't think we ought to do anything to choke off this weak recovery in its early stages. With regard to the tax cut question, I'm pleased for the first time to agree completely with what Tony Solomon said, especially his comments on the intangibles. I think that was a very perceptive statement of our situation. So briefly, my position would be that it's simply too late to think in terms of a countercyclical tax cut. But we have to think in terms of tax reform--tax reform in the direction of increasing incentives to invest, incentives to save, and incentives to improve effort. And once an effective rational tax reform program has been developed, I think it would be very important to announce the intent to reduce taxes over a given period in the future. In short, I have a great deal of sympathy for the Feldstein proposal of announcing in advance what the government intends to do with respect to taxes and the tax structure.",331
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"I only have two quick questions. If we have no change in tax laws, what is the increase in the tax burden from the fourth quarter to the first quarter?",33
-fomc-corpus,1980,If we have no change in taxes?,8
-fomc-corpus,1980,"No, if we have the tax increases that have already been been legislated. How much of the--",21
-fomc-corpus,1980,As a percent of GNP or something?,9
-fomc-corpus,1980,"No, just what the dollar volume is. We have the social security [tax increase] and something else.",22
-fomc-corpus,1980,"The social security [increase] is worth $18 billion for the year; part of it is the [higher] rate and part of it is the [higher] base. The windfall profits tax next year I believe is worth $16 billion and bracket creep is worth about $10 billion. So the first digit is a 4; it's about $44 or $45 billion. We have a $28 billion tax cut in our proposal here, so we still have the tax burden rising in 1981.",103
-fomc-corpus,1980,Suppose we don't have a tax cut? What happens to your economic projection?,16
-fomc-corpus,1980,The impact is a decline in real GNP of about 1-1/4 percent fourth quarter-to-fourth quarter and that would mean in that period maybe a tenth or two off the deflator.,41
-fomc-corpus,1980,So your growth in calendar 1981 would be essentially zero? Is that correct?,17
-fomc-corpus,1980,"Yes. It may be 1/2 or 3/4 percent--but small, very small.",22
-fomc-corpus,1980,"Mr. Axilrod, why don't you introduce the next subject and then we will [break for coffee].",22
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,"If we can come to order, let's see whether we can resolve our business after our lengthy discussion, which has perhaps had some discouraging tinges to it. I was struck in listening that it is quite conceivable, given what one senses is going on right at the moment, that when some of these August-September figures come out they will look a little better [than expected]. I don't think that has any great significance. In terms of the sluggish outlook--nobody mentioned this so I will just mention it--apart from all the other conclusions which were quite general about having to have a fairly sluggish recovery by historical standards because of the inflationary problem and longer-term needs of the economy, I think statistically when we don't have productivity growing we don't have the room for the same kind of recovery that we traditionally have had. If we have a recession, the economy can grow by 4 or 5 percent, even 6 percent, for a few quarters. It doesn't bring us as far up the employment curve as it does when we don't have any productivity growth. And for that reason alone one wouldn't look for the same kind of numbers, sustained very long, that we typically have had in earlier recoveries. But we have problems. I did not detect from the earlier comments that anybody thinks he or she has any totally satisfactory solutions, if I may put it that way. But this Committee does have to proceed on [making] some decisions, and presumably in the framework of our established operating procedures. At this point, you have two [Bluebook] alternatives before you. That does not exhaust all the possibilities, obviously. I may be wrong, but ordinarily the alternatives we have before us haven't had a gap [between them] that is quite this wide, for M-1A anyway. The reason may be that [the intermeeting period] is a little longer [than usual]. It is probably realistic to have it that wide to make the decision meaningful since the reality does not obey the very narrow differences that we typically are presented with. I would draw your attention to these charts, which I'm sure you have already looked at, that look backwards from the fourth quarter [to] early next year if we do follow one or the other of these paths. They show how [the results] would look against the targets that we have set and reset for ourselves. I was a little surprised when I saw these. I just hadn't quite caught up with the fact that M3 apparently was stronger in August than I had thought earlier. So while I had thought we were rather comfortably in the middle of the M3 range, M3 is within the boundaries but is relatively high [in its range]. And that is one problem, [that we are] testing the high side of our ranges in all three measures except M-1A. That's the situation in which we find ourselves. Would anyone want to take off from Steve's comments or otherwise suggest a course?",592
-fomc-corpus,1980,May I ask a question?,6
-fomc-corpus,1980,Sure.,2
-fomc-corpus,1980,"I might qualitatively expect interest rates to be higher. Specifically, where would the federal funds rate be in the third and fourth quarters under ""A"" and ""B""?",34
-fomc-corpus,1980,"Under alternative A we would expect an average level of the funds rate by the fourth quarter of something like 11-1/4 percent, give or take a little. So it may be higher than the level of the last few days by about 1/2 point or a little less.",59
-fomc-corpus,1980,"That's on average for the whole quarter, Steve?",10
-fomc-corpus,1980,"Yes, and we'd expect a further rise--",9
-fomc-corpus,1980,It would be turning up as the quarter went on?,11
-fomc-corpus,1980,Yes. And under alternative B the average for the quarter would probably be around 12-1/2 percent. That's assuming that the move toward that level doesn't somehow affect economic activity in the fourth quarter [very] promptly.,45
-fomc-corpus,1980,"And that would produce a mortgage rate of what, about 14 percent?",15
-fomc-corpus,1980,"The mortgage rate we have under ""A"" would be around 13-1/8 percent, which is not far from where it is now. But if that were wrong, I suspect the rate would be higher. And under ""B"" I could easily see the mortgage rate moving up between now and year-end -- this is my view and others maybe differ--to around 14 or 14-1/2 percent, depending in part on the degree of concern institutions have on whether rates are going to move up even further.",107
-fomc-corpus,1980,"Let me say that we are in a [difficult] position, and maybe we will always be in this position--certainly we were when we met last month and we carefully set the level of borrowings, which is a critical factor and one we have to consider today. But [last month] within two days or something like that the money supply exploded in a way that made that a nominal assumption--I'll call it nominal--because it was clear that the money supply in the space of two days was way above the path we were talking about and the real decision we made on borrowing quickly became nominal. Obviously, I don't know what is going to happen this time. The assumption is--or as Steve said, ""indications are"" that money growth in September is going to be weak. ""Indications"" sounds to me like a pretty strong word. I don't know what indication he has other than a preliminary figure for next week, and these preliminary figures have been notoriously unreliable. But the figure that he is assuming is a decline of $1-1/2 billion in M-1A.",222
-fomc-corpus,1980,In the week of the 10th we had a $1-1/2 billion decline and [we expect] very little increase in the current week.,32
-fomc-corpus,1980,"All I am noting is that if that did not materialize, whatever we talk about here in terms of the borrowing assumption can change rather quickly. Nonetheless, I think it is significant to focus on that variable. It's a little difficult just in a technical sense in that I think it is fair to say that the federal funds rate that seems to be associated with current borrowing levels is less than one might have expected. So in that sense there seems to a little less restraint with a given level of borrowings than we were assuming last time we were in a borrowing phase, six months ago or whenever.",119
-fomc-corpus,1980,"What is the borrowing level, Paul?",8
-fomc-corpus,1980,"Well, the staff is estimating it this week at around $1.1 billion or so.",19
-fomc-corpus,1980,This week could average about $1.1 billion.,11
-fomc-corpus,1980,"Yes, actually, it has been well above that. It has been averaging $1.4 billion or something like that.",25
-fomc-corpus,1980,It was $1.3 billion through yesterday.,10
-fomc-corpus,1980,And the federal funds rate has been about 10-3/4 percent.,16
-fomc-corpus,1980,10.80 percent.,5
-fomc-corpus,1980,And that is not the relationship that we ordinarily would have thought--,13
-fomc-corpus,1980,How much of that is a result of the banks being out of the [discount] window?,19
-fomc-corpus,1980,"Well, it may just be that; we don't know.",12
-fomc-corpus,1980,"Everybody has been gone from the window for what, three months?",13
-fomc-corpus,1980,"It may be that or it may just be a gradual change in attitude. Under the new operating technique they haven't been chastised all that much when they are in as they were before. I don't know. It may be that with the passage of time, when they have been in a little more, that the relationship will tighten up a bit. Maybe it's a more fundamental easing; I just don't know.",81
-fomc-corpus,1980,"Well, it's the first time that the funds rate has been above the discount rate for a long time.",21
-fomc-corpus,1980,"The discount officers tell me that they are reluctant, since the banks have been away for so long, to get right back to the same level of disciplined access.",32
-fomc-corpus,1980,"I don't know whether anybody has a sense of what may be going on in that area, but it's a rather significant variable in terms of the way we now operate. Maybe we ought to consider whether--. Well, is it a fair assumption to say that if you haven't been talking to the banks in New York, that probably means nobody has been saying anything to any of the banks? Now, this has only been going on for a month or so or less, so you haven't had much chance to get after repetitive borrowers, I'm sure.",108
-fomc-corpus,1980,"I can't change my mind set that quickly. First of all, the volume of New York borrowing isn't that big. My impression, without remembering the numbers, is that it's not the usual proportion of nationwide borrowing. But we have been in recession. And it hadn't even occurred to me, Paul, that we should start using moral suasion other than the normal level of trying to discourage--",77
-fomc-corpus,1980,"The question is: What is the normal level? I wouldn't think anything more than normal [is appropriate], but I--",24
-fomc-corpus,1980,"We have that table that shows banks about to come under administrative pressure and [the number] is virtually zero as I recall, using the normal standards. There just hasn't been enough borrowing for a long enough time for anybody except the one bank in Philadelphia.",50
-fomc-corpus,1980,"I think we should watch this for a while longer and see--I'm not suggesting any new departure here--whether attitudes either in the Reserve Banks or in the banking world have suddenly changed. But then, it's very hard to know.",46
-fomc-corpus,1980,"The one week that we had very high borrowings we also had very high excess reserves, didn't we?",21
-fomc-corpus,1980,"That was true for one week. It happened in some week in August, I think.",18
-fomc-corpus,1980,"The borrowing was high in the week ending [September] third; and excess reserves were originally extremely high, on the order of $650 million. That was revised down to about $489 million a week later, but that is above average. I might add, Mr. Chairman, that I don't have the borrowing by Federal Reserve District but I do have it broken down by money market banks, which are the 46 largest, and others. In the week of the third, when borrowing was $1.3 billion, money market banks borrowed $800 million. And in the week of the tenth, when borrowing was around $600 million, money market banks borrowed around $400 million. I don't have any breakdown for this week, but that indicates a fairly active use by the large banks, which probably fits with the hypothesis that they don't feel very reluctant to borrow, not having been in for ages.",180
-fomc-corpus,1980,"Well, with that additional element, it's an inevitable uncertainty I suppose. Mr. Balles.",19
-fomc-corpus,1980,"I just wanted to ask Steve a question, following up on an observation you made a little earlier, Mr. Chairman. As you know, Steve, there have been some pretty large underforecasts in the Bluebooks we had at the time versus how things turned out for June, July, and August. I just wondered what makes you so optimistic, as it were, that we are going to get very slow money growth in September?",87
-fomc-corpus,1980,"I don't think we are going to get slow money growth over the rest of the year. And whether that [more] rapid growth is going to occur in September, October, November, or December I'd be the first one to say I couldn't really tell you because there is a lot of noise in the month-to-month fluctuations of money growth. The only basis for saying slow growth in September is that we have modestly firm data for the first three days of the month and preliminary data for the next seven, so we have data for something like a third of the month. Those data show an average level for the month below the level in August. So allowing for some rise over the balance of the month--I think there will be some rise--we'd get a very low growth rate. Now, if we get a revision in the preliminary data for the week of the 10th of plus $1-1/2 to $2 billion, like we got last week, and if the week of the 17th shows no coming down from that but remains strong, then it's quite possible that September could be moving up again to very high growth rates. Similarly, we could get downward revisions and get very low growth rates. What I'm saying is that all we have is the first 10 days, of which seven of those days are partial data.",271
-fomc-corpus,1980,"Recent revisions all have been upward, but at some point that pattern will change. So, who knows?",21
-fomc-corpus,1980,"One could also say, Steve, that having had a very big month, which might represent some degree of stock adjustment, the odds are for a period of relative calm the following month.",37
-fomc-corpus,1980,"Yes, that happens often. [I feel fairly comfortable] predicting what is going to occur--that there will be strength sometime in the fall. But in which particular month is almost impossible to tell.",40
-fomc-corpus,1980,Mr. Ford.,4
-fomc-corpus,1980,"May I ask: On this anticipated fluctuation in the funds rate for alternative B, let's say that in the model it would average 12 percent. Do you also estimate what the peak pressures are likely to be? In other words, are you anticipating that at times it is likely to hit the 14 percent ceiling [of our current range] and that we'll have to react accordingly?",77
-fomc-corpus,1980,"No, on the assumption that the Committee retained a 14 percent ceiling, we wouldn't see that as an impediment because it's largely been interpreted as an average over the days of the statement week. Therefore, if it were at 13 or 14 percent or even a little above 14 percent on some days, I wouldn't presume [the ceiling] would be an impediment. If we were wrong and there was a lot more demand for money and we are much closer to the ceiling, then it could in fact become an impediment.",108
-fomc-corpus,1980,"My feeling is in line with what John Balles said. I'm worried that the forecast may once again underestimate the pressures on monetary expansion. And given the fact that we are rapidly approaching the first anniversary of our new policy and are going to be scrutinized very carefully on the fourth quarter-to-fourth quarter performance, I would think we definitely have to get focused on taking a conservative course of action, which would be moving to something like alternative B, possibly even widening the band of allowable interest rates rather than narrowing it.",103
-fomc-corpus,1980,Mr. Mayo.,4
-fomc-corpus,1980,"Mr. Chairman, I don't want to get into a debate as to whether the New York staff makes better estimates than the Board staff, but I'm fascinated--if I have my figures right--that for the fourth quarter New York has expansion in M-1A of 3.2 percent and the Board staff has 7-1/2 percent. The same [pattern] is true for M-1B; it's a little less so on M2. If I am reading these right, the differences seem unusually large. I'm wondering if anyone from New York or the Board would want to say anything about it.",124
-fomc-corpus,1980,They're not operating in a very fast league either.,10
-fomc-corpus,1980,"I didn't know that those estimates were circulated. You're right about the New York numbers. But the difference is not in real GNP estimates. It's almost entirely in our assumption that there will be a reversal in the shift in money demand, wholly for transactions balances--that as people become increasingly sensitized to inflation they will reduce their holdings of non-interest bearing or low interest bearing transactions balances.",77
-fomc-corpus,1980,I find myself much more comfortable with the New York figure. That doesn't mean--,16
-fomc-corpus,1980,"On the other hand, let me point out that the Washington figures have been more correct than New York's for the last two months. This difference in assumption has been there for two months now.",39
-fomc-corpus,1980,"I'm not sure exactly how that 7-1/4 percent got in there, but I probably ought to explain, President Mayo, that it is sometimes difficult to make a distinction between projections and targets.",41
-fomc-corpus,1980,It may be a derivative figure.,7
-fomc-corpus,1980,"And what we have in alternative A is 7-1/4 percent growth in the fourth quarter, which would be the implicit target if you were going to hit 4-1/2 percent for the year.",44
-fomc-corpus,1980,I see.,3
-fomc-corpus,1980,"We would expect that; that's very close to a projection because we like to make projections assuming no changes in interest rates. But we expect some rise in interest rates as I explained even with that. So in the Bluebook where we have the 7-1/4 percent [growth rate], that is the target necessary to hit a particular level over the year.",73
-fomc-corpus,1980,"Okay. Well, the fact that they are so different doesn't influence my own opinion, which is that alternative B is the right way to go. I think it's a much more prudent approach, but I found I was covered with curiosity.",47
-fomc-corpus,1980,"I should add that if New York is right and the Committee adopts either ""A"" or ""B,"" there will be a sharp drop in interest rates.",31
-fomc-corpus,1980,A sharp drop in interest rates?,7
-fomc-corpus,1980,"If money demand is going to be that low, there ought to be a drop in interest rates.",20
-fomc-corpus,1980,Let's pray for New York [to be right]!,10
-fomc-corpus,1980,"Sometimes that's what it takes, prayer.",8
-fomc-corpus,1980,"Do you have an opinion, Mr. Mayo, that you are going to give us as to why you have a [unintelligible].",29
-fomc-corpus,1980,"My opinion is in favor of alternative B. I do question why there should be any difference in the fed funds range under either ""A"" or ""B."" I think [the current range is] sufficiently broad to encompass both of them.",48
-fomc-corpus,1980,Mr. Eastburn.,5
-fomc-corpus,1980,"Mr. Chairman, I didn't comment in the go-around about the business outlook because I really don't know what is going to happen. So it seems to me that what we need to ask ourselves is: Where can we make the biggest mistake? To me the biggest mistake would be to underestimate the possible vigor of the recovery. That's the mistake we have made so far and I think it would be a greater mistake to underestimate than to overestimate. The other mistake is to be too liberal with monetary growth. Given that kind of approach, I think alternative A is unacceptable. Alternative B is just barely acceptable, as far as I'm concerned; I would prefer something less than that. An alternative C of 4-1/4 percent for M-1B would provide more insurance for the year's growth; it would put growth for the year a little above the midpoint, which would give us greater assurance that if we miss, it would still be under the ceiling. That, I think, would require us to set a higher range for the federal funds rate of 9 to 15 percent. If we do that, we should feel free to use the range as necessary to accomplish those goals. That would be my preferred solution. Another less acceptable alternative would be a ""B-minus,"" somewhere between ""B"" and ""C."" But I think we ought to go for ""C"" and watch in the next couple of months to see if these biases that I expressed are being borne out. We do need to do something about the discount rate. It may be too soon right now and [the current rate] may not complicate Peter's life very greatly, but we are in a new environment and I just don't know how the rate figures into the thinking of the banks [about] borrowing. So we might as well start getting that in alignment and keep it there as much as we can. So I think we need to get that up.",387
-fomc-corpus,1980,Just translating your comments: You're prepared to see a big increase in interest rates right now?,18
-fomc-corpus,1980,"Yes, I think so.",6
-fomc-corpus,1980,Mr. Morris.,4
-fomc-corpus,1980,"Mr. Chairman, to me alternative B defines the maximum growth paths for the aggregates that we can be satisfied with. I'm perfectly willing to accept that. I think the economy in the fourth quarter is likely to be stronger than projected and, therefore, we may see bigger rate increases than the Bluebook is contemplating, but I think we simply have to accept that. However, I wouldn't go as far as Dave and shoot for something more stringent than ""B.""",91
-fomc-corpus,1980,"I don't know whether it's because different people are talking, but the business outlook suddenly sounds more ebullient than the impression I was left with earlier. Mr. Winn.",34
-fomc-corpus,1980,"Mr. Chairman, I share the concern over the change in the funds rate range in alternative B and I would prefer to see it at 8 to 14 percent. Or, if we are going to move it, I would move the top range as a signal without an intent to use it. But it seems to me that is the wrong way to signal what the staff had in mind. Secondly, I'd remind us of the considerable literature that we have created that is less than three months old on the shortfall and its desirability and so on and so forth and the feeling that we need to perform this time if we are ever going to. I would favor alternative B or something even a little less with a chance to review it after experience. I do not feel that this [decision] is carved in granite and can't be changed, but I'd set out on that course because certainly we have underestimated more often than we have overestimated.",188
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"Well, we had the luxury, relatively speaking, of moving back on track at an even faster rate than we had decided some months ago. Now we face the question of whether we want to overshoot the track or take the wrench of getting back on it firmly. I think we ought to get on it firmly. The economy once more is giving us less unemployment and more inflation. It's painful to think that we are going to move to a mortgage rate of 13-1/2 or 14-1/2 percent, but in an economy with 10, 11, 12 percent inflation, we are going to have to get adjusted to that, bad as it may seem. The economy probably will adjust more easily to it than [we expect] in our gut reactions. So, I wouldn't be too worried about letting rates rise. Alternative B seems about right to me. I would like to see the funds rate move a little higher toward the upper end, [though] not immediately; we need to pause before it goes to 14 percent. And I would like to place more emphasis on M-1B. When M-1A and M-1B diverge as much as they do now, that indicates to me that the factors that differentiate them have gained in importance. And one is in some danger of losing sight of that if one thinks more in terms of M-1A, with its seemingly rather low growth values. If one thinks in terms of M-1B, one gets to fairly respectable rates of growth even under alternative B. So I would like to stress M-1B, at least in our thinking if not in the directive, instead of M-1A.",345
-fomc-corpus,1980,Governor Partee.,4
-fomc-corpus,1980,"The comments so far have been [for a course that is] tougher than I would like to be. I did indicate that I thought the recession had bottomed out; but, of course, it's incorrect to say the recession is over. It just means that the downward movement is over and we are at the low end of the range. And we have seen a pretty considerable increase in interest rates, one that could begin to threaten even a moderate recovery in housing. So it seems to me a little early to blithely expect to see interest rates go materially higher. If one thinks of these numbers for the aggregates as being targets--and I believe that's how we should think of them--and the actual comes out differently, then we should modify our operations. Interest rates go higher than the median here if the aggregates are strong, and they go lower if the aggregates are weak relative to the targets. If one thinks of these as target numbers for the 3-month period of October, November, and December and looks at the charts, alternative A isn't that bad. It's a little high, I think, mainly because I don't like to see M-1B running as high in the range as it is there. So, I would like to suggest an alternative between ""A"" and ""B."" I would say, for example, 4 percent for M-1A, 6-1/2 percent for M-1B, and 8-1/2 percent for M2; the latter would be the same as the alternative B number and is more a hope than anything that we would do, actually.",326
-fomc-corpus,1980,Just give me those numbers again.,7
-fomc-corpus,1980,"I said 4, 6-1/2, and 8-1/2 percent. I do think it's probably time to make a little movement in our broad funds rate range, and I would raise it a point on the bottom and top and make it 9 to 15 percent. Chances are that even under the staff presumption it will be at about 11 percent and probably drifting up, so 9 to 15 percent is not so a bad as an outer limit kind of range. And I would do that on the presumption that these are targets. If the aggregates come in stronger than this, we will move up in that range; and if they are weaker, we will move down in that range from our current 10-3/4 to 11 percent. So, that's what I would prefer. As far as borrowings are concerned, I don't think we should use a figure as high as the one that Peter mentioned as the base, $1.1 billion or something like that. But it probably needs to be quite a bit higher than we talked about last time. I was thinking of something around $600 or $700 million as the base we would start from on the borrowing.",247
-fomc-corpus,1980,Governor Teeters.,4
-fomc-corpus,1980,"I really only find alternative A acceptable. As Chuck says, we are probably at the bottom of the recession. To take the few indications of reviving growth and use that as an excuse to tighten monetary policy seems to me totally unacceptable. We will create a double-dip recession if we start taking interest rates up as high as we would get them in alternative B. Last fall, which is not very far behind us, mortgage rates in the 14 to 14-1/2 percent area almost completely closed down the housing market. It wasn't an availability problem; it was lack of demand. So, I would strongly support alternative A, and I would keep the funds rate approximately where it is. This just doesn't seem to me the proper time to rock the boat.",154
-fomc-corpus,1980,Governor Gramley.,4
-fomc-corpus,1980,"Mr. Chairman, all of us are deeply concerned about the inflation problem; I don't think any of us is more concerned than the others about it. And we are trying to find a way to deal with it. But we just have to recognize that if we turn this economy around again and promote another decline in economic activity once the bottom has been reached, this country and the Congress may not have the tolerance to let us continue. I don't think it will. Now, the financial conditions that would emerge under ""B"" are no longer consistent with the staff forecast. The staff's forecast has mortgage rates reaching 13-1/4 percent by the middle of 1981 and [under alternative B] we are talking about a mortgage rate of 14 to 14-1/2 percent in the fourth quarter. I just think we ought to move slower than this. We will be in real trouble if we push so hard that we choke off any possibility of recovery. I want a slow recovery; I think we all do. But I don't want one that is so slow that the economy ends up turning back down again. So, I'm with Governor Teeters. I would support alternative A.",240
-fomc-corpus,1980,Mr. Guffey.,6
-fomc-corpus,1980,"Thank you, Mr. Chairman. I would opt for alternative B, but with the caveat that the [monetary growth] figures listed in ""B"" would be the maximum we would accept; we'd accept somewhat slower growth during the period ahead, if indeed the economy or other factors would dictate that. On the other hand, I see no reason to raise the lower bound of the federal funds range from 8 to 9 percent, as suggested under alternative B. I would leave the funds range at 8 to 14 percent. In part my feeling about this stems from the fact that M-1B is more acceptable to me as an aggregate to measure what we should be doing with monetary policy in the period ahead. Looking at the quarterly average for M-1B under ""B,"" for example, we are still talking about a [quarterly average] rate of 7-3/4 percent for the fourth quarter, and that is a fairly high rate of growth. Anything that would exceed that would be troublesome to me. Just to restate my position: I would take ""B"" but as the maximum; I would accept somewhat lower growth if it did indeed come about. I'd leave the federal funds rate range at 8 to 14 percent because I don't think it makes that much difference. If the rate gets up to around 14 percent, we ought to be talking; we can do that in a telephone call rather than at this time.",296
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"I pretty much share the feelings expressed by Governor Wallich and Messrs. Guffey and Morris in that ""B"" is the maximum that I would like to see us go. We are all torn between the risk on the one hand of choking off recovery with too great a rise in interest rates and the danger on the other hand that we will make no significant progress on inflation. My first preference would be to lean against the inflation problem a bit harder by what I would call a ""B-minus."" I wouldn't be unhappy if the specifications of ""B"" were reduced somewhat to avoid overshooting for the year as a whole, which I think we could come pretty close to given the range of error and how things go. Dave Eastburn mentioned 4-1/4 percent for M-1B. I had jotted down 4-1/2 percent for the August-to-December target. That would give us growth of 5.6 percent in M-1B for the year as a whole, pretty close to the upper end of the range. I think somewhere between ""B"" and ""B-minus"" is the lesser of the evils, considering the two different evils we have to avoid.",246
-fomc-corpus,1980,Mr. Roos.,5
-fomc-corpus,1980,"I would prefer Dave Eastburn's alternative C. I would be pleased with John Balles's alternative B-minus. I would begrudgingly support alternative B if that's the best we can get. I wouldn't go with anything more expansive than that. For those who are concerned about higher mortgage rates, if we do anything that would imply the possibility of an explosion in the aggregates, I think mortgage lenders in response to heightened inflationary expectations would increase their rates anyway. If we cut this by having a control on aggregate expansion on the down side, if you will, I think we won't get any higher mortgage rates than we would going the other way. And we would be consistent with our stated determination to give top priority to our concern about future inflation.",150
-fomc-corpus,1980,Mr. Baughman.,6
-fomc-corpus,1980,"Mr. Chairman, I think the target in Mr. Eastburn's suggestion is probably the appropriate one. We are at a stage where we should make a small move on the discount rate. I have the impression that there is something of a last gasp with respect to the credibility of the Federal Reserve out there in terms of coming within our targets by the fourth quarter. I realize that the ranges are such that we probably can't get all [of the aggregates] into them, but we have to get some of them in and I would suggest that, for whatever reason, those be the important ones. I think Governor Gramley is probably right that if we don't come out about there, we are going to get more specific instructions [from Congress] on where we should come out and we may have less freedom of choice in the future.",166
-fomc-corpus,1980,Did Governor Gramley say that?,7
-fomc-corpus,1980,"Well, I think I said something a bit different.",11
-fomc-corpus,1980,For different reasons.,4
-fomc-corpus,1980,I think he had rather the opposite in mind.,10
-fomc-corpus,1980,"He had different reasons, but wound up in the same place. I would like to note also that when we reported to our board of directors last week on the new Regulation A and what we anticipate the guidelines coming along with that will be, we got quite a strong negative reaction. They felt it was a significant retrenchment in our posture at the window. They have been engaged aggressively in the last couple of years in trying to build better rapport between the institutions in the District and the Federal Reserve and feel they have been making considerable progress. They are persuaded that the institutions will see this as a more stringent face at the discount window and that they will have lost credibility with what they view as their clients in that respect.",144
-fomc-corpus,1980,Governor Schultz.,3
-fomc-corpus,1980,"I'm delighted to hear that there's so much commitment to our targets and that we're going to have the strength to make sure we get growth within them. I'm a little surprised to hear so many people feel that the fourth quarter is going to be so strong. I would remind you that interest rates have already gotten to the point where they are having some impact on economic activity. Mr. Kichline, for instance, has housing starts for August at 1.4 million but then dropping to 1.2 million in September. And that's just with mortgage rates where they are right now. I don't know how sensitive automobiles are going to be to interest rates, but it seems to me that we don't have very much chance of a big strong recovery in the fourth quarter, yet that is what I hear influencing the [policy preferences] around the table. I'm afraid that alternative B or something even more conservative than that risks putting us in a more difficult position than a path that is a bit more expansive. I don't want to go to alternative A; that may put us in some danger of going out of the range on the upper end. But, you know, New York may be right one of these days. I'm afraid that if we go to ""B"" or something even more conservative than that, we may get ourselves in the difficult position of having to be too expansive in the fourth quarter. And we will get this stop-start pattern again. With these forecasts being all over the lot, I think we're much better off somewhere between ""A"" and ""B,"" which gives us much more flexibility. And I really think it is crucial that we retain as much flexibility as we can. So that makes more sense to me than anything else. That will give us an opportunity to look at September and will give us the kind of flexibility we need to get where we want to go through the end of the year.",381
-fomc-corpus,1980,Governor Rice.,3
-fomc-corpus,1980,"Mr. Chairman, I favor alternative A for the reasons set forth by Governors Teeters, Gramley, Partee, and Schultz.",27
-fomc-corpus,1980,End of statement?,4
-fomc-corpus,1980,End of statement.,4
-fomc-corpus,1980,I didn't support alternative A.,6
-fomc-corpus,1980,"I know you didn't, but you gave reasons for favoring alternative A.",15
-fomc-corpus,1980,Mr. Solomon.,4
-fomc-corpus,1980,"I'll try to be almost as brief as Governor Rice. I think we can best hit the balance we're looking for, in terms of both the credibility of policy as perceived by the markets and the country on one hand and our concern about aborting the modest recovery, by an intermediate solution. I'd like to suggest something that isn't too different from what Chuck Partee suggested. I think we ought to have borrowing of $700 million, 4-1/4 percent for M-1A, 6-1/2 percent for M-1B, and 8-3/4 percent for M2.",123
-fomc-corpus,1980,What was that last one?,6
-fomc-corpus,1980,"8-3/4 percent. Even though I'm indifferent on whether we have 8 to 14 percent on the fed funds range or the extended one, I think it's unnecessary to extend it, and we may be giving some policy signals unintentionally. I don't really see much advantage [to changing it]. On balance, I would say we ought to stick with 8 to 14 percent. Let me say a word about my feelings on credibility. I'm sorry to take longer than I intended but [let me say a few] more sentences on this. When I talk to people in the markets, they are not questioning our credibility or the steadiness of our policy at the moment. There is a vast underlying skepticism that we will stick to this policy later in the year or early next year, but at the moment I think they are impressed. They have seen a very substantial rise in interest rates as the aggregates have moved up and they have not seen us try to stop that. So I don't think we have a credibility problem at the moment. We have the constant suspicion that we will buckle at some point but [market participants] don't feel we have done so or are in the process of doing so at this point. If the projections turn out to be anywhere close to accurate and we take these intermediate targets and and the borrowing level we've talked about, I think we will end up with interest rates somewhere in this range in the short run. And if necessary, we can tighten up later in the year when the pressure comes on. So that is what I would [do].",315
-fomc-corpus,1980,"That's everybody, isn't it? I confess I am a little struck by what seems to me a contrast in some of the policy judgments, or aggregates judgments, and what I took to be the tone of the earlier discussion, which was highly restrained in terms of a forecast of ebullience in the business world and somewhat skeptical of full faith in short-term movements in the aggregates. I approach this with a feeling of some concern about [how we will] come out of this meeting right at this stage. We've had a very high August, to be sure. We've had several months that were very high, but August was particularly high. There is some hope that September will show a leveling and a possible turn in the business situation. I think it's probably [going to be] a real turn, if a real turn encompasses the idea of a W, with a rather weak middle of the W. I was somewhat concerned that we would come out and say, in effect, that we're throwing down the gauntlet and that we would make damn sure that we would meet our targets in a very acceptable way and take all the risks on the side of interest rates and the economy. I think that's a real implication of ""B."" I don't think we can in honesty adopt ""B"" without saying: Okay, beginning tomorrow or whenever we will go out and in effect force interest rates up. And I would have great reservations about that kind of approach. On the other hand, I don't feel quite comfortable with ""A,"" given the way those charts look, particularly the M-1B chart, which a number of other people have mentioned. I think Governor Partee's comments are correct. We look at these as targets--and God knows what's going to happen--but we haven't got the short-term control mechanism that guarantees we're going to meet the targets. That much has been demonstrated by recent experience. But we do bias the [decision in an effort to meet the targets]. I would pick up in Governor Partee's comment, which has been seconded by the comments of a number of others, that the best thing we can do is to aim someplace in between ""A"" and ""B."" I think that's consistent with not taking much of an overt step at the moment. We'll see how the money supply figures develop. That may be as early as when we get a revision in the preliminary [M-1A] figure. But certainly we keep getting surprised by these [numbers] in one direction or another as time passes. I don't know what projection is right. But if the number comes out high, I think any of these alternatives imply that [market conditions] could get tighter and borrowing would go up. If it comes out as favorably as New York suggests, I suppose it would go the other way. If it comes out as favorably as New York suggests, it probably means a weaker business picture than many people have in mind and we might get a rally in the markets. In those circumstances, with that kind of aggregates picture, I'm not sure that would be undesirable. So, consistent with what a number of people have said, but certainly not everybody, I would play it neutrally at the moment. That's what we did last time. It lasted for about two days until the money supply figure came out high [unintelligible]. I hope another $9 billion increase doesn't come along and throw us off course quite so quickly as last time. But [ongoing developments] are what we would be guided by to a considerable extent. I don't know what neutrality means precisely, given this borrowing discussion we just had. I believe you've assumed $800 million with alternative B, Steve, and that seems to me low if we really wanted to get to alternative B. MR. WINN(?). Don't we have to have a discount rate assumption, though, to make that borrowing assumption?",780
-fomc-corpus,1980,We assume the present discount rate.,7
-fomc-corpus,1980,"Well, at the moment, we assume the present discount rate. That doesn't say the discount rate wouldn't go up if the funds rate moved significantly higher. Presumably, we would maintain some relationship [between them]. I'm not saying the present relationship is all that bad--I don't think it is all that bad--but if [the spread] got substantially wider, the discount rate question would certainly arise. As I say, I don't quite know what neutrality is. I think a figure as high as $800 million or perhaps $700 to $800 million or someplace in that area might be consistent with neutrality in the short run. In that way I am picking up something Steve associated more with ""B"" than with ""A."" But in terms of the targets, this implies amid all the uncertainty a change in trend, and if there's anything to the longer range interest rate forecast, I'm not sure we want to go quite that far. By the longer range interest rate forecast I'm talking about the quarter. That's not a very long range, but it's beyond the next two weeks. I don't know what it really does imply; we have these different estimates.",229
-fomc-corpus,1980,"I might add, Mr. Chairman, that when we were writing ""B,"" which was Friday afternoon, we were not aware that banks were going to be quite as willing borrowers as they were.",39
-fomc-corpus,1980,"Well, I'm obviously affected by the most recent evidence, which may be false evidence. But it sounds to me as though right at the moment anyway a little higher level of borrowing--",36
-fomc-corpus,1980,"It's very temporary, I think.",7
-fomc-corpus,1980,"Well, there's some evidence for it. I don't think it's just a phenomenon this week. What are those borrowing figures in the recent week? You just had them.",33
-fomc-corpus,1980,"But they are going to be distorted by Labor Day, I think.",14
-fomc-corpus,1980,The borrowing has run--,5
-fomc-corpus,1980,It was over $1 billion in the week of September 3 and I don't remember what the funds rate was then.,24
-fomc-corpus,1980,It was 10-1/2 percent and then it dropped to 10.22 percent and borrowing to around $600 million.,27
-fomc-corpus,1980,"My impression is that, more often than not, these borrowing figures have been higher than what we normally associate with the equivalent federal funds rate.",28
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,But obviously there's an area of uncertainty.,8
-fomc-corpus,1980,"Mr. Chairman, may I make a suggestion, building on what you've said? If we go for what you call a ""neutral"" or what some of us have called an ""intermediate"" solution, we might take a leaf out of what we did earlier in the year but on the opposite side. We might say that if the aggregates come in somewhat lower than the intermediate targets, we won't adjust the reserve path accordingly but would accept that.",89
-fomc-corpus,1980,[We wouldn't adjust the path] quite so quickly anyway.,12
-fomc-corpus,1980,"[Yes, not] quite so quickly. We would accept them. So if the opportunity offers itself, we'd err on the side of not pushing in reserves.",32
-fomc-corpus,1980,"Do you mean that we should then reduce the nonborrowed reserve path or not reduce it? If the aggregates are weak, I think the analogue to our earlier action would be to reduce the path.",40
-fomc-corpus,1980,That's right.,3
-fomc-corpus,1980,That's what he said.,5
-fomc-corpus,1980,"Without limit? That's rather wide open; it could mean zero, -5, -10.",19
-fomc-corpus,1980,"No, it brings us out to somewhere [unintelligible] than if in that situation we had put in ""B.""",26
-fomc-corpus,1980,We would be tolerant of errors on the lower side. That's--,13
-fomc-corpus,1980,"Remember, we did say last October and throughout the next several meetings--as I recall, the number was 4-1/2 percent--""or somewhat less."" But it was only somewhat less; if it were significantly less, we would move against it.",53
-fomc-corpus,1980,"Well, we obviously have some difference of opinion and I am proposing that we come out someplace in between. These numbers do not lend themselves to easy averaging without coming up with rather small fractions. And when we get down to the last quarter, I think it becomes fairly irrelevant. We have heard two averaging proposals. Mr. Solomon was a 1/4 percentage point higher than Mr. Partee on two of the numbers. Have we ever used a number with 1/4 for a period this long?",102
-fomc-corpus,1980,I don't recall that we have; I'm not sure. Steve might know.,15
-fomc-corpus,1980,"May I ask, Mr. Chairman, to what specific periods Mr. Solomon's and Governor Partee's numbers refer? I wasn't quite sure. August-December?",33
-fomc-corpus,1980,August-December.,4
-fomc-corpus,1980,I think we're all talking about the August-December figures.,12
-fomc-corpus,1980,"No, mine is September-December.",8
-fomc-corpus,1980,"No, Governor Partee says his was September to December.",12
-fomc-corpus,1980,The base month is August and the last month is December. That means we're talking about--,18
-fomc-corpus,1980,"I assume we're all talking about the same [period as in the Bluebook alternatives], which is August to December.",23
-fomc-corpus,1980,"Mr. Chairman, I think a very good case can be made for using quarterly averages for two reasons. One is that our targets are set in terms of quarterly averages, and the second is that the figures look a little better in a sense. If, for example, we were to hit the 5-1/4 percent midpoint that we originally had, it would require a rate of growth in M-1B of only 3 percent between August and December. But it would require 4.9 percent between the third and the fourth quarters because August was very high. If we take the 5-3/4 percent midpoint that we talked about earlier, that would involve 4.8 percent growth between August and December but 6.8 percent between the third and the fourth quarters. That is, what I'm doing is assuming a steady progression from August to December.",177
-fomc-corpus,1980,I'm not sure what the significance of that is.,10
-fomc-corpus,1980,"Well, we set our targets in quarterly figures.",10
-fomc-corpus,1980,"We set the annual targets that way, but--",10
-fomc-corpus,1980,"Yes, but it's difficult to know what to do with August to December because we don't know what the configuration of the last quarter will be. And the figures I use just assume an equal progression.",39
-fomc-corpus,1980,I'll let Mr. Axilrod comment. But it seems to me a lot more convenient operationally to talk about a monthly target than a quarterly target that is so much affected by what has already happened.,41
-fomc-corpus,1980,"We tried to blend this in some sense by having the operational target go from month to month, but trying to get it so that it results in the quarter-over-quarter growth that the Committee wants.",39
-fomc-corpus,1980,"Obviously, one can express it either way.",9
-fomc-corpus,1980,"In general I have a little trouble with the quarterly average because if one took that quarterly average extremely seriously, whatever we put in there for the fourth quarter implies one real wrench to hit it. If we go off [target] very early in the quarter--if the pattern month to month varies from what we have in here--in the last part of the quarter we really have to wrench it around to hit the target. It is true that the quarter over quarter will vary, but it makes for a much more orderly procedure in relation to markets to do it that way.",114
-fomc-corpus,1980,"And we're stuck, unless we make an extreme assumption, with the fact that the quarterly jump is going to be fairly sizable because August went way up. Even if growth is level from now on, we'd get an increase of some magnitude in the fourth quarter. That's a fact of life. But if we were concentrating solely on quarterly figures--while mechanically we can rationalize one with the other--I think we'd tend to get more abrupt changes than we really contemplated in setting the target.",96
-fomc-corpus,1980,"But that assumes we don't do anything about a bulge that appeared early. Then we'd have to wrench it later. But if we take action promptly, we don't necessarily have to wrench it later.",39
-fomc-corpus,1980,"But we have taken action. After all, bill rates are up quite a bit.",17
-fomc-corpus,1980,"I'm talking about in the future, Nancy. My personal feeling is that we're not going to have as much upward pressure on rates as people think because I don't see that much strength in the economy. But that's a guess. We really can't forecast that with any degree of certainty.",55
-fomc-corpus,1980,"Well, if we took these--if I may so term them--more hawkish views and if we were honest with ourselves given the range of probabilities, we would be saying that we've got to go out this week and take a rather overt step to tighten up the market. That may not be necessary, for sure. That's what we don't know. Now, [doing] that may turn out to be wrong if the economy is very weak, and we might have to retrace the step. And that's one of the things that I think we would be better advised to avoid.",116
-fomc-corpus,1980,"There's an alternative for that, Mr. Chairman, is there not? [We could adopt] the alternative B [growth] rates and drop the borrowing assumption from $800 million to perhaps $700 million, thus increasing the nonborrowed reserves to make up the total. That would not push up interest rates early in the period necessarily. It would give us a bit of time to view what is happening to the aggregates.",84
-fomc-corpus,1980,"I may just be talking about a gut feeling, but I tend to share the view that Steve first expressed: That if there's a risk here, it's going to be on the high side rather than the low side. I'm just going by recent experience; that's the way it has been. That could well be wrong. I have no problem with starting out with $700 million or something in that range. But I do have a feeling that starting out in that range and putting a lot of weight on [growth rates] as low as those in ""B"" may delay for two weeks what you're talking about. I think the odds are that at some point we're going to have to put [interest rates] up quite overtly and strongly. We may have to do that even if we went with ""A."" If we went to an ""A+"" we might have to do it. I can't guarantee [anything]. All I'm saying is that we have a stronger case if [growth in the aggregates] did get high. Obviously the higher the monetary numbers are, the more protection one has in a sense--the more explanation one has for why the market is reacting the way it has and why we have reacted the way we have under those circumstances. I don't think we have much [protection] if we're demanding that September be practically flat, which is what the staff is projecting. And I hope that's what it is. But we're also demanding that October and November be [almost] though not quite as flat. Obviously there's an arithmetic difference between these, and the way one falls in the spectrum is what we're talking about. But I would want a little more justification, in terms of the aggregates, for the kind of interest rates some of you are talking about before I saw those interest rates in the market. We are talking about an M-1B that I quite agree is a little higher than I'd like to see ideally. Just rationalizing, M-1A doesn't look so bad under these alternatives. M2 we think is going to be a little high. There's not much we can do about it. M3 is a little higher than I'd like to see it. But just weighing the risks, and against the background of the business [conditions] discussion that we had, I would like to have a little more evidence that the aggregates are fully running in excess of reasonable targets before very overt moves are forced. That's what it comes down to. Mr. Corrigan, did you comment? You didn't.",501
-fomc-corpus,1980,Since I got penalized for my double-dipping before--,12
-fomc-corpus,1980,I thought I counted and we had everybody.,9
-fomc-corpus,1980,"Well, you thought he'd used up his turn.",10
-fomc-corpus,1980,Did I miss anybody else?,6
-fomc-corpus,1980,"I didn't say anything, Mr. Chairman, but I will--",13
-fomc-corpus,1980,I'm sorry. I deprived all our double-dippers. I added up wrong. There are more people here than I thought.,25
-fomc-corpus,1980,"Well, I'm not sure I can add anything much to what has already been said. This is a nasty dilemma. One point that hasn't been mentioned, which does loom somewhat large in my mind, is the fact that how we end up in 1980 is going to have a bearing on how we start 1981 as well. And that at least has led me in the direction of ""B,"" but that's not a very powerful feeling at this time because of the uncertainty. The other thing that is bothering me about this quarter is that it's a quarter in which we are probably going to have even more problems with numbers because of all the news reporters and everything else. We could be a bit more in the blind than we usually are. I just wonder [about that] in terms of the interval we're looking at now, if we did something like Mr. Solomon has suggested in the very near term. If we do get continued rapid [monetary] growth in September and early October, I think the credibility issue will become very real. Market rates are going to move up anyway, and we'll have the worst of both worlds. Maybe there is a middle ground: Perhaps in the context of something like Mr. Solomon has suggested, the quarter as a whole could be looked at again at the next meeting and we could operate more with an eye on the next month until we see where we are.",280
-fomc-corpus,1980,"That's what we've been doing the last few months, in effect.",13
-fomc-corpus,1980,"I think that's right. But as I would look at it, I tend to think we're at or near a pretty critical crossroads. All I'm suggesting, within the framework of some sort of compromise, is that maybe we can get September under our belt and keep a little more open position on the fourth quarter until we see where September comes out. That's because if September [growth] really is modest, I don't think we're necessarily talking about the kinds of pressures that people are so concerned about and that I'd be concerned about.",103
-fomc-corpus,1980,Mr. Black.,4
-fomc-corpus,1980,"Mr. Chairman, I really made my main point. I come out around ""C,"" [which some speakers have proposed]. The main point I want to get across is that there's a lot of repetition in these figures. And if we say we want to hit that midpoint of 5-1/4 percent, for August to December that translates to about 3 percent but for the third quarter to the fourth quarter it's a great deal more than that, about 4.9 percent. That doesn't sound so bad.",104
-fomc-corpus,1980,"You're talking about M-1B, Bob?",10
-fomc-corpus,1980,"Yes, M-1B. And if we hit the 5-3/4 percent midpoint, that would give us a quarterly growth rate of 6.8 percent, which sounds fairly high. But that translates into growth from August to December of 4.8 percent if you assume equal [monthly] increments.",65
-fomc-corpus,1980,All you're saying is that August is a big month.,11
-fomc-corpus,1980,"That's what it amounts to. And I'm saying that without much growth, because August was so high, we can get a good quarterly growth rate with figures that look scandalously low on an August-to-December basis. That's the point I wanted to get across.",52
-fomc-corpus,1980,You still have a [unintelligible].,10
-fomc-corpus,1980,"I think that's right, but you're playing with arithmetic in a sense. The question is what we want to do in a substantive sense.",27
-fomc-corpus,1980,"The other point I was going to make is about credibility. If [monetary growth] comes in as high as a lot of people expect, I think we're going to have a pretty serious problem. We may have not only high inflation but high interest rates as well. Whereas if we [hit our target], I think we're going to see some effects on inflation and we may end up just with higher rates, without as much inflation. But this route is going to give us both.",98
-fomc-corpus,1980,How would you formulate this to make it a neutral policy until the next FOMC meeting? What numbers would fit a neutral policy for the next month?,31
-fomc-corpus,1980,What do you mean by neutral policy--no change in interest rates?,14
-fomc-corpus,1980,"No, I'm just saying that I would like to see things rather calm until we have a better idea of what is going on out there. I agree with Jerry: Things are too uncertain to try to set a policy at this point that's going to carry us through December. So, if we could find some way to wait a month without rocking the boat in any way and get a little better idea as to whether some of these [developments] are real or transitory, that would be the wise thing to do.",104
-fomc-corpus,1980,"Well, I sort of disagree with Jerry. We're trying to set a target path that we think is acceptable. If the numbers come in high, then markets are going to have to tighten; and if the numbers come in low, markets are going to have to ease. It's a target concept rather than a projection concept that we should think about when we're specifying these. So I don't see why we can't state, as suggested in the Bluebook, the target growth rate we would like to see for the last four months of the year.",107
-fomc-corpus,1980,"My comment about neutrality relates to how we come out of this meeting right now, not for the next month. I don't think we can ignore what is happening to the money supply for the next month. As I said, we take a chance whatever target we set. If next week's figure comes out to something like a reduction of $1-1/2 billion it doesn't apply to anything we have said here. But if it comes out significantly different from that, we're already beginning to diverge under any of these targets. I guess one can argue it any way. My particular problem is that I think [""B""] is a bit unrealistic --that may not be a good word because anything can happen, including the New York projections, in which case it wouldn't be at all unrealistic--taking the broad range of probabilities. We probably wouldn't be neutral coming out of this meeting with alternative B.",177
-fomc-corpus,1980,Neutrality has many meanings.,6
-fomc-corpus,1980,"I talked abut neutrality with a very particular meaning: What is the level of borrowings that we start off this track on, recognizing that it will change if within the week these figures begin deviating substantially from whatever target we set.",47
-fomc-corpus,1980,"That's really the old funds rate technique in an aggregates version. That is, we immediately allow the funds rate to respond to any change in the aggregates.",30
-fomc-corpus,1980,"We would be allowing the borrowings to respond, that's right. I don't know any way of running this technique without having a--. Well, let me put the question to you. Do we have a conclusion for somewhere between ""A"" and ""B""? I will leave for later exactly how to compromise those numbers. Does a borrowing level of $750 million, just to take the midpoint of some that have been mentioned, and something in between ""A"" and ""B"" attract a spectrum of support?",102
-fomc-corpus,1980,People could raise their hands.,6
-fomc-corpus,1980,I guess so.,4
-fomc-corpus,1980,What aggregates would you associate with this?,8
-fomc-corpus,1980,"Between ""A"" and ""B.""",8
-fomc-corpus,1980,"If you start out with ""A"" and then go halfway between that and ""B,"" that's $700 million on borrowing. To go a little further to $750 million--another $50 million in borrowing--means it's so close to ""B"" that I am getting very uncomfortable. I'm not at all sure that we might not end up with 14-1/2 percent mortgage interest rates on average in the fourth quarter. And that just seems to me to be too big a wrench.",99
-fomc-corpus,1980,"Mr. Chairman, it seems to me on the basis of the opinions that were expressed that the compromise would really be [halfway] between the [midpoints] of ""A"" and ""B"" and the midpoint between ""B"" and [the proposed] ""C."" A lot of people expressed an opinion of wanting to go further than ""B."" That would bring us up to ""B"" at the very best in terms of the compromise.",91
-fomc-corpus,1980,I think you have to isolate the voting members.,10
-fomc-corpus,1980,"I would like an expression of general opinion on a mid-course between ""A"" and ""B.""",20
-fomc-corpus,1980,Everybody or the voting members?,6
-fomc-corpus,1980,"I agree with Lyle's comment, by the way, on the borrowing level. I think $750 million is too high.",26
-fomc-corpus,1980,The voting members. I said someplace between $700 and $800 million. I don't feel I can judge that with any accuracy. I'm not so sure that $800 million couldn't turn out ex post to imply a little easing.,45
-fomc-corpus,1980,"I'd agree with you if we could just get the sense of it and split it right down the middle between ""A"" and ""B,"" recognizing that we really don't know whether the recent level of adjustment borrowing has been unusually high and will stay high or whether it will come back down again. If we had that general sense without [being precise]--if we took a range for adjustment borrowing of $600 to $800 million and gave the Desk and Steve Axilrod some flexibility to deal with it depending on what actually happens--I could live with that.",112
-fomc-corpus,1980,"Do you want that much flexibility, Peter?",9
-fomc-corpus,1980,"Well, it's an important part of the Committee decision. I wish we were better able to give you guidance to know what the relationship of the funds rate and borrowings is.",35
-fomc-corpus,1980,"You referred to this borrowing level before, Steve. Do you just want to repeat what you said?",20
-fomc-corpus,1980,"Mr. Chairman, I was assuming that if the Committee wanted to start off in a posture where in some rough sense the pressures in the money market weren't terribly different from what they have been in the last week or two, I would think an average level of borrowing of $600 million is way too low. An average level of $800 million might just about be consistent, given the fact that borrowing has been running high in the last week, with not much change in money market pressures. If my interpretation of what the Committee means by neutrality to begin with is right--that is, basically money market pressures about as they have been, taking everything relevant to that into account at least initially--then I would think a number between $700 and $800 million would about do it. We would technically write down $750 million in the path, but if borrowing were coming in high, we'd adjust the nonborrowed reserves down a bit and vice versa. We could just as well do that with a $600 to $800 million range. We'd write down $700 million and if $750 million looked right, then we'd lower nonborrowed reserves in the course of the week. If $650 million looked right to give a money market sense as it has been, we'd raise them a bit. We can operate with that kind of flexibility, and that may be best given this developing uncertainty about what particular level of borrowing is ""right.""",285
-fomc-corpus,1980,Are you making those comments based upon a weekly horizon or for the five weeks?,16
-fomc-corpus,1980,"My memory going back three or four weeks ago--well, I wasn't here but from the discussion I heard--three weeks ago there was an expectation of a rather high funds rate, say, around 11 percent, with borrowing around $400 or $500 million. That didn't develop. Banks were much more willing to borrow and the funds rate only got up to 10-1/2 percent. We expected this week a funds rate between 10-1/2 and 11 percent, closer to 11, with borrowing around $750 million. Well, banks very promptly went in and borrowed $1.7 billion when the funds rate got to around 10-7/8 percent, again indicating a greater willingness to borrow. So, therefore, we should provide less nonborrowed reserves. I think there is some uncertainty. If I had known the level of borrowing on Friday when we wrote the Bluebook, I would have raised both the $600 and the $800 million to get to the point where ""A"" was a tick toward ease and ""B"" a tick toward tightening to start with.",224
-fomc-corpus,1980,"My question is: If the Committee decided on a ""B"" or ""B+"" target for the aggregates, would you construct the path based upon a borrowing assumption of $750 million for five weeks?",40
-fomc-corpus,1980,"If the Committee decided on ""B,"" no. I would assume that borrowing consistent with this discussion of somewhere between $600 and $800 million is neutrality. I would assume [for ""B""] it would be somewhat above $800 million.",48
-fomc-corpus,1980,"There's a little confusion, I think, because Steve, if I understand it correctly, has changed his mind from the time that the Bluebook was written, given the extra week's experience of relatively heavy borrowing with relatively less pressure on the money market than would have been expected.",54
-fomc-corpus,1980,With uncertainty.,3
-fomc-corpus,1980,"So I'm taking that into account in my own comments. Let me put the issue to you again in a general way. We'd have to focus on the borrowing level a bit more precisely and we'd have to resolve the fractions even if this proposal for roughly halfway between ""A"" and ""B"" commanded enough general support. But the borrowing level is biased a bit higher than the Bluebook says is consistent with those alternatives, based upon the comments that were just made.",92
-fomc-corpus,1980,You want raised hands on that issue?,8
-fomc-corpus,1980,You want preferences or can live with?,8
-fomc-corpus,1980,"I guess ""can live with.""",7
-fomc-corpus,1980,"That was a wise decision, I think.",9
-fomc-corpus,1980,"Seven, not counting yourself.",6
-fomc-corpus,1980,"I think it's pretty clear, without going through any other exercise, that we're not going to get a larger feeling for any other number. Let me just bear in a little more closely. Halfway between is literally 4-1/4, 6-5/8, and 8-3/4 percent on the aggregates, right? The main difficulty with that, as I see it, is the 5/8ths. It looks like a half-size, as they say.",100
-fomc-corpus,1980,"You're an awfully small person! MR. AXILROD(?). Mr. Chairman, the staff [unintelligible] if you adopted 6-1/2 percent [for M-1B].",44
-fomc-corpus,1980,And 8-3/4 percent at least [for M2].,15
-fomc-corpus,1980,"If we literally wanted to avoid quarters--it would lean a bit toward ""B""--I'd take Governor Partee's numbers of 4, 6-1/2, and 8-1/2 percent. Let me say a word about the funds rate range. We're right in the middle of [the current range]. As Tony Solomon and some others said, why fiddle around with it at this point?",83
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,"I'm inclined to say 4, 6-1/2, and 8-1/2 percent and $750 million. But I have no strong argument against the alternative, which I suppose is 4-1/4, 6-1/2, and 8-3/4 percent. That just puts in quarters.",70
-fomc-corpus,1980,I'll go with either.,5
-fomc-corpus,1980,I don't care. It seems to me that our actual experience is usually broad enough that it looks rather funny to be putting down quarters as targets. But I would accept the quarters.,36
-fomc-corpus,1980,"I think you're probably right. It looks better without the quarters. And those numbers are a bit more conservative, which seemed to be where people wanted to move to a little.",35
-fomc-corpus,1980,That's obviously closer to B. And with a $750 borrowing assumption--,14
-fomc-corpus,1980,"We could round up instead of down, gentlemen.",10
-fomc-corpus,1980,I hope we don't lose anybody.,7
-fomc-corpus,1980,"Mr. Chairman, I'm disturbed, not so much even about the figures as this: I thought we had agreed, and that all thinking that has ever been expressed about targeting aggregates [suggests], that we had to set long-term targets and stick with them. Trying to fine-tune, as I think this discussion is demonstrating that the majority in this Committee is dedicated to, for 30 days in order to have some effect on interest rates I think is a reversion back to very thing that we abandoned last October. It makes intelligently targeting on aggregate growth and on reserves an impossibility. This whole conversation reflects, at least as of this moment, that we've thrown in the towel on our noble expressions and intentions of last October 6th. We're right back to trying to control interest rates and trying to move from moment to moment, which is what has been happening in this Committee as long as I've been sitting in these meetings. This is where we have gotten into trouble in the past; whenever we've been faced with a difficult decision we've always said, in effect, let's wait another 30 days or another 60 days. We procrastinate. And that is why, I think, we are in the inflationary situation in this nation that we find ourselves in today. I apologize for that.",259
-fomc-corpus,1980,"Larry, we're within the targets.",7
-fomc-corpus,1980,"Mr. Roos, I don't want to engage in an argument, but I think we're doing exactly what we said we were going to do on October 6th. If you recall, we announced that the former policy had been that we looked at the aggregates and at interest rates and we put more emphasis on interest rates; but now the policy was going to be that we would look at the aggregates and at interest rates but we would put more emphasis on the aggregates. At no time did this Committee ever say that interest rates would be ignored.",109
-fomc-corpus,1980,"Fred, we can't do both at the same time and accomplish both objectives if they're incompatible. I'm being--",21
-fomc-corpus,1980,You'll pardon me if I respectfully disagree.,8
-fomc-corpus,1980,"And I would point out, Larry, that we're well within the targets that we specified in January and respecified in July for three of four aggregates. M2 is a trifle [above]. But I don't think the concept has been violated.",49
-fomc-corpus,1980,"In the best of all possible worlds, I could be lowering these targets just for the sake of imagery. But let us not forget that M-1B is obviously specified too low and we chose not to change it at midyear. But some of that discrepancy between M-1B and M-1A is coming out of savings deposits. We don't know how much, but it is. I think we can say unambiguously that it's too low relative to what we thought we were setting at the beginning of the year. Well, we have a proposal of 4, 6-1/2, and 8-1/2 percent, with $750 million on borrowing and keeping 8 to 14 percent on the funds range.",151
-fomc-corpus,1980,"Do we understand this as halfway between ""A"" and ""B"" but with the numbers just rounded to 4 percent and so on?",28
-fomc-corpus,1980,"It's a bit more toward ""B.""",8
-fomc-corpus,1980,"Let me just raise one further point. It's the point that Mr. Solomon raised earlier, which is a point I don't think we can quantify. But we have operated before when we were either high or low in a way that implied some tolerance for shortfalls or overshoots. When we were high we said ""or somewhat below,"" implying more tolerance for shortfalls. During the summer, in fact for two months--maybe we shouldn't have but we did--we said if [monetary growth] comes in high, we will be tolerant of an overshoot. I could well see adding a tolerance of an undershoot to some degree here. I don't know that we can specify that arithmetically. But what we would be saying is that if the numbers come in unexpectedly low--that would mean total reserves were coming in low--we would be slower about making any adjustment that might otherwise be made in raising the nonborrowed reserve path to make up for the shortfall. That's just the opposite of what was done--",207
-fomc-corpus,1980,"That is moving very close to ""B."" You've rounded the numbers down and then tolerate shortfalls.",20
-fomc-corpus,1980,"I think it's worse than ""B"" because if what we've seen in the economy is a little bubble, we could be very slow to have an adjustment to it. We are not out of these ranges. I don't see the basis that we had last summer for doing that, when we were clearly below the ranges, or last fall when we were very concerned about being over the ranges. We are within them.",82
-fomc-corpus,1980,"Yes, but we don't have much room for error. That's my problem.",15
-fomc-corpus,1980,That's just a function of being in September. We've nailed ourselves down on the end of December and that's--,21
-fomc-corpus,1980,"Yes, but September to December is a very short period in terms of controlling the aggregates.",18
-fomc-corpus,1980,"No, we haven't got a lot of room. We have more room for undershoots in a purely target sense than for overshoots.",29
-fomc-corpus,1980,"But we most recently had a big month, and that's the only thing you're saying: That we had a really big month. When we had a small April, the shoe was on the other foot and that dropped us right below our target ranges.",49
-fomc-corpus,1980,But that's when [we did this]; it was following that very low month that we adopted the opposite [approach].,24
-fomc-corpus,1980,But we were below the ranges._,7
-fomc-corpus,1980,We were below the ranges.,6
-fomc-corpus,1980,But we had a lot more time in April [to reach our annual targets] than we have in October.,22
-fomc-corpus,1980,"The fact that there is an end point to this shouldn't be what decides this. We could change the specifications to the middle of next year, which I understand the Committee did when it had a rolling base. But to over-fight to make it in the last four months just for appearance sake, regardless of what happens in the real economy, seems to me the epitome of foolishness.",78
-fomc-corpus,1980,"If we're in a position where we don't think the guidelines make sense, I think we ought to change the guidelines.",23
-fomc-corpus,1980,But we're within them.,5
-fomc-corpus,1980,"Yes, but [the aggregates have been growing] at higher rates than compatible with the guidelines. And we're within them because we're making up for a large shortfall. So if we continue at this rate of speed, we're going to overshoot. Our question is precisely: Do we want to get back on track by making a slight bend or a significant bend in the rate of growth?",77
-fomc-corpus,1980,"Chuck, my suggestion carries forward on what Henry just said. I don't understand why you say that a very minor nuance--that if the opportunity arises, we tolerate an undershoot--is worse than alternative B.",42
-fomc-corpus,1980,"Because it just means that there's a very lagged response to an unexpected weakness in market terms. That's what it means. And I would point out that for these last four months of the year we're talking about growth rates of 4, 6-1/2 and 8-1/2 percent; those aren't fast. They are within the ranges, I think.",75
-fomc-corpus,1980,You're not including August?,5
-fomc-corpus,1980,"No, and I'm not including April either. August is water over the dam and April is water over the dam. We're talking about the next four months.",31
-fomc-corpus,1980,"M-1B would be right at the top of the range [for this year], I think.",21
-fomc-corpus,1980,"But Chuck, if there is a weakness in the figures, the markets will reflect that. Therefore, we have a small delay in not correcting the undershoot but it isn't as though we're going to be pushing up--",43
-fomc-corpus,1980,But we'll take out the reserves and that will mean that the money supply will be low. And there won't be a self-correcting operation.,29
-fomc-corpus,1980,"Even though I would like the consequences of that action, I don't think it is a good principle. I didn't think it was a good principle when we did it [when monetary growth was] on the way up, so I shouldn't like it on the way down. It's really getting back to a funds rate target.",63
-fomc-corpus,1980,I thought you liked those.,6
-fomc-corpus,1980,"Okay, but [unintelligible] a given rule. Given that option, I'm not proposing to go back to that.",26
-fomc-corpus,1980,"We can always consult, so let's not make that part of the proposal. I, frankly, would be delighted if the money supply comes in so weak that it provokes a consultation as to what to do about it. We'll cross that bridge when and if we come to it.",56
-fomc-corpus,1980,"In that case, wouldn't it be helpful if we raised the lower limit of the funds rate?",19
-fomc-corpus,1980,"You don't want to target on the funds rate, you just want to raise it!",17
-fomc-corpus,1980,I have no great objection to raising the lower limit on the funds rate if that's what the Committee wants to do. It's not accomplishing anything; I'm persuaded by the point that Tony made earlier. But if that's really important to somebody and it convinces them to join in this consensus then--,57
-fomc-corpus,1980,"Mr. Chairman, the discount rate is 10 percent. In some sense that's a fairly effective lower limit because if [monetary growth] gets weak enough that borrowing gets to zero--",38
-fomc-corpus,1980,"No, I don't think it's very substantive whether we--",11
-fomc-corpus,1980,It's going to be a problem for [a funds rate of] 8 percent.,17
-fomc-corpus,1980,You can bet that long before it got down to 8 percent we would be consulting.,18
-fomc-corpus,1980,"For that reason, I'm not disturbed by raising [the lower limit of the funds range] to 9 percent either. It's purely a cosmetic question.",30
-fomc-corpus,1980,"I'd like to see the range kept at 8 to 14 percent. That gives us the maximum amount of range for it. I'd hate to signal by raising [the lower limit] that we were tightening policy. If it's meaningless, then why do it at this point? I think it will be taken as a signal in the market that we did some tightening.",73
-fomc-corpus,1980,"Technically, it wouldn't be [known to the public] until the policy record came out since they never test either end of this.",27
-fomc-corpus,1980,"I think it's virtually inconsequential except that somebody is going to read the policy record a month from now and see that we raised the lower end of the band by 1 percentage point and will wonder what that means, if anything. I'm back to 4, 6-1/2, and 8-1/2 percent, 8 to 14 percent with a feeling of virtual indifference on my part about that, and $750 million. Are we ready to vote?",99
-fomc-corpus,1980,"Can we again have some interpretation of this? This is almost ""B,"" and I thought we were starting out with some sort of compromise between ""A"" and ""B."" Plus you were almost willing to increase the lower end of the funds rate range and that's even further toward ""B."" And I'm just getting uncomfortable.",64
-fomc-corpus,1980,I guess you're uncomfortable about the borrowing. All I'm doing is accepting--because I tend to agree with it--that the borrowing specifications in the Bluebook are a little low based upon what we know now. So I'm just adjusting for that.,48
-fomc-corpus,1980,"When you asked the question, Mr. Chairman, I was assuming that $750 million was the midpoint around which there could be some variation. With nothing else changed--that is, if the paths were all working about like this--if the funds rate was going up very high and if borrowings were $750 million, there would be a certain freedom within the very first week on that interpretation such that borrowings would be lowered because that would be an indication that the demand for borrowing was not as high as we thought. So I think we would be interpreting it along the lines of what you were saying, Governor Gramley.",125
-fomc-corpus,1980,"Okay, thank you. That helps me.",9
-fomc-corpus,1980,"It's really a $700 to $800 million range, or something like that.",16
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,That's a better way to think of it.,9
-fomc-corpus,1980,Ready.,2
-fomc-corpus,1980,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey No President Morris Yes Governor Partee Yes Governor Rice Yes President Roos No Governor Schultz Yes Governor Teeters Yes Governor Wallich No President Winn No,46
-fomc-corpus,1980,"Eight for, four against, Mr. Chairman.",10
-fomc-corpus,1980,"I suppose we ought to eat, and we're going to eat right here. Oh, one quick thing. We need somebody to be second in command after Governor Schultz to act on freedom of information requests. Governor Coldwell used to do this and we've had no alternate since Governor Coldwell left. We have to repair that oversight. It has not proved to be a heavy responsibility. Governor Partee, who serves in that function for the Board of Governors, has agreed to serve in that function for the Open Market Committee, if the Committee so agrees. Do I have a motion?",115
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Seconded.,3
-fomc-corpus,1980,"Without active dissent, Governor Partee will be the alternate.",12
-fomc-corpus,1980,"Now that that has been accomplished, I might say that I have just recently denied a request which is likely to provoke an appeal.",26
-fomc-corpus,1980,"Well, I'm certainly glad that Governor Schultz is here!",11
-fomc-corpus,1980,"But that doesn't get to Governor Partee. Do you have a question, Peter?",17
-fomc-corpus,1980,"I may have missed it, but I don't think you formally approved the Open Market Desk's [intermeeting] operations.",24
-fomc-corpus,1980,"Well, we don't want to overlook that. Without objection they are approved.",15
-fomc-corpus,1980,What would happen if we didn't? Is it any good for a loss or a gain?,18
-fomc-corpus,1980,"Well, we might have to talk about ""Peter who?""!",13
-fomc-corpus,1980,Without objection. Mr. Pardee.,8
-fomc-corpus,1980,[Statement--see Appendix.],6
-fomc-corpus,1980,Questions?,2
-fomc-corpus,1980,"Scott, if they don't like either the dollar or the deutschemark, where are they going to go?",21
-fomc-corpus,1980,"Sterling, gold.",5
-fomc-corpus,1980,That much in sterling?,5
-fomc-corpus,1980,"A lot has gone into sterling, into Swiss francs, and particularly into yen. The Swiss franc has advanced in the last few days against the mark.",30
-fomc-corpus,1980,Do you see any systematic move to diversify out of D-marks or is this footloose money that moves around all the time?,27
-fomc-corpus,1980,"It's probably in between. There are footloose funds, but what we're hearing--we don't have a real term for it--one might call reverse diversification.",32
-fomc-corpus,1980,Diversification?,3
-fomc-corpus,1980,"Shifts of funds out of the German instruments and the dollar. [It may involve] OPEC, a central bank, a noncentral bank. It's on the margin that these people operate. They're getting so much money each month, they decide which way they're going to move it; or when there are maturities, they move the money at that time.",72
-fomc-corpus,1980,"But the increased pressure on the mark is something that has just developed in the past week, isn't it? Why this week, instead of before? Most of the factors that would be pressing the mark have been there for quite some time.",47
-fomc-corpus,1980,"I know. That is one of the questions that even some of the seasoned traders are asking: Why now and not two months ago when all these factors emerged? It's a coalescence of things. In some ways it reflects the post-electoral situation. In Germany it was important for the Bundesbank to maintain high interest rates through the election because the whole idea was that they were fighting inflation. Now that the election is over and they're looking at very slow growth and other domestic problems, the market may feel that the Bundesbank may ease up at this stage. Also, some comments were made during the IMF-World Bank meeting that afterwards rattled around the press pages for several days suggesting that President [Pohl] was talking in terms of lowering interest rates. He had not said that but that's the way the press played it after a while. So there had been these expectations. And by the time the Bundesbank did act, no one was listening. It's one of these bearish situations where anything positive for the currency is ignored. We've seen it so many times on our side; we know all of the symptoms. But as I say, it's essentially a bearish market. It could pass. They may have some good numbers coming up. If their economy does slow, then their current account will improve.",260
-fomc-corpus,1980,"Another way of putting it is that we're seeing a market reaction to a much more sensible and balanced German policy. There used to be an impression that more than any other single objective the objective of German policy was a strong and appreciating Deutschemark. People are seeing now a Bundesbank policy, pushed by the government as well, toward an easier domestic monetary policy even with a large current deficit and even though the mark tends to be toward the lower end of the EMS. I think the Germans ought to be congratulated for following a more balanced and less single-minded policy. It certainly is helpful in terms of world stability as well as in terms of the U.S. dollar. Do you agree, Mr. Chairman?",141
-fomc-corpus,1980,Not fully. Governor Rice.,6
-fomc-corpus,1980,I just wanted to inquire whether there has been any official German reaction that has been noticed in the market.,21
-fomc-corpus,1980,Official reaction?,3
-fomc-corpus,1980,"Yes, any official reaction. Do they seem to be panicking in the government or are they, as Mr. Solomon suggested, playing it cool, so to speak?",34
-fomc-corpus,1980,"On the outside they are playing it very cool because it's hard for them to know what else to do. They are very concerned. Of course, we have helped them a great deal; we are buying these marks in very close consultation with them. And our two central banks are coordinating their intervention very closely. So, we haven't had a panicky situation in the exchange market. In the way they handled the rollover of one of these provisions of liquidity they did move the interest rate up a little to warn the market that they aren't caught in a fixed interest rate situation where they can only go in one way. But it's a very uncomfortable situation. In fact there have been crazy rumors in the market. One was that they were going to put on capital controls. There's no way [a government] can answer that sort of rumor when it comes out. It can't deny that it's going to put on capital controls because then everybody will say: Aha, they're denying they're going to put on capital controls; therefore, they're going to do it. Yesterday there was a rumor that Russia had invaded Poland. It hadn't happened, but it added to some of the flavor of sales of marks. So there is, as you put it, outward cool. But they are quite concerned about the situation.",256
-fomc-corpus,1980,"I saw something in the paper yesterday or the day before that the head of the German Federation of Business or something said they ought to devalue. That's the first time I've seen anything like that, I think.",42
-fomc-corpus,1980,"We are seeing the type of traditional strains within the European monetary system that we frequently saw in the earlier ""snake."" That is, the mark is declining and pulling other strong currencies within the band down, like the French franc and the Dutch guilder. In the past when someone left the snake or there was a change in par values, the whole thing snapped back giving profits to everybody on both sides. So, if the pressure continues to build, we could run into one of these classical speculative sprees that we have had in the past, this time with the mark on the bottom.",117
-fomc-corpus,1980,Mr. Balles.,5
-fomc-corpus,1980,"I just wanted to ask Scott about a very interesting development I noticed. As I recall from the reports, Scott, for the first time since 1971 you've made some outright purchases in the forward market. I was just wondering if in your view that kind of intervention in the forward market has any more stabilizing influence on exchange rates than outright purchases in the spot market?",74
-fomc-corpus,1980,"Well, in fact it's quite the contrary. This is an operation for the Treasury. We're doing it as quietly as we possibly can. We've only talked with a very few people in the market. The objective is to see if we can acquire more marks [through] a few people who have good corporate customers. When the corporation calls in and says it has some forward marks to offer, then the trader can offer them to us. The Treasury, of course, has its own maturities to consider on the Carter notes. So the forward marks in addition to what we're buying spot are simply placed with the Treasury for that purpose. We're doing it as quietly as we can and on the idea that it would have less impact than intervention in the spot market. There's a great deal of flexibility in the forward market and it doesn't have the same influence. We're doing it also as quietly as we can because our experience in the past is that once the forward market gets active and finds us there, then we can do billions without blinking an eye. So it's a very, very dangerous operation. But the Treasury wanted it and they're getting it.",225
-fomc-corpus,1980,Governor Wallich.,4
-fomc-corpus,1980,"I'd like to point to a broader matter. I [will try to] be very brief. We may be facing a situation we had early this year [when] the dollar was very strong--this time not so much because our interest rates are rising as they did at that time but because the mark is weak. And we may find ourselves either having the dollar go up or with a possibility of accumulating a fair amount of D-marks. Now, last time we operated so as to allow the dollar to run up pretty far; it came down again. We had a very pronounced upward and downward trip which did no particular good. We didn't accumulate or gather in for repayment a very large amount, although we did do some but over time. We didn't pay all [our mark indebtedness] off and we could have done so at that time. Now the question really is: If similar conditions develop, and there's no assurance that they will, should we follow the same strategy or should we follow a different strategy? That is, should we lean harder against the wind, which in this case would mean not just to gather in [marks] to pay off debt but to accumulate some reserves which might be split with the Treasury or be all for the Treasury or all for us. There's a problem of risk in financing to be considered. But I believe we should think ahead a little and not just leave it to the developments of the day.",286
-fomc-corpus,1980,But we're coming up pretty close to the limit right now. We do we have left--a hundred and what?,23
-fomc-corpus,1980,There's $160 million left under the limit on marks. We've already purchased $55 million worth of marks this morning and we would under the--,28
-fomc-corpus,1980,"Well, we in the government are no way near being in this position. The Treasury is $2 billion in debt, as Scott said. And they would like to cover their debt so there's $2 billion to go. They have a few problems in terms of the rate of speed with which they accumulate balances, because of cash problems, which raises a question of whether we can put some element of flexibility in here. I disagree with you on the value of letting [the dollar] go up earlier. It may be that the reason why the dollar didn't go down further was that the market had seen that they lost some money when it was going the other way. That doesn't mean that we've got to do it that way again. But I don't think one can say that that was meaningless. You can argue about whether it's disconcerting to have it go up--",172
-fomc-corpus,1980,"But I would agree with the implication of Henry's point. I think this time there ought to be more emphasis on accumulating deutschemarks and building Treasury balances. And then if it goes that far, we could always raise the limit here and not let the rate go as much as we did last time, Paul.",62
-fomc-corpus,1980,"Well, that's a different question. I don't know how much influence we have on the rate anyway.",20
-fomc-corpus,1980,"But both of your comments imply that you know what the rate ought to be--that you think the rate has gotten too high and that it's going to come back down again. Now, do you know that with that degree of certainty?",47
-fomc-corpus,1980,"No. We wouldn't be forcing it back down. It's just that as it goes up we would accumulate some D-marks. And if it doesn't come back down, which is highly possible, then we would have built up some reserves and we would have slowed down the movement, which I think is desirable in any event.",64
-fomc-corpus,1980,"Well, if it's a fast movement, I will agree.",12
-fomc-corpus,1980,"Well, Chuck, the only answer I can give you is that I think we know a little more about what is a desirable--to use a dirty word--target range than we do about monetary aggregates and interest rates.",44
-fomc-corpus,1980,I'm not so sure we do.,7
-fomc-corpus,1980,That doesn't pin it down very much!,8
-fomc-corpus,1980,"The Germans are running at an inflation rate of 5 percent or less and we're running at 10 percent or whatever rate you want to call it. Eventually there will be a reversal of this movement. I do not think that we get points--we ought to let the dollar rise sufficiently so that traders do not tend to be bearish on the dollar. They can be caught off guard. But on the other hand, unnecessary volatility on the up side which one knows is going to get reversed later is not helpful. It goes beyond the point of keeping the traders off balance. And I think we have shown in the last couple of years that a more activist policy in regard to the exchange markets is a useful policy. So we don't have to have an exact sense of what an equilibrium rate is to know that at some point we want to limit the volatility on the up side and take advantage [of opportunities] to restore balances.",184
-fomc-corpus,1980,"My only point, Tony, is that I can remember sitting here not too long ago and hearing that if the rate dropped below 2, the end of the world would be at hand. Well, we're not even back to 2. I agree that it slips with time and perhaps what was 2 then ought to be 1.90 now because of the differential in inflation rates. But it requires some care, I think, not to accumulate large balances that in fact turn out to be, as on the down side, a resistance to the tide that really can't be resisted and then results in a large ultimate loss for the central bank.",129
-fomc-corpus,1980,It doesn't matter how much reserves you have; [what matters is] the determination that you're going to use them and the market's confidence that you're prepared to back your policies. You can have an infinite amount of reserves--,44
-fomc-corpus,1980,"Well, let's take this up in a little more orderly way. We have to ratify the transactions since the meeting on September 16. Do I have a motion?",34
-fomc-corpus,1980,So moved.,3
-fomc-corpus,1980,Second.,2
-fomc-corpus,1980,"Without objection, we shall approve them. You have no recommendation with respect to the swap lines, I take it, because we're out and the French [drawing] is not maturing.",37
-fomc-corpus,1980,Right.,2
-fomc-corpus,1980,"We have this question of changes in the terms of the swap agreements on which we have a memorandum. Just by way of background, the Committee agreed to this in principle. I don't think it requires a formal action. In 1978 there was no formal action, was there?",56
-fomc-corpus,1980,"No, not on these issues.",7
-fomc-corpus,1980,"It was, in effect, an authorization for negotiation. You have a memorandum describing this again. It basically comes to the conclusion that we probably would have been better off financially [if the proposed changes had been in effect] in the past. Nobody can promise that [will be true] in the future, certainly not on any individual operations. We have had some further discussions with the Treasury. The situation the last time [we considered this question] was that the Treasury had agreed in principle, too, but didn't want to do it at that particular time when we were becoming very active again [in foreign exchange markets] and there was a question of raising an issue which may have been a complicating factor at that point. The Treasury is agreeable to changing. They have at least one swap that should be parallel in the Exchange Stabilization Fund, and they would consult with Congress about that. And they are prepared to do so if we agree in principle. I don't think we have to take any formal action now other than understand that this [change in swap line terms] is going forward if we want it to. Then we would formally agree, I take it, when the swaps come before us in a renegotiated form. Is that correct?",249
-fomc-corpus,1980,"No, the authorization says that the Committee should consider and approve changes in terms. What we've done in the past is to have the Committee vote to authorize the Manager to conduct the negotiations toward that particular end.",41
-fomc-corpus,1980,That's right. I would have a hard time coming to you in November with a whole series of new swap arrangements for you to approve once again if I hadn't had a chance to negotiate these particular items.,40
-fomc-corpus,1980,There's no question that you have to have the authority to negotiate. I just don't know how formal the action has to be. I don't think we should go ahead unless we're going to approve this when it comes before us. That's what I want to find out.,52
-fomc-corpus,1980,"What we've done each year, usually in November, is to approve the renewal of the swap agreements as far as the individual currencies, central banks, the amounts, and the 12-month terms. But any other changes in terms have been in the form of an authorization to the Manager to negotiate terms without our being very specific in the Minutes of Actions as to what those terms and conditions were.",78
-fomc-corpus,1980,"Well, I think you may be saying the same thing I did in different words. I don't want to be very specific.",25
-fomc-corpus,1980,I'm only saying that there has been a vote.,10
-fomc-corpus,1980,"I don't know whether the Congress is going to approve and I don't know that I want a formal vote at this point. But I certainly want the opinion of the Committee as to whether they're going to approve this [proposal] formally next month, if that's when it comes up, if this is renegotiated. Is that thought to be a good idea?",71
-fomc-corpus,1980,Okay. Why don't we see if there's any objection to it?,13
-fomc-corpus,1980,That's what I am asking.,6
-fomc-corpus,1980,I think it makes a lot of sense to do this. I assume that you will touch base with the Treasury and that you will [negotiate] on behalf of both the Federal Reserve and the Treasury--that's my understanding with the Treasury--unless Treasury voices [a contrary view].,57
-fomc-corpus,1980,"Well, I don't know about that. Somebody will--",11
-fomc-corpus,1980,"The situation has become more and more disagreeable as our interest rates rise above German rates and we pay our interest rate for borrowing in D-marks. They pay the D-mark rate. Now, the expected gain and loss--I fundamentally agree with Tony that over time inflation will have its way on exchange rates--in the short run, of course, is very unpredictable. So one can't be sure that the surrender of the profit and loss sharing will have the ""expected effect."" But that just means that one focuses on the gain in interest from switching to the D-mark rate instead of the dollar interest rate.",121
-fomc-corpus,1980,"It's really a very complicated question, isn't it? I was impressed by the memo, which did indicate clearly that we would have been ahead if we had run it the other way. But it depends on the presumption that the strong currency will have the lower interest rate. Now, that's not true in the case of sterling where the interest rate is higher than elsewhere and the currency is stronger. Do we know that it will always be true of the mark?",91
-fomc-corpus,1980,No.,2
-fomc-corpus,1980,"Well, there is a--",6
-fomc-corpus,1980,"Do we know that our interest rates will always be high? It just seems to me that the relationship is complicated. That's the only thing I'm saying. And I don't fully understand it, because I think it probably involves a question of meshing of monetary policy worldwide, or at least among the major countries. I don't think they'll agree to that.",69
-fomc-corpus,1980,Theoretically.,4
-fomc-corpus,1980,"At the very abstract level, there is reason to think that the difference in interest rates equals the expected exchange rate change, because why would anybody hold a currency if he can make 3 percent more in another currency unless he fears that he loses at least 3 percent going in?",56
-fomc-corpus,1980,Because the inflation rate must be another--,8
-fomc-corpus,1980,"That means inflation is part of the basic [calculation]. Inflation differentials tend to equal interest rate differentials and inflation differentials also tend to equal expected exchange rate movements. If you can swallow these abstractions, which are tremendous ifs, then you'd have a very neat pattern where the return on every currency is--",64
-fomc-corpus,1980,Equal.,2
-fomc-corpus,1980,Exactly.,2
-fomc-corpus,1980,"Well, I understand.",5
-fomc-corpus,1980,Theoretically.,4
-fomc-corpus,1980,"I don't think the issue ought to be decided on the question of whether we make more money one way or the other. It seems to me that the terms of the present system reflect a period when we were reluctant interveners in the market. Now that situation has changed, and, quite apart from the dollars, it no longer seems appropriate for us to proceed with this kind of system.",77
-fomc-corpus,1980,"Well, there are various considerations. Theoretically we ought to be a little better off. That theory is not going to be borne out in practice all the time. But there are these other considerations in that [the proposed terms] look more symmetrical--in fact are more symmetrical--and the foreign countries want us to do it that way. I take it in the case of sterling that they've always refused to do it the other way anyway. In that particular instance, we just haven't done any [swaps] with sterling. We don't anticipate any, but it could happen. And it could happen that sometimes we will do it when we get stuck on the interest rate. When this interest rate was originally negotiated in the early '60s I'm sure that the U.S. presumption was that U.S. interest rates would always be lower than the foreign rates. But that was a somewhat different world. It hasn't been borne out in recent years, anyway. But it could happen again.",198
-fomc-corpus,1980,"Yes, in the past we always assumed we would have a lower rate. We now seem to be assuming that the Germans will always have a lower rate.",31
-fomc-corpus,1980,"We can't forecast that. The experience shows that the theory has been more or less borne out recently. But I'm not going to stake my life on that in the future. There are going to be instances where it doesn't work out, I'm sure, as there were in the past. Mr. Mayo.",60
-fomc-corpus,1980,"I would favor going ahead with this, Mr. Chairman. I have just two points. The loss and gain business doesn't make it any harder for us to explain this to a busy Congress under the new system than under the old. As far as I'm concerned, we shouldn't worry about the losses and gains except on general principle. And I find Henry's equation and the equation in effect that's in the memo easier to understand than our own equation on domestic monetary policy. So, I would favor going ahead with this. I think it's the right course.",109
-fomc-corpus,1980,Is that the general view?,6
-fomc-corpus,1980,Yes.,2
-fomc-corpus,1980,"I just want to make sure because if we go ahead now we may run into some problems in the next month, more internally than externally, I suspect. But what we'll look toward is negotiating it that way. Would we [ordinarily] have approved these in November or December?",56
-fomc-corpus,1980,"In November, because the first renewals are in early December. So we have to act between now and November.",23
-fomc-corpus,1980,"What we are saying, without objection as I understand it, is that we would go ahead and negotiate to this end assuming that we don't run into some roadblock here or abroad, though more likely here. I don't think we will, but I can't be sure. Now we have this remaining question--I don't think we have to debate the whole problem at this stage--of how much in foreign currency balances we want to hold or should properly hold over time. I do think there's a case [for some accumulation of balances]. I say that because the Treasury is so far in debt that there is quite a bit of absorptive capacity in the United States government for the next month or two anyway. But there is a problem with the Treasury's management of its cash. Just how that is going to be worked out, I don't know. We are going to have some discussions with them, and I think it might be helpful to have some more flexibility in holding D-marks anyway. That is the area in which the Treasury is short and eventually they are going to want to cover this $2 billion at least. As I understand this, we're operating on a rather informal understanding now in this area. The present limit, which was informally agreed to quite a while ago, is not in an authorization; it is not in any written directive.",268
-fomc-corpus,1980,Is the problem that the Treasury wants us to warehouse the marks?,13
-fomc-corpus,1980,"Well, if it's warehousing, it doesn't come within this limit. If that's the way it is worked out, there is going to be no problem for the time being. They may just do more forwards and I suppose theoretically we could swap-out some of this spot stuff and buy it back forward for the Treasury. We can just hold some for a while until they're ready to take it. There are several options; I just don't know the answer to it. But I would propose that it doesn't hurt to have enough flexibility to go to, say, $1 billion during this period while we're working this out. The more general question can be discussed in the fullness of time, but I don't think we have to discuss it right now.",147
-fomc-corpus,1980,Don't we have in place warehousing agreements with the Treasury where they permit us to accumulate mark balances?,20
-fomc-corpus,1980,"Yes. Well, it's not that they permit us; we permit them and we'll take them back. That's one of the considerations we'll be looking at--whether they want to do it that way. There are several ways this might be worked out, all of which have pluses and minuses from the Treasury's standpoint. They have a debt-ceiling problem, too, among other things. And I don't think they can be seen warehousing currencies with us in indefinite amounts to avoid a debt-ceiling problem. There are a number of considerations that bear upon this. I would simply suggest--I don't think it's out of keeping with our long-term needs--that going up to $1 billion, which does not strike me as very excessive considering the amounts by which we have gone into debt on the other side, would give us some flexibility.",168
-fomc-corpus,1980,The current limits are what--$l billion of all currencies except the yen and $1 billion of yen? And then there is a $500 million limit on any currency within the overall $1 billion limit. Is that correct?,46
-fomc-corpus,1980,Other than yen.,4
-fomc-corpus,1980,Other than yen. And you're suggesting that we go up to $1 billion on the D-mark alone?,21